News
The United States has provided formal notice to the Russian Federation on June 17, 2024, to confirm the suspension of the operation of paragraph 4 of Article 1 and Articles 5-21 and 23 of the Conven...
The IRS has announced plans to deny tens of thousands of high-risk Employee Retention Credit (ERC) claims while beginning to process lower-risk claims. The agency's review has identified a sign...
The IRS has issued a warning about the increasing threat of impersonation scams targeting seniors. These scams involve fraudsters posing as government officials, including IRS agents, to steal s...
The IRS released the inflation adjustment factors and the resulting applicable amounts for the clean hydrogen production credit for 2023 and 2024.For 2023, the inflation adjustment...
The IRS has released the inflation adjustment factor for the credit for carbn dioxide (CO2) sequestration under Code Sec. 45Q for 2024. The inflation adjustment factor is 1.3877, and the...
Effective July 1, 2024, the town of Pine Level imposed new local Alabama sales, use, rental and lodgings taxes.Sales And Use TaxesNew sales and use taxes are imposed on the following at the indicated ...
Alaska Gov. Mike Dunleavy announced he is sponsoring legislation that will support Alaska’s agriculture and timber industries. The bill reduces the tax burden of businesses in the agriculture and ti...
Arizona has made the following changes to state income tax credits for contributions to school tuition organizations:setting a $135 million annual aggregate cap on corporate low-income student tuition...
The Arkansas Department of Finance and Administration has updated the 2024 edition of its publication "Withholding Tax: Employer's Instructions" for recent legislative changes to tax rates. The public...
The California Franchise Tax Board (FTB) may continue to implement an alternative communication method, which allows taxpayers to receive notifications via preferred electronic methods when a notice, ...
Colorado has enacted changes to the Property Tax/Rent/Heat Credit Rebate (PTC) which is available to qualifying seniors and individuals with a disability who earn income below a threshold amount and w...
The conversion factors used in the computation of Connecticut motor vehicle fuels tax occurring in gaseous form effective July 1, 2024, through June 30, 2025, are announced. Conversion factors: (1) ar...
Delaware adopted rules that provide guidance on tax refund intercept requests from other states, including:access to information contained in a taxpayer's Delaware and federal personal income tax retu...
For District of Columbia property tax purposes, the trial court erred in dismissing an action brought by the taxpayers in April 2018 challenging the validity of a corrected special assessment levied a...
Guidance is issued regarding changes that have been made to the affidavit required to claim the sales tax exemption for boats sold by registered dealers to nonresident purchasers for removal from Flor...
For sales and use tax purposes, Georgia adopted new rules pertaining to the registration of multipurpose off-highway vehicles (MPOHVs). The rules detail the procedures that county tag offices must fol...
The Hawaii income tax credit available to qualified high technology businesses for research activities has been amended to:repeal a provision that made references to the base amount in the Internal Re...
The Idaho State Tax Commission has issued a release announcing that veterans with disabilities are eligible to have their property tax bill reduced by as much as $1,500 on their Idaho residence and up...
Illinois adopted a regulation implementing the Manufacturing Illinois Chips for Real Opportunity (MICRO) investment credit that eligible taxpayers can use against:corporate income tax liability; andpe...
Effective August 1, 2024, the city of Hammond in Indiana imposes a food and beverage tax at a 1% rate. Food and Beverage Tax, Indiana Department of Revenue, July 2024...
The Iowa Department of Revenue issued a declaratory order regarding the applicability of sales and use tax to a research company’s (taxpayer’s) corn breeding and yield trial testing services. In t...
Kansas issued a notice highlighting legislation that increases the child and dependent care expense credit beginning with the 2024 tax year. Notice 24-09, Kansas Department of Revenue, July 1, 2024...
The Kentucky Department of Revenue provides answers to frequently asked questions on the disaster relief sales and use tax refund available following the recent storms that took place. A disaster decl...
Effective July 1, 2024, Louisiana will allow a sales and use tax rebate for taxes paid on the purchase of eligible data center equipment by approved data center facilities.Purchases made on or after J...
Maine has amended its rule regarding income tax withholding reports and payments to remove the requirement to file the annual reconciliation Form W-3ME for tax periods beginning on or after January 1,...
