On June 14th, The House Appropriations Committee released its draft fiscal year 2023 Financial Services and General Government funding bill. The legislation provides annual funding for the Treasury Department, the judiciary, the Executive Office of the President, and other agencies, including the Small Business Administration. For FY 2023, the bill provides a total of $15.6 billion in discretionary appropriations for the Treasury Department, including $13.6 billion for the IRS.

The $1 billion increase from FY 2022 incorporates improving customer service, enforcing fairness in the tax system, and modernizing IRS systems. Of the total amount, the bill includes $3.4 billion, an increase of $630 million above fiscal year 2022’s enacted level, for taxpayer services. That encompasses support for the Volunteer Income Tax Assistance Matching Grants Program, Low Income Taxpayer Clinic, the Taxpayer Advocate, Tax Counseling for the Elderly, and more employees to improve IRS customer service. There’s also $6.1 billion, a boost of $682 million, above the enacted level for FY 2022, for enforcement. The funds will support increased enforcement efforts and essential personnel. Also in the package is $3.8 billion for IRS overhead functions for operations support. 

To improve the IRS’s antiquated technology systems, the package includes $310 million, an increase of $35 million above 2022’s level, for business systems modernization to update the IRS’s legacy systems, some of which date back to the 1960s, and improve IRS web applications and tax filing processing. To ensure the money is being spent carefully, there’s also funding for inspector generals at the Treasury Department, including the Treasury Inspector General for Tax Administration. The package includes $253 million for inspectors’ general offices across the Treasury in fiscal 2023, an increase of $13 million above the enacted level for fiscal 2022, to provide robust oversight of departmental policies and practices.

Talley’s team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on your assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.

According to a report released recently by the Government Accountability Office (GAO), it has been found that in recent years the IRS has been auditing fewer taxpayers since 2010, with audit rates for wealthier taxpayers decreasing the most. The IRS officials blame the decline in audit rates on staffing decreases and the fact that it takes more staff time and expertise to handle complex higher-income audits. From tax years 2010 to 2019, audit rates of individual income tax returns decreased for all income levels, according to the findings. On average, the audit rate for these returns decreased from 0.9% to 0.25%. However, while audit rates saw a greater decline for higher-income taxpayers, the IRS generally audited them at higher rates than lower-income taxpayers. 

The average number of hours spent per audit was generally stable for lower-income taxpayers but more than doubled for those with incomes of $200,000 and above. According to IRS officials, the greater complexity of higher-income audits and increased case transfers due to auditor attrition contributed to the time increase. In response to the report, the deputy commissioner of services and enforcement at the IRS, Douglas O’Donnell, commented that auditing requires auditors to appropriately respond to taxpayers with increasingly complex business and investment activities. The greater the complexity, the more sophistication, skill, and time to perform the necessary review of information and correctly apply the law. 

House Ways and Means Oversight Subcommittee chair Bill Pascrell, had requested the GAO report and criticized the findings. His office found that except for those with over $5 million in income, audits of the lowest-income taxpayers resulted in higher amounts of recommended tax per audit hour. The IRS collected about one-half of all recommended taxes between 2011 and 2020, with collection rates generally higher for those taxpayers with incomes under $200,000, including Earned Income Tax Credits (EITC) recipients. That is probably because the IRS conducts EITC audits before issuing refunds. According to the IRS, high-income audits are more likely to have recommended tax amounts that are abated or more challenging to collect fully.

Talley’s team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on your assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.

Wealthy investors may face new restrictions when transferring assets to heirs, due to a recent proposal by the Treasury Department. The Department stated that it would “claw back” the tax savings of several wealth planning strategies come 2026 when historically high exemption levels for gift and estate taxes are due to be sliced in half. The proposal reflects the Biden administration’s concern that affluent Americans are racing to use clever strategies during the window to create “artificial” gifts to pass on tax-free wealth to future generations. The proposal targets strategies in which a taxpayer gives assets to a beneficiary while maintaining control over a substantial interest in them. These strategies are what the IRS considers to be a disguised gift that is taxable. It is a fresh blow to affluent investors and their advisors who thought their careful plans were laid in stone. 

