Newsletters

By Michael Cohn December 06, 2023

The Internal Revenue Service is sending more than 20,000 letters rejecting questionable claims for the Employee Retention Credit as it continues to combat scammers and promoters encouraging businesses to file claims for the pandemic tax credit.

In September, the IRS declared a moratorium on processing new ERC claims through the end of the year after receiving a flood of claims pushed by so-called "ERC mills" advertising the tax credit on TV, radio, billboards and robocalling pitches. At the time, IRS Commissioner Danny Werfel said the IRS has received around 3.6 million ERC claims, and its inventory of open claims was over 600,000, nearly all of which had been received within the past 90 days.  

By Michael Cohn December 06, 2023

The Internal Revenue Service is sending more than 20,000 letters rejecting questionable claims for the Employee Retention Credit as it continues to combat scammers and promoters encouraging businesses to file claims for the pandemic tax credit.

The Internal Revenue Service is sending more than 20,000 letters rejecting questionable claims for the Employee Retention Credit as it continues to combat scammers and promoters encouraging businesses to file claims for the pandemic tax credit.

In September, the IRS declared a moratorium on processing new ERC claims through the end of the year after receiving a flood of claims pushed by so-called "ERC mills" advertising the tax credit on TV, radio, billboards and robocalling pitches. At the time, IRS Commissioner Danny Werfel said the IRS has received around 3.6 million ERC claims, and its inventory of open claims was over 600,000, nearly all of which had been received within the past 90 days.  

In October, the IRS offered a process for businesses to withdraw any dubious ERC claims before they face penalties and encouraged tax professionals to work with their clients to help them through the process. Later this month, the agency plans to offer a separate voluntary disclosure program allowing those who received questionable payments to come forward and avoid future IRS action. Now the IRS is sending out an initial round of 20,000 disallowance letters, with more on the way. 

After an initial review this fall, the IRS found that a large number of taxpayers did not meet basic criteria for the credit. Starting this week, taxpayers who are ineligible for the credit will begin receiving copies of Letter 105 C, Claim Disallowed. The letters will cover those taxpayers who are deemed to be ineligible for the ERC either because their entity didn't exist or didn't have employees for the time period when the credit was claimed.

"With the aggressive marketing we saw with this credit, it's not surprising that we're seeing claims that clearly fall outside of the legal requirements," Werfel said in a statement Wednesday. "The action we are taking today is part of an initial set of steps in our compliance work in this area, and more letters will be going out in the near future, including both disallowance letters and letters seeking the return of funds erroneously claimed and received. As we continue our audit and criminal investigation work involving the Employee Retention Credits, we continue to urge people who submitted a claim to review the rules with a trusted tax professional. If they filed an inaccurate claim, we urge them to consider withdrawing their pending claim or use the upcoming disclosure program to repay improper refunds to avoid future action."

The IRS is working on hundreds of criminal cases, and thousands of ERC claims have been referred for audit.

The mailing reflects only part of the IRS's ongoing review of ERC claims. Within this group, two categories of claims have been identified and are being disallowed:

• Entity not in existence during period of eligibility: The ERC applies to qualified wages for periods between March 13, 2020, and Dec. 31, 2021. Entities established after Dec. 31, 2021, are not entitled to the ERC under the law passed by Congress.
• There are no paid employees during the period of eligibility: The ERC is intended as a credit against qualified wages paid. Entities that did not pay any wages are not eligible for ERC.

The disallowance letter will explain that a taxpayer who disagrees with the disallowance can respond with documentation supporting their eligibility or claim amount, or they can file an administrative appeal.

The disallowance letters aim to help ineligible taxpayers avoid audits, repayment, penalties and interest, protect taxpayers by preventing an incorrect refund from going to an ERC promoter, and save IRS resources by disallowing incorrect credits before they enter the audit process.

The IRS plans to send additional letters beyond the disallowance letters. It's also finalizing plans for a special voluntary disclosure program involving ERC claims that will be announced later this month.

For more information on ERC eligibility, see the ERC frequently asked questions and the ERC Eligibility Checklist, which is available as an interactive tool or as a printable guide.

Michael Cohn
Editor-in-chief, AccountingToday.com

By Greg Stohr December 04, 2023

Democratic dreams of imposing a wealth tax on the richest Americans risk being snuffed out by the U.S. Supreme Court in a dispute over a $14,729 bill.

Calls to tax assets in addition to income have grown since Senator Elizabeth Warren ran for the White House on the issue in 2020, with President Joe Biden's 2024 budget requesting a "billionaire minimum tax" to ease the federal deficit. But in a case set for argument Tuesday, the justices will consider whether the Constitution effectively precludes Congress from putting a levy on stock holdings, real estate and other wealth.

