Tax News & Views Fudges How To Pay For the Tax Bills Roundup

How Trump’s Tax Cuts and Tariffs Could Turn Into Law - Andrew Duehren and Catie Edmondson, New York Times:

Republicans are still figuring out how they could split their ambitions into distinct packages of legislation. One option under discussion is to focus an initial bill on extending the expiring tax cuts. Without an extension, popular provisions like lower marginal income rates and a larger standard deduction would end next year, amounting to a tax increase on Mr. Trump’s watch.

Once those provisions are extended, lawmakers could turn to Mr. Trump’s campaign tax promises, like a lower corporate tax rate for American manufacturers as well as broader topics like immigration and spending cuts, and fold those into a second piece of legislation later in the year. One of Mr. Trump’s pledges, no taxes on Social Security, would most likely run afoul of reconciliation’s rules.

Why Some Tax Cuts Can Be Better Than Others - Richard Rubin, Wall Street Journal:

Some of the most high-profile and politically popular proposals, such as continuing the higher standard deduction, removing taxes on tips or keeping the individual tax bracket structure, wouldn’t necessarily boost economic growth. Instead, the tax cuts with the biggest potential payoff, according to economists across the political spectrum, are the ones that create incentives for businesses to make new investments that require additional workers and higher wages.

The 2017 tax law included immediate tax write-offs for certain capital investments and equipment purchases, rather than requiring companies to spread those deductions across many years. That accelerated-depreciation provision, known as expensing, is gradually phasing out under the 2017 law, and lawmakers are aiming to bring it back in full—which economists say could be a good trade off for any lost revenue.

“Things like accelerated depreciation tend to have pretty high bang for buck,” said Eric Zwick, an economics and finance professor at the University of Chicago’s Booth School of Business.

Republicans leery of trying to pay for tax cuts with Trump’s tariffs - Burgess Everett and Kadia Goba, Semafor:

Trump’s broad tariffs could bring in trillions of dollars to help extend the tax cuts and potentially pay for some of the many new tax promises he made during the campaign. But such sweeping tariffs also would raise consumer prices while possibly failing to raise the revenue Republicans would need in order to vote for new levies on foreign goods.

Which explains why senior members of the party are treading very carefully around the idea of paying for tax cuts with tariffs.

Sen. Mike Crapo, R-Idaho, the incoming Finance Committee chairman, said he’s “not working on” any such proposal right now. Incoming Senate GOP leader John Thune said it’s a “novel” idea to raise revenue for tax cuts but only one of many options: “The question is, what are the other implications of doing that?”

Questions About Tax Cuts, Tariffs, and Reconciliation After the Election - William McBride, Erica York, Garrett Watson, Tax Policy Blog. "Fiscal pressures are likely to weigh heavily on lawmakers as they craft a tax reform package. That increased pressure could result in well-designed tax reform that prioritizes economic growth, simplicity, and stability, or it could encourage budget gimmicks and economically harmful offsets. Lawmakers should avoid the latter."

IRS Funding Battles

House GOP Strategy to Freeze $20.2B in IRS Funding Is Paying Off - Doug Sword and Cady Stanton, Tax Notes ($):

House GOP appropriators waited anxiously for months to see if their Democratic counterparts would catch the fiscal trigger embedded in spending bills to freeze nearly all the remaining special IRS enforcement funding. They didn’t.

...

The CR signed into law by President Biden on September 26 maintains the funding levels for the IRS set in the fiscal 2024 appropriations minibus, but also retains the phrasing from a pair of clawbacks in the Further Consolidated Appropriations Act, 2024. The effect of those two policy riders isn’t to claw back another $20.2 billion in IRS funding, but it freezes the money pending the negotiation of an omnibus.

Meanwhile, the IRA Survives

Treasury Finalizes Partnership Tax Credit 'Direct Pay' Regs - Kat Lucero, Law360 Tax Authority ($): "The regulations will allow certain arrangements to opt out of their partnership tax status under Internal Revenue Code Section 761 to unlock the benefits of what is known as direct pay, a new method for nonprofits, tribal governments, public utilities, schools and other tax-exempt groups to efficiently monetize green energy tax credits."

IRS Gives Partnerships an Opt-Out for Energy Credit Direct Pay - Mary Katherine Browne, Tax Notes ($). "Unincorporated organizations that co-own energy projects have received a new set of guidance on how to claim and use elective payments in lieu of tax credits."

Treasury, IRS finalize more partnership clean energy regulations and propose related administrative requirements - IRS. "Elective-pay eligible entities include state and local governments, tribal entities, public school districts, rural electric co-ops and tax-exempt organizations, such as churches, hospitals, higher education institutions and non-profits."

The Clock Is Ticking for Cheap EV Leases After Trump’s Win - Todd Woody, Bloomberg. "President-elect Donald Trump’s transition team intends to revoke the tax credit for purchasing an EV, Reuters reported last week. Whether and when that could happen remains uncertain. A companion EV-leasing credit in the 2022 Inflation Reduction Act would have to be dealt with separately but is widely seen as vulnerable. So people hoping to acquire an electric car might want to act soon."

Not Raising Arizona

IRS Sinks Arizona's Challenge To Federal Tax On Rebates - Paul Williams, Law360 Tax Authoirity ($). "A federal judge dismissed Arizona's challenge to the Internal Revenue Service's position that rebates the state paid to taxpayers with dependents in 2023 were subject to federal tax, saying the state lacked standing to bring the case."
1099-Ks Incoming

PayPal, eBay Gear Up for 1099-K Headaches While Chasing a Fix - Erin Slowey, Bloomberg ($):

E-commerce giants like eBay Inc. and Venmo are preparing to send a flood of additional forms to taxpayers while still holding out hope that lawmakers and the IRS will act fast to help avoid the inevitable resulting confusion.