Under scrutiny. One arrangement in the crosshairs is a partnership in which a regular interest is given to an heir while the donor retains a preferred interest. Another scenario concerns a promise by a donor to make gifts to a recipient in the future. A third example involves a trust to which a grantor transfers assets but also receives income from the gifted property. In all three instances, the moves use up some or all of a donor’s exemption, which this year is just over $12 million, $24 million for married couples. These higher levels, a product of the 2017 tax-code overhaul, will fall roughly by half come 2026. The Treasury proposal would claw back taxes on transferred amounts that exceed the lower exemption levels for people using the strategies who may die that year. The lifetime gift and estate tax rate is 40%. The goal of this is not to allow wealthy taxpayers to lock in the currently high use-it-or-lose exemption amount.

GRATs. A common estate planning technique, Grantor Retained Annuity Trusts (GRATs), may also get caught even though the strategy does not technically involve artificial gifts. Under the Treasury’s proposal, the IRS would calculate the tax bill of a donor who retains an interest of more than 5% of the value of assets they transfer to a GRAT under the lower exemption. If the donor dies before the trust’s term ends, their stake is pulled back into their estate, resulting in a bigger tax bill on assets they thought they had moved out. For example, suppose a donor put $100 million into a GRAT for the benefit of their children last year, under IRS rules. In that case, the trust pays them a yearly “annuity” that totals slightly more than the value of the contributed property or cash over time. In the eyes of the tax agency, the paybacks reduce the taxable value of the gift, say in this case, to $10 million. So the donor has shifted $100 million out of their estate to benefit their kids but used up only $10 million of her current exemption. Meanwhile, the trust appreciates, and its gains go to the children tax-free. Under the proposal, because the taxable value of the gift is more than 5% of the transferred amount, the donor has not locked that $10 million of their currently higher exemption. Meaning they would thus face a higher tax bill come 2026. One big issue is that the strategies on the firing line are irrevocable. They are legal contracts that cannot be unwound. 

Saved by Zero. However, there seems to be a silver lining to the 5% rule. It will not apply to so-called zeroed-out GRATs, in which annuities equal the original value of what was put into the trust. This is because, under current IRS rules, such a trust does not use up any of a donor’s exemption, even as it moves money out of the estate. Assets in that trust, a staple with the 1 percent, appreciate over time, and the left over after annuities goes to heirs tax-free. The proposal also does not affect nuts-and-bolts planning in which a donor bequeaths property while keeping control or possession of it while alive. For example, suppose Grandma and Grandpa have an estate worth $20 million and set their son up to inherit $7 million when they die. In that case, they can safely use their current exemption of over $24 million if they pass away after 2026.

The 10-year itch. Wealth advisors are already chafing from severe curbs on inherited retirement accounts. Under a law that Congress passed in 2019, heirs to traditional individual retirement accounts (IRAs) and workplace retirement plans, including 401(k)s, 403(b)s for educators and 457(b) deferred compensation plans, can no longer “stretch” required minimum withdrawals out over their lifetimes. Instead, they have to drain the accounts within ten years. In May 2021, the IRS said that beneficiaries of the accounts were not required to take annual distributions before the 10-year deadline. Advisors breathed a sigh of relief because it gave the tax-deferred accounts more time to appreciate. But on Feb. 23, Treasury reversed course, issuing another little-noticed proposal to require minimum annual distributions in years one through nine. That rule applies to heirs who are not spouses or children under age 18 and inherit a retirement account starting in 2020. However, this does not include Roth Plans.

Talley’s team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on your assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.

In response to the pandemic, Congress provided billions of dollars in tax credits to employers, which helped pay for sick and family leave, as well as retaining employees, but now the IRS needs to step up its compliance efforts, according to a new report. The report, released in early May by the Government Accountability Office (GAO), examined the impact of Congress’ various pandemic relief laws since 2020. This includes the CARES Act and the Families First Coronavirus Response Act. Provisions in those laws established paid sick and family leave credits, the Employee Retention Credit and payroll tax deferrals. As Congress enacted the new laws, the IRS continued to revise the relevant employment tax returns and guidance. The IRS managed to implement those complex provisions despite facing delays caused by facility closures and other challenges. Paid sick and family leave credits and Employee Retention Credits for 2020 totaled about $20.7 billion, including $9.8 billion for the leave credits claimed by over 1.5 million employers and $10.9 billion for the ERC claimed by 199,834 employers. Payroll tax deferrals totaled about $123.6 billion claimed by over 1 million employers. The totals seem to have been even higher last year, according to preliminary data.

