Treasury Secretary Yellen Addresses Global Minimum Tax Treatment Of The U.S. Federal-Level R&D Credit Program

On March 21st, Treasury Secretary Janet Yellen indicated that she was optimistic that the U.S. would be able to maintain the value of its Federal-Level R&D Tax Credit Program that was originally introduced into the U.S. Internal Revenue Code under President Reagan’s Economic Recovery Tax Act of 1981 for companies conducting qualified R&D on U.S. soil, in the face of concerns that the new global minimum tax could compromise it. The Department of Treasury believes it has an opening to negotiate over the tax treatment of the U.S. Federal-Level R&D Tax Credit Program with countries moving ahead with the global minimum-tax agreement reached in 2021 by more than 140 companies under the Organization for Economic Cooperation and Development (hereinafter “OECD”), requiring companies to pay taxes at a minimum effective tax rate of at least 15% no matter where in the world they reside and conduct business. Companies are concerned that if the U.S. Federal-Level R&D Tax Credit Program reduces their effective tax rate below 15%, the requirement for companies to pay that minimum level of tax could essentially negate the benefits of the U.S. Federal-Level R&D Tax Credit.

Senator Todd Young (R-Ind.) challenged Treasury Secretary Janet Yellen on this issue during the hearing, saying President Biden’s administration and countries participating in the OECD agreement would completely “undermine important U.S. tax credit programs” such as the U.S. Federal-Level R&D Tax Credit Program. Senator Todd Young cited comments from the Department of Treasury earlier this week that legislation might ultimately be needed to address this matter.

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SALT ALERT: The New York State Legislature Proposes Increases To Both Income And Corporate Tax Rates

 

New York State’s highest individual earners and largest corporations may soon see an increase in their tax rates, while managed care organizations may have to pay a new tax under budget resolutions approved on Thursday, March 14th by the New York State Senate and Assembly.

The budget resolutions outline the legislature’s spending and policy priorities ahead of the upcoming April 1st budget deadline, but also set the New York State legislature’s Democratic supermajorities at odds with Governor Hochul (D), who has called raising tax rates a “nonstarter.” It should be duly noted that New York already has one of the highest state and local tax rates in the country and elected officials are deeply concerned about increasing taxes that could cause even more New York residents to move to lower-tax states and / or no-tax states. New York State Comptroller DiNapoli warned about the significant number of taxpayers leaving New York State year-over-year since the COVID-19 pandemic started unfolding back in January of 2020. DiNapoli said New York has become increasingly reliant on nonresident tax filers, the majority of whom earn more than $ 1 million, and that those who move eventually take their incomes with them. However, the mass exodus out of New York State has not been confined to the ultra-wealthy as the highest level of taxpayer migration out of New York State occurred amongst individual taxpayers within the middle-class to the upper middle-class earning between $100,000 and $500,000 respectively. This is especially troubling as New York’s personal income tax collections are its largest revenue source and are heavily reliant on high-income earners that have been leaving New York at unprecedented levels starting in 2020 through the present.

Lawmakers in both chambers also backed a new tax on managed care organizations, which would allow New York State to get matching Federal-Level funds from the Centers for Medicare and Medicaid Services. The Assembly indicated “revenue generated by the state would be used to repay the tax obligation for each plan, but that it expects to get $4 billion in increased Federal Medicaid revenue”.

Have a question? Contact Peter Scalise, SAX LLP

President Biden Proposes 12.3 Billion For Enhanced IRS In Fiscal 2025 Budget

On Monday, March 11th President Biden proposed a fiscal 2025 budget requesting $12.3 billion in annual funding supporting the IRS’s momentum as it builds up its enforcement efforts on both non-compliant high-net worth individuals and business entities alike.

While the proposed IRS annual funding for fiscal 2025 aligns with fiscal 2023 levels, it is a decrease from President Biden’s $14.1 billion proposal for the fiscal 2024 budget. The Biden administration drafted its fiscal 2025 budget so that total annual appropriations were in line with levels agreed to in a debt-limit law last year. The IRS Commissioner Danny Werfel has said that ‘it’s important for the IRS to receive robust annual funding to support the agency’s day-to-day operations, so that funds from the Inflation Reduction Act passed into law in August of 2022 can be used to properly modernize the IRS’. The additional $12.3 billion in annual funding will help bolster the IRS’s efforts to combat blatant fraud, update its technology systems and go after non-compliant taxpayers.

