Tax News & Views IRS Cuts and Cheese Doodles Roundup

Thousands of IRS Employees Took Buyout Offer, Union Says - Benjamin Valdez, Tax Notes ($):

NTEU President Doreen Greenwald, speaking to reporters during the union’s March 4 legislative conference, said that between 4,000 and 5,000 IRS employees have accepted the OPM’s offer to resign and receive full pay and benefits through September 30. The program was orchestrated with the aid of Elon Musk and his Department of Government Efficiency.

However, IRS employees who are essential to the filing season are required to continue working until May 15 even if they took the offer. The OPM’s deferred resignation program, sent via a governmentwide email on January 28, was also subject to a legal challenge by federal unions but has since been allowed to move forward.

Trump Administration Pushes to Slash I.R.S. Work Force in Half - Andrew Duehren, New York Times:

The Internal Revenue Service is preparing to shed as much as 50 percent of its staff, according to four people familiar with the matter, a significant cut that could jeopardize the agency’s ability to complete its basic mission of collecting taxes.

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The Trump administration has been preparing “reduction in force” plans for agencies across the government as part of the next phase of its effort to rapidly slash the federal work force. It is unclear how quickly the next batch of terminations could take place at the I.R.S. and how they will affect specific departments there. The tax collector is in the middle of reviewing Americans’ tax returns as part of the annual filing season, and officials have delayed some firings until after the busy period ends in the spring.

Trump Aims to Cut IRS Workforce in Half by End of Year - Erin Slowey, Bloomberg ($):

The Trump administration is aiming to cut up to half of the IRS’s workforce compared to its January head count, according to a person familiar with the matter.

The reductions would take place across divisions in the agency and would be achieved through a combination of attrition, the deferred resignation plan, layoffs of new hires, and reductions in force. The administration hopes to achieve the reductions by the end of the year, the source said.

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“These layoffs would add hundreds of billions or more to deficits and encourage tax cheating, tilting the tax system further toward the wealthy and business interests at the expense of everyday Americans” Lily Batchelder, former assistant treasury secretary for tax policy and professor at NYU Law, said in a statement.

Ben Peeler, leader of Eide Bailly's tax controversy practice, hears that the cuts aren't a done deal. "I contacted IRS sources and this comes from a hypothetical offered by treasury as what they would do when faced with that sort of a reduction as proposed by a potential appointee." He notes that the cuts already in place encourage tax cheating: "Unfortunately, the 'tax plan' promoters can see the IRS weakening and are approaching clients with all the old tax schemes, most of which have been soundly discredited."

Margarita Stone of Eide Bailly says that if such cuts are made, "Cutting staff will overwhelm the employees that remain working at the IRS. With higher caseloads, there will be delays in their responses (and it is more likely than not, that more errors will occur with a staff that is overworked)."

After mass firings, the IRS is poised to close audits of wealthy taxpayers, agents say - Spencer Woodman, International Consortium of Investigative Journalists. "Current and former IRS agents ICIJ spoke with emphasized that many of the now-terminated probationary employees were anything but inexperienced hires; in many cases they had decades of accounting knowledge that was critical to some ongoing cases. These agents had been recruited into the recent IRS effort to match the sophistication of the corporate tax industry, which deploys legions of highly-paid accountants and tax attorneys to construct and defend complex tax savings structures for the ultrawealthy."

IRS Chief Human Resources Official Placed on Leave - Benjamin Valdez, Tax Notes ($):

IRS Chief Human Capital Officer Traci DiMartini has been placed on administrative leave, according to two people familiar with the situation.

It wasn’t immediately clear why DiMartini was placed on leave, but the decision was made March 3 by acting IRS Commissioner Melanie Krause, according to the sources, who have spoken to DiMartini about the matter.

Tariffs, Day 2

Trump Hails Tariffs as US Economy Barrels Into Trade Wars - Jordan Fabian, Josh Wingrove, and Akayla Gardner, Bloomberg via MSN:

Trump defended his plan to remake the world’s largest economy through the biggest tariff increases in a century, saying it would raise “trillions and trillions” in revenue and rebalance trading relationships he called unfair. He cast the economic pain the levies are expected to cause in the form of higher prices as a “little disturbance” the nation ought to be able to overcome.

"Tariffs are about making America rich again and making America great again. And it’s happening, and it will happen rather quickly,” he said. “There’ll be a little disturbance, but we’re OK with that. It won’t be much.”

Stocks Fall as Tariff Fears Ripple Through Economy - Karen Langley and Katy Barnato, Wall Street Journal. "The blue-chip average tumbled 1.6%, or about 670 points, leaving it down 23 points for the year. The S&P 500 declined 1.2%, wiping out gains since Election Day, while the tech-heavy Nasdaq Composite fell 0.4%."

