A Miss by Trump: Billy Long as IRS Commissioner

December 5th, 2024

Yesterday, President-Elect Trump announced that he would nominate former Missouri Congressman Billy Long as IRS Commissioner.  This is a nomination that should not happen, and if does occur I hope that the Senate does not “Advise and Consent” to Mr. Long as IRS Commissioner.

Before I get into my reasons, there has been commentary from the left that President-Elect Trump cannot fire FBI Director Wray or the current IRS Commissioner (Danny Werfel) because their terms have not expired.  Legally, this is incorrect.  Both Wray and Werfel are political appointees in the Executive Branch; the Executive (soon to be Trump) has the absolute constitutional right to fire any and all political appointees within the Executive Branch (the FBI is within the Department of Justice, the IRS is within the Department of the Treasury).  Yes, Director Wray has three more years of a ten-year term; however, that doesn’t prevent President Trump on January 20th firing him.  It’s even clearer for IRS Commissioner Werfel: Internal Revenue Code section 7803(d) specifically notes that IRS commissioners can be “removed at the will of the President.”

President Trump’s announcement noted, “Since leaving Congress, Billy has worked as a Business and Tax advisor, helping Small Businesses navigate the complexities of complying with the IRS Rules and Regulations.  Taxpayers and the wonderful employees of the IRS will love having Billy at the helm.”

According to an article in Tax Notes, Senator Todd Young (R-IN) liked the nomination.  Predictably, Senator Elizabeth Warren (D-MA) didn’t like it (but I doubt she would like anyone nominated by President Trump).  Joe Kristan (who is the principal writer of Eide Bailly’s tax blog) told Tax Notes, “[W]hile it’s not surprising that Trump would want his own commissioner, it is a little surprising that he didn’t find somebody from the business world who would know something about managing a large enterprise, if only to control it better.”

My reason is different.  Mr. Long’s tax background is a bit checkered: He worked for what we in the tax professional community call an “ERC Mill.”  These were the companies who had continual radio and television advertising saying everyone qualified for the Employee Retention Credit (ERC), and you can get thousands and thousands of dollars from it.  An aside: Our firm had five clients approach us about the ERC.  Only two qualified: one qualified for one quarter; the other, who was told by an ERC mill that he qualified for $125,000 in credits, qualified for about 15% of that.  The ERC mills left a very bad taste with tax professionals.  But I digress….

I did a search of the literature and cannot find anything where Mr. Long came out against these mills, or noted the issues with them.  It’s possible, of course, that he has; if I see anything that comes out in the coming days where he has noted that he erred in supporting these mills, I will quickly amend this post.

To me, working for one of these mills (which effectively scammed the American taxpayers: you and I) disqualifies Mr. Long from being the IRS Commissioner.  There have to be more qualified individuals.  Even I’m more qualified than Mr. Long!

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Corporate Transparency Act/BOI Reporting Enjoined Nationally by Texas Court

December 3rd, 2024

A Texas court today issued a nationwide injunction against the Corporate Transparency Act and Beneficial Ownership Information (BOI) reporting.  Judge Amos Mazzant of the Eastern District of Texas issued the sweeping ruling in Texas Top Cop Shop, Inc. v Garland; the court’s summary of its 79 page ruling states:

In the matter before the Court, Plaintiffs challenge an unprecedented law known as the Corporate Transparency Act (“CTA”). It represents Congress’s attempt to combat bad actors’ ability to cloak their criminal activities in a veil of corporate anonymity. At its most rudimentary level, the CTA regulates companies that are registered to do business under a State’s laws and requires those companies to report their ownership, including detailed, personal information about their owners, to the Federal Government on pain of severe penalties. Though seemingly benign, this federal mandate marks a drastic two-fold departure from history. First, it represents a Federal attempt to monitor companies created under state law—a matter our federalist system has left almost exclusively to the several States. Second, the CTA ends a feature of corporate formation as designed by various States—anonymity. For good reason, Plaintiffs fear this flanking, quasi-Orwellian statute and its implications on our dual system of government. As a result, Plaintiffs contend that the CTA violates the promises our Constitution makes to the People and the States. Despite attempting to reconcile the CTA with the Constitution at every turn, the Government is unable to provide the Court with any tenable theory that the CTA falls within Congress’s power. And even in the face of the deference the Court must give Congress, the CTA appears likely
unconstitutional. Accordingly, the CTA and its Implementing Regulations must be enjoined.