For sales and use tax purposes, the Comptroller of Maryland issued a tax alert discussing the taxability of cigarettes, other tobacco products (OTP), and electronic smoking devices (ESD). The tax aler...
Massachusetts issued guidance explaining changes contained in 2023 supplemental appropriations legislation that:added a personal income tax deduction for sports wagering losses;established sourcing an...
From August 1, 2024 through August 31, 2024, the Michigan prepaid tax rate for gasoline decreases to 18.4 cents per gallon. The prepaid rate for diesel fuel decreases to 19.5 cents per gallon. Revenu...
Montana has proposed numerous updates to the personal income tax rules in order to align them with various law changes. For example, because of previously enacted tax simplification, the updates would...
Massachusetts updated guidance that explains tax relief resulting from a federal disaster declaration for areas in the state, including automatic return filing and payment extensions for:personal inco...
Missouri has amended various income tax rules relating to:changes of accounting periods;determinations of timeliness; andnet operating losses (NOLs) on individual income tax returns.Missouri has also ...
Montana issued a reminder concerning pass-through entity tax (PTET) returns that push PTET overpayments to affected owners. Overpayments of the PTET cannot be allocated to affected owners. When a pass...
Nebraska Gov. Jim Pillen called a special session of the state legislature to consider a tax package that proposes to:Place a hard cap on property tax collections; andCut property taxes by 50%.Press R...
In the 2024 general election, Nevada voters will decide if diapers will be exempt from all sales and use taxes effective January 1, 2025. If approved by the voters, the exemption would be in effect un...
New Hampshire has provided annual guidance for the credit for donations to scholarship organizations that may be claimed against the business profits tax and the business enterprise tax. The allowable...
New Jersey has release guidance regarding its recently adopted corporate transit fee. The guidance discusses:separate and combined group filing;filing returns; andpenalties and interest.Corporate Tran...
In an unpublished opinion, the New Mexico Court of Appeals (court) affirmed that a taxpayer was entitled to a full abatement of an assessment of sales and use tax because the taxpayer established that...
A New York personal income taxpayer’s petition with the Division of Tax Appeals in protest of the notice of deficiency was denied because she did not meet her burden of establishing that the notice ...
A taxpayer’s petition challenging a North Carolina sales and use tax assessment was barred by the doctrine of sovereign immunity because the petition was untimely filed. In this matter, the taxpayer...
North Dakota issued a newsletter summarizing legislation enacted in 2023 affecting the corporate and personal income taxes. Among the topics covered are individual income tax rate reductions, deductio...
A taxpayer and two of its subsidiaries (taxpayers) were denied Ohio sales tax refunds because their clinical laboratory testing materials were not drugs exempt from tax. The taxpayers conducted clinic...
Additional Oklahoma local sales and use tax rate changes have been announced effective October 1, 2024.City Rate ChangesBroken Bow increases its rate from 3.0% to 4.0%.Edmond increases its lodging tax...
The Oregon Supreme Court affirmed a tax court decision holding a cigarette manufacturer’s activities, including return of goods and "prebook orders," created nexus for purposes of Oregon’s corpora...
Pennsylvania has adopted legislation amending the act of July 7, 1947, known as the Real Estate Tax Sale Law by adding a section establishing a county demolition and rehabilitation fund. The legislati...
Rhode Island has enacted legislation replacing the option for taxpayers to donate to the substance use and mental health leadership council of Rhode Island via personal income tax return checkoff with...
Various South Carolina withholding provisions have been updated to refer to the "maximum individual tax rate," rather than to a specific percentage.Previously, the 2023-24 budget legislation contained...
South Dakota has updated a tax facts sheet on the application of state and local taxes to fishing and hunting service providers, hunting preserves, and hunting lodges. Topics covered in the fact sheet...
An annual three-day Tennessee sales and use tax holiday applies to qualifying clothing and school supplies (including art supplies) with a sales price of $100 or less per item, and to computers with a...
The Texas Comptroller of Public Accounts issued a publication discussing the applicability of mixed beverage tax. The publication discusses that a mixed beverage permittee must (1) pay a 6.7% mixed be...
Utah has revised its sales tax guidance for outfitter and guide services and for sales of hunting and fishing licenses and cooperative wildlife management unit (CWMU) permits. Topics covered include t...
Vermont has revised the Downtown and Village Center Program Tax Credit to increase the maximum credit from $50,000 to $100,000 for combined costs of certain qualified code improvements, and from $75,0...
