Senate Finance Committee Republicans had a number of questions for IRS Chief Counsel nominee Donald Korb following his confirmation hearing earlier this month – providing a glimpse of their tax administration and enforcement priorities.
On the list of concerns were Tax Court backlogs, grantor retained annuity trust (GRAT) and estate tax enforcement efforts, and Superfund excise tax processes.
Tax Court Delays
Multiple Republican Senators pushed Korb on Tax Court backlogs. According to Senator Steve Daines (R-MT), “[t]housands of cases remain unresolved, including many involving small businesses and partnerships where the IRS has focused on administrative compliance.” Daines urged Korb to limit “premature assessments” and improve case resolution efficiency.
Two other Republican senators specifically called out the Tax Court’s conservation easement case backlog. According to Senator John Cornyn (R-TX), there are 800 pending conservation easement cases. Meanwhile, said the senator, the Tax Court issues only between 10 and 20 decisions per year in these cases.
Senator Thom Tillis (R-NC) contended that “[s]ince late 2016, the IRS has engaged in a significant enforcement campaign involving syndicated conservation easements.” He took issue with the audit effort, which he said, “leaves taxpayers with limited options, including litigation.” And even after litigating their case before the Tax Court, Tillis said, appeals are likely, further delaying case resolution.
Korb, however, noted the Tax Court’s independence from the IRS. He explained that “the IRS Chief Counsel has no direct control over their case backlog.” Korb, however, did commit to “work to ensure all taxpayers are treated fairly.”
Grantor Retained Annuity Trusts
GRATs were also on the list of Republican concerns. GRATs are irrevocable trusts established for a set term, during which the grantor is paid annuities. At the conclusion of the term, the remainder after all annuities are paid to the grantor is conveyed to the beneficiary with minimal or no tax obligations.
GRATs can reduce tax burden when they are funded by assets that appreciate at a rate higher than the IRC § 7520 rate used to value certain charitable interests in trusts, and where the grantor survives the term of the GRAT. But some Democrats have characterized GRATs as tax avoidance tools used by the wealthy “to dodge millions of dollars in tax.”
Daines told Korb he’d “heard from constituents” that the Biden administration IRS “took aggressive and novel positions challenging the use of grantor retained annuity trusts.” He contended these positions were “driven by staff’s political ideologies” and contrary to both statute and interpretive regulations. Cornyn, too, accused the IRS of auditing GRATs and pursuing litigation “to impose requirements and standards not written in the statute or Treasury regulations.”
Korb said that if confirmed, he would instruct IRS staff to “follow the law as written.”
Estate Tax
Tillis also asked Korb how he would address IRS enforcement efforts in the estate tax context more broadly. He cited the agency’s “overly narrow and technical interpretation of federal statute and guidance that is prejudiced against well-established estate tax law.”
The senator accused the Biden administration of “discourag[ing] estates from utilizing tax mitigation strategies” – resulting in estate executors and trustees having to sell assets to satisfy their tax liability. Tillis is particularly concerned about estate taxes in the context of “closely-held commercial real estate businesses,” including retail and office buildings, apartment complexes, and warehouses.
Tillis urged Korb to review “with fresh eyes” all pending estate tax matters. Korb didn’t provide a response specifically addressing Tillis’ question but noted the “previous administration’s harmful positions.”
Superfund Excise Taxes
Senator Bill Cassidy (R-LA) raised another concern – what he characterized as IRS delays in issuing Superfund excise tax refunds.
Superfund excise taxes are environmental excise taxes imposed from July 1, 2022, through December 31, 2031, on the sale or use of specified chemicals by a manufacturer, producer, or importer. These excise taxes must be reported via an attachment to the Form 720, Quarterly Excise Tax Return, and semi-monthly deposits are generally required.
Cassidy explained that exporters who are not importers or domestic producers do not pay the Superfund tax, but they often are assigned rights to a refund. The senator said improvements are needed in how these refund requests are processed – noting they now can take up to two years and may be improperly denied.
Cassidy requested that Korb work to “modify pre-refund policies to facilitate refunds immediately after claims are filed” and ensure IRS personnel are “properly trained and educated.”
For more on GRATs, see Checkpoint’s Federal Tax Coordinator 2d ¶ Q-3505 et seq. For more on Superfund excise taxes, see Checkpoint’s Federal Tax Coordinator 2d ¶ W-4401.
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