Tuesday, August 16, 2022

Inflation Reduction Act of 2022 Is Law

On August 12 we posted Inflation Reduction Act (aka Build Back "SOMEWHAT" Better) Passes Senate, where we discussed that the Senate debated a revised version of Democrats' Inflation Reduction Act (H.R. 5376), following changes made as a result of negotiations with Arizona Sen. Kyrsten Sinema, which passed the Senate. The House of Representatives tested bill on August 12 and the president has since signed the bill.

What's in the Inflation Reduction Act?

Revenue and spending in the legislation breaks down as follows, according to the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT):1

 AmountSource
REVENUE
 $313 billion15% corporate minimum tax *
 $288 billionPrescription drug pricing reform **
$124 billionEnhanced IRS tax enforcement **
$725 billionTotal revenue raised
INVESTMENTS
$369 billionEnergy security and climate change investment ***
$64 billionAffordable Care Act extension **
$433 billionTotal investments
$292+ BILLIONTOTAL DEFICIT REDUCTION
* Joint Committee on Taxation ** Congressional Budget Office *** Both

Following are highlights of some of the most notable features of the Inflation Reduction Act of 2022:

15% corporate minimum tax

The bill introduces a new 15% minimum tax on corporations to help pay for climate and health care measures. The tax applies to companies that generate $1 billion in annual earnings. The Joint Committee on Taxation (JCT) estimates the tax will raise $313 billion in revenue over the next decade. Exemptions from the tax demanded by Sen. Kyrsten Sinema (D-Ariz.) to secure her 'yes' vote include:

  • Exemption for companies that use accelerated depreciation to help pay for new investments.
  • Exclusion of small businesses that are subsidiaries of private equity firms.

Prescription drug pricing reform

The bill allows Medicare to negotiate prices for some drugs for the first time. This is a policy Democrats have attempted to enact, over objections from the pharmaceutical industry, for many years. The provisions are expected to save $288 billion over 10 years according to analysis by the CBO.

Specifically, the legislation would let Medicare negotiate lower prices for 10 high-cost drugs beginning in 2026.
 This would jump to 20 drugs by 2029. Companies that refuse to negotiate will be subject to an up to 95% sales tax on that drug. The bill includes a ceiling on the negotiated price of the specified drug. Moderate Democrats, including Sen. Sinema, inserted a requirement that price negotiations only apply to older drugs (9 years for most/13 years for biologic drugs).

  • 95% Sales tax penalty levied on companies that refuse to negotiate drug prices with Medicare.
  • The bill caps out-of-pocket drug costs at $2,000 a year for Medicare beneficiaries, starting in 2025.
  • It also caps insulin costs for people on Medicare at $35 a month. The original proposal called for a cap on both Medicare and private insurance patients, but Republicans voted against extending protection to those on private plans.

Other drug cost caps, which mostly apply to Medicare beneficiaries, are in the legislation as well. Those who get insurance under private plans are largely excluded from these caps because Senate rules limit how expansive such provisions can be.

A further protection mandates that drug companies that raise prices on Medicare faster than the rate of inflation must pay rebates to the government for the price difference.

Enhanced IRS tax enforcement

The Inflation Reduction Act of 2022 allocates $80 billion to increase enforcement by the IRS. Supporters of the measure hope that additional employees and better technology will allow the IRS to catch more tax cheats, especially among the ultra-wealthy. The CBO believes this could boost IRS revenue by at least $124 billion over the next decade.

Stock buybacks will be subject to an additional tax once the legislation becomes law. A 1% excise tax on buybacks is expected to generate $74 billion by 2031.

In a bid to recoup tax revenue lost to private equity, the act imposes a limit on losses businesses can deduct from their taxes. These measures are designed to prevent wealthy individuals from reducing or even wiping out their income tax liability.

Energy security and climate change investment

The largest investment made by the Inflation Reduction Act of 2022 is for energy security and climate change. It totals $369 billion and consists of the following:3

Business Incentives and Tax Credits

  • Incentives to businesses to deploy lower-carbon and carbon-free energy sources.
  • Tax credits for energy production and investments in wind, solar, and geothermal energies.
  • Tax credits for investment in battery storage and biogas. 
  • Tax credits for investments in nuclear energy, hydrogen energy coming from clean sources, biofuels, and technology that captures carbon from fossil fuel power plants.
  • Bonuses for companies based on worker pay and the manufacture of steel, iron, and other components in the U.S.
 