Millions more people selling online will receive a tax form for their business transactions beginning in January, the first step toward implementing a 2021 law that drastically lowered the threshold for these companies to report to the IRS information about users receiving over $600 in revenue a year. The previous threshold was $20,000 and 200 transactions.

While the new threshold doesn’t change what anyone owes, it does change what companies report and which tax forms a casual seller receives. The e-commerce industry has warned that more taxpayers may over-report and be at greater risk for audits.

Audit risk can be reduced by reporting all of your income.

The Great Debate: S Corporation vs. C Corporation

Taxing S Corporations as C Corporations - Lucas Goodman, Quinton White, and Andrew Whitten, Treasury Office of Tax Analysis (emphasis added):

We calculate tax rates for S corporations and compare to hypothetical scenarios where they are taxed as C corporations. Using tax records from 2018 to 2021 to analyze S corporations with positive net income, we find that these firms would face a higher tax rate on average as C corporations, although a small share would face a lower tax rate. This result holds across the income distribution of firms and at nearly all firm asset levels. We find that the tax advantage of being an S corporation would shrink, but remain positive, if the Section 199A deduction for qualifying business income were repealed. We examine the sensitivity of our results to assumptions on the share of profits distributed to owners and the degree to which retained earnings are eventually taxed at the shareholder level. Averaging across firms, we find that firms face lower tax rates as S corporations even if undistributed profits fully escape taxation in the C corporation counterfactual. Weighting by net income, we find that firms would pay lower tax as C corporations only if they distribute little of their profits and retained earnings are lightly taxed at the shareholder level.

There is a reason S corporations are popular. Remember, though, that most tax advantages of S corporations are also available for partnerships, which are much more forgiving vehicles. The big selling points for S corporations over partnerships are a perceived ability to reduce self-employment tax, the ability to pay owner-employees using W-2 wages, and simplicity in filing returns. Partnerships have big advantages when it comes time to sell or to buy out owners.

Blogs and Bits

TIGTA celebrating 25 years of keeping an eye on the IRS - Kay Bell, Don't Mess With Taxes. "The Internal Revenue Service is a perpetual target. Some want to eliminate it. Others want to add to its operations. Both of these groups often rely on data provided by the Treasury Inspector General for Tax Administration, or TIGTA, in making their divergent arguments."

Ninth Circuit Affirms Tax Court; Advances to a Corporation Were Equity, Not Debt - Parker Tax Pro Library. "The Ninth Circuit affirmed the Tax Court and held that taxpayers were not entitled to take a bad debt deduction under Code Sec. 166(a) for advances they made to their floundering corporation because a unanimous consent agreement converted all of the company's debt to equity and removed all notes payable to the taxpayers from its balance sheet."

Charitable contributions - Jeremy Wells, Empowering Tax Professionals. "A taxpayer may not deduct the value of her time or services. This includes lost wages and blood donations."

IRS Denied Your ERC Claim — Now What? - Dean Zerbe, Forbes. "Taxpayers receiving a Form 6577-C need to move promptly to file a protest to the IRS – the letters are giving 21 days (!) to respond."

Court Blocks Rule Extending Overtime Requirement to More Salaried Positions - Angie Ziegler, Eide Bailly. "A Federal Court has blocked a Department of Labor rule increasing the overtime salary threshold for salary-exempt workers. The rule was scheduled to raise the salary threshold to $1,128 per week ($58,656 annually) on January 1, 2025. The now-blocked rule raised the salary threshold to $844 per week ($43,888 annually) earlier this year."

Survival and Redemption

'Survivor' Winner Loses Fight Over $3.3 Million IRS Tax Bill - Tristan Navera, Bloomberg ($):

The first winner of ‘Survivor’ hasn’t proven malfeasance from the IRS that would stop the agency from seizing a home to enforce a tax lien.

Judge Lincoln Almond said the government should be granted final judgment against Richard Hatch Jr. in a years-running dispute over the taxes the first “Survivor” winner should pay for his winnings from 2000. This year, the IRS placed a tax lien on the Newport, R.I.-house that Hatch’s sister Kristin “holds bare legal title.” Almond said the house had been “fraudulently transferred” by Hatch in order to avoid collection efforts from his creditors, so the judge also granted the US claim to enforce the lien.

It's amazing that the guy won $1 million in front of a national TV audience 23+ years ago and the IRS still hasn't collected the taxes.

Redemptionist Song — Not a Song of Freedom - Stephen Olsen, Procedurally Taxing via Tax Notes.

Apparently, the theory claims that the U.S. government is illegitimate. The reasons can differ, and one explanation sometimes advanced is because the government went bankrupt after leaving the gold standard in 1933. Since the United States is bankrupt, it must use its citizens as collateral against its foreign debt. The government allegedly sells the citizens at birth to foreign countries, and birth certificates and Social Security numbers are evidence of the sales.

There is apparently a secret bank account then created for every citizen, which I guess gets credited money from the payment by other countries for whatever right they get over us. This theory is somewhat related to the “strawman theory.” That theory states that each person is two personas, one that is the physical flesh and blood and the other that is the “legal personality.” Through special tricks, you can get rid of your legal persona and redeem your interest in your account.

That's... quite a theory.

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Tax News & Views Fudges How To Pay For the Tax Bills Roundup

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Joe B. Kristan, CPA