Income Tax News

The Inflation Reduction Act of 2022 fundamentally changed the way most renewable energy tax credits are calculated by obligating companies to meet prevailing wage and apprentice requirements to be entitled to the full tax credit amount.

The mechanics of the prevailing wage requirements allow a multiplier for eligible businesses at five times the base rate for production and investment tax credits for qualifying projects. On Aug. 29, the IRS proposed regulations that provide additional rules to address a number of issues, including easing penalties for developers and investors who fail to meet the labor rules for the clean energy tax credits on their projects.

While seemingly simple to implement, the prevailing wage requirements are more difficult to get certainty on at a practical level.

Penalty and Cure Provisions

To satisfy the prevailing wage requirement, companies must ensure that any laborer, mechanic, contractor, or subcontractor employed in the construction of a qualified facility are paid wages at no less than the prevailing rates as most recently determined by the Department of Labor.

But wage rates aren’t always apparent for each category of laborers and mechanics. For example, the DOL hasn’t yet prescribed categories for workers installing solar panels and wind turbines. As a result, businesses must choose a broad category that may not be appropriate for the particular type of laborer or mechanic. This lack of clarity leaves companies guessing if they’ve complied with the correct prevailing wage rate.

If companies fail to pay a prevailing wage, they can still remain eligible for the increased credit amount by making applicable correction and penalty payments. A correction payment must be made to the laborer or mechanic equal to the difference between the prevailing wage amount required to be paid and the actual amount paid, plus interest at the federal short-term rate increased by 6%.

A penalty penalty also must be made to the Department of the Treasury equal to $5,000 multiplied by the total number of laborers or mechanics who were paid wages below the prevailing wage rate. These amounts are increased for intentional disregard.

The preamble to the proposed regulations clarifies that the obligation to make such payments arises when a business fails to pay prevailing wages but becomes binding only when the increased credit is claimed on a tax return. However, they can make correction payments to laborers and mechanics in advance of filing to minimize the amount of interest due.

There are additional nuanced rules for hiring apprentices and paying penalties for failure to comply with the apprenticeship requirements.

Penalty Waivers

The proposed regulations include a safe harbor for union labor that’s likely to continue to be controversial.

The preamble states that “pre-hire labor agreements may be used to incentivize stronger labor standards and worker protections, which may also help ensure compliance with the prevailing wage requirement. For these reasons, the penalty provisions would also not apply to pre-hire collective bargaining agreements with one or more labor organizations meeting certain requirements when correction payments are made before a return is filed.”

This exception favors labor unions that are active in the energy industry and will likely attract the attention of businesses that are concerned about complying with the prevailing wage requirement but some see this as an unfair advantage.

The proposed regulations also grant the IRS discretion to waive penalties when businesses make correction payments by the earlier of 30 days after becoming aware of the error, or the date on which the tax return claiming the increased credit is filed.

Companies hoping to claim the increased credit amount should remain diligent in monitoring payroll practices for all employees—including engineering, procurement, and construction contractors and subcontractors—to ensure any mistakes are identified and corrected within these deadlines.

Transferability of Tax Credits

In the past, businesses haven’t been able to transfer renewable energy tax credits absent tax equity partnerships or through leasing transactions. The new law now allows those eligible to elect to transfer certain tax credits to unrelated persons for cash.

While a transferee would claim a transferred eligible credit (or portion thereof) on their tax return, the proposed regulations provide that the obligation to make correction and penalty payments would remain with the transferor. This provision generally keeps the transferor liable for correction and penalty payments post-sale but would suggest that, if the penalty and correction payments aren’t made, then the amount of the credit would be reduced to the lower base credit, which would generally be 20% of the full credit.

Businesses entering into tax credit transfer transactions will need to consider protections against this risk through indemnities, tax insurance, and diligence. Careful drafting of the purchase agreement could address or mediate this issue.

Treasury and the IRS have requested comments on the proposed regulations by Oct. 30, ahead of a Nov. 21 public hearing. The comments can include alternate ways that businesses might use project labor agreements to meet the prevailing wage requirement and the transferability of credits.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Martha “Marty” Pugh is a corporate tax partner in K&L Gates’ power practice group, focusing on renewable energy incentives related to wind, solar, and energy storage projects.

France Beard Johnson is an associate at K&L Gates whose practice focuses on US federal and international tax matters.

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Originally Appeared Here

NEW YORK, Sept. 24, 2023 (GLOBE NEWSWIRE) —

WHY: Rosen Law Firm, a global investor rights law firm, announces that it is investigating potential securities claims on behalf of shareholders of American Coastal Insurance Corporation (NASDAQ: ACIC) resulting from allegations that American Coastal may have issued materially misleading business information to the investing public.

SO WHAT: If you purchased American Coastal securities you may be entitled to compensation without payment of any out of pocket fees or costs through a contingency fee arrangement. The Rosen Law Firm is preparing a class action seeking recovery of investor losses.

WHAT TO DO NEXT: To join the prospective class action, go to https://rosenlegal.com/submit-form/?case_id=19156 or call Phillip Kim, Esq. toll-free at 866-767-3653 or email pkim@rosenlegal.com or cases@rosenlegal.com for information on the class action.

