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Archive for August, 2021

TaxFacts Intelligence August 16, 2021

Posted by William Byrnes on August 16, 2021


The Supreme Court upheld in June, in a unanimous decision of all nine Justices, a District Court’s injunction against the NCAA. The injunction allows the NCAA to maintain rules limiting undergraduate athletic scholarships and other compensation related to athletic performance. BUT the injunction stops as unlawful NCAA rules limiting the education-related benefits schools may make available to student-athletes.

By the way subscribers, the Texas A&M graduate program for wealth and risk management, including tax risk management, is accepting applications for fall. Maximum enrollment for a course section is 30 so that each student receives meaningful feedback throughout the course from the full-time academic, professional part-time faculty, and each other. Learn more about it here: https://law.tamu.edu/distance-education

Prof. William H. Byrnes         Robert Bloink, J.D., LL.M.

Colleges and universities across the country have leveraged sports to bring in revenue, attract attention, boost enrollment, and raise money from alumni. That profitable enterprise relies on “amateur” student athletes who compete under horizontal restraints that restrict how the schools may compensate them for their play. The National Collegiate
Athletic Association (NCAA) issues and enforces these rules, which restrict compensation for student-athletes in various ways. These rules depress compensation for at least some student-athletes below what a competitive market would yield.

Against this backdrop, current and former student-athletes brought this antitrust lawsuit challenging the NCAA’s restrictions on compensation. Specifically, they alleged that the NCAA’s rules violate §1 of the Sherman Act, which prohibits “contract[s], combination[s], or conspirac[ies] in restraint of trade or commerce.”

The Supreme Court upheld, in a unanimous decision of all nine Justices, the District Court’s injunction against the NCAA. The injunction allows the NCAA to maintain rules limiting undergraduate athletic scholarships and other compensation related to athletic performance. BUT the injunction stops as unlawful NCAA rules limiting the education-related benefits schools may make available to student-athletes.

Regarding today’s Supreme Court decision (entire 45-page opinion is available here), first it was expected by industry analysts and court watchers after the Court’s oral arguments March 31, 2021 with a foretelling Q&A session. We are already preparing Tax Facts Intelligence and Q&A for the books/app for financial advisors to leverage the new athletics marketplace and revenue streams and best represent their clients. I know of financial advisory firms that as of Tuesday will be hanging up a ‘sports agent financial advisor shingle’ and trolling SEC high schools, especially Texas, recruiting for tomorrow’s top collegiate athletes to sign up the talent.

Why not? That is how the market already works outside the USA for soccer (what everyone else calls football) and to a lesser extent baseball (albeit not nearly as popular as soccer so we hear much less about baseball camps for Dominican rising star 12 year old players like we hear about for the 12-year-old next Brazilian Pele). 

Interaction with social media followers is the currency of this new era for young athletes and can lead to a couple of hundred thousand during college for the star players, and even millions for the SEC Heisman level types. But, not having the ultimate talent and thus top sports ranking in a field does not also mean that an interactive social media following of millions cannot be created. The Russian tennis star Anna Kournikova, case in point, though she was just a little too early for the modern social media movement. Johnny Manziel, another case in point: had this decision been in place already and had he contracted a great wealth management advisor (thus great personal agent) with social media and promotional background, his life would have been very financially comfortable before his drug abuse ruined him in the pro league (talent or not aside). He certainly could have afforded a stint at the Betty Ford clinic to sober up and cleanout.

Via the advice of a great wealth manager, a personality can be leveraged into millions of dollars before the athlete graduates university, or at least hundreds of thousands.

It is clear from the unanimous ruling and the judges questioning and opinions that this is not a restrictive ruling. NCAA proponents are trying to spin that some restriction remains allowable like direct payments to players. But all it takes is one school that has money that wants to break into the big league to beat ‘Bama and LSU. Kind to think of it, I know that school… and don’t think Bama and LSU are just going to let that happen. Let real market competition begin!

An interesting question that I think will lead to much future litigation: How this ruling plays out throughout all sports regarding Title IX (such as a school spending money on men’s football, basketball, baseball, must by federal and state law also spend an equal amount on the equivalent sports for women). I am for market opportunity and thus I think it is an exciting proposition that opportunities will open up in all sports for athletes and wealth manager advisors alike (to negotiate the optimum financial rewards for the athletes).

Also, if athletic programs, such as golf or hockey, are forced to ‘come up’ with additional dollars to attract the star players to remain competitive, will the programs themselves start to think like SEC football (the most profitable league and sport) to generate additional income to meet the demands of staying or obtaining high ranking?  After all, whether it be academics or sports, it is all about ranking. Deans and Provosts rise and fall based on academic rankings. Coaches based on league rankings and national championships. Sports rankings and academic rankings have connections via alumni fundraising as of course voter university name/brand awareness and recognition. Basketball in particular through March madness has supported the academic rankings of universities though academic and sports ranking are not directly connected in voting and evaluation scoring, the indirect connection is undeniable.

This Supreme Court decision is great news for wealth managers / financial advisors who subscribe to Tax Facts because we are well-positioned to enter the new market of clientele representation created for the high school athlete seeking to share in the value that the athlete creates for a university and for the athlete through social media leveraged revenues. Understanding that “value”, generating more of it, and ‘sharing’ in the value is the bread and butter of a holistic wealth manager’s representation of athletes and entertainers.

Texas A&M already has education in this regard for our wealth management students and JDs who focus on such emerging artist/athlete/entertainer representation. We even have a law clinic for this emerging artists run by JD students supervised by my colleague that joined me at Texas A&M from our former law school in SoCal.

Look in your Tax Facts Online app for our continuing analysis of this bill, the tax reform in the reconciliation bill, and other weekly intelligence.

Wealth & Risk Management Degree for Industry Professionals – learn about the graduate degree here: https://law.tamu.edu/distance-education

Texas A&M, an annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space! The law school has the #1 bar passage in Texas, and #1 for employment in Texas (and top 10 in U.S.)

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TaxFacts Intelligence August 12, 2021

Posted by William Byrnes on August 12, 2021


The Biden administration, the OECD, and the European Union are moving full steam ahead with proposals that will modify the U.S. and international tax systems, significantly impacting clients’ aftertax investment returns and business income. We dig into the administration’s domestic and global tax proposals, including that a U.S. corporation may be required to pay a minimum tax amount to each foreign country where it has clients or investments. Are your clients preparing to adjust their portfolio of investments to maintain their after-tax annual investment returns? 

By the way, Texas A&M graduate program for wealth and risk management, including tax risk management, is accepting applications for fall. Maximum enrollment for a course section is 30 so that each student receives meaningful feedback throughout the course from the full-time academic, professional part-time faculty, and each other. Learn more about it here: https://law.tamu.edu/distance-education

Prof. William H. Byrnes         Robert Bloink, J.D., LL.M.

Biden’s Tax Proposals: Two Surprises for Clients Impacting Last Year and 2021 

President Biden’s tax proposals contain two major tax surprises. First, Biden’s tax plans would make any capital gains tax hike retroactive to April 28, 2020. That means clients who have engaged in tax planning strategies to avoid higher rates might wind up subject to the higher rates regardless if this provision makes its way into the final proposal. Second, not only would the stepped-up basis rules be repealed, but taxpayers who inherit property would be required to recognize gain at the time of death—even if the individual doesn’t immediately sell the inherited property. In other words, the property could be immediately subject to both the estate tax and income or capital gains tax. Life insurance proceeds that will remain tax-free under the current proposals will be more valuable than ever in order to cover the tax payments. Click here to get a more in-depth expert analysis of the latest tax proposals. Read More Look in your Tax Facts Online app for our continuing analysis of the impact on your clients from proposed and enacted tax law changes of 2021, especially in the forthcoming reconciliation bill.

