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Monday, June 21, 2021

Necessary But Overlooked Tax Changes We Need

toolbox; inside says needed tax reforms

I've been maintaining a list for several years of overlooked improvements I think are needed for our federal tax system. I keep adding to the list including based on oddities found in current court cases.  For the next few weeks, I'll post most of these suggestions. I hope you'll comment on them and add some of your own. It would be terrific to see these included in any tax reform legislation of the 117th Congress and Biden Administration.

  1. Create a de minimus rule for personal use of virtual currency similar to §988(e) for foreign currency which excludes personal gains under $200. This is needed for simplicity. It should exclude bitcoin acquired after a certain date though due to the tremendous gains that exist with very low basis bitcoin (too much of a windfall rather than only simplification).

  2. Repeal the §280A(g) exclusion when one's home is rented out for under 15 days (there is no purpose for this exclusion that mostly benefits high income individuals who own a home to rent for a high rental amount).

  3. Replace §280A rental limitations with §469 limitations. There is no need to have two different rental expense limitations and the §469 one is easier and has more guidance.

  4. Fix §6050P and regs (and perhaps consumer protection laws) to be sure a Form 1099-C is only issued if the debt is truly cancelled. A recent example of this issue is Gericke v. Truist, No. 20-3053 (DC NJ 3/26/21). This is a problem for the fisc and for borrowers. For example, in Stewart, TC Summary Opinion 2012-46, the borrower received a 1099-C in 2008 and did not report it. The court found that the debt was discharged in 1999 “when it was clear that the debt would not be repaid.” So it was too late to pick up the income. There are several cases involving mismatch of receipt of 1099-C and discharge of debt.  See my 5/10/21 blog post.

  5. Fix §6050I to apply to governmental entities and units too. PLR 202118003 (5/7/21) held that a state liquor store was excluded from having to file Form 8300 as it was not a “person” for purposes of this Code section.

More later...

What do you think? 


Jim Fritzsche said...

I think a good argument can be made for keeping the 14-day rental income exclusion. Mainly, it simplifies things! Section 280A is a bit of a beast with competing allocation methods and caps. Sounds to a tax pro like an extra $300 on the 1040 prep bill. But if a typical two-week rental is $2,000 and allocable expenses $500, tax at 26% equals all of $400. ¯\_(ツ)_/¯

I do like that the federal government (not CA!) is tending to simplify things here and there. The pandemic has been a big EASY button for stimulus, filing delays, e-signature, etc. The Single Audit world that I often reside in was simplified by the Uniform Guidance. But then we get new ridiculous rules about the deductibility of business meals. Oh well!

21st century taxation (Annette Nellen) said...

Thank you for the comment. Perhaps a de minimis amount should be added to Sectin 280A(g). It is also used to rent out properties new golf tournaments or other big events for many thousands of dollars.

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