WHAT IS THIS ABOUT: On August 21, 2023, American Coastal issued a press release stating that it “has identified certain errors related to the reporting of discontinued operations for the previously issued unaudited condensed consolidated financial statements for the three months ended March 31, 2023, which errors had the effect of understating the net income for the three months ended March 31, 2023 by approximately $6.4 million. These errors were discovered in the course of preparing [American Coastal’s] interim financial statements for the fiscal quarter ended June 30, 2023, and included errors in [American Coastal’s] accounting for income tax expense primarily relating to the deconsolidation of [American Coastal’s] former subsidiary, United Property & Casualty Insurance Company.” Accordingly, American Coastal determined that the statements at issue should no longer be relied upon.

On this news, American Coastal’s stock price fell $0.38 per share, or 5%, to close at $7.22 per share on August 22, 2023.

WHY ROSEN LAW: We encourage investors to select qualified counsel with a track record of success in leadership roles. Often, firms issuing notices do not have comparable experience, resources, or any meaningful peer recognition. Many of these firms do not actually litigate securities class actions. Be wise in selecting counsel. The Rosen Law Firm represents investors throughout the globe, concentrating its practice in securities class actions and shareholder derivative litigation. Rosen Law Firm has achieved the largest ever securities class action settlement against a Chinese Company. Rosen Law Firm was Ranked No. 1 by ISS Securities Class Action Services for number of securities class action settlements in 2017. The firm has been ranked in the top 4 each year since 2013 and has recovered hundreds of millions of dollars for investors. In 2019 alone the firm secured over $438 million for investors. In 2020, founding partner Laurence Rosen was named by law360 as a Titan of Plaintiffs’ Bar. Many of the firm’s attorneys have been recognized by Lawdragon and Super Lawyers.

Follow us for updates on LinkedIn: https://www.linkedin.com/company/the-rosen-law-firm, on Twitter: https://twitter.com/rosen_firm or on Facebook: https://www.facebook.com/rosenlawfirm/.

Attorney Advertising. Prior results do not guarantee a similar outcome.

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Originally Appeared Here

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Federal agents raided the headquarters of Duval Teachers United in Jacksonville, Florida, on Sept. 6, carrying away computers and boxes of financial documents.

“An investigative team from FBI Jacksonville executed a court-authorized search warrant today in furtherance of a federal investigation,” an agency spokesperson told the Florida Times-Union. “Because the investigation is ongoing, details about the search are not being released at this time.”

Local news reported that the investigation involves the potential misappropriation of funds. The presence of IRS agents at the raid supports this.

Union officers would not comment but released a statement that read, “We continue to be focused on upholding our mission of supporting our members and the students we serve. We are fully cooperating with authorities and anticipate a full and thorough assessment of the facts. To respect the integrity of the process, we will not discuss any further details.”

News crews spotted prominent Florida criminal defense attorney Hank Coxe at the scene, but he would not reveal the nature of the investigation or whom he was representing.

With everyone involved mum, media outlets have followed suit. There hasn’t been a single update since the raid occurred.

Now, a raid is not itself evidence that a crime has been committed. It only shows that the FBI and IRS received enough information to convince a judge that further investigation was warranted. The presence of federal agents means the situation was beyond the scope of local law enforcement.

But the union’s finances aren’t a complete cipher. All unions and other tax-exempt organizations are required to file an annual disclosure report with the IRS. The most recent one from Duval Teachers United covers the 2021-22 school year. It contains nothing that indicates criminal activity, though there is at least one curiosity.

I don’t have a definitive number for how many members the union has, though American Federation of Teachers documents suggest it is in the vicinity of 7,500. The Duval union reported collecting more than $5 million in revenue in 2021-22, though that number is a little deceiving, since almost $2.8 million of it was forwarded to state and national union affiliates.

That left about $2.2 million for the local to run its operations. Its staff is small. The contract with the Duval County Public Schools allows no more than seven people to be released to work for the union. It appears that is the number staffing the headquarters building.

The union has two elected officers. The president, Terrie Brady, has held that position since 1999, and her executive vice president, Ruby George, since at least 2004-05.

That year, the union paid them $114,000 and $101,000, respectively.

Since then, their pay has fluctuated wildly. Brady’s salary ranged from $160,000 in 2006-07 to more than $326,000 in 2019-20. She received $251,868 in 2021-22.

George’s salary had a similar trajectory, though not always parallel to Brady’s. She received $134,000 in 2018-19 but almost $327,000 the following year.

It’s unusual for union officers’ pay to rise and fall that dramatically, unless they are constantly deferring compensation for tax purposes and then collecting it in later years. That may be the case here. But the amounts involved are also unusual.

For example, Brady’s taxable compensation for 2021-22 greatly exceeded the amounts paid to the presidents of United Teachers Los Angeles ($140,000), the Chicago Teachers Union ($155,000) and even that of the largest teachers union in Florida, the United Teachers of Dade ($217,000).

Duval Teachers United is similar in size to two other Florida teachers union locals, the Orange County Classroom Teachers Association and the Palm Beach County Classroom Teachers Association. Their presidents made $127,000 and $152,000, respectively, last year.

The largest local affiliates of the Florida Education Association have a long, sad history of problems with the law and their own parent unions. The state and national unions have not commented on the Duval raid, but neither have they initiated a trusteeship over the local, as far as I can tell.

“There’s more to come, I’m sure.”

Mike Antonucci’s Union Report appears most Wednesdays; see the full archive.

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Originally Appeared Here

Soaring interest rates have rekindled Americans’ penchant for fixed-income investments like bonds and money market funds, but experts warn that they should be prepared for the taxes. 

To battle inflation, the Federal Reserve has raised its benchmark, short-term fed funds rate to target 5.25%-5.50%, from near zero at the start of 2022 and to the highest level in 22 years.

