Tax News & Views Disputes Tax Notices and Cake Decoration Roundup

The Top 10 Taxpayer Disputes with the IRS - Roger Russell, Accounting Today:

5. Estimated tax payments

Self-employed individuals and taxpayers with significant sources of income may be required to make estimated tax payments throughout the year. Disputes may arise when taxpayers underpay or fail to make timely estimated tax payments, leading to penalties and interest charges. The IRS may assess penalties for underpayment of estimated taxes but may waive them in certain cases, such as due to unforeseen circumstances or financial hardship.

One of the most common causes of IRS notices is a mismatch between estimated tax payments that the IRS has on file and the amount claimed on the return. Occasionally the IRS has misapplied a payment, or it has been lost in the mail, but usually it is because the taxpayer has claimed the wrong amount. This delays refunds and can lead to estimated tax underpayment penalties. More than once I've heard "I made all the payments you said I should" at return prep time, only to find out via an IRS notice that it actually no, he did not.

Two ideas to avoid estimated tax payment mismatches:

- Make the payments online. Those payments don't get lost in the mail.

- Set up a personal IRS account. Once set up, you can make your payments through the account and check in to make sure they have been properly credited.

If the IRS were to make it easy for preparers to confirm client payment history, that would help a lot.

2025 FICA Max set at $176,100 - Bailey Finney, Eide Bailly. "The maximum amount of earnings subject to Social Security Tax is $176,100 for 2025. The maximum FICA tax imposed will be $10,918 ($176,100 x 6.2%), and there is no cap on the 1.45% Medicare tax."

Democrats Voice Concern on Use of ID.me in Direct File Expansion - Cady Stanton, Tax Notes.

Senate Finance Committee Chair Ron Wyden, D-Ore., Finance Committee member Elizabeth Warren, D-Mass., and Rep. Katie Porter, D-Calif., told IRS Commissioner Daniel Werfel and Treasury Secretary Janet Yellen in an October 8 letter that the agency should end its reliance on ID.me for identity verification in the expanded rollout of Direct File.

The lawmakers cite long-standing accessibility and privacy concerns with ID.me’s use of facial recognition software and argue that the strict identity verification requirements put Direct File at a “significant disadvantage” to commercial tax preparation services.

Election year tax politics

Trump Pledges to End ‘Double Taxation’ of Americans Abroad - Richard Rubin and Alex Leary, Wall Street Journal:

The U.S. has an unusual system for taxing its citizens on their total income regardless of where they earned it and where they live, making America alone among major countries with such a rule. Other countries use systems that base taxation on where people live. The U.S. policy dates back to the 1860s and the income tax created to finance the Civil War.

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What Trump means by double taxation remains uncertain, and campaign officials offered no additional details about exactly what policy change he would try to push through Congress.

Donald Trump pledges to end double taxation for expat Americans - Ilya Gridneff, Financial Times:

Garrett Watson, senior policy analyst at think-tank the Tax Foundation, said: “The US taxes citizens without regard to where they live worldwide, which is distinct from most other countries who use residency-based taxation.”

Watson said that while most Americans living overseas pay no US tax, filing returns can be a complicated process and for those who live in a jurisdiction that has no tax treaty with the US, it may mean paying tax twice.

Election Uncertainty Hampers Companies' Tax Planning - Asha Glover, Law360 Tax Authority ($):

A 28% corporate income rate is a major concern for tax leaders, said Rohit Kumar, co-leader of PwC's Washington national tax services practice. According to the PwC survey, U.S. corporate tax policy is the second-highest policy risk under a Harris administration, with economic policy being ranked as executives' top concern. If Trump is elected, U.S. corporate tax policy is the fifth-highest policy risk for executives, according to the survey.

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While many aren't saying it publicly, tax leaders privately say that if the rate were to increase to 28%, they would have to reduce labor costs and shift investment outside the U.S., Kumar said. Three-quarters of executives polled said their companies would significantly reduce their investments in the U.S. if a 28% corporate rate is implemented, according to the PwC survey.

Investors Wary of Congress Sweep That Unshackles Harris or Trump - Liz Capo McCormick and Saleha Mohsin, Bloomberg. "Of course, even if a President Trump or Harris enjoys majorities inboth houses of Congress, it doesn’t mean all their deficit-raising ideas will get through. Goldman Sachs economists reckon that GOP lawmakers will balk at Trump’s plan to cut the corporate tax rate to 15%, from the current 21%, while Democrats would likely only pass a watered-down version of Harris’s proposed $25,000 tax credit for first-time homebuyers."

All the stuff expiring next year, explained - Matthew Yglesias, Slow Boring. "Nevertheless, Republicans are determined not to let TCJA provisions expire, and Democrats are determined to keep their health care subsidies intact. Both sides have other tax and spending priorities they would like to pass, and it’s really not clear what’s going to happen. The answer will be driven in part by the post-election balance of power, but also by the negotiating decisions the parties make. Would a Kamala Harris administration prioritize her spending ideas, even if that meant giving the GOP more on tax cuts, or would she do the opposite? Would Trump really be as fiscally reckless as his campaign promises? It’s very hard to predict the future here because it requires stacking a big series of conditional probabilities against each other."

International Terminal

Eide Bailly's International Tax Team and our affiliates at HLB, the Global Advisory and Accounting Network stand ready to help with your worldwide tax planning and compliance needs.

Final IP Repatriation Regs Closely Follow Proposed Rules - Andrew Velarde, Tax Notes ($):

Final rules on the termination of income inclusions for repatriated intangible property track closely to proposed regs, declining significant expansion over administrability and scope concerns and refusing to make the rules retroactive.

