tag:blogger.com,1999:blog-21357881334269716142024-03-19T01:48:48.296-07:0021st Century TaxationThis blog by a tax professor is about tax reform and moving tax systems into the 21st century. It focuses on tax system weaknesses, critiques selected reform proposals, and offers new ideas, with an emphasis on federal, California and multistate matters. Additional information - articles, reports and links, can be found at the 21st Century Taxation website (see link below right). I welcome your comments.Professor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.comBlogger1150125tag:blogger.com,1999:blog-2135788133426971614.post-65182701022842110632024-03-17T19:38:00.000-07:002024-03-17T19:38:38.849-07:00American Opportunity Tax Credit Issues<p><span style="font-family: verdana;">Over the years, I have heard individuals and tax professionals raise various questions on the operation of the American Opportunity Tax Credit (<a href="https://www.irs.gov/credits-deductions/individuals/aotc" target="_blank">AOTC </a>at <a href="https://www.law.cornell.edu/uscode/text/26/25A" target="_blank">IRC 25A</a>). This is the credit that for the past many years provides up to a $2,500 credit for each of the first four years of higher education at a college or university. It started in the early 1990s as the Hope Scholarship credit for a lower amount and only the first two years of college.</span></p><p><span style="font-family: verdana;">There are numerous other tax breaks for higher education including an exclusion for scholarships, a limited above-the-line deduction for student loan interest, the Lifetime Learning Credit, an exclusion for interest on education savings bonds, 529 accounts, and more.</span></p><p><span style="font-family: verdana;">Some of the issues I have heard for the AOTC include:</span></p><p></p><ul style="text-align: left;"><li><span style="font-family: verdana;">Do years at a community college count as part of the four years? I believe they do, but what if the student isn't, at least at first, pursuing a degree?</span></li><li><span style="font-family: verdana;">What are all of the expenses that qualify?</span></li><li><span style="font-family: verdana;">What if the 1098-T received (and required to claim the credit) is incorrect in terms of the year or amount?</span></li><li><span style="font-family: verdana;">Why does it only cover college or university programs rather than also trade schools and similar?</span></li></ul><div><span style="font-family: verdana;">I'm working on a paper of these and a few other administrative and legislative issues about the AOTC. If you have questions or issues you've encountered or wondered about, I would greatly appreciate you posting them in a comment here. Thank you!</span></div><div><br /></div><p></p>Professor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.com0tag:blogger.com,1999:blog-2135788133426971614.post-89923173462439710702024-03-03T21:20:00.000-08:002024-03-03T21:20:44.519-08:00Why increase the 1099 filing threshold (why increase the tax gap)?<p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiWPsoEOD2Zf2sviBxfUyhTEjmRy15ZkFOsM3phkQ6k5SDecoSs-MZWhUAApq8PGJDoqCXzV0ykSlmrvApjm0PCOQ_DI2yWPZryl3K_zXUb-qhqt07WEVupU7TGdGbe5ofSHH2gQmEYswx8BPy2ZIQ41RbFlvePLNndshsNvL3LUf63RjKvyiTihe7eL3UH/s1052/1099-NEC_2023.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="1099-NEC" border="0" data-original-height="459" data-original-width="1052" height="140" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiWPsoEOD2Zf2sviBxfUyhTEjmRy15ZkFOsM3phkQ6k5SDecoSs-MZWhUAApq8PGJDoqCXzV0ykSlmrvApjm0PCOQ_DI2yWPZryl3K_zXUb-qhqt07WEVupU7TGdGbe5ofSHH2gQmEYswx8BPy2ZIQ41RbFlvePLNndshsNvL3LUf63RjKvyiTihe7eL3UH/w320-h140/1099-NEC_2023.jpg" width="320" /></a></div><span style="font-family: verdana;"><p>Over the years there have been proposals to increase the filing threshold under IRC §6041 for 1099-MISC and 1099-NEC which has been $600 since 1954. But, as I've posted about before (see for example my <a href="https://21stcenturytaxation.blogspot.com/2023/06/some-tax-figures-should-not-be-adjusted.html" target="_blank">6/11/23 post</a>), increasing the threshold at which an issuer needs to issue one of these forms results in more individuals not reporting their income.</p></span><p></p><p><span style="font-family: verdana;"><a href="https://www.congress.gov/bill/118th-congress/house-bill/7024" target="_blank">H.R. 7024</a> passed in the House on 1/31/24 with an important change to delay capitalization of R&D, includes increasing the $600 issuer filing threshold at §6041 from $600 to $1,000 and then adjusting it for inflation annually. This means that businesses could change their record sorting so they only issue a 1099-NEC if they paid a contractor $1,000 or more during the year rather than $600 or more. </span></p><p><span style="font-family: verdana;">The Joint Committee on Taxation <a href="https://www.jct.gov/publications/2024/jcx-5-24/" target="_blank">estimates </a>that this change will cost (meaning reduce tax revenues) by $1.5 billion over 10 years. The income the contractors earn is still taxable. The revenue loss is because some people who earn income but don't receive a 1099 do not report it. I think the reasons are due to either poor recordkeeping or an erroneously - but widely held belief, that if no 1099 or W-2 is received, the income is not taxable. A <a href="https://www.tigta.gov/sites/default/files/reports/2022-02/201930016fr.pdf" target="_blank">2019 TIGTA report </a>(and other government reports) state that if there is no information reporting, the compliance rate is only 37%! That report also indicates that the compliance rate is 93% when there is information reporting.</span></p><p><span style="font-family: verdana;">Why not reduce the cost of H.R. 7024 and remove the change to §6041? This would help it meet principles of good tax policy to not increase the tax gap and to consider transparency (that taxpayers can better understand the tax system (increasing the 1099 filing threshold sends a confusing message to the recipients of these forms and other taxpayers)).</span></p><p><span style="font-family: verdana;">Why not use the $1.5 billion over 10 years to provide education and grants for recordkeeping software to help small businesses implement recordkeeping to track all of their income and expenses and that will also help them reconcile any 1099s, including 1099-Ks they get to they don't overreport income (1099-Ks report gross receipts which might include fees such that a gig platform charges and should be backed out as an operating expense).</span></p><p><span style="font-family: verdana;">What do you think?</span></p><p><br /></p>Professor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.com2tag:blogger.com,1999:blog-2135788133426971614.post-4031684735247172032024-02-13T20:33:00.000-08:002024-02-13T20:33:09.734-08:00Important Effective Date Item in Preamble to Digital Asset Broker Reporting Prop. Regs.<div style="text-align: left;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEggoucvgaioiToiLKVFVlb4fOSQ1DwXG9olbQ_Xy6xPtvizNAirmSr97ws_dparM4kKZ2dgRO-sueV6oycJW7E0aVsdnPQ7TyBY2Vcj3G4Ix7i18YSDVMB-YaAxM3G0HCrWf-we_cHVNg-As8Eg__AYnoMLIv65f1EKJlPAnqQaRkxMEl5GVI0vc4QP_VB8/s800/bitcoin_stacks_800_14443.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="stacks of coins to represent bitcoin" border="0" data-original-height="645" data-original-width="800" height="258" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEggoucvgaioiToiLKVFVlb4fOSQ1DwXG9olbQ_Xy6xPtvizNAirmSr97ws_dparM4kKZ2dgRO-sueV6oycJW7E0aVsdnPQ7TyBY2Vcj3G4Ix7i18YSDVMB-YaAxM3G0HCrWf-we_cHVNg-As8Eg__AYnoMLIv65f1EKJlPAnqQaRkxMEl5GVI0vc4QP_VB8/w320-h258/bitcoin_stacks_800_14443.jpg" width="320" /></a></div></div><div style="text-align: left;"><span style="font-family: verdana;">The proposed regulations on broker reporting of digital assets released August 29, 2023 (<a href="https://www.govinfo.gov/content/pkg/FR-2023-08-29/pdf/2023-17565.pdf" target="_blank">REG-122793-19</a>) included more than guidance under IRC section 6045. They also included related proposed regulations under section 1001 on amount realized and section 1012 on basis. I think that generally, the 1001 and 1012 proposed regulations are fairly straightforward and tie to the general rules at these provisions. </span></div><div style="text-align: left;"><span style="font-family: verdana;"><br /></span></div><div style="text-align: left;"><span style="font-family: verdana;">One clarification they offer is that in a transaction where a taxpayer exchanges, for example, X coin for Y coin and pays a transaction fee, 50% of the transaction fee is treated as a reduction to the amount realized for the disposition of X coin and 50% is added to the basis of the Y coin acquired.</span></div><div style="text-align: left;"><span style="font-family: verdana;"><br />Unlike the virtual currency <a href="https://www.irs.gov/individuals/international-taxpayers/frequently-asked-questions-on-virtual-currency-transactions" target="_blank">FAQs #39 - #41</a>, Prop. Reg. 1.1012-1(j) provides that in applying the specific identification method to know which digital asset was disposed of (when the taxpayer has more than one unit or code representing their digital assets), the taxpayer must apply specific identification on a wallet by wallet or exchange by exchange system. In contrast, the FAQs allow (or at least do not disallow) use of a universal tracking approach where the taxpayer transferring, for example, 2 Xcoin out of wallet 1 to buy goods, could specifically identify to say they used the basis of 2 Xcoin in T's wallet 2. This would not be allowed under the proposed regulations. The long list of questions in the proposed regulations include though, whether there are alternatives to this approach (questions 44 & 45 at <a href="https://www.govinfo.gov/content/pkg/FR-2023-08-29/pdf/2023-17565.pdf" target="_blank">page 59616</a> in the Fed. Register).</span></div><div style="text-align: left;"><span style="font-family: verdana;"><br />Prop. Reg. 1.1001-7(c) and 1.1012-1(j)(6) provide that these proposed regulations are effective on the January 1 following when final regulations are published. However, <a href="https://www.govinfo.gov/content/pkg/FR-2023-08-29/pdf/2023-17565.pdf" target="_blank">page 59616</a> in the Fed. Register states that the 1001/1012 proposed regulations are reliance regulations. That is, per the preamble, taxpayers "may rely on these proposed regulations under sections 1001 and 1012 for dispositions in taxable years ending on or after August 29, 2023, provided the taxpayer consistently follows the proposed regulations under sections 1001 and 1012 in their entirety and in a consistent manner for all taxable years through the applicability date of the final regulations."</span></div><div style="text-align: left;"><span style="font-family: verdana;"><br />Since the broker reporting regs under section 6045 won't be effective for reporting of gross proceeds until sales on or after January 1, 2025 (basis reporting for sales on or after January 1, 2026), if a taxpayer follows the date of the proposed 1001/1012 regulations starting for 2023, they would also do so for 2024.</span></div><div style="text-align: left;"><span style="font-family: verdana;"><br />But, I don't think most taxpayers can follow the 1001/1012 proposed regulations until the 6045 regulations are effective because taxpayers might not be able to get the exchanges they use to help them with the specific identification called for in the proposed regulations.</span></div><div style="text-align: left;"><span style="font-family: verdana;"><br />But, practitioners need to present the effective date choice to clients because the decision is theirs to make. But before making it they should check if any exchange they use will allow them to specifically identify the digital asset they are transferring at the time of the transfer and document that for them (and apply FIFO if they do not give the exchange specific identification information at the time of a transfer). For unhosted wallets, the taxpayer handles that specific identification on their own, likely by sending themselves an email to document what they are doing and have the date verification from the email.</span></div><div style="text-align: left;"><span style="font-family: verdana;"><br />Also, would be a good idea to let your client know that the final regulations might have a different approach then tracking basis wallet by wallet and exchange by exchange. </span></div><div style="text-align: left;"><span style="font-family: verdana;"><br />Not sure why the 1001/1012 proposed regulations were offered as reliance regs when there are reasons it is either impossible or unwise for taxpayers to start applying them for 2023 and 2024. Also, given the latitude in the virtual currency FAQs, if a taxpayer were tracking on a universal approach, they should be able to change going forward to wallet by wallet and exchange by exchange (with no need to get help from the exchange for that until the regs are finalized). The IRS notes in the preamble to the regs </span><span style="font-family: verdana;">(</span><a href="https://www.govinfo.gov/content/pkg/FR-2023-08-29/pdf/2023-17565.pdf" style="font-family: verdana;" target="_blank">page 59611</a><span style="font-family: verdana;"> of the Federal Register) </span><span style="font-family: verdana;">and at Prop. Reg. 1.1012-1(j)(4) that such a change is not a method of accounting as the method is still specific identification.</span></div><div style="text-align: left;"><span style="font-family: verdana;"><br />So, something to think about and find a way to present to your clients with digital assets so they can make the decision the IRS offers all taxpayers regarding the effective date of the 1001 and 1012 proposed regulations.</span></div><div style="text-align: left;"><span style="font-family: verdana;"><br />What do you think?</span></div>Professor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.com0tag:blogger.com,1999:blog-2135788133426971614.post-71162481561815047402024-01-28T22:04:00.000-08:002024-01-28T22:07:49.703-08:00EITC Awareness Day and Week Hopefully Also Can Focus on Needed Improvements<p></p><div style="text-align: center;"><a href="https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit-eitc" target="_blank"><img alt="EITC reminder" border="0" data-original-height="153" data-original-width="880" height="56" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj_wZ7X2peGdUSCiiloYIEX4MXepobIEKJhnxc7T3KpRzlaAGdmdJ86J6PSDUzjEhp-dJRo1QCc8nxOEuMbCjRE4NM2PFco3P7O4eule09IeUU4QHfsmnyD-uq-9jE-Ntc-cm6jWvQYhnX6Gc_OH1aCPkoL7M7GYXsGHpKKxQCdZ_uNt5R3iDMWUtPo1nJt/w320-h56/EITC.jpg" width="320" /></a></div><p></p><p><span style="font-family: verdana;">The Earned Income Tax Credit (<a href="https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit-eitc" target="_blank">EITC</a>) was added to the law in 1975 (Tax Reduction Act of 1975 (<a href="https://www.govinfo.gov/content/pkg/STATUTE-89/pdf/STATUTE-89-Pg26.pdf" target="_blank">P.L. 94-12</a>, SEC. 204; 3/29/75). So, the first note I'd like to make is that March 29, 2025 will be the 50th anniversary of the EITC. The Congressional Research Service has a nice report on the history of the EITC (<a href="https://sgp.fas.org/crs/misc/R44825.pdf" target="_blank">4/28/22 version</a>).</span></p><p><span style="font-family: verdana;">There is a federal annual EITC Awareness Day, which was January 26, 2024 (<a href="https://www.irs.gov/newsroom/irs-partners-highlight-eitc-awareness-day-with-tax-resources-that-benefit-millions-of-low-and-moderate-income-workers" target="_blank">IR-2024-22</a>).</span></p><p><span style="font-family: verdana;">Employers have <a href="https://www.eitc.irs.gov/partner-toolkit/employers/employers" target="_blank">federal </a>(and perhaps state) obligations to tell employees about the EITC. Law changes in California in 2023 require employers to notify employees of the EITC (and a few other items such as CalFile and VITA) twice per year rather than only once per year (<a href="https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320240SB131" target="_blank">SB 131</a>, Chapter 55 (7/10/23)). <a href="https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=202320240AB1355" target="_blank">AB 1355</a> (Chapter 277 (9/30/23)) allows the notification to be emailed to employees, within specified parameters. The California <a href="https://edd.ca.gov/en/payroll_taxes/required_notices_and_pamphlets" target="_blank">EDD </a>provides information on the notification and sample language.</span></p><p><span style="font-family: verdana;">On January 27, 2024, California Governor Newsom issued a <a href="https://www.gov.ca.gov/2024/01/27/governor-newsom-proclaims-caleitc-awareness-week-2024/" target="_blank">proclamation </a>that January 26 to February 2, 2024 is CalEITC Awareness Week. </span></p><p><span style="font-family: verdana;">For many reasons, it seems that a week is certainly needed for EITC awareness and better yet, some way to more frequently help taxpayers be aware of the EITC and the benefits to eligible taxpayers and their communities of making sure it is claimed. Data from the IRS indicates that about 24% of eligible workers do not claim the EITC. The IRS tracks this data by state and you can find it <a href="https://www.eitc.irs.gov/eitc-central/participation-rate-by-state/eitc-participation-rate-by-states" target="_blank">here</a>. CA <a href="https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202320240SB131" target="_blank">R&T §19851</a> states that "hundreds of millions of federal dollars go unclaimed by the working poor in California."</span></p><p><span style="font-family: verdana;">How does this happen? The <a href="https://www.taxpolicycenter.org/briefing-book/do-all-people-eligible-eitc-participate" target="_blank">Tax Policy Center</a> notes that about 5 million eligible individuals do not claim the credit leaving about $7 billion of benefits unclaimed! These funds certainly could help low-income workers. The Center suggests that reasons for not claiming the EITC include its complexity causing some to not be sure if they qualify, and having income below the filing threshold so they do not file. For the non-filers, perhaps they did not have federal or state income tax withholding, so they are not filing to get those taxes refunded. </span></p><p><span style="font-family: verdana;">A good portion of the EITC represents a refund of employments taxes withheld or paid by the employer for the employees wages. This illustrates a fundamental problem with the credit in that it is making taxpayers pay taxes they don't owe and then having to file to get the refund and perhaps, depending on earned income and family size, getting an additional amount via the EITC. Why not design the system to not have the EITC-eligible worker not pay the tax in the first place (and that would also provide the benefit per paycheck rather than when the return is filed).