Today's Tax Talk with Attorney Steven Leahy

Thursday March 9, 2023 – Did you hear about H.R. 25, the Fair Tax Act  of 2023.  This bill was introduced in House of Representatives in January 2023, right after the Republicans took over. 

Supporters claim the bill will simplify the current tax code and reduce federal spending. The act would replace the existing income, payroll, estate and gift taxes with a 23% national sales tax on consumable goods and services. The Family Consumption Allowance would ensure that low-income and middle-class families are not unfairly burdened by the sales tax. Additionally, it would reduce federal spending by over $71 billion in 2023 and eliminate the need for the Internal Revenue Service completely.

Democratic Reps. Wiley Nickel of North Carolina, Eric Sorensen of Illinois and Brittany Pettersen of Colorado called the measure “extremist.”   Yesterday Nickel said he “was dismayed to hear about an extremist plan by my colleagues on the other side of the aisle that calls for a 30% national sales tax for working families,” He continued “[a] 30% sales tax would be a disaster for working families and individuals in North Carolina and around the country who are already dealing with high gas prices, exorbitant housing costs and the rising costs of goods and everyday services.”

Attorney Steven A. Leahy said “I find the proposal interesting and worth investigating.  Anything is better than the current system.  Isn’t it?” Catch his analysis on Today’s Tax Talk.

https://www.law.cornell.edu/constitution/amendmentxvi

https://www.congress.gov/bill/118th-congress/house-bill/25

https://www.forbes.com/sites/peterjreilly/2023/02/07/how-the-fair-tax-act-of-2023-might-work/?sh=2e4220e252ba

https://www.cnbc.com/2023/03/08/taxes-house-democrats-push-back-on-gop-bill-to-abolish-irs-impose-national-sales-tax.html

https://fairtax.org/active-legislation/h-r-25-the-fairtax-act-of-2023

Wednesday March 8, 2023 - Sen. Joe Manchin (D-WV) has announced that he will vote against, President Biden's choice for head of the Internal Revenue Service (IRS), Daniel Werfel.  Manchin is dissatisfied with the way the Inflation Reduction Act (IRA) is being implemented. 

Although Manchin was the deciding vote on the IRA, he thinks Werfel would not be given autonomy to perform the job according to the law.  “While Daniel Werfel is supremely qualified to serve as the IRS Commissioner, I have zero faith he will be given the autonomy to perform the job in accordance with the law and for that reason, I cannot support his nomination,” he said. “At every turn, this administration has ignored congressional intent when implementing the Inflation Reduction Act,”

Daniel Werfel is still expected to have enough support to be named the new Commissioner of the Internal Revenue Service when the vote reaches the Senate floor, even without Manchin’s vote, and two other absent Democrats, Senators Fetterman and Feinstein.  Six Republicans voted to advance Werfel’s nomination on a procedural vote.

Manchin also said he would not vote for President Biden's nominee to sit on the Federal Communications Commission, Gigi Sohn. Manchin cited her "unprecedented" and "bipartisan opposition" due to her past activist statements and alliances with far-left groups. Shortly after his statement, Sohn withdrew herself from consideration, citing the toll that the attacks had taken on her and her family.

So, look for Werfel to be the next Commissioner of the IRS, where he has vowed not to increase audits for households making under $400,000.  We shall see.

Attorney Steven A. Leahy reports on the latest IRS news on Today’s Tax Talk.

https://news.yahoo.com/manchin-oppose-bidens-nominee-head-175103115.html

https://thehill.com/business/3889765-manchin-will-vote-against-bidens-pick-to-head-irs/

https://www.freep.com/story/money/personal-finance/susan-tompor/2023/03/08/irs-paper-tax-return-backlog-digital-scanning/69984755007/

Crypto-Tuesday March 7. 2023 - Cryptocurrency has emerged as a popular form of investment and a means of trade. The US government has been increasingly cracking down on the use of cryptocurrencies, with various agencies taking steps to curb their use. 

Today we will explore how US agencies are killing cryptocurrency in the US and the impact it may have on the future of digital currencies.

One of the most significant moves against cryptocurrencies in the US was made by the Internal Revenue Service (IRS) in 2014. The IRS declared that cryptocurrencies should be treated as property for tax purposes, which meant that any gains from the sale of cryptocurrencies would be subject to capital gains tax. 

This was a major blow to cryptocurrency investors, who had previously enjoyed tax-free gains from their investments. The decision by the IRS to tax cryptocurrencies has made it more difficult and costly for individuals to trade in digital currencies.

The Securities and Exchange Commission (SEC), under Chairman Gensler, has taken legal action against cryptocurrency companies. Going so far as to say that “everything but Bitcoin” should be considered a security and regulated as such.  