Now, I am not an attorney, so it may be that this injunction is only for the plaintiffs involved. However, my non-attorney view doesn’t see any limitations in the ruling.  The attorney who posted this on Twitter/X stated, “Texas court enters nationwide injunction…,”  so it likely is such a ruling. Of course, this ruling came out today; it’s probable that FinCEN may not have even read it yet!  Additionally, it’s certain to be appealed.  (The appeal in the 11th Circuit Court of Appeals, NSBU v Yellen, was heard in September; no decision has come out yet.)  It’s a near certainty that this case (or NSBU v Yellen) will find its way to the Supreme Court in 2026.

I will update this post when FinCEN issues a statement on today’s ruling.

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2025 Tax Foundation’s State Tax Competitiveness: Some New Winners, But the Usual Losers

October 31st, 2024

The Tax Foundation released its 2025 State Tax Competitiveness Index (formerly the Business Tax Climate Index).  While taxes aren’t everything in where you situate a business, they’re absolutely an important factor. If I have to pay an extra 10% in tax because of state taxation, I need to charge higher prices to make the same living.  (Another vital factor are regulations; regulations are a hidden tax on businesses because of the time it takes to comply.)  This year, the top ten state tax systems are:

1. Wyoming.
2. South Dakota.
3. Alaska.
4. Florida.
5. Montana.
6. New Hampshire.
7. Texas.
8. Tennessee.
9. North Dakota.
10. Indiana.

The bottom ten are familiar names in poor taxation systems:

41. Massachusetts.
42. Hawaii.
43. Vermont.
44. Minnesota.
45. Washington.
46. Maryland.
47. Connecticut.
48. District of Columbia.
48. California.
49. New Jersey.
50. New York.

This ends up being a bottom eleven as the District of Columbia (which isn’t a state but does have taxes) would tie with California if it were a separate state.

Let’s take a look at two states, and why the Tax Foundation ranks them where they are.  First, California (which is ranked 48th out of 50 states).

California combines high tax rates with an uncompetitive tax structure, yielding one of the worst rankings on the Index. The state has a great deal going for it, with its mild climate, excellent research universities, and the ongoing agglomeration effects of Silicon Valley, but a tax code that is uncompetitive and threatens to get worse is increasingly driving jobs to other states.

I couldn’t put it better.  California ranks 41st in corporate taxation (it’s ranking this good only because other states are so bad), 49th in individual tax, and 46th in sales tax.  Do note that this index doesn’t look at regulations.  I can’t speak to regulations in New York or New Jersey (I’m not familiar with them), but regulatory activity in California is a huge factor in driving businesses to neighboring states.  Let’s compare that with Florida, a state that many are relocating to.

Florida boasts no individual income tax, a competitive 5.5 percent corporate income tax, and a sales tax rate which—despite the lack of an individual income tax—is lower than those levied in many other southern states. Unlike many of its regional competitors, Florida does not tax capital stock, and its corporate income tax largely adheres to national norms, yielding a highly competitive overall tax code.

Florida ranks first in individual taxation, 16th in corporate taxes, and 14th in sales tax.  Is it any wonder why the Sunshine State looks so good to New Yorkers?

Again, taxes are not everything, but they matter.  Today, businesses can serve customers throughout the country.  Moving a business is never fun, but it’s far easier to do today than it was ten or twenty years ago.  States with a poor tax structure are losing businesses and will continue to do so.  What’s happening in California is real, and is one of the major reasons that Nevada (which ranks 17th in the State Tax Competitiveness Index) is gaining businesses.  As long as California continues down its current path, Nevada will continue to benefit.