To review the Fiscal 2025 Budget in its entirety, please reference https://www.whitehouse.gov/wp-content/uploads/2024/03/budget_fy2025.pdf Read More

IRS VITA Volunteers Needed Immediately: The Food Bank For New York City’s Call To Action

NOTE: TaxConnections will provide a complimentary one year membership( $299.95 Value) for any tax professional who supports the food bank and the IRS VITA Volunteer team by contacting Peter Scalise immediately to join this program. He needs help for the team within the next 24 hours. Peter Scalise will recommend your name for these complimentary memberships.

The Food Bank For New York City, a registered I.R.C. 501(c)(3) non-profit and member of Feeding America, has been working to end food poverty in the five boroughs for over 40 years, and now it’s getting assistance from a group of volunteer accountants.

As the city’s largest hunger-relief organization, the Food Bank takes a multifaceted approach to helping low-income New Yorkers overcome their circumstances and achieve greater independence. The Food Bank powers an extensive member network of over 800 food pantries, community kitchens, senior centers, shelters, campus partners and other community-based organizations across the five boroughs of Manhattan, Brooklyn, Queens, the Bronx, and Staten Island.

As a philanthropist committed to giving back to my local community, I founded in January of 2023 the Accountants United to End Insecurity Council to bring the accounting profession together throughout the five boroughs of New York City to provide greater awareness of the noble mission of the Food Bank and raise much-needed funding. The Food Bank supports communities on myriad levels including:

  • Free meals and services through a community soup kitchen and food pantry in West Harlem that serves more than 100,000 meals each month. The Food Bank’s team includes professional chefs, community nutritionists, program administrators and caring volunteers ensuring families and individuals receive healthy and nutritious meal choices;
  • The senior program, which launched in 2012, provides a place for elders to get together, enjoy a meal and gather for special events. In addition to meals and pantry services, seniors can enjoy activities and are provided with resources such as health management workshops and nutritional guidance; and
  • As one of the nation’s largest Internal Revenue Service Volunteer Income Tax Assistance providers, the Food Bank provides eligible New Yorkers with free tax compliance filing services and has put more than $1.3 billion back into the pockets of hardworking New Yorkers. The VITA program, an IRS-sponsored program, relies on hundreds of dedicated accounting volunteers to ensure filers receive the crucial and necessary tax refunds they depend upon and ultimately help people fight poverty and food insecurity.

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The IRS Proposes Changes To Form 6765, Credit For Increasing Research Activities, & Requests Feedback From Stakeholders By October 31st

On Friday, September 15th the Internal Revenue Service (the “Service”) released a preview of proposed changes to several sections of IRS Form 6765, titled “Credit for Increasing Research Activities” and is requesting feedback from stakeholders by October 31st. As a background, the Federal-Level R&D Tax Credit program was originally introduced into the Internal Revenue Code through President Ronald Reagan’s Economic Recovery Tax Act of 1981 and the program has continued to evolve both from a quantitative and qualitative perspective over the past four decades.
The Service has provided a preview of their proposed changes to Form 6765 in an effort to solicit feedback from stakeholders in advance of the formal draft release expected later this year. Just some of the proposed changes address previous feedback received from taxpayers and tax professionals alike in recent years during IRS examinations. It should be duly noted that each year, the Service receives thousands of tax returns from taxpayers claiming the Federal-Level R&D Tax Credit. R&D Tax Credit issues are currently examined in a substantial number of cases year-over-year and consume significant resources from both taxpayers and the Service alike. To provide more effective tax administration of the Federal-Level R&D Tax Credit program, the Service must ensure taxpayers truly comprehend the complete scope and application of the program’s requirements to support claiming the R&D Tax Credit with a sustainable tax return filing position per Circular 230. To that end, the proposed changes to Form 6765 will require taxpayers to identify, gather, and document additional data on this enhanced form before filing their tax returns. The primary proposed changes to Form 6765 include:
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A Spotlight On Accountants United To End Hunger

Established in 1983, the Food Bank For New York City (“the Food Bank”) has been working to end food poverty in the five boroughs of New York City (i.e., Manhattan, Queens, Brooklyn, Bronx, and Staten Island) for forty years and counting. As the city’s largest hunger-relief organization, the Food Bank employs a multifaceted approach centered on helping low-income New Yorkers overcome their circumstances and achieve greater independence. Food Bank powers an extensive member network of over 800 food pantries, community kitchens, senior centers, shelters, campus partners and other community-based organizations across the five boroughs.