New tax credit rules make EV tax credit hard to get:3

  • EV must be made in North America.
  • Eliminates credits for pricey EVs, i.e., Hummer EV, Lucid Air, and Tesla Model S and Model X. 
  • Lowers tax credit on new EVs with battery minerals sourced from countries other than the U.S.

Business and Consumer Incentives

  • Incentives to companies and consumers who make cleaner energy choices.
  • Tax credits for residential clean energy costs including rooftop solar, heat pumps, and small wind energy systems. 30% credit through 2032—phases down after 2032.
  • Electric vehicle tax credits of up to $7,500 on new EVs and $4,000 on used.
  • Tax credit for energy efficiency in commercial buildings.
  • Grants and loans to help companies reduce emissions of gas methane from oil and gas.
  • Fees levied on producers with excess methane emissions.
  • $27 billion toward additional incentives for clean energy technology.
 

Some provisions of the Inflation Reduction Act of 2022 actually increase fossil fuel production on public lands.

Use of Public Lands

  • New requirements to hold lease sales that open up new oil and gas production.
  • Reinstatement of a recent offshore oil and gas lease sale that was struck down on environmental grounds.
  • Requirement that the Interior Department hold at least three more offshore oil and gas lease sales by next October.
  • Minimum royalties increase for companies that extract oil and gas on public lands and waters.
  • Added royalty for public land and water extraction of gas that is later burned off or released as waste instead of sold as fuel.

Miscellaneous Provisions

  • $3 billion for environmental justice block grants—community-led programs that address harms from climate change and pollutants, including $20 million for technical assistance at the community level, through fiscal 2026.
  • $3+ billion for air pollution monitoring in low-income communities with $117 million going to communities in close proximity to industrial pollutants.
  • Excise tax increase from 9.7 to 16.4 cents per barrel on imported petroleum and crude oil products to fund the cleanup of industrial disaster site increases.
  • Permanent extension of the tax on coal production that funds the Black Lung Disability Trust Fund, which finances claims from workers with the condition.

Affordable Care Act extension

The legislation extends financial assistance to help people enrolled in ACA through 2025.
Without this action, extra assistance would have stopped at the end of 2022. The provision also expands eligibility to allow more middle-class people to receive premium help. The extension of ACA help is estimated to cost $64 billion by the CBO.










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Source:

John Doe Summons To SFOX Seeking the Identities of U.S. Taxpayers Who Have Used Cryptocurrency Approved By Federal Court

According to DoJ, on Aug. 15, 2022, a federal court in the Central District of California entered an order authorizing the IRS to serve a John Doe summons on SFOX, a cryptocurrency prime dealer headquartered in Los Angeles, California, seeking information about U.S. taxpayers who conducted at least the equivalent of $20,000 in transactions in cryptocurrency between 2016 and 2021 with or through SFOX.

“Taxpayers who transact with cryptocurrency should understand that income and gains from cryptocurrency transactions are taxable,” said Deputy Assistant Attorney General David A. Hubbert of the Justice Department’s Tax Division. 

“The Information Sought By The Summons Approved 
Today Will Help To Ensure That Cryptocurrency Owners 
Are Following The Tax Laws.”

“The John Doe summons remains a highly valuable enforcement tool that the U.S. government will use again and again to catch tax cheats and this is yet one more example of that,” said IRS Commissioner Chuck Rettig. 

“I Urge All Taxpayers To Come Into Compliance With 
Their Filing And Reporting Responsibilities And Avoid Compromising Themselves In Schemes That May 
Ultimately Go Badly For Them.”

Because transactions in cryptocurrencies can be difficult to trace and have an inherently pseudo-anonymous aspect, taxpayers may be using them to hide taxable income from the IRS. In the court’s order, United States District Court Judge Otis D. Wright found that there is a reasonable basis for believing that individuals conducting at least $20,000 in cryptocurrency transactions may have failed to comply with federal tax laws.

