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Friday, March 22, 2019

2019 Federal Tax Regulations List

Since 2011, I've created and maintained websites that list the federal tax regulations issued to date for the year. Perhaps that sounds a bit tax nerdy, but I find it helps me get ready access to current regs and the preamble. It also helps with the tax update presentations I do throughout the year, providing that as a resource to attendees.  The webpage for the 2019 regs has links for all years back to 2011. Note that it's also a good way to see how many tax regs are issued each year. I hope you find it useful.

What do you think?

Wednesday, March 13, 2019

Tech observation in President's FY2020 budget proposal for IRS

President Trump released his FY2020 budget proposal on March 12. [A Budget for a Better America – Promises Kept. Taxpayers First, page 82] It slightly increases IRS funding to “expand and strengthen tax enforcement.” Such efforts “are estimated to generate approximately $47 billion in additional revenue at a cost of $15 billion, yielding a net savings of $33 billion over 10 years.  The Budget also includes several proposals to ensure that taxpayers comply with their obligations and that tax refunds are only paid to those who are eligible, including:  improving oversight of paid tax preparers; giving IRS the authority to correct more errors on tax returns before refunds are issued; requiring a valid Social Security Number for work in order to claim certain tax credits; and in-creasing wage and information reporting.”

The budget also notes that there is $290 million for the IRS’ multiyear effort to modernize its IT. The report notes that while about 90% of individuals file electronically, most other interactions between the IRS and taxpayers is via the mail, “which slows the resolution of issues.”

That is a true and interesting observation. 89% of individuals e-file there return. Yet other interactions with the IRS will be by phone or the U.S. Post Office. Will IT modernization include taxpayer accounts where taxpayer not only pay their taxes but can also change withholding, make estimated tax payments, amend their return, etc.?

Today, March 13, the IRS issues a news release that $1.4 billion is waiting to be claimed by individuals who have not yet filed their 2015 returns! [IR-2019-38] If tax compliance were done virtually, with the IRS using data it has, the filing could be done automatically and refunds issued to bank accounts. Or at least the IRS could more easily reach taxpayer via a text message, for example, to let them know they need to file and are likely owed a refund.

What do you think?

Sunday, March 10, 2019

NTA suggests greater transparency - great ideas! 
The IRS National Taxpayer Advocate's Annual Report to Congress released in February ( IR-2019-11 (2/12/19) + Report) includes the 2nd edition of the “Purple Book” with 59 legislative recommendations to improve taxpayer rights and tax administration. Two of the recommendations aim to strengthen taxpayer rights. They also improve the transparency of the tax system, which is a principle of good tax policy.

The two recommendations:

1. Codify as Section 1 of the Internal Revenue Code:
        a. The Taxpayer Bill of Rights (at present, see Section 7803(a)(3)).
        b. A Taxpayer Rights Training Requirement, and
        c. The IRS Mission Statement

2. Require the IRS to issue all taxpayers a "receipt" that shows how their tax dollars are spent.

For details, see links and all 59 recommendations here.

These are great ideas as they bring greater attention to these important items to help taxpayer better understand the tax system and the federal budget. 

I recommend they go farther:
  • Prominently display a link to the Taxpayer Bill of Rights on the IRS website (taxpayers won't read IRC Section 1, although I suspect the training requirement means IRS must help taxpayer to know of the TBOR).
  • Create lesson plans for high schools that explain tax basics and the TB)R. The IRS already has some materials on its website, although most likely don't know it is there.
  • A taxpayer receipt should be producible on the IRS website and lawmakers should be required to include a link on their websites. Individuals should be instructed where to find their tax liability on their 1040 and W-2 forms. The website should also have a tool for helping the individual estimate how much gasoline, alcohol, tobacco, airline, and other excise taxes they paid. And why not help them understand indirect taxes by including their share of the corporate income tax.
  • The receipt should provide additional information such as:
    • Average and marginal tax rates and how they compare to other taxpayers.
    • Highlight tax breaks they received such as credits, itemized deductions such as the mortgage interest deduction, and exclusions such as employer-provided health care, etc. and the tax savings they derived from these preferences (perhaps even refer to them as subsidies).
    • Their share of the national debt (and others in their filing family).
    • Where to get more information to help them understand federal taxes and the budget.
    • Contact information for their elected officials.
    • I have more here -
  • Update Section 7523 which requires Form 1040 instruction books to include a pie chart showing broad categories of federal revenues and another one showing broad categories of federal spending to be on the IRS website and linked on the webpage of other federal agencies and every member of Congress. For more, see my 2012 article on this topic.
I hope these recommendations are enacted. Our tax system and taxpayer benefits from greater transparency as people better understand their taxes and the system as a whole. They can ask better questions of their elected officials as to why rules are written the way they are, how the national debt will be paid down (and how we'll pay the growing interest expense on it).

What do you think?

Thursday, February 28, 2019

TCJA Reminders/Tips for Practitioners and Their Clients

Otherwise known as the Tax Cuts and Jobs Act (P.L. 115-97; 12/22/17)
Following is an excerpt from my February Note from the AICPA Tax Executive Committee Chair. For complete note (for AICPA Tax Section members) - click here.