"The case literally could involve trillions of dollars and directly affect the way our economic and tax systems work because it calls on the court to decide whether a wealth tax might be constitutional," said John Yoo, a University of California at Berkeley law professor who helped draft a brief in the case for the anti-tax group FreedomWorks.

By Greg Stohr December 04, 2023

Democratic dreams of imposing a wealth tax on the richest Americans risk being snuffed out by the U.S. Supreme Court in a dispute over a $14,729 bill.

Calls to tax assets in addition to income have grown since Senator Elizabeth Warren ran for the White House on the issue in 2020, with President Joe Biden's 2024 budget requesting a "billionaire minimum tax" to ease the federal deficit. But in a case set for argument Tuesday, the justices will consider whether the Constitution effectively precludes Congress from putting a levy on stock holdings, real estate and other wealth.

"The case literally could involve trillions of dollars and directly affect the way our economic and tax systems work because it calls on the court to decide whether a wealth tax might be constitutional," said John Yoo, a University of California at Berkeley law professor who helped draft a brief in the case for the anti-tax group FreedomWorks.

The court's decision to take up the case puts the justices in the middle of the partisan battle over the nation's tax and budget policies. The court is likely to rule next year in the middle of the presidential election campaign.

The case stems from a 2017 tax law provision that aimed to collect hundreds of billions of dollars on earnings accumulated and held overseas by big multinational companies. The provision, known as the mandatory repatriation tax, was part of a Republican-backed tax overhaul passed during Donald Trump's presidency.

Taxpayers Charles and Kathleen Moore are seeking a refund of the $14,729 in taxes they paid on their ownership of a stake in KisanKraft Machine Tools Private Ltd., an Indian company that supplies tools and equipment to farmers. 

The Moores invested $40,000 almost two decades ago, acquiring 13% of the company's common shares. Although the KisanKraft has grown steadily since then, it has reinvested its earnings rather than distributing them to shareholders as dividends. The Moores, who are represented by the conservative Competitive Enterprise Institute, contend that they can't be taxed since they never realized any gains.

Along the way, the Moores are arguing for a narrow interpretation of the Constitution's Sixteenth Amendment, the 1913 provision that empowered Congress to levy an income tax.

Alito controversy
The Moores themselves have become a subject of scrutiny. Company documents indicate Charles Moore might have been more involved with KisanKraft than the couple revealed in the legal proceedings. He was a director of the company for five years and received thousands of dollars in travel-reimbursement payments, according to the company's filings with India's Ministry of Corporate Affairs, and he engaged in transactions that suggest he was more of an insider than a passive outside shareholder.

One of the Moores' lawyers, David Rivkin of Baker & Hostetler, sparked another controversy when he co-wrote two articles that described conservative Justice Samuel Alito in favorable terms. The articles, which appeared in the Wall Street Journal's opinion section, gave Alito a forum to discuss calls for stronger ethics rules and the leak of the court's abortion 2022 opinion.

Alito then rejected Democratic demands that he recuse from the Moore case, saying in an unusual statement that "there was nothing out of the ordinary about the interviews in question."

The Moore case drew relatively scant attention when the court granted review last June, just as it was releasing a flurry of opinions at the end of its 2022-23 term. Outside groups and individuals have since filed more than 40 friend-of-the-court briefs underscoring the potential impact.

Tax 'chaos'
A victory for the Moores could cause "chaos" across the federal tax code and invite litigation over a swath of provisions enacted over decades, said Chye-Ching Huang, executive director of the Tax Law Center at New York University's law school. She said the Moores and their allies are using the prospect of a wealth tax as a "diversion" in the case.

"What they don't want the court to be focusing on is the very real damage their theory could have on the existing tax regime," Huang said.

The Biden administration says the court can uphold the mandatory repatriation tax without making any judgment on a hypothetical wealth tax. Quoting from a 1943 Supreme Court case, U.S. Solicitor General Elizabeth Prelogar said the court traditionally "does not decide whether a tax may constitutionally be laid until it finds that Congress has laid it."

Prelogar, the administration's top Supreme Court lawyer, said a wealth tax, which would be levied on assets at a particular point in time, would be "fundamentally distinct" from an income tax, which targets economic gains over a period of time. She contends undistributed corporate earnings constitute income under the Sixteenth Amendment.

The Sixteenth Amendment authorizes Congress "to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States." 

Biden rejected an outright wealth tax as advocated by Warren during the 2020 campaign but has since embraced a scaled-back version. His most recent budget would require taxpayers worth more than $100 million to pay a minimum of 25% on their capital gains each year, whether they sold assets for a profit or continue to hold them. Biden touted it at this year's State of the Union Address as a "billionaire minimum tax."

The case, which the court will decide by late June, is Moore v. United States, 22-800.

