Tax News & Views Hugs the Shutdown Finale Roundup

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Shutdown Ends

Trump Signs Spending Bill, Ending Longest Shutdown in U.S. History - Katy Stech Ferek, Olivia Beavers and Richard Rubin, Wall Street Journal:

The GOP-led House passed a spending package reopening the government and President Trump signed it into law late Wednesday, drawing to a close a record-long 43-day shutdown driven by Democrats’ demands to extend expiring healthcare subsides.

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The package extends funding for the federal government through Jan. 30 and includes full-year funding for the Agriculture Department, military construction and the legislative branch. The bill also includes language guaranteeing the reversal of federal layoffs initiated by the Trump administration during the shutdown in a move to pressure Democrats, as well as a moratorium on future cuts.

The federal government is back open. Now what? - Jake Sherman, John Bresnahan and Laura Weiss, Punchbowl News. "This shutdown was about one thing: expiring Obamacare tax credits and what that means for millions of ACA enrollees nationwide."

Shutdown Deal Punts Fate of ACA Tax Credit to December - Katie Lobosco and Cady Stanton, Tax Notes ($):

In exchange for some Democratic votes to reopen the government, Senate Majority Leader John Thune, R-S.D., promised to hold a vote on a bill addressing the Affordable Care Act tax credit no later than the second week in December.

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But there’s no guarantee that Republicans will vote in favor of an extension of the ACA credit, and even if a bill passes the Senate, House Speaker Mike Johnson, R-La., hasn’t committed to scheduling a vote in the House.

The enhanced tax credit, a temporary boost to the original ACA subsidy, was passed by Democrats during the COVID-19 pandemic. It makes more middle-income taxpayers who buy healthcare insurance through ACA exchanges eligible for a subsidy and makes insurance more affordable for some lower-income enrollees.

The Next Shutdown?

The next shutdown threat is around the corner - Jennifer Scholtes, Katherine Tully-McManus and Jordain Carney, Politico:

The longest shutdown in U.S. history is ending. Yet Congress’ most onerous government funding work remains unfinished — setting up a potential repeat early next year.

The bipartisan deal to end the funding lapse includes a long-term agreement on just three of the dozen bills lawmakers need to finish each year to keep cash flowing to federal programs. And those three measures are some of the easiest to rally around — including money for veterans programs, food aid, assistance for farmers and the operations of Congress itself.

GOP’s Shutdown Win May Backfire Over Soaring Health-Care Costs - Steven Dennis, Bloomberg:

The moves by GOP leaders to resist Democrats’ demands to protect expiring subsidies for Obamacare as the price for reopening federal agencies will save the government billions of dollars and weaken a program the party has tried repeatedly to kill.

But with millions of Americans now facing a spike in health care premium costs at the start of next year, the issue could quickly become a drag on Republicans in the 2026 midterm elections.

ACA Premium Boost Chart via Bloomberg News

IRS and Shutdown's End

What’s Next for the IRS After the End of the Shutdown, Explained - Erin Slowey, Bloomberg ($):

The end of the longest-ever government shutdown in US history will fully staff a battered IRS, which will be racing to play catch up and prepare for the first tax-filing season under the new GOP tax law.

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Employees critical to filing season were largely exempt from furlough and continued working. In practice though, the furloughing of everyone else still complicated work for those who stayed on. The agency warned that phone assistance, refund payments, and appointments with appeals would be hampered during the shutdown.

Workers following the shutdown will be managing a backlog of paper processing and tax refund payments, and will likely face a barrage of phone calls from people who couldn’t reach the IRS during the funding lapse.

Tariffs and Dividends

Ports Warn USTR Against China Ship Fees, Crane Tariffs - Dylan Moroses, Law360 Tax Authority ($):

The U.S. Trade Representative should reconsider tariffs on Chinese cranes and fees on Chinese and other foreign ships while those measures are suspended for the next year as part of a trade truce between China and the U.S., according to comments recently submitted by a U.S. port industry association.

The American Association of Port Authorities submitted comments Monday recommending that the USTR work to eliminate the Chinese and foreign vessel fees, along with the tariffs on ship-to-shore, or STS, cranes, during the one-year suspension agreed to as part of the deal between the U.S. and China. The measures were implemented as part of a Section 301 investigation into the unfair trading practices of the Chinese maritime, logistics and shipbuilding sectors.

Bessent says tariff cuts on coffee, other ag products coming soon - Doug Palmer, Politico:

U.S. Treasury Secretary Scott Bessent on Wednesday said the Trump administration will soon announce a broad package of agricultural tariff cuts.

“You’re going to see some substantial announcement over the next couple of days in terms of things we don’t grow here in the United States, coffee being one of them,” Bessent aid in an interview on Fox News. “Bananas, other fruits, things like that. So that will bring the prices down very quickly.”

So tariffs raise prices. Who knew?

Trump can’t quit his favorite economic idea - Semafor:

Trump is returning to one of his favorite concepts — giving money directly to Americans — amid signs of voters souring on the US economy, Shelby reports. Recently, Trump has pushed sending $2,000 tariff rebate checks to eligible Americans, and has floated converting money for health insurance tax credits into direct payments. Earlier this year, he had also weighed giving Americans “DOGE dividend” checks. Trump’s first administration even saw him put his name on COVID relief checks sent out to millions. Experts sound skeptical. “Pretty much Fantasyland,” said Scott Lincicome, vice president of general economics at the libertarian Cato Institute.

Trump tariff rebate checks could cost twice as much as their revenue: Analysis - Sylvan Lane, The Hill:

The nonpartisan budget watchdog group said Trump’s rebate checks would likely cost $600 billion if the administration follows the guidelines used for COVID-19 stimulus payments.