Higher rates hurt spenders who must pay more to borrow but are a boon to savers who receive a higher return on their money, especially with the economy uncertain and the stock market volatile. Money market fund assets, for example, grew to a record, topping $5.69 trillion in the first three months of this year, Fed data show. 

That higher, steady and nearly riskless income may come with a price though: Come the new year, you may find yourself with a larger tax bill, experts say.  

“On the one hand, it’s great news, you’re getting higher interest, but are you ready for a tax hit in April or sooner, if you have to make quarterly estimated payments?” said Rob Keller, tax partner at tax advisory firm KPMG.  

Learn more: Best current CD rates

What are fixed-income investments? 

Fixed-income assets are those with a regular, fixed payout such as savings accounts, money market funds, certificates of deposits (CDs), or government and municipal bonds. They are generally low-risk income generators. 

In a balanced portfolio, they’re used to offset stock holdings, which are riskier and mostly generate returns by appreciating in value. A traditional balanced portfolio consists of 60% stocks and 40% fixed income, also known as the 60/40 portfolio. 

How are fixed-income investments taxed compared with stocks? 

Money generated from fixed-income assets is counted as income and taxed at your income tax rate, whichever bracket you fall into. In 2023, the IRS lists seven federal income tax rates ranging from 10% to 37%. 

“Those are typically higher than dividends and capital gains rates from stocks,” said Omar Qureshi, investment strategist at Hightower Wealth Advisors | St. Louis.  

Qualified stock dividend and capital gains tax rates for assets held at least a year range from 0% to 20%, depending on taxable income and filing status. Most people pay a capital gains tax of 15% when they sell their stock, the IRS says. 

Fixed income payments also may be subject to state taxes. This can be especially bad if you’re in a high income-tax state like California or New York, which both have top rates above 10%, advisors said. 

“If you’re in a high tax bracket, about 50% of your interest income goes back to the government,” Qureshi said. “On the surface, 5.5% interest on your money sounds good, but if you have to give half of it back, it’s not so good.” 

Is there any way to lessen the tax blow? 

Yes, consider what you’re buying and where you’re holding the assets. 

• If you invest in a U.S. government-backed security like a T-bill, note or bond, you can escape state tax. 

“You’ll still pay federal tax on the interest income, but if you live in a high tax state like California, a T-bill could be a great investment because you can save on the state side of the house,” Keller said. 

• Municipal bonds, issued by state, city and local governments, are generally free from federal taxes, too. They’re also usually free from state tax in the state where the bond was issued, but there are exceptions, so advisors say tread cautiously and check with an advisor about rules on the municipal bonds you’re considering. 
• Invest in fixed-income assets through your nontaxable retirement accounts. This will not only allow you to skip taxes now but control when you want to take the money and pay taxes, said JR Gondeck, managing director and partner at the Lerner Group wealth management firm. 

For the risk averse:Best low-risk investments of 2023

Are fixed-income investments worth it, considering the tax hit? 

Yes. Despite the tax hit, you’re likely to still come out ahead even if not by as much as you had expected, advisors say. 

“Even if you’re paying tax, you’re still making money,” Keller said. Also, “for lots of taxpayers, getting 5.5% interest is good. Not every taxpayer pays the highest marginal (income tax) rate and maybe, they live in a state like Texas with no (income) tax.”

What else should I know about fixed-income investments? 

Not every fixed-income asset is the same so you must do your homework. For example: 

• Treasuries are safest because they’re 100% guaranteed by Uncle Sam so you can always get your initial investment back, but money market funds are neither guaranteed nor FDIC insured, meaning you can lose your entire investment. Money market accounts and CDs, though, are FDIC insured up to $250,000.  
• Municipal bonds aren’t as easy to sell as Treasuries if you want to dump them because they’re issued in much smaller amounts. 
• While CDs are easier to buy than Treasuries − Treasuries must be bought directly from the government or through a brokerage, bank or dealers but CDs are usually simply bought at banks, credit unions and sometimes brokerages − CDs require close management. The rate you lock in for the CD is only for the term of the CD. If the CD automatically rolls over, it may do so at a lower rate. Or if you cash it out early, there may be fees. There are no fees to cash out a Treasury. 

Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her atmjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday.   

Originally Appeared Here

PTI

New Delhi, September 9

The Income Tax Department has slapped notices on some startups seeking information on creditworthiness of their investors as it looked to verify if the amount invested was commensurate with the income declared by the investors.

The tax department replying to a social media post of BharatPe co-founder and former MD Ashneer Grover, said under the law, the onus was on the assessee-company to provide the identity and creditworthiness of the investors as well as the genuineness of the transaction.

“In the last one month, a number of startups (a few in my portfolio as well) have received Income Tax notices asking to furnish information about shareholders,” Grover had said on a post on X, formerly Twitter, on September 8.

“Bahut interesting hai (it is very interesting) – they are asking start-up companies to furnish a 3 year ITR [income tax return] of all shareholders.” He went on to ask how and why the startup would have ITR of shareholders. “Why would a shareholder/individual share their ITR with a private company?”

He went on to state that the reason given is to ‘to establish creditworthiness of shareholders’. “Why,” he asked. Company shareholders aren’t given loans and instead are putting equity in the firm, he added, asking the Union Ministry of Finance to look into this.

Replying to him, the Income Tax Department in a post on X said, “Section 68 of Income-tax Act, 1961 (the Act) under which the Assessing Officer (AO) has made the enquiry about creditworthiness of the shareholder/investor, places initial onus on the assessee-company to prove the following: a) Identity of the investor, b) Creditworthiness of the investor and c) Genuineness of the transaction.”

