Tax News & Views Votes and Nachos Roundup

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Trump Victory Boosts GOP Push To Extend 2017 Tax Law - Stephen Cooper, Law360 Tax Authority ($):

Former President Donald Trump's projected reelection early Wednesday gave GOP lawmakers a strong boost in their efforts to renew major parts of the 2017 tax law that will expire next year, further dimming Democrats' hopes of promoting tax fairness by increasing rates on wealthy corporations and individuals.

With Trump headed back to the White House, the upcoming congressional negotiations over the GOP's Tax Cuts and Jobs Act will likely be driven by Trump's campaign promises to lower corporate tax rates, end taxes on tips and overtime and eliminate Social Security payroll taxes, tax experts told Law360. He campaigned on imposing a variety of tariffs on imports to pay for making the individual tax cuts in the TCJA permanent, but many economists have said the plan is unworkable.

Low Taxes, High Tariffs: What A Trump Victory Means For The US Economy - Daniel Avis, Barrons:

On the campaign trail, Trump said he would put in place across-the-board import tariffs of between 10 and 20 percent in a bid to raise revenues, protect domestic industries, and bring jobs back to the United States.

He has also threatened to impose a 60 percent tariff on Chinese goods, and even floated a 200 percent-plus levy on cars made in Mexico.

What a Trump Presidency Means for the 2025 Tax Fight, Explained - Kim Dixon, Bloomberg ($):

With GOP control, lawmakers will seek to preserve and extend as much of the 2017 law as possible, including tax cuts expiring next year that benefit the wealthy and businesses, such as the 199A deduction and the estate tax exemption.

GOP budget hawks would have to decide how many promises he made on the campaign trail will be turned into law. Trump handed out campaign vows like candy during the election, promising to exempt taxes on tips to restaurant workers and exempt car debt from tax to auto executives. He’s also suggested lowering the corporate rate even further to 15%. All of these promises would cost trillions of dollars, according to independent budget estimates.

One wild card is the cap on the deduction for state and local taxes.

Meanwhile in Congress

Mel Schwarz, Eide Bailly Tax Legislative Affairs Director, reads the tea leaves:

1. Reduced chances for tax legislation in the lame duck session. Republican anticipation of their coming majority will likely cause them to push any consideration of taxes into 2025 when they will be in control.

2. Extension of the TCJA tax cuts will be job #1 once the new Congress is sworn in. How quickly this moves will depend upon the results in the House. If the Republicans maintain a majority in the House, there will be a temptation to try and move extension within the first 100 days, However, as the rates do not expire until after 2025, Republicans could choose to use the extension legislation as an opportunity to consider other tax provisions, which could push the legislation later in the year.

3. If the Democrats eke out a win in the House, it does not mean that TCJA extension will be blocked. Although the tax bills are required to start in the House, they will ultimately have to send legislation to the Senate that will allow for a TCJA extension to be added.

Idaho Republican Becomes Major Player in 2025 Tax Cliff Talks - Chris Cioffi, Bloomberg ($):

With the GOP takeover of the Senate, Mike Crapo’s new role as incoming leader of the Senate Finance Committee thrusts the behind-the-scenes operator into the spotlight as tax policy takes center stage.

...

Crapo will now play a huge role in talks over how to extend the massive law known as the Tax Cuts and Jobs Act, and whether and how to fund its multi-trillion-dollar price tag.

Crapo, who’s been known to keep his negotiating positions close to the vest, made headlines for blocking the $78 billion business-and-child tax break bill that passed with a broad majority in the House early this year. The legislation, brokered by House Ways and Means Committee Chair Jason Smith (R-Mo.) and Senate Finance Chair Ron Wyden (D-Ore.), got bogged down in Senate politics.

US House Is Democrats’ Last Hope After Losing Senate - Daniel Flatley, Billy House, and Steven Dennis, Bloomberg via MSN. "Democratic House control would force Republicans to negotiate on trillions of dollars worth of provisions in the 2017 tax law that expire at the end of next year."

Trumpquake rocks Washington - Jake Sherman, John Bresnahan and Andrew Desiderio, Punchbowl News. "Congressional leaders have promised an incredibly productive first 100 days. That means that you should expect Republicans to try to extend the Trump-era tax cuts by April 30. This filibuster-proof reconciliation package could include big changes to energy policy and other areas as well."

State Tax Votes

Washington’s capital gains tax survives repeal effort - Grace Deng, Washington State Standard:

An initiative to repeal Washington’s capital gains tax, which levies a 7% tax on the sale or exchange of long-term assets like stocks, bonds and business interests, was defeated Tuesday.

Voters were opposing Initiative 2109 by 63.2% to 36.8%. Vote counting will continue in the days ahead.

Voters trouncing Oregon’s Measure 118 on creating new corporate tax and rebate for residents - Lynne Terry, Oregon Capital Chronicle:

Preliminary results show Oregon voters are trouncing Measure 118, which would increase corporate taxes and give all residents a yearly rebate.

According to the Secretary of State’s Office, 79% of voters oppose the measure while nearly 21% voted in favor.

One of two statewide citizen initiatives on the ballot, Measure 118 would add an extra 3% tax on most businesses on sales over $25 million a year.

South Dakota's 'grocery tax' will remain after voters decline to repeal it - Trevor Mitchell, Sioux Falls Argus Leader:

South Dakota voters turned down Initiated Measure 28 on Tuesday, marking another failure to repeal the state's grocery or consumable tax, although it's likely that much of the opposition to the measure came from concerns that by the time the legislature and the courts had ironed out the details of the measure, it would be more than just groceries that could no longer be taxed.