</span></p><p><span style="font-family: verdana;">I had the opportunity to suggest such a change back in 2001 in a paper included in the JCT's Study of the Overall State of the Federal Tax System and Recommendations for Simplification, as required by the Tax Reform Act of 1986 (<a href="https://www.jct.gov/CMSPages/GetFile.aspx?guid=c08bd9c9-7322-4cfe-9088-7bbceae9e778" target="_blank">summary at page 7 and full text at page 205</a>). I think others have made similar suggestions over the years. </span></p><p><span style="font-family: verdana;">Basically, federal income tax withholding could be changed to only start once an employee has earned a certain amount of income. All employees could have, say the first $15,000 of wages not subject to Social Security taxes with an increase in the wage base to address this. Or the change could only be made for workers paid at minimum wage or perhaps 1.10% of minimum wage. </span></p><p><span style="font-family: verdana;">There used to be an advanced EITC system where the worker applied and the employer would not withhold certain taxes. It was repealed several years ago because there was almost no one using it. Perhaps there is a way to bring that back with better use of technology to help low-income workers get the funds for sure and get them more evenly throughout the year. For example, use of the IRS website to help with the calculations and any form to be completed for the employer (as part of the W-4 for example).</span></p><p><span style="font-family: verdana;">Here is an excerpt of what I wrote over 20 years ago (and I had a lot of background info and data on the EITC in the report too, and I had forgotten that something I've been suggesting in more recent years, I suggested back in this 2001 report - moving to a return-free tax system!). </span></p><p><span style="font-family: verdana;"> "The EITC could be restructured to be an immediate offset of payroll taxes in more than one way. For example, all employees could have an exemption from Social Security (FICA) and Medicare taxes (referred to in this paper as “payroll taxes”) on a specified amount of wages. Of course, to offset the reduction in tax collections, the tax rates and maximum amount of earned income subject to payroll taxes would need to be adjusted. Another alternative would be to have payroll taxes computed on a graduated rate basis tied to the worker’s wage base (similar to how federal income tax withholding is computed). Because the current EITC structure can result in refunds greater than the worker’s payroll tax amount, additional changes would be needed to maintain the current level of benefit provided by the EITC to taxpayers with one or more qualifying children. These changes might be achieved through increased dependency exemptions or child credits for individuals with specified amounts of earned income. </span></p><p><span style="font-family: verdana;"> Beyond simplification, an additional potential benefit of an alternative structure and simplification of qualifying status requirements would be that it might make it easier to move to a return-free tax system. Structural changes as described above would also serve to provide the EITC benefit to low-income taxpayers in each paycheck without a need for individuals to apply to receive an advance EITC. In addition, these structural changes could be implemented in a manner so as to reduce the current high marginal tax rates that result from the phase-out provision of the EITC."</span></p><p><span style="font-family: verdana;">This proposal reminds me of a similar suggestion that I and two SJSU econ professors wrote about a few years ago. To better target sales tax exemptions such as on food and infant diapers and to more easily have the sales tax apply to more types of personal consumption, convert the sales tax to a formula calculation (personal consumption = income less savings), because one benefit is that instead of providing a food exemption that primarily benefits higher income individuals because they spend more on food, you could exempt low-income individuals from all sales tax by exempting them from the calculation if their income is below a specified level. And the benefit could continue for income levels by use of a graduated rate structure based on income. I just note this because it is another example where it might be easier to just not collect a tax in the first place rather than structure a tax credit or use inequitable exemptions to help lower-income taxpayers. This sales tax paper can be found <a href="https://21stcenturytaxation.blogspot.com/2017/02/more-than-one-way-to-tax-consumption.html" target="_blank">here </a>and there are additional benefits of it in that businesses would no longer pay or have to collect sales tax (there would need to be a transition phase-in as revenues adjusted).</span></p><p><span style="font-family: verdana;">But back to the EITC ... perhaps the upcoming 50th anniversary calls for efforts to examine how it can be simplified and all eligible individuals can readily obtain its benefits.</span></p><p><span style="font-family: verdana;">What do you think?</span></p>Professor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.com0tag:blogger.com,1999:blog-2135788133426971614.post-46713549860653265992024-01-01T21:51:00.000-08:002024-01-01T21:51:48.698-08:00Fewer Clean Vehicles Qualify for Federal Tax Credit in 2024<div class="separator" style="clear: both; text-align: center;"><a href="https://www.irs.gov/clean-vehicle-tax-credits" imageanchor="1" style="margin-left: 1em; margin-right: 1em;" target="_blank"><img border="0" data-original-height="298" data-original-width="871" height="136" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhdRGyfib35GDdJZ5472HEro5-T9iepVI56C5YAHze120e_sYDLqbyaDxxRfWrdA6F-EWlzpPSd1oOiVGe7DTPFX4RNVDmhNNqvniQxiPPHcrwOinjxljlN2diAHVGcSNvwTHpWWVV7j7XrfIwgAt8TiJs4798q5V5LPtJonHjcH3AMG-TqUCa87VOMoFMG/w400-h136/CleanVehicleChecklist.jpg" width="400" /></a></div><p><span style="font-family: verdana;">The <a href="https://www.sjsu.edu/people/annette.nellen/30D_TrackChanges_25E_45W_IRA2022.pdf" target="_blank">§30D Clean Vehicle Credit</a> that was greatly modified for 2023 through 2032 by the Inflation Reduction Act of 2022 has increasingly strict qualifications each year. Per the IRS and Dept. of Energy <a href="https://fueleconomy.gov/feg/tax2023.shtml" target="_blank">list</a> of qualifying vehicles, there is a drop for 2024. For clean vehicles purchased from April 18, 2023 through December 31, 2023, 27 vehicles qualified an eligible buyer for a $7,500 credit and 16 for a $3,750 credit.</span></p><p><span style="font-family: verdana;">As of today (1/1/24), the list for 2024 includes just 10 vehicles for the $7,500 credit and 9 for the $3,750 credit. The drop is due to a combination of no longer meeting the higher critical minerals or battery component requirement or involving parts of assembly by a "foreign entity of concern" such as China.</span></p><p><span style="font-family: verdana;">I suspect that more vehicles will be added during the year, but this drop will likely continue annually for the next several years. If you're looking for a good deal on a clean vehicle, likely that happens the last week or so of the year when dealers are eager to sell eligible vehicles that won't be eligible the next year.</span></p><p><span style="font-family: verdana;">And new starting in 2024 is the ability of buyers to transfer their credit to the dealer (if registered) so the customer/taxpayer can get the value up front rather than waiting to when they file their return.</span></p><p><span style="font-family: verdana;">There is more information at:</span></p><p></p><ul style="text-align: left;"><li><span style="font-family: verdana;">IRS Clean Vehicle Tax Credits <a href="https://www.irs.gov/clean-vehicle-tax-credits" target="_blank">website</a></span></li><li><span style="font-family: verdana;"><a href="https://www.irs.gov/newsroom/frequently-asked-questions-about-the-new-previously-owned-and-qualified-commercial-clean-vehicles-credit" target="_blank">FAQs </a>in Fact Sheet 2023-29 (12/26/23) (but always check for the latest fact sheet)</span></li><li><span style="font-family: verdana;"><a href="https://www.irs.gov/pub/irs-pdf/p5866.pdf" target="_blank">Pub 5866</a>, New Clean Vehicle Tax Credit Checklist</span></li></ul><p></p><p><br /></p>Professor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.com0tag:blogger.com,1999:blog-2135788133426971614.post-7784409999244008282023-12-26T21:19:00.000-08:002023-12-26T21:24:40.504-08:00170+ Tax Changes in 117th Congress - Too Many or Not Enough?<p><span style="font-family: verdana;">On December 21, 2023, the Joint Committee on Taxation released its <a href="https://www.jct.gov/publications/2023/jcs-1-23/" target="_blank">Bluebook for Tax Legislation Enacted in the 117th Congress</a> (we are currently half way through the 118th Congress). These reports provide helpful background and explanation for tax changes. Pulling from the table of contents for 8 pieces of legislation that had tax changes (with most in the Inflation Reduction Act of 2022 and the SECURE Act 2.0), I count the following 172 changes. </span></p><p><span style="font-family: verdana;">How can anyone keep up with all of this? I spend a lot of time on tax updates - tracking them, making update presentations (and it is challenging in addition to tracking and reading the IRS guidance on all of these changes (not all of the changes have guidance)), but I can't explain all of these (and most tax practitioners don't need to know about all of them as they pertain to a wide range of taxpayers). </span></p><p><span style="font-family: verdana;">The IRA 2022 includes some complex terminology and limitations for new and revised energy credits. SECURE Act 2.0 includes numerous changes mostly for retirement provisions but aren't going to help people most in need adequately save for retirement. Perhaps a better approach to enacting tax legislation is to focus on first closing loopholes (provisions that don't fully serve their purpose due to drafting problems or actions not contemplated when the provision was enacted - see <a href="https://21stcenturytaxation.blogspot.com/2023/12/odd-exclusion-for-home-rental-is.html" target="_blank">my recent post on §280A(g)</a>), and then improving equity and neutrality, and simplifying wherever possible. Yes, some of these changes accomplish these objectives, but most do not.</span></p><p><span style="font-family: verdana;">What do you think?</span></p><p><span style="font-family: verdana;">Here is the list from the JCT Bluebook table of contents with my modification that I numbered the changes from 1 to 172 (unfortunately, Blogspot removes the numbering - but there are 172 provisions).</span></p><p></p><p class="MsoNormal" style="line-height: normal; margin-bottom: 6pt;"><span style="font-family: verdana;"><b>PART ONE:
AMERICAN RESCUE PLAN ACT OF 2021 (PUBLIC LAW 117–2) </b><o:p></o:p></span></p>
<span style="font-family: verdana;"><ol style="text-align: left;"><li><span style="font-family: verdana;"><span style="font-family: verdana;">Extension of limitation on excess
business losses of noncorporate taxpayers (sec. 9041 of the Act and sec.
461(l) and (j) of the Code)</span></span></li><li><span style="font-family: verdana;">Suspension of tax on portion of
unemployment compensation (sec. 9042 of the Act and sec. 85 of the Code)</span></li><li><span style="font-family: verdana;">Preserving health benefits for workers
(sec. 9501 of the Act; sec. 4980B and new secs. 139I, 6432, and 6720C of
the Code; and secs. 601 to 608 of ERISA)</span></li><li><span style="font-family: verdana;">2021 recovery rebates to individuals
(sec. 9601 of the Act and secs. 6428, 6428A, and new sec. 6428B of the
Code)</span></li><li><span style="font-family: verdana;">4. Child tax credit improvements for 2021
(sec. 9611 of the Act and sec. 24 and new sec. 7527A of the Code)</span></li><li><span style="font-family: verdana;">5. Application of child tax credit in
possessions (sec. 9612 of the Act and sec. 24 and new sec. 7527A of the
Code)</span></li><li><span style="font-family: verdana;">Strengthening the earned income tax
credit for individuals with no qualifying children (sec. 9621 of the Act
and sec. 32 of the Code)</span></li><li><span style="font-family: verdana;">Taxpayer eligible for childless earned
income credit in case of qualifying children who fail to meet certain
identification requirements (sec. 9622 of the Act and sec. 32 of the Code)</span></li><li><span style="font-family: verdana;">Credit allowed in case of certain
separated spouses (sec. 9623 of the Act and sec. 32 of the Code)</span></li><li><span style="font-family: verdana;">Modification of disqualified
investment income test (sec. 9624 of the Act and sec. 32 of the Code)</span></li><li><span style="font-family: verdana;">Application of earned income tax
credits in possessions of the United States (sec. 9625 of the Act and sec.
32 of the Code)</span></li><li><span style="font-family: verdana;">Temporary special rule for determining
earned income for purposes of earned income tax credit (sec. 9626 of the
Act and sec. 32 of the Code)</span></li><li><span style="font-family: verdana;">Refundability and enhancement of child
and dependent care tax credit (sec. 9631 of the Act and sec. 21 of the
Code)</span></li><li><span style="font-family: verdana;">Increase in exclusion for
employer-provided dependent care assistance (sec. 9632 of the Act and sec.
129 of the Code)</span></li><li><span style="font-family: verdana;">Extension of credits and other
modifications (secs. 9641 to 9643 of the Act)</span></li><li><span style="font-family: verdana;">Extension of employee retention credit
(sec. 9651 of the Act and new sec. 3134 of the Code)</span></li><li><span style="font-family: verdana;">Improving affordability by expanding
premium assistance for consumers (Sec. 9661 of the Act and sec. 36B of the
Code)</span></li><li><span style="font-family: verdana;">Temporary modification of limitations
on reconciliation of tax credits for coverage under a qualified health
plan with advance payments of such credit (sec. 9662 of the Act and sec.
36B of the Code)</span></li><li><span style="font-family: verdana;">Application of premium tax credit in
case of individuals receiving unemployment compensation during 2021 (sec.
9663 of the Act and sec. 36B of the Code)</span></li><li><span style="font-family: verdana;">Repeal of worldwide allocation of
interest election (sec. 9671 of the Act and sec. 864 of the Code)</span></li><li><span style="font-family: verdana;">Clarification of tax treatment of
targeted EIDL advances and restaurant revitalization grants (secs. 9672
and 9673 of the Act)</span></li><li><span style="font-family: verdana;">Modification of exceptions for
reporting of third party network transactions (sec. 9674 of the Act and
sec. 6050W of the Code)</span></li><li><span style="font-family: verdana;">Modification of treatment of student
loan forgiveness (sec. 9675 of the Act and sec. 108 of the Code)</span></li><li><span style="font-family: verdana;">Temporary delay of designation of
multiemployer plans as in endangered, critical, or critical and declining
status (sec. 9701 of the Act, sec. 432 of the Code, and sec. 305 of ERISA)</span></li><li><span style="font-family: verdana;">Temporary extension of the funding
improvement and rehabilitation periods for multiemployer pension plans in
critical and endangered status for 2020 or 2021 (sec. 9702 of the Act,
sec. 432 of the Code, and sec. 305 of ERISA)</span></li><li><span style="font-family: verdana;">Adjustments to funding standard
account rules (sec. 9703 of the Act, sec. 431 of the Code, and sec. 304 of
ERISA)</span></li><li><span style="font-family: verdana;">Special financial assistance program
for financially troubled multiemployer plans (sec. 9704 of the Act, sec.
432 of the Code, and secs. 4005, 4006, and 4262 of ERISA)</span></li><li><span style="font-family: verdana;">Extended amortization for single
employer plans (sec. 9705 of the Act, sec. 430 of the Code, and sec. 303
of ERISA)</span></li><li><span style="font-family: verdana;">6. Extension of pension funding
stabilization percentages for single employer plans (sec. 9706 of the Act,
sec. 430 of the Code, and secs. 101 and 303 of ERISA)</span></li><li><span style="font-family: verdana;">Modification of special rules for
minimum funding standards for community newspaper plans (sec. 9707 of the
Act, sec. 430 of the Code, and sec. 303 of ERISA)</span></li><li><span style="font-family: verdana;">Expansion of limitation on excessive
employee remuneration (sec. 9708 of the Act and sec. 162(m) of the Code).</span></li></ol><b>PART TWO:
SURFACE TRANSPORTATION EXTENSION ACT OF 2021 (PUBLIC LAW 117–44)</b><br /><ol style="text-align: left;"><li><span style="font-family: verdana;">Extension of expenditure authority for
Highway Trust Fund, Sport Fish Restoration and Boating Trust Fund, and
Leaking Underground Storage Tank Trust Fund (sec. 201 of the Act and secs.
9503, 9504, and 9508 of the Code)</span></li></ol><b>PART
THREE: FURTHER SURFACE TRANSPORTATION EXTENSION ACT OF 2021 (PUBLIC LAW 117–52)</b><br /><ol style="text-align: left;"><li><span style="font-family: verdana;">Extension of expenditure authority for
Highway Trust Fund, Sport Fish Restoration and Boating Trust Fund, and
Leaking Underground Storage Tank Trust Fund (sec. 4 of the Act and secs.
9503, 9504, and 9508 of the Code)</span></li></ol><b>PART FOUR:
INFRASTRUCTURE INVESTMENT AND JOBS ACT (PUBLIC LAW 117–58)</b><br /><ol style="text-align: left;"><li><span style="font-family: verdana;">Extension of Highway Trust Fund expenditure
authority (sec. 80101 of the Act and secs. 9503, 9504, and 9508 of the
Code)</span></li><li><span style="font-family: verdana;">Extension of highway-related taxes
(sec. 80102 of the Act and secs. 4041, 4051, 4071, 4081, 4221, 4481, 4483,
and 6412 of the Code)</span></li><li><span style="font-family: verdana;">Further additional transfers to the
Highway Trust Fund (sec. 80103 of the Act and sec. 9503 of the Code)</span></li><li><span style="font-family: verdana;">Extension and modification of certain
Superfund excise taxes (sec. 80201 of the Act and secs. 4661, 4671, and
4672 of the Code)</span></li><li><span style="font-family: verdana;">Private activity bonds for qualified
broadband projects (sec. 80401 of the Act and secs. 141 and 142 of the
Code)</span></li><li><span style="font-family: verdana;">Carbon dioxide capture facilities
(sec. 80402 of the Act and secs. 141 and 142 of the Code)</span></li><li><span style="font-family: verdana;">Increase in national limitation amount
for qualified highway or surface freight transportation facilities (sec.
80403 of the Act and secs. 141 and 142 of the Code)</span></li><li><span style="font-family: verdana;">Modification of automatic extension of
certain deadlines in the case of taxpayers affected by Federally declared
disasters (sec. 80501 of the Act and sec. 7508A of the Code)</span></li><li><span style="font-family: verdana;">Modification of rules for postponing
certain acts by reason of service in combat zone or contingency operation
(sec. 80502 of the Act and sec. 7508 of the Code)</span></li><li><span style="font-family: verdana;">Tolling of time within which to file a
Tax Court petition (sec. 80503 of Act and sec. 7451 of the Code)</span></li><li><span style="font-family: verdana;">Authority to postpone certain tax
deadlines by reason of significant fires (sec. 80504 of the Act and sec.
