Tax News & Views Debt Deal Comes Up Heads Roundup

House Sends Debt Limit Bill, IRS Cuts to Senate - Cady Stanton and Doug Sword, Tax Notes ($):

The House passed 314-117 a measure to extend the debt limit until January 2025 and rescind $1.4 billion in IRS funding, but that doesn’t include a GOP-proposed rollback of $570 billion in energy tax credits.

The bill next goes to the Senate for a possible quick vote as lawmakers hurry to extend the debt limit before the federal government defaults on its debts and obligations, which Treasury Secretary Janet Yellen has estimated would occur June 5.

Debt-Limit Deal Passes the House, Easing US Default Concerns - Erik Wasson and Billy House, Bloomberg ($). "The deal now heads to the Senate, where approval is virtually certain and the only question is timing. Senate Republican leader Mitch McConnell said earlier Wednesday that the measure could get a vote as soon as Thursday, days ahead of the June 5 default deadline."

House Sends Debt Bill With IRS Funding Cut To Senate - Asha Glover, Law360 Tax Authority ($). "The bill calls for a clawback of $1.4 billion of IRS spending planned for fiscal 2023. Biden and McCarthy also agreed to an additional $10 billion reduction in IRS funding in each of fiscal 2024 and 2025, according to a White House source and congressional Republicans."

Republicans get their IRS cuts, but Democrats say they expect little near-term impact - Fatima Hussein and Kevin Freking, AP via Washington Post:

Nebraska Governor Signs Income Tax Cuts, Property Tax Relief - Emily Hollingsworth, Tax Notes ($):

Under L.B. 754, the top individual income tax rate lowers from 6.84 percent to 5.01 percent for tax years 2024 and 2025; to 4.55 percent for tax year 2026; and to 3.99 percent for tax year 2027 and beyond. The bill also reduces the corporate income tax rate — from 7.25 percent to 5.84 percent — on all taxable income over $100,000 for tax year 2024 and lowers the rate each year to reach 3.99 percent by tax year 2027. The lowered rates for 2025 and 2026 and the final 3.99 percent rate would apply to all taxable corporate income, not just the amount exceeding $100,000.

The bill also allows qualifying taxpayers to deduct 100 percent of their Social Security income from AGI and to subtract retirement income earnings received from the Federal Employees Retirement System or the Civil Service Retirement System for income tax purposes beginning January 1, 2024.

Neb. To Cut Top Tax Rates, Increase Property Tax Credits - Zak Kostro, Law360 Tax Authority ($). "Along with the income tax cuts for people and businesses, L.B. 754 eliminates the state's tax on Social Security income starting next year, Pillen said. Additionally, the bill provides tax credits to families with children under 5 years old who are enrolled in a licensed child care or preschool program, which will make it easier for many Nebraska families that have struggled to afford increasing child care costs, the governor said."

L.B. 754 also includes a on optional pass-through entity tax, retroactive to 2018 tax years. Electing entities will have to pay estimated tax payments on their Nebraska-source income. Nonresident owners of Nebraska partnerships and S corporations with no other Nebraska-source income will not have to file Nebraska returns.

IRS Seeks to Enlighten With Further Energy Credit Guidance - Mary Katherine Browne, Tax Notes ($):

The section 48C program was enacted as part of the American Recovery and Reinvestment Act of 2009. It was expanded with a $10 billion investment under the Inflation Reduction Act (IRA, P.L. 117-169). The credit for any tax year is an amount equal to a specified percentage of the qualified investment for that tax year for any qualifying advanced energy project of the taxpayer. The credit generally is allowed in the tax year in which the eligible property is placed in service.

...

The IRS also released proposed regulations (REG-110412-23) on the low-income communities bonus energy investment credit program under section 48(e), providing proposed definitions and requirements that would be applicable for the program that will allocate the capacity limitation for calendar year 2023 and future program years.

Related: Energy Efficiency Incentives

Brazil Transfer Pricing Law Poses Tax Credit Issues for Companies - Isabel Gottlieb, Bloomberg:

The measure would help companies with a major concern: After the US narrowed the scope of its foreign tax credit rules in 2021, taxes paid in Brazil largely became uncreditable. The new arm’s length standard system, which falls more closely in line with the US approach, most likely would be creditable in 2024, practitioners said, but 2023 remains a question.

The US credits aren’t the only consideration for companies deciding whether to opt in early, based on which system would be more favorable for this year. They’re also looking to forthcoming guidance to address issues including the treatment of existing intercompany financing structures and the ownership of intellectual property.

Related: Eide Bailly International Business Services. 

Don't ignore tax identity theft letters from IRS - Kay Bell, Don't Mess With Taxes. "Here are four identity fraud letters you hope you won't ever get, but which the IRS says to pay attention to if one does arrive in your U.S. Postal Service box."

Tax Deadline Fast Approaching For Americans Living And Working Abroad - Kelly Phillips Erb, Forbes. "The June 15 filing deadline applies to taxpayers who have their tax home and abode (tax speak for residence) outside the U.S. or Puerto Rico, or those who are serving in the military outside the U.S. and Puerto Rico on the regular due date of their tax return—that's typically April 15 (it was April 18 this year). In that case, the June 15 deadline automatically applies, and you don't have to take any other steps on April 15 to qualify. However, when you file your return, you should attach a statement indicating which of the two situations applies."

