Tax News & Views Tax, Tariff, and Tortellini Roundup

House GOP Plan Envisions $4.5 Trillion in Tax Cuts - Richard Rubin, Siobhan Hughes, and Olivia Beavers, Wall Street Journal:

That plan released Wednesday—headed for a Budget Committee vote Thursday—calls for a minimum of $1.5 trillion in spending cuts over a decade and a maximum of $4.5 trillion in tax cuts from the Ways and Means Committee. It would increase the federal debt limit by $4 trillion, likely enough to get through about two years. The plan calls for $300 billion in new spending, likely for immigration enforcement and the military.

The spending-cut minimum is below the $2 trillion or $2.5 trillion floor that the most conservative House Republicans wanted to hit. The tax-cut maximum is below the $5.5 trillion that would allow for extending all of the tax cuts that expire at the end of this year and make room for priorities of President Trump such as tax-free tips, overtime pay and Social Security benefits.

$4.5 Trillion Tax Cut Pays Largely for Itself, Budget Bill Asserts - Doug Sword, Tax Notes ($):

The House’s budget resolution appears headed for a markup despite possible internal opposition as budget writers crafted a $4.5 trillion tax package limit and are taking a decidedly different tack from the Senate on paying for it.

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Besides the differing scopes of the Senate and House resolutions, a key departure between the two pieces of legislation is their approach to budget pay-fors. The Senate counts the cost of extending current tax policy at zero, so it treats pay-fors as unnecessary, while the House bill requires pay-fors, though it also includes an estimate of a big economic boost resulting from the extension.

'Angst' for tax writers after House budget proposal - Chris Cioffi, Bloomberg ($). "The resolution allows Congress’s tax-writing committees to increase the deficit by $4.5 trillion over 10 years to accommodate tax cuts. The plan also requires cutting at least $1.5 trillion in spending over a decade, which could mean slashing parts of programs like Medicaid health coverage for the poor and disabled and subsidies for low-income families and food assistance. It also mandates a $300 billion increase in spending on defense, immigration enforcement, and border security."

The risks and opportunities for Republicans on the budget resolution - Jake Sherman, Laura Weiss, and John Bresnahan, Punchbowl News:

Some of the hardliners are also seeking assurances that the House Ways and Means Committee will gut billions of dollars in clean energy tax credits from the Democrats’ Inflation Reduction Act. Rep. Chip Roy (R-Texas) said he wants a commitment “that the vast majority of them are going to be gone.”

But that’s already worrying some Midwestern Republicans and moderates who want a far more limited approach to getting rid of the IRA. Some of the tax credits are very politically sensitive, in particular anything that benefits biofuels or projects already underway.

A make-or-break moment - Eugene Daniels and Jack Blachard, Politico. "'New York Republicans were noticeably angsty Wednesday that the new House GOP budget plan may not provide enough wiggle room to expand' the SALT deduction, POLITICO’s Benjamin Guggenheim reports."

The House is losing the budget battle - Kadia Goba, Semafor:

Eric Burlison, R-Mo., called its $1.5 trillion in cuts “pathetic” and predicted a half-dozen or more Republicans would vote against it on the House floor. “I know my colleagues. They don’t really have much desire or impetus to cut spending, so you’re going to have to force them,” he said. Rep. Ralph Norman, R-S.C., offered an option for deeper cuts: “If you don’t do Medicaid, where else are you going to get it?” Meanwhile, the Senate passed its border-first budget out of committee with a promise to bring it to the floor “soon.”

Draft House Budget Targets Would Leave Republicans With Tough Tax Choices - Howard Gleckman, TaxVox. "A $4.5 trillion tax cut limit sounds ambitious. But it still would leave House Republicans with painful choices. Extending the expiring provisions of the TCJA alone will cost in excess of $4 trillion over the next decade. Adding other tax cuts proposed by President Trump in his 2024 campaign, including tax-free tips, overtime, and Social Security benefits could boost the price tag to between $5 trillion and $11 trillion, according to the Committee for a Responsible Federal Budget."

Tariff Country

Trump readies matching tariffs on trade partners, possibly setting up a major economic showdown - Josh Boak, Associated Press. "A reciprocal tariffs order could amount to a substantial tax hike to be shouldered largely by U.S. consumers and businesses as the Census Bureau reported that the country had total imports of $4.1 trillion last year. The tariffs could set off retaliatory measures by trading partners that could roil growth around the globe and reset where the United States stands with allies and rivals alike."

