At Around the Tax World, you can find out all about what’s going on in the wonderful, worldwide world of tax. Every month, we’ll feature a few mini-articles on what’s been going on in the world when it comes to tax, and fully available for viewing even if you don’t have a subscription.
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In The Headlines
- Will Trump be out $450 million? The appellate courts will decide. The former president and his company, Trump Organization, was recently ordered to pay $354 million in fines plus almost $100 million in interest in a New York civil fraud case. The lawsuit claimed that the Trump Organization had inflated its assets in order to get more favorable loan and insurance rates. Trump has appealed the judge’s guilty verdict, which would currently prevent him from running a New York business for three years. He also recently posted a $175 million bond to prevent his assets from being seized while the case is under appeal.
- Hunter Biden fails to persuade a judge to dismiss the tax charges against him. The president’s son filed eight motions arguing that the three felony and six misdemeanor charges against him should be dropped. The motions came at the case from different angles—one arguing that prosecutors specifically targeted Biden, another saying that congressional Republicans influenced the handling of this case, and yet another stating that a “diversion agreement” was still in effect, meaning that certain charges would be dropped if Hunter Biden honored the terms set by the agreement. U.S. District Judge Mark Scarsi rejected all eight motions, which means Biden will likely stand trial in June.
- Walgreens is hit with a $2.7 billion tax bill—which the retail pharmacy giant plans to dispute. After auditing the Walgreens Boots Alliance for tax years 2014 through 2017, the IRS is claiming the company owes billions in unpaid taxes due to issues over transfer pricing. Transfer pricing applies when one division in a company charges a separate division for goods and services. Walgreens has stated it disagrees with the IRS report and plans to defend its position on transfer pricing, even if that means going to court. The IRS does not have an extensive history of winning transfer pricing cases, but in recent years, the agency successfully defended a $9 billion adjustment to Coca-Cola’s tax bill and won a similar case against 3M.
What's New In The Tax World?
Scams abound during this tax season: here’s how to avoid falling prey
In this technological age, scams have unfortunately become more prevalent and more effective than ever. Scams related to identity theft especially tend to surface during tax season. Typically, identity thieves will file a tax return on behalf of an unsuspecting taxpayer in order to illicitly claim their refund. Last year, the IRS received a whopping 294,138 reports of identity theft.
To protect yourself from falling for scams, start by familiarizing yourself with common tactics. Fear-based tactics often present a problem to solve. For instance, a scammer might call or email you saying that your tax return has an error, and there will be dire consequences if you do not fix it. Experts say that fraudsters will try to get you into a heightened emotional state to lower your defenses.
Scammers also use a sense of urgency to get people to make rash decisions. Experts advise intentionally pausing to think when approached with a seemingly urgent request. This is especially true if you are asked to share personal information like a Social Security number.
Money is another commonly-used motivator. Scammers may impersonate tax professionals and promise a bigger tax refund if you pay them or share private data. So-called “ghost preparers” will prepare your return but neglect to sign it or leave out key information like their tax ID number. This allows them to collect your personal information and disappear. One red flag is if the paid preparer section of a tax return is left blank or simply says “self-prepared.”
The method of communication can also alert taxpayers that a request might be fraudulent. The IRS states that it will never contact taxpayers by email, text, or social media about a tax bill or refund. The agency will typically use physical mail and ask taxpayers to contact them through their official website or by responding to their main address. Scammers, on the other hand, will often call taxpayers claiming to work for the IRS and demanding immediate payment.
One means of protection is to set up an online account at IRS.gov to centralize your tax information and communications. Another method is to use spam-blocking tools to avoid robocalls. Avoid sharing any sensitive information with callers, and remember that the IRS will rarely, if ever, call you to resolve an issue.
State-By-State Updates
- Illinois is recruiting volunteer firefighters by offering a special tax credit. The new Volunteer Emergency Worker Credit provides a $500 state tax reduction to volunteer firefighters and those who work for a small stipend. In Illinois, almost 70% of firefighters are volunteers. To receive this benefit, the taxpayer must have served for at least nine months during the tax year and must earn less than $5,000 for their work. So far this year, about 3,000 people have claimed this credit, and another 7,000 are expected to qualify. Those interested in volunteering can apply at MakeMeAFirefighter.org, although applicants should note that it takes about 18 months to complete training.
- Maryland has reached crunch time on a decision to increase state taxes, fees, and tolls by $1.2 billion. The state has been struggling with budget deficits, which are likely to be exacerbated by the recent tragic collapse of the Francis Scott Key Bridge. House and Senate leaders have disagreed for months on when to raise taxes and where the tax revenue should be allocated first. The Senate has expressed support for a $250 million increase that would go toward transportation needs, while the House has focused on allocating money toward education, including the Blueprint for Maryland’s Future program that invests in early childhood education. Possible tax changes include an amendment to legalize online poker, adjustments to corporate tax calculations, and fees on electric vehicles.
