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Archive for Annette Nellen

Tax And Biden’s Build Back Better – What’s Included And What Is Missing?

Tax And Biden's Build Back Better - What's Included And What Is Missing?

The tax provisions included in President Biden’s Build Back Better plan are mostly similar to what he campaigned on, such as repealing tax preferences for fossil fuels and providing tax breaks for most families.

I have posted a table listing the tax provisions in the Administration’s FY2022 Greenbook. There is a lot there relevant to all individuals, wealthy people with lots of appreciated assets, alternative energy companies, oil companies,and more.

I think it is also interesting what is not there such as:

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Tax Coverage For Future CPA Exam – CPA Evolution

Tax Coverage For Future CPA Exam - CPA Evolution

I had the honor and privilege to participate with practitioners, tax faculty and AICPA exam staff recently to work on a model curriculum that ties to the next version of the CPA exam, referred to as CPA Evolution. The purpose of the revision is to better reflect how CPAs operate in today’s global, digital environment where accounting, audit, tax compliance and planning, and technology are all important.

The exam will have a core that everyone takes with a foundation of accounting, audit, tax, business law, ethics and technology. Then prospective CPAs take one of three discipline exams:

  • Tax compliance and planning
  • Information systems and controls
  • Business analysis and reporting

This exam is expected to launch in 2024.

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Necessary But Overlooked Tax Changes We Need

Necessary But Overlooked Tax Changes We Need

I’ve been maintaining a list for several years of overlooked improvements I think are needed for our federal tax system. I keep adding to the list including based on oddities found in current court cases.  For the next few weeks, I’ll post most of these suggestions. I hope you’ll comment on them and add some of your own. It would be terrific to see these included in any tax reform legislation of the 117th Congress and Biden Administration.

  1. Create a de minimus rule for personal use of virtual currency similar to §988(e) for foreign currency which excludes personal gains under $200. This is needed for simplicity. It should exclude bitcoin acquired after a certain date though due to the tremendous gains that exist with very low basis bitcoin (too much of a windfall rather than only simplification).
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Tax Implications Of California’s Vax For The Win Program

Tax Implications Of California's Vax For The Win Program

On May 27, 2021, California Governor Newsom’s “Vax for the Win” program with awards to vaccinated and to be vaccinated Californians provides:

  • $1.5 million to each of 10 individuals
  • $50,000 cash prize for 30 individuals
  • $50 gift cards to the first 2 million individuals vaccinated on or after May 27; prize not awarded until vaccination series is completed.

The total cost is $116.5 million.

So, what are the tax consequences?

Accession to wealth, clearly realized so taxable (§61, §74, and Glenshaw Glass, 345 US 426 (1955)) unless an exclusion applies.

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Ideas To Improve Our Tax Systems And Policies

Annette Nellen I ideas To Improve Tax Policy

I started 21st Century Taxation Blog 14 years ago today as a way to share ideas and hopefully engage discussion on how to improve our tax systems to meet principles of good tax policy and reflect the ways we live and do business today. It’s been enjoyable and I appreciate everyone who reads and comments on my posts!

A few thoughts of areas that need attention that we don’t hear enough about (some I have blogged on):

  • Repeal the kiddie tax – too much complexity and not needed. When an asset is truly given to someone else, that person pays taxes on it at their own tax rate.
  • Repeal the rental revenue exclusion for renting out your home for less than 15 days (§280A(g)). Not needed and mostly benefits higher income with the home by the nice golf course where some tournaments will be played.
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Laws Need To Work Together And Make Sense – Fix Section 6050P

Laws Need To Work Together And Make Sense - Fix Section 6050P

I came across a recent case (Gericke v Truist, No. 20-3053 (DC NJ 3/26/21)) that once again highlights the mismatch between the law on Form 1099-C, Cancellation of Debt, issuance and when a debt is actually discharged.

The District Court of New Jersey issued a ruling that reminds us all (again) that getting a Form 1099-C doesn’t mean that the debt was discharged, it just means the lender met one of the seven requirements of the regulations under Section 6050P to issue a 1099-C. So, when a borrower receives a Form 1099-C it is not necessarily clear that the debt is discharged. If not discharged, there is no cancellation of debt income or ability to see if an exclusion under Section 108 applies, such as insolvency.

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Earth Day And Taxes

Earth Day And Taxes
In case you missed it, Happy Earth Day was April 22 !  I hope we treat everyday as Earth Day. Before getting to taxes, I have to note anytime I mention Earth Day that is was created in 1970 by Gaylord Nelson who was later a senator and governor from Wisconsin. But, he is an alum of San Jose State University!

Our federal income tax is an odd and unfortunate mix of incentives for oil and gas (such as benefits for intangible drilling costs) and incentives for clean or alternative energy such as a vehicle credit for hybrid and electric cars among other credits.