Biden’s Tax Proposals: The Biden Administration released its 2021 ‘Green Book’ of legislative tax proposals for Congress to consider.[1] The proposals as published include the following most salient items for clients:

  • Raise the corporate income tax rate from 21 to 28 percent effective for 2022.
  • Impose a 15 percent minimum tax on book earnings of large corporations.
  • Determining global minimum tax inclusion and residual U.S. tax liability on a jurisdiction-by-jurisdiction basis would be a stronger deterrent to profit.
  • Disallow deductions attributable to exempt income, and limit inversions.
  • Repeal the deduction for foreign-derived intangible income (FDII).
  • Replace the base erosion anti-abuse tax (BEAT) with the stopping harmful inversions and ending low-tax developments (SHIELD) rule.
  • Limit foreign tax credits from sales of hybrid entities.
  • Restrict deductions of excessive interest of members of financial reporting groups for disproportionate borrowing in the United States.
  • Reform taxation of foreign fossil fuel income.
  • Eliminate fossil fuel tax preferences.
  • Extend and enhance renewable and alternative energy incentives.
  • Increase the top marginal income tax rate for high earners.
  • Reform the taxation of capital income.
  • Tax carried (profits) interests as ordinary income.
  • Repeal deferral of gain from like-kind exchanges.
  • Make permanent excess business loss limitation of noncorporate taxpayers.
  • Address taxpayer noncompliance with listed transactions (tax shelters).

Regarding the Biden administration’s proposed changes to the minimum tax applicable to U.S. shareholders of controlled foreign corproations (known as “GILTI”), the following three aspects are most impactful for clients:

  • The U.S. shareholder’s entire net CFC tested income will be subject to U.S. tax. The qualified business asset investment (QBAI) exemption that allows 10 percent of the adjusted basis of QBAI to be exempt from GILTI would be repealed.
  • The IRC section 250 deduction of 50 percent of the global minimum tax inclusion would be reduced to 25 percent, thereby generally increasing the U.S. effective tax rate under the global minimum tax to 21 percent under the proposed U.S. corporate income tax rate of 28 percent.
  • The “global averaging” method for calculating a U.S. shareholder’s global minimum tax would be replaced with a “jurisdiction-by-jurisdiction” calculation. Under the new standard, a U.S. shareholder’s global minimum tax inclusion and, by extension, residual U.S. tax on such inclusion, would be determined separately for each foreign jurisdiction in which its CFCs have operations. As a result, a separate foreign tax credit limitation would be required for each foreign jurisdiction. A similar jurisdiction-by-jurisdiction approach would also apply with respect to a U.S. taxpayer’s foreign branch income. These changes mean that foreign taxes paid to higher-taxed jurisdictions will no longer reduce the residual U.S. tax paid on income earned in lower-taxed foreign jurisdictions.

The Biden proposal would repeal the Base Erosion and Anti-Abuse Tax (BEAT), replacing it with a new rule disallowing deductions to domestic corporations or branches by reference to low-taxed income of entities that are members of the same financial reporting group (including a member that is the common foreign parent, in the case of a foreign-parented controlled group). Specifically, under this new Stopping Harmful Inversions and Ending Low-Tax Developments (SHIELD) tax regime, a deduction (whether related or unrelated party deductions) would be disallowed to a domestic corporation or branch, in whole or in part, by reference to all gross payments that are made (or deemed made) to low-taxed members, which is any financial reporting group member whose income is subject to (or deemed subject to) an effective tax rate that is below a designated minimum tax rate. The proposal to repeal BEAT and replace it with SHIELD would be effective from 2023.


[1] General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals, Dept of Treas (May 2021). Available at https://home.treasury.gov/policy-issues/tax-policy/revenue-proposal (last visited August 1, 2021).

U.S. Agrees to Global Minimum Corporate Tax and a Share the U.S. (Tax) Wealth with 180 Other Countries

On June 5, 2021, the G7 Finance Ministers & Central Bank Governors released a communiqué that the Biden Administration fully supports and is seeking to expand (see U.S. Whitehouse release) with concrete actions for a deeper multilateral economic cooperation that includes the OECD’s Pillar One and Pillar Two proposals. The communiqué presented the following actions:

  • The G7 agreed that beneficial ownership registries are an effective tool to tackle illicit finance. In this regard, each of the G7 countries including the U.S. (see below) is implementing and strengthening registries of company beneficial ownership information to provide timely, direct and efficient access for law enforcement and competent authorities to adequate, accurate and up-to-date information, including through central registries. The G7 further noted that beneficial ownership information should be publicly available where possible.
  • The G7 committed to provide additional expertise and funding to support the FATF’s regional bodies (“FSRB’s”) peer assessment programs by at least US$17 million and 46 assessors over 2021-24 because global implementation of the FATF Standards for combatting money laundering, terrorist financing and proliferation financing remains uneven.
  • The G7 reaffirmed its collective developed country goal to mobilize US$100 billion annually for developing countries from public and private sources, in the context of meaningful mitigation actions and transparency on implementation of developing countries’ climate change adaptation and mitigation efforts.
  • committed to that market countries will be awarded taxing rights on at least 20 percent of profit exceeding a 10 percent margin for large multinational enterprises. In exchange, the G7 stated that it would seek removal of all Digital Services Taxes and other relevant similar measures on all companies.  
  • Regarding Pillar Two, the G7, including the U.S. specifically, committed to a global minimum tax of at least 15 percent on a country-by-country basis. The G7 stated that an agreement would be reached at the July meeting of G20 Finance Ministers and Central Bank Governors.

OECD Countries’ Average Tax Due on Employment Income is 34.6%

In 2020, the OECD average of personal income tax and total employee and employer social security contributions (the ‘tax wedge’) on employment incomes for the single worker earning the average wage was 34.6 percent, a decrease of 0.39 percentage points from 2019 reflecting the impact of the COVID-19 crisis on both wages and labor tax systems.[1] The OECD average tax wedge for the one-earner couple with two children also substantially decreased, declining by 1.15 percentage points to 24.4 percent in 2020.

The OECD average tax wedge decreased for the single worker in 2020, due to falls in 29 out of the 37 OECD countries. The decrease was derived for the most part from lower income taxes, linked in part to lower nominal average wages in 16 countries, and in part to policy changes, including tax and benefit measures introduced in response to the COVID-19 pandemic. In Austria, a marginal tax rate within the income tax schedule was reduced; in Lithuania, the tax-exempt amount was increased; in Canada, the decline in the tax wedge resulted from a one-time special payment through the Goods and Services Tax credit that was delivered on April 9, 2020; in the United States, the decrease in the tax wedge was mainly due to the Economic Impact Payment (EIP) that was part of the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act). Seven OECD countries experienced an increase in the tax wedge for the single worker earning the average wage in 2020. The increases in the tax wedge were even smaller than the decreases observed and did not exceed half a percentage point in any country. In all but one country (Korea), they occurred primarily due to wage growth.

European Commission proposes to extend the EU state aid regime to third party countries (i.e. the U.S.) The European Commission has proposed expanding its state aid rules to foreign countries’ actions to address distortions of trade & investment caused by foreign subsidies.[2]  The EU Commission investigated in 2020 whether those subsidies granted by non-EU governments to companies active in the EU may have a distortive effect on the Single Market.[3] Through the subsidy provisions laid down in Free Trade Agreements, the EU is seeking to achieve a level playing field between all companies that operate within the Single Market. Subsidy provisions vary from FTA to FTA and they are adjusted to the trade relationship with the third country in question. Whereas some bilateral agreements seek approximation with the EU State aid acquis with enhanced enforcement mechanisms (e.g. independent state aid authority, recovery, unilateral measures, etc.), other bilateral agreements provide for the prohibition of the most distortive type of subsidies as well as more limited enforcement mechanisms, like transparency, consultations, and a dispute settlement mechanism.

The European Commission proposed May 5, 2021, a new instrument to address the potentially distortive effects of foreign subsidies in its internal market. The new instrument aims at closing the regulatory gap in the internal market whereby subsidies granted by non-EU governments currently go largely unchecked, while subsidies granted by the Member States are subject to state aid scrutiny. EU rules on competition, public procurement, and trade defense instruments play an important role in ensuring fair conditions for companies operating in the EU market. But none of these tools applies to foreign subsidies which provide their recipients with an unfair advantage when acquiring EU companies, participating in public procurements in the EU, or engaging in other commercial activities in the EU. Such foreign subsidies can take different forms, such as zero-interest loans and other below-cost financings, unlimited State guarantees, zero-tax agreements, or direct financial grants.

Under the proposed Regulation, the Commission will have the power to investigate financial contributions granted by public authorities of a non-EU country that benefit companies engaging in an economic activity in the EU and redress their distortive effects, as relevant.