Virginia has issued a bulletin regarding the one-time safe harbor for omitted and erroneously remitted retail sales and use taxes to contractors. Effective July 1, 2024, the Department of Taxation is ...
A limited liability company (taxpayer) was not subject to Washington use tax on the purchase of an aircraft because the transaction was an exempt purchase for resale. The taxpayer was specifically for...
West Virginia issued a publication that provides guidance on corporate and personal income tax credits for tax paid on the personal property of small business owners in the state. TSD 456, West Virgin...
Wisconsin released a new version of its withholding tax guide (Publication W-166) announcing that the current withholding rates continue for 2024.Updated versions of the following publications were al...
Beginning October 1, 2024, lodging vendors in Niobrara County, Wyoming within the boundaries of the town of Lusk impose a 13% tax on lodging services (6% sales tax and 7% lodging tax). Taxing Issues,...
The IRS has provided guidance on two exceptions to the 10 percent additional tax under Code Sec. 72(t)(1) for emergency personal expense distributions and domestic abuse victim distributions. These exceptions were added by the SECURE 2.0 Act of 2022, P.L. 117-328, and became effective January 1, 2024. The Treasury Department and the IRS anticipate issuing regulations under Code Sec. 72(t) and request comments to be submitted on or before October 7, 2024.
The IRS has provided guidance on two exceptions to the 10 percent additional tax under Code Sec. 72(t)(1) for emergency personal expense distributions and domestic abuse victim distributions. These exceptions were added by the SECURE 2.0 Act of 2022, P.L. 117-328, and became effective January 1, 2024. The Treasury Department and the IRS anticipate issuing regulations under Code Sec. 72(t) and request comments to be submitted on or before October 7, 2024.
Distributions for Emergency Personal Expenses
Code Sec. 72(t)(2)(I) provides an exception to the 10 percent additional tax for a distribution from an applicable eligible retirement plan to an individual for emergency personal expenses. The term "emergency personal expense distribution" means any distribution made from an applicable eligible retirement plan to an individual for purposes of meeting unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses. The IRS specifically noted that emergency expenses could be related to: medical care; accident or loss of property due to casualty; imminent foreclosure or eviction from a primary residence; the need to pay for burial or funeral expenses; auto repairs; or any other necessary emergency personal expenses.
The IRS provides that a plan administrator or IRA custodian may rely on a written certification from the employee or IRA owner that they are eligible for an emergency personal expense distribution. Furthermore, the IRS provides that an emergency personal expense distribution is not treated as a rollover distribution and thus is not subject to mandatory 20% withholding. However, the distribution is subject to withholding, the IRS said. If the emergency personal expense distribution is repaid, it is treated as if the individual received the distribution and transferred it to an eligible retirement plan within 60 days of distribution.
If an otherwise eligible retirement plan does not offer emergency personal expense distributions, the IRS indicated that an individual may still take an otherwise permissible distribution and treat it as such on their federal income tax return. The individual claims on Form 5329 that the distribution is an emergency personal expense distribution, in accordance with the form’s instructions. The individual has the option to repay the distribution to an IRA within 3 years.
Distributions to Domestic Abuse Victims
Code Sec. 72(t)(2)(K) provides an exception to the 10 percent additional tax for an eligible distribution to a domestic abuse victim (domestic abuse victim distribution). The guidance defines a"domesticabusevictimdistribution" as any distribution from an applicable eligible retirement plan to a domestic abuse victim if made during the 1-year period beginning on any date on which the individual is a victim of domestic abuse by a spouse or domestic partner. "Domesticabuse" is defined as physical, psychological, sexual, emotional, or economic abuse, including efforts to control, isolate, humiliate, or intimidate the victim, or to undermine the victim’s ability to reason independently, including by means of abuse of the victim’s child or another family member living in the household.
As with distributions for emergency personal expenses, a retirement plan may rely on an employee’s written certification that they qualify for a domestic abuse victim distribution. Similarly, if an otherwise eligible retirement plan does not offer domestic abuse victim distributions, the IRS indicated that an individual may still take an otherwise permissible distribution and treat it as such on their federal income tax return. The individual claims on Form 5329 that the distribution is a domestic abuse victim distribution, in accordance with the form’s instructions. The individual has the option to repay the distribution to an IRA within 3 years.