Multiple news outlets, including the Associated Press, called the race before ballots had been fully counted in South Dakota. As of 12:20 a.m. Wednesday, the South Dakota Secretary of State's website showed that 54,964 people had voted in favor of the measure, while 145,289 had voted against it,

North Dakota voters defeat ballot measure to largely axe property tax - Jack Dura, Associated Press. "North Dakota voters on Tuesday rejected a ballot measure to outlaw most local property taxes, which critics said would have led to dramatic cuts in state services."

Denver Ballot Issue 2R: Voters divided on sales tax for affordable housing - Brian Eason, Colorado Sun. "The race remained too close to call at 11 p.m., with 48% in support and 52% opposed."

Central Ohio voters approve COTA sales tax levy - Lydia Taylor, Spectrum News 1. "The passage of Issue 47 approves of a sales tax levy to support the Central Ohio Transit Authority. It will increase the sales tax in all service areas from .5% to 1%."

Illinois voters approve an advisory referendum calling for higher taxes on income over $1 million - Dave McKinney, Chicago Sun Times. "Its passage could fuel efforts in Springfield in 2026, the year of the state’s next gubernatorial election, to put a constitutional amendment on the ballot to authorize the new tax on Illinois millionaires."

Nev. Voters Approve Sales Tax Exemption For Diapers - Michael Nunes, Law360 Tax Authority ($). "Voters approved Question 5 by a vote of 646,003to303,116 with 70% of the votes counted. The measure will exempt diapers from the state's 6.85% sales tax beginning Jan. 1."

Link: Stateside's listing of 2024 State Ballot Measures, results still incomplete as this is written.

Tax Court reconsiders farm hobby loss disallowance

Tax Court Will Reconsider Profit Motive Reg Under Loper Bright - Nathan Richman, Tax Notes ($):

The Tax Court granted a motion for reconsideration of a May decision that applied rules on activities not engaged in for profit, to see if the regs remain valid under recent Supreme Court case law.

The earlier decision in Schwarz v. Commissioner relied on section 183 regulations, making the Court’s decision in Loper Bright an intervening change in law, Judge Joseph Robert Goeke concluded in a November 5 order.

...

Ben J. Peeler of Eide Bailly LLP, one of the Schwarzes’ lawyers, told Tax Notes that he’s excited for the opportunity to further argue the case. He said he has no preconceptions about how that will go.

Link: Original Tax Court opinion.

Blogs and Bits

Some tax penalties increase in 2025 due to inflation - Kay Bell, Don't Mess With Taxes:

The IRS imposes a failure-to-pay penalty of 0.5 percent for each month or part of a month that tax goes unpaid, up to a total of 25 percent of the remaining amount due.

The penalty for filing late is steeper. The IRS assesses it at 5 percent of any tax due that isn't paid as of its filing date, usually April 15. Remember, even if you get an extension to file your return as late as Oct. 15, you still must pay any tax due by the April deadline.

In Lawsuit Settlement Agreements, Tax Language Is Very Important - Robert Wood, Forbes. "A generic settlement agreement misses a wonderful opportunity to try to shape the tax result."

More than Just a Tax Cut: the Case of Child Tax Credit Reform - Adam Michel, Liberty Taxed. " Short of repealing the CTC, thoughtful consolidation—not expansion—should be a model for future reform."

2025 Tax Foundation’s State Tax Competitiveness: Some New Winners, But the Usual Losers - Russ Fox, Taxable Talk. "Again, taxes are not everything, but they matter."

Tax Crime Corner: mistakes were made.

Fresno woman who managed her husband’s orthodontics practice pleads guilty to tax charges and agrees to forfeit her mansion and BMW - IRS (Defendant name omitted, emphasis added):

Defendant, formerly of Fresno, pleaded guilty today to tax evasion and obstructing an IRS audit, U.S. Attorney Phillip A. Talbert announced. Defendant also agreed to forfeit her interest in more than $2.5 million of proceeds from the sale of her and her husband’s mansion and BMW that authorities previously seized.

According to court records, from 2012 through 2015, Defendant prepared false financial statements for her husband’s orthodontics practice that significantly underreported the practice’s profits. As a result, Defendant evaded more than $870,000 that she and her husband owed in federal taxes.

Then, in early 2016, Defendant obstructed an IRS audit of her and her husband’s taxes. She altered hundreds of checks that were for the couple’s nondeductible personal expenses, such as their mortgage, utilities, landscaping, pool cleaning, cars, credit cards, and children’s college tuition, to make it appear as though the checks were for deductible business expenses. She also created false financial statements for her husband’s orthodontics practice to match the altered checks. She provided the altered checks and false financial statements to the IRS auditors to try to avoid paying the federal taxes that she and her husband actually owed.

The use of business funds to pay personal expenses is something IRS examiners are trained to look for. Using altered documents to support false financial statements brings in criminal investigators, if they haven't already shown up. But it gets worse:

In June 2015, Defendant had sought a $1.5 million home mortgage refinance loan on the couple’s mansion located on Van Ness Boulevard in Fresno. To assure the bank of their creditworthiness and induce the bank to make the loan, Defendant submitted copies of her and her husband’s federal tax returns that showed significantly greater income than was reported on the actual returns they filed with the IRS. The bank declined the loan after discovering the discrepancies.

It's unwise to file different tax returns with the bank and the IRS - but especially if you don't even get the loan.

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Joe B. Kristan, CPA