Wall Street worries Trump tariffs could wreck the souring economy - David Lynch, Jeff Stein, and Evan Halper, Washington Post:

Wall Street’s jitters reflect a rapid change in sentiment. After welcoming the president’s promises of tax cuts, deregulation and a business-friendly White House, investors worry that Trump’s 360-degree trade war is compounding the economic risks of the administration’s self-described revolutionary agenda.

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“The chaos that has ensued — we cannot plan and execute a business plan when there are so many unknowns and things are changing so rapidly,” said Stephen Bullock, president of Power Curbers in Salisbury, North Carolina.

The manufacturer expects to lose sales in Canada, its largest export market, where the government has announced 25 percent tariffs on U.S. products in retaliation for Trump’s levies on Canadian goods. Power Curbers makes giant paving and curbing machines, which sell for $350,000 to $500,000.

How Uncertainty From Trump’s Tariffs Is Rippling Through the Economy - Konrad Putzier and Justin Lahart, Wall Street Journal:

The auto industry, with supply chains stretching across all three countries, is particularly at risk. On Ford Motor’s earnings call last month, Chief Executive Jim Farley warned that protracted 25% tariffs against Canada and Mexico “would have a huge impact on our industry, with billions of dollars of industry profits wiped out.”

Tuesday, Target warned that its sales could be flat this year because of consumer uncertainty and escalating tariffs. Also on Tuesday, Best Buy chief executive Corie Barry cautioned that the company expects its vendors “will pass along some level of tariff costs to retailers, making price increases for American consumers highly likely.”

Trump Addresses Congress

Trump gives Republicans his wish list - Burgess Everett, Semafor. "President Trump gave marching orders to Republicans during an unapologetic Tuesday night address to Congress, reiterating his must-haves for a tax cut bill and demanding border funding 'without delay.' It’s possible all those items will get rolled together in one big party-line bill, though quickly delivering border money could be tough for lawmakers who are still haggling over Trump proposals like ending taxes on tips, overtime, and Social Security"

Trump Calls for Repeal of CHIPS Act, Retroactive Full Expensing - Alexander Rifaat, Tax Notes ($). "resident Trump wants Congress to axe a law providing tax credits for semiconductor production and for any prospective tax bill to include retroactive full expensing on certain investments."

Trump Says He Wants To Pass Tax Cuts For Everyone - Asha Glover, Law360 Tax Authority ($):

"Within a very big part of our plan, we're seeking permanent income tax cuts all across the board," Trump said. "And to get urgently needed relief to Americans hit especially hard by inflation, I'm calling for no tax on tips, no tax on overtime and no tax on Social Security benefits for our great seniors."

He also proposed restoring at least one expired TCJA tax provision, saying he "will provide 100% expensing" retroactive to Jan. 20, 2025.

Taxes in Congress

Senate Agrees to Abolish IRS Crypto Reporting Requirements - Tyrah Burris, Tax Notes ($):

The Senate advanced legislation that would rescind IRS rules requiring cryptocurrency brokers who operate in decentralized finance (DeFi) to collect customer information and disclose gross proceeds from sales of cryptocurrencies and other digital assets.

The Senate voted 70 to 27 on March 4 to adopt S.J. Res. 3, which would repeal regulations issued during the Biden administration requiring some cryptocurrency brokers to submit information reports on the noncustodial transactions to the IRS through digital assets Form 1099-DA. Sen. Ted Cruz, R-Texas, sponsored the measure.

House Taxwriters to Start Tax Work Despite Stalemate With Senate - Cady Stanton, Tax Notes ($):

A compromise budget resolution between the chambers isn’t likely to happen quickly as lawmakers are juggling that work alongside efforts to pass a stopgap bill ahead of a March 14 government funding deadline.

But the competing priorities aren’t stopping House Republicans from starting their share of the legwork on the tax provisions for a reconciliation bill, including the challenging task of fitting Tax Cuts and Jobs Act extensions, requests from the White House, and priorities from other members within the budget provided to the panel in the chamber’s framework.

Republican House taxwriters told Tax Notes much of the focus of the meetings will be on maximizing the permanency of TCJA extensions — a top priority among GOP Senate taxwriters as well — and incorporating some of President Trump’s campaign tax priorities, particularly eliminating taxes on tips and overtime pay.