Request for Comments
The Treasury Department and the IRS invite comments on the guidance, and specifically on whether the Secretary should adopt regulations providing exceptions to the rule that a plan administrator may rely on an employee’s certification relating to emergency personal expense distributions and procedures to address cases of employee misrepresentation. Comments should be submitted in writing on or before October 7, 2024, and should include a reference to Notice 2024-55.
On June 17, 2024, the U.S. Department of the Treasury and the Internal Revenue Service announced a new regulatory initiative focused on closing tax loopholes and stopping abusive partnership transactions used by wealthy taxpayers to avoid paying taxes.
On June 17, 2024, the U.S. Department of the Treasury and the Internal Revenue Service announced a new regulatory initiative focused on closing tax loopholes and stopping abusive partnership transactions used by wealthy taxpayers to avoid paying taxes.
Specifically targeted by this new tax compliance effort are partnership basis shifting transactions. In these transactions, a single business that operates through many different legal entities (related parties) enters into a set of transactions that manipulate partnership tax rules to maximize tax deductions and minimize tax liability. These basis shifting transactions allow closely related parties to avoid taxes.
The use of these abusive transactions grew during a period of severe underfunding for the IRS. As such, the audit rates for these increasingly complex structures fell significantly. It is estimated that these abusive transactions, which cut across a wide variety of industries and individuals, could potentially cost taxpayers more than $50 billion over a 10-year period, according to an IRS News Release.
"Using Inflation Reduction Act funding, we are working to reverse more than a decade of declining audits among the highest income taxpayers, as well as complex partnerships and corporations," IRS Commissioner Danny Werfel said during a press call discussing the new effort on June 14, 2024.
"This announcement signals the IRS is accelerating our work in the partnership arena, which has been overlooked for more than a decade and allowed tax abuse to go on for far too long," said IRS Commissioner Danny Werfel. "We are building teams and adding expertise inside the agency so we can reverse long-term compliance declines that have allowed high-income taxpayers and corporations to hide behind complexity to avoid paying taxes. Billions are at stake here".
This multi-stage regulatory effort announced by the Treasury and IRS includes the following guidance designed to stop the use of basis shifting transactions that use related-party partnerships to avoid taxes:
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proposed regulations under existing regulatory authority to stop related parties in complex partnership structures from shifting the tax basis of their assets amongst each other to take abusive deductions or reduce gains when the asset is sold;
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proposed regulation to require taxpayers and their material advisers to report if they and their clients are participating in abusive partnership basis shifting transactions; and
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a Revenue Rulingproviding that certain related-party partnership transactions involving basis shifting lack economic substance.
"Treasury and the IRS are focused on addressing high-end tax abuse from all angles, and the proposed rules released today will increase tax fairness and reduce the deficit," said U.S. Secretary of the Treasury Janet L. Yellen.
In the June 14, 2024, press call, Commissioner Danny Werfel also noted that there will be an increase in audits of large partnerships with average assets over $10 billion dollars and larger organizational changes taking place to support compliance efforts, including the creation of a new associate office that will focus exclusively on partnerships, S corporations, trusts, and estates.
By Catherine S. Agdeppa, Content Management Analyst
A savings account with the tax benefits of a health savings account or an educations savings account but without the singular restricted focus could be something that gains traction as Congress addresses the tax provision of the Tax Cuts and Jobs Act that expire in 2025.
A savings account with the tax benefits of a health savings account or an educations savings account but without the singular restricted focus could be something that gains traction as Congress addresses the tax provision of the Tax Cuts and Jobs Act that expire in 2025.
The concept was promoted by multiple witnesses testifying during a recent Senate Finance Committee hearing on the subject of child savings accounts and other tax advantaged accounts that would benefit children. It also is the subject of a recently released report from The Tax Foundation.
Rather than push new limited-use savings accounts, "policymakers may want to consider enacting a more comprehensive savings program such as a universalsavingsaccount," Veronique de Rugy, a research fellow at George Mason University, testified before the committee during the May 21, 2024, hearing. "Universalsavingsaccounts will allow workers to save in one simple account from which they would withdraw without penalty for any expected or unexpected events throughout their lifetime."
She noted that, like other more focused savings accounts, like health savings accounts, it would have "the benefit of sheltering some income from the punishing double taxation that our code imposes."