It went on to state that the “Finance Act, 2012 mandated that the nature and source of any sum credited as share capital, share premium etc., in the books of a closely-held company (excluding Venture Capital Fund or a Venture Capital Company registered with SEBI) shall be treated as explained u/s 68 only if the source of funds from a resident shareholder is also explained by investor.”

On the cases raised by Grover, it said: “In the present case, it appears that the AO has sought to examine the genuineness of the transaction and source of investment by the shareholder-investor, to verify if the amount invested is commensurate with the income shown in the ITRs of the investors.”

Alternatively, it sought income tax permanent account numbers or PAN of the investors be shared so that the income tax returns of the investors can be verified.

“This has been the practice,” it added.

Infosys co-founder and investor Mohandas Pai jumped in to say that this was “misleading”.

He first tagged Prime Minister Narendra Modi and Prime Minister’s Office (PMO) on Grover’s initial post to say, “sir tax terrorism is increasing! This is against what you have stood for. Please intervene.”

That post he tagged a host of politicians and ministers including BJP Yuva Morcha national president and MP Tejasvi Surya and BJP’s Bengaluru Central MP P C Mohan.

After, Income Tax Department clarified the position clearing stating that the alternative to furnishing three years of income tax return is to furnish PAN of the investors, he posted again.

“Again this is misleading,” he said, tagging the Union Ministry of Finance, Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman. “Asking for the PAN is the law. But how can you also ask for 3 year tax returns of the investor from the start up? Does the law permit this. @IncomeTaxIndia itself says that Pan is sufficient. Why this overreach?,” he asked.

Grover reposted Pai’s post on X.

#Social Media

Originally Appeared Here

COLUMBUS, Ohio – The fight over a proposed abortion amendment on the November ballot will be waged in pews and at pulpits across Ohio. But despite a common public perception of how federal tax laws limit political activity by churches and other charities, the Catholic church and other religious organizations that advocate for and against a measure to enshrine abortion rights in the state constitution shouldn’t face any legal jeopardy, according to legal experts.

The Catholic Church in Ohio is gearing up for this November’s election in a manner that in some ways resembles a political action committee. It’s preparing to distribute literature to parishioners, deploy church leaders to high-dollar political fundraisers, make direct campaign contributions totaling in at least the hundreds of thousands of dollars, and even have its priests preach from the pulpit in opposition to a ballot measure that would add legal protections for abortion to the state constitution.

In light of these moves, Brian Hickey, executive director of the Catholic Conference of Ohio, the church’s official state advocacy arm, said he’s heard from people who believe that churches and other religious organizations aren’t allowed to wade into politics under federal law that allows them to accept tax-free donations.

But that’s not the case, Hickey said.

“The law is very clear. We can speak to ballot issues and the underlying issues themselves,” Hickey said. “And for Catholics who disagree with the church’s position on abortion and protections for life, we’re happy to talk about it and why the church teaches what it does.”

In interviews, experts in election and tax law confirmed that under a 1954 tax-code provision known as the Johnson amendment, churches are barred from endorsing political candidates as part of their tax-exempt status.

Religious leaders sometimes skirt the edges of those limitations. Black faith leaders long have been a key constituency for Democratic politicians, while White evangelical pastors are a core part of the American political right. Religious backers of Donald Trump in 2016 got the then-candidate to promise to revoke the Johnson amendment, named for Lyndon B. Johnson, the former legislator and president, although he didn’t do so, and it remains on the books today.

But the provision’s rules generally don’t apply to issues, including campaigns for ballot issues. Tax law views politicking surrounding things like the proposed abortion amendment as more akin to lobbying.

“It’s a misnomer to think that churches don’t have a voice in politics,” said Atiba Ellis, a law professor at Case Western Reserve University. “It’s that churches cannot advocate for or against candidates for public office.”

“I understand why the rules are confusing when it comes to ballot measures,” said Beth Kingsley, a Washington D.C.-based attorney who specializes in nonprofit tax law. “It’s on the ballot. The advocacy around that is regulated by the state’s campaign finance laws. And so, it feels like the same thing as endorsing a candidate… But from an IRS perspective, it’s considered lobbying and that is allowed for charities.”

The Ohio Catholic Conference opposes State Issue 1, the newly-named ballot measure that would add legal protections for abortion to Ohio’s constitution.

The proposed amendment would generally guarantee that patients could make their own reproductive decisions, including birth control, fertility treatment, continuing a pregnancy, or abortion and miscarriage care up until viability, which is around 22 to 24 weeks.

After that point, the state could regulate abortion. However, abortions after that cutoff could be permitted “if in the professional judgment of the pregnant patient’s treating physician it is necessary to protect the pregnant patient’s life or health.”

Ohioans United for Reproductive Rights, the campaign backing Issue 1, also counts religious groups among its backers, including The Greater Cincinnati Board of Rabbis and the United Church of Christ.

“The national setting of the United Church of Christ believes in freedom,” said the Rev. Traci Blackmon, UCC Associate General Minister for Justice and Local Church Ministries. “We understand this belief to be guided by scripture and supported by the resolutions of the church. Reproductive freedom is not an exception to the Faith. The reproductive decisions of persons and families are theirs to make and should not be legislated by those who are elected to uphold and protect the freedoms of all citizens.”

But the Catholic Church plays a more integral part in the anti-abortion movement, including helping bankroll TV ads and offering other support that’s more akin to a political action committee.

