Regina Kelley

Family Owned Businesses Will be Hit Hard By Biden’s Second Death Tax

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Posted by Regina Kelley on Tuesday, July 6th, 2021, 4:29 PM PERMALINK

President Biden and Congressional Democrats want trillions of dollars in new taxes and spending. Included in this plan is a proposal to slug small businesses with higher taxes by eliminating step-up in basis and creating a second death tax. 

Repealing step-up in basis will impose capital gains taxes on the unrealized gains of every asset owned by a taxpayer once they die. This tax would be separate from, and in addition to, the 40 percent Death tax. This tax increase will eliminate 80,000 to 100,000 jobs each year for the first ten years and reduce the GDP by one hundred billion dollars over the next ten years.

At a recent Republican Ways and Means Committee hearing, several American business owners explained that this second death tax would threaten their family-owned businesses and their ability to pass their businesses down to future generations. 

One witness, Patrick McDowell, who owns a family farm with his two brothers in Texas, explained that how this tax would harm asset rich, cash poor businesses like his. He stated: “The plan punishes our family just because we want the next generation to make a living in agriculture…. we will be frantically selling tractors and cattle to pay the tax because we don’t have that kind of cash.” 

Another witness, Michael Gilmartin, who is President of Commercial Creamery Co, noted that it is hard enough keeping a family business going: “we’ve had fires and we’ve had fights…I think by going forward with this, eliminating the stepped-up basis, we are saying we don’t value family businesses and we are going to make them go away and I think it’s ironic that that’s part of the American Family’s Plan.”

Finally, Don Biates, owner of a family-run farm corporation in Alaska, noted that this second death tax would devastate local communities across America: “Small family-owned businesses are the bedrock of our communities. They support the youth teams, local fundraisers, local celebrations. Capital gains, estate taxes, and stepped-up basis are related. All deter family businesses from continuing for another generation.”

This tax increase would create significant new complexity for family owned businesses. This proposal would force taxpayers to determine the cost basis of all assets owned, many of which may have been owned for decades. As noted by an Ernst and Young study, if the taxpayer is unable to provide sufficient evidence to prove the cost basis, then it may set to $0. In other words, the tax would be applied to the entire value of taxpayer assets:

“Family-owned businesses may also find it difficult to comply because of problems in determining the decedent’s basis and in valuing the bequeathed assets. It seems likely that these administrative problems could lead to costly disputes between taxpayers and the IRS. Additionally, if sufficient evidence is not available to prove basis, then $0 may be used for tax purposes. This may result in an inappropriately large tax at death.”

Repealing step-up in basis has already been tried and failed. In 1976 congress eliminated stepped-up basis but it was so complicated and unworkable it was repealed in 1980 before it took effect.

As noted in a July 3, 1979, New York Times article, it was "impossibly unworkable":

“Almost immediately, however, the new law touched off a flood of complaints as unfair and impossibly unworkable. So many, in fact, that last year Congress retroactively delayed the law's effective date until 1980 while it struggled again with the issue.”

As noted by the NYT, intense voter blowback ensued:

“Not only were there protests from people who expected the tax to fall on them -- family businesses and farms, in particular -- bankers and estate lawyers also complained that the rule was a nightmare of paperwork.”

The testimony of all the witnesses came to the same conclusion: Biden’s proposal would ruin their family-owned businesses that have been their families’ livelihoods for decades. This proposal to increase capital gains tax will not only threaten the economy and cost jobs but endanger businesses across the country. 




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IRS Has Repeatedly Failed to Protect Taxpayer Data

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Posted by Regina Kelley on Tuesday, June 29th, 2021, 2:01 PM PERMALINK

Taxpayers should be alarmed by the IRS’s repeated failure to protect taxpayer data. Over the years, serious security vulnerabilities within the agency have been highlighted by federal watchdog organizations. These vulnerabilities are especially concerning given the recent unauthorized release of taxpayer information to the progressive organization, ProPublica.

In 2018, the Treasury Inspector General for Tax Administration (TIGTA) released a report spelling out security vulnerabilities within the IRS. Specifically, the IRS failed to properly implement a new security system that was put in place after a cyber hack in 2016.

After the 2016 breach, IRS Cybersecurity staff decided to move all taxpayer information into a Cyber Security Data Warehouse (CSDW), a centralized place to store taxpayer Personally Identifiable Information (PII) which includes names, addresses, social security numbers and birthdays. 

 While this new security system was supposed to prevent another breach it instead created more security vulnerabilities. As the report notes:

“Two years after the IRS decision to transfer taxpayer data to the CSDW, some controls remain weak, and documentation is not complete…. the IRS did not implement CSDW auditing controls that would allow it to monitor fraud analysis.”

