Tax News & Views Is it Good Kenough to Pass Roundup

Wyden Warns It’s Now or Never for R&D and Other Biz Tax Breaks - Doug Sword, Tax Notes ($):

The Senate’s top taxwriter warned Republicans that the faltering $79 billion tax package is the last chance to restore full research and development expensing and two other business tax breaks tightened by the 2017 tax code overhaul.

“This set of policies isn’t going to be on the table in 2025 if this bill stalls out,” Senate Finance Committee Chair Ron Wyden, D-Ore., said at the opening of a March 12 hearing on tax incentives for domestic manufacturing.

Business Breaks Can’t Wait for 2025, Wyden Says - Kim Dixon, Naomi Jagoda, and Kathy Larsen, Bloomberg ($):

Finance Chair Ron Wyden (D-Ore.) warned there may not be a chance to fully revive the business breaks later, dangling the loss of the retroactivity in the current bill for the three expired business breaks. The provisions for research and development, interest, and capital expenses are retroactive to 2022 or 2023 in the pending legislation.

After overwhelming bipartisan backing in a House vote Jan. 31, some Senate Republicans have considered waiting until the tax code comes up for a wider look in 2025, when many of the individual provisions of the 2017 tax law are up for renewal. But business executives and the current tax bill’s backers said during the hearing that it will be too late then.

Related: The Impact of Changes to Section 174

GOP's Crapo Wants Quick Resolution Of Tax Relief Package - Kat Lucero, Law360 Tax Authority ($):

However, Crapo said he opposed provisions in the bill that would allow individuals to receive a refundable child credit when they have no annual earnings as long as they made at least $2,500 in prior-year earnings. The bill would also increase the maximum refundable amount of the child tax credit from $1,600 per child to $1,800 in 2023, $1,900 in 2024 and $2,000 in 2025, according to a section-by-section summary.

Crapo said last week that the co-sponsors of the tax relief package — Senate Finance Committee Chairman Ron Wyden, D-Ore., and House Ways and Means Committee Chairman Jason Smith, R-Mo.— had moved forward on the bill without his support and without addressing his concerns.

Nevertheless, Crapo said at the Tuesday hearing that he is a strong advocate for reviving the more generous R&D deduction, bonus depreciation and interest deduction.

Tax and politics

Biden launches tax war with GOP - Julia Shapero and Tobias Burns, The Hill:

In an ambitious budget proposal released Monday, the president called for a wealth tax on individuals worth more than $100 million and restoring the corporate income tax rate to its pre-Trump level.   

While Biden’s tax plans are dead on arrival in the GOP-controlled House, they draw a stark contrast between his agenda and the Republican quest to cement Trump-era tax cuts with a sweep in the upcoming election. 

Realism, Deficit Concerns Top GOP’s Complaints on Biden Budget - Cady Stanton, Tax Notes ($):

Romney also called Biden’s frequent claim that billionaires pay an average of 8 percent in taxes disingenuous because the rate refers to taxes paid as a percentage of income and unrealized gains, rather than just an income tax rate.

Senate Finance Committee ranking member Mike Crapo, R-Idaho, said the tax increases in the Biden proposal would slow the nation’s economy, and posited that the budget wouldn’t even see full support from Democrats in the Senate should it come to a vote.

Senators Urge IRS to Close Corporate Jet Tax ‘Loophole’ - Caleb Harshberger, Bloomberg:

Currently, taxpayers are allowed to write off depreciation costs if they purchase a private jet primarily for business purposes, and to deduct the cost of travel. This includes the cost of the crew, fuel, and other operating costs, as long as the trip was made for business purposes.

But, the letter said, some corporate executives and wealthy taxpayers have used these deductions for personal travel, leveraging squads of lawyers and accountants to muddy the distinction between business and personal travel with schemes including opening offices next to vacation homes or neglecting to report non-business passengers.

In other news

DOJ Appeals Ruling Holding Transparency Act Unconstitutional - Andrew Velarde, Tax Notes ($). "FinCEN has indicated that it will comply with the district court holding for the plaintiffs in the suit while it remains in force. Though there was initially some confusion given the vagueness of its statement, on March 11 FinCEN indicated that other than for the entities and individuals subject to the district court’s injunction, it will continue to implement the CTA."

Couple Loses Bid to Limit Discovery in Research Credit Case - Mary Katherine Browne, Tax Notes ($):

With the assistance of Alliantgroup LP, KAI used a “variable sampling methodology” as part of its QRE calculation, which involved creating a “stratified random sample” from a “sampling frame” of the 2,000 to 3,000 projects KAI undertook during that time, removing nonqualifying projects, and then determining eligibility for the research credits.

The IRS opened an examination and disallowed the section 41 credits. As a result, the government determined that the Kapurs had a $186,648 tax deficiency and were liable for a $7,187 section 6662(a) penalty.

The Tax Court has not ruled on the validity of the credits themselves. Judge Pugh ruled that the IRS could require the taxpayer to provide information on more than just the two sample projects that the taxpayer wanted the examination limited to.

Related: Research & Development Tax Incentives.

Minnesota Bill Would Expand CPA License Eligibility - Emily Hollingsworth, Tax Notes ($):

Under current law, the CPA license eligibility criteria require an individual to have completed 150 credit hours from an accredited college or university, have at least one year of professional experience, and have passed the CPA exam.

