Key Takeaways
- Court allows foreign tax credit for net investment income tax via U.S. - Canada tax treaty.
- NIIT does not normally generate foreign tax credit; possible refund opportunity for those filing in both countries.
- Taiwan double-tax mitigation bill advancement floated in lame-duck Congress.
- Taxes in the second Trump administration.
- More on Corporate Transparency Compliance halt.
- A tax exemption for crypto?
- Attorney auto racing deductions fail on appeal.
- Dewey Decimal System Day meets National Lager Day.
US-Canada Treaty Lets Foreign Tax Credits Offset Investment Tax - John Woolley, Bloomberg ($):
Paul Bruyea, a resident of British Columbia, Canada during the 2015 tax year, paid nearly $2 million in taxes to Canada and claimed a nearly $1.4 million foreign tax credit to offset his regular US tax liability. He later filed an amended return to claim a $263,500 refund, saying he was entitled to further foreign tax credits offsetting his NIIT under Article XXIV of the Convention between Canada and the United States of America with Respect to Taxes on Income and on Capital.
Man Owed $264K Under US-Canada Tax Treaty, Court Says - Keven Pinner, Law360 Tax Authority ($):
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The NIIT has applied to 3.8% of personal income above a $125,000 threshold for married individuals filing separately such as Bruyea since 2013 under the Affordable Care Act. The revenue code "by its terms, certainly does not provide for the treaty-based tax credit Mr. Bruyea claims," but the NIIT should be considered to fall under the treaty's remit, making it creditable, according to the court.
Related: Eide Bailly Global Mobility Services
Taiwan Bill to Advance in Lame Duck Congress?
Democrats Push to Fast-Track Taiwan Double Taxation Relief Bill - Cady Stanton, Tax Notes ($):
The bill will mirror the language of the United States-Taiwan Expedited Double-Tax Relief Act. It combines an authorization for the negotiation of a tax agreement between the Taipei Economic and Cultural Representative Office in the United States and the American Institute in Taiwan with a change to the tax code that would provide treatylike benefits to Taiwan residents, as long as a reciprocal set of benefits is provided to U.S. citizens with income subject to tax in Taiwan.
The United States can’t negotiate a traditional tax treaty with Taiwan because the two countries don’t have formal diplomatic relations.
Senate Democrats gauging interest in bill to extend tax benefits to Taiwanese companies - Tobias Burns, The Hill:
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The Taiwanese provisions in the law that cleared the House include reducing the rate of withholding tax on dividends and royalties from U.S. companies for Taiwanese residents and raising the tax threshold for Taiwanese companies that are also set up in the U.S.
Related: Eide Bailly International Business Structuring.
Taxes in Trump II
Trump Plans to Act Fast on TCJA Extension - Alexander Rifaat, Tax Notes ($):
Extending the provisions, along with implementing changes to the U.S. border policy, will be his top two priorities when taking office, Trump said in an interview with NBC News December 8.
Going Once, Going Twice…Nominated? Meet Auctioneer Billy Long, Trump’s Unlikely IRS Pick -Richard Rubin, Wall Street Journal:
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After Long left office, he worked as a business and tax adviser, encouraging employers to apply for the employee retention tax credit. The IRS says that credit is riddled with fraud, untrustworthy promoters and ineligible claims. It stepped up scrutiny, but advisory firms and some lawmakers are pushing the government to pay claims faster. As commissioner, Long could accelerate payments and end a moratorium on processing new claims.
IRS Purge of Bias in Low-Income Audits Threatened by GOP Cuts - Erin Slowey, Bloomberg ($). "It’s been over a year since the IRS pledged to fix how it audits refundable tax credits meant to help working families. The promise was fueled by pressure from lawmakers and advocates after the study last year found Black taxpayers claiming the earned income tax credit were audited at higher rates than non-Black taxpayers claiming the credit."
Corporate Transparency Act Update
Corporate Transparency Act Disclosures Paused - Adam Sweet, Eide Bailly. "This means any entity that has not yet filed its Beneficial Ownership Information (BOI) with FinCEN can now pause until this ongoing litigation is resolved."
Court halts BOI reporting; AICPA urges preparedness - Martha Waggoner, The Tax Adviser. "Under the CTA, P.L. 116-283, which Congress passed in 2021 as an anti-money-laundering initiative, reporting companies must disclose the identity and information about beneficial owners of the entities. For new entities incorporated after Jan. 1, 2024, reporting companies must also disclose the identity of "applicants" — defined as any individual who files an application to form a corporation, limited liability company, or other similar entity."