The court’s order grants the IRS permission to serve what is known as a “John Doe” summons on SFOX. There is no allegation in this suit that SFOX has engaged in any wrongdoing in connection with its digital currency business. Rather, the IRS uses John Doe summonses to obtain information about possible violations of internal revenue laws by individuals whose identities are unknown. 

This John Doe Summons Directs SFOX To Produce Records
 Identifying U.S. Taxpayers Who Have Used Its Services, 
Along With Other Documents Relating To 
Their Cryptocurrency Transactions.

The IRS has issued guidance regarding the tax consequences on the use of virtual currencies in IRS Notice 2014-21, which provides that virtual currencies that can be converted into traditional currency are property for tax purposes, and a taxpayer can have a gain or loss on the sale or exchange of a virtual currency, depending on the taxpayer’s cost to purchase the virtual currency (that is, the taxpayer’s tax basis). 

The IRS reminds taxpayers that there is a question at the top of the 2022 Form 1040 (income tax return) asking about virtual currency transactions. 

Have a Virtual Currency Tax Problem?


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Monday, August 8, 2022

Inflation Reduction Act (aka Build Back "SOMEWHAT" Better) Passes Senate

On July 28, 2022 we posted Manchin & Schumer Agree on Build Back "SOMEWHAT" Better Deal With 15% Corp. Minimum Tax & Increased Tax Enforcement, where we discussed that Joe Manchin said on Wednesday, July 27, 2002, that he had reached an agreement with Majority Leader Chuck Schumer on legislation that would impose a 15% corporate minimum tax as part of a larger package to address tax, energy and health care costs.

Now the Senate over the weekend on August 7, 2022 debated a revised version of Democrats' Inflation Reduction Act (H.R. 5376), following changes made as a result of negotiations with Arizona Sen. Kyrsten Sinema, the majority party's last holdout on the tax, health care, and climate legislation.

  • The altered bill includes a pared-down proposal for a 15% minimum tax on large, profitable corporations and the removal of a planned tax increase on carried-interest income. Democrats added a 1% excise tax on stock buybacks, as they remain intent on using the budget reconciliation measure to reduce the U.S. deficit by about $300 billion.
  • Under the deal between Sinema and Democratic leaders, the proposed corporate minimum tax would be winnowed through the introduction of an exemption for depreciation tax deductions. The revenue gap of about $100 billion created by the new exemption would be closed through the new 1% excise tax on stock buybacks.

"We are adding in an excise tax on stock buybacks that will bring in $74 billion," Senate Majority Leader Chuck Schumer told reporters on August 5. The New York Democrat didn't say when the tax would take effect if the legislation is enacted.

Late last week, Schumer had scheduled an initial procedural vote on the package for August 6, triggering a series of votes on the bill's substance that could be concluded within days. If the bill passes the Senate, the House of Representatives would also have to approve it to send it to Biden for his signature.

House Majority Leader Steny Hoyer has said members of the lower chamber would be called back from their August recess to cast votes if the bill passed the Senate.

Sinema said in a statement late on August 4 that Democrats had changed the bill to "protect advanced manufacturing and boost our clean-energy economy." U.S. manufacturers had expressed concerns that the original corporate minimum tax plan would harm their businesses by deferring or denying the benefit of accelerated depreciation. The revised bill retains the accelerated-depreciation benefit for some manufacturers.

Citing fresh data from Congress' Joint Committee on Taxation, Senate Finance Committee Chair Ron Wyden, an Oregon Democrat, countered that the tax would largely fall on profitable companies that pay little income tax. 

Between 100 And 125 Corporations Reported Incomes
Exceeding $1 Billion And A Tax Rate Of Under 5% On Their Financial Statements, According To The JCT Analysis.

It found that the companies had an financial statement income of $8.9 billion on average and paid an effective tax rate of 1.1%.

"While we know that billion-dollar companies are avoiding paying their fair share, these tax rates are lower than we could have imagined," Wyden said. 

"Companies Are Paying Rock-Bottom Rates While
Reporting Record Profits To Their Shareholders."

Sinema had opposed raising taxes on carried interest throughout the talks, while Manchin, another key centrist Democrat, had pushed for it.

Manchin in late 2021 scuttled Senate consideration of the House-passed BBB, saying he couldn't support a large spending package with inflation at its highest level in decades. Through last week, Democrats had spent the year attempting to revive elements of the BBB, ultimately abandoning plans for a more generous child tax credit, subsidized child care, and universal prekindergarten, among other benefits.