7508A of the Code)</span></li><li><span style="font-family: verdana;">Modification of tax treatment of
contributions to the capital of a corporation (sec. 80601 of the Act and
sec. 118 of the Code)</span></li><li><span style="font-family: verdana;">Extension of interest rate
stabilization (sec. 80602 of the Act, sec. 430 of the Code, and secs. 101
and 303 of ERISA)</span></li><li><span style="font-family: verdana;">Information reporting for brokers and
digital assets (sec. 80603 of the Act and secs. 6045, 6045A, and 6050I of
the Code)</span></li><li><span style="font-family: verdana;">Termination of employee retention
credit for employers subject to closure due to COVID–19 (sec. 80604 of the
Act and sec. 3134 of the Code)</span></li></ol><b>PART FIVE:
CONSOLIDATED APPROPRIATIONS ACT, 2022 (PUBLIC LAW 117–103)</b><br /><ol style="text-align: left;"><li><span style="font-family: verdana;">Exemption for telehealth services
(sec. 307 of Division P of the Act and sec. 223 of the Code)</span></li></ol><b>PART SIX:
CHIPS ACT OF 2022 (PUBLIC LAW 117–167, DIVISION A)</b><br /><ol style="text-align: left;"><li><span style="font-family: verdana;">Advanced manufacturing investment
credit (sec. 107 of the Act and new sec. 48D of the Code)</span></li></ol><b>PART
SEVEN: AN ACT TO PROVIDE FOR RECONCILIATION PURSUANT TO TITLE II OF S. CON.
RES. 14 (PUBLIC LAW 117–169)</b><b>[IRA 2022]</b><ol style="text-align: left;"><li><span style="font-family: verdana;">Corporate alternative minimum tax
(secs. 10101 and 13904(a) of the Act; secs. 38, 55, and 6655; and new
secs. 56A and 59(k) and (l) of the Code)</span></li><li><span style="font-family: verdana;">Excise tax on repurchase of corporate
stock (sec. 10201 of the Act and new sec. 4501 of the Code)</span></li><li><span style="font-family: verdana;">Excise tax imposed on drug
manufacturers during noncompliance periods (sec. 11003 of the Act and sec.
5000D of the Code)</span></li><li><span style="font-family: verdana;">Safe harbor for absence of deductible
for insulin (sec. 11408 of the Act and sec. 223 of the Code)</span></li><li><span style="font-family: verdana;">Improve affordability and reduce
premium costs of health insurance for consumers (sec. 12001 of the Act and
sec. 36B of the Code)</span></li><li><span style="font-family: verdana;">Extension and modification of credit
for electricity produced from certain renewable resources (sec. 13101 of
the Act and secs. 45 and 48 of the Code)</span></li><li><span style="font-family: verdana;">Extension and modification of energy
credit (sec. 13102 of the Act and sec. 48 of the Code)</span></li><li><span style="font-family: verdana;">Increase in energy credit for solar
and wind facilities placed in service in connection with low-income
communities (sec. 13103 of the Act and sec. 48 of the Code)</span></li><li><span style="font-family: verdana;">Extension and modification of credit
for carbon oxide sequestration (sec. 13104 of the Act and sec. 45Q of the
Code)</span></li><li><span style="font-family: verdana;">Zero-emission nuclear power production
credit (sec. 13105 of the Act and new sec. 45U of the Code)</span></li><li><span style="font-family: verdana;">Extension of incentives for biodiesel,
renewable diesel and alternative fuels (sec. 13201 of the Act and secs.
40A, 6426, and 6427 of the Code) ..... 225 7. Extension of second
generation biofuel incentives (sec. 13202 of the Act and sec. 40(b)(6) of
the Code)</span></li><li><span style="font-family: verdana;">Sustainable aviation fuel credit (sec.
13203 of the Act and new sec. 40B of the Code)</span></li><li><span style="font-family: verdana;">Clean hydrogen (sec. 13204 of the Act
and new sec. 45V of the Code) ...... 232 10. Extension, increase, and
modifications of nonbusiness energy property credit (sec. 13301 of the Act
and sec. 25C of the Code)</span></li><li><span style="font-family: verdana;">Residential clean energy credit (sec.
13302 of the Act and sec. 25D of the Code)</span></li><li><span style="font-family: verdana;">Energy efficient commercial buildings
deduction (sec. 13303 of the Act and sec. 179D of the Code)</span></li><li><span style="font-family: verdana;">New energy efficient home credit (sec.
13304 of the Act and sec. 45L of the Code)</span></li><li><span style="font-family: verdana;">Clean vehicle credit (sec. 13401 of
the Act and sec. 30D of the Code)</span></li><li><span style="font-family: verdana;">Credit for previously owned clean
vehicles (sec. 13402 of the Act and new sec. 25E of the Code)</span></li><li><span style="font-family: verdana;">Qualified commercial clean vehicles
(sec. 13403 of the Act and new sec. 45W of the Code)</span></li><li><span style="font-family: verdana;">Alternative fuel refueling property
credit (sec. 13404 of the Act and sec. 30C of the Code)</span></li><li><span style="font-family: verdana;">Extension of the advanced energy
project credit (sec. 13501 of the Act and sec. 48C of the Code)</span></li><li><span style="font-family: verdana;">Advanced manufacturing production
credit (sec. 13502 of the Act and new sec. 45X of the Code)</span></li><li><span style="font-family: verdana;">Reinstatement of Superfund (sec. 13601
of the Act and sec. 4611 of the Code)</span></li><li><span style="font-family: verdana;">Clean electricity production credit
(sec. 13701 of the Act and new sec. 45Y of the Code)</span></li><li><span style="font-family: verdana;">Clean electricity investment credit
(sec. 13702 of the Act and new sec. 48E of the Code)</span></li><li><span style="font-family: verdana;">Cost recovery for qualified
facilities, qualified property, and energy storage technology (sec. 13703
of the Act and sec. 168(e)(3)(B) of the Code)</span></li><li><span style="font-family: verdana;">Clean fuel production credit (sec.
13704 of the Act and new sec. 45Z of the Code)</span></li><li><span style="font-family: verdana;">Elective payment for energy property
and electricity produced from certain renewable resources, etc. (sec.
13801 of the Act and sec. 39 and new secs. 6417 and 6418 of the Code)</span></li><li><span style="font-family: verdana;">Permanent extension of tax rate to
fund Black Lung Disability Trust Fund (sec. 13901 of the Act and sec. 4121
of the Code)</span></li><li><span style="font-family: verdana;">Increase in research credit against
payroll tax for small businesses (sec. 13902 of the Act and secs. 41(h)
and 3111(f) of the Code)</span></li><li><span style="font-family: verdana;">Extension of limitation on excess
business losses of noncorporate taxpayers (sec. 13903(b) of the Act and
sec. 461(l) and (j) of the Code)</span></li><li><span style="font-family: verdana;">Removal of harmful small business
taxes; extension of limitation on deduction for state and local, etc.,
taxes (secs. 13904 and 10101 of the Act and secs. 55 and 59 of the Code)</span></li></ol><b>PART
EIGHT: CONSOLIDATED APPROPRIATIONS ACT, 2023 (PUBLIC LAW 117–328) - DIVISION
T—SECURE 2.0 ACT OF 2022</b><br /><ol style="text-align: left;"><li><span style="font-family: verdana;">Expanding automatic enrollment in
retirement plans (sec. 101 of the Act and sec. 414 of the Code)</span></li><li><span style="font-family: verdana;">Modification of credit for small
employer pension plan start-up costs (sec. 102 of the Act and sec. 45E of
the Code)</span></li><li><span style="font-family: verdana;">Saver’s match (sec. 103 of the Act and
new sec. 6433 of the Code)</span></li><li><span style="font-family: verdana;">Promotion of saver’s match (sec. 104
of the Act)</span></li><li><span style="font-family: verdana;">Pooled employer plans modification
(sec. 105 of the Act and section 3(43) of ERISA)</span></li><li><span style="font-family: verdana;">Multiple employer 403(b) plans (sec.
106 of the Act and secs. 403(b), 6057, and 6058 of the Code and secs.
3(43) and 3(44) of ERISA)</span></li><li><span style="font-family: verdana;">Increase in age for required beginning
date for mandatory distributions (sec. 107 of the Act and sec. 401(a)(9)
of the Code)</span></li><li><span style="font-family: verdana;">Indexing IRA catch-up limit (sec. 108
of the Act and sec. 219 of the Code)</span></li><li><span style="font-family: verdana;">Higher catch-up limit to apply at age
60, 61, 62, and 63 (sec. 109 of the Act and sec. 414(v) of the Code)</span></li><li><span style="font-family: verdana;">Treatment of student loan payments as
elective deferrals for purposes of matching contributions (sec. 110 of the
Act and secs. 401(m), 403(b), 408(p), and 457(b) of the Code)</span></li><li><span style="font-family: verdana;">Application of credit for small
employer pension plan start-up costs to employers which join an existing
plan (sec. 111 of the Act and sec. 45E of the Code)</span></li><li><span style="font-family: verdana;">Military spouse retirement plan
eligibility credit for small employers (sec. 112 of the Act and new sec.
45AA of the Code)</span></li><li><span style="font-family: verdana;">Small immediate financial incentives
for contributing to a plan (sec. 113 of the Act and secs. 401(k), 403(b),
and 4975 of the Code)</span></li><li><span style="font-family: verdana;">Deferral of tax for certain sales of
employer stock to employee stock ownership plan sponsored by S corporation
(sec. 114 of the Act and sec. 1042 of the Code)</span></li><li><span style="font-family: verdana;">Withdrawals for certain emergency
expenses (sec. 115 of the Act and sec. 72(t) of the Code)</span></li><li><span style="font-family: verdana;">Allow additional nonelective
contributions to SIMPLE plans (sec. 116 of the Act and sec. 408(p) of the
Code)</span></li><li><span style="font-family: verdana;">Contribution limit for SIMPLE plans
(sec. 117 of the Act and secs. 401(k), 408(p), and 414(v) of the Code)</span></li><li><span style="font-family: verdana;">Tax treatment of certain non-trade or
business SEP contributions (sec. 118 of the Act and sec. 4972 of the Code)</span></li><li><span style="font-family: verdana;">Application of section 415 limit for
certain employees of rural electric cooperatives (sec. 119 of the Act and
sec. 415(b) of the Code)</span></li><li><span style="font-family: verdana;">Exemption for certain automatic
portability transactions (sec. 120 of the Act and sec. 4975 of the Code)</span></li><li><span style="font-family: verdana;">Starter 401(k) plans for employers
with no retirement plan (sec. 121 of the Act and new secs. 401(k)(16) and
403(b)(16) of the Code)</span></li><li><span style="font-family: verdana;">Certain securities treated as publicly
traded in case of employee stock ownership plans (sec. 123 of the Act and
sec. 401 of the Code)</span></li><li><span style="font-family: verdana;">Modification of age requirement for
qualified ABLE programs (sec. 124 of the Act and sec. 529A of the Code)</span></li><li><span style="font-family: verdana;">Improving coverage for part-time
workers (sec. 125 of the Act, secs. 401(k) and 403(b) of the Code, and
sec. 202 of ERISA)</span></li><li><span style="font-family: verdana;">Special rules for certain
distributions from long-term qualified tuition programs to Roth IRAs (sec.
126 of the Act and sec. 529 of the Code)</span></li><li><span style="font-family: verdana;">Emergency savings accounts linked to
individual account plans (sec. 127 of the Act, sec. 402A of the Code, and
new secs. 801 to 804 of ERISA)</span></li><li><span style="font-family: verdana;">Enhancement of 403(b) plans (sec. 128
of the Act and sec. 403(b) of the Code)</span></li><li><span style="font-family: verdana;">Remove required minimum distribution
barriers for life annuities (sec. 201 of the Act and sec. 401(a)(9) of the
Code)</span></li><li><span style="font-family: verdana;">Qualifying longevity annuity contracts
(sec. 202 of the Act and sec. 401(a)(9))</span></li><li><span style="font-family: verdana;">Insurance-dedicated exchange-traded
funds (sec. 203 of the Act and sec. 817(h) of the Code)</span></li><li><span style="font-family: verdana;">Eliminating a penalty on partial
annuitization (sec. 204 of the Act and Treas. Reg. secs. 1.401(a)(9)–5 and
–6)</span></li><li><span style="font-family: verdana;">Recovery of retirement plan
overpayments (sec. 301 of the Act, secs. 402 and 414 of the Code, and sec.
206 of ERISA)</span></li><li><span style="font-family: verdana;">Reduction in excise tax on certain
accumulations in qualified retirement plans (sec. 302 of the Act and sec.
4974 of the Code)</span></li><li><span style="font-family: verdana;">Retirement savings lost and found
(sec. 303 of the Act and new sec. 523 of ERISA)</span></li><li><span style="font-family: verdana;">Updating the dollar limit for
mandatory distributions (sec. 304 of the Act, sec. 401(a)(31) of the Code,
and sec. 203(e)(1) of ERISA)</span></li><li><span style="font-family: verdana;">Expansion of Employee Plans Compliance
Resolution System (sec. 305 of the Act and secs. 401, 403, and 408 of the
Code)</span></li><li><span style="font-family: verdana;">Eliminate the ‘‘first day of the
month’’ requirement for governmental section 457(b) plans (sec. 306 of the
Act and sec. 457(b) of the Code)</span></li><li><span style="font-family: verdana;">One-time election for qualified
charitable distribution to split-interest entity; increase in qualified
charitable distribution limitation (sec. 307 of the Act and sec. 408(d)(8)
of the Code)</span></li><li><span style="font-family: verdana;">Distributions to firefighters (sec.
308 of the Act and sec. 72(t) of the Code)</span></li><li><span style="font-family: verdana;">Exclusion of certain
disability-related first responder retirement payments (sec. 309 of the
Act and new sec. 139C of the Code)</span></li><li><span style="font-family: verdana;">Application of top-heavy rules to
defined contribution plans covering excludable employees (sec. 310 of the
Act and sec. 416 of the Code)</span></li><li><span style="font-family: verdana;">Repayment of qualified birth or
adoption distributions limited to three years (sec. 311 of the Act and
sec. 72(t) of the Code)</span></li><li><span style="font-family: verdana;">Employer may rely on employee
certifying that deemed hardship distribution conditions are met (sec. 312
of the Act and secs. 401(k), 403(b), and 457(b) of the Code)</span></li><li><span style="font-family: verdana;">Individual retirement plan statute of
limitations for excise tax on excess contributions and certain
accumulations (sec. 313 of the Act and sec. 6501 of the Code)</span></li><li><span style="font-family: verdana;">Penalty-free withdrawals from
retirement plans for individuals in case of domestic abuse (sec. 314 of
the Act and sec. 72(t) of the Code)</span></li><li><span style="font-family: verdana;">Reform of family attribution rule
(sec. 315 of the Act and sec. 414 of the Code)</span></li><li><span style="font-family: verdana;">Amendments to increase benefit
accruals under plan for previous plan year allowed until employer tax
return due date (sec. 316 of the Act and sec. 401(b) of the Code)</span></li><li><span style="font-family: verdana;">Retroactive first year elective
deferrals for sole proprietors (sec. 317 of the Act and sec. 401(b) of the
Code)</span></li><li><span style="font-family: verdana;">Performance benchmarks for asset
allocation funds (sec. 318 of the Act and sec. 404 of ERISA)</span></li><li><span style="font-family: verdana;">Review and report to Congress relating
to reporting and disclosure requirements (sec. 319 of the Act)</span></li><li><span style="font-family: verdana;">Eliminating unnecessary plan
requirements related to unenrolled participants (sec. 320 of the Act and
sec. 414 of the Code)</span></li><li><span style="font-family: verdana;">Review of pension risk transfer
interpretive bulletin (sec. 321 of the Act and sec. 404(a) of ERISA)</span></li><li><span style="font-family: verdana;">Tax treatment of IRA involved in a
prohibited transaction (sec. 322 of the Act and sec. 408 of the Code)</span></li><li><span style="font-family: verdana;">Clarification of substantially equal
periodic payment rule (sec. 323 of the Act and sec. 72(t) and (q) of the
Code)</span></li><li><span style="font-family: verdana;">Treasury guidance on rollovers (sec.
324 of the Act and secs. 402(c) and 408(d) of the Code)</span></li><li><span style="font-family: verdana;">Roth plan distribution rules (sec. 325
of the Act and sec. 402A(d) of the Code)</span></li><li><span style="font-family: verdana;">Exception to penalty on early
distributions from qualified plans for individuals with a terminal illness
(sec. 326 of the Act and sec. 72(t) of the Code)</span></li><li><span style="font-family: verdana;">Surviving spouse election to be
treated as employee (sec. 327 of the Act and sec. 401(a)(9) of the Code)</span></li><li><span style="font-family: verdana;">Repeal of direct payment requirement
on exclusion from gross income of distributions from governmental plans
for health and long-term care insurance (sec. 328 of the Act and sec.
402(l)(5)(A) of the Code)</span></li><li><span style="font-family: verdana;">Modification of eligible age for
exemption from early withdrawal penalty (sec. 329 of the Act and sec.
72(t) of the Code)</span></li><li><span style="font-family: verdana;">Exemption from early withdrawal
penalty for certain State and local government corrections employees (sec.
330 of the Act and sec. 72(t) of the Code)</span></li><li><span style="font-family: verdana;">Special rules for use of retirement
funds in connection with qualified Federally declared disasters (sec. 331
of the Act and sec. 72 of the Code)</span></li><li><span style="font-family: verdana;">Employers allowed to replace SIMPLE
retirement accounts with safe harbor 401(k) plans during a year (sec. 332
of the Act and secs. 72(t) and 408(p) of the Code)</span></li><li><span style="font-family: verdana;">Elimination of additional tax on
corrective distributions of excess contributions (sec. 333 of the Act and
sec. 72(t) of the Code)</span></li><li><span style="font-family: verdana;">Long-term care contracts purchased
with retirement plan distributions (sec. 334 of the Act and sec. 6724(d)
and new secs. 72(t)(2)(N), 401(a)(39), 403(a)(6), and 6050Z of the Code)</span></li><li><span style="font-family: verdana;">Corrections of mortality tables (sec.
