Tax News & Views Executive Orders Come In From the Cold Roundup

Trump Executive Orders Cause Uncertainty for Energy Credits, IRS - Alexander Rifaat and Benjamin Valdez, Tax Notes ($):

In addition to scuppering any potential U.S. adoption of the OECD-brokered global tax deal and issuing a governmentwide pause on releasing new regulations, Trump on January 20 signed executive orders to terminate the Inflation Reduction Act and to institute an indefinite hiring freeze at the IRS.

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As for Trump’s regulatory freeze, Monte A. Jackel of Jackel Tax Law said in a post on LinkedIn that the language of the executive order is broad enough that it could apply to not only Treasury regulations but also IRS revenue rulings, revenue procedures, and notices.

That′s because the order includes in its definition of rules “any substantive action by an agency . . . that promulgates or is expected to lead to the promulgation of a final rule or regulation, including notices of inquiry, advance notices of proposed rulemaking, and notices of proposed rulemaking.”

Unfinished Energy Tax Credits Caught in Trump's Rulemaking Pause - Erin Schilling, Bloomberg ($):

The Biden administration in the past few weeks sprinted to finalize rules for the clean energy credits in the Democrats’ 2022 tax-and-climate law known as the Inflation Reduction Act, which Trump and fellow Republicans have targeted for repeal.

Trump issued a pause for agency rules, a typical move for incoming administrations during transition. For energy credit rules not yet finalized, taxpayers will likely rely on any available guidance until new regulations come out. And Trump’s anti-regulatory, business-friendly approach could mean his administration finalizes rules with more leniency than his predecessor.

AICPA: Executive order shouldn’t affect IRS tax season hiring - Martha Waggoner, The Tax Adviser:

The IRS likely has already hired and trained those employees to work January through May, Melanie Lauridsen, the AICPA's vice president–Tax Policy & Advocacy, said in a LinkedIn post. In addition, the order gives agencies discretion to reallocate workers "to meet the highest priority needs [and] to maintain essential services."

Tax filing season opens Monday.

The hiring freeze in the executive order merely maintains the freeze that has been in effect since December, when the IRS lost $20 billion in a continuing resolution that Congress passed to keep the government funded, Lauridsen said.

Union Calls For Block To Trump's Federal Workers Order - Beverly Banks, Law360 Tax Authority ($):

President Donald Trump must halt efforts to enforce his executive order easing the process to fire certain federal employees, the National Treasury Employees Union argued in a lawsuit, claiming thousands of workers could be at risk of termination "for any reason including political agenda."

NTEU, which represents federal workers at more than 30 agencies, filed a complaint Monday against President Trump over an executive order establishing a new classification for government employees.

Worldwide Tax Fights

Donald Trump threatens to double tax rates for foreign nationals and companies - Financial Times:

Donald Trump has threatened to double tax rates for foreign nationals and companies in the US to hit back at “discriminatory” levies on American multinationals, in a move that threatens to trigger a global confrontation over tax regimes.

In a memo outlining his “America First” trade policy on Monday, the US president referred to an obscure 90-year-old provision of the US tax code — Section 891 — that empowers him to retaliate against foreign countries by imposing punitive taxes on their citizens and businesses in America.

Our Alex Parker is quoted:

“This [invoking Section 891] is the most extreme option and it’s interesting that they’re threatening to use it straight out of the gate,” said Alex Parker, tax legislative affairs director at Eide Bailly. “Based on the way the legislation is worded, it does seem to be double or nothing.”

Trump Challenges Global Minimum Tax - Alex Parker, Eide Bailly. "The global minimum tax--part of the 'Two-Pillar' plan at the Organization for Economic Cooperation and Development to address concerns about the global tax system--began as a project under the first Trump Administration. But it expanded significantly in scope when President Biden took office. The plan aims to stem tax avoidance among large multinational corporations by ensuring that they pay at least 15% in any jurisdiction they operate in."

EU Laments Trump's Disregard for OECD's Global Tax Plan - Elodie Lamer and Sophie Petitjean, Tax Notes ($):

The European Commission said it was disappointed by President Trump’s announcement that the United States will pull out of the OECD’s international corporate tax reform deal, while others displayed a “told you so” attitude.

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The EU could in theory negotiate a more permanent safe harbor to protect U.S. companies and “say that with a nominal tax rate above 20 percent, companies are deemed not to have an effective tax rate below 15 percent," but the sticking point is how to design a safe harbor “to protect U.S. and not Chinese companies, for example,” Saint-Amans said. The question is whether the United States will agree to negotiate anything.

US Allies Stay Committed to OECD Tax Deal Despite Trump Threats - Lauren Vella and Saim Saeed, Bloomberg ($). "'We take note of this presidential memorandum. We remain committed to our international obligations undertaken over the last years and are open to meaningful dialogue with our international partners,' the European Commission said."

Tariff Territory

Trump says tariffs for China, Mexico and Canada taking shape for Feb. 1 - David Lynch, Washington Post:

Speaking at the White House on Tuesday, Trump said he could slap new fees on imported products from China as soon as one week from Saturday.

“We’re talking about a tariff of 10 percent on China, based on the fact that they’re sending fentanyl to Mexico and Canada,” the president said.