In this context, the proposed Regulation introduces three tools, two notification-based and a general market investigation tool.

  1. A notification-based tool to investigate concentrations involving a financial contribution by a non-EU government, where the EU turnover of the company to be acquired (or of at least one of the merging parties) is €500 million or more and the foreign financial contribution is at least €50 million.
  2. A notification-based tool to investigate bids in public procurementsinvolving a financial contribution by a non-EU government where the estimated value of the procurement is €250 million or more.
  3. A tool to investigate all other market situations and smaller concentrations and public procurement procedures which the Commission can start on its own initiative (ex-officio) and may request ad-hoc notifications.

With respect to the two notification-based tools, the acquirer or bidder will have to notify ex-ante any financial contribution received from a non-EU government in relation to concentrations or public procurements meeting the thresholds. Pending the Commission’s review, the concentration in question cannot be completed and the investigated bidder cannot be awarded the contract. Binding deadlines are established for the Commission’s decision.

Under the proposed Regulation, where a company does not comply with the obligation to notify a subsidized concentration or a financial contribution in procurements meeting the thresholds, the Commission may impose fines and review the transaction as if it had been notified. The general market investigation tool, on the other hand, will enable the Commission to investigate other types of market situations, such as greenfield investments or concentrations and procurements below the thresholds, when it suspects that a foreign subsidy may be involved. In these instances, the Commission will be able to start investigations on its own initiative (ex-officio) and may request ad-hoc notifications. Based on the feedback received on the White Paper, the enforcement of the Regulation will lie exclusively with the Commission to ensure its uniform application across the EU.[4]

If the Commission establishes that a foreign subsidy exists and that it is distortive, it will where warranted consider the possible positive effects of the foreign subsidy and balance these effects with the negative effects brought about by the distortion. When the negative effects outweigh the positive effects, the Commission will have the power to impose redressive measures or accept commitments from the companies concerned that remedy the distortion. With respect to the redressive measures and commitments, the proposed Regulation includes a range of structural or behavioral remedies, such as the divestment of certain assets or the prohibition of certain market behavior. In case of notified transactions, the Commission will also have the power to prohibit the subsidized acquisition or the award of the public procurement contract to the subsidized bidder.

The European Parliament and the Member States will now discuss the Commission’s proposal in the context of the ordinary legislative procedure with a view of adopting a final text of the Regulation.

Estimating Offshore Wealth and International Tax Evasion.[5] A European Commission 2019 report on global offshore wealth estimated USD 7.8 trillion in 2016 (EUR 7.5 trillion) or 10.4 percent of global GDP, a considerable amount. The EU share is valued at USD 1.6 trillion (EUR 1.5 trillion), or 9.7 percent of GDP. The corresponding EU estimated revenue lost to international tax evasion is EUR 46 billion in 2016 (0.32 percent of GDP). Another important finding is that the increase in global offshore wealth is primarily driven by non-OECD countries, with an estimated contribution in dollar terms growing from US$ 1.1 trillion in 2001 to US$ 4.6 trillion in 2016. Among non-OECD economies, the surge of China is especially strong, with a 21-fold increase of offshore wealth held by Chinese residents over the period (from US$ 90 billion in 2001 to US$ 1.9 trillion in 2016).[6]

How Much is U.S. Tax Evasion? Closing the Tax Gap: Lost Revenue from Non-Compliance and the Role of Offshore Tax Evasion.[7] On May 11, 2021, the Treasury Inspector General For Tax Administration (TIGTA) stated that individual

taxpayers are responsible for $245 billion of the underreporting tax gap, the largest share. TIGTA identified 314,586 business taxpayers with $335.5 billion in Form 1099-K income that appeared to have a filing obligation but were not identified as nonfilers by the IRS. The problem is that the IRS cannot use third-party information returns, such as Form 1099-K data, to identify business nonfilers and create cases if the taxpayers’ accounts are coded as not having an open filing requirement, or no tax account exists because the business has never filed a tax return. TIGTA recommended that the IRS fund and implement a programming revision to its process that identifies these types of business taxpayers.

Tax Gap studies have found that self-employed individuals underreported their net income by 64 percent (based on the average for TYs 2008 through 2010), which is up from 57 percent in the TY 2001 estimate. The law did not require third-party settlement organizations to issue Form 1099-K, Payment Card, and Third Party Network Transactions, unless those transacting business earn at least $20,000 and engage in at least 200 transactions annually. TIGTA judgmentally selected eight P2P payment applications and found that these companies appear not to meet the current definition of a third-party settlement organization, and therefore are not required to file Form 1099-K. However, three P2P companies filed 950,965 Forms 1099-K involving $198.6 billion of payments in TY 2017, which included amounts below the reporting thresholds. The IRS did not always take compliance actions on nonfilers of tax returns and underreporters related to P2P payments even when information reporting was available. In total, 169,711 taxpayers potentially did not report up to $29 billion of payments received per Form 1099-K documents issued to them by three P2P payment application companies. Section 9674 of the American Rescue Plan Act changed the exception for de minimis payments by third-party settlement organizations, reducing the exception threshold to $600 annually so that these organizations are subject to the same reporting requirements as other businesses.

TIGTA reported in 2018 that after eight years and spending at least $380 million on IRS systems and efforts to establish international agreements across the globe, the IRS had taken virtually no compliance actions to meaningfully enforce the Foreign Account Tax Compliance Act (FATCA). Withholding agents are required to file Forms 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, to report on an individual taxpayer basis the income and withholding for each foreign person. For Tax Year 2017, the IRS received 6.3 million Forms 1042-S from 49,618 withholding agents. TIGTA reported that IRS processes did not identify 1,919 withholding agents with reporting discrepancies totaling more than $182.7 million. Its review identified 366 withholding agents that claimed $506 million more in credits for tax withheld than was reported on Forms 1042-S.

The Foreign Investment in Real Property Tax Act of 198036 (FIRPTA) imposes an income tax on foreign persons selling U.S. real property interests. Buyers are required to withhold a percentage of the anticipated taxes due on the amount realized from the sale. A foreign seller of U.S. property can claim a credit for the tax withheld by the buyer. If the seller’s tax liability is less than the amount of tax withheld, the seller gets a refund of the difference. TIGTA reported that the IRS’s reconciliation processes do not effectively identify and address FIRPTA reporting and payment noncompliance.

TIGTA identified 2,988 buyers with discrepancies of more than $688 million between the withholding reported on Forms 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests, filed during Processing Year 2017, and the withholding assessed to the buyer’s tax account. Extensive data inaccuracies in the FIRPTA database, incorrect and unclear guidelines and employee errors contributed to these discrepancies. The IRS also has not established processes to use Form 1099-S, Proceeds from Real Estate Transactions, to identify buyers that do not report and pay FIRPTA withholdings. TIGTA’s analysis of Forms 1099-S for TY 2017 identified approximately $22 million in FIRPTA withholding that was not reported and paid to the IRS. Finally, employee errors resulted in 1,835 foreign individuals potentially receiving more than $60 million in FIRPTA withholding credits than they were entitled.

Expatriates are required to file Form 8854, Initial and Annual Expatriation Statement, to certify that they have followed all Federal tax laws during the five years preceding the year of expatriation.[8] However, TIGTA found that the IRS database of expatriates was incomplete for 16,798 expatriates who did not file Form 8854. In addition, TIGTA found instances of potential non-filing, underreporting of income, and/or payment compliance issues by expatriates. From a sample of 26 expatriates who did not file a Form 8854, five had potential unreported income over $6 million. From a sample of 61 expatriates who filed a Form 8854, 15 had potential unreported income over $17 million. Lastly, TIGTA also found that expatriates with high net worth appear to not be paying their exit tax.

All individuals who expatriate are published in the Federal Register quarterly, a requirement established by IRC section 6039G.[9]

American Families Plan Tax Compliance Agenda. The Biden administration proposed an increase in the IRS budget by $80 billion over the next decade, approximately 10 percent annually. The IRS would have these additional resources to invest in large fixed costs like modernizing information technology, improving data analytic approaches, and hiring and training agents dedicated to complex enforcement activities.[10] The administration reported that audit coverage for large corporations was cut in half since 2010 for companies with $20 billion or more in assets, from 98 percent in FY 2010 to around 50 percent currently. During the past 10-year period, the administration found that global high wealth examinations have taken roughly two years on average to complete and have averaged around 284 hours per return. Partnerships audits averages around 333 hours per return.