As a passionate philanthropist committed to giving back to my local community, I founded Accountants United in January of 2023 in an effort to bring the accounting profession together throughout the five boroughs to provide greater awareness of the noble mission of the Food Bank and raise much needed funding to support the multifaceted verticals that they provide to many communities that are in need throughout the five boroughs. The Food Bank supports our communities on a myriad of levels including, but not limited:

 Free Meals & Services through their Community Kitchen and Pantry located in West Harlem that serves more than 100,000 meals each month through the soup kitchen, food pantry and senior giving program. The Food Bank’s team includes professional chefs, community nutritionists, program administrators and caring volunteers ensuring families and individuals receive healthy and nutritious meal choices;
 The Senior Program, which launched in 2012, provides a place for elders to get together, enjoy a meal and gather for special events. In addition to meals and pantry services, seniors can enjoy activities and are provided with insightful resources such as health management workshops and nutritional guidance; and
 As one of the nation’s largest Internal Revenue Service Volunteer Income Tax Assistance (“VITA”) providers, the Food Bank provides eligible New Yorkers with free tax compliance filing services and has put more than $1.2 billion back into the pockets of hardworking New Yorkers. The VITA program, an IRS-sponsored program relies on hundreds of dedicated accounting volunteers to ensure filers receive the crucial and necessary tax refunds they depend upon and ultimately helping people fight poverty rates and food insecurity.
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The IRS Extends The Transition Period For Enhanced R&D Tax Credit Reporting Requirements

On Friday, September 30th the Internal Revenue Service (the “Service”) set forth administrative guidance indicating that it is extending the transition period during which taxpayers are required to adhere to the much more arduous and onerous R&D Tax Credit reporting requirements in connection to amending tax returns within open statute years for R&D Tax Credit claims for refund. This new transition period has now been extended through January 10th of 2024 in which taxpayers are afforded a full 45 days to perfect a R&D Tax Credit claim for refund with reporting deficiencies prior to the Service’s final determination on the claim.

It should be duly recalled under previous administrative authority issued by the Service in 2021 that went into effect earlier this year on January 10th of 2022 taxpayers filing a valid R&D Tax Credit claim for refund under I.R.C. § 41 must provide, at a minimum, five essential pieces of contemporaneous documentation including:

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The IRS Issues Revised Audit Technique Guide For Cost Segregation Analysis

On June 9th, the Internal Revenue Service (hereinafter the “Service”) issued a revised Audit Technique Guide to assist examining agents in evaluating the validity of cost segregation studies submitted by taxpayers to substantiate accelerated depreciation deductions. These far reaching updates were needed due to the vast changes in the tax laws over recent years in connection to the Protecting Americans from Tax Hikes Act of 2015; the Tax Cuts and Jobs Act of 2017; the Coronavirus Aid, Relief, and Economic Security Act of 2020; the Consolidated Appropriations Act of 2020; and of course revised guidance based upon examining agents observations from recent cost segregation examinations on what is deemed acceptable qualitative and quantitative procedures in order to get to a tax return filing position per Circular 230.  Just some of the many sweeping updates are in connection to I.R.C. § 263A, Change of Accounting Method, I.R.C. § 179 Deduction, I.R.C. § 179D Deduction, Bonus Depreciation, and Qualified Improvement Property.

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Peter J Scalsie - Tax Research Methodology

Introduction – Tax Research Methodology

In order to properly optimize your accounting firm’s overall efficiency, efficiency, effectiveness, and productivity in connection to researching and resolving a tax issue and determining the sustainability of the tax return filing position per Circular 230, the appropriate tax research processes must be meticulously designed, implemented, and executed. The subsequent comprehensive steps will guide you in establishing an all-inclusive tax research effort on behalf of your entire client base while properly ascertaining the likelihood of success should a tax position(s) taken on a tax return be challenged by the Internal Revenue Service (hereinafter the “Service”) upon examination.