As amended, the bill would also allow individuals who have completed 120 credit hours from an accredited college or university, have at least two years of professional experience, and have passed the CPA exam to be eligible for the CPA certificate. The bill would take effect July 1, 2026.

Blogs and bits

IRS' free Direct File officially opens to all eligible taxpayers - Kay Bell, Don't Mess With Taxes:

Following a soft launch, the Internal Revenue Service today, March 12, officially opened Direct File to all eligible taxpayers in the pilot program's 12 participating states.

The no-cost tax preparation and e-filing program cuts out the commercial tax middleman, allowing certain taxpayers able to complete their annual filing task by dealing, as the name says, directly with the IRS.

Why You Need an IRS Individual Online Account and How to Sign Up - Erin Collins, NTA Blog. "Over the last year, the IRS has added new features and tools to Individual Online Account that can help taxpayers during this filing season. You should consider signing up for your IRS online account as you prepare to file your tax return... With an online account, you may find the information you need any time without having to call the IRS."

Returns That Omit Estimated Tax Payments Are Not In Processible Form for Purposes of Triggering Overpayment Interest - Parker Tax Pro Library. "The Chief Counsel's Office advised that the return will not be in processible form for purposes of the 45-day period under Code Sec. 6611(e)(1) until the taxpayer provides information regarding the estimated tax payments either in response to Letter 12C, Individual Return Incomplete for Processing: Forms 1040 & 1040-SR, or otherwise."

Startups Must Consider Several State Tax Traps to Avoid Scrutiny - Michael Giovannini and Josh Labat, Bloomberg. "Given that startups and companies more generally are moving toward a remote workforce, companies now understand that they have income tax withholding obligations on behalf of their remote employees in states that impose a personal income tax. This applies even if the company doesn’t have a permanent office in the state."

Taxes and Migration: New Evidence from Academic Research - Andrey Yushkov, Tax Foundation. "The consensus in the academic literature is that high-income individuals are very sensitive to tax increases, both internationally and within countries. The behavioral responses of top earners are particularly important since they generate a significant share of both federal and state tax revenues. For instance, in tax year 2021, taxpayers with adjusted gross income of $200,000 or above (a mere 7 percent of tax returns) generated $1.5 trillion in federal income tax payments, constituting 68 percent of total federal income tax collections, according to the most recent IRS data. Taxpayers with adjusted gross income of $1 million or above (0.5 percent of tax returns) paid $824 billion, 37 percent of total federal income tax receipts."

Tax in the courtroom

'I Made A Huge Mistake,' Software Exec Says In Tax Fraud Trial - Hayley Fowler, Law360 Tax Authority ($) (Defendant name omitted):

Assistant U.S. Attorney Caryn Finley specifically told the Defendant he was using money that wasn't his by failing to remit his employees' trust fund taxes and repeatedly accused him of making an intentional decision not to pay.

"I made a huge mistake," the Defendant responded.

Indeed he did. That's why he is on trial for tax crimes. Even if he convinces a jury not to convict him, he still will have to come up with cash to pay the employment taxes, and bankruptcy won't help. Remit employment taxes, no matter who else goes unpaid.

Former Jacksonville Jaguars employee sentenced to more than six years for embezzling in excess of $22 million - IRS (Defendant name omitted, emphasis added):

According to court documents, Defendant operated a fraud scheme through which he embezzled approximately $22,221,454 from the Jaguars. Specifically, Defendant used his role as the administrator for the team’s virtual credit card (VCC) program to make hundreds of purchases and transactions with no legitimate business purpose. Then, to hide and continue to operate the scheme, rather than accurately report his VCC transactions, Defendant created accounting files that contained numerous false and fraudulent entries and emailed them to the Jaguar’s accounting department. Defendant used a variety of methods to hide his illicit transactions by omitting them from the files, while still having the total dollar amount of VCC expenditures match the balances paid by the Jaguars for the VCC program line of credit. For example, to hide his fraudulent VCC transactions, Defendant identified legitimate reoccurring VCC transactions, such as catering, airfare, and hotel charges, and then duplicated those transactions; he inflated the amounts of legitimate reoccurring VCC transactions; entered fictitious transactions that sounded plausible, but that never actually occurred; and moved legitimate VCC charges from upcoming months into the month of the accounting file that was immediately due to the accounting department.

Defendant’s fraudulent transactions began in September 2019 and continued until he was fired by the Jaguars in February 2023. He used the proceeds of this scheme, in whole or part, to place bets with online gambling websites, to purchase a condominium in Ponte Vedra Beach, Florida, to pay for personal travel for himself and friends (including chartering private jets and booking luxury hotels and private rental residences), to acquire a new Tesla Model 3 sedan and Nissan pickup truck, to pay a criminal defense law firm, and to purchase cryptocurrency, non-fungible tokens, electronics, sports memorabilia, a country club membership, spa treatments, concert and sporting event tickets, home furnishings, and luxury wrist watches. Defendant did not report any of this illicit income on his tax returns.

The Jaguars were 9-8 in the 2022-23 season, not counting this.

I wonder if anybody has ever researched how much the market for fancy watches and expensive event tickets is supported by ill-gotten gains, as these items seem to show up in a lot of tax fraud and embezzlement cases.

Related: Eide Bailly Fraud & Forensic Advisory Services.

What day is it?

Good Kenough for dessert. Celebrate Ken Day by also celebrating National Coconut Torte Day. Unless, of course, you are observing Registered Dietitian Nutritionist Day.