 The IRS failed to analyze potential risks from transferring data. Because of this, the IRS would not be aware of, or able to identify security threats internally or externally: 

“There is an increased risk that the IRS would be unable to identify relevant threats to the organization. Further, the IRS may be unaware of internal and external vulnerabilities that exist that could negatively impact the organization.”

The IRS also failed to notify some of its employees of the change in how they store taxpayer data. Keeping employees out of the loop meant that this data wasn’t properly protected once again, putting taxpayers' data at risk:

“The General Support System-1 authorizing official was unaware that the CSDW now stores taxpayer data for use in fraud analysis…. if appropriate officials are not aware that PII has been transferred…they cannot adequately protect that data or take steps to prioritize necessary resources to appropriately manage the system from a security perspective.” 

The IRS left taxpayer data vulnerable by failing to properly set up this new security system. As a result, the IRS left the door open to new security weaknesses leaving taxpayer information, which includes social security numbers and birthdates, vulnerable to a data breach.

The IRS has a long history of failing to protect taxpayer’s personal information. Despite this, President Biden wants to increase the IRS’s funding and hire 87,000 new IRS agents, enough to fill Nationals Park twice and the Roman Colosseum 1.74 times. Biden also wants to grant the IRS new powers and responsibilities, including having the agency snoop on every personal and business bank account and Venmo account in the country. 

Given the IRS has repeatedly failed to safeguard taxpayer information we shouldn’t trust them to gather even more sensitive information.




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Lawmakers Should Support Senator Rick Scott's Bill to Rein in Debt and Protect Against Tax Hikes

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Posted by Regina Kelley on Monday, June 21st, 2021, 4:01 PM PERMALINK

Senator Rick Scott (R-Fla.) recently introduced S.1990, the Federal Debt Emergency Control Act. This bill establishes important reforms to address out of control spending while protecting the American people from tax increases.

The legislation is cosponsored by Senators Ted Cruz (R-Texas), Mike Braun (R-Ind.), Marsha Blackburn (R-Tenn.), Ron Johnson (R-Wis.), John Barrasso (R-Wyo.), Joni Ernst (R-Iowa), and Tommy Tuberville (R-Ala.).

In recent years, excessive federal spending has resulted in a substantial increase in budget deficits and federal debt. The Congressional Budget Office projects federal spending will reach 31.2 percent of GDP, or almost one-third of the entire economy. Federal debt will be 102 percent of GDP in 2021, or more than the entire annual economy. 

This bill will help address this problem by requiring the Office of Management and Budget to declare a “federal debt emergency” if spending exceeds 100 percent of the GDP. Once this emergency is declared, all unobligated funding of stimulus bills (such as the American Rescue Plan) will be terminated and sent back to the Treasury General Fund immediately to reduce the deficit.

All legislation that increases the deficit (as determined by the CBO) that adds net new spending or increases the federal deficit, must carry its own offsets. If it does not, the legislation would require at least two-thirds of all Senators to vote to further increase the federal debt before being able to consider the bill – a high threshold that will disincentivize proposals that aren’t fully self-financed. This provision would also require the Senate to take a roll call vote on increasing the federal debt each time an unfinanced spending bill comes to the floor which will increase  accountability on those who vote to raise our federal debt.  

This bill would also protect against tax hikes by preventing them from being used as offsets. This will ensure politicians cannot use force American families and businesses to pay for more reckless federal spending. It will also allow the passing of tax cuts without needing a two-thirds vote to pass. 

Democrats often push for job-killing, economy-hurting tax hikes instead of cutting spending. For instance, to fund his $6 trillion budget proposal, President Biden has proposed 30 different tax hikes, which would amount increase taxes by trillions of dollars. 

Sen. Scott’s legislation would also encourage lawmakers to consider bills that help reduce the deficit. Bills introduced during the emergency declaration that reduce the deficit by at least 5 percent over the budget window and that do not increase taxes or fees would be subject to expedited approval and would have to be voted on within 30 days of introduction. 

Senator Rick Scott has introduced the Federal Debt Emergency Control Act ahead of the expiration of federal debt limit suspension on July 31st. ATR urges lawmakers to co-sponsor and support this important piece of legislation that implements taxpayer protections and reins in ballooning deficits and federal debt. 

Photo Credit: Riccardo Savi

Senator Cornyn Introduces Bill Protecting Taxpayers from IRS Abuse of Power 

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Posted by Regina Kelley on Thursday, June 3rd, 2021, 1:05 PM PERMALINK

Senator John Cornyn (R-Texas) last month introduced The Small Business Taxpayer Bill of Rights Act of 2021, legislation that would enact several important reforms to the Internal Revenue Service (IRS) so that small businesses and individuals are better protected from efforts by the agency to abuse its power.

