Tax News & Views Free File Taffy Roundup

Holiday note: Eide Bailly offices are closed tomorrow, May 24, and Monday, May 27, for Memorial Day weekend, so no posts. Normal publication resumes Tuesday, May 28.

IRS Nears Decision on Fate of Direct File; Free File Extended - Benjamin Valdez, Tax Notes ($):

“We’re anticipating making a decision in the coming weeks,” Bridget Roberts, director of the IRS’s direct-file program, said during a May 22 meeting hosted by the Council for Electronic Revenue Communication Advancement.

The pilot direct-file program, launched in March, enabled certain taxpayers in 12 states to file returns for free directly through the IRS web portal. A total of 140,803 taxpayers filed accepted returns through the pilot, which ended up costing the IRS $24.6 million to build. Taxpayers also gave widely positive feedback for the system in both the agency’s exit survey and a privately conducted survey.

IRS announces extension of Free File program through 2029 - IRS:

The Internal Revenue Service announced today an extension of the current Free File program through 2029 following an agreement that will continue to make the free private-sector tax software available to taxpayers.

The five-year extension agreement between the IRS and Free File Inc. will continue the program through October 2029.

Free File is a public-private partnership between the IRS and several tax preparation software companies who provide their online tax preparation and filing software for free. Through this partnership, tax preparation and filing software providers make their online products available to eligible taxpayers. The program is only available on IRS.gov.

The extension of the free-file program tells me that the IRS isn't sure it can get a more comprehensive in-house Direct File program in place in the next few years.

Tax policy and the elections

Five takeaways from POLITICO’s ‘Election 2024: The Future of Taxation’ event - Benjamin Guggenheim, Politico:

1. Conservatives could be split on important policy issues such as tariffs and the corporate tax rate. Moore acknowledged that some conservatives in the populist wing of the Republican Party appear to be contemplating a hike in corporate taxes from the current rate of 21 percent, which was established in the 2017 law. That would be a major break from traditional fiscal conservatism in the GOP.

“This is now a divide in the conservative movement,” Moore said. “I think that they believe they can use big government to advance conservative causes.”

"Moore" is Stephen Moore, Economist with the Heritage Foundation and a Trump economics advisor.

Economic, Political Climate Poses Challenge for Tax Reform - Lauren Loricchio, Tax Notes ($). "President Biden has vowed to let provisions of the TCJA expire as scheduled at the end of 2025 if he is reelected, though his top economic adviser recently said the administration supports some of the TCJA provisions, particularly those that would help avoid tax increases in 2026 on households earning less than $400,000."

Tax Administration: Credit Allocations, Improper Payments.

New Round of Energy Credit Allocations Open for Applications - Mary Katherine Browne, Tax Notes ($):

The Inflation Reduction Act expanded the section 48C program, established in the American Recovery and Reinvestment Act of 2009, with a $10 billion investment to provide credits for projects concerning clean energy manufacturing and recycling, greenhouse gas emissions reduction, and critical material production.

On April 29 the government announced in Notice 2024-36, 2024-21 IRB 1, that up to $6 billion will be available in a second round of tax credit allocations, with approximately $2.5 billion for projects in designated section 48C energy communities.

IRS Misses 10% Improper Payment Goal Again, TIGTA Says - Jack McLoone, Law360 Tax Authority ($). "The IRS estimated the improper payment rates for four programs in 2023, and none fell below the 10% rate prescribed by the Payment Integrity Information Act of 2019, the watchdog said in its report dated May 17 and released Wednesday. According to TIGTA, 32% of American opportunity tax credit payouts were improper, as were 33% of earned income tax credit payments. The rate of improper net premium tax credit payments was 26%, while the lowest was the additional child tax credit at 14%, the report said."

A sobering reminder of the limits and costs of running public policy through the tax law.

Link: TIGTA report.

International Tax Corner

Trudeau Stands by Capital-Gains Tax Hike That Businesses Hate - Brian Plat and Laura Dhillon-Kane, Bloomberg:

The government is sticking with its plan to increase the tax on companies, and on individuals in years when they record capital gains of more than C$250,000 ($183,000). Currently, half of those gains are subject to corporate or personal income tax; that will rise to two-thirds.

Finance Minister Chrystia Freeland has yet to introduce legislation to make the tax change, leaving some to speculate that she and Trudeau were having second thoughts. Business groups have decried the proposal, warning it will worsen the country’s productivity and investment woes.

FDII Sense - Alex Parker, Things of Caesar:

When crafting the 2017 Tax Cuts and Jobs Act, for instance, there was very little–if any–public debate about whether the international tax measures in the bill conformed with Organization for Economic Cooperation and Development guidelines, or other global rules. It just wasn’t much of a concern, either way. Only afterwards did policymakers start to grapple with the implications of disconnects, and even then legislative reversals weren’t seen as an option.

One of the biggest potential sticking points in the TCJA is the deduction for foreign-derived intangible income, a tax benefit that’s meant to mirror patent boxes and provide an incentive for U.S. companies to keep valuable intellectual property in the U.S. It achieves roughly the same rate as the tax on global intangible low-taxed income, which is measured the same way but imposed on income held abroad.