Last year, the Catholic church in Michigan gave at least $6 million to an unsuccessful campaign to defeat a similar abortion measure there, around a quarter of the funds the “no” campaign collected. In Ohio, state campaign finance records show that dioceses across the state gave $900,000 to Protect Women Ohio, the official anti-Issue 1 political campaign group. The church also is helping raise money for the effort, with Cleveland Bishop Edward Malesic appearing alongside Republican Gov. Mike DeWine at a Cleveland-area fundraiser.

Hickey said church officials clearly understand restrictions the law places on religious groups when it comes to political issues. The church doesn’t get involved in backing political candidates, he said, but priests and other leaders commonly talk about the issues that are important to the church, and which often cut across party lines.

“We’re going to talk about the church’s teaching generally with talking about life and the importance of caring for those most vulnerable in society such as the immigrant, the refugee the poor, the homeless and of course pre-born children,” Hickey said.

Even when it comes to issues, federal tax law does theoretically place limits on political advocacy by religious organizations, Kingsley said.

The amount religious groups spend on lobbying still must represent an “insubstantial” amount of the organization’s overall budget, a number that attorneys generally advise translates to around 5% of an organization’s expenditures.

But, Kingsley said that religious organizations are difficult for the IRS to track, since they are not required to file 990s, the annual tax returns that most charitable organizations file detailing their financial activities to the IRS and the public.

Plus, the IRS is reluctant to audit churches generally because of the potential for public backlash, unless the organization itself appears to be fraudulent.

“It’s at the bottom of list of things that they want to deal with,” Kingsley said. “They will investigate churches that look like shams, that are the ‘Church of Me and My Spouse’ and we’re going to claim a tax deduction for our house. But they really don’t want to get in the middle of a fight about churches and politics. Because if they do, if nothing else, they know a lot of politicians are going to come to the defense of a church and attack the IRS as doing something improper even if they are following the rules.”

“They don’t have any interest in taking on the Catholic Church,” Kingsley said in short.

Luis Garcia, a spokesperson for the IRS declined to comment for this story. Garcia did point, however, to a 2015 IRS publication that offers guidance to churches and religious organizations.

“Under privacy and non-disclosure law, it is against the law for me or any IRS employee to comment on or discuss a taxpayer’s or tax entity’s tax information or relationship with the IRS,” Garcia said in an email.

There have been times in the past when the IRS has revoked the tax-exempt status of bona fide churches. In 2000, Branch Ministries lost its status after a church affiliate in New York ran a series of newspaper ads urging Christians to not vote for Bill Clinton in the 1992 presidential election, citing the then-Arkansas governor’s views on abortion and homosexuality.

But generally, Ellis said the IRS walks a balancing act when it comes to enforcing the law. Individual clerics, he said, may break the law during services, but particularly when it happens in smaller independent churches, it may never land on the IRS’s radar.

“I think there are First Amendment issues involved in this kind of regulation,” Ellis said. “If the IRS gets perceived as going out to quash religious liberty by overzealously dealing with the political prohibition, I don’t think the IRS or any part of the government was to be viewed that way.”

Mark Caleb Smith, a political scientist at Cedarville University, a private Baptist school in the Dayton area, said American churches long have gotten involved with politics, including more recently operating within or around the tax laws.

This can involve toeing the line, like inviting a political candidate to speak to a congregation and heavily implying that congregants should support them, or offering church space to political groups for organizing purposes.

But on a more basic level, Smith said, churches are a basic political unit, giving members opportunities to learn to organize and communicate in order to persuade and engage with the broader public. Through their teachings on moral issues, churches also influence their congregants’ worldviews in a way that easily translates to politics, he said.

Smith said that recently though, churches have gotten more directly involved in politics, particularly on the political right.

“I think to some degree, since our country has broken into this culture war dynamic … Religion is inherently engaged in those kinds of questions having to do with good and evil, human sexuality, marriage, male, female, abortion. Those are at some level a religious question. And it seems like religious organizations are getting pulled more and more into these conversations since they’re so fundamental to our politics,” Smith said.

Smith said he used to think there would be a serious risk for churches to wade into controversial political and social issues, because of the potential to divide congregants. But he’s changed his views in recent years, as churches increasingly have become more ideologically uniform as society has become more politically divided, and congregants have sorted themselves to live among like-minded people.

“There certainly are people who are offended by it. But in my experience, those people don’t make up enough of most congregations to really steer or create risk for the pastor or priest or whoever,” Smith said.

Andrew Tobias covers state politics and government for cleveland.com and The Plain Dealer

Originally Appeared Here

High-net-worth US taxpayers, working with professional advisers, have transferred assets into personal retirement plans established in Malta to limit and potentially eliminate tax on distributions. These so-called Malta pension plans rely on a specific interpretation of the US-Malta tax treaty.

This interpretation hasn’t been tested in the courts, but the IRS expressly rejected it in its clarification of the treaty in December 2021.

The Malta pension plan purportedly allows US taxpayers to transfer unlimited retirement funds and other assets—including appreciated assets—into a personal retirement plan established in Malta without triggering any recognition of gain. The plans are designed to defer tax on income earned within the plan, allow for distributions at age 50, and avoid tax on most distributions, all while providing asset protection.

In sum, the plans purport to offer the benefits of a US personal retirement plan with far fewer restrictions. It therefore should come as no surprise that the Malta pension plan landed on the IRS annual Dirty Dozen list.