National Bureau Of Economic Research Working Paper 2021.[11] The authors of an NBER report using IRS audit data estimated that 36 percent of federal income taxes unpaid are owed by the top percent of incomes and that collecting the unpaid federal income tax from this one percent would increase federal revenues by about $175 billion annually. The authors estimate that 21 percent of the income of these earners is unreported of which 6 percentage points correspond to undetected sophisticated evasion. High-income people are then more likely to adopt positions in the “gray area” between legal avoidance and evasion, the team concluded. Under-reporting of Schedule C income comprises 50 percent of all evasion detected, the authors found.[12]

National Taxpayer Advocate Fiscal Year 2022 Report. The National Taxpayer Advocate in her Fiscal Year 2022 report to Congress[13] recognized the importance of international information return (IIR) penalties in fostering voluntary tax compliance. However, the IRS’ systemic assessment of these penalties often produces excessively large penalties disproportionate to any underlying income tax liability. The IRS assesses IIR penalties on returns it considers to be filed late, but more than 55 percent of systemically assessed IRC §§ 6038 and 6038A penalties are abated because the returns were timely because reasonable cause relief was granted, or in situations where the failure-to-file penalty on the related Form 1120 or Form 1065 filing is abated under the First Time Abatement (FTA) provisions or the return has no tax due. Taxpayers and the IRS expend significant time, energy, and money addressing penalties that the IRS should not have assessed. Thus, these systemic assessments are ineffective in promoting taxpayer compliance and do not promote equity and fairness.

Because the penalties are immediately assessed, taxpayers’ recourse is to rely on IRS discretion to grant a reasonable cause abatement of the penalties, request a Collection Due Process proceeding, or pay the assessed penalty and file suit in district court or the Court of Federal Claims seeking a refund. One means of proactively addressing this disadvantage to taxpayers is to send preassessment correspondence, giving potentially impacted taxpayers the opportunity to explain why the IRS should not assess the penalty. This approach would educate taxpayers and minimize the inefficient and burdensome practice of first assessing and then abating these penalties. Further, it would contribute to tax equity by placing the IRS in a better position to distinguish between good-faith mistakes and intentional tax noncompliance.

The Taxpayer Advocate recommended that the IRS send taxpayers a proposed penalty notice to allow them to provide mitigating evidence such as reasonable cause; if timely filed, proof of timely filing; or application of the FTA administrative relief. The Taxpayer Advocate also recommended that the IRS provide taxpayers 60 days to respond to proposed penalty notices and give IRS employees time to review and consider reasonable cause relief, FTA relief, or the issue of timeliness. Finally, the Taxpayer Advocate continues to call for the IRS to reinstitute a penalty-free voluntary disclosure program, similar to the former FAQ 18 of the 2012 Offshore Voluntary Disclosure Program, in which taxpayers will be encouraged to come forward, file delinquent information returns, and be compliant for future years. Specifically address those taxpayers who do not have other tax liabilities besides penalties associated with the missing IIRs, are not under examination, and have not been contacted for the delinquent IIRs.

Nina Olson, the former Taxpayer Advocate, stated that of the current $441 billion gross tax gap estimate by IRS, some portion of the underreporting gap is attributable to errors made as a result of tax law complexity (unknowing noncompliance) and others are attributable to procedural complexity and barriers – for example, where taxpayers are eligible for a deduction or credit but cannot navigate the bureaucracy on their own and cannot afford representation, so they just give up (functional or characteristic noncompliance).[14] She stated that studies estimating the amount of unreported income by the highest-income taxpayers, and proposals to reduce the underreporting component of the tax gap by increased information reporting, along with the Commissioner’s guestimate that the annual tax gap could be as much as $1 trillion, have led policymakers, commentators, and the media to equate the tax gap with tax evasion. She cautioned that the ubiquitous usage of this phrase actually dilutes its meaning and impact because it allows very different types of noncompliance attributable to very different causes to be lumped together. She found that “framing noncompliance as tax evasion not only undermines compliance among the currently compliant, who will begin to feel naïve for complying, but it creates an environment in which tax agency personnel can feel justified in undermining if not outright ignoring taxpayer rights and protections.”

Nina Olson pointed out the IRS’ heavy emphasis on data-matching and rule-based systems, instead of pattern/network recognition algorithms that include feedback loops.[15] The IRS underutilizes financial account data it receives pursuant to FATCA because it cannot match much of it to existing returns. She also uncovered that many IRS systems have high false-positive and abatement rates. The National Taxpayer Advocate has reported that during the 2020 filing season, the IRS “refund fraud filters” selected 3.2 million returns of which approximately 66 percent were false positives. She concluded that the IRS requires a culture shift about how it approaches data and that the IRS must proactively use data to assist taxpayers, avoiding labeling taxpayer returns as “potentially fraudulent” before the IRS has conclusive evidence of fraud because most taxpayer error is not fraud. Regarding the Biden administration’s proposed changes to GILTI, the following three aspects are most impactful: The U.S. shareholder’s entire net CFC tested income will be subject to U.S. tax. The qualified business asset investment (QBAI) exemption that allows 10 percent of the adjusted basis of QBAI to be exempt from GILTI would be repealed.

The IRC section 250 deduction of 50 percent of the global minimum tax inclusion would be reduced to 25 percent, thereby generally increasing the U.S. effective tax rate under the global minimum tax to 21 percent under the proposed U.S. corporate income tax rate of 28 percent. The “global averaging” method for calculating a U.S. shareholder’s global minimum tax would be replaced with a “jurisdiction-by-jurisdiction” calculation. Under the new standard, a U.S. shareholder’s global minimum tax inclusion and, by extension, residual U.S. tax on such inclusion, would be determined separately for each foreign jurisdiction in which its CFCs have operations. As a result, a separate foreign tax credit limitation would be required for each foreign jurisdiction. A similar jurisdiction-by-jurisdiction approach would also apply with respect to a U.S. taxpayer’s foreign branch income. These changes mean that foreign taxes paid to higher-taxed jurisdictions will no longer reduce the residual U.S. tax paid on income earned in lower-taxed foreign jurisdictions.

The Biden proposal would repeal the Base Erosion and Anti-Abuse Tax (BEAT), replacing it with a new rule disallowing deductions to domestic corporations or branches by reference to the low-taxed income of entities that are members of the same financial reporting group (including a member that is the common foreign parent, in the case of a foreign-parented controlled group). Specifically, under the Stopping Harmful Inversions and Ending Low-Tax Developments (SHIELD) rule, a deduction (whether related or unrelated party deductions) would be disallowed to a domestic corporation or branch, in whole or in part, by reference to all gross payments that are made (or deemed made) to low-taxed members, which is any financial reporting group member whose income is subject to (or deemed subject to) an effective tax rate that is below a designated minimum tax rate. The proposal to repeal BEAT and replace with SHIELD would be effective from 2023.

Draft Schedules K-2 and K-3 released to enhance reporting of international tax matters for pass-through entities. The IRS released April 30, 2021, updated early drafts of new Schedules K-2 and K-3 for Forms 1065, 1120-S, and 8865 for tax year 2021 (filing season 2022).[17] The schedules are designed to provide greater clarity for partners and shareholders on how to compute their U.S. income tax liability with respect to items of international tax relevance, including claiming deductions and credits. The drafts of the schedules are intended to give a preview of the changes before final versions are released. The release of an early draft of the instructions for the schedules is planned for later in 2021. The redesigned forms and instructions will also give useful guidance to partnerships, S corporations and U.S persons who are required to file Form 8865 with respect to controlled foreign partnerships on how to provide international tax information. The updated forms will apply to any persons required to file Form 1065, 1120-S or 8865, but only if the entity for which the form is being filed has items of international tax relevance (generally foreign activities or foreign partners). The changes do not affect partnerships and S corporations with no items of international tax relevance. To promote compliance with adoption of Schedules K-2 and K-3 by affected pass-through entities and their partners and shareholders, the IRS intends to provide certain penalty relief for the 2021 tax year.


[1] OECD (2021), Taxing Wages 2021, OECD Publishing, Paris, available at https://doi.org/10.1787/83a87978-en (last visited May 30, 2021).

