Tax News & Views SALT Cap Pie Day Roundup

GOP, Dems From High-Tax States Push To Kill SALT Cap - Asha Glover, Law360 Tax Authority ($):

The $10,000 cap on SALT deductions, along with many other provisions of the 2017 tax overhaul, is set to expire at the end of 2025 if lawmakers can't strike a deal to extend it. House members from high-tax states such as New York and California have argued that the SALT cap is an unfair tax increase, and President Donald Trump, during his campaign, said he would restore the deduction. Republicans from high-tax states have said the president understands the impact of the high taxes imposed on New Yorkers and wants a higher SALT deduction cap.

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However, some Republicans say making changes to the SALT cap would be too costly and too beneficial to taxpayers in high-tax states. Rep. John James, R-Mich., said before the Ways and Means hearing that his colleagues who are pushing for SALT cap changes are, by default, calling to increase the tax bill's cost by $225 billion over the next decade. Those changes, meanwhile, would not benefit Americans in all states, he said.

SALT Talks Gain Steam With Trump’s Blessing on Tax Break - Nancy Cook and Nacha Cattan - Bloomberg via MSN. "“We looked at increasing the deduction, perhaps putting in some income restrictions so it’s not going to billionaires. We talked about possibly the marriage penalty. We talked about if second properties would be allowed for deduction,” Malliotakis said. She said increasing the SALT cap to $20,000 would not be enough."

GOP moderates see Trump as strong ally on their tax deduction push - Benjamin Guggenheim, Politico:

Lawler made it clear he and colleagues from New York, New Jersey and California would drive a hard bargain over their desire to lift the current $10,000 cap on the state and local tax deduction.

“I will never support a tax bill that does not lift a cap on SALT,” he said.

Some sort of SALT cap will likely survive. Given fiscal constraints, it's possible that the relief may be as small as a token increase in the cap and doubling it for joint filers, and even that might eliminate entity tax SALT workarounds or limit corporate deductions as a pay-for.

Impounding IRA Credits, Lighter Enforcement in Store?

Vought Signals Trump Will Again Challenge Impoundment Law - Alexander Rifaat, Tax Notes ($):

The Trump administration could seek to unilaterally rescind energy tax credits associated with the Inflation Reduction Act despite Republican control of Congress, Russell Vought, President Trump’s pick to head the Office of Management and Budget, suggested.

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The Impoundment Control Act of 1974 was enacted as a response to President Nixon’s excessive use of withholding funds for agencies including the IRS. Trump’s first attempt at challenging the law, when he allegedly attempted to coerce Ukrainian President Volodymyr Zelenskyy to investigate possible criminal activity by then-Democratic presidential candidate Joe Biden and his family in exchange for unlocking $400 million in military aid to Ukraine approved by Congress, led to his first impeachment trial in his first term.

Big Companies to See IRS Audit Relief Under Trump Hiring Freeze - Erin Slowey, Bloomberg ($):

Large complex corporations, partnerships, and wealthy individuals will likely see less audit pressure as the IRS shifts its resources elsewhere to manage tax filing season starting Jan. 27, and amid the exit of employees over Trump’s office in-person mandate, tax professionals said.

“The IRS is likely to continue shifting important human resources away from enforcement and into taxpayer services and overall operations support,” Chuck Rettig, the IRS Commissioner appointed by Trump in his first term and now in private practice, said in an email to Bloomberg Tax on Tuesday

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Despite a potential ease in oversight, tax professionals are also bracing for delays in exams and trouble reaching the service.

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.

GOP Again Floats Reciprocal Taxes In Affront To Global Deal - Natalie Olivo, Law360Tax Authority ($):

Committee Chairman Jason Smith, R-Mo., reintroduced the Defending American Jobs and Investment Act, which would raise tax rates on investors and corporations from countries that tax U.S. companies with measures deemed unfair. According to a statement from Smith, examples of unfair measures would include levies designed to carry out the 15% minimum tax agreement under the second pillar of the Organization for Economic Cooperation and Development's international corporate tax rewrite.

Smith initially proposed the legislation in May 2023, saying at the time that Pillar Two was "a bad deal" negotiated by then-President Joe Biden's administration, which represented the U.S. at the Paris-based OECD. In general, Pillar Two involves cross-border top-up taxes to ensure that multinational corporations with revenue above €750 million ($781 million) pay effective tax rates of at least 15% wherever they operate.

Canada’s Poilievre Promises to Reverse Capital Gains Change - Stephanie Hughes and Melissa Shin, Bloomberg ($):

Pierre Poilievre, the leader of Canada’s Conservative Party, is promising to eliminate the increase to the capital gains inclusion rate if elected.

Poilievre made the announcement in a social media post on Thursday, saying the tax “was a bad idea before President Trump’s tariff threat” and that “it is outright insanity now.”

Freeland to Scrap Canada Capital Gains Hike If She’s Elected - Brian Blatt, Bloomberg via MSN:

Chrystia Freeland would drop the Canadian government’s policy of raising the capital gains inclusion rate if she wins the race to replace Justin Trudeau as prime minister, according to a person with knowledge of her plan.

It’s a major reversal for Freeland, who introduced that capital gains hike in April as Trudeau’s finance minister. She argued at the time that it was fair for the government to ask companies and investors to pay more to provide additional revenue for the government.

Mexico Extends Tax Breaks To Domestic Taxpayers - Kevin Pinner, Law360 Tax Authority ($). "Mexico is extending a number of tax breaks aimed at foreign companies to qualifying domestic taxpayers, such as the ability to reduce taxable income by immediately deducting investments in fixed assets through late 2030, according to a presidential decree Tuesday."