The ongoing legal battle between the SEC and Ripple may decide the fate of the entire crypto industry and whether many cryptocurrencies survive.  Ripple CEO Brad Garlinghouse has said Crypto companies have "already started moving outside" the US to avoid the heavy hand of the SEC.

More recently, the US Treasury Secretary, Janet Yellen, said it was “critical to put in place a strong regulatory framework.“  While she stopped short of calling for a ban on Cryptocurrencies, there have been very powerful forces stating that banning crypto should be an option.

And today, Federal Reserve Chairman Jerome Powell, restated his heavy warnings to banks that the Federal Reserve are watching their Cryptocurrency moves closely.  Saying, “We see in crypto activity lots of things that suggest that regulated financial institutions should be quite cautious in doing things in the crypto space."

Some experts believe that cryptocurrencies will continue to thrive despite the increased scrutiny, while others believe that they will struggle to gain widespread adoption if they are subject to onerous regulations. In any case, the US government's increased scrutiny of cryptocurrencies has had a significant impact on the industry. 

The tax treatment of cryptocurrencies, along with proposed regulations from a host of United States Government Regulatory Agencies, including, the IRS, the SEC, the Department of Treasury, the Federal Reserve Board, and others, have made it more difficult and costly for individuals to trade in digital currencies. While some argue that this regulatory crackdown is necessary to prevent illicit activities, others worry that it will stifle innovation and prevent the growth of this possibly freedom enhancing technology. 

Attorney Steven A. Leahy looks at the regulatory landscape in this Crypto-Tuesday episode of Today’s Tax Talk.

https://coinflip.tech/markets

https://cointelegraph.com/news/u-s-treasury-janet-yellen-calls-for-strong-regulatory-framework-for-crypto-activities

https://www.coindesk.com/policy/2023/03/07/federal-reserves-powell-we-dont-want-to-strangle-crypto-innovation-but-sector-is-a-mess/

https://www.thestreet.com/crypto/news/ripple-ceo-crypto-will-go-overseas-due-to-sec-regulations

https://www.nasdaq.com/articles/secs-gensler-warns-crypto-investors-but-differentiates-bitcoin

Monday March 6, 2023 - The Sixteenth Amendment to the Constitution provides Congress with the “power to lay and collect taxes on incomes, from whatever source derived.”  Gambling can be a fun and exciting activity.  Remember, the Internal Revenue Service (IRS) recognizes winnings from casinos, lotteries, horse racing, sports betting and other gambling activities as income and subject to taxes.  Gambling losses may be deductible on your federal tax return, but only up to the amount of winnings.

To claim any deductions for your gambling losses, though, it’s important to keep contemporaneous records of all your gambling activity throughout the year. Whether it’s a casino or sportsbook ticket stub, an online receipt or bank statement with the transaction listed, having documentation of your losses is essential.

Depending on where you live, additional state taxes may also apply to your gambling winnings. Some states require that you pay taxes on all your gaming revenue (not just the amount over a certain threshold), while others might not have any rules in place at all.  In Illinois, where I live, the State taxes all winnings, and does not allow deductions for losses.

I have had at least one client with larges winnings – hundreds of thousands of dollars.  But larger losses.  The State of Illinois taxed the full amount of winnings.  In this case, that meant a very large State Tax bill. 

Professional gamblers (not an easy designation) may be subject to additional tax requirements. Professional gamblers are considered self-employed and must pay self-employment taxes on their winnings. They may also be required to pay estimated taxes throughout the year.

So, if you don’t keep good records and you get audited, it’s a gamble.  Good Luck.

Attorney Steven A. Leahy discusses IRS taxes on Gambling on Today’s Tax Talk.

https://www.law.cornell.edu/constitution/amendmentxvi

https://www.capjournal.com/arena/finance/las-vegas-casinos-gamblers-may-get-a-surprise-irs-jackpot/article_4a468745-4db3-512a-b5d3-04568f0b8c04.html

https://ktla.com/news/nexstar-media-wire/as-march-madness-looms-so-do-sports-betting-taxes/

https://www.irs.gov/taxtopics/tc419

Thursday March 2, 2023 –  As a tax attorney, I am always interested in the unusual. Like the tax implications of catching a record-setting baseball.  Or finding a shipwreck with $800 million worth of whiskey. 

In 2010, a man named Ross Richardson discovered a the wreak of a passenger ship named the Westmoreland which sank in northern Lake Michigan in 1854. Along with gold valued at about $20 million, the ship contained about 280 barrels of whiskey each contain 200 bottles.