After several years of warning taxpayers away from these plans, the IRS Criminal Investigation Division has initiated investigations into their potential abuse. However, in seeking to hold taxpayers and their advisers accountable for illegal conduct, the IRS faces substantial hurdles.

The Hurdles

While the IRS has grave concerns regarding the tax benefits associated with Malta pension plans, its interpretation of the treaty hasn’t yet been the subject of litigation, and tax professionals are preparing to defend these arrangements.

Perhaps recognizing this, the IRS has stopped short of calling all Malta pension plans abusive, possibly leaving room for a more nuanced approach. For example, a US person who worked abroad and has a legitimate non-US pension might well have believed that a rollover into a Malta pension plan was an unremarkable and unobjectionable transaction.

In seeking to prosecute those involved in forming and advising on the use of Malta pension plans, the IRS must also navigate the complexity and lack of clarity in international tax laws. These plans involve the interaction of tax regulations from multiple jurisdictions, creating legal gray areas.

Different definitions of retirement plans and different reporting requirements across borders make it difficult to determine whether individuals are trying to exploit the system or attempting to use these plans for legitimate retirement purposes.

This complexity may also support a taxpayer’s claim of reasonable good faith reliance on professional advisers, a strong defense to any allegation of willful conduct. And even though IRS-CI is the best in the business at analyzing complex financial transactions, finding evidence of criminal intent may nonetheless remain a challenge when a Malta pension plan may arguably be a legitimate entity.

In pursuing criminal charges against individuals involved in Malta pension plans, the IRS will likely also face challenges specifically associated with cross-border investigations, including securing cooperation from foreign governments. Such cooperation isn’t guaranteed and historically hasn’t been provided with any regularity. Tax authorities must follow information sharing protocols and defuse resistance from government agencies in the jurisdictions where these individuals may hold accounts or have investments.

The IRS continues to operate with limited resources as Congress battles over future IRS funding under the Inflation Reduction Act. In this environment, pursuing complex investigations that require significant labor, expertise, and advanced technology becomes even more difficult. Though high-income tax evaders appear to be an easy target, this new initiative may not find widespread congressional support.

Finally, in any criminal prosecution involving the Malta pension plans, the government must overcome the presumption of legitimacy associated with the tax professionals who recommended the arrangements. Many taxpayers also properly reported the Malta pension plans to the IRS on the appropriate tax forms and have been completely transparent about their investments.

Simply establishing that the Malta pension plans are much more advantageous than US personal retirement plans won’t suffice. Rather, the government must establish beyond a reasonable doubt that the individuals involved intentionally sought to violate a known legal duty. Many taxpayers may not have known there was anything problematic about Malta pensions plans—and even for the ones who did know, proving it may well be challenging for the government without a smoking gun.

Though IRS-CI appears to be aggressively pursuing these matters through a joint investigation with the IRS Large Business and International Division, overcoming these challenges requires more than just close collaboration with international tax authorities and a cooperative jury. The government will need a bit of luck and favorable court rulings that would allow prosecutions to proceed. Whether the government will be able to satisfy its burden to substantiate criminal tax charges remains to be seen.

An Alternative

Criminal investigations require substantial resources, and choosing one target often means walking away from another. The government is receiving numerous leads on clear criminal violations in other areas of tax law from the IRS Whistleblower Office, cooperators, and other informants. Many go unaddressed due to staffing and budgetary constraints, not to mention what seems to be an inexplicable bias against whistleblowers.

In this environment, the IRS should consider an alternative approach. In lieu of the broad criminal investigation underway involving hundreds of summonses issued to taxpayers and professional advisers, some of whom have never participated in a Malta pension plan, a reasonable settlement initiative would prompt participants to come forward quickly, address any noncompliance, and pay any tax due.

To achieve this result, the IRS would need to suppress the urge to impose penalties, much less the egregious penalties currently assessed with respect to certain delinquent international tax forms that could arguably apply in this context.

A settlement initiative will also leave the resolutions in the hands of LB&I, which is equipped to address complex, international issues through civil enforcement mechanisms, and allow IRS-CI to pursue unrelated criminal cases that involve fewer hurdles and uniformly egregious conduct. Time will tell if the IRS has the appetite for this kind of program, but history and experience suggest that it would be beneficial if they do.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Caroline Ciraolo is a partner at Kostelanetz and former acting assistant attorney general of the Tax Division at the Department of Justice. She is an adjunct professor at the Georgetown University Law Center and University of Baltimore School of Law Graduate Tax Program.

John D. (Don) Fort is the director of investigations at Kostelanetz and the immediate past chief of the IRS Criminal Investigation Division. He assists clients facing governmental investigations involving all manner of alleged financial and economic crimes.

Ian Weinstock heads up the trusts and estates practice at Kostelanetz. His practice focuses on estate planning and personal income tax planning for high-net-worth US and international clients.

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Originally Appeared Here

The Tulsa Regional Chamber hosts Oklahoma Gov. Kevin Stitt for a State of the State luncheon on Thursday, Aug. 24, 2023.

Gov. Kevin Stitt on Thursday renewed his call for tax cuts — including eliminating the state income tax — and railed on those who want to “turn Tulsa and eastern Oklahoma into a reservation.”

“There is a storm of injustice that needs to be faced head on,” he said during the Tulsa Regional Chamber’s State of the State address.

“We are now in a jurisdictional and geographical fight for who has authority over our state,” he said. “There are tribal government leaders that say the state of Oklahoma doesn’t have authority over Indians in Tulsa.”