International Terminal

Online Gambling and Cryptocurrency Mailing Addresses for 2025 - Russ Fox, Taxable Talk:

If you have one or more foreign financial accounts and you have $10,000 aggregate in those account(s) at any time during 2024, you must file the Report of Foreign Bank and Financial Accounts (the “FBAR”). This is Form 114 from FINCEN. (The IRS and FINCEN now allege that foreign online poker accounts are “casino” accounts that must be reported as foreign financial accounts. The rule of thumb, when in doubt report, applies—especially given the extreme penalties.) You also should consider filing an FBAR if you have $10,000 or more in a non-US Cryptocurrency Exchange.

There’s a problem, though. Most of these entities don’t broadcast their addresses. Some individuals sent email inquiries to one of these gambling sites and received politely worded responses (or not so politely worded) that said that it’s none of your business.

Gig Guide

Your Guide to Taxes for Self-Employed and Gig Workers - Ashlea Ebeling, Wall Street Journal:

Taking on a gig job means taking on new tax responsibilities.

You might not think you’re in business, but if you’re reselling items online, tutoring or pet sitting, for example, the money you make is generally considered self-employment income. You’ll likely have to account for it when you file your taxes. On the plus side, you also may get the benefit of writing off business expenses.

Blogs and Bits

IRS adds W-2 and 1099-A forms to taxpayer online accounts - Kay Bell, Don't Mess With Taxes. "The documents should make it easier for taxpayers to file their taxes by having the information on these forms readily available at their accounts. It also consolidates important tax records into one digital location, making record keeping easier."

EVs and the Highway Trust Fund: Five Things to Know - Alex Muresianu and Adam Hoffer, Tax Policy Blog. "While fixing infrastructure funding has not been a focus of the tax expiration debate, it would be a smart way to pay for at least a small portion of the expiring tax cuts. In recent years, highway funding has exceeded highway revenues, and the introduction of electric vehicles has made the gas tax increasingly obsolete."

The Role of Unrealized Gains and Borrowing in the Taxation of the Rich - Tyler Cowen, Marginal Revolution. He quotes a research paper:

Third, we quantify for the first time the amount of borrowing across the full wealth distribution. Focusing on the top 1%, while total borrowing is substantial, new borrowing each year is fairly small (1-2% of economic income) compared to their new unrealized gains, suggesting that “buy, borrow, die” is not a dominant tax avoidance strategy for the rich. Fourth, consumption is less than liquid income for rich Americans, partly because the rich have a large amount of liquid income, and partly because their savings rates are high, suggesting that the main tax avoidance strategy of the super-rich is “buy, save, die.”

Settlement Did Not Reduce Value of an Estate per Second Circuit - Ed Zollars, Current Federal Tax Developments. "This case, Estate of Kalikow v. Commissioner of Internal Revenue, CA2, Case No. 23-7957, revolves around a dispute over the estate tax implications of a settlement payment to remedy the trustees’ failure to distribute all of the trust’s net income to Pearl Kalikow during her lifetime. The United States Court of Appeals for the Second Circuit affirmed the Tax Court’s judgment, holding that the settlement liability did not reduce the value of the trust’s assets included in Pearl’s estate."

Those Who Teach, Learning the Hard Way

Mercer County accounting professor convicted of tax evasion and filing false tax returns sentenced to 24 months in prison - IRS (Defendant name omitted, emphasis added):

A Mercer County, New Jersey, man was sentenced today to 24 months in prison for evading federal income taxes and filing false tax returns, Acting U.S. Attorney Vikas Khanna announced.

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According to documents filed in this case and evidence introduced at trial:

During tax years 2014 through 2017, Defendant was a professor of accounting at a university in Pennsylvania as well as the co-owner of Healthcare Pharmacy in Trenton, New Jersey. Healthcare Pharmacy was organized as an S corporation, the income of which flowed through to Defendant and his wife and was to be reported on their personal income tax returns. Defendant prepared fraudulent books and records for Healthcare Pharmacy inflating the pharmacy’s costs of goods sold to reduce and underreport the pharmacy’s actual profits flowing through to Defendant and his wife. In the fraudulent books and records, among other things, Defendant identified certain wire transfers as payments to purchase goods sold by the pharmacy when those wire transfers were in fact made to personal bank accounts under Defendant’s control and to bank accounts in Nigeria associated with an automotive company under Defendant’s control. Each of Defendant’s tax returns for tax years 2014 through 2017 falsely underreported his income and falsely reported that he had no financial interest in or signature authority over any foreign bank accounts. Defendant failed to report approximately $3.28 million in income from the pharmacy, resulting in the evasion of approximately $1.25 million in tax due and owing.

I don't doubt that the professor's debits equaled his credits, but sometimes that's not enough.

What day is it?

It's both National Cheese Doodle Day and National Absinthe Day, celebrated together by custom.

Tax News & Views IRS Cuts and Cheese Doodles Roundup

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Joe B. Kristan, CPA