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Generally, under section 367(d), a U.S. entity transferring IP to a foreign corporation under section 351 or 361 will recognize a deemed sale in exchange for deemed annual royalties over the property’s useful life. Before the regs, guidance had not adequately explained the treatment of repatriated IP, thus implying that it could still be subject to section 367(d).

Starmer Forced Into Messy Reset Less Than 100 Days In - Alex Wickham and Ailbhe Rea, Bloomberg:

Keir Starmer replaced his top aide and the Treasury acknowledged that key tax-raising plans were under review, as the Labour government tried to correct course from what even allies say has been a rocky three months in power.

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Warnings that the tax on carried interest could be raised to 45% from the current level of 28% spooked many top financiers across the City. The private equity firm General Atlantic has warned the government that dozens of dealmakers in London could leave if plans for higher taxes on carried interest go ahead. The hedge fund billionaire Alan Howard is considering a move to Geneva from London. Jeremy Coller, a pioneer of Britain’s private equity sector, has already left for Switzerland.

Rachel Reeves rules out ‘exit tax’ for wealthy people leaving UK - George Parker, Sam Fleming, Emma Agyemang and Michael O’Dwyer, Financial Times. "Rachel Reeves has ruled out imposing an exit tax on wealthy people leaving the UK to dodge higher taxes in this month’s Budget, as business braces itself for a rise in the levy on capital gains."

India Aims to Simplify 60-Year-Old Income Tax Law With Review - Shefali Anand, Bloomberg:

India’s income tax department will review its more than 60-year-old income tax law with an aim to simplify it for taxpayers.

The department formed a special committee to oversee the review of the Income-tax Act of 1961 to make it “concise, clear, and easy to understand, which will reduce disputes, litigation, and provide greater tax certainty to taxpayers,” according to a press release by the ministry of finance Monday.

Brazil Establishes 15% Global Min. Tax On Large Cos. - Jack McLoone, Law360 Tax Authority ($). "Brazil's version of the tax, which it calls the social contribution on net income, or CSLL, will go into effect at the start of 2025, according to an executive order published Thursday in the country's official gazette. The CSLL mirrors the OECD's qualified domestic minimum top-up tax, which establishes the 15% minimum rate as part of the organization's Pillar Two standards to fight against tax base erosion and profit shifting."

Portugal seeks to become low-tax haven for young people - Barney Jopson and Sérgio Anibal, Financial Times. "Under the proposal, young people would pay no income tax in their first year of work. They would be exempted from 75 per cent of tax due in years two to four, exempted from 50 per cent of tax due in years five to seven, and exempted from 25 per cent in years eight to 10."

What Does Moving Toward a More Competitive EU Tax System Mean? - Sean Bray, Tax Policy Blog. "In the European public debate, a competitive tax system is too often mistaken to simply mean a low corporate tax rate. While the corporate rate certainly alters investment decisions, having a structurally competitive system goes far beyond that."

Blogs and Bits

Oct. 15 also is the contribution deadline for some self-employment retirement plans - Kay Bell, Don't Mess With Taxes. "You can establish a SEP with a simple one-page form, Form 5305-SEP, Simplified Employee Pension - Individual Retirement Accounts Contribution Agreement. Or, if you prefer, you can open a SEP through a mutual fund, bank, or other financial institution."

Need an FBAR Escape Hatch? - Virginia LaTorre Jeker, US Tax Talk. "It has been the position of the Internal Revenue Service (IRS) that the FBAR, must still be filed to report any foreign accounts, even though a green card holder has made a treaty tie-breaker claim. In Aroeste v. United States, here, the U.S. District Court, So. Dist. California (Nov. 20 2023) put that position to rest. It concluded that under the 'treaty tie-breaker' rules of the US tax treaty with Mexico the taxpayer, who held a green card for almost 30 years but had spent all of his life in Mexico, was a resident of Mexico and had no duty to file FBAR."

U.S. Expat Taxes for Americans Living in Germany - Olivier Wagner, 1040Abroad. "As a U.S. expat in Germany, you’re likely subject to German income tax, which follows a progressive rate system ranging from 0% to 45%. Additional charges, such as social security contributions, a solidarity surcharge, and, in some cases, church tax, also affect your total tax obligation."

Tax Crime and Coffee

Bikini barista coffee stand owner, who underreported income to commit tax fraud, sentenced to prison, fine, and community service - IRS (Defendant names omitted, emphasis added):

The owner of a string of bikini barista coffee stands was sentenced today in U.S. District Court in Seattle to 30 days in prison, a $5,000 fine, and 100 hours of community service for tax fraud, announced U.S. Attorney Tessa M. Gorman. Defendant, of Auburn, Washington, pleaded guilty to making and subscribing a false tax return. In his plea agreement Defendant, admitted he underreported a substantial amount of income over a period of several years. At today’s sentencing hearing U.S. District Judge Tana Lin said, “Tax fraud is an enormous problem…. It is a serious crime…. There is no excuse for hiding half a million dollars in a life of privilege, except greed.” Judge Lin rejected the defense request for a sentence of home confinement saying it would only be an inconvenience, and not reflective of the seriousness of the offense.

The sentencing today is the first in a series of cases involving one family whose various members own strings of coffee stands. Defendant’s brother-in-law... also of Auburn, admitted in August 2024, that between 2016 and 2020 he failed to report as much as $6 million in income on his tax returns. Brother-in-law faces up to three years in prison when sentenced by Judge Lin on Nov. 18, 2024.

No indication whether the IRS use of "string" to describe a chain of bikini barista coffee stands was a deliberate editorial choice.

What day is it?

It's National Cake Decorating Day! If that's too much excitement, it's also World Porridge Day.

Tax News & Views Disputes Tax Notices and Cake Decoration Roundup

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