Tax cuts and Mickey’s slice; avoiding FBARs; COLA wars; and other highlights from our favorite tax bloggers.

Through the roof

• Tax Vox (https://www.taxpolicycenter.org/taxvox): Kamala Harris has released an ambitious economic agenda that includes expanding family credits, an exemption for tip income and a commitment not to raise taxes on those earning less than $400,000. Can she pay for all that?
• MeyersBrothersKalicka (https://www.mbkcpa.com/insights): Insurance is generally headed through the roof (in no small part because so many roofs are blowing off), so your biz clients might find the coverage they need too expensive. What to consider in a captive insurance company, including the tax benefits.
• HBK (https://hbkcpa.com/insights/): Businesses can and should be appraised regularly. “Qualified appraisals” (as defined under the Internal Revenue Code) are commonly sought by higher-income taxpayers and estates. And it might not come as a surprise that some of the IRS’s favorite items to audit are private business and valuations of closely held entities. A recent U.S. Tax Court case highlights the importance of keeping these facts top-of-mind. 
• Institute on Taxation and Economic Policy (https://itep.org/category/blog/): Several states are getting an early start at writing new tax policy. West Virginia has agreed on an additional tax cut; Louisiana may soon follow suit. Meanwhile, one Florida county may be on the hook for millions in refunds to Disney for taxes that a court says were improperly collected.

It couldn’t hurt

• Tax Notes (https://www.taxnotes.com/procedurally-taxing): In prior posts regarding attorney’s fees and the federal tax lien, attorneys won; that streak continues in the recent Jason A. Imes v. Fox Rothschild LLP et al. Not mentioned in the caption of the case, the taxpayer — a non-party in the lien priority case — nevertheless deserves some attention.
• TaxProf Blog (http://taxprof.typepad.com/taxprof_blog/): The state corporate income tax may be a flawed instrument, but here’s why calls to eliminate it should be reconsidered.
• Virginia – U.S. Tax Talk (https://us-tax.org/about-this-us-tax-blog/): One possible method to avoid FBAR filings.
• Don’t Mess with Taxes (http://dontmesswithtaxes.typepad.com/): The Un-Cola Dept.: A deeper look into the latest (and grumble-igniting) Social Security cost-of-living-adjustment bump.
• Tax Foundation (https://taxfoundation.org/blog): Though energy prices have declined from their recent peak, Spain is one of the few European countries  continuing to rely on windfall profits taxes to fund relief measures for consumers. Will that become permanent?

Independent thinking

The Internal Revenue Service is offering filing and payment relief in the wake of Hurricane Milton to individuals and businesses in 51 counties in Florida. Individuals and businesses in six counties that previously did not qualify for relief under either Hurricane Debby or Hurricane Helene will receive disaster tax relief beginning Oct. 5 and concluding next May 1.

They are Broward, Indian River, Martin, Miami-Dade, Palm Beach and St. Lucie Counties.

In addition, individuals and businesses in 20 counties previously receiving relief under Debby, but not Helene, will receive disaster tax relief under Hurricane Milton from Aug. 1, 2024, through May 1, 2025. They are Baker, Brevard, Clay, DeSoto, Duval, Flagler, Glades, Hardee, Hendry, Highlands, Lake, Nassau, Okeechobee, Orange, Osceola, Polk, Putnam, Seminole, St. Johns and Volusia Counties.

Tristan Wheelock/Bloomberg

Affected taxpayers in all of Florida now have until May 1, 2025, to file various federal individual and business tax returns and make tax payments, including 2024 individual and business returns normally due during March and April 2025 and 2023 individual and corporate returns with valid extensions and quarterly estimated tax payments.   

The IRS is offering relief to any area designated by the Federal Emergency Management Agency. Individuals and households that reside or have a business in any one of the localities listed above qualify for tax relief. The current list of eligible localities is on the Tax relief in disaster situations page on IRS.gov. 

The Milton-related tax relief postpones various tax filing and payment deadlines that occurred between Oct. 5, 2024, and May 1, 2025. Affected individuals and businesses have until May 1, 2025, to file returns and pay any taxes that were originally due during this period. The May deadline now applies to: 

• Any individual or business that has a 2024 return normally due during March or April 2025.
• Any individual, C corporation or tax-exempt organization that has a valid extension to file their calendar-year 2023 federal return. (Payments on these returns are ineligible for the extra time because they were due last spring, before the hurricane.)
• 2024 quarterly estimated tax payments normally due on Jan. 15, 2025, and 2025 estimated tax payments normally due on April 15, 2025.
• Quarterly payroll and excise tax returns normally due on Oct. 31, 2024, Jan. 31, 2025, and April 30, 2025. 