The European VAT is Not a Discriminatory Tax Against US Exports - Sean Bray, Jared Walczak, and Erica York, Tax Policy Blog:

However, when discussing trade with the EU specifically, White House deputy chief of staff, Stephen Miller, added a new policy grievance to the mix: value-added taxes (VAT).

“Did you know when you ship a car from the US to Europe, if they let it in at all because they have many nontariff barriers, between the VAT and duties, that car is taxed at 30%? The German car—or a European car sent the America is taxed at 2.5%—or basically 0.”

His statement assumes that a VAT discriminates against American car exports like a tariff, and conversely, that the VAT rebate provided to European car producers exporting to the US constitutes a subsidy and the car then simply faces a tariff and no VAT. (It is worth noting that both a domestic automobile and a European car sold in the US would face US state sales tax.)

While it may seem like a compelling political argument to justify across-the-board tariffs on the EU, it instead reflects a complete misunderstanding of what a VAT is and how it works. Worse, it misplaces the blame for a lack of US competitiveness on the European VAT instead of reevaluating the flaws of both the US federal and state tax systems.

Trump II Tax Administration

Turnover Is Coming to the Justice Department Tax Division - Nathan Richman, Tax Notes ($):

A reduction in force at the IRS and Justice Department Tax Division will have an impact on all tax administration, including state-level enforcement, according to [former IRS Commissioner] Rettig, who said states generally depend on enforcement actions taken by the IRS and will have to do that themselves otherwise.

Cullinan noted that the Tax Division is highly structured and requires multiple layers of approval for some actions. “I’m concerned that significant changes in leadership may cause delays in processing cases, simply because it will be more difficult to obtain the necessary approvals to keep things moving,” he said.

If IRS Sends Its Agents To The Border, Here’s The Work That Won’t Get Done - Kelly Phillips Erb, Forbes ($). "Most CI resources are focused on tax crimes. Last year, the agency focused about 70% of its time on tax crimes, including tax refund fraud, identity theft, cybercrimes, scams, and public corruption. CI spent about 11% of its time on narcotics cases as part of the Organized Crime Drug Enforcement Task Force, while the remaining time (17%) was split between general fraud and money laundering cases."

Judge Clears Trump’s Buyout for Federal Employees - Mary Katherine Browne, Tax Notes ($):

A district court judge rejected a lawsuit brought by three labor unions seeking to block the Trump administration’s federal employee “deferred resignation” offer after it was put on pause the week before.

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While the ultimate impact of the buyout on governmentwide staffing is still unclear, the IRS has told critical filing season staff, including those who work in taxpayer services roles, that they will be required to continue working until May 15 if they accept the offer.

Funding Freeze Creates Uncertainty for Taxpayer Clinics - Lauren Loricchio, Tax Notes ($):

The Trump administration’s decision to pause federal funding that was halted by a federal court order is causing heightened uncertainty for clinics that help low-income taxpayers comply with the tax law.

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Federal agencies were asked to complete and submit a spreadsheet by February 7 with information about federal assistance programs and whether they have anticipated obligations or disbursement of funds through March 15.

The spreadsheet, as provided in court records, includes the LITC and VITA programs as well as the Tax Counseling for the Elderly program, which offers free tax preparation services for qualifying taxpayers.

Don’t wait on hold; use IRS online tools for faster help - IRS. "With the 2025 filing season underway and the anticipated high demand for IRS phone lines around the Presidents Day holiday, the Internal Revenue Service today encouraged taxpayers to visit IRS.gov and use online tools to get immediate answers."

International Terminal

Congress and the Global Tax Deal - Alex Parker, Eide Bailly. "Whatever tax bill ends up passing, there's a good chance it could include some retaliatory measure against countries which use provisions of the Organization for Economic Cooperation and Development's global minimum tax to target U.S. companies."

Rachel Reeves faces cutting spending or raising taxes as UK growth disappoints - Sam Fleming, Financial Times:

Preliminary forecasts from the Office for Budget Responsibility show the fiscal headroom that Reeves had in October against her key budget rule has been wiped out by factors including poor economic data, according to people familiar with the matter.

The forecasts, which were sent to the Treasury last week, could force the chancellor to pencil in tighter spending by government departments or find extra tax revenue in her Spring Statement on March 26.