The IRS refers to these items as “Treasure Troves.” A treasure trove is typically defined as a hidden or concealed collection of valuable items that has been discovered by chance. These items are usually old or antique and have been hidden away for a significant amount of time. In some cases, treasure troves may be discovered on a property or in a building that the finder does not own. In other cases, the finder may have been actively searching for treasure using metal detectors or other means.

From a tax perspective, the discovery of a treasure trove can have several different implications. If the finder is not the legal owner of the property where the treasure trove was discovered, they may be required to pay a finder's fee or royalty to the property owner. This fee may be subject to income tax, depending on the specific circumstances of the discovery.

If the finder is the legal owner of the property where the treasure trove was discovered, the tax implications may be different. In general, treasure troves are considered taxable income under the Internal Revenue Code. This means that the finder may be required to pay income tax on the value of the treasure trove.

The specific tax rate will depend on the finder's income bracket and the value of the treasure trove. It is important to note that if the finder intends to sell the treasure trove, they will also be required to pay capital gains tax on any profits made from the sale.

As a tax attorney, my advice to anyone who discovers a treasure trove is to consult with a tax professional as soon as possible. Do NOT follow the old adage “Shoot, Shovel, and Shut Up.”

Attorney Steven A. Leahy explores the depths of the Treasure Trove Tax on Today’s Tax Talk.

https://nowthisnews.com/news/whiskey-recovered-from-a-170-year-old-shipwreck-could-be-worth-a-fortune

https://www.forbes.com/sites/robertwood/2023/03/01/shipwrecked-whiskey-worth-871-million-irs-tax/?sh=4ecae39f2f0c

Wednesday March 1, 2023 – Back in January we did a story about The Supreme Court refusing to hear a case of excessive fines for inadvertently failing to file a timely bank disclosure form called the FBAR (Report of Foreign Bank and Financial Accounts).  

Justice Gorsuch issued a rare dissenting opinion in that case.  And now it makes sense.  On Tuesday, the United States Supreme Court limited the IRS's ability to impose penalties when taxpayers unintentionally make errors in reporting foreign accounts. The majority opinion was written by Justice Neil M. Gorsuch.  He reasoned that the relevant legal duty is to file reports, not individual accounts. 

The case concerned Alexandru Bittner, an immigrant and dual citizen who failed to disclose his foreign accounts while living overseas. Lawyers argued that the FBAR should only carry a fine of $50,000, or $10,000 per year.  Not the nearly $3 million penalty initially imposed by the IRS, based on the number of accounts. 

Justice Amy Coney Barrett disagreed and wrote a dissent arguing that the FBAR is an annual form requiring separate penalties for each account not reported. The ruling is important news for taxpayers who worry about FBAR penalties and adds clarity to the IRS's authority when it comes to FBAR violations. With this ruling, SCOTUS has ensured that taxpayers will not be unfairly penalized by the IRS for unintentional FBAR mistakes. That's a win for everyone. Thank you SCOTUS! God bless America!  Now, how can we go back to the Toch case and correct that wrong?

Attorney Steven A. Leahy analyses this recent Supreme Court decision on Today’s Tax Talk.

https://www.washingtontimes.com/news/2023/feb/28/supreme-court-sides-immigrant-challenging-irs-pena/

https://www.supremecourt.gov/opinions/22pdf/21-1195_h3ci.pdf

https://vimeo.com/manage/videos/793168156

https://www.supremecourt.gov/opinions/22pdf/22-177_d0fi.pdf

Crypto-Tuesday February 28, 2023 - Gary Gensler, the Chairman of the U.S. Securities and Exchange Commission (SEC), has come out with a statement that all digital assets, besides bitcoin, are securities. But according to various lawyers, his opinion cannot be taken as law without the SEC having to prove its case in court for each individual token, a process which would be incredibly timely and expensive. 

Gabriel Shapiro from the Delphi Labs outlined that it would take 12,305 lawsuits for this to happen, making it unfeasible for most token creators. He also noted that registration is not feasible as there is no clear path for it. Overall, this statement has sparked fear in the industry as to what the SEC's plan for crypto.

That said, it is important to note that Gensler's opinion should not be taken as the final legal determination – although powerful. Ultimately, judicial decisions determine what the law means and how it applies. 

In conclusion, Gensler's comments are something to be feared, as his opinion could have a dramatic impact on how things are regulated. Remember, Gensler has been asked to recuse himself in crypto enforcement cases because of his clearly bias statements.

