Tax News & Views Badly Drawn Dino and Tax Bill Roundup

Man Who Leaked Trump’s and Bezos’ Tax Returns Sentenced to Five Years in Prison - C. Ryan Barber and Aruna Viswanatha, Wall Street Journal:

A former IRS contractor was sentenced Monday to five years in prison for leaking the tax returns of then-President Donald Trump and thousands of wealthy Americans, receiving the maximum penalty he faced for a breach that drew outcry from lawmakers while shedding light on some strategies the ultrarich use to lessen their tax burdens.

Charles Littlejohn admitted last year to stealing confidential data from tax returns and providing them to two news organizations, the New York Times and ProPublica, while working as an Internal Revenue Service contractor.

Judge Hands Down Max Sentence in IRS Leaker Case - Jonathan Curry, Tax Notes ($):

The Justice Department had been criticized for charging Littlejohn only with a single count of unauthorized disclosure of income tax returns in his plea agreement, which carries a statutory five-year maximum sentence. Sentencing guidelines in the case suggested a far more lenient sentence of less than a year, but the Justice Department later argued in a court filing that Littlejohn’s actions were unprecedented and that an upward variance to the maximum sentence was therefore warranted.

In this case, the normal sentencing guidelines were woefully insufficient, Reyes agreed. “What you did in targeting the sitting president of the United States was an attack on democracy,” she told Littlejohn.

IRS Leaker of Trump, Griffin Tax Data Gets 5 Years in Prison - Sabrina Wilmer and David Voreacos, Bloomberg. "Court records show Littlejohn took elaborate steps to steal 15 years of Trump’s tax records and cover his tracks before he met with New York Times reporters. He first gave the tax data to the Times in August 2019, helping reporters analyze the data and then stole additional tax records, records show."

Investigators Sought Jeff Bezos’ Tax-Return Leaker; They Stumbled Upon Donald Trump’s - Aruna Viswanatha, Ryan Barber, and Richard Rubin, Wall Street Journal. "It was a later series of stories by ProPublica that provided an unexpected opening. Beginning in June 2021, the website examined how American billionaires including Jeff Bezos, Elon Musk and Warren Buffett paid little in income tax in relation to their immense wealth."

Tax bill heading to House floor?

Johnson says he intends to put a bipartisan tax package on the House floor - Benjamin Guggenheim, Politico:

House Speaker Mike Johnson said he intends to put a bipartisan tax package on the floor for a vote that would need a two-thirds majority to pass — moving business breaks and an expansion of the Child Tax Credit one significant step toward passage in the House.

“There’s a few subsets of members you have concerns for various reasons, but we’re gonna probably run it on suspension,” said Johnson of the impending vote at a Congressional Institute event Monday evening. “And I think you’re gonna get a very high vote tally, probably on both sides of the aisle. There’s a lot of great policy in there.”

Key items in the bill include:

-Retroactive restoration of full deduction for domestic research expenses to 2022

- Restoration of 100% bonus depreciation

- Return to pre-2022 limits on business interest deductions.

- Enhancements to the child tax credits.

These provisions would all expire in 2026 under the bill. 

SALT revolt bubbles up as Johnson commits to tax vote - Laura Weiss, Brendan Pedersen, and Jake Sherman, Punchbowl News:

SALT revolt: Some blue-state Republicans have been pushing to increase state and local tax deductions in the bill. This is a key priority for their districts but one that could also unravel other support for the package. Now, Long Island lawmakers are escalating that fight.

Rep. Nick LaLota (R-N.Y.) said he won’t vote for the bill unless it has at least some relief from the $10,000 SALT cap. LaLota said he and other New Yorkers could take action against unrelated rules votes to make the point that leadership needs to listen to them on SALT.

House Leaders Gauge Tax Deal Support as Speaker Weighs Vote - Doug Sword and Cady Stanton, Tax Notes ($):

House Republicans were “soft whipping” the vote January 29 to gauge support for it among the caucus’s 219 members, according to sources familiar with the effort. In a soft whip, members are asked how they’d vote on the bill but aren’t pressed to vote for or against it.

House Rules Committee ranking member James P. McGovern, D-Mass., confirmed that House Democrats were also seeking a whip count on how many of their 213 members would support the package.

I'm no D.C. insider, but it seems unlikely that the Speaker would send a bill to the floor if he wasn't pretty sure it would pass.

Our Jay Heflin, who is a D.C. guy, has done some rough numbers. He emphasized that these numbers are fluid and change is likely:

Here are the House groups that have vowed to oppose the tax bill:

progressive caucus (60 members)

freedom caucus (45 members)

salt caucus (33 members)

Members might overlap, but assuming they don’t, if they all oppose the bill the vote is 295 “yays.” Two-thirds support in the House is 289 (I’m assuming 433 total members). The bill passes the House. Lot’s of K Street folks think it will be very hard for members to vote “no” on this bill because it improves the CTC and R&D compared to what they currently are. 

IRS Commissioner says don't wait to file. Why you might want to anyway.

Werfel: ‘Don’t Wait on Congress’ to File Tax Returns - Jonathan Curry, Tax Notes. "The filing season officially began January 29, but tax professionals have been closely watching negotiations over a budget deal in Congress that includes several retroactive provisions affecting the 2023 tax year and earlier. Those include an expanded child tax credit, plus fixes to expired tax breaks involving bonus depreciation, section 174 research expensing, and net interest expensing, among other things."