335 of the Act and sec. 430(h) of the Code)</span></li><li><span style="font-family: verdana;">Report to Congress on section 402(f)
notices (sec. 336 of the Act)</span></li><li><span style="font-family: verdana;">Modification of required minimum
distribution rules for special needs trusts (sec. 337 of the Act and sec.
401(a)(9) of the Code)</span></li><li><span style="font-family: verdana;">Requirement to provide paper
statements in certain cases (sec. 338 of the Act and sec. 105 of ERISA)</span></li><li><span style="font-family: verdana;">Recognition of tribal government
domestic relations orders (sec. 339 of the Act, sec. 414 of the Code, and
sec. 206 of ERISA)</span></li><li><span style="font-family: verdana;">Defined contribution plan fee
disclosure improvements (sec. 340 of the Act and sec. 404 of ERISA)</span></li><li><span style="font-family: verdana;">Consolidation of defined contribution
plan notices (sec. 341 of the Act, secs. 401(k) and 414(w) of the Code,
and secs. 404(c) and 514(e) of ERISA)</span></li><li><span style="font-family: verdana;">Information needed for financial
options risk mitigation (sec. 342 of the Act and new sec. 113 of ERISA)</span></li><li><span style="font-family: verdana;">Defined</span></li><li><span style="font-family: verdana;">Report on pooled employer plans (sec.
344 of the Act and sec. 3(43) of ERISA)</span></li><li><span style="font-family: verdana;">Annual audits for groups of plans
(sec. 345 of the Act)</span></li><li><span style="font-family: verdana;">Cash balance (sec. 348 of the Act,
sec. 411(b) of the Code, and sec. 204(b) of ERISA)</span></li><li><span style="font-family: verdana;">Termination of variable rate premium
indexing (sec. 349 of the Act and sec. 4006(a) of ERISA)</span></li><li><span style="font-family: verdana;">Safe harbor for corrections of
employee elective deferral failures (sec. 350 of the Act and sec. 414 of
the Code)</span></li><li><span style="font-family: verdana;">Amendments relating to Setting Every
Community Up for Retirement Enhancement Act of 2019 (sec. 401 of the Act
and secs. 401(k), 401(m), and 4973 of the Code)</span></li><li><span style="font-family: verdana;">Provisions relating to plan amendments
(sec. 501 of the Act)</span></li><li><span style="font-family: verdana;">SIMPLE and SEP Roth IRAs (sec. 601 of
the Act and secs. 408(k) and 408(p) of the Code)</span></li><li><span style="font-family: verdana;">Hardship withdrawal rules for 403(b)
plans (sec. 602 of the Act and sec. 403(b) of the Code)</span></li><li><span style="font-family: verdana;">Elective deferrals generally limited
to regular contribution limit (sec. 603 of the Act and sec. 414(v) of the
Code)</span></li><li><span style="font-family: verdana;">Optional treatment of employer
matching and nonelective contributions as Roth contributions (sec. 604 of
the Act and sec. 402A of the Code)</span></li><li><span style="font-family: verdana;">Charitable conservation easements
(sec. 605 of the Act and secs. 170, 6662, and 6664 of the Code)</span></li><li><span style="font-family: verdana;">Enhancing retiree health benefits in
pension plans (sec. 606 of the Act and sec. 420 of the Code)</span></li><li><span style="font-family: verdana;">Provisions relating to judges of the
Tax Court (sec. 701 of the Act and secs. 7447 and 7448 of the Code)</span></li><li><span style="font-family: verdana;">Provisions relating to special trial
judges of the Tax Court (sec. 702 of the Act and new sec. 7447A of the
Code)</span></li><li><span style="font-family: verdana;">Extension of safe harbor for absence
of deductible for telehealth (sec. 4151 of Division FF of the Act and sec.
223(c) of the Code)</span></li></ol></span><ol start="83" style="margin-top: 0in; text-align: left;" type="1">
</ol>
<p align="center" class="MsoNormal" style="line-height: normal; margin-bottom: 6.0pt; margin-left: .25in; margin-right: 0in; margin-top: 0in; margin: 0in 0in 6pt 0.25in; text-align: center;"><span style="font-family: verdana;"><b>End of Tax Changes of the 117th Congress</b><o:p></o:p></span></p><br /><p></p>Professor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.com0tag:blogger.com,1999:blog-2135788133426971614.post-41394162670662194952023-12-03T00:36:00.000-08:002023-12-03T00:36:08.339-08:00Odd Exclusion for Home Rental Is Overdue for Repeal<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjxUs1P4t3Rr9LJBlx-OaihNQFsTarGU5dsr-cWVaFv4lbfznqFHCGDarVIGhWmzLNhSpnW7FTR4HY6G2usiiLMagOz6FNT_4K5SUsvMwBrAVmw9ZGwuCwlqOltiEdfWOpS7DaZR2zlxM16XOBx4bhRQD2NVxovYylb9CW73JBo5CeUQUqDLxai09fTHl9M/s400/residential_home_with_bow_400_clr_5739%20(1).png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="home with red bow tied around it" border="0" data-original-height="203" data-original-width="400" height="162" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjxUs1P4t3Rr9LJBlx-OaihNQFsTarGU5dsr-cWVaFv4lbfznqFHCGDarVIGhWmzLNhSpnW7FTR4HY6G2usiiLMagOz6FNT_4K5SUsvMwBrAVmw9ZGwuCwlqOltiEdfWOpS7DaZR2zlxM16XOBx4bhRQD2NVxovYylb9CW73JBo5CeUQUqDLxai09fTHl9M/w320-h162/residential_home_with_bow_400_clr_5739%20(1).png" width="320" /></a></div><p><span style="font-family: verdana;">IRC Section 280A was enacted in 1976 (P.L. 94-455). This provision deals with office in the home and rental of a residence. It has a few provisions that either are no longer needed (rental of a residence can be governed by the passive activity loss limitation added in 1986) or clarified (the home office rules are not easy to get through). And ... subsection (g) should be repealed as inequitable and unnecessary.</span></p><p><span style="font-family: verdana;"><a href="https://www.law.cornell.edu/uscode/text/26/280A" target="_blank">Section 280A(g)</a> provides that if a "dwelling unit" is used as a residence and rented for less than 15 days during the year, the rental revenue is tax-free! </span></p><p><span style="font-family: verdana;">There is no logic to this exclusion. Anything else rented for 14 days or less during the year doesn't produce tax-free income. Perhaps it was to address small amounts of income someone might generate such as when a movie studio uses all or part of a home for 14 days or less. This rule is referred to by some as the "US Open tax break" because if your home (main home or vacation home) is near a venue where a major event will take place such as the US Open, the Super Bowl, a political convention, or other event where someone would love to rent your home, you are the winner. You can charge a lot of revenue and it's tax free. If you incur extra insurance or cleaning expenses, they are not deductible, but this is still a significant tax break.</span></p><p><span style="font-family: verdana;">In a recent case, <i><a href="https://dawson.ustaxcourt.gov/case-detail/10838-20" target="_blank">Sinopoli</a></i>, TC Memo 2023-105, the IRS and Tax Court allowed its use where shareholders of an S corporation held monthly meetings in each shareholders' homes resulting in each renting their "dwelling unit" for under 15 days. Now, they were charging way beyond what fair rent was (they charged $3,000 per use) but the IRS and court agreed on $500 although the court found this IRS figure to be "generous." </span></p><p><span style="font-family: verdana;">The tax benefit to these shareholders is that they get to reduce their S corp income by this rental expense the corporation incurred and they get to treat the rent paid to them as tax-free. </span></p><p><span style="font-family: verdana;">Oddities of this exclusion:</span></p><p></p><ul style="text-align: left;"><li><span style="font-family: verdana;">There was no information in Senate Report 94-1192 for P.L. 94-455 as to why the exclusion was included in a provision intended to clarify the rules for when someone could claim a deduction for an office in their home.</span></li><li><span style="font-family: verdana;">In the <i>Sinopoli </i>case, why should a deduction result in no income to the other party who provided the property? The Tax Court referred to the shareholder and S corp plan as a "tax savings scheme to distribute" the S corp's earnings to shareholders tax free. Why does our tax system have such a scheme?</span></li><li><span style="font-family: verdana;">When a business rents property from someone and pays $600 or more, they are required to issue a From 1099-MISC to the lessor making it easy to track and report as income (Section 6041).</span></li><li><span style="font-family: verdana;">When the lessee is not a business, the lessor can still identify that they collected rental income. After all, that lessor figured out how to advertise their home for rent, they can make a note in their tax files to pick up the rental income.</span></li><li><span style="font-family: verdana;">It has been known for years that this exclusion is used by people of means collecting significant rentals, such as during the US Open or Super Bowl, tax free. This is exclusion is not based on fairness, ability to pay, or any need to encourage such tax-free activity.</span></li></ul><div><span style="font-family: verdana;">I'm not aware of any reason to justify keeping this exclusion. What do you think?</span></div><p></p>Professor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.com3tag:blogger.com,1999:blog-2135788133426971614.post-1076287163709691062023-10-25T21:33:00.001-07:002023-10-25T21:33:28.511-07:00Gasoline Excise Tax Outdated - What will come from recent House hearing on this?<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEire100X0-Y2KAnJTo8rEHFlAAN29ma1SFNZypd7TAQ0qkCLSfIbaISq8IAe5y75VJUq1fmEXllyP471ixdsq3k16RS-WG7PVUi6WLUWqMTEUqUXO25E9zIqFUH8Eewr7qyHwvYUvZkalb-nU6qPo1-5nsm00n60DRRhdff7_cBuDke4lzTSsdTpSqiZV3-/s260/gaspump.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="139" data-original-width="260" height="139" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEire100X0-Y2KAnJTo8rEHFlAAN29ma1SFNZypd7TAQ0qkCLSfIbaISq8IAe5y75VJUq1fmEXllyP471ixdsq3k16RS-WG7PVUi6WLUWqMTEUqUXO25E9zIqFUH8Eewr7qyHwvYUvZkalb-nU6qPo1-5nsm00n60DRRhdff7_cBuDke4lzTSsdTpSqiZV3-/s1600/gaspump.jpg" width="260" /></a></div><p>The federal gasoline excise tax that helps fund road construction and maintenance has been 18 cents per gallon since 1993! The tax is not tied to the price of gasoline or adjusted for inflation. It requires an act of Congress to increase the tax.</p><p>For many years there have been federal and state government studies and ones by think tanks and academics on alternatives to the gasoline excise tax to fund roads, mainly driven by the fact that we drive more fuel efficient cars each year and today many cars run on electricity not gasoline. Since 2008, Congress periodically transfers money from the general fund to the <a href="https://www.fhwa.dot.gov/highwaytrustfund/" target="_blank">Highway Trust Fund</a> to help it out.</p><p>What's the remedy?</p><p>While the gasoline excise tax could be increased, that imposes a higher burden on those driving gasoline powered vehicles to fund the roads that are used by others as well. But at least tying the amount to inflation seems to make sense.</p><p>Fuel efficient cars and electric cars could be charged an annual registration fee equal to what they would likely pay in excise taxes if instead they drove a typical gasoline burning vehicle.</p><p>A road usage fee could be charged, such as a vehicle miles traveled tax (VMT), that has been heavily studied in Oregon and California (and likely elsewhere as well). It is not difficult to track how many miles someone drives and there are ways it can be paid monthly or at least annually when the owner registers their car with their state (with the state sending the tax to the federal government).</p><p>On October 18, 2023, the House Transportation & Infrastructure Committee held a hearing on this issue - <a href="https://transportation.house.gov/calendar/eventsingle.aspx?EventID=406894" target="_blank">Running on Empty: The Highway Trust Fund</a>. One of the witnesses was the Oregon Dept. of Transportation Director who had lots of interesting testimony. It included that since 1993 when the current 18 cents per gallon tax was set, inflation on housing has been 306%, 280% on health care and gasoline at 276%.</p><p>The Oregon rep also explained road usage charges (RUC) noting that they might also be called VMT or mileage-based user fee (MBUF). Since <a href="https://www.oregon.gov/odot/programs/pages/orego.aspx" target="_blank">Oregon </a>has been studying and testing this system for some time, their testimony provides some of this background.</p><p>Key takeaways:</p><p>- A change is way past due to fund the Highway Trust Fund, or make a decision to get rid of it and fund roads from the General Fund.</p><p>- Convert to a RUC and use lessons learned from Oregon's pilot programs in this area.</p><p>- Don't keep postponing a fix because we'll continue to have more electric vehicles on the road in the next several years. I recall that around the time when tax reform was being discussed actively in 2011 through 2015 a subgroup of the Senate Finance Committee <a href="https://www.finance.senate.gov/chairmans-news/finance-committee-bipartisan-tax-working-group-reports" target="_blank">studied </a>tax and infrastructure issues. They noted that we should move to a VMT and it would take about 10 years lead time to do so. But nothing was started and here was are 10 years later with no change.</p><p>What do you think?</p><p><br /></p>Professor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.com0tag:blogger.com,1999:blog-2135788133426971614.post-57795287345566420582023-09-25T21:52:00.001-07:002023-09-25T21:52:32.815-07:00Tax System Changes Can Help Reduce Poverty<p><span style="font-family: verdana;">Today I received information from the National Academies on their new report, <i><a href="https://nap.nationalacademies.org/catalog/27058/reducing-intergenerational-poverty" target="_blank">Reducing Intergenerational Poverty</a></i>, Sept 2023. It defines "intergenerational poverty," provides demographics of this poverty, describes education and health issues associated with continual poverty, and makes recommendations. </span></p><p><span style="font-family: verdana;">The introduction reminds us of the relevance of this topic to us all (page 1):</span></p><blockquote style="border: none; margin: 0px 0px 0px 40px; padding: 0px; text-align: left;"><p><span style="font-family: verdana;">"Capable and responsible adults are the foundation of any well-functioning and prosperous society. Yet low-income families struggle to offer their children the same advantages and necessities that better-off families can offer. As a result, throughout their childhoods children living in families with low incomes face an array of challenges that place them at much higher risk of experiencing poverty in adulthood as compared with other children."</span></p><p><span style="font-family: verdana;">"The costs of perpetuating this cycle of economic disadvantage fall not only on low-income individuals and families themselves, but also on society as a whole. Poverty reduces overall economic output and places increased burdens on the educational, criminal justice, and health care systems. Understanding the causes of intergenerational poverty and implementing programs and policies to reduce it would yield a high payoff for children and for the entire nation."</span></p></blockquote><p><span style="font-family: verdana;">One of the recommendations is to increase and expand the Earned Income Tax Credit (<a href="https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit-eitc" target="_blank">EITC</a>). Per the researchers: "The strongest direct evidence on the likely intergenerational effects for children is found for programs that increase both family income and parental employment during childhood and adolescence." [page 133]</span></p><p><span style="font-family: verdana;">IRS data reports that in 2020, 26 million filers claimed the EITC with the aggregate credit at $59.2 billion (Table A of<a href="https://www.irs.gov/pub/irs-pdf/p1304.pdf" target="_blank"> Individual Income Tax Returns Complete Report 2020</a>).</span></p><p><span style="font-family: verdana;">Where could the money come from to increase and expand the EITC? We can and should reduce various tax breaks that reduce the tax liability of high income individuals by far more than a taxpayer can currently claim as the EITC. The OMB reports that the "cost" of the exclusion for employer-provided health insurance is $224 billion per year. It is not uncommon for this exclusion to be about $10,000 (or even lots more) for one of the roughly 64% of employees who get this tax break (their employer pays all or a portion of their health insurance premiums). Assuming $10,000 of excluded income, this tax break is worth the following at each individual marginal tax rate as follows (the savings is similar to a tax credit of the amount listed below):</span></p><p><span style="font-family: verdana;"> 10% $1,000 tax savings<br /> 12% $1,200 tax savings<br /> 22% $2,200 tax savings<br /> 24% $2,400 tax savings<br /> 32% $3,200 tax savings<br /> 35% $3,500 tax savings<br /> 37% $3,700 tax savings</span></p><p><span style="font-family: verdana;">The average EITC for a taxpayer claiming it is, per the <a href="https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/eitc-reports-and-statistics" target="_blank">IRS</a>, $2,043. Thinking of the above tax savings as similar to a tax credit, individuals with $10,000 of employer-provided health insurance who are at a 22% bracket or higher are getting a larger credit than the average EITC claimer. And this is quite a tax savings because someone in these higher brackets can afford to pay their health insurance without the tax subsidy. Unlike the Premium Tax Credit, there is no income threshold or affordability limitations on claiming the exclusion for employer-provided health insurance (see <a href="http://21stcenturytaxation.blogspot.com/2023/05/16th-anniversary-of-21st-century.html" target="_blank">blog post of 5/14/23</a>).</span></p><p><span style="font-family: verdana;">Even if this one tax break for employer health insurance were cut in half to $112 billion per year, that would enable the EITC on average to be increased by about $4,000. I note this example just to illustrate that there are tax breaks that can be reduced or eliminated, particularly where they provide a tax break much larger than a typical ETIC, but to people with far greater means for whom the tax break doesn't make a life-changing difference where it would improve the life of a low-income worker and improve economic conditions and living standards in the U.S. for everyone. There are over 100 other tax breaks that could be reduced, particularly where they provide significant subsidies and tax breaks to higher income individuals, whose well-being and that of our society is not improved much by them due to their income levels.</span></p><p><span style="font-family: verdana;">So, why don't we reduce some tax expenditures and use the funds in ways that will truly help people who need the assistance more and will benefit our society and economy as a whole?</span></p><p><span style="font-family: verdana;">What do you think?