The GAO noted that the IRS took steps to identify and plan for compliance risks associated with the leave credits and the ERC. Both types of credits expired last year but will be subject to examination by the IRS for several years after filing. The report found the IRS could strengthen its efforts by expanding the use of some of its project management practices. The IRS’ compliance objectives did not evolve to reflect statutory changes made after the CARES Act, are not measurable, and do not include criteria to measure success. In preliminary data, GAO found 337 filings, totaling $100 million, from employers that were established in April 2020 or later but then stopped filing employment tax returns. IRS screening filters flagged more than 65% of these filers for review. However, the GAO said those controls may still overlook ineligible entities because they do not consider certain factors, such as refund amounts and employer establishment dates.

The GAO recommended that the IRS could bolster its controls by using dates from the relevant legislation, refund amount and filing data, the establishment date for the employer, and other variables in filters to help identify tax credit recipients that may be ineligible employers. The GAO noted that one area of potential fraud was employer identification numbers. Although the employment tax return screening process flagged many of the returns identified with potentially ineligible credit claims, the report said it is possible some returns from fabricated EINs may have passed through the filters and received refunds. Annual employment tax returns are subject to fewer filters. In addition, none of the filters contains specific criteria to identify entities established after the enactment of the Families First Coronavirus Response Act and the CARES Act. IRS officials shared a list of compliance areas under consideration for using computerized filters to identify potential noncompliance specific to the tax credits. However, those areas are still under development, and the IRS did not have any further information in the most recent compliance plan. The GAO made other recommendations in the report, including the IRS developing a compliance plan consistent with project management principles, document compliance processes for adjusted returns and tax credits using restricted wages, and identify ineligible entities. The IRS agreed with two of the report’s recommendations but disagreed with the other three. The IRS contended that its current processes are sufficient, but the GAO insisted its recommendations are warranted.

Talley’s professionals have spent literally hundreds of hours reviewing the law, regulations, and FAQs issued regarding the ERC and PPP, and we are happy to assist you in the process.

According to a recent report released by the Treasury Inspector General for Tax Administration (TIGTA), the Internal Revenue Service decided to destroy an estimated 30 million paper-filed information return documents in March 2021 because of its inability to process its backlog of paper tax returns. The IRS typically uses information return documents for post-processing compliance matches to identify taxpayers who do not accurately report their income. During the pandemic, millions of paper tax returns and other documents accumulated at IRS facilities, and the agency has been working overtime to catch up on the backlog.

During a Senate oversight hearing at the start of May, IRS Commissioner Chuck Rettig testified that the number of unprocessed tax returns from 2021, as of April 21, had been reduced to 1.8 million from the 16.4 million at the end of 2021. The IRS receives large volumes of paper-filed tax and information returns, leading to high processing costs every year. In the fiscal year 2020, the IRS spent more than $226 million on processing paper-filed tax returns. The report acknowledged that the IRS has taken several actions and developed initiatives to increase e-filing. On top of that, legislative requirements have resulted and will continue to increase e-filing. 

The report noted that the IRS does not have a Service-wide strategy that identifies, prioritizes, and provides a timeline for adding tax forms for e-filing nor an accurate and comprehensive list of tax forms not available to e-file. Without a proper strategy and a list of forms not available for e-file, individuals will be unsure of e-filing, thus deciding to paper file and creating an even more significant backlog. These issues led to the wholesale destruction of millions of information returns as a part of an effort to expedite the processing of the backlogged business tax returns. The documents help the IRS’s Automated Underreporter Program identify taxpayers who are not accurately reporting their income. Still, IRS officials told TIGTA that once the tax year ends, the information returns, such as Forms 1099-MISC, Miscellaneous Information, can no longer be processed due to system limitations. That is because the system used to process the information returns is taken offline for programming updates in preparation for the following filing season.