Stitt was alluding to the 2020 U.S. Supreme Court’s McGirt ruling that a large chunk of eastern Oklahoma remains an American Indian reservation. The reach of the McGirt ruling, which applied to the Muscogee Nation’s reservation, has been expanded by lower courts to include several more eastern Oklahoma tribes’ reservations.

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The McGirt decision means state prosecutors lack the authority to pursue criminal cases against American Indian defendants in parts of Oklahoma, including most of Tulsa. It also has created many jurisdictional questions beyond criminal jurisdiction, including regarding taxes and speeding tickets.

“Let me be clear: Tribal governments disbanded and allotted out all the land in 1907 at statehood. Other states didn’t do that,” Stitt said.

Guests at the Osage Casino & Hotel table walked out of the chamber event when the governor began his comments on tribes and jurisdiction, Osage Nation Communications Director Abby Mashunkashey confirmed afterward.

“Their actions speak for themselves, and we support their decision to not engage in false and divisive rhetoric,” Mashunkashey said.

“The Governor’s statements were slanted, disrespectful and minimize the massive contributions Tribal Nations make to Oklahoma, of which we are also citizens,” Osage Casino General Manager Edward Gray said.

Osage Nation Principal Chief Geoffrey Standing Bear was not at the event, Mashunkashey said.

Cherokee Nation Principal Chief Chuck Hoskin Jr. sent out a rebuke to the governor’s speech Thursday, noting Stitt’s “blatant hostility toward tribal sovereignty.”

“Gov. Stitt’s shameful description of tribes simply exercising rights as sovereign nations dating back to before the founding of the United States as a ‘storm of injustice’ is breathtaking, even coming from him,” Hoskin said in a statement.

“His attack on tribes included many falsehoods and inaccuracies regarding tribal reservations in eastern Oklahoma. Contrary to his claims, tribes were not disbanded in 1907 and did not volunteer to give away our reservations at statehood.

“Cherokee Nation, along with other tribal nations, have persisted, and today, we contribute mightily to the state’s cultural and economic fabric. The governor continues to be isolated in his ‘geographic fight’ for Oklahoma as the rest of Oklahoma’s elected leaders and state embraces tribes and the U.S. Supreme Court’s McGirt decision,” the chief said.

“This isn’t fair,” said Stitt, who is a Cherokee nation citizen. “We cannot have a state where a doctor who is part Indian doesn’t pay taxes or gets speeding tickets from Tulsa PD, but a single mom of another race does. We all have to live under the same set of rules, regardless of race or heritage.”

“This is not political,” Stitt said. “This is about one set of rules for all Oklahomans, and I will always be bold and tell you the truth. I will not go down in history as the governor that didn’t fight for one Oklahoma.

“Listen — if some people don’t have to pay taxes, then no one in Oklahoma should. Every time you see a tribal (vehicle) tag, just realize the state is losing about $200 million in revenue annually. That should be going to roads that those cars are driving on, as well.”

Alluding to one of Stitt’s talking points since he first ran for governor, Hoskin said: “Cherokee Nation will continue being a good partner protecting public safety, prosecuting those who commit crimes and helping our neighbors through contributions to schools, law enforcement and road improvements, which are areas that contribute to Oklahoma being a ‘top 10 state.’

“The governor should set aside fabrications and strive to better and more accurately understand tribal history, Oklahoma history, sovereignty and the contributions of our state’s tribal nations,” Hoskin said.

Stitt, during a question-and-answer session following his speech, also said of income taxes, “I want to put us on a trajectory to zero.”

He said the state is in a position to both lower income taxes and eliminate the grocery sales tax, an issue he has been pushing for years.

“If not now, then when?” he asked, citing the state’s $5 billion savings account.

In his February 2022 State of the State address in Oklahoma City, Stitt also called for an eventual reduction of the state income tax. He proposed creating “a taxpayer protection plan that responsibly lowers income taxes according to our state revenue.”

“Nine states (including Texas) don’t charge a personal income tax. Many others are racing to join them, and we can’t be left behind,” he said at the time.

Stitt was also asked about the recent situation involving Tulsa Public Schools’ accreditation renewal and change in leadership.

“When we put our kids in school, that’s the most important thing to us — is to make sure our local school is good. But you have to put some pressure sometimes on the local school district if they’re not performing.

“We love the local control. That’s up to the citizens … getting engaged, making sure that you talk to the people on your school board and you hold them accountable, and you make sure that they are thinking about the kids and what’s best for the next generation.”

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Originally Appeared Here

LEETONIA–Several personnel matters were discussed and approved for the police department in the village council meeting Wednesday.

The meeting began with a moment of silence in memory of long-serving Police Dispatcher Becky Shearer, who passed on Tuesday. Shearer served the department and village for over 27 years.

The department also saw the resignation of Seargeant Randy Schneider effective Aug. 11, and the hire of current part-time officer Alyssa Hildebrand as a full-time officer at a rate of $18 per hour effective Monday approved by council.

Discussion of department personnel continued as Police Chief Allen Haueter announced that Officer Eric Ritz had returned from his military service in Syria and was expected to return to duty with the department Sept. 14, and be moved to full-time upon his return. Councilman Richard Newton suggested council consider the hire of an additional full-time officers following Ritz’s return. An addition to the roster would allow the department to have full 24/7 coverage again, and even allow for two officers to be on call during peak policing hours at times. Newton also argued that during severe incidents the ability to have a second officer from the village available, and not have to wait for support from a Columbiana officer, would prove massively helpful.