Posted in Alaska, California, Connecticut, District of Columbia, Florida, Maryland, Montana, Nevada, New Jersey, New York, South Dakota, Wyoming | Comments Closed

BOI Reporting: A Reminder

October 25th, 2024

We’re over 80% of the way through 2024, and with that another deadline approaches: the January 1, 2025 deadline to file Beneficial Ownership Information (BOI) reports through FinCEN.  This morning, we filed ours for Clayton Financial and Tax LLC.  The entire process took less than ten minutes.

FinCEN offers both an online process and a pdf process; we used the online process. We had to scan our driver’s licenses (a photo would have been fine), and type our personal information (addresses, dates of birth) and our business information (address, state of formation). It’s a relatively easy process.

If you have a business entity registered with a state, you likely have this filing requirement; less than one-third of businesses that need to file have filed.  This requirement is by business, not by owner.  If you have five LLCs (each one holding a rental property), you must file five reports. Individuals can obtain a FinCEN identifier so that they don’t have to type in duplicative ownership information (and, instead, just type the identifier number).

The penalties on not filing BOI reporting are steep, so this isn’t something to sleep on.  While there are legal challenges to the reporting requirement, it appears that it’s far more likely to survive legal scrutiny than ultimately be found to be unconstitutional.

It is true that some businesses are exempt from filing (this is detailed in the FinCEN webpage on Frequently Asked Questions); however, most small businesses are not exempt.  If you have a business, you or your attorney should review the requirements and make sure you’re in compliance sooner rather than later.

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IRS Now Offers Direct Pay for Businesses

October 23rd, 2024

I criticize the IRS regarding paperwork often.  Indeed, the IRS has a major problem dealing with correspondence. Yet many businesses must make numerous payments by check (because that’s the only way to do so) or EFTPS.  This morning, I sent a client a link to IRS Direct Pay (to make an estimated payment) and I was surprised to see a screen telling me I can make business tax payments by IRS Direct Pay.

Now, you cannot use Direct Pay for all payments, but it does allow for many:

  • Form 720 (federal excise tax)
  • Form 940 (annual unemployment tax)
  • Form 941 (employer’s federal tax)
  • Form 943 (employer annual tax for AG employees)
  • Form 945 (annual withheld federal income tax)
  • Form 990PF (return of private foundation)
  • Form 990T (exempt organization business income tax)
  • Form 1042 (withholding tax for income of foreign persons)
  • Form 1065 (US partnership return of income)
  • Form 1120 (corporation income tax return)
  • Civil Penalty

The system allows for balance due, estimated tax, and extension payments.

Kudos to the IRS for adding another method for businesses to meet their tax obligations.

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Hurricane Milton Relief: Florida Now Has Until May 1, 2025 to File

October 11th, 2024

With much of the state of Florida declared a federal disaster area, the IRS this morning announced that all residents of Florida have until May 1, 2025 to file their tax returns that are on extension. This impacts not only 2023 tax returns on extension, but the 2024 filing deadline next April.  Do note that interest and the late payment penalty continue for 2023 tax returns (because payments were due on April 15, 2024).  This extension also means that estimated payments due in January don’t need to be made until May 1, 2025 for Floridians.

The IRS announcement is here.

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Hurricane Helene IRS Relief for all of Alabama, the Carolinas, Georgia, and Parts of 3 Other States

October 2nd, 2024

The damage from Hurricane Helene was horrific in and around western North Carolina, and several states have been declared federal disaster zones.  The IRS announced late yesterday that the entire states of Alabama, Georgia, North Carolina, and South Carolina, along with parts of Florida, Virginia, and Tennessee have disaster extensions until May 1, 2025.

This will extend not only individual and corporate tax returns on extension due on October 15th but next year’s March and April tax deadlines (along with a host of other filing deadlines).  Any current client in a disaster zone with questions can contact our office for more information.