Given the number of TCJA changes, incomplete guidance and many other issues, I offer the following suggestions to share with your clients to help them avoid surprises later.
  1. The TCJA is comprised of over 100 changes with little time for the IRS to issue guidance on all of them before 2018 returns are due.
  2. A good amount of guidance has been issued, but much of it is transitional or interim. That means the guidance might only apply for 2018; a rule could apply differently in 2019.
  3. The Joint Committee on Taxation’s Bluebook, which explains the TCJA, states over 70 times that technical corrections may be needed to achieve what legislators intended. For example, footnote 209 of the Bluebook states that a technical correction may be needed to reflect the intent that wages are not considered when calculating an excess business loss under the new Sec. 461(l).  Form 461Limitation on Business Losses, used for measuring an excess business loss, though,  includes wages (the form follows the statute, as required).

    Be sure clients know that if technical corrections are enacted, they are usually effective back to enactment date (Dec. 22, 2017 for the TCJA) and may require filing an amended return. Some corrections will result in less tax paid while others, such as the Sec. 461 correction, can result in more tax owed.
  4. It’s also possible technical corrections won’t be enacted, or the changes won’t be retroactive to Dec. 22, 2017. The law is not clear as to how much time can pass between original enactment date and passage of technical corrections legislation where a retroactive amendment is viewed as permissible by the courts. That was an issue the U.S. Supreme Court addressed in Carlton in 1994 (512 U.S. 26), finding a span of just over one year permissible but not stating a permissible maximum time between legislative enactments.
  5. There are likely new federal-state tax differences, and some states may still be considering conformity. Again, amended returns might be needed or the state tax rule might be different for 2019 than for 2018.
  6. The effective date of regulations often needs further scrutiny. If a rule in a regulation is also in the statute or a reasonable interpretation of the statute, the effective date of the statute controls. This was covered by the Tax Court in Argo Sales Company Inc.(105 TC 86 (1995)). There, the court stated: “The absence of regulations does not relieve us of the duty of interpreting our tax laws. While it has been stated in the context of a regulation applied retroactively by the Commissioner that ‘if the interpretation of the statute embodied in the regulation is correct, one must conclude that the statute has meant the same thing all along, with or without the regulation,’ that does not mean that where a regulation is not applied retroactively that the statute has no meaning prior thereto without the regulation. It simply falls on us to interpret the statute without the aid of a regulation.”
Note that among many areas, this seems pertinent to a rule on measuring qualified business income (QBI) highlighted in the final Sec. 199A regulations (T.D. 9847). In the Form 1040 instructions and in Publication 535, Business Expenses (p. 51), the IRS summarizes this rule as follows: “[QBI] also includes other deductions attributable to the trade or business including, but not limited to, deductible tax on self-employment income, self-employed health insurance, and contributions to qualified retirement plans.” In making this statement, the IRS makes no reference to a choice of following the proposed or final regulations, likely implying that the rule is in the statute (in addition to the final regulations at Regs. Sec. 1.199A-3(b)). The effective date of Sec. 199A is tax years beginning after Dec. 31, 2017.
Any other tips you have to share?

Sunday, February 17, 2019

Blockchain, Cryptocurrency, Cannabis - and Taxes

"Since cryptocurrencies are decentralized and unregulated for the most part, they enable cannabis businesses to accept secure, cashless, and fast payments that can be converted into greenbacks or sent anywhere around the world at competitive speeds."*

I like to research and write about emerging technologies and trends in how we live and work. A long time ago, that is how I gov involved in tax policy and technical matters related to the Internet and e-commerce.  For almost ten years now, it has led me into interesting topics of marijuana (cannabis if that sounds better), virtual currency (or cryptocurrency), and the blockchain. And there is overlap in all of these topics.

Here is a *recent article from Made by Hemp - Utilizing Blockchain Technology in the Cannabis Industry by Alex Moskov, Editor-in-Chief of CoinCentral. He notes the benefit of greater transparency in connecting transactions and payments via blockchain technology. It can also help with payment processing.

Congress sometimes gets involved with these topics as well. Hearings usually either look at problems with marijuana and crytocurrency, but some look at the opportunities in these fields. On 2/13/19, the House Committee on Financial Services held a hearing - Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses. Legislation called The Secure and Fair Enforcement Banking Act of 2019 (SAFE banking) has been re-introduced in the 116th Congress. One of the witnesses was California State Treasurer Fiona Ma, also a CPA. She noted data on continued growth in the cannabis industry and challenges of businesses not being able have bank accounts. She also noted that she and her predecessor had engaged studies for solutions including a state-run bank. However, the conclusions reached was that "the only effective long-term solution that would produce acceptable results for the financial services sector was to change federal laws and regulations related to offering basic banking services to this growing industry."

Taxes - there are certainly many tax matters in these topics. For the cash in the cannabis industry, it makes non-reporting easier as there may not be a sufficient paper or digital trail. There are safety issues of having large piles of cash around and of taking it to the local, state and IRS offices to make tax payments.

What do you think?