Thus, our income tax doesn’t reflect our country’s economic, societal and environmental goals. Or, more likely, we don’t know what our goals are for the environment which is not good for our Earth.

If our federal tax system reflected concern for protecting the Earth, we’d see such measures as:

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Wow! IRS Commissioner Rettig Estimates Annual Tax Gap At $1 Trillion!

Wow! IRS Commissioner Rettig Estimates Annual Tax Gap At $1 Trillion!

On April 13, 2021 the Senate Finance Committee held a hearing on The 2021 Filing Season and 21st Century IRS.  The sole witness was IRS Commissioner Charles Rettig.

There are three takeaways I want to share:

1. The IRS is Overburdened! I encourage you to at least skim Commissioner Rettig’s written testimony. He lays out numerous challenges that that IRS has faced for years and even more due to COVID-19 tax law changes. Consider the three rounds of Economic Impact Payments they had to issue while sheltering in place (each round went to about 160 million individuals), new tax forms for employers to get new refundable payroll tax credits, the need to issue guidance quickly because most changes were almost immediately effective, and the American Rescue Plan enacted March 11 included two changes to 2020 forms millions of which had already been filed!

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Temporary Tax Law Changes Should Be EASY!

Temporary Tax Law Changes Should Be EASY!

We are in tough times! The pandemic is in it’s second year and the March 13, 2020 disaster declaration is still in effect. The American Rescue Plan Act of 2021 signed into law on March 11, 2021 is the 5th major piece of COVID-19 relief enacted since mid-March 2020. The tax changes in these laws are numerous and complex in terms of new definitions, special rules, confusing interaction with other rules, and more.

The IRS could not even open the 2021 filing season until February 12 – later than usual. The IRS is still processing paper filed 2019 returns.

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Child Tax Credit Change For 2021 Brings Equity And Complexity

Child Tax Credit Change For 2021 Brings Equity And Complexity

The American Rescue Plan Act of 2021 (P.L. 117-2; H.R. 1319; 3/11/21) provides a variety of financial and other relief for COVID-19 problems. Most of the changes are only for 2021.  At least two are for 2020 and mean that the IRS has to update forms and computer systems and get information out to taxpayers quickly including what to do if you already filed your return.  These two changes for 2020:

  1. $10,200 of unemployment compensation receivd in 2020 is non-taxable if the taxpayer’s AGI is under $150,000 (if MFJ and both spouses received such comp, each get to exclude up to $10,200). [IRS guidance of 3/12/21]
  2. Not having to repay an advance Premium Tax Credit if the individual’s income turns out to be over 400% of the federal poverty line.

Some of the 2021 changes are not solely tied to the pandemic as these changes help low-income families by making the tax system more equitable and have been proposed by President Biden and others. One of these changes is making the $2,000/child tax credit fully refundable and increasing the credit.

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Spending In The Tax Law Exceeds Discretionary Spending!

Spending In The Tax Law Exceeds Discretionary Spending!

On February 11, 2021, the Congressional Budget Office (CBO) released: The Budget and Economic Outlook: 2021 to 2031. It is grim as CBO estimates that the federal budget deficit for FY 2021 will be $2.3 trillion. But, that is $900 billion less than for 2020. The 2021 deficit is the second largest since 1945 (WWII) based on the deficit as a percent of GDP.

Something else interesting in the report is an appendix on tax expenditures. Tax expenditures are spending that exists in the tax law. For example, the American Opportunity Tax Credit provides taxpayers with a $2,500 tax credit for each of the first four years of college. While this government spending could have instead been given by a direct grant payable to the university to cover the students tuition, it was put into the tax law as a tax reduction. Whether as a tax credit or a direct grant, the financial effect to the government budget and the student are the same. Per CBO, there are over 200 tax expenditures (special rules) in the Federal income and employment taxes.

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Ideas For States For Pandemic Tax And Budget Policies

Ideas For States For Pandemic Tax And Budget Policies

My latest Moving Forward? article for Tax Notes State is: Suggestions for Pandemic State Tax Policy Endurance (12/17/20). I include a variety of suggestions to help individuals, businesses and state and local governments. I hope you’ll take a look – here.

Examples:

  • Federally-declared disasters such as the COVID-19 pandemic allow the IRS to extend due dates for tax returns and tax payments. Last year, the result was a July 15 due date rather than April 15. Most states followed suit. But a big deal for states is that their fiscal years end June 30. The shift of payments to the next fiscal year likely resulted in greater borrowing and costs for the states. However, many high income taxpayers were quite capable of paying taxes normally due on April 15 and June 15. The better message (and true for any future disaster) is to include a plea that if you can pay at the normal time, please do so to reduce costs to the state.
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