Key Takeaways
- California carbon offset credits generate taxable income, per Chief Counsel's office.
- Implications for other state credits, such as pass-through entity tax credits.
- House, Senate taxwriters "agree to disagree."
- Canada tax ruled eligible for credit against net investment income tax.
- Adidas HQ raided by EU tax authorities.
- Cowboy Carter ropes win in tax dispute.
- It's not the tax crime, it's the cover-up. Well, it's both.
- Gingerbread House Day.
State Energy Credits Are Part of Gross Income, IRS Says - Mary Katherine Browne, Tax Notes ($):
In the November 26 memorandum (AM 2024-004), the IRS Office of Chief Counsel determined that carbon offset credits awarded by the California Air Resources Board to an offset project must be reported as part of the taxpayer’s gross income.
The California Air Resources Board established a cap-and-trade program under the California Global Warming Solutions Act of 2006, the memorandum explains. Entities subject to the law’s emissions cap can receive an offset credit for qualifying projects that reduce or sequester greenhouse gases in accordance with six compliance offset protocols. Once issued, the credits may be sold, traded, or transferred by the taxpayer.
The memorandum notes the wide scope of taxable income:
Among other precedent, the memorandum cites a case involving refundable tax credits - a common feature of pass-through entity tax SALT deduction cap workarounds:
Don't sleep on the taxability of state tax refunds resulting from state tax credit programs, including pass-through entity taxes.
More on the 2025 Tax Battles
Top Republicans Agree to Disagree on 2025 Tax Bill Approach - Cady Stanton and Doug Sword, Tax Notes ($):
House Ways and Means Committee Chair Jason Smith, R-Mo., met with incoming Senate Majority Leader John Thune, R-S.D., December 11 to discuss their differing perspectives on how to structure the reconciliation process in 2025. Smith has been a vocal opponent of Thune’s two-bill proposal, which would set up a first bill addressing border security, defense, and energy and a second focused on tax.
Thune: ‘Failure is not an option’ on tax policy - Anthony Adragna, Politico:
Thune indicated he did not favor inserting consensus tax provisions in the first package.
“I think they’re all going to have to ride together,” he said of tax policy, noting the complexity of the nation’s code. “Don’t rush them, make sure we get it right.”
Failure is always an option. As for "not rushing," using reconciliation is rushing, almost by definition, as it bypasses the committee and hearing process - which is part of why tax bills in the last couple of decades have tended to be full of errors and ambiguities.
Punchbowl News reports on the dynamics of the House-Senate agenda dispute:
On the other side is House Ways and Means Committee Chair Jason Smith (R-Mo.). Smith has told anyone who’ll listen that Congress could miss an opportunity to extend the Trump tax cuts if the White House insists on splitting the president-elect’s agenda into two bills.
Smith has made the case that, when it comes to tax policy, he understands the House better than anyone. Smith’s belief is that unless Congress quickly crafts one massive reconciliation package with all the critical policies that Trump wants to sign into law, tax cuts could fall by the wayside.
Don't miss our December 19 Legislative Update, where our team will scout the landscape of 2025 tax policy.
Other Trump Tax Policy Items
House Republicans Urge Trump to End Direct File - Benjamin Valdez, Tax Notes ($):
Direct File, piloted by the IRS earlier this year, allows certain taxpayers to file their tax returns online for free directly through the agency. Treasury announced October 3 that the program will be available to more than 30 million Americans in 24 states during the 2025 filing season — up from the 12 pilot states — and with more accommodated tax situations.
Trump’s Push to Eliminate EV Tax Credits Hits GOP Lawmakers’ Home States - Keith Laing, David Welch, and Billy House, Bloomberg via MSN:
Such a move could be tricky with Republicans poised to hold slim majorities in Congress next year.
International Terminal
Eide Bailly's International Tax Team and our affiliates at HLB, the Global Advisory and Accounting Network stand ready to help with your worldwide tax planning and compliance needs.
U.S. Claims Court Allows FTC Offset on Investment Surtax - Michael Smith, Tax Notes ($):
In a December 5 decision in Bruyea v. United States, the claims court rejected the government’s position that an FTC cannot be used to offset NII tax liability. It explained that the relief from double taxation provision of the Canada-U.S. tax treaty and the official explanations provide an independent treaty-based FTC that is not limited by the IRC.
The claims court said discerning the government’s position was like trying “to nail jello to a wall” because the government would contend that the IRC should always come before the treaty provisions, but at other times it would claim that the treaty provisions should come before the IRC.
Adidas headquarters raided for second day in €1bn tax evasion probe - Olaf Storbeck, Financial Times:
The Luxembourg-based European Public Prosecutor’s Office said on Wednesday that it was pursuing a “criminal investigation” against a German “corporate group trading in sportswear” over “suspicions of tax evasion relating to customs duties and import sales tax”.
Estonia Parliament Approves New Tax to Cover Defense Spending - Jan Stojaspal, Bloomberg ($):
The so-called security tax will be charged on both corporate and personal incomes, including incomes of permanent establishments of nonresident companies and taxable incomes received in Estonia by nonresident natural persons.