The TIGTA recommended that the IRS develops a Service-wide strategy to prioritize and incorporate all forms for e-filing; develop processes and procedures to identify and address potentially non-compliant corporate filers; and develop processes and procedures to ensure that penalties are consistently assessed against business filers that are non-compliant with e-filing requirements. The IRS agreed with the first recommendation to establish a Service-wide strategy to incorporate all forms for e-filing but did not agree with the report’s other two recommendations. IRS officials said they did not need to develop processes and procedures to identify non-compliant corporate filers because all requirements to assess penalties are unknown at the filing time. The IRS also has systemic processes in place for e-filed partnership returns, which were found to be working as intended. Other types of business returns have differing criteria for e-filing requirements and exceptions to the requirements, which prevent the implementation of a standard process for all business filers. 

TIGTA believes that IRS management’s justification for taking no action on two recommendations is insufficient. “In view of the backlogs of paper tax returns, the IRS should take additional steps in an effort to continue to reduce paper return filings,” said the report. The IRS pointed out that it is facing a tight budget but continues to pursue more ways to spur the e-filing of various types of business tax returns.

Talley’s team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on your assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.

One well-heeled couple in Florida, who own a private real estate development business, are passing on hundreds of millions in wealth to their two daughters free of gift and estate taxes. Their method: shuffling buildings, stocks, and other investments through more than two dozen short-term trusts. They use grantor-retained annuity trusts, which have three major tax benefits: Grantor Retained Annuity Trusts move assets out of a taxable estate, they don’t trigger any gift taxes for the donor, and they “freeze” the value of contributed assets, making their future appreciation free of the 40% gift tax and estate tax.

By setting up a GRAT so that assets can be swapped in and out, a taxpayer can extract declined stocks and substitute them with stable Treasury bills. The impacted shares are then placed into a new GRAT, restarting the two-to-three-year clock to give them time to bounce back. But even when a GRAT goes “under water” because a battered asset doesn’t bounce back, the grantor comes out ahead if the trust allows asset substitutions, which means GRATs are like a free pull at a slot machine. If the GRAT ‘hits,’ assets are transferred to the beneficiaries free of gift tax. If it doesn’t, the grantor is in the same tax situation as before the GRAT was executed. Advisors see the recent market drop as an attractive opportunity to play those odds and avoid estate taxes. Taxpayers don’t pay that levy until their estates reach just over $24 million for married couples, half that for single persons. The levels are set to revert to half those amounts come 2026.

Once a taxpayer puts stocks, bonds, or stakes in funds or businesses into a GRAT they control, the vehicle pays them a yearly annuity, calculated as slightly more than the contributed property or cash value. At the end of the trust’s life, typically two or three years, whatever is left over goes to the trust’s heirs free of gift tax. The donor, known as the grantor, doesn’t owe gift tax because they retain control of the trust during its lifetime and thus doesn’t owe that levy on transfers to themself. The annual payments back to the grantor have to clear what the IRS calls its 7520 hurdle, which is 3% for May 2022. The trick is to put in an asset whose value is expected to boom, like property or stock in a startup, or has declined but is expected to pop back, like shares in Amazon. This is because it’s easy to outpace the low interest rate hurdle, and the excess gains eventually pass to heirs tax free. When the total payments back to the grantor equal the original value of what was put into the trust — even though that number has subsequently swelled — the vehicle is called a “zeroed-out GRAT.” 

Since its inception in 1990, GRATs have been periodically attacked by Democratic lawmakers as an unfair loophole that allows the ultra-affluent to funnel tax-free wealth to the next generation. President Joe Biden’s federal budget proposal in March revives some of the curbs, including forcing trust owners to pay capital gains tax on unrealized appreciation when the trust goes to beneficiaries and requiring it to hold at least $500,000 or 25% of the value of assets contributed, whichever is greater. That latter amount would be taxable. Biden would also require GRATS to have a minimum life of 10 years and end their tax-free asset swaps. While there would be exceptions for heirs who are spouses, those recipients would owe capital gains tax when they die or sell a GRAT’s assets. Many financial advisors are skeptical that Biden’s proposed curb will win approval.