[2] Proposal for a Regulation of the European Parliament and of the Council on foreign subsidies distorting the internal market, SWD (2021) 99 final – SWD (2021) 100 final – SEC (2021) 182 final (May 5, 2021).

[3] Inception Impact Assessment of Commission proposal(s) for Regulation(s) of the European Parliament and the Council to address distortions caused by foreign subsidies in the internal market generally and in the specific cases of acquisitions and public procurement. Ref. Ares (2020) 5160372 (Oct 1, 2020).

[4] Commission Staff Working Document Impact Assessment, Accompanying the Proposal for a Regulation of the European Parliament and of the Council on foreign subsidies distorting the internal market, COM (2021) 223 final – SEC (2021) 182 final – SWD (2021) 100 final (May 5, 2021).

[5] Estimating International Tax Evasion by Individuals – Final Report 2019, Taxation Papers, Working Paper No 76 – 2019, European Commission Directorate-General for Taxation and Customs Union (Sept 2019) at 9.

[6] Estimating International Tax Evasion by Individuals – Final Report 2019, Taxation Papers, Working Paper No 76 – 2019, European Commission Directorate-General for Taxation and Customs Union (Sept 2019) at 11.

[7] “Closing the Tax Gap: Lost Revenue from Non-Compliance and the Role of Offshore Tax Evasion”, Testimony Of The Honorable J. Russell George, Treasury Inspector General For Tax Administration, Committee On Finance Subcommittee On Taxation And IRS Oversight, United States Senate (May 11, 2021).

[8] Available at https://www.irs.gov/forms-pubs/about-form-8854 (last visited June 1, 2021).

[9] Quarterly Publication of Individuals, Who Have Chosen To Expatriate, 86 FR 22781 (April 29, 2021). Available quarterly at https://www.federalregister.gov/documents/2021/04/29/2021-08977/quarterly-publication-of-individuals-who-have-chosen-to-expatriate-as-required-by-section-6039g (last visited June 1, 2021).

[10] The American Families Plan Tax Compliance Agenda, Dept of Treas (May 2021).

[11] Tax Evasion at the Top of the Income Distribution: Theory and Evidence, John Guyton, Patrick Langetieg, Daniel Reck, Max Risch, and Gabriel Zucman, NBER Working Paper No. 28542, March 2021 at 3.

[12] Tax Evasion at the Top of the Income Distribution: Theory and Evidence, John Guyton, Patrick Langetieg, Daniel Reck, Max Risch, and Gabriel Zucman, NBER Working Paper No. 28542, March 2021 at 8.

[13] Objectives Report To Congress, National Taxpayer Advocate, Fiscal Year 2022 at p 45.

[14] Statement by Nina E. Olson, Executive Director, Center for Taxpayer Rights, Hearing on Closing the Tax Gap: Lost Revenue from Noncompliance and the Role of Offshore Tax Evasion, Subcommittee on Taxation and IRS Oversight Committee on Finance United States Senate (May 11, 2021) at 9.

[15] Statement by Nina E. Olson, Executive Director, Center for Taxpayer Rights, Hearing on Closing the Tax Gap: Lost Revenue from Noncompliance and the Role of Offshore Tax Evasion, Subcommittee on Taxation and IRS Oversight Committee on Finance United States Senate (May 11, 2021) at 10.

[16] General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals, Dept of Treas (May 2021). Available at https://home.treasury.gov/policy-issues/tax-policy/revenue-proposal (last visited June 1, 2021).

[17] The IRS published draft tax forms at https://apps.irs.gov/app/picklist/list/draftTaxForms.html (last visited June 1, 2021).


Wealth & Risk Management Degree for Industry Professionals – learn about the graduate degree here: https://law.tamu.edu/distance-education

Texas A&M, an annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space! The law school has the #1 bar passage in Texas, and #1 for employment in Texas (and top 10 in U.S.)

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TaxFacts Intelligence August 9, 2021

Posted by William Byrnes on August 9, 2021


Did Your Clients Properly Report Their Pre-Tax Reform Cryptocurrency Trading Gains? Seven years after the IRS declared cryptocurrency would be taxed as personal property under capital gains rules, it has now announced that pre-tax reform trades won’t qualify for like-kind exchange treatment under Section 1031, creating a potential tax headache for taxpayers with substantial pre-reform crypto gains. Meanwhile, challenges to the IRS’s ability to impose substantial FBAR penalties for failure to report foreign accounts continue to flare up in federal courts despite a clear consensus in both Texas and the 9th Circuit. Read on to make sure you’re up to speed.

By the way subscribers, Texas A&M graduate program for wealth and risk management, including tax risk management, is accepting applications for fall. Maximum enrollment for a course section is 30 so that each student receives meaningful feedback throughout the course from the full-time academic, professional part-time faculty, and each other. Learn more about it here: https://law.tamu.edu/distance-education

Prof. William H. Byrnes         Robert Bloink, J.D., LL.M.

New IRS Guidance Nixes Tax-Free Exchange Treatment for Cryptocurrency Swaps.  New IRS guidance has confirmed that pre-2018 exchanges of Bitcoin, Ether and Litecoin do not qualify for Section 1031 exchange treatment.  Prior to 2018, taxpayers were permitted to defer capital gains taxes under Section 1031 for certain exchanges of personal property (1031 is now limited only to exchanges of real property).  The IRS’s rationale is that these were not exchanges of like-kind property and so were taxable even prior to tax reform.  The IRS found that Bitcoin and Ether each had special roles in cryptocurrency trading because if taxpayers wanted to trade in other types of virtual currency, they had to first exchange the other currency into or from Bitcoin or Ether.  Therefore, exchanges between Litecoin and Bitcoin/Ether did not qualify as “like kind”.  Further, the IRS identified differences in design, intended use and actual use of Bitcoin and Ether.  While this guidance currently only extends to exchanges involving Bitcoin, Ether and Litecoin, it is possible that the IRS could extend the rationale to other types of cryptocurrency.  Taxpayers who trade in cryptocurrency under current tax rules should remember that these trades are taxable events. For more information, visit Tax Facts Online. Read More

Related Questions:

7723. How does a taxpayer identify with bitcoin or other virtual currency are involved in a sale, exchange or other disposal of the virtual currency?

7725. What considerations apply when an employer pays employees or independent contractors using bitcoin or other virtual currency?

Related Questions:

559. What are the rules that allow 401(k) plan sponsors to include deferred annuities in target date funds (TDFs)?

561. Can a taxpayer combine a deferred income annuity (“longevity annuity”) with a traditional deferred annuity product?

New Challenge Posed to Federal Courts’ $10,000 Per-Year Limit on FBAR Penalties.  Several recent federal court decisions have confirmed that the total FBAR penalties that can be imposed on an individual should be limited to $10,000 per year, rather than $10,000 per financial account.  Now, a federal court in Georgia is once again hearing a similar case.  In 2018, the IRS assessed $120,000 in penalties for a three-year period for each of the foreign banks with which the taxpayer had a relationship that she failed to report via FBAR filing.  Federal courts in both Texas and California have confirmed that the IRS must limit penalties for a non-willful failure to file FBAR reports based on the year, not the number of the taxpayer’s foreign accounts.  In the current case, the taxpayer had also participated in an amnesty program where she paid back taxes on the accounts she held with banks in France, Lebanon and Monaco.  For more information on the FBAR filing requirements and penalties for noncompliance, visit Tax Facts Online. Read More

Related Questions:

980. What is the effect of a disposition of Canadian real property in respect of a U.S. citizen that is a Canadian resident for tax purposes?

981. What is the effect of a disposition of Canadian real property in respect of a U.S. individual that is not a Canadian resident for tax purposes?

IRS Extends Relief for Employee Donations of Unused Sick, Vacation & PTO.  The IRS has extended the relief provided in Notice 2020-46 to allow employees to continue to forgo, or “donate”, sick, vacation and personal leave because of the COVID-19 pandemic without adverse tax consequences through the end of the 2021 tax year.  After December 31, 2020 and before January 1, 2022, employers may make cash payments to Section 170(c) charitable organizations that provide relief to victims of the COVID-19 pandemic in exchange for sick, vacation or personal leave which their employees gave up.  Those amounts will not be treated as compensation and the employees will not be treated as receiving the value of the leave as income.  While taxable income will not be increased, employees cannot claim a charitable deduction for the leave donated to their employer. Employers, however, may deduct these cash payments as Section 162 business expenses or Section 170 charitable contributions if the employer otherwise meets the respective requirements of either section.  For more information on the deduction for charitable contributions, visit Tax Facts Online. Read More

Related Questions:

8540. What are the income percentage ceilings that limit the income tax deduction for charitable contributions?

8541. How does the income percentage ceilings calculated if charitable contributions of money are made to both public charities and private foundations in the same tax year?

