Walter Primoff, a tax consultant at the Dowling Group, offered federal income tax updates and addressed some recent tax court cases and IRS guidance, at the Foundation for Accounting Education's Tax Planning for Business Entities Conference on Dec. 6.
Starting with an overview of 2022 laws with key tax provisions, Primoff noted that the CHIPS and Science Act, which President Biden signed into law in August, includes a provision for a 25 percent investment tax credit for the manufacture of semiconductors as well as related tools. He also said that the one recent change affecting many of the people attending the conference is the extension of the excess business loss (EBL) limitation on Sec 461(l) noncorporate taxpayers from 2026 to 2028, with limitations of $270,000 for single filers and $540,000 for joint filers.
Primoff also focused on “a slew of energy credits,” as he termed it, which included extensions for a renewable energy production tax credit for various facilities located in low-income communities, tribal lands or otherwise connected with low-income benefit projects. “Some of these provisions are so unclear you don’t know what to do unless you get IRS guidance,” he said.
Giving an overview of the possible tax extenders that may be passed during Congress’s upcoming lame-duck session, he mentioned the possibility of bipartisan bills concerning taxation of crypto currency. But, he said, “Who knows?”
Primoff also discussed the Employee Retention Credit (ERC), which he called “a very hot topic.” The ERC, according to the IRS, is “a fully refundable tax credit for employers equal to 50 percent of qualified wages (including allocable qualified health plan expenses) that Eligible Employers pay their employees.”
In October, the IRS issued a warning to employers about third parties who may advise them to claim the Employee Retention Credit (ERC) when they may not qualify.
“These third parties often charge large upfront fees or a fee that is contingent on the amount of the refund and may not inform taxpayers that wage deductions claimed on the business’ federal income tax return must be reduced by the amount of the credit,” the IRS said.
“There’s a lot there,” Primoff said. “There’s a lot of fraudulent activity because these companies get a piece of the action for the refund they get. This is something that all of you have to look at.”
After a survey of what he called “a boatload” of select 2022 IRS actions, Primoff moved to an overview of some miscellaneous Tax Court decisions. “As you know, the IRS usually wins in Tax Court, he said,” reviewing some the issues that came before the tribunal in 2022.
“The usual suspects [claim] unconstitutionality of various IRS provisions,” he said, “but there is one case that did hold" a provision to be unconstitutional: Trafigura Trading LLC v Commissioner. In April 2022, the U.S. Court of Appeals for the Fifth Circuit held the Domestic Crude Oil Export Tax under Sec 4611(b) to be unconstitutional, as it violated the Export Clause.
In a brief review of cybersecurity issues, Primoff recommended that everyone should read IRS Publication 4557 on Safeguarding Taxpayer Data.
“If you have not read 4557, read it,” he said, “A lot of CPAs don’t know about it. [You are] supposed to have a written plan and information on the safeguards that you have for your clients. [This publication] gives a good outline of this.”
He concluded by exhorting the attendees to avail themselves of the new IRS audit techniques guides, which he called “one of the best IRS resources to get a feel for the approaches IRS will take to audit your clients.”
“Pick up this guide and you’re going to learn a lot,” he said.