Tax News & Views Smokes Out Tax Noncompliance Roundup

IRS Council Calls for Public Education About Tax Noncompliance - Benjamin Valdez, Tax Notes ($):

The IRS’s advisory council recommended the agency improve transparency surrounding its measurements of the tax gap as well as its level of phone service, which has been criticized as a limited metric.

A better public understanding of how the tax gap works and how IRS enforcement dollars are spent would help the agency gain support for its tranche of funding under the Inflation Reduction Act, members of the Internal Revenue Service Advisory Council (IRSAC) said during a November 20 public meeting detailing the panel’s annual report.

IRS Urged to Ratchet Up Oversight of Preparer ID Numbers - Erin Slowey, Bloomberg ($):

The IRS Advisory Council wants the agency to revamp how it tracks tax preparer identification numbers and tackle fraudulent preparers, the group said in its annual report Wednesday.

Thousands of people have fabricated or used expired PTINs, numbers that all paid tax return preparers are required to put on every return they prepare. The IRS is trying to quash this abuse after years of not double-checking, promising in August that it will start verifying PTINs.

It's fair to ask the IRS to figure out how to sort out expired preparer numbers before giving it more power over preparers.

Link: IRSAC report

Tax Talk on Capitol Hill

5 obstacles Republicans will face on the road to tax cuts - Tobias Burns, The Hill:

Congressional Republicans have had their eye on an extension of the Trump tax cuts since they were passed in 2017. From a Republican policy perspective, they were only made temporary in the first place so that they wouldn’t add more to the deficit than the $1.5 trillion that Republicans agreed to in that year.

But Trump made a host of additional tax cut promises on the campaign trail, including canceling taxes on tips and Social Security, ending double taxation for Americans living abroad and doing away with taxes on overtime pay.

These propositions would add to the cost of the package and may not fly with all Republican lawmakers, even as voters are eager to see Trump make good on his promises.

Tariffs, 100-Day Timeline Pose Heavy Lift for Tax Cut Extension - Zach Cohen, Bloomberg ($):

President-elect Donald Trump has promised to levy tariffs on foreign goods in hopes of rebalancing the trade deficit, and he has suggested they could offset some of the cost of extending individual provisions of the 2017 tax code overhaul during his first administration. Budget watchdogs estimate the 10-year cost of extending all the expiring provisions ticks in around $4.6 trillion.

But Republicans traditionally eager to eliminate obstacles to free trade are skeptical if not outright opposed to the notion as they weigh possible offsets for the multi-trillion-dollar package. A wide swath of tax cuts from that law expire at the end of next year, prompting Congress to act.

...

Paying for the package by simply repealing laws enacted during the Biden administration also would run into opposition.

New York’s Lawler Says SALT Cap Must Go to Pass GOP Tax Bill - María Paula Mijares Torres, Bloomberg ($):

“I’ve been very clear, I will not support a tax bill that does not lift the cap on SALT,” Representative Mike Lawler said on Bloomberg Television’s “Balance of Power” Wednesday evening.

...

The Republican 2017 tax package imposed a $10,000 cap on the state-and-local taxes individuals and families could deduct from their federal taxes. Some saw it as a penalty for higher tax states that tend to lean Democratic, but Republicans from those states have been complaining ever since.

Nonprofit Hospitals

Warren, Grassley Re-up Call for IRS Nonprofit Hospital Oversight - Erin Schilling, Bloomberg ($):

The pair sent a letter Tuesday asking the IRS to increase oversight of tax-exempt hospitals, clarify requirements for hospitals to have financial assistance programs for patients, prohibit tax-exempt hospitals from using aggressive collection practices, and reinstitute guidance requiring the hospitals to provide “charity care to the extent of their financial ability.”

Nonprofit hospitals are required to show they provide “community benefit” to retain their tax-exempt status. Community benefit includes charity care. But critics have long said the community benefit standard is too loose and charity care should be prioritized.

