Cohen talks Trump taxes. In his explosive testimony to the House Oversight Committee yesterday, President Trump’s former personal attorney Michael Cohen explained why Trump has been so reluctant to release his tax returns: He didn’t want “think tanks and tax experts” to review the returns, fearing it would result in an IRS audit. Cohen suggested that Trump deliberately undervalued his assets for tax purposes and provided new details on how the Trump used his tax-exempt foundation for business and personal purposes.
Nearly half of Americans have no idea how the TCJA affects their 2018 tax returns. A study by Haven Life finds that 47 percent of Americans with children age 17 or younger do not know how the Tax Cuts and Jobs Act affects them.. They do know how they’d use a tax refund: Six out of 10 say they’d pay down their debts.
The SALT cap leaves a bitter taste. The Treasury Inspector General for Tax Administration reports that an estimated 10.9 million people paid $323 billion in state and local taxes in 2018 that exceeded the $10,000 cap on SALT deductibility enacted under the TCJA.
No more help for those who paid too little during 2018. Treasury will offer taxpayers no additional relief if they withheld too little in 2018, reports TaxNotes (paywall). Treasury previously agreed to waive penalties for those who paid at least 85 percent of their 2018 tax bill through withholding or estimated taxes. That was a bit of a break from the normal 90 percent rule.
And no manipulation, says Treasury. The department denied that it intentionally manipulated withholding tables to give taxpayers the appearance of tax windfalls. The department told Senate Democrats it would have been “unfair and inappropriate” to leave withholding tables unchanged after passage of the TCJA. But top Senate Finance Committee Democrat Ron Wyden doesn’t buy it. “Let’s call it what it is, this is tax penalty entrapment,” he said, as taxpayers may now owe penalty fees for underpaying their tax bills.
Another way private equity managers can avoid paying taxes: Buy a plane. Bloomberg reports that the TCJA created a new tax avoidance scheme. The new law caps deductions on excess business losses and also makes it a bit more difficult for private equity managers and other financiers to use carried interest to categorize compensation as capital gains that are taxed at lower rates than ordinary income. As a result, tax advisers have found a loophole: “By morphing their carried-interest payouts into management fees that are business income to the fund, managers can soak up the sizable business loss that buying an airplane usually creates. Managers can thus avoid both what originally would have been a capital gains tax bill on their carried interest, and what would have been ordinary taxes on their management fees.”
The Senate confirmed the top IRS lawyer. Mike Desmond is now IRS Chief Counsel. The Senate voted yesterday 83-15 to confirm President Trump’s pick for the position that had been vacant for two years. Mr. Desmond was tax legislative counsel at Treasury, responsible for overseeing regulatory guidance on domestic tax law.
Clarification: In yesterday’s Daily Deduction, we said the last balanced budget was in 1997. While Congress last adopted a balanced budget resolution that year, the most recent federal surplus was in fiscal 2001.
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