Estonia leads the 2024 Tax Foundation International Tax Competitiveness Index.
Japan to raise corporate & income tax to fund defense - NTV. "According to the proposal obtained by NTV, the government is set to add 4 percent to the current corporate tax from April 2026 as a defense special tax. The special tax will also affect income tax with a surtax of 1 percent."
Australia to introduce ‘news tax’ on tech companies - Nic Fildes, Financial Times. "In the proposed amendments to current regulations, any social media platform or search engine that derives more than $250mn in revenues a year from Australia would be subject to a “charge”. That levy would be offset against any payments made directly by tech companies to publishers. The move is intended to encourage them to negotiate with the media industry over commercial deals."
Colombian Congress Rejects Petro Government’s Tax Increases- Patricia Laya, Bloomberg News. "Colombian lawmakers refused to back a government-promoted bill that sought to increase taxes on wealthy individuals, gambling platforms and carbon emissions, potentially forcing the administration to implement painful spending cuts."
Colombia is the lowest-ranked country on the Tax Foundation International Tax Competitive Index rankings.
Blogs and Bits
5 gift ideas from Tax Santa - Kay Bell, Don't Mess With Taxes. "Open a Roth IRA for a young worker. This is a great way to help out a young relative or friend's child whom you consider family. The young person already is showing financial initiative by getting a job. But since young people tend to make less money, especially those still in their teens, they tend to overlook the benefit of savings for some far-off (to them) day when they're no longer working."
How CEOs—Or Taylor Swift—Can Get A Tax Break For Personal Security - Kelly Phillips Erb, Forbes. "But when it comes to personal security as an executive perk, the tax law and the IRS take a somewhat more permissive tack than the SEC. Essential security measures, including home security, bodyguards, a chauffeured car and private jet transportation, may be deducted by the company and (for the most part) not taxed to the executive. (The exception is corporate jets used for personal travel, but we’ll get to that later.)"
IRS Provides Final Transition Period for $600 Form 1099-K Reporting Threshold - Parker Tax Pro Library. "The IRS announced that calendar years 2024 and 2025 will be regarded as the final transition period for implementation of the $600 threshold for filing Form 1099-K, Payment Card and Third Party Network Transactions. As a result, third party settlement organizations (TPSOs) will not be required to report calendar year 2024 transactions on a Form 1099-K unless the gross amount of aggregate payments to be reported exceeds $5,000, regardless of the number of transactions, and TPSOs will not be required to report calendar year 2025 transactions unless the gross amount of aggregate payments to be reported exceeds $2,500, regardless of the number of transactions."
With Tax Changes Coming, Should You Receive Payments In 2024 or 2025? - Robert Wood, Forbes. "On a cash basis, it might seem that you can't be taxed until you receive money. But technically, if you have a legal right to payment but decide not to receive it, the IRS can tax you. The tax law includes the concept of constructive receipt. It requires you to pay tax when you merely have a right to payment even though you do not actually receive it."
Bitcoin Jesus Challenges Constitutionality Of Expatriation “Exit Tax” - Virginia La Torre Jeker, US Tax Talk. "The exit tax applies to individuals known as 'covered expatriates,' which includes individuals having a net worth of $2 million or greater. The exit tax is essentially a 'deemed sale' of worldwide assets, requiring the covered expatriate to report and pay tax on unrealized gains."
Related: Eide Bailly Global Mobility Services.
Above and Beyoncé
Stipulated Decision Entered in Beyoncé’s Tax Court Case - Tax Notes ($). "The Tax Court entered a stipulated decision in singer Beyoncé’s tax deficiency case with the parties agreeing that a $591 deficiency and $118 penalty are owed for 2018 and that there is no deficiency, penalty, or overpayment due for 2019."
I don't think this taxpayer will need an installment agreement to cover her liability. The IRS had said the singer owed $2.7 million in tax and penalties.
Tax and tampering
Chicago Attorney Convicted of Tax Fraud and Witness Tampering Charges - US Department of Justice (Defendant name omitted, emphasis added):
Defendant was an attorney in Chicago when he filed and caused to be filed false individual tax returns for himself and false corporate returns for a company in which he held an ownership interest – Illinois-based Leasing Employment Services Co., Inc. Evidence at trial revealed that Defendant provided more than $1 million for personal expenses to a woman with whom he was romantically involved. He then took deductions on what were falsely characterized as commissions or loans and included the fraudulent loans as an asset on the company’s tax returns. The expenses Defendant characterized as purported loans included funds expended on behalf of the woman related to a condo in Chicago’s Gold Coast neighborhood, several luxury automobiles, and payments for travel, shopping, and restaurants.
Supporting Chicago's struggling Miracle Mile.
Those bookkeepers just can't be trusted to follow simple instructions.
What day is it?
It's Gingerbread House Day! Followed in due course by Gingerbread County property tax assessment day.
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