Look in your Tax Facts Online app for our continuing analysis of this bill, the tax reform in the reconciliation bill, and other weekly intelligence.

Wealth & Risk Management Degree for Industry Professionals – learn about the graduate degree here: https://law.tamu.edu/distance-education

Texas A&M, an annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space! The law school has the #1 bar passage in Texas, and #1 for employment in Texas (and top 10 in U.S.)

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TaxFacts Intelligence August 6, 2021

Posted by William Byrnes on August 6, 2021


This week’s newsletter is dedicated to helping clients—both employers and employees—maximize their health-related benefits and tax credits (even when those benefits are only available for a limited time). Do you have questions about situation-specific COBRA eligibility, little-known HSA tricks, or the ever-evolving EEOC vaccine guidance for employers? Read on to see if we’ve got the answers in Tax Facts – or ask us to include in the future online/book updates.

By the way subscribers, Texas A&M graduate program for wealth and risk management, including tax risk management, is accepting applications for fall. Maximum enrollment for a course section is 30 so that each student receives meaningful feedback throughout the course from the full-time academic, professional part-time faculty, and each other. Learn more about it here: https://law.tamu.edu/distance-education

Prof. William H. Byrnes         Robert Bloink, J.D., LL.M.

EEOC – Vaccine Incentive Guidance for Employers

The EEOC posted an update about offering incentives to employees to take a COVID vaccine, especially relevant now that the Delta COVID-19 variation has brought hospitalization levels back to record pandemic levels. Under the new guidance, employers are permitted to offer incentives to employees who voluntarily provide confirmation that they have received the COVID-19 vaccine from a third party. Requesting these confirmations will not be treated as disability-related inquiries under the ADA or requests for genetic information under GINA. Employers should be aware that these incentives are treated differently than incentives offered for employer-provided vaccines. If the incentive is actually for the purpose of encouraging an employee to receive the vaccine from the employer or an agent, employers should continue to use caution against offering an incentive that can be construed as “coercive”. That’s because employees must provide certain health information before receiving the vaccine—and employees should not be pressured to disclose medical information to their employers. For more information on the available tax credit for employers who offer paid vaccine leave to employees, visit Tax Facts Online. Read More

Some legal-health experts have raised the issue of whether an employer can require an employee to undergo a treatment that has not yet received approval? The current COVID-19 vaccines are being administered under an Emergency Use Authorization. The FDA, which is empowered by law to authorize an emergency use designation for unapproved vaccinations and other medical treatments, states that:

An Emergency Use Authorization (EUA) is a mechanism to facilitate the availability and use of medical countermeasures, including vaccines, during public health emergencies, such as the current COVID-19 pandemic. Under an EUA, FDA may allow the use of unapproved medical products, or unapproved uses of approved medical products in an emergency to diagnose, treat, or prevent serious or life-threatening diseases or conditions when certain statutory criteria have been met, including that there are no adequate, approved, and available alternatives.

In response to the concerns raised by employers regarding the legal requirement to inform individuals of the “option to accept or refuse administration” of the unapproved product [see 21 U.S. Code § 360bbb–3(e)(1)(A)(ii)(III)- Authorization for medical products for use in emergencies], especially as regards the potential liability, the DOJ released its opinion that employers may require employees to submit to emergency-use vaccines. The DOJ opinion, “Whether Section 564 of the Food, Drug, and Cosmetic Act Prohibits Entities from Requiring the Use of a Vaccine Subject to an Emergency Use Authorization?” concludes that: “… This language in section 564 specifies only
that certain information be provided to potential vaccine recipients and does not prohibit entities from imposing vaccination requirements.” Both public and private employers, according to the DOJ opinion, may require the COVID-19 vaccination of employees. To roughly summarize the reasoning: The applicant or employee has an option to refuse to submit to vaccination, but the employer also has an option to either not offer or continue to offer employment. The DOJ’s legal analysis goes beyond this simplification with arguments why the option to refuse is not applicable. Certainly, these issues and arguments will see substantial litigation in the courts (the DOJ memo references the opening salvo). But the memo does its job in providing reasonable legal cover for employers, employers’ legal counsel, and employers’ insurers to implement vaccination requirements.

A separate issue is whether employers can require employees or applicants for employment to prove via a vaccination card or similar medical record that a COVID-19 vaccination has been administered and when administered? Check your Tax Facts app for the discussion.

Related Questions:

773. What happens when the employee has exhausted the paid time off under the Families First Coronavirus Response Act (FFCRA)? Does the employee have the right to return to work?

8895. What is a “de minimis” fringe benefit?

Am I Eligible for Federal COBRA Assistance? Case-Specific IRS Guidance

The IRS guidance on the availability and implementation of the ARPA 100 percent COBRA premium assistance provides some useful guidance on specific scenarios that employers and employees may now be facing. Generally, individuals remain assistance-eligible individuals (AEIs) during eligibility waiting periods if the period overlaps with the subsidy period. For example, the individual will be an AEI during periods outside the open enrollment period for a spouse’s employer-sponsored health coverage. Employers who change health plan options must place the AEI in the plan that’s most similar to their pre-termination plan, even if it’s more expensive (and the 100 percent subsidy will continue to apply). Importantly, employers who are no longer covered by federal COBRA requirements may still be required to advance the subsidy (for example, if the employer terminated employees so that the federal rules no longer apply). If the employer was subject to COBRA when the individual experienced the reduction in hours or involuntary termination, the employer must offer the subsidy. For more information on the COBRA premium subsidy, visit Tax Facts Online. Read More

Related Questions:

0121. COBRA Subsidies Back on the Table for 2021

371. When must an election to receive COBRA continuation coverage be made?

Maximizing Post-Pandemic HSA Benefits

HSAs and other tax-preferred health benefits have taken on a whole new meaning in the wake of the pandemic. It’s important that clients fully understand the rules so that they aren’t leaving valuable benefits on the table. In 2022, annual HSA contribution limits will rise to $3,650 for self-only coverage or $7,300 for family HDHP coverage. (HDHPs are health insurance plans that have a minimum annual deductible of $1,400 for self-only coverage ($2,800 for family coverage).). Taxpayers aged 55 and up can contribute an extra $1,000 per year. Taxpayers don’t have to fund an employer-sponsored HSA. Even if the client has been laid off or furloughed, clients with HDHP coverage can open an HSA at their bank and fund the account independently. Additionally, clients who have lost their jobs continue to have access to the funds in their old HSA, and can even transfer that HSA to a new provider. In other words, as long as the client remains covered by a HDHP, there is no “use it or lose it” rule. The funds simply roll over from year to year and continue to grow tax-free. For 2021, that same benefit has been extended to health FSAs. With an HSA, however, the rollover benefit is even more substantial because once the participant reaches age 65, the account can be accessed without penalty for any reason—much like a typical retirement account. The funds are simply taxed as ordinary income upon withdrawal, like a 401(k) or IRA. For more information on HSA advantages, visit Tax Facts Online. Read More

Related Questions:

388. What is a Health Savings Account (HSA) and how can an HSA be established?

391. Who is an eligible individual for purposes of a Health Savings Account (HSA)?

IRS Extends Relief for Employee Donations of Unused Sick, Vacation & PTO.  The IRS has extended the relief provided in Notice 2020-46 to allow employees to continue to forgo, or “donate”, sick, vacation, and personal leave because of the COVID-19 pandemic without adverse tax consequences through the end of the 2021 tax year.  After December 31, 2020, and before January 1, 2022, employers may make cash payments to Section 170(c) charitable organizations that provide relief to victims of the COVID-19 pandemic in exchange for sick, vacation, or personal leave which their employees gave up.  Those amounts will not be treated as compensation and the employees will not be treated as receiving the value of the leave as income.  While taxable income will not be increased, employees cannot claim a charitable deduction for the leave donated to their employer. Employers, however, may deduct these cash payments as Section 162 business expenses or Section 170 charitable contributions if the employer otherwise meets the respective requirements of either section.  For more information on the deduction for charitable contributions, visit Tax Facts Online. Read More

Related Questions:

8540. What are the income percentage ceilings that limit the income tax deduction for charitable contributions?

8541. How does the income percentage ceilings calculated if charitable contributions of money are made to both public charities and private foundations in the same tax year?