</span></p>Professor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.com0tag:blogger.com,1999:blog-2135788133426971614.post-44474845781810918212023-09-03T16:35:00.003-07:002023-09-03T16:36:03.317-07:00Tax Reform Hearings of 118th and Prior Congresses<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjmLe3FNWGYfHV2osTmiRKXYukSeLFOmgv1UFfTqkjAUGr0mxHbxCIU2rDh2wtJk1rkRXRNhlN-TUO4RjkVQXrUHELz0pVTBDlPn2oV_GDglVxg092L1HSAKQMHyEmzRT5BqJ0ka-9G8QDm9B_Jehp-a830tTl6UI8kAu_T_wAeVL7xNxG1aCb3nF9pdKb-/s447/HWM.jpg" style="margin-left: 1em; margin-right: 1em;"><img alt="clip from hearing video that says "Ways & Means will begin shortly"" border="0" data-original-height="208" data-original-width="447" height="149" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjmLe3FNWGYfHV2osTmiRKXYukSeLFOmgv1UFfTqkjAUGr0mxHbxCIU2rDh2wtJk1rkRXRNhlN-TUO4RjkVQXrUHELz0pVTBDlPn2oV_GDglVxg092L1HSAKQMHyEmzRT5BqJ0ka-9G8QDm9B_Jehp-a830tTl6UI8kAu_T_wAeVL7xNxG1aCb3nF9pdKb-/w320-h149/HWM.jpg" width="320" /></a></div><p><span style="font-family: verdana;">In case it is of interest to you, something I started doing in 2007 (same year I started this blog) was maintaining a website of tax reform hearings of the 110th Congress and have done so through today finally getting a webpage for the 118th Congress (which started in January 2023) posted today. I use the term "tax reform" broadly here as just about any tax hearing, even the typical April ones to debrief about the filing season can lead to reforms.</span></p><p><span style="font-family: verdana;">The website for the 118th Congress with links back to 110th is here - <a href="https://www.sjsu.edu/people/annette.nellen/website/118th-hearings.htm">https://www.sjsu.edu/people/annette.nellen/website/118th-hearings.htm</a></span></p><p><span style="font-family: verdana;">Unfortunately, some older links on some of the pages are broken because the URLs were changed perhaps due to website redesigns or change in controlling party of the committees. But if you do a web search using the name of the committee, hearing and year, you likely will find the information.</span></p><p><span style="font-family: verdana;">Of interest for the <a href="https://www.sjsu.edu/people/annette.nellen/website/118th-hearings.htm" target="_blank">118th Congress</a> so far is one on the child tax credit which was created in 1997 and its expansion continues to be debated along with other possible tax changes, perhaps as part of appropriation bills. There are also a few on international tax reform.</span></p><p><span style="font-family: verdana;">I started doing this because in my teaching, research and writing on tax policy and reform, I often find interesting items and ideas in the testimony as well as just viewing the topics covered. Having the website with the tax hearings all in one place is helpful - and I'm glad to share.</span></p><p><span style="font-family: verdana;">What do you think?</span></p>Professor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.com0tag:blogger.com,1999:blog-2135788133426971614.post-38195630091984364742023-08-27T20:13:00.003-07:002023-08-27T20:13:56.770-07:00Modernize 1970s Definition of "Tax Shelter" to Help Small Businesses<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj-aaWhSLbmNv-oKLcGUgwZ3wnRR0BEyG-MYqQsmwMXRU-2IdESh8X2PDF7zAAp52pgsn6mqciFYtviMCUG7uZKObQ6MoXYxg6B2FB6H6ncgvuecMlj1SgU47zEbnn6FGBt9uj1Mjfj2P-P_8oiJ8m5uUHLxoC9DsACnmwSBCodPUqOYJY65bo--UWSgvTH/s400/black_umbrella_tax_shelter_text_400_clr_2007%20(1).png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="an umbrella over the word "tax"" border="0" data-original-height="400" data-original-width="400" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj-aaWhSLbmNv-oKLcGUgwZ3wnRR0BEyG-MYqQsmwMXRU-2IdESh8X2PDF7zAAp52pgsn6mqciFYtviMCUG7uZKObQ6MoXYxg6B2FB6H6ncgvuecMlj1SgU47zEbnn6FGBt9uj1Mjfj2P-P_8oiJ8m5uUHLxoC9DsACnmwSBCodPUqOYJY65bo--UWSgvTH/w200-h200/black_umbrella_tax_shelter_text_400_clr_2007%20(1).png" width="200" /></a></div><p><span style="font-family: verdana;">Here is another suggestion from the testimony I submitted for the written record of a Senate Finance Committee and Small Business and Entrepreneurship Committee roundtable held 6/7/23 (see <a href="http://21stcenturytaxation.blogspot.com/2023/08/simplify-and-modernize-by-removing.html" target="_blank">links </a>at my 8/13/23 post).</span></p><p><span style="font-family: verdana;">This one has also been suggested by the AICPA including in letters I signed when chairing the AICPA Tax Executive Committee a few years ago, so it has been around for awhile. It would be a terrific simplification because I think that since the Tax Reform Act of 1986 stated that a tax shelter as defined under IRC Section 448 must use the accrual method regardless of gross receipts level, I think this is likely one of the most overlooked provisions in the law. The additional accounting method simplification added by the TCJA of 2017 further highlighted that a "tax shelter" can't use the favorable methods.</span></p><p><span style="font-family: verdana;">The simplification recommendation:</span></p><p><span style="font-family: verdana;">One way an
entity might be a “tax shelter” is meeting the definition of a syndicate as
defined at IRC Section 1256(e). This definition pre-dates state law changes
that allow the LLC business entity. A business that meets the definition of a “tax
shelter” will not be allowed to use simpler accounting methods but instead will
be required to use the accrual method, inventory accounting rules, and the uniform
capitalization rules of IRC Section 263A.</span></p><p><span style="font-family: verdana;">Today, a
small business might be formed as an LLC with financing provided by some owners
who will not be involved in running the business. If over 35% of losses are
allocated to limited entrepreneurs (inactive owners), the entity is a tax
shelter even though it is running a real business (and might just have start-up
losses or some bad years). The definition needs to be modernized such as to
only be defined as a tax shelter per IRC Section 6662(d) (having a significant
purpose of tax avoidance or evasion).</span></p><p><span style="font-family: verdana;">What do you think?</span></p><p><br /></p>Professor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.com1tag:blogger.com,1999:blog-2135788133426971614.post-34808223870601114282023-08-13T18:09:00.002-07:002023-08-13T18:09:27.415-07:00Simplify and modernize by removing exclusive use for a home office deduction<div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjcXLfbvRmtgNtZvuX3Vrxyq8-vZ2_RoZ7GmFfxlYWhN1QIrI2885JaEZq3sXk4Akxp4gGjOHVWP7XuSUEwjhvvKaL91G7dkeH1b05SZHj8mgFy8-r8D-MDy4jmmJMnw_5zS8bD-rDolFIPs4syZ87m80lk5EkOldlINdEh87OYQWSUiEte2-U4vuDBwBFw/s400/simple_office_desk_400_clr_22348.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="desk and accessories" border="0" data-original-height="373" data-original-width="400" height="186" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjcXLfbvRmtgNtZvuX3Vrxyq8-vZ2_RoZ7GmFfxlYWhN1QIrI2885JaEZq3sXk4Akxp4gGjOHVWP7XuSUEwjhvvKaL91G7dkeH1b05SZHj8mgFy8-r8D-MDy4jmmJMnw_5zS8bD-rDolFIPs4syZ87m80lk5EkOldlINdEh87OYQWSUiEte2-U4vuDBwBFw/w200-h186/simple_office_desk_400_clr_22348.png" width="200" /></a></div><span style="font-family: verdana;"><br /></span></div><span style="font-family: verdana;">Yet more from the testimony I submitted for the written record of a Senate Finance Committee and Small Business and Entrepreneurship Committee <a href="https://www.finance.senate.gov/hearings/tackling-tax-complexity-the-small-business-perspective" target="_blank">roundtable </a>held June 7, 2023 (see my posts of <a href="http://21stcenturytaxation.blogspot.com/2023/07/help-individuals-and-small-businesses.html" target="_blank">7/9/23</a> and <a href="http://21stcenturytaxation.blogspot.com/2023/07/c-reform-hobby-rules-for-equity-and.html" target="_blank">7/2/23</a> and <a href="http://21stcenturytaxation.blogspot.com/2023/06/what-about-expanding-qualified-joint.html" target="_blank">6/25/23</a>). Another way to simplify tax rules for small businesses (such as ones operating out of the owner's home) and modernize tax rules is to remove the exclusive use requirement for the home office deduction.</span><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">Modern life
makes it unlikely that anyone uses a home office only for business activities.
Most people, for example, have a smartphone in their hands and might get a
personal call or text message or use a weather app while in their home office.</span></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">An
alternative would be to allow a home office deduction only if the space is used
over 50% for business and to reduce the deduction based on the percentage of
personal use of the space, such as based on time. Offering a standard home office
deduction, such as allowed by Rev. Proc. 2013-13, would be helpful, with the
amount adjusted annually for inflation (and no exclusive use requirement, but adjusting
the standard deduction for the percent of personal versus business use of the space
based on an average week of use). </span></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">What do you think?</span></div>Professor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.com0tag:blogger.com,1999:blog-2135788133426971614.post-20896724951382186272023-07-30T14:46:00.002-07:002023-07-30T14:46:59.799-07:00Reminder on Resources for Tax Answers<div style="text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi84z-806HCEwTFwMfZih4zPFncy9RQecT6Il6R8di1SL0pqb3mD0BTTmQT0YZEabMKec-20b_FnFCjIDXcMh9_arDPtkKIY1CXJb_1ZAW4js0IN93hYGLyyJ11T514QR432hRVNlT3D-6BF09VoWU-gha-QfuZHyygYi2VKq2TCcyZQaN2HrtsG1c-mdJa/s549/Pub936.jpg" imageanchor="1"><img alt="cover of IRS Publication 936" border="0" data-original-height="549" data-original-width="416" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi84z-806HCEwTFwMfZih4zPFncy9RQecT6Il6R8di1SL0pqb3mD0BTTmQT0YZEabMKec-20b_FnFCjIDXcMh9_arDPtkKIY1CXJb_1ZAW4js0IN93hYGLyyJ11T514QR432hRVNlT3D-6BF09VoWU-gha-QfuZHyygYi2VKq2TCcyZQaN2HrtsG1c-mdJa/w242-h320/Pub936.jpg" width="242" /></a></div><p><span style="font-family: verdana;">A Tax Court Summary Opinion of June 26 on the mortgage interest deduction for 2019 when the taxpayer's aggregate mortgage debt on their principal and second homes exceeded the debt limit included a subtle reminder about the role of IRS publications to support positions taken on tax returns. [<i><a href="https://dawson.ustaxcourt.gov/case-detail/3237-22" target="_blank">McNamara</a></i>, TC Summary Opinion 2023-22 (6/26/23)]</span></p><p><span style="font-family: verdana;">The taxpayer's second home was only owned for 5 months of the year but in calculating the allowable mortgage interest deduction, performed the calculation as if owned 12 months. The taxpayer said they relied on <a href="https://www.irs.gov/pub/irs-pdf/p936.pdf" target="_blank">IRS Publication 936</a>, Home Mortgage Interest Deduction. The court relied on IRC Section 163(h) and related regulations, which it found "unambiguous" in determining the deduction as the IRS determined. </span></p><p><span style="font-family: verdana;">In noting that reliance on the IRS publication was "misguided," the court added: See <i><a href="https://dawson.ustaxcourt.gov/case-detail/8094-97" target="_blank">Miller</a></i>, 114 TC 184, 195 (2000) which explains "that administrative guidance is not binding on the Court when the plain meaning of a statute is clear." But the court did not include the quote on page 195 of that case. Here is is:</span></p><p><span style="font-family: verdana;">"Well-established precedent confirms that taxpayers rely on such publications at their peril. Administrative guidance contained in IRS publications is not binding on the Government, nor can it change the plain meaning of tax statutes."</span></p><p><span style="font-family: verdana;">A few observations and reminders about what can be relied upon to take a position on a return:</span></p><p></p><ul style="text-align: left;"><li><span style="font-family: verdana;">IRS Publications, as well as tax forms and instructions, are not intended to be binding tax law interpretations or rules. They exist to help taxpayers better understand the law and comply with it. However, they might not present all possible rules and scenarios. Binding guidance is the IRC, regulations, and court cases (other than TC Summary Opinions which are not legally treated as precedent).<br /><br /></span></li><li><span style="font-family: verdana;">Why did the Tax Court use the term "administrative guidance" in referring to a publication? I think it is because the word "guidance" is commonly used (and misused). Personally, I prefer to use the term "IRS information" when referring to non-binding items from the IRS such as publications, websites and FAQs (unless the FAQs were released as an Information Release (IR) and Fact Sheet). A better use of "administrative guidance" would have been for anything published in the weekly Internal Revenue Bulletin (<a href="https://www.irs.gov/irb" target="_blank">IRB</a>) such as <a href="https://www.irs.gov/newsroom/understanding-irs-guidance-a-brief-primer" target="_blank">regulations, revenue rulings, revenue procedures, notices, and announcements</a>. While only final and temporary regulations are binding on taxpayers and the courts, taxpayers need to be aware of all items in the IRB and if they decide anything is incorrect and they don't plan to follow it, they should have a strong argument and likely it is a good idea to include a Disclosure Statement with the return (Form 8275 or 8275-R).</span></li></ul><div><span style="font-family: verdana;">So, should we read IRS publications? Yes, I think they are helpful in providing an overview to the law in the area covered by the publication. We need to bear in mind though that they are not precedential (for example, you can't take a position per page 7 of Pub. X), and they likely are not covering all of the law in a particular area so research in binding guidance is needed.</span></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">Perhaps all items from the IRS should state in a common place among documents whether the item is:</span></div><div><ol style="text-align: left;"><li><span style="font-family: verdana;">Binding guidance to avoid a penalty such as under Section 6662 or 6694 that can be relied on for taking a position on a return (after weighing all relevant binding guidance).</span></li><li><span style="font-family: verdana;">Binding guidance to avoid a penalty but not precedential for the taxpayer such as a PLR or TC Summary Opinion. For example, the taxpayer can't say they are taking a position per PLR XXXX (unless it was issued to them).</span></li><li><span style="font-family: verdana;">Non-binding information from the IRS</span></li></ol><div><span style="font-family: verdana;"><br /></span></div></div><div><span style="font-family: verdana;">What do you think?</span></div><p></p>Professor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.com0tag:blogger.com,1999:blog-2135788133426971614.post-49650041721050832262023-07-23T17:30:00.002-07:002023-07-23T17:30:19.984-07:00Problem of Earmarking Tax Revenues<p><span style="font-family: verdana;">When we pay taxes, we likely think they are funding government based on the spending recommendations of elected officials as informed by the government agencies, such as the Dept. of Education, that propose budgets for funding. But this is not true for all tax revenues because some are earmarked to go to certain funds. One that might come to mind are gasoline excise taxes that primarily fund the Highway Trust Fund to build and maintain roads. </span></p><p><span style="font-family: verdana;">States also have various taxes often earmarked for particular causes. For example, in 1998, California voters passed <a href="https://lao.ca.gov/ballot/1998/10_11_1998.htm" target="_blank">Prop 10</a> to add a 50 cent excise tax on a pack of cigarettes. This additional tobacco excise tax was earmarked for the newly created California Children and Families First Commission for various education, health and child care projects to help children.</span></p><p><span style="font-family: verdana;">On July 21, 2023, CalMatters, a nonpartisan, nonprofit news organization, reported: <a href="https://calmatters.org/health/2023/07/first-5-california-tobacco-tax-cuts/" target="_blank">"Californians are smoking less: Why that's a problem for these early childhood services."</a> They report that by 2026, First 5 Association of California expects 30% less revenue compared to 2021. The First 5 program in Kern County also notes the funding decline in its <a href="https://www.kerncounty.com/home/showpublisheddocument/10071/638227612221530000" target="_blank">2022-2023 report</a>, resulting in less services for children 5 and under.</span></p><p><span style="font-family: verdana;">So, it's good that fewer people are smoking, but important programs lose funding as a result. What an odd system!</span></p><p><span style="font-family: verdana;">And the oddity can go the other way as well. For example, the federal gasoline excise tax has been 18.3 cents/gallon since 1993 and is not adjusted for inflation or that fact that cars are more fuel efficient and electric cars don't pay this tax. Money has to be transferred from the General Fund to try to fund highway projects. That begs the question, why not just get rid of the excise tax and fund the roads from the General Fund?</span></p><p><span style="font-family: verdana;">How will the programs for children continue to run with reduced revenue due to reduced tobacco taxes?</span></p><p><span style="font-family: verdana;">There are many options including cutting some other spending that is not needed, reducing the number of tax breaks such as not charging sales tax on digital goods, entertainment, personal services and household utilities. Reducing the number of income tax breaks such as a mortgage interest deduction for a vacation home or home equity loan.</span></p><p><span style="font-family: verdana;">Why did the earmarking occur? Possibly it is easier to enact the new tax when people know a specific purpose it will serve. But as evidenced by the drop in tobacco taxes, it is not a reliable source for funding important programs.</span></p><p><span style="font-family: verdana;">What do you think should be done?</span></p>Professor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.com0tag:blogger.com,1999:blog-2135788133426971614.post-79661029119876076182023-07-09T20:32:00.001-07:002023-07-09T20:32:08.455-07:00Help individuals and small businesses by promoting tax literacy<div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiShVuDlD87Cut3YHUagtoobuYkZQbY_MASgw9L7IvADrRBZ_7Tv2ajNBiPhFKXH1s8m6mwy5M5rqaFwGTiGYpn5i4QjPnOxyr30ry7-7rgK7zFwbmg7jxYyx4a4a94wfRhI8N2OiQBqBtLhvLhg25jVSXDjmgFXGkP8hUjOyaa9XCugO4PGZOId5xiivqB/s150/james_surfing_on_book_150_clr_26253.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="boy surfing on a book" border="0" data-original-height="103" data-original-width="150" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiShVuDlD87Cut3YHUagtoobuYkZQbY_MASgw9L7IvADrRBZ_7Tv2ajNBiPhFKXH1s8m6mwy5M5rqaFwGTiGYpn5i4QjPnOxyr30ry7-7rgK7zFwbmg7jxYyx4a4a94wfRhI8N2OiQBqBtLhvLhg25jVSXDjmgFXGkP8hUjOyaa9XCugO4PGZOId5xiivqB/s16000/james_surfing_on_book_150_clr_26253.gif" /></a></div><span style="font-family: verdana;"><br /></span></div><span style="font-family: verdana;">Continuing my current series of posts on addressing small business tax law complexity, here is another suggestion I included in what I submitted for the written record of a June 7, 2023 SFC and Small Business and Entrepreneurship Committee <a href="https://www.finance.senate.gov/hearings/tackling-tax-complexity-the-small-business-perspective" target="_blank">roundtable</a>.</span><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;"><b>Promote tax literacy! </b></span></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">We don't teach about tax in K-12 or at universities other than accounting majors typically taking at least one taxation course and there might be some tax included in financial literacy curriculum available at some high schools and colleges. Given everyone's role as a taxpayer, more is needed. To help small businesses, I suggest:</span></div><div><span style="font-family: verdana;"><br /></span></div><div><ol start="1" style="margin-top: 0in;" type="I">