International Terminal

Integrated Tax Rates on Corporate Income in Europe, 2024 - Alex Mengden, Tax Foundation. "In most European OECD countries, corporate income is taxed twice—once at the entity level and once at the shareholder level. Before shareholders pay taxes, the business first faces corporate income tax on its profits. Thus, when shareholders pay their layer of tax, they are doing so on dividends or capital gains distributed from after-tax profits. The integrated tax rate on corporate income reflects both the corporate income tax and the dividends or capital gains tax—the total tax levied on corporate income."

The comparable US rate is 46.99%

Donald Trump victory threatens to throw G20 initiatives into disarray - Henry Foy and Michael Pooler, Financial Times:

Donald Trump’s election as US president is already threatening international initiatives on climate change and taxation, as diplomats from the world’s richest nations struggle to maintain a shaky consensus on the eve of a G20 summit in Brazil.

Argentina and its President Javier Milei, a close ally of Trump, threatened to block a joint communiqué set to be endorsed by G20 leaders at the Rio de Janeiro meeting that begins on Monday, because of objections related to taxation of the super-rich and gender equality, people briefed on the negotiations told the Financial Times.

Widening the Pillar Two Exemptions - Alex Parker, Things of Caesar. "So while the OECD winning over a reinvigorated Trump administration seems like a longshot, it’s even less likely that Pillar Two will be gone for good. That presumably leaves some room for jockeying and negotiation. But it will be happening in a climate of increased U.S. unilateralism and heightened economic tension. Trump’s not necessarily against making a deal–it’s even part of his brand–but it’s going to have to be on his terms."

Wealth Hubs Go on Charm Offensive to Lure UK Super-Rich - Benjamin Stupples, Bloomberg via MSN.

The Jumeirah hotel in London’s Knightsbridge has rooms at more than £6,000 ($7,600) a night, with marble bathrooms, private dining rooms and panoramic views. It showcases some of the best of what London has to offer the world’s super-rich, but another city was the focus for well-heeled investors at a recent invite-only event: Abu Dhabi.

That was just one recent example of a global wealth hub pitching to the UK’s rich foreign residents amid plans by Keir Starmer ’s Labour government to curb their preferential tax treatment. Known as non-doms, they range from multi-billionaires to London bankers — and are seen as up for grabs by a rising number of cities touting lower taxes and other incentives to tempt them out of Britain.

Inheritance tax change is just one of many worries for UK farmers - Madeleine Speed, Aditi Bhandari, and Janina Conboye, Financial Times:

Tens of thousands of British farmers are planning to gather in London on Tuesday to protest against changes made to inheritance tax reliefs in the recent Budget, which the sector says will deal a “hammer blow” to family farms.

The reforms to agricultural property relief (APR) and business property relief (BPR) mean farmers and agricultural landowners previously exempt from paying inheritance tax will, from April 2026, be subject to a 20 per cent levy on assets above £1mn.

Salute Your Solution - Leonard Wagenaar, Leonard's Tax Posts. "Tariffs traditionally apply only on goods. No tariffs on services can create incentives for planning. Putting tariffs on services doesn’t make that much sense. You can’t really do border check on imported services. Countries often use withholding taxes (WHT) in this case instead, which shifts us into the direct tax domain. In corporate tax (CIT), Trump wants to cut the CIT rate to 15% for US manufacturing businesses. No one is sure how that would work. Conceptually, a Destination Based Cash Flow Tax (DBCFT) achieves somewhat similar aims. DBCFT supporters see their preferred 'solution' back on the table."

Italy arrests dozens over €520mn ‘mafia tax fraud’ - Amy Kazmin, Financial Times:

Italian authorities and their European counterparts have arrested 43 people and seized assets worth €520mn including luxury cars and boats in a crackdown on an alleged tax fraud scheme run by Italian mafia groups.