U.S. tariffs are only projected to generate $300 billion in federal revenue by the end of the year and are responsible for just $100 billion in federal funds so far, according to the CRFB.

Taxes Around The World: Compliance Costs, British Tax Boosts

Tax News & Views International Weekly: Pillar Two's Escalating Compliance Costs - Alex Parker, Eide Bailly:

Since the beginning of the Organization for Economic Cooperation and Development’s Pillar Two project—which created a 15% global minimum tax being implemented across the globe—the focus has been on the potential compliance burdens. Many companies claim that they are far more worried about how to comply with the complex new reporting rules, than they are about any taxes they’ll end up paying under the new regime.

There have been few solid figures yet in the discussion—just a lot of anecdotal evidence. But Tax Foundation Europe, the Brussels-based branch of the conservative-leaning U.S. think tank, may have finally shed some light on the potential scale of the issue. The Foundation, along with the German economic research organization ZEW, recently issued a discussion paper which estimated that the compliance cost could reach into the billions.

Britain Is Preparing Tens of Billions in New Taxes—Again - David Luhnow, Wall Street Journal:

In the coming weeks, U.K. treasury chief Rachel Reeves is expected to announce a tax hit of some 30 billion pounds, equivalent to around $39 billion, or about 1% of Britain’s annual economic output. The move is aimed at narrowing Britain’s budget deficit, which ended 2024 at 5.7% of GDP.

Taken together, the two rounds of tax increases will be Britain’s biggest since the mid-1970s, according to estimates by Capital Economics. The increases will likely further constrain Britain’s anemic economic growth.

Blogs and Bits

Will You Pay More Taxes If You Are Paid In December Or January? - Robert Wood, Forbes. "In general, you can do this kind of tax deferral planning as long as you negotiate for it up front and have not yet performed the work."

Forms W-8BEN and W-9: Which to Use, When, and Why Many Get It Wrong - Virgina La Torre Jeker, US Tax Talk. "It is crucial to understand the differences between Form W-8BEN and Form W-9 when receiving payments from U.S. sources. This is especially so if the taxpayer operates, invests, or maintains financial accounts overseas. Many taxpayers get this wrong, often to their detriment."

Tax Court’s Third Strike On Valuation: Jones Day Theory Rejected Again - Peter Reilly, Forbes:

Judge Toro rejected that argument on three grounds. First of all, there is no legal authority supporting it. Of course, that is what you expect with a new argument. Second Judge Toro disagrees with the Jones Day reading of the Appraisal Institute's manual. The third is that the argument requires the assumption that the sellers in the noted sales were all economic idiots.

Tilting the Playing Field: Tax Preferences for Cooperatives and Government-Owned Enterprises- Jack Salmon, The Unseen and the Unsaid. "Cooperatives, state and local government enterprises, and federally owned corporations together generate over $1.4 trillion in commercial revenue each year. Yet much of that activity escapes entity-level taxation entirely. The result is a sprawling untaxed sector that competes directly with private firms on an uneven playing field..."

Quotable

In my practice, I generally found that often doctors had an inflated opinion of their ability to determine tax law better than tax lawyers.

- Jack Townsend, Federal Tax Procedure, discussing a case in which a doctor's tax plans went expensively awry.

IRS vs. Acting IRS Commissioner in Partnership Tax Issue

The I.R.S. Tried to Stop This Tax Dodge. Scott Bessent Used It Anyway. - Andrew Duehren, New York Times:

Among those who would benefit from an I.R.S. defeat is President Trump’s Treasury secretary, Scott Bessent, a former hedge fund owner and, since August, the acting commissioner of the I.R.S.

Like many firms on Wall Street, Mr. Bessent’s hedge fund, Key Square Capital Management, was set up as a limited partnership. Through that structure, Mr. Bessent avoided paying roughly $910,000 in Medicare taxes on money he made running his hedge fund in 2021, 2022 and 2023, according to a memorandum prepared by Democratic Senate staff for Mr. Bessent’s confirmation hearing in January.

The issue, simplified, is whether being a "limited" partner under state law makes you a limited partner under tax law rules, eligible for the "limited partner exception" from self-employment tax. For high-income taxpayers, that's the 3.8% Medicare component of self-employment tax. The IRS has argued that tax regulations look at what the partner's actual role is with the partnership controls, not the state-law label.

From the article:

Mr. Bessent’s decision to not pay the additional tax has now put him in the unusual spot of personally opposing — and having a personal stake in — how the I.R.S. interprets tax law. And since he took office, the Treasury and I.R.S. have backed away from developing regulations to address it.

The article discusses two important Tax Court decisions that upheld the IRS position, both involving Soroban Capital Partners:

In a landmark opinion in 2023, Judge Ronald L. Buch of the Tax Court sided with the I.R.S. He held that whether someone owed self-employment taxes depends on the role the person actually plays in a firm, not the person’s title as a limited partner. In a follow-up ruling this year, Judge Buch found that the three Soroban owners should pay self-employment taxes on the full $145 million in earnings.

“A partner labeled a limited partner who works for the business full time, whose work is essential to generating the business’s income, who is held out to the public as essential to the business, and who contributes little or no capital, is not functioning as a limited partner regardless of the label placed on that partner,” Judge Buch wrote in a ruling this year.

The article discusses the uncertainty surrounding the IRS position on this issue now, and the agency's diminished ability to enforce its position with a diminished workforce. It is an unusually detailed and informative discussion of an issue not normally covered outside the tax world.

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Tax News & Views Hugs the Shutdown Finale Roundup

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Joe B. Kristan, CPA