<ol start="1" style="margin-top: 0in;" type="a">
<li class="MsoNormal" style="margin-bottom: 6.0pt; mso-list: l0 level2 lfo1;"><span style="font-family: verdana;">When a taxpayer requests an EIN
for a new business, the IRS should at that time also send (electronically
and/or by the U.S. Post Office) information about tax obligations of a
business in a form understandable by a layperson.<o:p></o:p></span></li>
<li class="MsoNormal" style="margin-bottom: 6.0pt; mso-list: l0 level2 lfo1;"><span style="font-family: verdana;">Provide funding to the IRS and
SBA to run live, online workshops for new business owners on specific
topics relevant to helping the taxpayer understand their tax obligations and
to ask questions. <o:p></o:p></span></li>
</ol>
</ol>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 1.0in; margin-right: 0in; margin-top: 0in;"><span style="font-family: verdana;">While there
are numerous publications at the IRS website that can help a new business owner
understand their tax obligations, they can be overwhelming and sometimes not
specific enough such as to explain estimated tax payments and information
reporting obligations. <o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 1.0in; margin-right: 0in; margin-top: 0in;"><span style="font-family: verdana;">An example of
such workshops can be found at the California Department of Tax and Fee
Administration (CDTFA) <a href="https://www.cdtfa.ca.gov/seminar/" target="_blank">website </a>that cover a multitude of topics such as recordkeeping,
navigating the CDTFA website, and ones specific to particular industries. Other
states might have similar workshops that are examples of ways to help business
owners understand their tax obligations.<o:p></o:p></span></p>
<ol start="1" style="margin-top: 0in;" type="I">
<ol start="3" style="margin-top: 0in;" type="a">
<li class="MsoNormal" style="margin-bottom: 6.0pt; mso-list: l0 level2 lfo1;"><span style="font-family: verdana;">Find ways to promote and fund
tax literacy activities.<o:p></o:p></span></li>
</ol>
</ol>
<p class="MsoNormal" style="margin-bottom: 6.0pt; margin-left: 1.0in; margin-right: 0in; margin-top: 0in;"><span style="font-family: verdana;">Any federal
funding of financial literacy activities should be sure to include an
introduction of federal tax obligations of a new business. STEM activities
funded by the government, and similar ventures that reach high school and
college students, should also be encouraged or required to offer tax education
because many of these students will become self-employed entrepreneurs.<o:p></o:p></span></p></div><div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">What do you think?</span></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">Prior posts in this series on addressing complexity for small businesses:</span></div><div><span style="font-family: verdana;"> 6/25/23 -<a href="http://21stcenturytaxation.blogspot.com/2023/06/what-about-expanding-qualified-joint.html" target="_blank"> expand availability of qualified joint venture status</a></span></div><div><span style="font-family: verdana;"> 7/2/23 - <a href="http://21stcenturytaxation.blogspot.com/2023/07/c-reform-hobby-rules-for-equity-and.html" target="_blank">reform "hobby" loss rules</a></span></div><div><div><br /></div><div><br /></div></div></div>Professor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.com0tag:blogger.com,1999:blog-2135788133426971614.post-8358228845946387612023-07-02T19:07:00.003-07:002023-07-02T19:08:02.212-07:00Reform “hobby” rules for equity and possible improved compliance<p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiNnP3Yzh2E5wZmNUhTkdr5egDbxe9r0sqUt8MlPGy2wbp1d2SVHCUQywQjqrOl82pWWZBzb45DkBILcpgJITfUuCctzVLQ1vOmVYHt2r_yIucSTNzQvXRImNN0J_m6fo2gdhVGFZoSTKPB84iNyLvq1PC-V7bPvskMvS-SnPYV00slRaAjnQPc1e4H9hc-/s400/figure_playing_violin_400_clr_17838.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="person playing violin" border="0" data-original-height="400" data-original-width="288" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiNnP3Yzh2E5wZmNUhTkdr5egDbxe9r0sqUt8MlPGy2wbp1d2SVHCUQywQjqrOl82pWWZBzb45DkBILcpgJITfUuCctzVLQ1vOmVYHt2r_yIucSTNzQvXRImNN0J_m6fo2gdhVGFZoSTKPB84iNyLvq1PC-V7bPvskMvS-SnPYV00slRaAjnQPc1e4H9hc-/w144-h200/figure_playing_violin_400_clr_17838.png" width="144" /></a></div><p><span style="font-family: verdana;">Following up on my <a href="http://21stcenturytaxation.blogspot.com/2023/06/what-about-expanding-qualified-joint.html" target="_blank">6/25/23 post</a> about an idea I included in testimony submitted for the written record of a small business tax complexity hearing held on June 7, here is another idea I proposed:</span></p><p><i><span style="font-family: verdana;">Reform “hobby” rules for equity
and possible improved compliance</span></i></p><span style="font-family: verdana;">IRC Section
183, Activities not engaged in for profit, imposes limitations on deductions
for activities that generate revenues but not IRC Section 162 deductions. Under
this provision, deductions are allowed up to the amount of gross income from
the “hobby”, with gross income measured as receipts less cost of sales. The
allowed deductions though are only deductible if the taxpayer itemizes
deductions and are treated as miscellaneous itemized deductions subject to the 2-percent-of-AGI
threshold of IRC Section 67. For 2018 through 2025, such deductions are not
allowed at all.<br /><br /></span><div><span style="font-family: verdana;">IRC Section
183 should be reformed to treat the allowable deductions as deductible for AGI,
but still limited to gross income without any carryforward if deductions exceed
gross income. The Joint Committee on Taxation defines the “normal structure” of
the individual income tax as including deductions for investment and employee business
expenses. [JCT, <i style="text-indent: -12px;">Estimates Of Federal Tax Expenditures For Fiscal Years 2022-2026</i><span style="text-indent: -12px;">, <a href="https://www.jct.gov/publications/2022/jcx-22-22/" target="_blank">JCX-22-22</a> (Dec. 22, 2022), page 4] </span> The logic for this is that these expenses are incurred to generate taxable
income and a “normal” income tax would allow such deductions. This argument
also justifies allowing a deduction for the reasonable expenses of producing
hobby revenues.</span></div><div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">Another
benefit of reforming IRC Section 183 is that it may reduce the inclination some
taxpayers might have to treat a hobby as a business in order to claim the
deductions for AGI.</span></div></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">What do you think?</span></div>Professor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.com0tag:blogger.com,1999:blog-2135788133426971614.post-56286468196866889832023-06-25T18:37:00.002-07:002023-06-25T18:37:58.499-07:00What about Expanding the Qualified Joint Venture Election?<p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjIwcvY9aHw5qCO0_uJaiNtzEyE1dLpztNPnxyT8JfXyiYWZ3JalyU_4MQ7sZFl_thggcmihP-m3Fj25XV67EKkOtTK7YblCn9SMEx216SFipQ2WX0NGhPfC_665WeKkoZ5CfytIc4IPYpGuziP_AlQO0RZnS838spFgLtKCthHurHvLtEbGWSGaFJg6Qen/s400/line_figures_planning_400_clr_10110.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="2 stick figures looking at a paper" border="0" data-original-height="400" data-original-width="400" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjIwcvY9aHw5qCO0_uJaiNtzEyE1dLpztNPnxyT8JfXyiYWZ3JalyU_4MQ7sZFl_thggcmihP-m3Fj25XV67EKkOtTK7YblCn9SMEx216SFipQ2WX0NGhPfC_665WeKkoZ5CfytIc4IPYpGuziP_AlQO0RZnS838spFgLtKCthHurHvLtEbGWSGaFJg6Qen/w200-h200/line_figures_planning_400_clr_10110.png" width="200" /></a></div><p></p><p><span style="font-family: verdana;">I think to generate simplification ideas, we need to look at every tax rule or calculation and ask at least two questions. First, should this rule even be part of this type of tax? After all, the federal income tax has over 160 "tax expenditures" which are special rules that are not part of the basic income tax structure (see <a href="https://home.treasury.gov/system/files/131/Tax-Expenditures-FY2024-update.pdf" target="_blank">OMB FY2024 report</a>). Next, is there a different way to draft the rule or handle the computation? We get so used to certain rules, forms, and practices that we often act as if that is the only way something can be done.</span></p><p><span style="font-family: verdana;">I want to offer an example of an out of the box idea that does have some basis in an existing tax rule. I recently suggested this in comments I submitted for the written record of a <a href="https://www.finance.senate.gov/hearings/tackling-tax-complexity-the-small-business-perspective" target="_blank">June 7 joint hearing of the Senate Finance Committee and Small Business and Entrepreneurship Committee</a>, on tackling tax complexity for small businesses. Among my suggestions, I offered this:</span></p><p></p><p class="MsoNormal" style="margin-bottom: 6.0pt;"><span style="font-family: verdana;"><i>Allow
co-owners of a start-up business to elect qualified joint venture status for
the first few years.</i><o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt;"><span style="font-family: verdana;">IRC
Section 761(f) allows a married couple to elect to treat a business they jointly
own and operate as a “qualified joint venture” rather than as a partnership. The
couple files two matching Schedules C rather than a Form 1065 partnership
return. This is simpler for the couple and enables both spouses to pay into the
Social Security system. [see <a href="https://www.irs.gov/businesses/small-businesses-self-employed/election-for-married-couples-unincorporated-businesses" target="_blank">IRS information</a>]<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt;"><span style="font-family: verdana;">Filing
two Schedules C is much easier than filing a partnership return including a
Schedule K-1 (as well as Schedule K-3) for each partner.<o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt;"><span style="font-family: verdana;">The
qualified joint venture option should be expanded to make it available to equal
owners of any business (perhaps limited to two to four equal owners). Schedule
C could include a box for making the election. To avoid any concern about
disclosure of each owner’s SSN to the other owner(s), each owner could be
required to obtain an EIN to enable the IRS to confirm that each owner filed an
identical Schedule C. Any concern about the need to file as a partnership can
be addressed by only allowing qualified joint venture status for the first
three years or until gross receipts exceed a certain threshold. <o:p></o:p></span></p>
<p class="MsoNormal" style="margin-bottom: 6.0pt;"><span style="font-family: verdana;">Qualified
joint venture status should also be allowed even if the business is formed as
an LLC. States should be highly encouraged to conform to this broadened qualified
joint venture option to truly provide simplification to small business owners.
Also, the ease of this filing compared to filing a partnership return should
also improve compliance.<o:p></o:p></span></p><p class="MsoNormal" style="margin-bottom: 6.0pt;"><span style="font-family: verdana;">What do you think?</span></p><br /><p></p>Professor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.com0tag:blogger.com,1999:blog-2135788133426971614.post-46062424634150549282023-06-11T21:44:00.001-07:002023-06-11T21:44:16.584-07:00Some Tax Figures Should Not Be Adjusted for Inflation<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjHyYdW2mO5sZnaNYAgVAHzqnW8iqsRHbg09VF5rZ3umSzA3RL4keyanA1h03dWz8T9T1Ilh9SCuPd-Gt_lJqg3IaonUQ7ngwA7BRk_evqnoqQWoV-2dB7X74Y2lXOXnanrGpEsQWLpVg0tKJm7NShmLsxufsShvTV029APeORbeQjQNxxxVwR8Lr0i-A/s873/1099-NEC.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="Form 1099-NEC" border="0" data-original-height="382" data-original-width="873" height="140" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjHyYdW2mO5sZnaNYAgVAHzqnW8iqsRHbg09VF5rZ3umSzA3RL4keyanA1h03dWz8T9T1Ilh9SCuPd-Gt_lJqg3IaonUQ7ngwA7BRk_evqnoqQWoV-2dB7X74Y2lXOXnanrGpEsQWLpVg0tKJm7NShmLsxufsShvTV029APeORbeQjQNxxxVwR8Lr0i-A/w320-h140/1099-NEC.jpg" width="320" /></a></div><p>Inflation adjustments to tax rules such as the individual tax brackets and standard deduction make sense to avoid "bracket creep" where inflation might put an employee into a higher bracket despite no increased earning power and ensures an appropriate amount of income is removed from taxation (the role played by the standard deduction and personal and dependent exemptions).</p><p>But some figures, such as filing thresholds for information reports such as 1099-INT and 1099-NEC, should not be adjusted for inflation as doing so will increase non-reporting otherwise known as the tax gap (amount of tax owed less what is actually collected). There are often proposals to increase the 1099-NEC filing threshold from $600 which was set in 1954 to its inflation adjusted amount of about $7,000 today. For example, see the <a href="https://schweikert.house.gov/2023/06/09/schweikert-introduces-legislation-to-increase-form-1099-reporting-threshold-account-for-inflation-adjustments/" target="_blank">proposed Small Business Paperwork Savings Act</a> introduced 6/9/23 to increase the filing threshold for Form 1099-NEC from $600 to $5,000.</p><p>According to the IRS, the<a href="https://www.irs.gov/newsroom/irs-updates-tax-gap-estimates-new-data-points-the-way-toward-enhancing-taxpayer-service-compliance-efforts" target="_blank"> tax gap is about $500 billion a year</a>. It stems from non-reporting of income and non-payment, as well as various tax errors made in filing. The GAO, IRS and others have known for many years that "compliance is higher when there is a third-party information reporting and withholding" (<a href="https://www.irs.gov/pub/irs-pdf/p5364.pdf" target="_blank">page 3 of Pub 5364</a>). More specifically, the IRS reports that where income is subject to both information reporting and withholding, the compliance rate is about 99%! In contrast, where there is little to no information reporting or withholding, the compliance rate is about 45%! [<a href="https://www.irs.gov/pub/irs-pdf/p5364.pdf" target="_blank">page 6 of Pub 5364</a>]</p><p>A tax gap means that compliant taxpayers are paying more to cover what non-compliant taxpayers are not paying that they actually owe. Since it has been shown for many years that information reporting reduces the tax gap, raising the filing threshold for <a href="https://www.irs.gov/forms-pubs/about-form-1099-nec" target="_blank">Form 1099-NEC</a> will mean far fewer forms will be issued and some taxpayers such as those who keep poor records or think that if they don't get an information form, the income isn't taxable, will not report the income - the tax gap will rise. Compliant taxpayers will have to cover more of total taxes. </p><p>Improvements in technology can make it easier to file information reporting forms. Last year, the IRS released <a href="https://www.irs.gov/filing/e-file-forms-1099-with-iris" target="_blank">IRIS </a>that helps small businesses prepare most types of information returns and file them with the IRS. Hopefully this system will expand to allowing the filers to also get the 1099s to the recipients electronically, such as the IRS sending the information directly to the taxpayer's account that the IRS will be creating for taxpayers per the recent strategic plan under the IRA 2022 funding (<a href="https://www.irs.gov/pub/irs-pdf/p3744.pdf" target="_blank">page 24</a>).</p><p>While 1099-NEC forms are provided to self-employed individuals who should be keeping business records, not all do or don't keep complete records. Thus, 1099-NEC forms are important. Could an alternative be some type of required recordkeeping by businesses? Possibly, but that is more challenging. Can rules be changed to reduce penalties on 1099-NEC filers? Yes. For example, if the recipient provided a wrong address or EIN, the penalty should be on the recipient, not the issuer. Should 1099-NEC filers be compensated for their efforts? Why not?</p><p>What do you think?</p><p><br /></p>Professor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.com1tag:blogger.com,1999:blog-2135788133426971614.post-90626861161666986022023-06-04T02:24:00.000-07:002023-06-04T02:24:10.568-07:00Bicycling and Tax Breaks<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhwOahPIhLSnGgpgpptvZ6WZS8zcceRk8dnwsP1f25YnwLJRZO_nPx3Uj7C1E_X7BISdCad-QfmOrcNHw81nK_T8_wpB2YrY9M1QWMG2SuS0RIsv2Wrxjhc4zBeJzdlhzVgDAO9VHdD61sOwORcnirgTdG-7yDSRgeVCI0t3NNg3roiF3ThRag08-xYlQ/s400/bike_courier_400_clr_16761.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="person riding bike" border="0" data-original-height="400" data-original-width="248" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhwOahPIhLSnGgpgpptvZ6WZS8zcceRk8dnwsP1f25YnwLJRZO_nPx3Uj7C1E_X7BISdCad-QfmOrcNHw81nK_T8_wpB2YrY9M1QWMG2SuS0RIsv2Wrxjhc4zBeJzdlhzVgDAO9VHdD61sOwORcnirgTdG-7yDSRgeVCI0t3NNg3roiF3ThRag08-xYlQ/w124-h200/bike_courier_400_clr_16761.png" width="124" /></a></div><p>Prior to the Tax Cuts and Jobs Act made some changes to the treatment of qualified transportation fringe benefits (<a href="https://www.law.cornell.edu/uscode/text/26/132" target="_blank">Section 132(f)</a>), primarily making the employer costs non-deductible (<a href="https://www.sjsu.edu/people/annette.nellen/274_AmendedByPL115-97.pdf" target="_blank">Section 274(a)(4)</a>), "qualified bicycle commuting reimbursement" was such a fringe benefit. That benefit was repealed for 8 years for some reason. It is not clear why it was repealed. I don't believe its temporary repeal generated lots of revenue as it was as small fringe benefit (about $20 per month and only for 15 months per employee) and likely not offered by many employers or used by many employees.</p><p>The bicycle benefit covered the reasonable expenses of an employee for purchase of a bicycle, its improvements and repair and storage if regulary used by the employee to get from home to work and back.</p><p>Riding a bike to work isn't an option for many workers who have long distances or unsafe routes or no biking option due to the need to use freeways to get to work. But for workers who can bike to work, isn't that a benefit to many people? It means fewer cars on the road and less pollution. If there are already bike lanes available, better yet.</p><p>If a tax break is to be provided, why not offer a refundable credit for the purchase or a bike with reasonable cost limits and an income phase-out level? </p><p>Well, I'm not aware of a proposal for that other than an e-bike tax credit that was in the Build Back Better proposal (and why only for an e-bike?). But, in May 2023, Senators Blumenauer and Brown introduced the <a href="https://www.congress.gov/118/crec/2023/05/18/169/84/CREC-2023-05-18-pt1-PgE466-2.pdf" target="_blank">Bicycle Commuter Act</a> to restore the bicycle qualified transportation fringe benefit but increasing the benefit exclusion (assuming an employer provides the benefit) and making it pre-tax. They also expand it to cover scooters, e-bikes and bikeshare.