New Report Identifies Challenges with Global Minimum Tax Implementation in the EU - Daniel Bunn, Tax Policy Blog. "The report moves on to discuss legal uncertainty for companies, especially with the quick transition to implementation. The largely untested tax rules will require incredible efforts by businesses and governments to effectively comply with and administer the rules. Even so, the report notes six countries (Cyprus, Poland, Portugal, Latvia, Lithuania, and Spain) that have missed deadlines for adopting the minimum tax rules into their national laws, creating additional challenges for taxpayers who will be expected to comply with rules that apply retroactively to the beginning of 2024."

US companies move behind American shield to delay global tax - Leonard Wagenaar, Leonard's Tax Posts. "It may surprise you that some US MNEs still think that OECD’s global minimum tax (Pillar 2, P2) will not really become reality. But apparently, there are still enough P2 skeptics that Bloomberg thought it merited an article (https://lnkd.in/ebGq48kT)."

Billionaire Tax Rejected by US Causes Split Ahead of G-7 Meeting - Kamil Kowalcze and William Horobin, and Viktoria Dendrinou, Bloomberg via MSN:

Working on information exchange and transparency could have been a first step toward a global minimum levy on billionaires, as it was in the case of companies. The idea has received support from some Group of 20 countries including Brazil.

The US — which has by far the most such wealthy individuals — had wanted the item removed, according to people familiar with the matter. Germany, home to more billionaires than any other European country, has reservations about the issue, one of the people said.

US Investors in Foreign Real Estate Must Study Tax Challenges - Priya Royal, Bloomberg. "Making and managing the investment requires a thorough understanding of local real estate laws and adherence to restoration requirements and property use restrictions—especially on government-incentivized bargain deals."

No U.S. Tax Honeymoon When Americans Marry Non-U.S. Citizens - Virginia La Torre Jeker, US Tax Talk. "Marriage is a significant milestone for every couple, but mixed nationality couples typically face even more challenges. This is certainly the case when one spouse is a U.S. citizen and the other a non-U.S. citizen."

Remember Eide Bailly for your International Tax needs.

Blogs and Bits

7 financial gifts, some with tax benefits, for graduates - Kay Bell, Don't Mess With Taxes. "Help your grad learn to budget. To paraphrase an old proverb, give young people some money and they’ll be OK for a day; teach those young people to budget, and they’ll be set for life."

Don’t Roll Over RMDs To Other Retirement Accounts - Bob Carlson, Forbes:

When a retiree doesn’t need the RMD to pay living expenses, some move the money to a Roth IRA, treating it as a conversion of the RMD to a Roth IRA. Others try to rollover the money to a different IRA or qualified retirement plan.

Neither action is allowed.

Year-round tax planning pointers for taxpayers - IRS. "Organize tax records. Create a system that keeps all important information together. Taxpayers can use a software program for electronic recordkeeping or store paper documents in clearly labeled folders. They should add tax records to their files as they receive them. Organized records will make tax return preparation easier and may help taxpayers discover overlooked deductions or credits."

Organized tax records are also good for keeping tax prep fees down.

Tax Policy Corner

Biden’s Tariffs Conflict With His Environmental Goals - Howard Gleckman, TaxVox. "Slowing climate change has been a signature issue for President Biden. But Biden also has been an ardent booster of American manufacturing. Recently, he imposed $18 billion in new tariffs on Chinese electric vehicles (EV) and solar panels. The unfortunate effect: They likely will raise prices on fossil fuel-saving goods and discourage buyers from making climate-friendly choices, with little benefit to US workers. "

Universal Savings Accounts to Help Families Build Wealth - Adam Michel, Liberty Taxed. "Traditional income tax systems encourage consumption over saving by assessing multiple layers of tax on interest and investment returns. Wages are first taxed by income and payroll taxes. Any saved income that increases in value is often taxed again by levies on interest, capital gains, dividends, and transfers at death. The corporate income tax adds another layer of tax on income earned from corporate equity investments. All these taxes reduce market incentives to save."

Tax Crime Watch

“Sovereign Citizen” sentenced to 9 years in prison for $3.4 million tax fraud scheme, filing a false lien, and absconding while on bond - IRS (Defendant name omitted, emphasis added):

U.S. District Judge Mark E. Walker today sentenced Defendant to five years in federal prison for conspiracy to submit false tax returns and defraud the U.S. Treasury, substantive counts of aiding in the preparation of false tax returns, and filing a false lien against the U.S. Attorney for the Northern District of Florida, followed by a consecutive four-year sentence for failure to appear. Defendant was also ordered to pay restitution in the amount of $23,264.08, representing the unrecovered loss from the tax counts. Defendant originally was indicted in December 2014. Her indictment was superseded to add a charge for absconding while on bond in February 2024. She was convicted on all counts by a federal jury on March 1, 2024.

According to evidence presented at trial, in 2008 and 2009, Defendant operated a website called commercialredemption.com on which she promoted the use of IRS Form 1099-OID to commit tax fraud. Defendant identified as a “sovereign citizen” and perpetuated the false premise that the U.S. Treasury maintains secret accounts attributed to every U.S. citizen that can be drawn on by filing a series of bogus documents with the Treasury and other government entities.

I guess that doesn't work. She now has nine years to come up with a Plan B.

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Tax News & Views Free File Taffy Roundup

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Joe B. Kristan, CPA