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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Check out what’s happening all around the world of tax!
In The Headlines
- Shares in gun manufacturers rose by as much as 10% in the aftermath of the Trump assassination attempt. Two arms companies, Smith & Wesson Brands and Sturm, Ruger & Co., saw increases of 10% and 7% within days of the shooting. Both firms make pistols, revolvers, hunting rifles, and semi-automatic rifles. Though gun manufacturers have recently seen short-term increases, it remains unclear what the motivation may be. Some analysts have commented that these stock price surges are often momentary reactions by traders that do not necessarily correlate to future sales increases. Previously Smith Wesson and Ruger saw increased sales during the pandemic but an overall decline since COVID-19 restrictions were lifted.
- Could OpenAI face an investigation by the Securities and Exchange Commission? Whistleblowers have filed a complaint with the SEC to determine whether the company barred its workers from speaking out about the risks of its AI technology, including the popular tool ChatGPT. The letter claims that OpenAI’s highly restrictive non-disclosure agreements prevent and even penalize employees or investors from raising concerns with regulators. This includes requiring employees to waive their federal rights to whistleblower compensation and requiring them to get consent from the company before disclosing information to federal regulators.
- Wall Street is in recovery—Goldman Sachs sees an 150% increase in Q2 profits compared to this time last year. The elite investment bank earned $3.04 billion in revenue that quarter, contributing to a total of $12.73 billion overall. At the same time, JPMorgan Chase, Wells Fargo, and Citigroup each reported significant revenue boosts compared to 2023. However, at the same time, the stocks of all three of these banks declined as interest rates and elevated deposit costs rose. Previously, Wall Street had been suffering from a two-year drought, but trading seems to be returning to a healthy place for these firms. Goldman Sachs saw a 17% year over year increase for fixed-income trading revenue and a 27% increase for asset and wealth management revenues.
What's New In The Tax World?
Making up for lost taxes: the IRS collects $1 billion in back taxes from high-income taxpayers
The agency announced this milestone, showcasing how it has made good use of its Inflation Reduction Act funds. The initiatives to reclaim tax debt were largely focused on taxpayers who earn over $1 million per year and owed at least $250,000 in recognized tax debt. One such initiative is a proposed rule that would stop partnership basis shifting, which is a loophole allowing a business or individual taxpayers to move their assets to related parties in order to avoid taxation. If this rule was enacted, the IRS estimates that it could yield $50 billion in revenue over the next decade. Other recent initiatives include cracking down on deductions taken for personal flights on corporate jets and a backlog of 1,600 millionaires and 75 large business partnerships that owe hundreds of millions of dollars in past due taxes.
Earlier this year, the IRS announced plans to send out noncompliance letters to over 25,000 “non-filers” who earned over $1 million per year and did not pay taxes between 2017 and 2021. Another 100,000 letters went to taxpayers with incomes between $400,000 and $1 million per year. This was in keeping with a directive from Treasury Secretary Janet Yellen instructing the IRS not to increase audit rates on people earning less than $400,000 annually. The agency estimated that this group collectively owed hundreds of millions of dollars in unpaid taxes.
Analysts have spoken to the public perception of the agency’s increased investigations, noting that average taxpayers may fear an audit if they do not have a clear picture of who is being targeted by the increased scrutiny. This is especially notable in light of the upcoming elections. If Republicans are elected to the White House and to the majority of congressional seats, this could mean significant changes to tax policy and future IRS budgets. A number of current Republican lawmakers have repeatedly proposed cutting the IRS’ budget. In 2023, House Republicans included a $1.4 billion reduction to the agency’s budget in their debt ceiling and budget cuts package and an agreement to divert an additional $20 billion toward other programs over the next two years. The same group’s proposal for 2025 includes further cuts to the IRS and a reduction in funding for the Direct File program.
State-By-State Updates
- Nebraska’s governor proposes a plan to bring in $1 billion in sales tax revenue. Governor Pillen is suggesting a new tax on over 120 goods and services that are currently exempt from state tax. This would include machinery, equipment, and energy used in industry or agriculture. In addition to removing certain sales tax exemptions, the state would also increase its “sin” taxes on items such as cigarettes, alcohol, and vaping. The proposal would also phase out most local K-12 property taxes over the course of three years. Currently, operating expenses, including teacher salaries, compose about 80% of many district budgets—if the state were to subsidize this, the cost would come out to about $1.2 billion per year.
- Ohio homeowners who are behind on paying property taxes may benefit from the new “HomeSafe” program. Cincinnati residents can apply for a new city program that offers up to $10,000 in subsidies for homeowners who owe on property taxes. Recent estimates suggest that about 3,000 taxpayers are currently delinquent. In response, the city council has set aside $1 million for low- and moderate-income homeowners in the wake of significant property tax increases. To qualify, taxpayers must own their single family home, and they cannot earn over 80% of the median income in their area, which is currently $58,700 for a single taxpayer.
- Pennsylvania approved a $47.6 billion budget deal that omits many legislators’ goals. Governor Josh Shapiro had advocated for legalizing and taxing marijuana as well as imposing a tax on skill games, which have become popular at local bars, gas stations, and truck stops. Republican legislators had pushed for a number of tax cuts, while Democrats angled for a minimum wage increase. None of the above made an appearance in the final deal for the new year. Other sacrificed initiatives include a proposal to use taxpayer funding toward private school vouchers. However, the deal does increase spending on public education and funds a tax credit for businesses that help workers pay for child care.
- West Virginia takes its next step toward a 4% personal income tax cut. Governor Jim Justice announced that the decrease would take effect on January 1, 2025. The state’s trigger for a mandatory tax reduction happened when 2023 state revenue surpassed the rate of inflation. The state brought in $5.34 billion during the previous fiscal year. The governor continues to advocate for eliminating West Virginia’s personal income tax entirely as his term comes to an end. He has requested that the state legislature consider an additional 5% personal income tax cut and a childcare tax credit in their upcoming special session.
Tax Planning Tips
The Supreme Court’s recent decision put an end to a business strategy to avoid estate tax. The case of Connelly v. United States focused on a common succession strategy in which a company buys life insurance on its owners so there is cash to repurchase on that owner’s stock, enabling the insurance payment to be tax-free. The Supreme Court evaluated a situation in which the majority owner of Crown C Supply died, leaving behind $3.5 million in life insurance. The company agreed to purchase his shares for $3 million, even though the business had never been formally appraised. An IRS audit later determined that the firm should have been valued at $3.86 million plus the proceeds from the insurance payout, and therefore the owner’s estate owed $900,000 in taxes.
The IRS recently released guidance on exceptions to taxes on early retirement plan distributions. Based on the SECURE 2.0 Act of 2022, retirement plan holders were allowed to take money out of their accounts before retirement age without the additional 10% tax if the money was being used for emergency personal expenses or when the taxpayer is a victim of domestic abuse. Plan participants are allowed to treat one distribution each year as an emergency personal expense and must fall within a defined dollar limit depending on the plan. The distribution has to be repaid to the plan in order for the taxpayer to claim another emergency personal expense within the next three years. Similarly, taxpayers can take a distribution of up to $10,000 within a year of an incidence of domestic abuse by a spouse or domestic partner. Distributions will still be treated as income and subject to federal and any state or local taxes, but the funds will not incur extra penalties.
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CURRENT EDITION
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