Note: Alex Parker, whose work has regularly been noted here in the International Terminal, has joined Eide Bailly. He will provide regular coverage of the international and D.C. tax scene here at Tax News & Views, starting soon.

Blogs and Bits

Nearly half of work-from-home employees would quit if forced back to office fulltime - Kay Bell, Don't Mess With Taxes. "Nearly half of workers in this group, or 46 percent, say that if their employer no longer allowed them to work from home, they would be unlikely to stay at their current job, writes Kim Parker, director of Social Trends Research for Pew Research, in her analysis of the survey."

Overseas Trip Did Not Extend Taxpayer's Time for Filing Tax Court Petition - Parker Tax Pro Library. "The Tax Court held that, under Code Sec. 6213(a), a taxpayer had 90 days, not 150 days, in which to file a Tax Court petition objecting to an IRS assessment. The court rejected the taxpayer's argument that because she was outside the United States for 24 days of the 90-day period in Code Sec. 6213, she was entitled to the longer 150-day period in that provision which to file her petition."

Cross-Border Tax Collection: IRS Tools To Seize Foreign Assets - Virginia La Torre Jeker, US Tax Talk. he agency must maneuver a complex web of international laws and procedures, making the process anything but straightforward.

Congressional Research Service Updates Its Report on the Expiring Provisions of the TCJA - Ed Zollars, Current Federal Tax Developments. "The Tax Cuts and Jobs Act (TCJA) of 2017 included many provisions that are scheduled to expire, mostly at the end of 2025. The Congressional Research Service (CRS) report from January 17, 2025, details these expiring provisions and provides estimates of the revenue effects of extending them. According to the Joint Committee on Taxation (JCT), extending the expiring individual income tax provisions would reduce federal tax collections by $3.3 trillion over the 10-year budget window from FY2025-FY2034. Extending the higher estate tax exemptions would cost $167 billion, and extending the business provisions would cost $551 billion. Overall, the JCT forecasts that extending these provisions would cost $4 trillion. In most years, the revenue loss would be between 1.2% and 1.4% of gross domestic product (GDP)."

Cato Tax Bootcamp: Everything You Need to Know About the TCJA - Adam Michel, Liberty Taxed. "Because the highest-income Americans pay the vast majority of income taxes, they also benefited from the largest dollar value tax cuts and as a share of the total tax cut. However, a more informative way to measure the tax change shows that the lowest-income Americans experienced the largest tax cuts as a portion of what people were already paying."

Not Feeding Inmates as a Trade or Business?

Personal Use of Inmate Food Fund Is Taxable Income to Sheriff - Chandra Wallace, Tax Notes ($):

A former Alabama sheriff who used government funds earmarked to feed inmates to defend her prior withdrawal of $160,000 of those funds must pay tax on that income, the Tax Court ruled.

In a January 22 memorandum opinion in Franklin v. Commissioner, Tax Court Judge Elizabeth Crewson Paris found that nearly $45,000 in personal legal and other expenses petitioner Ana M. Franklin paid from the inmate food fund weren’t gross income from a trade or business and weren’t deductible expenses.

They do things differently in Alabama, or at least they used to. From the opinion (citations omitted, emphasis added):

Among her other responsibilities as Sheriff of Morgan County, petitioner had an obligation to see that the inmates in the county jail were properly fed. During the years at issue Alabama law mandated that sheriffs of counties in Alabama had a duty to feed the prisoners held in their respective county jails. By statute, the State of Alabama provided a monthly allowance of $1.75 per inmate per day, along with additional amounts conditionally approved, as well as a food services allowance, determined by the number of prisoners in the county jail, for the sheriff's services in preparing and serving food. Historically, unless otherwise directed by the county commission, the sheriff was permitted to keep and retain any surplus funds that remained after feeding the prisoners.

This created an incentive problem:

In November 2008 a court-ordered investigation into alleged violations of Paragraph 22 revealed that petitioner's predecessor in office had, among other things, served corn dogs as a diet staple at each meal for several months running, while profiting substantially from the jail food allowance.

The taxpayer didn't go the corn dog route, but did have a surplus:

Petitioner's return included Schedule C, on which petitioner listed her business as “Sheriff's Jail Food Account.” On the Schedule C, petitioner reported gross income of $44,967 and a legal and professional services expense of $44,967, resulting in zero net profit. The $44,967 represented funds that petitioner withdrew from the jail food money account during 2018 and paid to various parties to resolve her ongoing legal and tax issues.

To file a Schedule C, and to take business deductions, you have to have a business. That turns out to be a problem:

As a threshold matter, the Court must first determine whether petitioner's operation of the jail food money account constituted a distinct trade or business...

Petitioner did not separately or independently undertake the operation of the jail food money account with the intent to make a profit, but rather she was specifically obligated to do so in her position as sheriff. Conversely, petitioner would have not been able to operate the jail food money account but for the fact that she was sheriff. The activity was inextricably connected with her position.

The result?

Accordingly, the Court finds that petitioner was not engaged in the trade or business of operating the jail food money account during 2018. Rather, she did so in the course of her employment as Sheriff of Morgan County. Respondent's characterization of the $44,967 as “other income” rather than gross receipts from a trade or business is therefore sustained.

That means no trade or business deductions.

The moral? Corn dogs are not, by themselves, a balanced diet. And running a surplus in the inmate food account is not a trade or business.

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Tax News & Views SALT Cap Pie Day Roundup

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