Attorney Steven A. Leahy reviews the current SEC vs Crypto standings on Today’s Tax Talk.

https://coinflip.tech/markets

https://cointelegraph.com/news/crypto-lawyers-flame-gensler-over-claims-that-all-crypto-are-securities

https://cryptoslate.com/ripple-asks-sec-chair-to-recuse-self-from-crypto-enforcement-cases/

Monday February 27, 2023 – Remember that February 17, 2023  deadline Treasury Secretary Janet Yellen set for The Internal Revenue Service (IRS) to create a strategic plan for spending the $80 billion Congress handed them?  Yeah, neither does the IRS.  

The February deadline came and went and the IRS simply did not meet the deadline. The IRS has excuses: former Commissioner Charles Rettig's term expired, there is a confirmation process for the subsequent nominee Daniel Werfel, and a friend came in from out of town. Treasury has been working with the IRS to develop a plan since last summer. 

This delay raises questions about the agency’s credibility and casts doubt on its ability to efficiently spend the money. While the document is still in progress, taxpayers should expect revisions as needs change.  But don’t worry.  The IRS will complete it in good time- now get back to doing your return.  There is a deadline you know!

Attorney Steven A. Leahy looks at the latest IRS arrogance on Today’s Tax Talk.   

https://www.washingtonexaminer.com/restoring-america/faith-freedom-self-reliance/negligent-irs-gets-80-billion-but-misses-deadline-for-the-money 

https://www.forbes.com/sites/howardgleckman/2023/02/22/the-irs-misses-its-deadline-for-completing-a-plan-to-spend-80-billion-in-new-money/?sh=7691e7031c2f

Wednesday February 22, 2023 - The Supreme Court is currently hearing an IRS case that could have a major impact on all Americans. The IRS wants to be able to access bank and other business records without notifying anyone.  As it stands, the IRS has wide-reaching authority to obtain these records by simply issuing a subpoena in secret.

This case will decide if these actions violate the Fourth Amendment rights of third parties, such as customers and clients.

The Chamber of Commerce wrote in a brief that businesses must choose between two options in response to an IRS summons: “challenging the summons by filing a petition with the Tax Court or complying with the subpoena and disclosing confidential information to the IRS.”  This creates a catch-22 situation, as businesses cannot challenge the summons without first complying with it, and could be penalized for not doing so in the interim.

This District Court decision in this case, Polselli v. United States Polselli v. United States, No. 19-10956, 2020 U.S. Dist. LEXIS 260543, at *1 (E.D. Mich. Nov. 16, 2020), and the 6th Circuit Appellate decision affirming the case, dangerously limits the privacy rights of individuals, weakens businesses’ ability to protect their customers’ information, and creates an environment in which businesses are forced to comply with IRS requests or face consequences. 

Attorney Steven A. Leahy reviews this case and the implications should the United Supreme Court uphold it on Today’s Tax Talk.

https://www.forbes.com/sites/nicksibilla/2023/02/20/supreme-court-to-decide-if-irs-can-secretly-access-bank-records/?sh=5d31a288486c

https://scholar.google.com/scholar_case?case=1450107970258318149&q=Polselli+v.+United+States+irs&hl=en&as_sdt=400006&as_vis=1

Crypto-Tuesday February 21, 2023 - Crypto mining facilities are becoming increasingly important in the AI world, as they offer the perfect opportunity to host AI processing while remaining within the blockchain space. Through various projects AI-related activities can be done within a decentralized environment. Furthermore, with the emergence of new ledgerless protocol, blockchain solutions are being developed specifically for AI applications. 

Miners are starting to redirect their resources to power these AI networks and their applications. This could prove to be a win-win situation for both miners and developers of AI-based applications, as miners would benefit from an additional source of revenue while developers would have access to powerful distributed computing resources at low costs. 

Ultimately, this could lead to the further decentralization of the global economy by enabling more people across the world to participate in the development of AI-based applications. Consequently, this could provide a much broader range of services and products for consumers, creating an even more accessible global market. 

The hardware underlying AI will be a critical aspect of decentralizing the global economy. Repurposing of a portion of crypto mining hardware to running AI processing could have a revolutionary impact on the development of AI-based solutions beyond finance. 

Crypto mining rigs are based in diverse legal jurisdictions and owned by a variety of different parties. A globally distributed AI network spread across crypto mining rigs would be dramatically more difficult for governments or other parties to centrally control than an AI network centered in Big Tech-owned data centers. 

This would make it easier for nascent AI projects to get off the ground and open up new possibilities for both businesses and individuals when it comes to developing, managing, and participating in AI solutions. In this way, these crypto-mined AI networks could become a major driver of decentralization within the global economy. 

Attorney Steven A. Leahy discusses these new AI possibilities on Today’s Tax Talk.

https://coinflip.tech/markets

https://cointelegraph.com/news/cryptocurrency-miners-may-lead-the-next-stage-of-ai