- Are wealthy New Yorkers paying their fair share of property taxes? A new court case argues not. New York’s highest court recently advanced a lawsuit filed by Tax Equity Now New York. The group points out that property taxes in some of the richest neighborhoods in New York City are relatively low, while homeowners in lower-income areas or owners of apartment complexes pay a higher percentage of their property’s value. For instance, a multimillion dollar brownstone in Brooklyn’s Park Slope is taxed at about 0.2% of the home’s worth, but a $780,000 home in the Bronx pays almost 1% in taxes—almost four times as much. Property tax revenue in New York makes up about 30% of the city’s overall budget.
- Philadelphia is pushing back against a Pennsylvania law that limits taxation options. The state’s “uniformity clause” requires all properties and taxpayers to be taxed at the same percentage, whether on a state or local level. This 150-year-old rule currently prevents Philadelphia from increasing its tax rates on wealthier households or commercial buildings. As it stands, both residential homes and skyscrapers in the city must be taxed at the same rate of 1.3998%. Similarly, households earning $40,000 a year and those earning $400,000 a year are subject to the same income tax rate. Philadelphia-based representatives are now advocating for tax reform, which would include repealing the uniformity clause.
Tax Planning Tips
Planning for retirement? Don’t overlook the saver’s tax credit. In 2021, only 5.7% of taxpayers claimed this credit, which is intended to help low-to-moderate income earners offset the costs of investing in a retirement plan. Holders of an IRA, 401(k), or other workplace plan may qualify. Taxpayers can continue to make contributions up until their filing deadline and have the funds apply to this credit.
How does the retirement saver’s credit work? Taxpayers can receive a credit that equals 50% of up to $2,000 of retirement contributions for single filers and up to $4,000 for married couples filing jointly. To qualify for the full 50% credit, taxpayers’ adjusted gross income (AGI) cannot exceed $21,750 for single filers or $43,500 for married couples filing jointly. The credit phases out gradually as income levels reach the cap of $36,500 for individuals and $73,000 for joint filers. Since AGI is equal to total income minus deductions like student loan interest, self-employment taxes, alimony, and retirement or health savings account contributions, more taxpayers may qualify for the saver’s credit than may realize it.
Say good-bye to back taxes with these strategies. For taxpayers who still owe taxes from past years, several simple options are available. First, those who owe back taxes might consider working with the IRS directly. Depending on their circumstances, the IRS may allow taxpayers to make payments through an installment plan. If their assets and income are less than their full tax bill, the taxpayer may also qualify for an offer in compromise, which allows them to pay one lump sum to the IRS that is less than the original tax bill.
Similarly, if a taxpayer is dealing with financial hardship, they may be able to have their debts deemed “Currently Not Collectible” by the IRS. This status means that the IRS will not collect on that debt until the taxpayer’s circumstances improve. To receive CNC status, they have to provide proof of income, assets, expenses, and any other relevant financial information. Keep in mind that the debts will not be erased and will continue incurring penalties and interest.
Lastly, taxpayers should consider enlisting the help of a tax professional to receive expert advice on navigating back taxes. Tax professionals can also advise on offers in compromise and other payment options offered by the IRS.
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The Wild West of Employee Retention Credits (ERC): Outlaws, Deputies, and Cowboys
Gather ’round, pardners! The Employee Retention Credit (ERC) has been the latest gold rush in the tax frontier, drawing business owners, tax deputies, and even a few sly outlaws. But as the dust settles, the IRS—our law keeping sheriff—is on the hunt for any who might’ve bent the rules. In this frontier of finance, knowing who’s who can keep you out of trouble as the IRS rounds up dubious claims.
Selected Techniques to Monetize Tax Attributes
In the prior article “Tax Trends in M&A and What It Means for Your Clients,” we had discussed certain techniques to, e.g., maximize net operating loss (“NOL”) and interest expense deduction utilization in the context of M&A transactions. This article examines certain additional strategies to monetize expiring, latent, or otherwise disallowed tax attributes.
Do Those Tricks Really Work?
On the website for Axium Wealth, Charles Dombek tells us that: “Most CPAs are historians that tell their clients how much they make, how much they owe, when and where to file their taxes, and oftentimes how to write large checks at the last minute when you least expect.” When it comes to Axium, though: “We help clients recover dollars they unnecessarily pay in State and Federal income taxes.” Axium also helps clients diversify capital into off-market passive real estate and alternative investments. Before Axium, there was The Optimal-Financial Group LLC. Of course many of the readers of Think Outside The Tax Box are CPAs, or EAs or others who both help their clients be compliant and advise on ways to minimize their liability. When I was practicing I would call the things I might suggest my “bag of tricks.”