Look in your Tax Facts Online app for our continuing analysis of this bill, the tax reform in the reconciliation bill, and other weekly intelligence.

Wealth & Risk Management Degree for Industry Professionals – learn about the graduate degree here: https://law.tamu.edu/distance-education

Texas A&M, an annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space! The law school has the #1 bar passage in Texas, and #1 for employment in Texas (and top 10 in U.S.)

Posted in Employment Benefits | Leave a Comment »

TaxFacts Intelligence August 5, 2021

Posted by William Byrnes on August 5, 2021


It’s been another busy week for the IRS and DOL.  Both agencies have responded to taxpayer questions on various issues–the DOL, by providing helpful clarifications on plan sponsors’ obligations under the new SECURE Act lifetime income disclosure rules, and the IRS by expanding the availability of tax credits for employers who offer paid leave to encourage COVID-19 vaccination.  On another note, the IRS reminds taxpayers: remember your substantiation when claiming reimbursement from tax-preferred health savings accounts!

By the way subscribers, Texas A&M graduate program for wealth and risk management, including tax risk management, is accepting applications for fall. Maximum enrollment for a course section is 30 so that each student receives meaningful feedback throughout the course from the full-time academic, professional part-time faculty, and each other. Learn more about it here: https://law.tamu.edu/distance-education

Prof. William H. Byrnes         Robert Bloink, J.D., LL.M.

A Reminder for Clients: IRS Emphasizes Need for Health FSA Substantiation

Recent IRS activity indicates that the agency is paying attention to whether or not clients are properly substantiating items reimbursed through tax-preferred health savings accounts.  In IRS Information Letter 2021-13, the IRS restated that flexible spending account (FSA) items paid using an FSA debit card must have substantiation containing all of the information required for claims submitted through other means.  A simple receipt is usually not sufficient.  Substantiation from a third-party must include: (1) the name of the person receiving the services, (2) the date the service was provided, (3) a description of the service or item purchased, (4) the name of the provider or merchant and (5) the claim amount.  The only exception is for certain merchants and providers that can be automatically substantiated by the Merchant Category Code (MCC) on the provider’s debit card machine and the actual item/service via identification by an Inventory Information Approval System (IIAS) from non-healthcare providers.  For more information on the health FSA rules, visit Tax Facts Online. Read More

Related Questions:

8888. What is a dependent care flexible spending arrangement (FSA)?

DOL Releases FAQ on SECURE Act Lifetime Income Illustrations

The DOL issued a temporary set of FAQ to implement the interim final rule on the SECURE Act lifetime income illustration provisions.  Under the SECURE Act, plan sponsors must disclose a participant’s account balance as both a single life annuity and joint and survivor annuity income stream.  Plans must furnish lifetime income illustrations annually (or more frequently).  The FAQ clarifies that the earliest statement for which the illustrations are required is a statement for a quarter ending within 12 months of the rule’s effective date (September 18, 2021) if the plan issues quarterly statements.  Therefore, the illustrations can be incorporated into any quarterly statement up to the second calendar quarter of 2022.  For non-participant-directed plans, the lifetime income illustrations must be included on the statement for the first plan year ending on or after September 19, 2021 (or, no later than October 15, 2022, which is the last day for filing the annual return for a calendar year plan that year).  The FAQ also clarifies that plans are permitted to provide additional lifetime income illustrations as long as the required illustrations are also provided, recognizing that some plans have been including illustrations for many years.  For more information on the lifetime income disclosure rules, visit Tax Facts Online. Read More

Related Questions:

559. What are the rules that allow 401(k) plan sponsors to include deferred annuities in target date funds (TDFs)?

561. Can a taxpayer combine a deferred income annuity (“longevity annuity”) with a traditional deferred annuity product?

IRS Updates FAQ on ARPA Paid Sick and Family Leave Tax Credits

The IRS updated its frequently asked questions on the American Rescue Plan Act (ARPA) paid sick and family leave credits.  Now, employers are entitled to claim the tax credits if they provide paid leave for employees to accompany family, household members and certain others to obtain a COVID-19 vaccine or to care for someone recovering from immunization.  The new eligibility requirement also applies to self-employed taxpayers.  Generally, employers are no longer obligated to provide employees with paid sick and family leave.  However, those who choose to offer paid leave for qualifying reasons may claim a tax credit for wages paid.  To date, the tax credits for leave have been extended through September 30, 2021.  For more information on the FFCRA paid leave tax credits for sick and family leave, visit Tax Facts Online. Read More

Related Questions:

768. What initial guidance has the Department of Labor (DOL) provided to help employers and employees understand their rights and duties under the Families First Coronavirus Response Act (FFCRA)?

769. What documentation should employers request and keep with respect to the Families First Coronavirus Response Act (FFCRA) COVID-19 paid leave? Are there any reporting requirements? How does the employee request leave?

$1.2 Trillion Infrastructure Bill

The 2,702-page bi-partisan “Infrastructure Investment and Jobs Act of 2021” has been released by the Senate. The bill may be downloaded from the U.S. Senate website here. The bill contains approximately $550 billion of new project spending and carries over an additional $650 billion from previously funded projects for a total of over $1.2 trillion in infrastructure spending that will begin in 2021 and most end in 2026.

But the bill contains many energy provisions and excise taxes as well as fees that will impact all segments of the energy industry. These provisions include billions of dollars for the industry for expenditure and incentives for carbon capture; clean hydrogen R&D; nuclear; among others. By example, $500,000,000 is provided for clean hydrogen technology R&D (see page 1550 at section 40314). The excise taxes and fees include the extensions of the highway-related taxes, superfund excise taxes, and customs user fees.

The major tax reform provisions addressing estate and gift tax, capital gains, carried interests, real estate exchanges, retirement plans, and high-income earners have been reserved to the forthcoming yet-to-be-agreed/released Democratic reconciliation bill. However, the Infrastructure Investment and Jobs Act of 2021 contains some new tax provisions including:

  • Sec. 80501. Modification of automatic extension of certain deadlines in the case of taxpayers affected by Federally declared disasters.
  • Sec. 80502. Modifications of rules for postponing certain acts by reason of service in combat zone or contingency operation.
  • Sec. 80503. Tolling of time for filing a petition with the tax court.
  • Sec. 80504. Authority to postpone certain tax deadlines by reason of significant fires.
  • Sec. 80601. Modification of tax treatment of contributions to the capital of a corporation.
  • Sec. 80602. Extension of interest rate stabilization.
  • Sec. 80603. Information reporting for brokers and digital assets.
  • Sec. 80604. Termination of employee retention credit for employers subject to closure due to COVID–19.

The automatic extension for certain tax deadlines for Federally declared disasters addresses the situation of multiple declarations relating to a disaster area which are issued within a 60-day period. A separate 60-day period shall be determined with respect to each such declaration pursuant to the bill’s language.

The bill will resurrect energy industry-related tax credits (expired IRC Section 48C) worth up to 30 percent of expenditure for converting fossil energy production into green energy production. Senator Joe Manchin is doing his job of representing his West Virginia coal industry constituency!

The bill’s cryptocurrency reporting regime (Sec. 80603. Information reporting for brokers and digital assets) is marked to raise $28 billion from current non-compliance and tax evasion regarding taxpayers’ either ignorance or purposeful oversight of including gross income derived from investments or trading digital currency. The reporting threshold will only be lowered to $10,000 which is still rather high in our personal opinion. It creates a potential perspective (or perhaps incentive among cheaters) that only digital currency income of at least $10,000 is reportable for gross income. On the other hand, it is often better to build out first then and scale up an operation, tweaking it. For example, the $10,000 reporting amount will capture a substantial pool of taxpayers, and that threshold can be lowered in the future (with grossly overstated estimates of the ‘evasion’ income it will bring in to pay for an extension or some new program in next year’s budget bills).