Werfel Says IRS Will Be Ready To Implement Tax Break Bill - David van den Berg, Law360 Tax Authority ($): "If the bill is enacted, the IRS will take care of any changes needed for taxpayer returns filed after the tax season opens Monday and before the bill's enactment, including sending any additional refunds that may result, without taxpayers having to act, Werfel said."

I have grave doubts that the IRS will properly compute research expense, bonus depreciation, and Sec. 163(j) interest on its own. The changes in the bill would generally result in lower taxes for business. As chances for passage seem to be improving, it's hard to justify filing in a hurry with a balance due in hopes IRS will recompute taxes and issue timely refunds if passage occurs.

Filing season begins, information returns due tomorrow.

Filing season has begun, employer wage statement deadline nears - IRS:

Employers must file copies of their 2023 Form W-2, Wage and Tax Statements, and Form W-3, Transmittal of Wage and Tax Statements, with the SSA by Jan. 31, whether filing electronically or by paper forms.

Employers must also provide copies B, C and 2 of Form W-2 to their employees by Jan. 31. For more information on filing Form W-2, see General Instructions for Forms W-2 and W-3.

The Jan. 31 deadline also applies to Forms 1099-NEC filed with the IRS to report non-employee compensation to independent contractors. Employers and payers can review the Instructions for Forms 1099-MISC and 1099-NECPDF for details and other due dates.

IRS Says It Successfully Opened Tax Season As Processing Returns Begins - Kelly Phillips Erb, Forbes ($):

The IRS says that taxpayers will also see important new updates to the “Where's My Refund?” tool on IRS.gov. The aptly named tool will provide your refund status 24 hours after you e-file a current-year return, three or four days after you e-file a prior-year return, or four weeks after you file a paper return.

...

This year, the IRS says taxpayers will be able to see more detailed refund status messages in plain language. In previous years, taxpayers were often provided a generic message stating that their returns were still being processed and to check back later. Now, the agency says taxpayers will see clearer and more detailed updates, including whether the IRS needs them to respond to a letter requesting additional information. 

In the blogs

Don't overlook the EITC, a valuable refundable tax credit that often goes unclaimed - Kay Bell, Don't Mess With Taxes. "In many cases, individuals don't realize that changes in their life may make them EITC eligible for the very first time. This could be due to a loss of income, a change in marital status, or the addition of a dependent child for whom they now are responsible."

Prepare Now For New Beneficial Ownership Reporting Requirements - Ronald Marini, The Tax Times. "Starting January 1, 2024, many business entities will be required to report information to the U.S.
government about who ultimately owns or controls them, including the business’ owners and officers. This new beneficial ownership information (BOI) reporting requirement is part of the Corporate Transparency Act (CTA), which aims to help law enforcement combat financial crime and protect the U.S. financial system from bad actors."

Transitional Guidance: Digital Assets Should Be Excluded in Determining if Form 8300 Must Be Filed - Parker Tax Pro Library. "The IRS issued an announcement informing businesses that for now, digital assets are not required to be included when determining whether a taxpayer engaged in a trade or business receives cash in excess of $10,000 in one transaction (or two or more related transactions) and therefore must report the payment on Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business."

Tax Court Again Declines to Reconsider Its Holding that the Preparer's Fraud without the Taxpayer's Fraud Invokes Unlimited Statute of Limitations - Jack Townsend, Federal Tax Crimes. " Long-time readers of this blog and the parallel blog Federal Tax Procedure may recall that I have had several postings on the issue of whether § 6501(c) unlimited statute of limitations for fraudulent returns requires (i) the taxpayer's fraud or (ii) may be a third party's fraud that is incorporated in the taxpayer's return without the taxpayer's fraud. The classic case is a preparer's fraud, but could also include fraud on an information return (such as a K-1 for partnership flow-through reporting)."

Trump Can Write Off $83.3 Million Verdict, Carroll Pays Tax On 100% - Robert Wood, Forbes. "After all, even though the defamation accusations are arguably of a personal nature, Carroll alleged that Trump used his office to defame her, so there may be a business hook for the debacle sufficient for Trump to argue it is a business expense." 

"May" does a lot of work here. A business expense also has to be "ordinary and necessary," which might not be a big enough box to hold defamation.

Tax Policy Bloggers

The New Child Tax Credit Proposal Versus Old Concerns About Work Incentives - Nikhita Airi and John Buhl, TaxVox. "The Wyden-Smith plan would also allow taxpayers, starting in 2024, the option of using the prior year’s income to determine their benefits when filing taxes. The AEI study says the lookback could cause as many as 700,000 people to leave the workforce every other year (the study projects a net loss of 150,000 workers on average each year, on balance). While in principle this is possible, it’s highly unlikely."

EITC Awareness Day and Week Hopefully Also Can Focus on Needed Improvements - Annette Nellen, 21st Century Taxation. "A good portion of the EITC represents a refund of employments taxes withheld or paid by the employer for the employees wages. This illustrates a fundamental problem with the credit in that it is making taxpayers pay taxes they don't owe and then having to file to get the refund and perhaps, depending on earned income and family size, getting an additional amount via the EITC."

Tariff of Abominations Redux: Trump Proposes 60% Tariff on Chinese Goods - Erica York, Tax Policy Blog. "The Trump campaign is mulling a massive tax increase on American purchases from China. During his first term, the Trump trade war quadrupled the tariff on imports of Chinese goods from 3 percent to 12 percent on average. If reelected, he might quintuple the tax, imposing tariffs of 60 percent on imports from China. The economic ramifications would be significant and unwelcome, upending businesses’ relationships with suppliers, diverting trade flows to get around the tariffs, imposing immense costs on people in both economies, and likely closing crucial export markets for key American products, including agriculture."

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