  • The bill's narrower scope also includes empowering Medicare to negotiate prices of some prescription drugs, resulting in $102 billion in new revenue. 
  • Repealing a restriction from Donald Trump's presidency on prescription drug rebates is expected to bring in $122 billion, with other money to come from giving tax breaks to businesses and individuals to reduce carbon emissions, and extending subsidies for health insurance premiums under the Affordable Care Act.
  • The stock buyback provision had been on the table during months of talks between Schumer and Manchin but was dropped in favor of the 15% minimum tax on large corporations. 

Manchin Has Stressed That The Bill Contains No New 
Tax Increases And Is Intended To Curb Tax Avoidance.

However, the buyback provision runs counter to that approach and is expected to generate less than the $124 billion estimated when the House passed it last year.

Other revenue would come from stricter enforcement of tax compliance by the IRS. Enforcement-related funds, at $45.6 billion, make up more than half of the total $80 billion in additional appropriations, which have survived the bill's revisions. The IRS has said its goal is to reduce the tax gap by strengthening its ability to capture revenue from taxes that might otherwise not be collected.

Have an IRS Tax Problem? 
 



Contact the Tax Lawyers at 
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IRS To Assert One Penalty for Failure to Timely Report Foreign Trust Ownership

The IRM instructs IRS employees on when to assess penalties related to the Form 3520-A and Form 3520, as well as when penalties should not be assessed, indirectly giving taxpayers some relief. 

Two separate penalties equal to 5% of the trust's value (with a minimum penalty of $10,000) may apply for failure to report foreign trust ownership information on Form 3520-A and Form 3520, Part II. 

Separate penalties of up to 35% of a contribution to a foreign trust or 35% of a distribution from that trust (both with a minimum penalty of $10,000) may apply for failure to report the trust contribution or distribution on Form 3520.

Now, IRM Section 20.1.9.13.4 provides that the IRS will pursue only one penalty, rather than two penalties as authorized under IRC Section 6677(b), for a US citizen or resident individual's failure to timely and accurately report ownership of a foreign grantor trust on the Form 3520-A and Form 3520. 

Specifically, IRM Section 20.1.9.13.4 explains that the IRS will pursue penalties for failure to report ownership of a foreign grantor trust on the Form 3520-A but will not pursue penalties for failure to report such ownership on the Form 3520.

This is in line with Wilson, (CA 2 7/28/2021) 128 AFTR 2d ¶2021-5070, which overruled a district court, when it found that the 35% penalty for failure to report distributions received from a foreign trust applied to an individual who was both the beneficiary and owner of a foreign trust. The district had found that only the 5% penalty applicable to owners of foreign trusts who failed to file annual returns applied.

Have an IRS Tax Problem?


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Another Criminal Prosecution of Employers For Failure To Pay Withheld Payroll Taxes - As Promised!


On June 27, 2022 we posted IRS CONTINUES to Criminally Prosecutes Employers For Failure To Pay Withheld Payroll Taxes - As Promised! which lists multiple recent cases where the IRS Criminally prosecutes Employers for Failure To Pay Withheld Payroll Taxes.


Now According To The DoJ, A Maryland Man
Is Indicted For 
Employment Taxes Violations.

A Maryland man made his initial appearance in federal court on August 4, 2022, after being charged with 16 counts of willful failure to collect, account for and pay over employment taxes to the IRS.

According to the indictment, Brett Hill, of Parkton, owned and operated two telecommunications companies and was responsible for collecting and paying to the IRS income, Social Security, and Medicare taxes withheld from the wages of employees at both companies. 

Hill allegedly collected such taxes from the employees of the two companies but did not pay those taxes to the IRS or file quarterly employment tax returns. 

In Total, Hill Did Not Pay To The IRS Approximately $900,000
In Payroll Taxes Related To The Two Companies.

If convicted, Hill faces up to five (5) years in prison for each of 16 counts of willful failure to collect or pay over employment taxes (possible 60 years). A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

  Thinking of Borrowing From Your Company's
Payroll Tax Withholdings?


You Better Thank Again, if You Like Your Freedom!


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