De Rugy added that universal savings accounts "have a benefit that they do not discourage savings for those who are concerned that the conditions for withdrawals would stop them from addressing an emergency in their family."
Adam Michel, director of tax policy studies at the Cato Institute, who also promoted the idea of universal savings accounts. He said these accounts "would allow families to save for their kids or any of life’s other priorities. The flexibility of these accounts make them best suited for lower and middle income Americans."
He also noted that they are promoting savings in countries that have implemented them, including Canada and United Kingdom.
"For example, almost 60 percent of Canadians own tax-free savingsaccounts," Michel said. "And more than half of those account holders earned the equivalent of about $37,000 a year. These accounts have helped increase savings and support the rest of the Canadian savings ecosystem."
De Rugy noted that in countries that have implemented it, they function like a Roth account in that money that has already been taxed can be put into it and not penalized or taxed upon withdrawal.
Michel also noted that the if the tax benefits extend to corporations as they do with deposits to employee health savings accounts, "to the extent that you lower the corporate income tax, you’re going to encourage a different additional investment into savings by those entities."
Simulating The Universal Savings Account Impact
The Tax Foundation in its report simulated how a universal savings account could work, based on how they are implemented in Canada. The simulation assumed the accounts could go active in 2025 for adults aged 18 years or older.
On a post-tax basis, individuals would be allowed to contribute up to $9,100 on a post-tax basis annually, with that cap indexed for inflation. Any unused "contribution room" would be allowed to be carried forward. Earnings would be allowed to grow tax-free and withdrawals would be allowed for any purpose without penalty or further taxation. Any withdrawal would be added back to that year’s contribution room and that would be eligible for carryover as well.
"The fiscal cost of this USA policy would be offset by ending the tax advantage of contributions to HSAs beginning in 2025," the report states. "As such, future contributions to HSAs would be given normal tax treatment, i.e. included in taxable income and subject to payroll tax with subsequent returns on contributions also included in taxable income."
In this scenario, the Tax Foundation report estimates that "this policy change would on net raise tax revenue by about $110 billion over the 10-year budget window."
As for the impact on taxpayers, the "after-tax income would fall by about 0.1 percent in 2025 and by a smaller amount in 2034, reflecting the net tax increase in those years," the report states. "Over the long run, and accounting for economic impacts, taxpayers across every quintile would see a small increase in after-tax income on average, but the top 5 percent of earners would continue to see a small decrease in after-tax income on average."
By Gregory Twachtman, Washington News Editor
The Internal Revenue Service’s use of artificial intelligence in selecting tax returns for National Research Program audits that areused to estimate the tax gap needs more documentation and transparency, the U.S. Government Accountability Office stated.
The Internal Revenue Service’s use of artificial intelligence in selecting tax returns for National Research Program audits that areused to estimate the tax gap needs more documentation and transparency, the U.S. Government Accountability Office stated.
In a report issued June 5, 2024, the federal government watchdog noted that while the agency uses AI to improve the efficiency and selection of audit cases to help identify noncompliance, "IRS has not completed its documentation of several elements of its AI sample selection models, such as key components and technical specifications."
GAO noted that the IRS began using AI in a pilot in tax year 2019 for sampling tax returns for NRP audits. The current plan is to use AI to create a sample size of 4,000 returns to measure compliance and help inform tax gap estimates, although GAO expressed concerns about the accuracy of the estimates with that sample size.
"For example, NRP historically included more than 2,500 returns that claimed the Earned Income Tax Credit, but the redesigned sample has included less than 500 of these returns annually," the report stated.
IRS told GAO that it "is exploring ways to combine operational audit data with NRP audit data when developing its taxgapestimates. IRS officials also told us that if IRS can reliably combine these data for taxgap analysis, IRS might be better positioned to identify emerging trends in noncompliance and reduce the uncertainty of the estimates due to the small sample size."
The report also highlighted the fact that the agency "has multiple documents that collectively provide technical details and justifications for the design of the AI models. However, no set of documents contains complete information and IRS analyst could use to run or update the models, and several key documents are in draft form."
"Completing documentation would help IRS retain organizational knowledge, ensure the models are implemented consistently, and make the process more transparent to future users," the report stated.
By Gregory Twachtman, Washington News Editor