Though your options are virtually limitless, proper estate planning, deciding on the “who, what, when, and how”, and executing this with the least amount paid in taxes, legal fees and court costs can be a challenging and emotional affair to wrestle with alone. For more information, contact Talley LLP today. 

On April 22, 2022, Governor Ron DeSantis signed legislation to end a special municipal district Disney has operated in the state since the late 1960s. It is part of a plan to punish the company for speaking out against a law, championed by the governor, that bans discussion of sexual orientation or gender identity in kindergarten to third-grade classrooms. But for now, at least, DeSantis is leaving alone another valuable perk: $578 million in credits Disney can use to reduce its state income taxes through 2040. A spokesperson for the governor said that DeSantis has not asked the legislature to repeal the tax credits because it is not a carve-out for a specific corporation. Any company can apply for the incentives, and the more significant investments will qualify for the bigger tax credits.

Florida economic development officials certified the credits in February 2020. In its application for the incentives, Disney cited plans to move as many as 2,000 staffers, making an average of $120,000 a year, to a new corporate campus in the state. One of the state’s largest employers because of its theme parks there, the company is investing $864 million in the relocation, including office construction, supplies, and software improvements. Disney considered other states, including California, New York and Connecticut. In its application, the company said that the incentives were an integral part of the overall decision to determine this project’s location. DeSantis has been at war with Disney since employees pressured the company to speak up about the school bill in early March. The governor has also said he regrets signing 2021 legislation that exempted Disney from a bill preventing social media companies from banning candidates from their platforms. Lawmakers removed the exemption in the special session in April 2022. The legislation signed Friday calls for dissolving Disney’s Reedy Creek Improvement District. Still, it leaves some crucial questions unanswered, like what will happen to the $1 billion in bonds backed by the district and who would take care of the services the company currently provides?

Who pays? If the district is dissolved, Florida taxpayers will likely bear the cost. Orange and Osceola counties will probably assume title to all municipal property and debt of the district, which provides power, water, and other services to the Walt Disney World resort complex. At a signing event for the bills on Friday, DeSantis said residents should not be concerned about the services provided by the improvement district. In an interview, Anna Eskamani, a Florida representative, noted that not every business can qualify for the tax credits Florida offered Disney because they have high investment and job creation requirements. The governor could ask the legislature to consider repealing them if he wanted.

Florida’s risk. Challenging the tax credits could lead Disney to abandon plans to move the 2,000 workers to the state. The relocation has been controversial at the company, with many park designers presently in California preferring not to pack up and go to Florida. The issue has been one of the underlying elements fanning the internal opposition to the Florida schools bill, with a website created by employees explicitly asking the company to halt the move.

Talley’s team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on your assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.

The high court issued an order on Monday, April 18, 2022, denying the request from New York, New Jersey, Maryland, and Connecticut to review a decision of the U.S. Court of Appeals for the Second Circuit regarding the SALT deduction cap. The appeals court rejected several state legal arguments against the cap, including that it unconstitutionally coerces the states to abandon their preferred fiscal policies. The cap generally blocks taxpayers who itemize federal deductions from deducting more than $10,000 per year for paid state and local taxes, including property taxes and either income or sales taxes.

The states argued that the cap unconstitutionally interferes with their sovereign authority to levy and collect property and income taxes. The Second Circuit rejected their arguments, finding that neither Article I of the Constitution nor the 16th Amendment bars Congress from curtailing the SALT deduction, even if citizens in certain states will pay billions of dollars in additional federal taxes. The appeals court ruled that such injuries are not significant enough to be coercive under the Tenth Amendment. Joe Bishop-Henchman, vice president of tax policy and litigation at the National Taxpayers Union Foundation, noted the states’ petition was meritless. Nothing about a deduction for the 12% who still itemize is constitutionally mandated. While it is true that high taxes can harm competitiveness, New York should solve the problem in Albany instead of in the federal courts.

When the SALT cap was enacted, there was no serious debate over its constitutionality. This did not stop several high-cost states that claimed to be targeted by the cap from challenging it. With their best chance, the Second Circuit rejected, the states decided to take it a step further and go to the Supreme Court, hoping the outcome would be different.

