TAX TIDBIT

New National Taxpayer Advocate. The Internal Revenue Service (IRS) announced that a new National Taxpayer Advocate will likely be in place by April. According to an internal memo sent by IRS Commissioner Charles Rettig on Feb. 19, the position, which has been vacant since Nina Olson stepped down last year, will be filled by a new advocate who has already been chosen. The memo says a formal announcement will be made within the coming weeks.

The role is currently filled by Bridget Roberts, who has served in an acting capacity since Olson resigned in late July 2019. However, Rettig’s memo reported that Roberts will return to her previous position as Deputy National Taxpayer Advocate.

Roberts reported in late January that customer service remains a major priority for the IRS, particularly since it consistently appears at the bottom of most customer service surveys related to the federal government. When taxpayers call the IRS, only about 25% of callers are able to reach an IRS representative and then only after an average wait time of 45 minutes. Roberts also expressed concern that there is no way to determine whether or not the information provided by IRS employees to taxpayers is accurate.

Roberts recommends the IRS should seek more direct input from taxpayers when crafting its modernization plan, rather than using internal assumptions about what taxpayers would likely find most helpful. Roberts has called on the IRS to establish a Customer Experience Officer to oversee the IRS’s efforts in this regard. Finally, she wants the IRS to improve how it handles returns where there is possible fraud.

The next National Taxpayer Advocate will also likely be focused on these concerns as it pursues the office’s two primary objectives—ensuring taxpayers have assistance in navigating the IRS and recommending structural changes to the agency.

LEGISLATIVE LOWDOWN

Tax Cuts Plan Coming Together. As the Trump administration and congressional Republicans hash out their Tax Cuts 2.0 proposal, the details are slowly beginning to emerge. It appears the central component of the plan is a 10% rate cut for middle-class taxpayers, but a few newer ideas have started to take shape.  

According to White House economic advisors, the plan may include a new minimum tax on corporations. Since enactment of the Tax Cuts and Jobs Act (P.L.115-97) in December 2017, Democrats have criticized the law, which reduced the corporate rate from 35% to 21%. Democrats claim the TCJA disproportionately benefits large corporations by reducing tax liability, with fewer benefits flowing to low- and middle-income Americans. Administration officials have also said the package may impose limits on corporate state and local tax deductions.

On the individual side, National Economic Council Director Larry Kudlow, who is spearheading the effort for the administration, said the package may contain an expansion of tax-free savings accounts, known as Universal Savings Accounts.   

The administration originally planned to unveil the legislation in April, but that deadline has since been pushed to September, only a few months before voters head to the polls.

1111 CONSTITUTION AVENUE

Knock-Knock, It’s the IRS. Internal Revenue Service (IRS) audit program critics have long argued the agency’s audits focus too heavily on lower-income taxpayers rather than wealthier ones. Those concerns will soon be addressed as the IRS announced last week it will be boosting its efforts to collect unpaid taxes from high-income individuals. According to the IRS, it will send agency officials to thousands of wealthy taxpayer homes this year in an effort to collect overdue taxes. The targeted taxpayers, who earn over $100,000, have already been notified of their delinquency through the mail. Should their refusal to pay continue, the IRS may apply levies on their assets or engage in criminal enforcement action to collect the revenues.

GLOBAL GETDOWN

Finance Ministers in Riyadh. The Organization for Economic Cooperation and Development (OECD) held its latest meeting over the weekend in Riyadh, Saudi Arabia to discuss its attempts to combat worldwide base erosion and profit shifting (BEPS), which has left governments low on revenues. The OECD is aiming to reach a unified agreement by the end of the year—an ambitious timeline that may yet again be pushed back. OECD tax chief Pascal Saint-Amans has previously said discussions may proceed well into next year, adding that agreement on broad principles may be more achievable in 2020. EU tax commissioner Paolo Gentiloni was similarly pessimistic, particularly given that the U.S. has continued to call for the inclusion of a “safe harbor,” which the rest of the bloc has largely rejected as a nonstarter.

The overarching theme was that an economic battle involving digital taxes and retaliatory tariffs could be damaging to the world economy if an agreement is not reached before 2021. Should an agreement remain out of reach, many European countries will likely proceed with their own unilateral measures against large digital companies, the majority of which are American, causing the U.S. to react with tariffs.

This escalation would be more problematic than the trade problems between the U.S. and China, according to some OECD officials. Currently, France, Italy, Spain, Austria, Hungary and the United Kingdom, among others, have proposed unilateral levies of their own—all of which would largely impact U.S. platforms. Warning of the potential economic damage if an agreement is not reached was Angel Gurria, the Secretary General of the OECD, who said over the weekend that the “trade tensions of today would look like they are not so serious compared to the consequences of something like this.”

Among the many sticking points is the “safe harbor” provision being pushed by U.S. Treasury Secretary Steven Mnuchin. French Finance Minister Bruno Le Maire has repeatedly pushed back against this proposal, calling it a non-starter and referring to it as an “optional” provision. While on a panel with Le Maire, Mnuchin clarified the U.S. position, explaining companies “pay the safe harbor as opposed to paying something else, and you get tax certainty. […] People may pay a little bit more in a safe harbor knowing they have tax certainty.” Le Maire welcomed the clarification and added that France would be open to considering a “phased” or “step-by-step” implementation of the ultimate deal. Potentially further delaying a deal, could also be a potential requirement that the U.S. Congress approve some of the solutions posited by the OECD.

