Business Milage Deduction/Reimbursement

Bonus Depreciation
 Bonus depreciation begins to phase out in 2023.
 Of course, if we have a recession 100% bonus may be extended.
 §179 and de minimis are not phasing out.

Bonus Depreciation %s
Business Interest Expense

30% of adjusted taxable income interest expense limit applies to:

1. For 2022, businesses > $27 million (RP 2021-45) in trailing avg. annual gross receipts*, or
2. Tax shelters (even if < $27 million).

Taxable years beginning beforeJan.1 , 2022:

 Add back depreciation and amortization to get ATI.

Calendar year taxpayers, don’t add back depreciation/amortization in 2022.:

 This will have the effect of decreasing ATI, and therefore will generally decrease allowable business
interest expense.

Research Expenditures

Alternative Therapies Group, Inc. v. Comm’r.,

Alternative Therapies Group case makes an interesting argument:

  TCJA allowed small businesses to use new rule for tax inventories.§471(c).
 Unfortunately, IRS issued regs about a year ago.
 Alternative Therapies is arguing that this reg is invalid due to failure to comply with the
Administrative Procedures Act (more about that later).

Is the QBID Allowed for Cannabis Businesses?

 The §199A QBID may be allowable for cannabis businesses.
 Recent case, IRS and taxpayer agreed §199 deduction needed to be
computed.

IRS has focused on cracking down on certain tax arrangements:

1. Abusive research and development credits.
2. Conservation easements.
3. Microcaptive insurance arrangements.

Conservation Easements

Allegations include:
1. Easements appraised at very high FMV.
2. CPAs provided spreadsheets →appraisers with pre-set values.
3. Backdating documents.

Microcaptive Insurance
 Micro captive insurance companies are under attack by the IRS.
o IRS Notice 2016-66 identified them as “Transactions of Interest.”
o IRS has formed 12 micro-captive auditing teams.

 Typically, Micro captive arrangements have following elements:

o Partnership or corporation sets up related “insurance” co.
1. Deducts large premiums paid to the “insurance company”
2. Micro captive insurance company excludes the premiums from
income.
3. Makes election under §831(b).
o IRS arguments.
1. Not in reality an insurance company
2. Micro-captives often don’t charge arms-length premiums.

Employee Retention Credits

1. Update #1: IRS suggests anonymous reporting of ERC “mills.”
2. Update #2: IRS trained 300 auditors to audit ERC.
3. Update #3: IRS Criminal Investigation division says it’s looking for pandemic related
fraud.
 4. Update #4 –IRS warns about ERC again. Tax Tip 2022-170.

Congressional Hearings on IRS

Members of Congress have attacked IRS on many fronts:

 Destruction of documents.
 Backlog of paperwork.
 Low rate of answering phone calls.
 Audit selection process.

IRS Phone Call Workaround

 IRS answers11% of phone calls
 Private company finds solution
 Mid-October.
 Update: IRS has hired 4,000 new employees to help answer phones. IR-2022-191.

Amount of Time to Complete IRS Appeals

 In 2021 took twice as long to close appeals cases as it did in 2018.
 Average time to close is now more than one year.
 IRS Appeals, Andrew Keyso, chief vows to turn this around.

IRS Will Increase Audits of Partnerships

 IRS trying add additional auditors to audit more partnerships.

IRS established the Taxpayer Experience Office in March.

Focus will be on:
 Taxpayer expectations.
 Customer service best practices.
 Developing agency-wide customer experience expectations. IR-2022-50.

Administrative Procedures Act

APA was signed into law by President Franklin Roosevelt in 1946.

1. Must be issued in proposed form.

2. Must have “notice and comment” period (public input).
3. Agency must consider comments and respond to significant comments.
4. Agency must make a concise general statement of its finding.

Temporary Regs -APA

If issuing regs is urgently required, agency can skip regular rules.
  But agency must issue “statement of good cause.”
 IRS has issued temporary regs for decades, but without notice-and-comment.

Temporary regs must also meet APA requirements.

 Including notice and comment rule.

Exception: If the IRS can show it has a really good reason to issue temp regs.
Doesn’t need to go through public notice and comment.

Courts don’t dispute IRS’s ability to issue “force of law” regs.

 They just want that IRS go through public notice provisions.
 And consider and respond to significant comments.

Regs with APA Issues

Practically speaking, APA may not matter to an auditor or an appeals officer.

 90% of the time auditors propose a tax adjustment.

But it matters if you go beyond auditor and appeals officer:

File a petition.
 98% of the time case is settled.
 Typical settlement is 21% of original tax bill.

APA –Recap
Self-Employment Taxes

General rule: SE tax on businesses

Exception: Almost all real estate is a business.
But: exception from SE tax for most rental real estate

General Partners
Partnerships engaged in a business:
 General partners are subject to SE tax.
o Even if partner performs no work at all.
o Work of other partners and employees causes SE tax.
Employment Tax
 Some taxpayers have classified employees as independent contractors.
o Exposure to cumulative employment tax liabilities can be staggering.
o
 IRS has a program to encourage employers to come forward.
o Voluntary collection settlement program (“VCSP”).

 Taxpayer with $100,000 in payroll per year can settle tax liability for $1,068.

Requirements to qualify for VCSP:

1. Not be under current employment tax audit.
2. Not in court contesting employee status with IRS or DOL.
3. Have consistently treated the worker(s) as nonemployees and filed Forms 1099 for the
past 3 years.
4. Not currently under employment tax audit by the IRS or DOL.
5. Must agree to treat the workers as employees prospectively.

 Enter the VCSP by filing Form 8952.

 If don’t qualify for VCSP, consider CSP.

1% Excise Tax

 Applies only to public companies.

 Effective 1/1/23

Exceptions:
 < $1 million
 Repurchases treated as dividends.

Corporate AMT
 Only Applies if Financial Statement Net Income Income> $1 Billion
 Will Only Effect about 150 Corporations
Commercial Solar
 Base credit is 6%.
 Depreciate over 5 years.
 Reduce basis by 50% of the credit.
 Credit is limited by tax liability.
 Report on Form 3468, Part 3, Line 12c.
 Partial recapture if dispose of property before end of 5-year period.
 Available for projects begun before 1/1/25
Qualified Commercial Clean Vehicles

 Acquired and placed in service after 12/31/22

 Credit is lesser of:
 Max credit = $7,500 (gvw< 14,000 pounds), $40,000 heavier vehicles.
 Only vehicles made by qualifying manufacturers who have written agreements to provide
periodic reports to Congress can qualify.
 IRS will issue regs or other guidance, including “incremental costs”

Research and Development Payroll Tax Credit

 Effective for tax years beginning after 12/31/22
 In 2023 picks up Medicare tax, not just SS
 Limit increased
o $250,000 old law
o $500,000 new law
o
 For start up businesses
o Gross receipts < $5 million
o No gross receipts for any table year preceding the 5-taxable-year period preceding such
year.

Home Builder Credit

 §45L for “contractors”.
 Has increased credit if meet prevailing wage requirement.
 Energy efficient home credit extended through 2032