WSOP and Taxes: 2023 Update - Russ Fox, Taxable Talk. "In the United States, casinos are considered financial institutions and must obey anti-money laundering (AML) laws and regulations. These are mostly promulgated by the Financial Crimes Enforcement Network (FinCEN) but some are issued by other federal agencies and regulatory bodies. The basic idea of all these laws is to be able to trace the money"

Americans Abroad Must File IRS Taxes, Disclose Accounts & Assets - Robert Wood, Forbes. "Report foreign accounts and assets. Federal law requires U.S. citizens and resident aliens to report any worldwide income, including income from foreign trusts and foreign bank and securities accounts. In most cases, taxpayers need to complete and attach Schedule B, Interest and Ordinary Dividends, to their Form 1040 series tax return. Part III of Schedule B asks about the existence of foreign accounts such as bank and securities accounts and usually requires U.S. citizens to report the country in which each account is located."

Debt Ceiling Deal Reduces Deficits in the Short Term but Delays a More Comprehensive Budget Reckoning - William McBride, Tax Policy Blog. "The challenge Is that lawmakers in both parties have been unwilling to address the roughly two-thirds of the federal budget that is mandatory spending, which is also the fastest growing part of the budget along with interest payments on the debt. Under current law, mandatory spending is set to grow from 14 percent of GDP next year to 15.6 percent in 2033, while discretionary spending will shrink from 6.8 percent to 6.0 percent over the same period. Interest payments will rise from 2.7 percent next year to 3.7 percent of GDP in 2033. This deal leaves mandatory spending on auto-pilot even though the major mandatory spending programs, Social Security and Medicare, are due for a shock when the trust funds that support those programs are depleted over the next decade."

The Debt Limit Battle Produced Plenty of Drama But Few Budget Cuts - Howard Gleckman, TaxVox:

First, the agreement effectively is unenforceable after fiscal 2025. Any spending caps would have to be accepted by future congresses. And if history is any guide, they won’t be.   

Second, many of the caps would be offset by a series of informal side deals, including some budget accounting gimmicks. Those agreements could mean non-entitlement domestic spending in 2024 would be only about 0.2 percent less than this year.

Domestic Benefits from Foreign Tax Havens - Adam Michel, Liberty Taxed. "This body of research indicates that access to tax havens is like a tax cut on investment that increases investment everywhere, even in non‐tax havens. Rather than a global scourge that just erodes the tax base of high‐tax countries, low‐tax countries help allocate global capital in the face of inefficient tax systems to the benefit of workers and investors around the world. Cutting off domestic business access to low‐tax countries is a lose‐lose; it hurts real foreign and domestic economic activity."

Former president and former financial advisor of law enforcement union convicted of defrauding union’s annuity fund - IRS (defendant names omitted, my emphasis.):

From at least in or about 2012 up to and including 2020, Union President and Financial Advisor participated in a scheme to steal, embezzle, and misappropriate money from the annuity fund and individual members' retirement accounts. Specifically, Union President and Financial Advisor made hundreds of thousands of dollars of fraudulent transfers from the annuity fund to LEEBA's operating account, which Union President controlled, and Union President regularly used the funds, once transferred from the annuity fund, to enrich himself at union members' expense, including through unauthorized and excessive checks to himself and cash withdrawals for his own benefit and to pay insurance benefits for which Financial Advisor received commissions. In addition, Union President caused the union to pay for various personal expenses such as the purchase of a Lexus automobile, travel expenses to Dallas to watch a Dallas Cowboys football game, and a sailing trip, all paid for by the union, and none of which were contemporaneously reported to the Internal Revenue Service ("IRS"), as required.

...

From at least in or about 2015 through 2019 Union President participated in a conspiracy with LEEBA's then-treasurer, Steven Union Treasurer, to cause LEEBA to make payments to Union President and Union Treasurer, by check and in cash, and to conceal those payments from the IRS. Union President further conspired to ensure that such payments were made outside of LEEBA's payroll processor. Union President then concealed these payments from the IRS — including off-the-books payments of more than $400,000 — in order to evade his own personal income taxes and to evade the payroll taxes that were owed by LEEBA and certain LEEBA employees.

Go Cowboys, I guess. 

Related: System and Organization Controls 

Fifth Circuit Upholds Exec’s Liability for Employer’s Unpaid Taxes - Caitlin Mullaney, Tax Notes ($). "A former hospital administrator is liable for trust fund recovery penalties related to the hospital’s unpaid employment taxes, the Fifth Circuit held."

This case shows how dangerous it is to fall behind on employment taxes. The administrator is on the hook for $174,000 in employment taxes. Anna Scott Farrell of Law360 Tax Authority ($) has more: 

While Cashaw argued that her failure to pay wasn't willful because she was prioritizing patient care and employee wages, in line with standards set out by the state of Texas, the court disagreed, saying willfulness doesn't require motive.

"Cashaw's testimony at trial establishes that she was aware Riverside was not paying its withholding taxes, and she made the choice to prioritize essential patient services," the panel wrote in a per curiam opinion. "By authorizing checks for the payment of vendors and employees' wages, Cashaw willfully failed to pay the trust fund taxes."

When you need to choose between the IRS and patients, the tax law sides with the IRS. From the Fifth Circuit opinion:

Cashaw also argues that her duty to her patients negates a finding of willfulness. At trial, Cashaw testified to the competing interests that left her “in a difficult position” as chief administrator. She put “the care of the patients” at the “forefront” because “[t]hat's what the hospital's there for, to treat and serve patients.” She spoke to the standards of care set by the state of Texas, as well as the financial constraints imposed by the Rule 11 Agreements. As discussed above, the willfulness inquiry does not turn on motive. Despite any other conflicting duties, “[o]nce [Cashaw] became aware of the tax liability, [she] had a duty to ensure that the taxes were paid before” authorizing payments to vendors or employees.

Link: Fifth Circuit opinion.

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