For localities affected by Milton, penalties for failing to make payroll and excise tax deposits due on or after Oct. 5, 2024, and before Oct. 21, 2024, will be abated, as long as the deposits are made by Oct. 21, 2024. Localities eligible for this relief are: Alachua, Baker, Bradford, Brevard, Broward, Charlotte, Citrus, Clay, Collier, Columbia, DeSoto, Dixie, Duval, Flagler, Gilchrist, Glades, Hamilton, Hardee, Hendry, Hernando, Highlands, Hillsborough, Indian River, Lafayette, Lake, Lee, Levy, Madison, Manatee, Marion, Martin, Miami-Dade, Monroe, Nassau, Okeechobee, Orange, Osceola, Palm Beach, Pasco, Pinellas, Polk, Putman, Sarasota, Seminole, St. Johns, St. Lucie, Sumter, Suwannee, Taylor, Union and Volusia Counties. 
Deposit penalty relief and other relief was previously provided to taxpayers affected by Debby and Helene. For details, see the Florida page on IRS.gov. The Disaster assistance and emergency relief for individuals and businesses page also has details, as well as information on other returns, payments and tax-related actions qualifying for relief during the postponement period. 

The IRS disaster assistance and emergency relief for individuals and businesses page has details on other returns, payments and tax-related actions qualifying for relief during the postponement period.  

The service automatically provides filing and penalty relief to any taxpayer with an address of record in the disaster area. If an affected taxpayer does not have an address in the area (because, for example, they moved to the disaster area after filing their return), and they receive a late-filing or late-payment penalty notice from the IRS for the postponement period, they should call the number on the notice to have the penalty abated.

The IRS will work with any taxpayer who lives outside the disaster area but has records necessary to meet a deadline occurring during the postponement period in the affected area. Qualifying taxpayers who live outside the disaster area should call the IRS at (866) 562-5227, including workers assisting the relief activities who are with a recognized government or philanthropic organization. Tax preparers in the disaster area with clients who are outside the disaster area can use the Bulk Requests From Practitioners for Disaster Relief option described on IRS.gov.

After a disaster, people who temporarily relocate should notify the IRS of their new address by submitting Form 8822, Change of Address.

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2024 return normally filed next year), or the return for the prior year (2023, filed this year). Taxpayers have extra time — up to six months after the due date of the taxpayer’s federal income tax return for the disaster year (without regard to any extension of time to file) — to make the election. For individual taxpayers, this means Oct. 15, 2025.

Taxpayers and tax professionals should write the FEMA declaration number — 3622-EM — on any return claiming a loss.

Extension relief

In the wake of the recent hurricanes in Florida and the Southeast, the IRS says taxpayers in the entire states of Alabama, Florida, Georgia, North Carolina and South Carolina and parts of Tennessee and Virginia who received extensions to file their 2023 returns now have until May 1, 2025, to file. 

Tax-year 2023 tax payments are not eligible for this extension. May 1 is also the deadline for filing 2024 returns and paying any tax due.

Dyed diesel fuel

In response to Hurricane Milton, the IRS will also not impose a penalty when dyed diesel fuel with a sulfur content that does not exceed 15 parts-per-million is sold for use or used on the highway throughout Florida. This is in addition to the limited relief provided in response to Hurricane Helene.

The relief began on Oct. 9 and will remain in effect through Oct. 30.

This penalty relief is available to any person who sells or uses dyed diesel fuel in vehicles suitable for highway use. In the case of the operator of the highway vehicle in which the dyed diesel fuel is used, the relief is available only if the operator or the person selling such fuel pays the tax of 24.4 cents per gallon that is normally applied to undyed diesel fuel for highway use.

The IRS will not impose penalties for failure to make semi-monthly deposits of tax for dyed diesel fuel sold for use or used in diesel powered vehicles on the highway in Florida during the relief period.

The Internal Revenue Service and the Treasury Department issued proposed regulations last month offering guidance on the corporate alternative minimum tax on companies with over $1 billion in income, but those rules could impact much smaller companies as well.

The CAMT was part of the Inflation Reduction Act of 2022 with the goal of ensuring billion-dollar corporations pay more in taxes. However, the draft rules have provoked pushback, not least because of their complexities. 