The bill contains hundreds of not-obvious federal grants and contract opportunities for business. By the example of one provision related to education and training of workers, section 401513 includes $10 million dollars for FY2022 for government grants of 50 percent of the cost to provide ‘career skills training’ to identify and involve in training programs target populations of individuals who would benefit from training and be actively involved in activities relating to energy efficiency and renewable energy industries; and the ability to help individuals achieve economic self-sufficiency. The program students must concurrently receive classroom instruction and on-the-job training for the purpose of obtaining an industry-related certification to install energy-efficient buildings.

Look in your Tax Facts Online app for our continuing analysis of this bill, the tax reform in the reconciliation bill, and other weekly intelligence.

Wealth & Risk Management Studies for Industry Professionals

Check out the graduate program here: https://law.tamu.edu/distance-education

Texas A&M, an annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space! The law school has the #1 bar passage in Texas, and #1 for employment in Texas (and top 10 in U.S.)

Posted in Retirement Planning, Taxation | Tagged: , | Leave a Comment »

TaxFacts Intelligence August 2, 2021

Posted by William Byrnes on August 2, 2021


This week’s newsletter offers the download to the Infrastructure Investment and Jobs Act of 2021 plus insight into different issues that may be important to clients who sponsor employee benefit plans. It’s time to file annual Form 5500—and this year, potential penalties for noncompliance may be higher than ever. We also offer analysis of the newly-popular retirement plan auto-enrollment features—and a reminder that small business clients may now benefit from a new post-SECURE Act tax credit for adopting the feature—as well as information about the ARPA pension relief law. Read on for more!

Prof. William H. Byrnes         Robert Bloink, J.D., LL.M.

$1.2 Trillion Infrastructure Bill Released Sunday night (August 1, 2021)

The 2,702-page bi-partisan “Infrastructure Investment and Jobs Act of 2021” has been released by the Senate. The bill may be downloaded from the U.S. Senate website here. The bill contains approximately $550 billion of new project spending and carries over an additional $650 billion from previously funded projects for a total of over $1.2 trillion in infrastructure spending that will begin in 2021 and most end in 2026.

But the bill contains many energy provisions and excise taxes as well as fees that will impact all segments of the energy industry. These provisions include billions of dollars for the industry for expenditure and incentives for carbon capture; clean hydrogen R&D; nuclear; among others. By example, $500,000,000 is provided for clean hydrogen technology R&D (see page 1550 at section 40314). The excise taxes and fees include the extensions of the highway-related taxes, superfund excise taxes, and customs user fees.

The major tax reform provisions addressing estate and gift tax, capital gains, carried interests, real estate exchanges, retirement plans, and high-income earners have been reserved to the forthcoming yet-to-be-agreed/released Democratic reconciliation bill. However, the Infrastructure Investment and Jobs Act of 2021 contains some new tax provisions including:

  • Sec. 80501. Modification of automatic extension of certain deadlines in the case of taxpayers affected by Federally declared disasters.
  • Sec. 80502. Modifications of rules for postponing certain acts by reason of service in combat zone or contingency operation.
  • Sec. 80503. Tolling of time for filing a petition with the tax court.
  • Sec. 80504. Authority to postpone certain tax deadlines by reason of significant fires.
  • Sec. 80601. Modification of tax treatment of contributions to the capital of a corporation.
  • Sec. 80602. Extension of interest rate stabilization.
  • Sec. 80603. Information reporting for brokers and digital assets.
  • Sec. 80604. Termination of employee retention credit for employers subject to closure due to COVID–19.

The automatic extension for certain tax deadlines for Federally declared disasters addresses the situation of multiple declarations relating to a disaster area which are issued within a 60-day period. A separate 60-day period shall be determined with respect to each such declaration pursuant to the bill’s language.

The bill contains hundreds of not-obvious federal grants and contract opportunities for business. By example of one provision related to education and training of workers, section 401513 includes $10 million dollars for FY2022 for government grants of 50 percent of the cost to provide ‘career skills training’ to identify and involve in training programs target populations of individuals who would benefit from training and be actively involved in activities relating to energy efficiency and renewable energy industries; and the ability to help individuals achieve economic self-sufficiency. The program students must concurrently receive classroom instruction and on-the-job training for the purpose of obtaining an industry-related certification to install energy efficient buildings.

Look in your Tax Facts Online app for our continuing analysis of this bill, the tax reform in the reconciliation bill, and other weekly intelligence.

Reminder: It’s Time to File Form 5500 for Employee Benefit Plans

It’s that time of year again. The deadline for filing Form 5500 for health plans and retirement plans with the IRS and DOL is July 31 for most calendar-year plans. The deadline is seven months after the end of the plan year. However, clients who aren’t yet ready to file should be advised that they may obtain a filing extension of up to 2.5 months. Penalties for failure to file Form 5500 on time have increased in recent years—and can equal as much as $2,000 per day in some cases. The forms are used by the IRS and DOL to identify potential compliance issues, so small business clients with employment benefits offerings should be advised to prepare the forms carefully and expect scrutiny. Form 5500 is filed under the penalty of perjury—for the employer who signs the document, not the service provider who prepared the document. For more information on Form 5500 filing requirements and increased penalties under the SECURE Act, visit Tax Facts Online. Read More

Related Questions:

3774. What requirements apply to matching contributions in the context of a 401(k) safe harbor plan?

3777. What are the requirements for a SIMPLE 401(k) plan?

Auto-Enrollment Popularity Soars Post-COVID

According to recent surveys, the majority of workers who have been automatically enrolled in employer-sponsored retirement savings plan have indicated that they are pleased with the decision. On the other hand, only about 30 percent of U.S. employers currently provide an auto-enrollment option. When asked whether they hoped their employer would offer financial wellness programs to help them better understand savings options, 80 percent of employees surveyed answered “yes”. At least one version of the “SECURE Act 2.0” bill would require a minimum 3 percent auto-enrollment rate for most newly adopted 401(k)s. Under the existing SECURE Act, small business owners may be entitled to a tax credit for adopting a plan that automatically enrolls employees. For more information on the tax credit, visit Tax Facts Online. Read More

Related Questions:

8553. When does a taxpayer qualify for the tax credit for the elderly and the permanently and totally disabled and how is the credit computed?

8554. When is a taxpayer entitled to claim the child tax credit?

PBGC Issues Interim Guidance on ARPA Special Financial Assistance for Multiemployer Pension Plans

The PBGC issued an interim final rule implementing the special financial assistance (SFA) rule for multiemployer pension plans in the American Rescue Plan Act. Eligible plans may apply to receive a lump-sum payment from a new Treasury-backed PBGC fund. Under the new rules, eligible plans are entitled to amounts that are sufficient to pay all benefits for the next 30 years. According to the PBGC interpretation, that means sufficient funds to forestall insolvency through 2051 (but not thereafter). Plans are entitled to receive the difference between their obligations and resources for the period. Surprisingly, the PBGC rule provides that SFA funds will be taken into account when calculating a plan’s withdrawal liability. However, plans are required to use mass withdrawal interest rate assumptions published by the PBGC when calculating withdrawal liability until the later of (1) 10 years after the end of the year in which the plan received the SFA or (2) the time when the plan no longer holds SFA funds. For more information on multiemployer pension plan withdrawal liability, visit Tax Facts Online. Read More

Related Questions:

3740. Are there any limitations on a pension plan’s ability to reduce participant benefit levels under the Multiemployer Pension Reform Act of 2014?

3741. What procedures and notices are required in order for a pension plan to reduce participant benefit levels under the Multiemployer Pension Reform Act of 2014?

Wealth & Risk Management Studies for Industry Professionals

The Texas A&M graduate programs for risk management for areas like wealth management, tax risk management, financial risk, economic crimes, ESG risk, are accepting applications for fall. Over 500 candidates are currently enrolled in the graduate courses yet maximum enrollment per course section is maintained at 30 so that each student receives meaningful feedback throughout the course from the full-time academic and professional part-time faculty. Check out the graduate program here: https://law.tamu.edu/distance-education

Texas A&M, an annual budget of $6.3 billion (FY2020), is the largest U.S. public university, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space! The law school has the #1 bar passage in Texas, and #1 for employment in Texas (and top 10 in U.S.)

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