“I know people think that we’re not that busy, but it does get busy, and it does get dangerous even in our little town. There are certain crimes that go on that are heat of the moment and in process, and having a second person there is really helpful, and not having to wait for someone to come from Columbiana and hope they’re not tied up on something would make a big difference,” said Newton.

The estimated annual cost of adding such a position would be approximately $45,000-47,000. Council ultimately said they were not in opposition to further exploring the potential hire should they find the right candidate.

Other personnel items included the approval of the hire of Gavin Rambo as a part-time zoning officer trainee at a rate of $20 an hour until a new, permanent zoning officer could be hired. Siembida said that the village had received several applications thus far and was still actively accepting applications. Rambo will continue to take calls and file zoning complaints as necessary to ensure the village remained up to date with zoning matters while the hiring process was conducted.

The village’s income tax growth was discussed. Fiscal Officer Nick Mistovich said that thus far this year the village had collected $841,406 in income tax, and was on track to collect $1,250,000 –a significant increase from the $942,684 collected last year. Mistovich said this increase was likely responsible for the approximately $55,000 of monthly revenue in excess of its monthly expenditures thus far this year. Mistovich estimated that should that trend continue the general fund would see an annual increase of nearly $660,000.

“When we say things are going good in Leetonia, it’s because they actually are, and a lot of that is from income tax,” said Mistovich.

Mistovich believes this financial prosperity is being driven by the village’s partnership with RITA and the expansion of the industrial park. With particular emphasis on the tax revenue provided by the businesses at the industrial park, which comprise five of the village’s 10 largest annual tax accounts in 2023. Revenue from Pennex Aluminum, ($294,020.51) and Haltec, ($91,226.77), respectively represent 35%, and 11% of tax revenue collected –a staggering combined total of a 46% of income tax revenue collected in 2023. Additionally, Pennex represents a full 25% of all water used in the village, in this year at approximately 5,682,506 gallons.

Village council will meet next 6:30 p.m. Sept. 6.

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Originally Appeared Here

One year after the Internal Revenue Service received a huge influx of cash, the agency said it had increased its full-time staff to nearly 90,000, a level not seen in more than a decade.

The additional staffing comes as the I.R.S. — which received an $80 billion infusion last year as part of the Inflation Reduction Act — has prioritized hiring at the agency, which has seen its budget and ranks dwindle over the past decade.

The agency is attempting to recruit new staff to improve taxpayer services and crack down on wealthy, sophisticated tax evaders, according to Daniel Werfel, the I.R.S. commissioner.

Still, the agency faces an uncertain future. Republican lawmakers have accused the I.R.S. of planning to use its newfound funding to harass small businesses and middle class families. They successfully cleaved back $20 billion from the agency’s new pot of money as part of an agreement that was reached earlier this year between Republicans and Democrats over suspending the nation’s debt limit, leaving the I.R.S. with $60 billion to carry out its overhaul plans.

Mr. Werfel, in a briefing with reporters on Tuesday afternoon, said that the I.R.S.’s recent accomplishments, such as digitizing paper tax filings and improving responsiveness to taxpayers, should dispel Republican fears about the agency’s intent.

“There were suggestions that this funding was going to supply an army of armed I.R.S. agents who are out to shake down average taxpayers,” Mr. Werfel said. “This myth should be laid to rest.”

The I.R.S. funding is intended to help the agency recover from debilitating budget cuts over the past several years. President Biden has said the additional money will help the agency go after tax cheats, chipping away at the $7 trillion tax gap of money owed to the federal government but projected to go uncollected over the next decade. Although beefed up enforcement is a big part of that, the I.R.S. has been focused on promoting its upgraded technology and improved service.

The agency has been racing to digitize tax forms and reduce hold times that have frustrated taxpayers who try to call the I.R.S. for help. Average wait times fell to 3 minutes from 28 minutes during the 2023 tax season, and the agency cleared a backlog of millions of unprocessed tax forms from 2022.

To underscore the idea of a friendlier I.R.S., Mr. Werfel noted that the agency announced last month it would dramatically curb unannounced visits by agents to homes and businesses. The move was intended to reduce tension between I.R.S. agents and taxpayers and help eliminate scams by people who impersonate I.R.S. staff.

The nearly 90,000 full-time employees at the I.R.S. is a sharp increase from the 79,070 that were employed in 2022. The I.R.S. has not had more than 90,000 full-time employees on its payroll since 2012, according to the 2022 I.R.S. data book.

Most of the new hires have been in the wage and investment division, which is the customer service arm of the I.R.S. Mr. Werfel said that the agency had been actively hiring staff from accounting and law firms and was bringing in data scientists to use mathematical tools to identify taxpayers whose returns suggest they should face an audit.

While Biden administration officials characterized the first year of the I.R.S. modernization plan as a success, significant uncertainty remains. That includes ongoing funding for the agency. A deal reached in June to avert a default on the nation’s debt included an agreement by the White House and Republicans to rescind $20 billion of the agency’s funding.

Mr. Werfel suggested that the clawback would not curtail the agency’s ambitions in the near term but said that additional cuts to its annual budgets could ultimately result in the I.R.S. tapping resources that were intended to modernize the agency to instead fund its daily operations. Still, he expressed optimism that an upgraded I.R.S. would win over Republican skeptics who have seized on cutting the agency’s funding.

“I believe that if we are funded in our base, that with the $60 billion, we can build momentum to prove to Congress and the American people that investments in the I.R.S. pay off for taxpayers in a way that’s very positive,” Mr. Werfel said.

Originally Appeared Here