“The regulations are really complex in all the various aspects,” said David Strong, a partner in the tax services group at Crowe in Grand Rapids, Michigan. Among the complicating factors is depreciation. 

rrodrickbeiler – Fotolia

“Probably the one that impacts a lot of companies are going to be depreciation adjustments, where it’s viewed as a favorable type of approach,” said Strong. “You generally would add back your book depreciation to your financial statement income and take a deduction for your tax depreciation. In years where companies are taking the benefit of bonus depreciation, it certainly goes to reduce your adjusted financial statement income in determining, number one, if you’re subject to the corporate alternative minimum tax, or secondarily in computing the tax itself. But if you take a look at just those rules, they’re fairly complex in how you go about computing that adjustment. Generally you have to track through [whether] you are taking impairment losses for financial statement purposes that effectively get added back for computing your corporate AMT, and then tracking the basis difference, both from a financial statement perspective and a tax perspective.”

He expects the IRS and the Treasury to be inundated with comments from tax practitioners, corporations, and other groups ahead of a scheduled public hearing in January.

“The mindset is that it’s a lot of larger companies that are going to have sophisticated tax departments [with] people that can address some of these complex issues,” said Strong. “But I think the fallout is that we take a look at one of the aspects of the adjustment to your financial statement income deals with partnerships. Generally, if I’m a partner in a partnership, and I include that partnership income in my financial statement income, I need to make an adjustment for whatever my distributive share of the partnership’s adjusted financial statement income needs to be adjusted in, let’s say, the corporate entity’s financial statement income. That calculation generally is pushed to the partnership. That’s probably one of the areas from my client base that’s been impacted the most. If I have an investment partnership where I have a corporate entity that could be subject to the alternative minimum tax, they’re requesting that the partnership provide them with their distributed share of financial statement income. What that does is it effectively takes all the rules that apply to these larger companies and applies those to the partnership, because the partnership has to go through, as if it were that corporate entity, and give its adjusted financial statement income in order to provide that information to its partner that would be subject to the tax.”

Some of the partnerships are investment funds that have invested in the billion-dollar companies, he noted.

“The rub is those complex rules now need to be applied by smaller entities in order to provide the corporate entity that’s a partner in this partnership the requisite information they need in order to compute their corporate AMT,” said Strong.

It can get even more complicated with a tiered partnership. “The lower-tier company could be a corporation, or it could be another partnership,” said Strong. “If it’s another partnership, you have a second layer of having to do this computation. So the lower-tier partnership would have to go through and compute its AFSI, the adjusted financial statement income, and report that to the upper tier partnership, and then the upper tier partnership provides that information to the corporate entity. It can get fairly complex for companies that generally are much smaller than those that are paying the tax.”

The outcome may depend on the November election contest between Vice President Kamala Harris and former President Donald Trump. “If Harris wins the presidency, I think the shift there is to keep the corporate alternative minimum tax in place, but increase the rate from its current 15% to 21%,” said Strong. “If that’s the case, then the rules will be in place for a longer period of time.”

If Trump wins, he has expressed interest in eliminating the Inflation Reduction Act and lowering the corporate tax rate further. “The main focus of what the corporate alternative minimum tax was funding were a lot of those energy incentives that were part of the Inflation Reduction Act,” Strong noted.

The CAMT rules for a 15% minimum tax aren’t the same as the ones from the Organization for Economic Cooperation and Development, which haven’t been ratified in the U.S., despite the backing of the Biden administration. “Different rules, different tax,” said Strong. “They may operate in a simpler manner, but they are certainly different taxes that would apply.”

Corporate taxpayers will also need to be aware of a safe harbor that the Treasury and the IRS provided in Notice 2023-7 prior to releasing the draft rules.

“One of the things in an earlier notice that the government provided for was called a safe harbor method for determining if you’re an applicable corporation and subject to these rules or not,” said Strong. “It didn’t necessarily mean that you wouldn’t have to pay the tax if you went through this safe harbor. But generally what it did is it simplified the process of saying if these rules would apply.”

The safe harbor reduces the $1 billion in adjusted financial statement income down to $500 million for wholly domestic entities, and $50 million for foreign-parented multinational entities. But that doesn’t mean they’re off the hook completely.

“If I’m above those thresholds, even though I might not be subject to the tax itself, I still have a filing requirement,” said Strong. 

Companies will still have to go through the process of completing the forms to effectively show the IRS that they’re not subject to the tax.