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Disaster Relief Extension Impacts Millions in Illinois; Expect IRS to Give Relief to North Carolina Shortly

October 1st, 2024

The IRS announced this morning that tax deadlines have been postponed in several counties in Illinois due to recent severe weather in the Chicagoland area:

The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA). Currently, this includes Cook, Fulton, Henry, St. Clair, Washington, Will and Winnebago counties in Illinois. 

Chicago is in Cook County, and Will county is just south of Chicago; thus, this extension impacts millions.  Individuals impacted have until February 3, 2025 to file returns; this extension is automatic.

As of today, I haven’t seen a formal announcement yet about extensions due to Hurricane Helene. However, given the destruction in western North Carolina, and that areas of North Carolina and Florida have been declared a major federal disaster area, I expect the announcement by the IRS in the next day or two, with a similar postponement until at least February.

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Don’t Touch the Duct Tape!

September 19th, 2024

Yesterday, I had to call the IRS to obtain an address to mail a return to (it had to go to a special address), and discuss collection activities for another client. Unfortunately, the IRS computer system crashed.  (It came back up late in the day.)  This morning, I went to run some transcripts and, again, the system was down.

The main IRS computer system dates to 1959. That is not a typographical error.  It is 65 years old–eligible for Social Security.  It uses Fortran (a computer language that is no longer popular).  I think you can see that an update is needed (something the IRS readily acknowledges).  (I was in the last Computer Science 1 class at Berkeley to use Fortran with punch cards.  Berkeley switched to Pascal the following quarter.)

But the IRS is dependent on Congress for budgeting, and a stable IRS budget is absolutely needed. The IRS is an agency where politics should not apply, but over the last fifteen years we’ve seen Adminstrations use the IRS for political goals (such as the Lois Lerner/conservative nonprofits scandal, targeting of reporters who were investigating the Administration, etc.). The Party that has been out of power had one method to act and express displeasure–cutting the IRS’s budget–and they did.

I don’t have an answer here, but if you wonder why the IRS has issues and why things take far longer to resolve with the IRS than they should, you have one of the reasons.  At times (especially when the IRS computer is down), I assume the whole thing is held together by duct tape (it can fix everything, right?).  We’ll see if by the time I start taking Social Security if the IRS has a modern (or even semi-modern) main computer system.

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Creative Math, IRS Style

September 4th, 2024

One of our clients made a mistake on his payroll tax deposits: He shorted the IRS $4,590. He realized his mistake, and immediately made a correcting payroll tax deposit (albeit late). There’s a penalty for this, and it’s 10% (based on the number of days his payment was late)–which he paid in advance of an IRS assessment of a penalty.

The IRS assessed a $5,327.46 penalty. That’s a penalty of 116%, quite a bit more than 10%. The IRS sent a penalty notice in late June; my client immediately sent via certified mail a letter questioning the penalty.  What did the IRS do? Did they put a hold on collection activities while they investigated? Did they perform the investigation, realize that an error was made, and send a $0 amount due notice? Or did they send an Intent to Levy (CP504B) notice?

The IRS ignored my client’s response and sent the CP504B Intent to Levy notice.

This morning, I called the IRS and tried to get this resolved on the phone. The representative couldn’t–without seeing how the penalty was calculated (which he couldn’t see), he could only note we disputed it and were going to file an Appeal.  This afternoon, I submitted that Appeal request online [1].

In the end, my client’s issue should be resolved without him owing additional tax or penalties; the IRS clearly erred. However, my client has to pay me for services that shouldn’t have been needed simply because no one at the IRS did anything with his correspondence. Frankly, the IRS today rarely reads their mail timely or correctly. And that’s a huge issue.

[1] The IRS recently implemented an online upload feature. This allows responding to some notices by upload. I was able to upload all the documents needed for the Appeal (including the Form 9423 Collection Appeals Form) quickly and get an immediate confirmation they were received. This is excellent, and the IRS is to be praised for this. It shouldn’t have been necessary to file this Appeal if the IRS could read mailed correspondence, but at least there are some improvements happening at the IRS.

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