Establish The Facts And Circumstances

The first step in the tax research process is to establish all the facts and circumstances provided by your client in order to determine which tax laws apply to your client’s fact pattern. At this initial stage, it is imperative not to omit nor overlook any of your client’s facts and circumstances whether appearing material or immaterial. Always be guided by the axiom that facts and circumstances appearing to be immaterial individually may, in fact, be material in the aggregate.

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Tax Research Methodology: A Practical Guide To Perfecting Your Tax Research Techniques

Introduction – Tax Research Methodology

In order to properly optimize your accounting firm’s overall efficiency, effectiveness, and productivity in connection to researching and resolving a tax issue and determining the sustainability of the tax return filing position per Circular 230, the appropriate tax research processes must be meticulously designed, implemented, and executed. The subsequent comprehensive steps will guide you in establishing an all-inclusive tax research effort on behalf of your entire client base while properly ascertaining the likelihood of success should a tax position(s) taken on a tax return be challenged by the Internal Revenue Service (hereinafter the “Service”) upon examination.

Establish The Facts And Circumstances

The first step in the tax research process is to establish all the facts and circumstances provided by your client in order to determine which tax laws apply to your client’s fact pattern. At this initial stage, it is imperative not to omit nor overlook any of your client’s facts and circumstances whether appearing material or immaterial. Always be guided by the axiom that facts and circumstances appearing to be immaterial individually may, in fact, be material in the aggregate.

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New Administrative Authority Governing Valid R&D Tax Credit Claims For Refunds Must Include Five Essential Pieces

Federal Tax Alert: New Administrative Authority Governing Valid R&D Tax Credit Claims For Refunds Must Include Five Essential Pieces of Contemporaneous Documentation

On Monday, January 3rd of 2022 the Internal Revenue Service (hereinafter the “Service”) issued interim administrative authority in connection to R&D Tax Credit claims for refund. As set forth pursuant to this memorandum, effective January 10th of 2022 taxpayers filing a valid R&D Tax Credit claim for refund under I.R.C. § 41 must provide, at a minimum, five essential pieces of contemporaneous documentation including:

  • Identify all the business components that form the factual basis of the R&D tax credit claim for the claim year (i.e., Business Components as statutorily defined under I.R.C. § 41(d)(2)(B) must be identified);
  • All research activities performed by business component (i.e., this must include a description of what the taxpayer did, and how they did it, by business component. It does not need to describe the four-part test under IRC § 41(d)(1) in detail. Language that simply restates the requirements under the Code or Treasury Regulations is insufficient);
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The IRS Issues Revised R&D Tax Credit Instructions

On December 15th, the Internal Revenue Service issued an early release draft of instructions for IRS Form 6765 entitled “Credit for Increasing Research Activities”, to properly reflect legislation regarding the determination of qualified wages that impacts Lines 5 and 24 from the December of 2020 revision.

It should be duly recalled, pursuant to legislation enacted in December of 2020, wages for qualified services do not include:

  • Wages paid to or incurred for any employee after December 31, 2020 and before July 1, 2021, if the employer uses the same wages to claim the Employee Retention Credit (“ERC”) on an employment tax return such as IRS Form 941 entitled “Employer’s Quarterly Federal Tax Return”; and
  • Wages paid to or incurred for any employee generally after December 27, 2019 and before April 17, 2021, if the employer uses the same wages to claim the 2020 qualified disaster ERC on IRS Form 5884-A entitled “Employee Retention Credit for Employers Affected by Qualified Disasters”.

As a reminder, do not file draft forms and do not rely on draft forms, instructions, and / or publications for filing until finalized by the Service. The draft instructions for IRS Form 6765 can be reviewed at https://www.irs.gov/pub/irs-dft/i6765–dft.pdf The Service is also currently accepting comments in connection to the draft instructions at https://www.irs.gov/forms-pubs/comment-on-tax-forms-and-publications All tax filing forms and instructions are expected to be finalized by the Service before the end of January 2022.

Have a question on R&D Tax Credits? Contact Peter J Scalise.