Greg Stohr

By Michael Cohn November 21, 2023

The Internal Revenue Service said Tuesday it would postpone the $600 threshold for reporting transactions on Form 1099-K for the second year in a row, and begin to phase in a threshold of $5,000 starting in 2024.

In conjunction with the announcement, the IRS released Notice 2023-74 announcing the delay of the $600 threshold for third-party settlement organizations for calendar year 2023. The American Rescue Plan Act of 2021 lowered the old threshold from $20,000 to $600 as a way of collecting more taxes from people and businesses who receive payment through third parties such as eBay, PayPal, Airbnb, Venmo, Etsy and more, but many taxpayers and tax professionals had worried that it would prompt a flood of 1099-K forms arriving in the mail for people who had never been subject to the requirement.

Last December, the IRS postponed the new threshold for a year (see story). But many taxpayers and the IRS itself remain unprepared for the change, and last week, the Government Accountability Office released a report predicting the IRS would receive 30 million more 1099-K forms than usual, for a total of 44 million forms (see story).

By Michael Cohn November 21, 2023

The Internal Revenue Service said Tuesday it would postpone the $600 threshold for reporting transactions on Form 1099-K for the second year in a row, and begin to phase in a threshold of $5,000 starting in 2024.

In conjunction with the announcement, the IRS released Notice 2023-74 announcing the delay of the $600 threshold for third-party settlement organizations for calendar year 2023. The American Rescue Plan Act of 2021 lowered the old threshold from $20,000 to $600 as a way of collecting more taxes from people and businesses who receive payment through third parties such as eBay, PayPal, Airbnb, Venmo, Etsy and more, but many taxpayers and tax professionals had worried that it would prompt a flood of 1099-K forms arriving in the mail for people who had never been subject to the requirement.

Last December, the IRS postponed the new threshold for a year (see story). But many taxpayers and the IRS itself remain unprepared for the change, and last week, the Government Accountability Office released a report predicting the IRS would receive 30 million more 1099-K forms than usual, for a total of 44 million forms (see story).

The IRS said it would continue to work to implement the new law and will treat 2023 as another transition year. It hopes to reduce the potential confusion caused by the distribution of the estimated 44 million forms sent to many taxpayers who wouldn't anticipate one and may not have a tax obligation. That means reporting won't be required unless the taxpayer receives over $20,000 and has more than 200 transactions in 2023.

In the meantime, to give taxpayers more time to get accustomed to the change, the IRS is planning for a threshold of $5,000 for tax year 2024 as part of a phase-in to implement the $600 reporting threshold. 

After hearing feedback from the tax professional community, the IRS said it's also looking to make updates to the Form 1040 and related schedules for 2024 that would make the reporting process easier for taxpayers. The changes to the 1040 are complicated, though, and take time, so delaying changes to tax year 2024 allows for additional feedback. 

"We spent many months gathering feedback from third-party groups and others, and it became increasingly clear we need additional time to effectively implement the new reporting requirements," said IRS Commissioner Danny Werfel in a statement Tuesday. "Taking this phased-in approach is the right thing to do for the purposes of tax administration, and it prevents unnecessary confusion as we continue to look at changes to the Form 1040. It's clear that an additional delay for tax year 2023 will avoid problems for taxpayers, tax professionals and others in this area." 

The IRS noted that the new reporting requirements don't apply to personal transactions such as birthday or holiday gifts, sharing the cost of a car ride or meal, or paying a family member or another for a household bill. Those payments are not taxable and should not be reported on Form 1099-K. 

However, the casual sale of goods and services, including selling used personal items like clothing, furniture and other household items for a loss, could generate a Form 1099-K for many people, even if the seller has no tax liability from those sales. 

This complexity in distinguishing between these types of transactions factored into the IRS decision to delay the reporting requirements and plan for a phase-in threshold of $5,000 for 2024. The service is asking for feedback on the threshold of $5,000 and other elements of the reporting requirement, including how best to focus reporting on taxable transactions.

The IRS told reporters it would update its frequently asked questions page, as well as produce additional educational content for taxpayers. Payors who comply with the current threshold of $20,000 and 200 transactions won't be penalized for failing to file or furnish information returns as long as they comply with these rules that are in the notice.

However, there's one exception to the thresholds in a situation involving backup withholding: In cases where third-party settlement organizations that have backup withheld on a payee and the total reportable payments to that payee in the year exceeded $600, then the third-party settlement organization will be required to file a 1099-K. 

During a press conference, Accounting Today and other news outlets asked about the various bills that have been introduced in Congress to raise the 1099-K threshold and whether the IRS was deciding on its own threshold.

