Tax News Highlights 3.18.22
What’s Up in Washington, D.C.
NCAA Tournament Coaches Questioned
Duke, Villanova, and Auburn received letters from a House Ways & Means committee requesting information on their men’s basketball program coaching compensation questioning whether the organizations are operating consistent with their tax-exempt statuses under IRC §501(c)(3). Duke’s head coach, Mike Krzyzewski, reportedly is being paid an annual salary of over $7 million and the committee wants to know how this furthers the team’s exempt purpose of providing education. The letter to Duke explains the potential problem:
“It is unclear how such lucrative compensation contracts further the overall educational mission of Duke and benefit your student body as a whole. These contracts also present a stark contrast to the benefits received by the university’s student-athletes, whose grants-in-aid each semester pale in comparison to their coaches’ compensation. Student-athletes make an enormous commitment of time and effort as team members, but it is the coaches that are profiting handsomely from their labor.”
The teams have a limited window to both win the tournament and provide feedback, as information requested by the committee is due on March 28. Other universities have been targeted in the past as Congress makes the issue of excessive compensation an area of focus.
Senate Finance Committee Chair Ron Wyden promoted continued support for charitable giving in a recent hearing on examining charitable giving and trends in the nonprofit sector. He noted that after the TCJA’s standard deduction boost, most taxpayers no longer itemize and therefore may not have as much of an incentive to give to charities when there is no corresponding tax deduction. Wyden celebrated the addition of the CARES Act page-one deduction for charitable giving, but pushed for it to be expanded and extended beyond 2021.
“The new $300 deduction helped correct that, and it helped promote giving in 2020. It was extended and expanded in 2021, but it expired on January 1st. There ought to be bipartisan interest in reviving it and expanding it to promote even more giving,” he said.
A bipartisan bill called the “LIHTC Financing Enabling Long-Term Investment in Neighborhood Excellence Act” or the “LIFELINE Act” would make American Rescue Plan funds available for affordable housing developments receiving low-income housing tax credits.
As a result of the invasion of Ukraine, Senator Wyden proposed to remove U.S. tax breaks for sanctioned Russian individuals and businesses. The measures would include removal of lower withholding tax rates under current tax treaties, and eliminate the lower GILTI rate and foreign tax credit.
Interest Rate Increase
The Federal Reserve announced a 0.25 percent point interest rate hike, its first increase since December 2018, with potential for six more this year followed by three more in 2023.
EIDL Loans Get Additional Deferment
The SBA announced that COVID-EIDL borrowers with approved loans in calendar years 2020, 2021, and 2022 will now have a total principal and interest payment deferral of 30 months from the date of the Note, with interest continuing to accrue during that period. Previously, the deferment period had been extended to two years.
Bluebook Out for Past Legislation
The Joint Committee on Taxation released the Bluebook for the 116th Congress that explains tax legislation enacted during that time. More than 200 tax provisions, spanning eight different Acts are a part of this one, including the CARES Act and ending with the Consolidated Appropriations Act, 2021.
Auto Depreciation Limitations and Inclusions for 2022
Rev. Proc. 2022-17 provides the depreciation deduction limitations under §280F on certain vehicles placed into service and amounts to include into income for leased vehicles for 2022.
Waiver for Farmers and Fisherman
Notice 2022-13 provides an official waiver of the estimated tax underpayment penalty for qualifying farmers and fishermen who were impacted by the inability to e-file Form 7203, S Corporation Shareholder Stock and Debt Basis Limitations, by the March 1, 2022 due date.
A couple who won in a crypto settlement with the IRS are not letting the matter go in hopes of getting the IRS on record for the tax treatment of staking and the timing of income inclusion.
A new legal brief states, “The Jarretts filed this case because they want a judicial resolution of their rights—specifically, a ruling that, under a proper reading of the tax code, tokens created through staking are not taxable income.” The IRS had punted on the issue in offering a settlement without confirming a clear answer to the issue.
