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TaxBuzz Top 5 - Coca Cola to Pay $6 Billion Tax Bill, IRS Cracks Down on ERC Fraud & More

by
Rebekah Barton
on
8/9/2024
TaxBuzz Top 5 - Coca Cola to Pay $6 Billion Tax Bill, IRS Cracks Down on ERC Fraud & More

Each Friday, TaxBuzz brings you the top five tax and accounting headlines you need to know from the workweek. We know life can get busy and you don't always have time to scroll through your news feed to stay informed.

We weed through all of the week's stories to showcase the most important updates in the tax and accounting world.1

1. Coca Cola Ordered to Pay $6 Billion Tax Bill

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Justin Sullivan/Getty Images

Coca-Cola Co. is set to pay $6 billion in back taxes and interest to the IRS while it appeals a long-standing tax dispute. The Atlanta-based beverage giant announced its intention to challenge a recent U.S. Tax Court decision that concluded a legal battle dating back 17 years. The IRS claims Coca-Cola owes taxes from 2007, 2008, and 2009, alleging that the company improperly calculated its U.S. income from foreign affiliates. Despite the payment, Coca-Cola remains confident in its legal position, per an Associated Press report.

"The company looks forward to the opportunity to begin the appellate process," Coca-Cola stated. The company also accused the IRS of changing how it allowed them to calculate income, a method Coca-Cola had used for nearly 30 years.

U.S. Tax Court Judge Albert Lauber issued a brief decision Friday, August 2, marking the end of the court's involvement in the case. Coca-Cola has 90 days to file appeal documents, and the company expects that "some or all of [the $6 billion], plus accrued interest, would be refunded" if it prevails.

2. IRS Cracks Down on Employee Retention Tax Credit Fraud

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Natalia Bratslavsky/Getty Images

The IRS has announced it is intensifying its efforts to combat fraudulent claims for the pandemic-era Employee Retention Tax Credit (ERC). In a recent crackdown, the agency issued 28,000 rejection letters to businesses, potentially preventing up to $5 billion in improper payments. According to IRS Commissioner Danny Werfel, the agency has already opened 460 criminal cases related to suspected ERC fraud.

"The IRS is committed to continuing our work to resolve this program as Congress contemplates further action," Werfel said in a statement shared by The Hill. Despite the ongoing fraud, the IRS is preparing to resume processing new ERC claims after a temporary moratorium. The agency will now address claims submitted between September 14, 2023, and January 31, 2024.

The ERC program, originally designed as pandemic relief, has come under scrutiny after reports revealed widespread fraud. Senate Finance Committee Chair Ron Wyden (D-Ore.) mentioned earlier this year that an IRS whistleblower estimated as many as 95% of ERC claims were fraudulent. Congress has considered canceling the ERC program to fund other initiatives, but the proposal was recently blocked in the Senate.

3. California's Budget Debate: Reserves vs. Revenue Volatility

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Thomas Winz/Getty Images

For decades, California has wrestled with volatile tax revenues, largely driven by income taxes on the state’s highest earners. This volatility has led to intense debates over managing state finances, especially as revenues have become increasingly unpredictable.

To mitigate revenue shortfalls, voters approved a "rainy day fund" in 2014, which amassed about $30 billion in reserves. However, the state faced a nearly $50 billion budget deficit this year due to an overestimate of revenues in 2022. Gov. Gavin Newsom's administration initially proposed a $13.1 billion draw from reserves, but the final budget reduced that to $5.1 billion, with another $7.1 billion drawdown expected in 2025-26.

This week, an Assembly Budget Committee hearing reignited the debate over whether the state should increase its rainy day fund. Critics like Scott Graves of the California Budget & Policy Center argue that boosting reserves could reduce funds available to address poverty and inequality, potentially hindering efforts to support low-income Californians.

In an article published today, CalMatters asserts that the debate could lead to a 2026 ballot measure to revise the state's budget reserve strategy, as the latest extension of a key income tax increase will expire in 2030.

4. Nebraska Gov. Pillen Defends Property Tax Relief Push Amid Legislative Criticism

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pabradyphoto/Getty Images

Nebraska Gov. Jim Pillen defended his property tax relief proposals Thursday, August 8, pushing back against legislative critics who have challenged his approach. In a statement, Pillen praised state senators working to deliver "transformative property tax relief" and criticized a "small minority" of senators for using "obstructionist rhetoric" and time-wasting tactics.

“These senators, who represent all political stripes and all corners of our state, are doing right by their constituents by engaging in tough negotiations,” Pillen said, urging cooperation to craft a bipartisan solution.

Per the Nebraska Examiner, Pillen also addressed accusations that his hog operation in Columbus would benefit from the proposed tax relief, dismissing them as "baseless personal attacks." He reiterated that Nebraskans want a broader sales tax base, a cap on government spending, and lower property taxes.

State Sen. Danielle Conrad of Lincoln, a critic of Pillen's proposals, responded by emphasizing her commitment to opposing what she called a "misguided tax plan" that she believes would harm working families. “We simply have a principled disagreement about how to pay for our mutual goal of property tax relief,” Conrad said.

5. China Targets Decades of Unpaid Taxes Amid Mounting Debt Crisis

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Bob Krist/Getty Images

Chinese authorities are aggressively pursuing unpaid taxes from companies and individuals, in an effort to address significant budget shortfalls and a growing debt crisis. Per an Associated Press report, recent enforcement actions have resulted in millions of dollars in back taxes being demanded from more than a dozen listed companies. The move comes as local finances have been strained by a downturn in the property market, which traditionally bolstered revenue through land sales.

Following a high-level Communist Party planning meeting, policies were issued to expand local tax resources and enhance debt management. Local government debt is estimated to reach up to $11 trillion, including substantial "off balance sheet" obligations not reflected in official figures.

However, experts remain skeptical about the Party’s ability to fully implement these reforms. “This is a significant financial risk that the government must address, but whether they can follow through on these pledges remains uncertain,” one expert noted.

The Party has outlined over 300 reforms, aiming to monitor and manage local debt more effectively as they work to stabilize China's financial system.

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Feature Image by Justin Sullivan/Getty Images

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Rebekah Barton

Rebekah Barton

Rebekah's search engine optimization career began completely by accident as a college student. Over the course of her career so far, she has "grown up" with the SEO industry, from writing content while juggling classes to managing her own teams of writers and overseeing SEO strategy in subsequent roles. She is excited to bring her passion for high-quality content to CountingWorks, Inc.

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