The Monday order leaves the cap in place. U.S. Rep. Bill Pascrell of New Jersey commented that his state’s delegation remains united to enact SALT reform through Congress this year. Pascrell and other law-makers have vowed to oppose any White House tax proposals that do not raise the $10,000 cap. Pascrell believes that critics of their push on SALT operate on incorrect assumptions. Law-makers like Pascrell say that SALT is not only about providing tax relief to the middle class, but it is about supporting their communities. New Jersey cities and towns directly rely on SALT to finance police, road-building, and public transit. A restored SALT cap would help provide the necessities communities rely on daily. Fellow New Jersey Rep. Josh Gottheimer slammed the deduction cap and urged the Senate to approve legislation raising it. Last year, the Build Back Better Act passed by the House included a cap increased to $80,000, but the Senate has not taken up the bill, which has effectively been declared dead. 

More than 20 states have enacted workarounds similar to those enacted on April 7 2022 in New York. The $220 billion New York law included adjusting state and local tax laws affecting the cap. The move allows more state residents to get the full benefit of a state workaround to the cap that gave partnerships, LLCs and S corporations an avenue to ease the cap’s impact on individuals’ federal deductions for paid state and local taxes. 

New York, New Jersey, and Connecticut have also sued, challenging Treasury Department regulations blocking a form of state SALT cap workarounds. The efforts involve tax credits offsetting many donations to state and local charitable funds. The rules blocked federal deductions for donations.

Talley’s team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on your assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.

Today, the biggest challenge with accounting data analytics is how quickly the sheer amount of data available can become overwhelming. As the utilization of data in accounting continues to grow, it becomes a challenge to determine which data is relevant and essential to make more informed decisions. How do you find and separate the relevant data? You need to know your audience and what you’re trying to accomplish and utilize technology to prevent information overload.

Identify Your Audience: While the data does not change, the story that it tells may vary from person to person. Different stakeholders may have very different questions. Knowing who will be asking these questions is just as important as the question itself. Considering time and billing data, staff and seniors would be interested in how they compare to their peers, such as details about where they are exceeding expectations or falling behind. However, managers will not want quite that level of detail, preferring a summary view that highlights only those who fall outside the first or second standard deviation.

Managers and partners may be interested in learning more about staff efficiency. They would benefit from an analysis of which staff are most effective at various types of engagements to assist with planning. If the audience is just you, it is also important to identify that. All too often, when we are the only audience, the question becomes secondary, and analysis becomes the purpose – which is not the best use of time.

Know What You Are Trying to Accomplish: To perform an effective analysis, you need to have a question, purpose, or objective. A poorly constructed question can lead to costly and time-intensive data reviews that do not accomplish anything. Before diving into the data, determine what you are trying to discover. Data analytics results will only be as good as the questions you ask. When preparing your questions, consider your audience, strategic goals, and budget. If you are struggling with understanding what questions to ask, start broad, but do not stop there. While it is often helpful to start broad, the question needs to be specific to get valuable and actionable insights. Some questions to ask yourself include:

  • What is the goal of this analysis?
  • What decision-making will it facilitate?
  • What outcome would be considered a success or a failure?


Implement Automation to Prevent Information Overload: Consider the data accounting firms and tax preparation businesses often track without thinking about it. There is internal data, from time tracking and how clients are served to practice management data such as billing, collections, business development, and client data, which is information about the client collected during the engagement process. Also, some data is a mix of the two: client and prospect interactions with internal content such as emails, webinars, websites, and social media. Technology has allowed us to collect the data listed above and so much more. Technology has also allowed us to perform our data analysis faster and on a much larger scale. But there are downsides to all advances – and for accounting data analytics, information overload is one of them.

Although technology created the problem of too much data, it can also help find the relevant data. Advanced technologies like machine learning and AI can automate the base data analysis, which gives structure to unstructured data and provides accountants with the most pertinent information. With automation sifting through the data, we can perform higher-level data analysis and understand how to shape the answer for intended audiences.

From technology-based accounting solutions to management information, analysis, and reporting, Talley LLP is the premier business consulting firm for entrepreneurs and their closely-held businesses. For more details about leveraging your business’ data technology, contact Talley today.