Mnuchin also added that in addition to the discriminatory nature of the digital services tax against U.S. firms, it acts more like a tariff than an income tax. At the same time, Mnuchin said he thinks the group is “very close to a consensus on pillar two,” which he thinks would “solve a lot of pillar one.” Pillar Two, also known as the Global Anti-Base Erosion (GloBE) proposal, seeks to develop an international set of rules to prevent multinational organizations from avoiding tax obligations by shifting profits to low-tax jurisdictions. In a press conference following the meetings, Mnuchin accused his international contemporaries of focusing too narrowly on some elements of the problem while not adequately addressing the global minimum tax, for which he said there was broad support.

Should the OECD fail to meet the tentative end-of-year deadline, the U.S. and EU members with unilateral digital tax proposals would once again have to reach a detente. In January 2020, the U.S. and France reached an agreement whereby the U.S. would remove its tariff threat if the French delayed the collection of revenue under its digital services tax until 2021. Without a unified agreement, the U.S. and France—in addition to numerous other countries—would proceed with their unilateral measures, which could completely derail the OECD efforts.

2020 VISION

Welcome to the Stage, Mr. Bloomberg. One thing was clear during the Feb. 19 Democratic presidential debate: the gloves are now fully off. The debate was one of the feistiest yet, and after about an hour, tax issues assumed center stage. The tax conversation began with an attack on the debate newcomer, former New York City, NY Mayor Michael Bloomberg, who has yet to release his tax returns. Bloomberg explained that due to his enormous wealth, it will take his team a while to prepare the records for public release, which he said he intends to do. The other candidates, all of whom have released their own returns, refused to let this defense stand, and continued the onslaught.

The candidates also discussed corporate rates. Former Vice President Joe Biden vowed that rates for small businesses would not increase, adding that his administration would ensure small businesses in the Latino and black communities are able to acquire the capital necessary to launch businesses. Both former South Bend, IN Mayor Pete Buttigieg and Sen. Elizabeth Warren (D-MA) echoed Biden’s call for boosting entrepreneurship in these communities, which turned the discussion to the wealth and income disparity between wealthy taxpayers and the middle- and lower-classes.

Sen. Bernie Sanders (I-VT), who currently leads in the polls, has previously said billionaires should not exist. During last week’s debate, he added to these comments, saying that the distribution of wealth and income is “grotesque and immoral.” In response, Bloomberg, a billionaire and one of the wealthiest individuals in the country, was asked if the wealth he has accumulated was immoral. Bloomberg defended himself, saying not only has he worked hard for his money, but he is giving it away and using his wealth to defeat President Trump, whom Bloomberg said was the worst president in U.S. history.

Sanders’s argument appears to have resonated, as he received yet again the most delegates in this weekend’s Nevada primary.

AT A GLANCE

• Bloomberg Adds Financial Transactions Tax to His Platform. Democratic presidential candidate Michael Bloomberg has proposed a financial transactions tax as part of a broader set of financial sector reforms. Specifically, Bloomberg will introduce a tax of 0.1% on all financial transactions to raise significant revenue, reduce wealth inequality, and curb abusive activity by financial institutions. Bloomberg is not alone in that Sens. Elizabeth Warren and Bernie Sanders feature a financial transactions tax as part of their tax platforms. Meanwhile in interviews, former Vice President Joe Biden and former South Bend, Indiana, Mayor Pete Buttigieg, have also expressed support for the proposal.
• IRS Seeks Volunteers to be the voice of the taxpayer on the Taxpayer Advocacy Panel. On February 19, the Internal Revenue Service announced it is seeking civic-minded volunteers to serve on the Taxpayer Advocacy Panel, a federal advisory committee charged with listening to taxpayers, identifying major taxpayer concerns, and making recommendations for IRS service and customer satisfaction. "To meet the needs of the taxpaying public, it is critical that the IRS listen to taxpayers to hear what their needs and preferences are," said Bridget T. Roberts, the Acting National Taxpayer Advocate. The citizen volunteers who serve on the panel will hear from taxpayers and then bring their collective voice and recommendations to the IRS.
• Office of Management and Budget Information and Regulatory Affairs (OIRA) has received for review from the U.S. Department of Treasury proposed regulations concerning section 1031 like-kind exchanges. The 2017 Tax Cuts and Jobs Act (TCJA) made amendments to section 1031 by limiting its rules to exchanges of real property and providing that its deferral rules are no longer allowed for an exchange of real property held primarily for sale. OIRA has also received for review proposed regulations concerning the net operating loss (NOL) deduction. The TCJA made amendments to sections 172(a) and 172(b)(2), limiting the NOL deduction for a given year to 80% of taxable income—with respect to losses arising in tax years beginning after December 31, 2017—and included provisions revising the NOL carryback rules.

BROWNSTEIN BOOKSHELF

• Proposal, Proposal, Proposal. The Tax Foundation published a report analyzing the corporate tax proposals of the 2020 Democratic presidential candidates, and their impact on the U.S.
• Anglo-American Axis of Secrecy.According to the Tax Justice Network, which monitors financial laws, an “Anglo-American axis of secrecy” is the biggest tax abuse and corruption threat facing the world, of which Switzerland topped the list in the previous year. Here is where you can find out who now tops the list, and where the U.S. falls in helping people hide their money.
• Hand Over Fist."Hand over fist" is how the president’s administration would explain the economic performance of the U.S., three years into his presidency. Read the Economic Report of the President here.

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