Strengthening taxpayer protections is especially important now, as President Joe Biden has introduced his plan to increase IRS funding by $80 billion, leading to 87,000 additional IRS agents, more audits, and intensified enforcement. Biden’s plan would also include provisions giving the IRS heightened power to access taxpayers’ private information, including mandating banks and third-party payment providers (like Venmo and PayPal) to report money going in and out of taxpayers’ accounts to the agency.   

ATR urges lawmakers to support and co-sponsor The Small Business Taxpayer Bill of Rights Act of 2021. 

Strengthens Taxpayer and Small Business Protections   

Senator Cornyn’s bill contains numerous provisions to ensure the IRS is acting in the best interests of taxpayers. 

First, this bill would ban any secret conversations between IRS employees and the IRS Independent Office of Appeals when discussing a taxpayer’s case. Violating this prohibition would be a fileable offense, in order to ensure the independence of the IRS Office of Appeals, which was created to protect taxpayers.

In the same vein, the bill prohibits the IRS Independent Office of Appeals from raising new issues or theories during a conference with taxpayers and the IRS.  

Under this law, the IRS would need taxpayers’ consent before allowing IRS Counsel or compliance officials to participate in Appeals conferences, eliminating IRS policy that otherwise makes Appeals a more contentious proceeding.

The bill would also add more protection against unnecessary lien foreclosures on a taxpayer’s home and increases the penalties for IRS agents who violate taxpayer rights by committing extortion, fraud, or bribery.  

Protects Taxpayers from IRS Improper Targeting   

The bill also contains reforms to protect taxpayers from being targeted by the IRS. For instance, Sen. Cornyn’s legislation makes it a fireable offense to apply disproportionate scrutiny to any applicant applying for tax-exempt status based on any ideology expressed in the name or purpose of the organization.  

 The legislation also requires the Inspector General to review and consult with the IRS on any criteria it uses to select tax returns for audit, assessment, or any heightened scrutiny or review, to ensure that the criteria does not discriminate against taxpayers on the basis of race, religion, or political ideology.   

These provisions are especially important, given the IRS has a history of improperly targeting taxpayers. Most notably, the Obama IRS was caught unfairly denying conservative groups non-profit status ahead of the 2012 election.  

Lois Lerner’s political beliefs led to tea party and conservative groups receiving disparate and unfair treatment when applying for non-profit status, according to a detailed report compiled by the Senate Finance Committee. 

Because of Lerner’s bias, only ONE conservative organization was granted tax exempt status over a period of more than three years: 

“Due to the circuitous process implemented by Lerner, only one conservative political advocacy organization was granted tax-exempt status between February 2009 and May 2012. Lerner’s bias against these applicants unquestionably led to these delays, and is particularly evident when compared to the IRS’s treatment of other applications, discussed immediately below.” 

At the time, the Obama administration assured the American people that justice would be served. Nonetheless, not a single person was punished for this outrageous targeting.  

Since this scandal, the IRS has done little to prevent similar abuses. A 2016 report by the Government Accountability Office warned that the IRS may still be unfairly targeting non-profits “based on an organization’s religious, educational, political, or other views.”  

Compensates Taxpayers for IRS Abuses   

Sen. Cornyn’s legislation also ensures taxpayers are protected from crushing litigation fees. For instance, instead of small business owners being forced to choose between paying the IRS for a frivolous claim or paying a lawyer to defend them, this bill would allow owners to petition for attorney’s fees when a court determines the IRS’s legal actions are not substantially justified.  

If the IRS recklessly or intentionally disregards the law, its own regulations, or illegally releases tax information, the bill increases the amount of civil damages a taxpayer can be rewarded and provides more time that small businesses can be awarded. 

The legislation also compensates individuals for “No Change” National Research Program (NPP) Super-Audits, which are audits that occur randomly and require every single line item of return and proof of each item in detail. The bill would allow a deduction for those who undergo the super-audit, particularly because they must represent themselves.   

Lowers Compliance Burden for Taxpayers   

To allow for a speedier and less costly resolution of audits, the bill creates new alternative dispute resolution procedures to be conducted by an independent, neutral party not employed by the IRS.  

Finally, the bill grants small businesses the opportunity to become compliant without going out of business or firing workers when faced with paying a harsh levy.   

Under Biden’s plan, legions of new IRS agents will be unleashed for invasive and time-consuming audits of middle-class Americans and small businesses. Even though the IRS hasn’t yet corrected ideological discrimination or blatant incompetence within the agency, the administration still plans to flood the agency with $80 billion and extensive new powers. With this in mind, safeguards against IRS abuses are absolutely necessary.  

Senator Cornyn’s Small Business Taxpayer Bill of Rights Act contains numerous important reforms to protect taxpayers against an out of control IRS. If lawmakers are serious about protecting taxpayers from IRS harassment and abuse of power, they should support and co-sponsor this commonsense legislation.

Photo Credit: Gage Skidmore