</p><p>The <a href="https://blumenauer.house.gov/media-center/press-releases/blumenauer-sen-brown-introduce-tax-incentive-to-bike-to-work" target="_blank">sponsors </a>note that biking to work reduces carbon emissions and helps counteract the reality that the tax law incentives driving over biking.</p><p>Sounds good, but why not offer a credit to help someone buy and maintain a bike for commuting (and with an income threshold or reduced credit as income rises)? There are negative externalities of driving even with electric cars which still cause congestion. The tax law can be a way to address this. After purchase of a reasnably priced bike, the annual maintenance costs are low so the credit would be small. But could be increased to offer a better incentive to bike if possible. While a similar credit might be considered for the use of public transportation, it often is already subsidized by local, state and/or federal governments.</p><p>What do you think?</p>Professor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.com0tag:blogger.com,1999:blog-2135788133426971614.post-23939346785840944742023-05-14T14:52:00.000-07:002023-05-14T14:52:22.274-07:0016th Anniversary of the 21st Century Taxation Blog<p style="text-align: left;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhaq_TYjg-w9aLwdneaT7Sihd0pjchYdkmwBQ8SscLRaoUU4o5ESnfyqPUp4qckMftJ8QPqnaIFxWW9I0rkesHm5CkA_b81iEyteynQYy5HNOiUvcH7sOS7QNQJ3-bGNkEHbe97A2mUnAivgJEQxJFMkazcYbbLP_EBqMxB8SX95ftCmXBtr-_QnuBhbg/s400/balloons_pc_400_clr_3518.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="Balloons" border="0" data-original-height="400" data-original-width="239" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhaq_TYjg-w9aLwdneaT7Sihd0pjchYdkmwBQ8SscLRaoUU4o5ESnfyqPUp4qckMftJ8QPqnaIFxWW9I0rkesHm5CkA_b81iEyteynQYy5HNOiUvcH7sOS7QNQJ3-bGNkEHbe97A2mUnAivgJEQxJFMkazcYbbLP_EBqMxB8SX95ftCmXBtr-_QnuBhbg/w191-h320/balloons_pc_400_clr_3518.png" width="191" /></a></div><span style="font-family: verdana;">Today marks the 16th year after I started this blog in 2007 while I was a fellow with the New America Foundation. My goal with this blog continues to be to analyze proposals and discuss ideas for helping our tax system to reflect how we live and do business today and to meet principles of good tax policy.</span><p></p><p style="text-align: left;"><span style="font-family: verdana;">There are many inequities in our tax system such as special tax deductions, exclusions and exemptions that provide a larger benefit to higher income taxpayers relative to others. Examples include the mortgage interest deduction, exclusion of gains that exist at death, and the exclusion of employer-provided health insurance subsidies.</span></p><p style="text-align: left;"><span style="font-family: verdana;">I think many of these exist because the vast majority of people don't understand how they work. Tax literacy is low in the U.S. because we don't teach about taxes in K-12 and even in college, accounting majors are likely the only ones to take a tax course. And tax and budget policy should be taught along with basics of how taxes work.</span></p><p style="text-align: left;"><span style="font-family: verdana;">Today, let's look at how the government, via our tax law, provides tax breaks for health insurance. The largest and more favorable tax benefit for obtaining health insurance is the exclusion for employer-provided health insurance. According to OMB and Treasury, the annual cost of this tax break (cost as in tax revenue not collected) is $237 billion for FY2024 (<a href="https://home.treasury.gov/system/files/131/Tax-Expenditures-FY2024-update.pdf" target="_blank">Table 3</a>). At least <a href="https://www.kff.org/other/state-indicator/nonelderly-0-64/" target="_blank">57% of individuals</a> get health insurance from an employer. <a href="https://www.cbo.gov/budget-options/58627" target="_blank">CBO </a>estimates that 58% of employees under age 65 (156 million people) have health insurance from their employer or a family member's employer.</span></p><p style="text-align: left;"><span style="font-family: verdana;">This health insurance subsidy for employees is very favorable for many reasons:</span></p><p style="text-align: left;"><span style="font-family: verdana;">1. Regardless of the employee's income level and ability to pay for their own insurance, they still get the tax break.</span></p><p style="text-align: left;"><span style="font-family: verdana;">2. Per CBO, the exclusion tends to cause employers to offer more favable coverage - it "<span style="font-size: 16px;">encourages firms to offer health coverage with lower cost sharing (such as plans without a deductible), more covered services, and broader provider networks."</span></span></p><p style="text-align: left;"><span style="font-family: verdana;"><span style="font-size: 16px;">3. The higher one's income, the larger the tax savings due to being in a higher tax bracket. So, although a lower income person would need a larger subsidy, the larger subsidy goes to the higher income persons.</span></span></p><p style="text-align: left;"><span style="font-family: verdana;"><span style="font-size: 16px;">Now for contrast, compare the employer-provided health care exclusion to the Premium Tax Credit (<a href="https://www.irs.gov/affordable-care-act/individuals-and-families/the-premium-tax-credit-the-basics" target="_blank">PTC</a>). This is available to individuals who don't get affordable coverage from an employer, are not eligible for any government coverage such as Medicare, have household income below 400% of the federal poverty line (this is waived through 2025), and purchase coverage from an exchange. </span></span></p><p style="text-align: left;"><span style="font-family: verdana;"><span style="font-size: 16px;">What isn't highlighted though is that a PTC eligible person will only get the PTC if based on their annual income they cannot afford the second lowest cover silver plan. For example, using the <a href="https://www.coveredca.com/" target="_blank">calculator from Covered California</a>, a 30-year old with $61,400 of income will get a $12 PTC for the year because they are deemed able to afford a silver plan that costs $435 per month (other than $12 of that annual cost). If their income is $61,500, no PTC.</span></span></p><p style="text-align: left;"><span style="font-family: verdana;"><span style="font-size: 16px;">In contrast, if that person with roughly $60,000 of income gets a platinum plan where the employer covers the entire cost, the employee has no out-of-pocket cost and no taxes to pay on the benefit.</span></span></p><p style="text-align: left;"><span style="font-family: verdana;"><span style="font-size: 16px;">Where is the equity in these two tax rules? While removing the 400% of FPL income cap temporarily from the PTC helps a bit, it doesn't change the fact that the exclusion for employer-provided health coverage is far more favorable. A single person with over $61,000 of income gets no PTC but if they work for an employer providing health insurance subsidy, they get a tax break. And that employer-provided subsidy also increases the cost of health coverage for everyone.</span></span></p><p style="text-align: left;"><span style="font-family: verdana;"><span style="font-size: 16px;">The CBO has some solutions regarding the exclusion - <a href="https://www.cbo.gov/budget-options/58627" target="_blank">here</a> as does the <a href="https://www.taxpolicycenter.org/briefing-book/how-does-tax-exclusion-employer-sponsored-health-insurance-work" target="_blank">Tax Policy Center</a> such as converting the benefit to a tax credit.</span></span></p><p style="text-align: left;"><span style="font-family: verdana;"><span style="font-size: 16px;">Why was the PTC designed in such an inequitable manner compared to the employer-provided health insurance exclusion?</span></span></p><p style="text-align: left;"><span style="font-family: verdana;"><span style="font-size: 16px;">What do you think? </span></span></p><p style="text-align: left;"><span style="font-family: verdana;"><span style="font-size: 16px;"><br /></span></span></p><p style="text-align: left;"><span style="font-family: verdana;"><span style="font-size: 16px;"><br /></span></span></p><p><br /></p>Professor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.com0tag:blogger.com,1999:blog-2135788133426971614.post-43240058078166643712023-05-07T21:27:00.000-07:002023-05-07T21:27:09.568-07:00Return Preparer Proposal in 118th Congress<p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgRvj4XFwAj_7hXZqi6yb77DCsaOvmJAStvKmdJtge5LBvM9o-ka16D06Lo_xAA7g-XFQxGDqm559ZDaFQykRq9UPh6yaU4rMHrQJfqlUhc-uO0jHtDGRMzc6Ors87PxNvjCv0F5APQQgxmFLYvTXqhoEGMRnK434xbGK931ILdWe1pacZI2JNkJJtReQ/s400/women_calculator_desk_400_clr_7996.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="woman talking to woman at desk who is overwhelmed" border="0" data-original-height="349" data-original-width="400" height="174" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgRvj4XFwAj_7hXZqi6yb77DCsaOvmJAStvKmdJtge5LBvM9o-ka16D06Lo_xAA7g-XFQxGDqm559ZDaFQykRq9UPh6yaU4rMHrQJfqlUhc-uO0jHtDGRMzc6Ors87PxNvjCv0F5APQQgxmFLYvTXqhoEGMRnK434xbGK931ILdWe1pacZI2JNkJJtReQ/w200-h174/women_calculator_desk_400_clr_7996.png" width="200" /></a></div><span style="font-family: verdana;">The IRS started their return preparer regulation back around 2009. It was severely limited by the DC Court of Appeals 2014 decision in </span><i style="font-family: verdana;"><a href="https://caselaw.findlaw.com/court/us-dc-circuit/1657003.html" target="_blank">Loving v IRS</a></i><span style="font-family: verdana;">, No. 13-5061 which concluded that 31 USC 330 did not provide the IRS or Treasury with the authority to regulate return preparers as preparing a return was not representing a taxpayer before the IRS.</span><p></p><p><span style="font-family: verdana;">Since then there have been proposals to change 31 USC 330 to give the IRS the authority to regulate return preparers. A current version of such as proposal is <a href="https://www.sjsu.edu/people/annette.nellen/website/HR2702_118_RegulateReturnPreparers.pdf" target="_blank">H.R. 2702 / S. 1209</a>, Tax Refund Protection Act. While this sounds like something else, it would change 31 USC 330 to allow the IRS and Treasury to "certify the practice of tax return preparers" and require preparers to demonstrate competency to advise and assist person in preparing tax returns, claims for refund or other submissions related to Title 26. This should enable the IRS to resume their earlier program of requiring any paid preparer who is not an attorney, CPA or Enrolled Agent to become a registered tax return preparer by passing a test and being required to meet a specified number of hours of continuing education annually before renewing their PTIN. The proposal also specifically allows the IRS to impose an annual fee for the testing and training.</span></p><p><span style="font-family: verdana;">The bill goes further by imposing restrictions on refund anticipation loans and adding a new obligation at Section 7813, Disclosure requirements for tax return preparers, to provide specific information about any RAL offered to the client with a new penalty at Section 6720D, Failure to meet disclosure requirements for tax return preparers.</span></p><p><span style="font-family: verdana;">Why is it taking so long to make this change that has been supported by the Biden* and Trump** administrations, supported by National Taxpayer Advocates Nina Olson and Erin Collins (see background in <a href="https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2023/01/ARC22_MSP_08_RtnPrepOversight.pdf" target="_blank">NTA 2022 Annual Report to Congress</a> noting the NTA recommendation dates back to 2002)? </span></p><p><span style="font-family: verdana;"> *<a href="https://home.treasury.gov/system/files/131/General-Explanations-FY2024.pdf" target="_blank">FY2024 Greenbook</a>, page 181 includes a proposal to expand and increase penalties for noncompliant return prep and e-filing and authorize IRS oversight of paid preparers</span></p><p><span style="font-family: verdana;"> **Per <a href="https://www.govinfo.gov/content/pkg/BUDGET-2019-BUD/pdf/BUDGET-2019-BUD.pdf" target="_blank">FY2019 OMB report</a>: "Ensuring that these
preparers understand the tax code would help taxpayers get higher quality service and prevent unscrupulous tax preparers from exploiting the system and vulnerable taxpayers." [page 91]</span></p><p><span style="font-family: verdana;">Reasons to support regulation include that it should reduce the number of errors on returns and the tax law is complex and some verification of meeting a minimum standard should help preparers and their clients.</span></p><p><span style="font-family: verdana;">The <a href="https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2023/01/ARC22_MSP_08_RtnPrepOversight.pdf" target="_blank">2022 NTA Report to Congress</a> notes that "lack of minimum competency standards harms taxpayers in the following ways:</span></p><p></p><ul style="text-align: left;"><li><span style="font-family: verdana;">Taxpayers may not understand the differences in the education and training requirements of
various return preparer credentials; </span></li><li><span style="font-family: verdana;">Taxpayers are ultimately financially responsible for inaccurately prepared tax returns; </span></li><li><span style="font-family: verdana;">Low-income taxpayers are at significant risk of harm caused by incompetent or unscrupulous
return preparers; </span></li><li><span style="font-family: verdana;">Research studies and IRS data found more noncompliance among non-credentialed return preparers;</span></li><li><span style="font-family: verdana;">Non-credentialed preparers cannot represent taxpayers on audits of prepared returns; </span></li><li><span style="font-family: verdana;">Not all return preparers are subject to standards of conduct or ethical rules; and </span></li><li><span style="font-family: verdana;">The lack of minimum competency standards forces the IRS to take a reactive approach to return
preparer noncompliance."</span></li></ul><div><span style="font-family: verdana;">Per <a href="https://www.irs.gov/tax-professionals/return-preparer-office-federal-tax-return-preparer-statistics" target="_blank">IRS data</a>, there are 752,313 PTIN holders. The largest group of PTIN holders are individuals who are not an attorney, CPA, Enrolled Actuary, Enrolled Agent or person who has completed the 2023 Annual Filing Season Program. This number is not highlighted on the data page, but doing the math, it is 404,890. The second largest group are CPAs at 201,538, followed by 2023 Annual Filing Season pass holders at 60,744, which surprisingly is larger than the EA group of 57,177.</span></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">I think it would be helpful if the table at the IRS data site specifically stated the number of unenrolled preparers to highlight that it continues to be over 50% of total preparers. A few states have some regulation of return preparers, such as California. California reports that for 2021-2022, there were <a href="https://ctecstorage.blob.core.windows.net/public/2021-2022%20annual%20report%20final.pdf" target="_blank">38,278 CTEC preparers</a> who do have to take a 60-hour course and have 20 hours of CE annually to renew their <a href="https://www.ctec.org/taxpayers/what-is-crtp" target="_blank">CTEC designation</a>, and purchase a $5,000 tax preparer bond. But this still leaves a lot of preparers who might not have taken any tax courses and might not engage in continuing education.</span></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">For sound tax administration and to help more taxpayers get appropriate assistance in preparing their return and engaging in tax planning, providing training to preparers along with testing should be helpful. I hope the costs can be kept low with training appropriate for the types of returns the preparer works on.</span></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">With bipartisan support, why is this longstanding open issue still open?</span></div><div><span style="font-family: verdana;"><br /></span></div><div><span style="font-family: verdana;">What do you think?</span></div><p></p>Professor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.com0tag:blogger.com,1999:blog-2135788133426971614.post-16295952592527694662023-04-23T23:21:00.003-07:002023-04-23T23:21:45.757-07:00Tech Needed to Simplify Energy Credits for Individuals<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjprAOIAErd0szb9UkORmnNQ7LXo1XBzxEvwOl6slXQBzhHXc5v5jdp5stFmKNMfpsOiBv1FphGm9qZ8qhrVPPU5hLOyHLWx7GpJvVDtL7d7KcFODN9VOrOT2GY1wGWBKRCifJs26ZUpTYwf0CBctV0UM7d-2k1liD5dK3vvdM6wkOx1Ruuv_J-o-SVTA/s400/energy_light_bulb_wind_turbine_400_clr_6815.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img alt="picture of light bulb with windmills in background" border="0" data-original-height="363" data-original-width="400" height="290" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjprAOIAErd0szb9UkORmnNQ7LXo1XBzxEvwOl6slXQBzhHXc5v5jdp5stFmKNMfpsOiBv1FphGm9qZ8qhrVPPU5hLOyHLWx7GpJvVDtL7d7KcFODN9VOrOT2GY1wGWBKRCifJs26ZUpTYwf0CBctV0UM7d-2k1liD5dK3vvdM6wkOx1Ruuv_J-o-SVTA/w320-h290/energy_light_bulb_wind_turbine_400_clr_6815.png" width="320" /></a></div><p><span style="font-family: verdana;">Special tax rules tend to be complex because they are "special" in that they are not part of the normal tax system and are not intended for all taxpayers and all activities. Drafting legislation and regulations to be sure the credits are used as intended, is challenging. We are seeing this with most of the energy credits added or modified by the Inflation Reducation Act of 2022. The IRS has to define many challenging terms that were not completely spelled out in the legislation, such as the value of critical minerals, battery components, and more.</span></p><p><span style="font-family: verdana;">I have written about some of this before and this <a href="http://21stcenturytaxation.blogspot.com/2022/08/observations-on-inflation-reduction-act.html" target="_blank">blog post of 8/21/22</a> includes track changs for several of the revised credits such as the two home energy credits and the clean vehicle credit.</span></p><p><span style="font-family: verdana;">For the clean vehicle credit at<a href="https://www.sjsu.edu/people/annette.nellen/30D_TrackChanges_25E_45W_IRA2022.pdf" target="_blank"> IRC §30D</a>, the "qualified manufacturer" has to verify most of the difficult provisions to know if the vehicle is "clean" and if it qualifies the buyer for the critical minerals credit of $3,750 and/or the battery components credit of $3,750. The provisions are complex, but some of that complexity is on the manufacturer rather than the buyer (and lots of complexity on the IRS).