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Trump told reporters Monday night that he is considering putting 25 percent tariffs on Mexican and Canadian goods “because they’re allowing vast numbers of people and fentanyl to come in” to the United States.

Trump’s Proposed Tariff Agency Raises Questions, and Confusion, for Experts - Ana Swanson, New York Times:

Tariff revenue is currently collected by U.S. Customs and Border Protection, which monitors the goods and the people that come into the United States through hundreds of airports and land crossings.

This has been the case nearly since the country’s inception. Congress established the Customs Service in 1789 as part of the Treasury Department, and for roughly a century tariffs were the primary source of government revenue, counted in stately customs houses that still stand in most major cities throughout the United States, said John Foote, a customs lawyer at Kelley, Drye and Warren.

Tax Policy Moves

Senate Finance Advances Treasury Nominee, Setting Up Final Vote - Cady Stanton, Tax Notes ($). "The vote sets up possible quick movement on a full Senate confirmation for Bessent just days after Trump was inaugurated, but it is unclear how soon his nomination may see a floor vote. Democrats haven’t indicated whether they will try to slow the scheduling on Bessent’s final confirmation, and a spokesperson for Senate Majority Leader John Thune, R-S.D., didn’t respond to a request for comment on timing by press time."

Power shifts to Trump administration in tax debate — Jake Sherman and Laura Weiss, Punchbowl News:

The Treasury Department’s hiring of Derek Theurer, Speaker Mike Johnson’s tax adviser and a former Ways and Means Committee chief tax counsel, and Ken Kies, one of the top tax lobbyists in town, is cementing the Trump administration’s central role in extending the 2017 tax cuts.

This is a big shift. In 2017, Capitol Hill drove the tax-cut process, bolstered by then-Speaker Paul Ryan, a decades-long veteran of fiscal wars, then-Senate Finance Committee Chair Orrin Hatch (R-Utah) and then-Ways and Means Committee Chair Kevin Brady (R-Texas). These men were bolstered by a very seasoned team of aides, which included Brendan Dunn, Jay Khosla, David Stewart and George Callas.

Blogs and Bits

Questions to ask, and answer, before you tackle your 1040 - Kay Bell, Don't Mess With Taxes. "Start with last year: Your 2023 tax return is a good place to start, especially if last year was basically the same. Ditto with last year’s state tax filing if you live in a state that collects an income tax."

The Money, Treasury, And Internal Revenue Service Shakeup Edition - Kelly Phillips Erb, Forbes. "'I will commit that for this tax season … Direct File will be operative.' That was the word from Scott Bessent, President-elect Donald Trump’s nominee for Treasury Secretary, when asked about the program during his confirmation hearing."

What you need to know about the energy-efficient home improvement credit - National Association of Tax Professionals. "If your clients are making improvements to their home this year, make sure you have discussions with them about the work they’re doing and when."

IRS Finalizes Regs on Reporting Partnership Related Party Basis Shifting Transactions - Parker Tax Pro Library. "The regulations, which finalize proposed regulations issued in June of 2024 (REG-124593-23), increase the threshold amount for a basis increase in a transaction of interest from $5 million to $25 million for tax years before 2025, and $10 million thereafter. T.D. 10028."

IRS Issues Updated Energy Efficient Home Improvement Credit and the Residential Clean Energy Property Credit Frequently Asked Questions - Ed Zollars, Current Federal Tax Developments. "The Energy Efficient Home Improvement Credit was modified by The IRA beginning in 2023. Prior to 2023, the credit had a lifetime limit of $500. Beginning in 2023, taxpayers can claim a credit of up to $1,200 per year and there is no lifetime limit on the credit. The credit is 30% of the cost of qualified expenses and there are limits on the amount of credit taxpayers can claim each year."

Tax Shelter Tales

Tax Court Finds Flaws in Both Sides’ Easement Valuations - Kristen Parillo, Tax Notes ($). "A syndicated conservation easement litigant relied on a flawed appraisal and is entitled to a deduction of $4.7 million rather than the $32.6 million it claimed on its tax return, the Tax Court held, which is still more than the IRS's $1.05 million appraisal."

The appraisal came a lot closer to the IRS number, as it tends to in syndicated easement cases. Still, it's interesting that both values could lead to a substantial valuation misstatement penalty, if such things were imposed on the IRS. In this case, only the easement tax shelter gets dinged.

Why was the value so far off? Because of a, well, optimistic appraisal of the sort that characterizes easement shelters. The property in question was purchased for prices running from $7,670 to $13,204 per acre, and Judge Toro settled on $9,000. The Tax Court opinion says

The claimed deduction was premised on the view that the land over which the easement was granted was worth approximately $58,084 per acre (approximately $100,000 per upland acre) before the granting of the easement.

The Moral? The tax shelter investors got a much lower valuation than they were hoping for, and they get hit with a 40% penalty on top. If you really think your property is that valuable, develop it and sell it to buyers, rather than trying to sell a funky appraisal to the Tax Court.

What day is it?

It's Come in From the Cold Day, a day that can be celebrated nationwide, it seems.

Tax News & Views Executive Orders Come In From the Cold Roundup

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Joe B. Kristan, CPA