The Treasury Department released its “Greenbook” at the end of March after the Biden administration’s $5.8 trillion budget request for fiscal year 2023. The budget calls for over $2.5 trillion in tax hikes on the wealthy and large corporations over a decade. It includes adopting an “undertaxed profits rule,” providing tax incentives for locating jobs and business activity in the U.S. and removing tax deductions for shipping jobs overseas. The proposal would also expand the definition of a foreign business entity to include taxable units. The Greenbook details the tax proposals in the Biden administration’s budget. This included plans to raise the corporate tax rate to 28% and levy taxes on the unrealized capital gains of “extremely wealthy” individuals.

Biden’s budget aims to increase funding for the Internal Revenue Service as well. The budget provides a total of $14.1 billion for the IRS, which includes an increase of $798 million above fiscal year 2021 to improve the taxpayer experience and expand customer service outreach to underserved communities and the taxpaying public. The budget also provides $310 million for IRS business systems modernization to accelerate the development of new digital tools to enable better communication between taxpayers and the agency.

For tax preparers, the plan would expand and increase penalties for noncompliant tax return preparation and e-filing and authorize IRS oversight of paid preparers. The plan also aims to address compliance in connection with the tax responsibilities of expatriates, simplify foreign exchange gain or loss rules and exchange rate rules for individuals, and increase the threshold for simplified foreign tax credit rules and reporting. Other provisions in the Greenbook would make the New Markets Tax Credit permanent and allow selective basis boosts for bond-financed Low-Income Housing Credit projects. It contains provisions to eliminate fossil fuel tax preferences and modify oil spill liability trust fund financing and Superfund excise taxes. The budget proposal aims to modernize various tax rules, including those for digital assets. Rules would be changed for treating loans of securities as tax-free to include other asset classes and address income inclusion, provide for information reporting by certain financial institutions and digital asset brokers for purposes of exchange of information, and require reporting by certain taxpayers of foreign digital asset accounts. In addition, the plan would amend the mark-to-market rules for dealers and traders to include digital assets.

A minimum income tax would require prepayment of taxes on unrealized capital gains so that liquid taxpayers would be taxed at a rate of at least 20% on their income, including unrealized capital gains for extremely wealthy taxpayers. Several tax breaks used by high-income taxpayers to avoid income, estate, and gift taxation would be closed, including the carried interest preference and the like-kind exchange real estate preference, which would be eliminated for those with the highest incomes. As for families and students, the proposals would make the adoption tax credit refundable, allow certain guardianship arrangements to qualify, and provide income exclusion for student debt relief. 

The proposals would also modify income, estate, and gift tax rules for certain grantor trusts as well as require consistent valuation of promissory notes. The proposals would change tax administration for trusts and decedents’ estates, including limiting the duration of Generation-Skipping Transfer Tax exemption. Other items in the budget proposal seek to close tax breaks by:

  • Taxing carried interests as ordinary income;
  • Repealing the deferral of gain from like-kind exchanges;
  • Requiring 100% recapture of depreciation deductions as ordinary income for certain depreciable real property;
  • Limiting a partner’s deduction in certain syndicated conservation easement transactions;
  • Restricting the use of donor-advised funds to avoid private foundation payout requirements; and,
  • Extending the period for assessment of tax for certain qualified opportunity fund investors.

The proposals would establish an untaxed income account regime for certain small insurance companies, expand pro rata interest expense disallowance for business-owned life insurance, correct drafting errors in the taxation of insurance companies under the Tax Cuts and Jobs Act of 2017, and define the term “ultimate purchaser” for purposes of diesel fuel exportation.

Other proposals in the plan aim to improve tax administration and compliance by enhancing the accuracy of tax information, addressing taxpayer noncompliance with listed transactions, and amending the centralized partnership audit regime to allow the carryover of a reduction in tax that exceeds a partner’s tax liability. The plan would authorize limited sharing of business tax return information to measure the economy more accurately, impose an affirmative requirement to disclose a position contrary to a regulation, and require employers to withhold tax on failed nonqualified deferred compensation plans. The proposals would extend the statute of limitations for certain tax assessments to six years.

Talley’s team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on your assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.


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