</span></p><p><span style="font-family: verdana;">For the two revised residential energy credits, the complexity falls on the homeowner (and for some elements of the credits, the tenant if they are incurring the costs). These rules are complex and are with us for the next 10 years to it is worth finding ways to simplify the process for individuals to know if they have purchased the proper property (meets the specified Energy Star or other standard). In addition, for the IRC §25C Energy Efficient Home Improvement Credit, there are different credit limits on doors versus windows versus biomass stoves, etc. </span></p><p><span style="font-family: verdana;">Here is one suggestion for making it simpler for indviduals to know if they can qualify for the §25C credit which might also better encourage them to make home improvements that will reduce energy usage. </span></p><p><span style="font-family: verdana;">Software, algorithms and databases can be created where the individual can use in at least two ways. First, the individual can enter a product code (often on many products) or description (name of product and manufacturer) into a website and learn if it qualifies for the §25C or 25D code. The website would need to have the Energy Star and similar information required per these provisions. And the individual would need to enter data about whether they own or rent their home and whether it is their principal residence (the §25C credit covers three broad categories of property and they all vary on how that information is relevant).</span></p><p><span style="font-family: verdana;">The second way to use the well-designed website is to input what they want to do. For example, they want to install energy efficient windows (and how many and the cost). The website should then provide a list of what windows qualify and how they can maximize the credit over multiple years since the maximum credit for windows, for example, is $600 total for the year (at a 30% rate that is a maximum door window cost of $2,000 per year).</span></p><p><span style="font-family: verdana;">The website could also provide a list of reminders such as the need to reduce basis of property by the credit amount, whether a carryforward is allowed, and what recordkeeping to keep and for how long.</span></p><p><span style="font-family: verdana;">Finally, these website should allow the individual to take the output and in a digital format, let it be connected to their tax prep software to produce the required form.</span></p><p><span style="font-family: verdana;">The technology exists to make this happen. It will take time to produce such websites for individuals du to the complexity of the provisions and the variety of items that may qualify for the credit.</span></p><p><span style="font-family: verdana;">There is some helpful information on the <a href="https://www.irs.gov/credits-deductions/energy-efficient-home-improvement-credit" target="_blank">IRS website about the §25C credit</a> (and others), but it is not everything and likely won't help individuals understand how to ensure they qualify for the credit and how to maximize it over multiple years.</span></p><p><span style="font-family: verdana;">What do you think?</span></p>Professor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.com1tag:blogger.com,1999:blog-2135788133426971614.post-67086246884669665432023-04-12T18:37:00.000-07:002023-04-12T18:37:32.481-07:00Sign of need for modernization - Getting tax refunds to taxpayers<p><span style="font-family: verdana;">Usually around this time of the year - a few days before the filing due date, the IRS issues a news release reminding people who did not file 3 years ago (so for today, their 2019 return) that they need to file by April 15 to get a refund (but due to Covid extensions, they have until July 17 to get their 2019 return filed).</span></p><p><span style="font-family: verdana;">Of course, when some of these people file and report their income, deductions and credits, they might not be eligible for a refund (they might owe tax). But, the news release (<a href="https://www.irs.gov/newsroom/time-running-out-to-claim-1-point-5-billion-in-refunds-for-tax-year-2019-taxpayers-face-july-17-deadline" target="_blank">IR-2023-79</a> (4/12/23)) uses the term refund. I conjecture that for many of these individuals and much of the "$1.5 billion in refunds" their only income is wages and too much tax was withheld based on their income. Some may even have been below the filing threshold but unaware that they could only get their overpaid tax (withholding) returned by filing a tax return.</span></p><p><span style="font-family: verdana;">The IRS reports the data on the "$1.5 billion in refunds" by state. I think they know which individuals did not file because the IRS has a document(s) with their SSN and noting how much tax was withhold (the possible refund). </span></p><p><span style="font-family: verdana;">Questions:</span></p><p><span style="font-family: verdana;">1. Why doesn't the IRS just refund the amount to the taxpayer if based on the W-2 and any other information returns, too much tax was paid? The law doesn't allow this; you have to file a return.</span></p><p><span style="font-family: verdana;">2. Why is this announcement always close to the end of the statute of limitations period rather than a year before? Yes, this year it is earlier than usual due to the extra filing time we had for 2019 returns.</span></p><p><span style="font-family: verdana;">3. Can the IRS file a substitute for return for these individuals or is that only when there is tax owed? If the later, can the law be changed?</span></p><p><span style="font-family: verdana;">4. Will modernization efforts reach the point where taxpayers can easily have all of their tax data assembled in what I call their "tax cloud" and then they identify a software tool to handle the filing and get the filing done easily. And this would not just be only for wage, interest and dividend income, but if a sole proprietor set up their recordkeeping up right, it would compute taxable income and go to their tax cloud. Then we would have far less late returns or perhaps ones that will never get filed causing the taxpayer to forfeit their refund.</span></p><p><span style="font-family: verdana;">I think we are too wed to the way we do things now and for the past many decades is the only way to do something. We need to get past that. I have blogged on this topic before and in April 2021 had an <a href="https://thehill.com/opinion/finance/548831-lets-say-goodbye-to-the-april-15-due-date/" target="_blank">op ed in The Hill </a>noting that use of technology and our individual "tax clouds" for our digital tax data, could even eliminate the need for April 15 because taxes could be computed daily, weekly, monthly, etc. and with a swipe of a secure app, if you were underpaid, transfer the funds from your bank account or if overpaid, get a refund. Let's get to a system where there are no refunds owed and outstanding for 3 years and possibly never given back to the taxpayer.</span></p><p><span style="font-family: verdana;">#letsfixthis</span></p><p><span style="font-family: verdana;">What do you think?</span></p><p><br /></p>Professor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.com0tag:blogger.com,1999:blog-2135788133426971614.post-81542641183654409102023-03-26T21:41:00.000-07:002023-03-26T21:41:08.612-07:00Disaster Relief and Administrative Convenience<p>Severe storms have been ongoing in many parts of California since December. I have two family members with severe damage to their homes causing them to have to move out for repairs. And I know many others also suffered significant damage to property.</p><p>FEMA and the IRS responded with relief. The IRS has now issued <a href="https://www.irs.gov/newsroom/tax-relief-in-disaster-situations " target="_blank">three announcements</a> of which of the 58 counties in California get a postponement of filing and payment and for what periods - generally, if eligible based on county of residence, filing and payment (such as for 2022 returns) is now October 16, 2023.</p><p>Each of the three announcements lists mostly the same counties, but the lists are not identical nor the start date. But after these three casualty relief notices, just three of 58 counties in California don't get filing and payment relief - unless their records are in a county that gets relief and they ask the IRS for the postponed filing and payment date.</p><p>Well, California has a population of 39.2 million. The <a href="https://dof.ca.gov/forecasting/demographics/estimates-e1/" target="_blank">population </a>of the three counties not included in relief are:</p><p> Lassen - population 31,000</p><p> Modoc - population 8,700</p><p> Shasta - population 181,000</p><p>These counties represent less than 1% of California's population.</p><p>Some of the individuals and businesses in these counties may have activities or tax assistance in a covered county so will need to call the IRS to get the filing and payment postponement relief. </p><p>But, given the small number of people and probably small number of businesses in these three counties, why not just extend relief to all of California? That should make it easier for the programming adjustment for IRS computers regarding California filers, and eliminate the need for anyone in these counties to have to ask the IRS for relief because records are in an affected county.</p><p>I think that adjustment would fall under administrative convenience. Too bad there isn't a good data analytics tool that could have quickly highlighted to the IRS that their relief notices were covering about 99.5% of California - so why not cover it all.</p><p>Another point is that while many had damage, I suspect most people did not. The payment extension for 39 million individuals and hundreds of thousands of businesses, even if 60% of individuals are getting refunds rather than making payments of 2022 taxes, will likely have a noticeable affect on tax coffers. Why not include a note in the relief messages that the government encourages everyone to pay on the regular due date if possible to avoid the need for the government to cover the shortfall for a few months.</p><p>What do you think?</p>Professor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.com2tag:blogger.com,1999:blog-2135788133426971614.post-72120663873639935662023-03-13T20:20:00.000-07:002023-03-13T20:20:09.276-07:00President Biden's FY24 Greenbook - Observations on Some Items<p><span style="font-family: verdana;">On March 9, 2023, President Biden released his <a href="https://www.whitehouse.gov/wp-content/uploads/2023/03/budget_fy2024.pdf" target="_blank">FY 2024 budget</a> (and <a href="https://www.whitehouse.gov/omb/budget/" target="_blank">related docs</a>) and <a href="https://home.treasury.gov/system/files/131/General-Explanations-FY2024.pdf" target="_blank">Greenbook </a>that describes his tax proposals. It repeats many proposals that were in his FY2022 and/or FY 2023 Greenbooks (see comparison and links <a href="https://www.sjsu.edu/people/annette.nellen/website/ComparisonBidenGreenbooks_23_22.pdf" target="_blank">here </a>for the FY22 and FY23 plans).</span></p><p><span style="font-family: verdana;">Themes, similar to recent years, include increasing corporate taxes such as increasing the 21% corporate rate to 28%. Unlike a House proposal last year (which was later dropped from Build Back Better), for graduated rates, are not proposed. The proposed 28% flat rate is still below the pre-TCJA maximum of 35%. As noted in President Biden's recent State of the Union address, he would increase the recently enacted corporate buyback excise tax from 1% to 4%. I believe the logic is to not only raise some revenue, but to address what some corporations do with corporate tax savings and a buyback might be used instead of a taxable dividend payout.</span></p><p><span style="font-family: verdana;"><i>Observation</i>: While individual tax increase proposals continue to be aimed at those with income above $400,000, the corporate tax increase proposal will indirectly affect all individuals. Eventually, all corporate tax is paid by some combination of shareholders, customers and employees. To keep a promise of not increasing taxes on individuals with income below $400,000 (which is about 98% of individuals!), this proposal should be skipped. </span></p><p><span style="font-family: verdana;">There are several proposals to reform international taxation. I'm not an international tax expert so I can't opine on them, but it does seem that there is a need to revisit the changes by the TCJA, recent changes to foreign tax credit regs that many have noted have problems, and consider what other countries are doing including regarding OECD Pillars I and II.</span></p><p><span style="font-family: verdana;">The Greenbook continues for the third time to call for repeal of all fossil fuel preferences. In 2021 when the House Democrats worked on Build Back Better this was not included. This also needs discussion as it is odd that our tax law has rules that both encourage development and use of carbon-free energy and fossil fuels. Phasing out the 13 preferences for fossil fuels over a period of years would make more sense than outright repeal, and less disruption to the industry.</span></p><p><span style="font-family: verdana;">The Greenbook calls for restoring the top individual tax rate of 39.6% in 2023 instead of 2026 as called for by the Tax Cuts and Jobs Act of 2017. Less than 1% of individuals have income high enough to be in this bracket. </span></p><p><span style="font-family: verdana;"><i>Observation</i>: Given challenges of tax changes in a split Congress, why not just wait for this higher rate to automatically return on its own in 2026? </span></p><p><span style="font-family: verdana;">The Greenbook also calls for having the Net Investment Income Tax (NIIT) of 3.8% currently applicable to NII of high income individuals to apply to all pass-through income of high-income individuals (including President Biden and his S corp income). He also proposes increasing the rate to 5% for individuals with income over $400,000. He would also redirect NIIT revenue to the Hospital Insurance Trust Fund which has been having problems.</span></p><p><span style="font-family: verdana;"><i>Observation</i>: The NIIT was created by the Affordable Care Act and the 3.8% rate ties to Medicare taxes. Why the revenue wasn't for the HITF in the first place seemed odd. So this seems to make sense. What should the NIIT apply to? Personally, I'd like to see this reviewed along with the regular and capital gain tax rates for individuals (non-corporate taxpayers) to instead have some uniformity of definitions (there are at least two different definitions of NII in the Code), examine the logic of having special rates for investment income oddly defined (NII applies to both investment income and some passive business income - why?), and see if there can be fewer tax rate structures for individuals.</span></p><p><span style="font-family: verdana;">President Biden continues to call for capital gains and qualified dividends of individuals with income over $1 million to be taxed at ordinary rates + the NII. And he continues to call for treating appreciated property transferred by gift or death as realization events.</span></p><p><span style="font-family: verdana;"><i>Observations</i>: Why not tax all of some capital income at the same rates as wage and interest income? Yes, gains on capital assets can also include inflationary gains, but with so many people using tax prep software, the capital assets could be adjusted for inflation before gains are calculated and all of the income taxed as the same rates. That was what we had under President Reagan's Tax Reform Act of 1986 - all income taxed at the same rates, but there was no inflation adjustment for assets held over one year. I think that is worth exploring. Arguably, taxing all of this income at the same rate could remove the need for the NIIT and possibly allow for lower regular tax rates. And taxing gains at date of death makes sense. Why should that income forever be excepted from income tax? For example, if someone with stock that has billions of dollars of unrealized gain sells it today, all of that gain is subject to income tax. But if that wealthy stockholder dies today, none of that billions of dollars of gain is ever taxed because when transferred to their estate, it is not treated as a realization event and heirs get the stock at FMV rather than the decedent's basis. What is the logic for this and this enormous tax break primarily benefits a small number of very wealthy individuals. And, President Biden has exceptions including for transfers to charity, transfer to the surviving spouse, and a $5 million exclusion per person. With that large exclusion, over 99% of individuals would not be subject to the tax, but the very wealthy folks in the very top of the 1% with billions of dollars of gain at death would pay tax.</span></p><p><span style="font-family: verdana;">President Biden calls for a larger and refundable/advanceable child tax credit (CTC) to benefit those with children under age 18 for 2023 through 2025. This sounds like what we had for 2021.</span></p><p><span style="font-family: verdana;"><i>Observation</i>: The higher 2021 CTC is estimated to have reduced child poverty by <a href="https://www.npr.org/2022/01/27/1075299510/the-expanded-child-tax-credit-briefly-slashed-child-poverty-heres-what-else-it-d" target="_blank">about 30%</a>. The additional funds for families helped improve their household economics and arguably also helped the economy. This also needs discussion and perhaps there is some bipartisan support as all members of Congress had many constituents whose lives were improved with the extra dollars. In 2026, the CTC drops from $2,000 back to $1,000 (but the personal exemption returns along with a smaller standard deduction and higher individual tax rates). Discussion is needed to what the tax picture should look like for individuals at all income levels, with those in the top 10% of income broken down to smaller categories given the tremendous income gap in that top 10% (actually the income range even in the top 1% ranges from about $450,000 to over $450 million!)</span></p><p><span style="font-family: verdana;">And there is more - the <a href="https://home.treasury.gov/system/files/131/General-Explanations-FY2024.pdf" target="_blank">Greenbook </a>is 226 pages. I encourage you to look at the Table of Contents and proposals of interest to you. I have a <a href="https://www.sjsu.edu/people/annette.nellen/website/ComparisonBidenGreenbooks_23_22.pdf" target="_blank">list </a>of items that were in the last two Greenbooks if you'd like to compare (there is a lot of similarity).</span></p><p><span style="font-family: verdana;">Will anything be enacted? Probably not given the party split in Congress. But there might be some areas of bipartisan agreement and some of the revenue raisers in Biden's plan, particularly if viewed as a "loophole" closer, might get picked up to help address other changes. For example, there is bipartisan support to restore current deductibility for R&D expenses which we had in the law for 1954 through 2021 until the TCJA required capitalization starting in 2022. One example of what I'd call a loophole closer that is in the Greenbook again is to have the wash sale rules also apply to digital assets. There really isn't any reason why someone can sell Disney stock at a loss and buy it back and have to defer the loss, but sell bitcoin at a loss and buy it back (so stays in the same portfolio position) but does get to claim the loss now rather than defer it.</span></p><p><span style="font-family: verdana;">What have you looked at in the FY2024 Greenbook?</span></p><p><span style="font-family: verdana;">What do you think?</span></p><p><br /></p><p><br /></p><p><br /></p>Professor Nellenhttp://www.blogger.com/profile/03288632402197167948noreply@blogger.com1