EU Signals Halt to Tax Proposals Amid Simplification Drive - Stephen Gardner, Bloomberg ($):

The European Union will make a big push for regulatory simplification this year, refraining from introducing new tax proposals as part of an effort to ease business compliance burdens.

The European Commission plans to “radically lighten the regulatory load for people, businesses and administrations in the EU,” with a goal of reducing corporate reporting obligations by at least a quarter, the commission said in a document issued Wednesday accompanying a broader 2025 work program.

Blogs and Bits

Open a bank account to get your tax refund sooner via direct deposit - Kay Bell, Don't Mess With Taxes. "Not only is direct deposit faster — in most cases, the IRS says refunds sent straight to financial accounts get there in 21 days or less — it’s a safer delivery method. You don’t have to worry about the U.S. Postal Service losing or misdelivering your Treasury check. Even better, it takes tax refund mailbox thieves out of the equation."

Kay is absolutely right about the safety. The missing checks aren't always "lost."

IRS Updates Auto Depreciation Limits for 2025 - Bailey Finney, Eide Bailly. "The tax law has special depreciation limits for motor vehicles - often incongruously called the 'luxury auto' rules. The IRS has released (Rev. Proc. 2025-16) the updated limits, which apply to vehicles far below the Rolls-Royce level."

How to Report Foreign Bank Accounts on Your Tax Return - Kasia Strzelczyk, 1040Abroad. "If you are a U.S. citizen or resident with a foreign bank account, you must disclose it on your tax return."

IRS Issues Final Regs Regarding Tax on Gifts and Bequests from Covered Expatriates - Parker Tax Pro Library. "The IRS issued final regulations that provide guidance on the application of the tax under Code Sec. 2801 on United States citizens and residents, as well as certain trusts, that receive, directly or indirectly, gifts or bequests from certain individuals who relinquished United States citizenship or ceased to be lawful permanent residents of the United States."

Owning Real Estate Property Overseas: 9 Key U.S. Tax Issues - Virginia La Torre Jeker, US Tax Talk. "Purchasing or owning real estate property overseas can be an exciting investment opportunity, but for U.S. persons, it comes with significant tax and reporting obligations."

Comments on the House and Senate Budget Plans - Adam Michel, Liberty Taxed. "The Senate budget will make pursuing a permanent, pro-growth tax bill more challenging by cannibalizing the easiest spending cuts for new spending instead of tax relief. This will increase the likelihood a second reconciliation tax bill will be delayed until December or, worse, January, making it impossible for employers and families to plan for the future."

Scams

Owner of Vancouver, Washington tax preparation business that catered to immigrants sentenced to nine months in prison for tax fraud - IRS (defendant name omitted, emphasis added):

The owner of a Vancouver, Washington, business that sought to assist immigrants with a variety of services was sentenced late yesterday in U.S. District Court in Tacoma to 9 months in prison and 4 months of electronic home confinement for tax fraud charges, announced U.S. Attorney Tessa M. Gorman. Defendant was an unlicensed tax preparer who led his immigrant customers to believe he was filling out their tax forms correctly. Instead, from 2016 through 2018, Defendant inserted a variety of false deductions and expenses on tax returns, lowering the customers’ tax obligations. At sentencing, U.S. District Judge Benjamin H. Settle said, ““This is a serious offense…. deterrence drives this case. This sentence should be one that deters you and sends a message to you and others like you that there will be a real penalty, not probation, for this conduct.”

“This defendant built his business by obtaining inflated tax refunds for clients who had little understanding of the U.S. tax system,” said U.S. Attorney Gorman. “Ultimately some of these clients were hit with back tax payments, fees, and penalties because this defendant intentionally filed false tax returns on their behalf.”

"Defendant abused credits designed to help low-income taxpayers, and his clients incurred over $23,000 in penalties along the way,” said Adam Jobes, Special Agent in Charge of IRS Criminal Investigation Seattle Field Office (IRS-CI). “We encourage those seeking a tax preparer this season to be vigilant and report dishonest business practices.”

Politicians like to scare voters with images of the IRS enforcement function as "a strike force that goes in with AK-15s already loaded ready to shoot some small business person." Protecting unsophisticated taxpayers from scam preparers is an enforcement function. An ironic consequence of the efforts of the new government efficiency push may well be more scams fleecing both tax filers and the government.

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Joe B. Kristan, CPA