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The alleged fraud involved the creation of fake companies — or “missing traders” or “ghost companies” — in Italy, other EU countries and other countries outside the EU, which would buy and sell goods between them, then vanish without fulfilling their tax obligations.

Australian gold miner to pay Mali $160mn over tax dispute - Nic Fildes, Financial Times.

Resolute Mining is to pay the Mali government $160mn to resolve a tax dispute that led to the detention of the mining company’s chief executive.

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Last year, Mali rewrote its mining code to extract higher revenue from companies. A number of businesses have signed up to the code but Resolute, alongside Canada’s Barrick Gold, had not renegotiated existing contracts under the new law. Holohan and the other executives had travelled to Bamako to meet tax authorities ahead of their “unexpected” detention, according to the company.

Tax dispute, hostage situation, whatever.

Blogs and Bits

Property taxes have increased in 48 of 50 largest U.S. cities - Kay Bell, Don't Mess With Taxes. "But in recent years, home values have increased by astonishing amounts in many areas across the United States. Some homes that once were considered middle-class abodes now are valued in the seven-figure range."

401(k) Contribution Limit Increases to $23,500 for 2025; IRA Limit Unchanged at $7,000 - Parker Tax Pro Library. "Many of the pension plan limitations will change for 2025 because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment."

Self-employed Ministers and Taxes: Income, Deductions, Exemptions - Tax School Blog. "Self-employed ministers may deduct all ordinary and necessary business expenses related to their ministerial services on Schedule C. This includes expenses incurred while working as other than a common-law employee."

Americans Living Abroad: Foreign Housing Tax Break, Explained - Virginia La Torre Jeker, US Tax Talk. "The foreign housing exclusion allows U.S. expats to exclude from income certain reasonable overseas housing expenses if they (i) are eligible (ii) exceed a base housing amount and (iii) do not exceed a specified ceiling amount."

RESP Tax Rules for U.S. Expats: What You Should Know - Olivier Wagner, 1040Abroad. "Registered Education Savings Plans (RESPs) are a popular savings vehicle for Canadian residents, offering tax-sheltered growth to fund post-secondary education. However, U.S. citizens and residents face a different reality when it comes to RESPs."

Tax Crime Watch, Sacramento Valley

Yuba County man sentenced to 2 years and 11 months in prison for submitting false claims against the United States in relation to a COVID-19 fraud scheme - IRS (Defendant name omitted, emphasis added):

Sacramento, CA — Defendant, of Wheatland, was sentenced today by U.S. District Judge Dale A. Drozd to two years and 11 months in prison for submitting false claims against the United States related to COVID-19 pandemic tax credits, U.S. Attorney Phillip A. Talbert announced. Defendant was also ordered to pay $2,078,462 in restitution to the Internal Revenue Service (IRS) and the Small Business Administration (SBA).

According to court documents, Defendant attempted to obtain more than $13.4 million in COVID‑19 pandemic relief funds by filing multiple false tax returns with the IRS seeking refunds for the Employee Retention Credit and the COVID Sick and Family Leave Credit. Defendant used shell companies that had no real employees and no actual business activity to seek more than $11 million in such tax refunds to which he was not entitled. In addition, between 2020 and 2023, Defendant used the shell companies to fraudulently obtain a total of more than $1.7 million in Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) funds. All these tax credits and programs were intended to alleviate the economic harm caused by the COVID-19 pandemic on real businesses with real employees and operating expenses.

Of the more than $13.4 million that he sought through false tax returns and fraudulent loan applications, Defendant successfully obtained more than $1.95 million. All the funds Defendant received went to his own personal enrichment.

Glass half-full me is grateful that he got less than 10% of the fraud he sought. Grumpy me isn't happy that the IRS mailed him $1.95 million of fraud proceeds, which it may never get back. Grumpier me assumes that there is a lot more of this that hasn't come to light.

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Tax News & Views Smokes Out Tax Noncompliance Roundup

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Joe B. Kristan, CPA