Coin Center, a non-profit research center focused on public policy of digital currency, joined in and provided a brief to the Court to explain the importance of this case and having clear policy statements and guidance for the crypto community.
Separately, the IRS recently reminded taxpayers to complete the virtual currency checkbox on Form 1040 as either “Yes” or “No” and that it’s not only to be completed by those with virtual currency transactions during the year. IR-2022-61 notes the following and directs taxpayers to the Form 1040 instructions:
Rettig Testifies Before Congress on IRS Operations
IRS Commissioner Rettig didn’t have much luck testifying before a House Ways and Means subcommittee this St. Patrick’s Day. Lawmakers were searching for answers somewhere over the rainbow on why the IRS backlog and poor operations remain, but Rettig evaded somewhat and reminded them that the laws they implemented and a history of underfunding are a large reason for the IRS’s struggles. Could the IRS have done better during the unprecedented pandemic with what it had, as questioned by the committee? Potentially, but that answer is probably more like finding a four-leaf clover in your backyard, not likely.
It’s hotly debated even within the tax community on what is the real leprechaun – Rettig and his stubborn nature, or lawmakers and their inexperience with tax law and administration (it’s probably both). However, many agree that the IRS needs a pot of gold to see any marked long-term improvement and that proper funding should be a focus given that 96 percent of the nation’s revenue comes from tax dollars administered by the agency. The recent appropriations bill funding boost should help, and some leaders are on board to push them forward with more green and assistance in the future.
Commissioner Rettig did confidently state the backlog would be resolved and the IRS would be in good working condition by the end of 2022. Whether this is true or not has yet to be seen. He also reminded the committee several times that his term (and he) will bid an Irish goodbye this November, and reiterated as he has before that the Service is “outgunned” on a technical level when auditing large corporations with complex structures and transactions. As far as dealing with multiple credits at the individual level, he suggested combining them all into one “family” credit, perhaps hinting that the tax code has gotten out of control with all of its various provisions.
Current IRS backlog status below:
Criminal Activity Crackdown
IRS Criminal Investigations Spotlight
The IRS doesn’t just administer everyday tax transactions, it also actively pursues tax-related criminal activity like tax evasion, fraud, money laundering, terrorist financing, cybercrimes, and sanctions evasion.
IRS Criminal Investigations (CI) has beefed up its profile in the last several years, reportedly seizing more than $3.5 billion of illicit cryptocurrency in both fiscal years 2021 and 2022. Additionally, CI cyber agents have been involved in a special project to monitor Russian-based cryptocurrency transactions, as well as other sanctioned countries.
Another main area of focus is investigating tax crimes involving abusive tax schemes and complex structures designed for tax evasion. Recently, promoters peddling fraudulent syndicated conservation easements were indicted with conspiracy to defraud the US and other crimes for promising severely overvalued tax deductions of more than $1.3 billion in total. And in 2020, CI worked to have a California businessman convicted of criminal charges for conspiring to corrupt the biofuel tax credit program, stealing over $1 billion in fraudulent tax credits.
Even with a lack of funding and decreasing workforce, the CI team has done well for itself, reporting the following statistics of recent activity below:
PPP Fraud Flop
The Department of Justice reported the conviction of a father-son duo who took out more than $1.7 million in PPP loans by misrepresenting the number of employees and payroll expenses and later making unlawful monetary transactions with the funds. The pair face a laundry list of charges and potential of serving several years in prison. The IRS Criminal Investigations team also helped investigate this case.
Case of the Fridays
Not a case this time, but a ruling.
A church was denied tax-exempt status under IRC §501(c)(3) for involving cannabis in its exempt activity and worship services. As current federal law classifies cannabis as a controlled substance and prohibits its use, consumption and distribution are illegal activities. The IRS concluded that because the church engages in activities that contravene federal law, they serve a substantial nonexempt purpose and that will “destroy the exemption.” With 18 states having legalized the substance, the disparity between federal and state law continues.
Have a great weekend, hopefully you're catching some bball in the background!