IRS (not) in Indian Country
Attorneys Urge More IRS Outreach in Indian Country - Lauren Loricchio, Tax Notes ($):
Leslie McLean of DNA-People’s Legal Services, a nonprofit that provides free legal aid to low-income taxpayers in seven Native American nations, including the Navajo Nation, pointed out that Gallup isn’t even on the Navajo reservation.
McLean said that every time her nonprofit asks the IRS to come to the Navajo reservation for meetings, “they make up an excuse as to why they cannot travel there.”
An Anniversary
25 Years of Making a Difference: Celebrate and Join the LITC Movement! - Erin Collins, TPA Blog:
LITCs empower vulnerable taxpayers and strengthen the fairness and integrity of our tax system. LITCs provide expert legal assistance, education, and advocacy, for free or for a small fee, to taxpayers who need it most, helping them navigate the complex world of tax controversies with confidence. Let’s look back, celebrate the successes of our dedicated clinicians, and explore ways you can be part of this amazing journey and make a real difference.
Blogs and Bits
Form 1099-K to be issued for 2024 marketplace earnings of more than $5,000 - Kay Bell, Don't Mess With Taxes. "Before ARPA’s enactment, third-party settlement organizations, or TPSOs, — think PayPal, Venmo, CashApp, eBay, Etsy, Uber, Lyft, Airbnb, and more — weren’t required to send payment recipients the documentation unless the individuals received $20,000 in total earnings over more than 200 transactions in a tax year."
Regs Provide Rules for Unincorporated Organizations to Elect Out of Subchapter K - Parker Tax Pro Library. "The IRS issued final regulations that modify existing regulations under Code Secs. 761(a) to allow certain unincorporated organizations that are owned in whole or in part by applicable entities to be excluded from the application of partnership tax rules in order to access elective clean energy tax credits through elective payments under Code Sec. 6417."
Related: How the Inflation Reduction Act is Boosting Clean Energy & Energy Efficiency Incentives alerts 2022/11
Understanding End-of-Year Gifts and Charitable Giving - Rachel Szeklinski, Tax School Blog. "Property donated in excess of $5,000 requires two pieces of information. First, Form 8283 must be attached to the return. Next, a qualified written appraisal (CWA) of the donated property is required. A CWA is not required for qualified vehicles, certain inventory, traded securities, and certain intellectual property."
Crypto Doesn’t Deserve a Tax Exemption - Tyler Cowen, Bloomberg:
The most obvious argument against the proposal is simply that uniform taxation is better than selective tax exemptions. If a lower capital gains tax rate is preferable, then the goal should be to make a smaller cut that applies to all assets. Exempting a single kind of asset is likely to lead to abuses. You might think that boosting crypto is important now, but which sector or asset will be selected next for special treatment? It may be one you don’t think deserves it.
Tax rebellion corner
How the First Federal Property Tax Sparked an Armed Rebellion - Joseph Thorndike, Tax Notes History Project:
Each of these counties had a large number of German-speaking immigrants. The new federal tax assessors, in contrast, were often Quakers or Moravians. The resulting social tension and language difficulties opened the door to conflict. And since assessors were charged (then as now) with an inherently subjective task, there was ample room for suspicion.
Tax crime and tax litigation corner
“FY24 was one for the history books. For years, IRS-CI has been known as the agency that took down Al Capone, but this year, our cases hold their own place in U.S. history,” said IRS-CI Chief Guy Ficco. “As with Al Capone, financial trails eventually lead to criminals’ downfall. Our agents are the best at following the money trail, and that’s why they have an integral role in bringing down criminals ranging from national security threats to drug traffickers.”
In FY24, IRS-CI initiated more than 2,667 criminal investigations, obtained 1,571 convictions, and reclaimed its 90% conviction rate. The agency’s investigative work identified over $9.1billion in fraud from tax and financial crimes, obtained court orders totaling $1.7 billion in restitution to the IRS and seized criminal assets totaling approximately $1.2 billion.
10th Circ. Affirms Nix Of Atty's Racing Expense Deductions - Asha Glover, Law360 Tax Authority ($):
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The Tax Court ruled in February 2023 that the racing costs "were not ordinary and necessary expenses of his business as an attorney," and that Avery raced cars "primarily for personal enjoyment, not to advertise his legal services." Though Avery's racing car was marked with his name and had a rear decal for his law firm, he was unable to convince the court that his racing significantly benefited his business as opposed to simply being a hobby, the court said.
Drive safely, my friends.
Link: Circuit court opinion.
What day is it?
It's Dewey Decimal System Day! Or for those with perhaps less scholarly interests, it's National Lager Day.
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