The IRS said it had previously made such adjustments in the past for phasing in legislation such as the Foreign Account Tax Compliance Act, and that it can't make assumptions that Congress is going to make additional changes. The service is going to work on implementing the law as it stands now, and the planned $5,000 threshold is a phased-in approach to eventually implementing the $600 threshold that's within the American Rescue Plan Act.

IRS officials were also asked about specific examples, such as the sale of concert tickets, after a controversy erupted this summer over whether the sale of Taylor Swift tickets over StubHub and similar services would subject concert attendees and ticket sellers to the new Form 1099-K rules. The IRS noted that a couch, a car, clothing, a bicycle or anything that a person chooses to sell that is their own personal asset would fall into the category of reporting it as either a gain or a loss. 

If taxpayers sold at a loss, which means they paid more for an item than they sold it for, they will be able to zero out the payment on their tax return by reporting both the payment and an offsetting adjustment on a Form 1040, Schedule 1. That way, people who unnecessarily get these forms don't have to pay taxes they don't owe. On the other hand, if the items were sold at a gain, they will need to report that gain as income, and it will be taxable.

Reactions

The Coalition for 1099-K Fairness, a lobbying group that represents Airbnb, Bikelist, Block Inc. (formerly Square Inc.), eBay, the Electronic Transactions Association, Etsy, Eventbrite, Goldin, Mercari, Noihsaf Bazaar, OfferUp, PayPal, Kidizen, Poshmark, Reverb, Rover, the Sports Fan Coalition, Stubhub, TechNet and Tradesy, issued a statement praising the IRS's move.

"The IRS decision to delay 1099-K implementation spares millions of Americans from widespread confusion and represents a critical step in allowing Congress more time to craft a legislative solution," stated Arshi Siddiqui, a partner at Akin Gump, who is leading the coalition's lobbying efforts. "The Biden administration's decision represents a victory for common-sense tax policy by ensuring that consumers are not facing a tsunami of 1099-Ks in January. Congressional members across the ideological spectrum are working towards a permanent, bipartisan fix and we look forward to working with them to provide certainty for millions of Americans."

The National Taxpayers Union Foundation also hailed the move, but said Congress should fix the provision from the American Rescue Plan Act.

"ARPA's threshold was originally supposed to have gone into effect for tax year 2022 but was delayed because of compliance and administrative concerns," said NTUF executive vice president Joe Bishop-Henchman in a statement. "All of the problems and concerns that led the IRS to delay implementing it a year ago remain in place today, which is why it is a relief for taxpayers that it has been delayed for another year … . While the threshold change was a law passed by Congress, every expert (including those charged with administering it) is saying that lowered threshold is unworkable. Hopefully it is revisited."

The group urged Congress to take advantage of the IRS's latest delay to fix the issue, arguing the $600 threshold is unworkable and must be changed legislatively. The NTUF noted that multiple bipartisan bills have been introduced in Congress, including ones from House Ways and Means chair Jason Smith, R-Missouri, Sen. Maggie Hassan, D-New Hampshire, and Sen. Sherrod Brown, D-Ohio, and Bill Cassidy, R-Louisiana.

The latest guidance is available at IRS.gov/1099K. The IRS Understanding Your Form 1099-K webpage provides resources for taxpayers who receive a 1099-K, including what to do with a Form 1099-K and what to do if they get a Form 1099-K in error.

By   Alex Tanzi October 12, 2023

Monthly checks for the more than 71 million people receiving retirement or disability benefits in the U.S. will get a 3.2% increase next year, the smallest gain since 2021, reflecting a significant cooling in the rate of inflation.

The cost-of-living adjustment, known as COLA, will apply to Social Security benefits starting in January and Supplemental Security Income benefits beginning on Dec. 29, the Social Security Administration said Thursday.

The annual COLA, designed to ensure that the purchasing power of Social Security beneficiaries isn't eroded by inflation, is calculated from the consumer price index. The slowdown in CPI from its decades-high last year means a much smaller boost for seniors in 2024 than in the past two years.

By   Alex Tanzi October 12, 2023

Monthly checks for the more than 71 million people receiving retirement or disability benefits in the U.S. will get a 3.2% increase next year, the smallest gain since 2021, reflecting a significant cooling in the rate of inflation.

The cost-of-living adjustment, known as COLA, will apply to Social Security benefits starting in January and Supplemental Security Income benefits beginning on Dec. 29, the Social Security Administration said Thursday.

The annual COLA, designed to ensure that the purchasing power of Social Security beneficiaries isn't eroded by inflation, is calculated from the consumer price index. The slowdown in CPI from its decades-high last year means a much smaller boost for seniors in 2024 than in the past two years.

Last year's COLA was the largest in more than three decades, and it contributed to a surprise jump in consumer spending at the beginning of 2023."Social Security and SSI benefits will increase in 2024, and this will help millions of people keep up with expenses," said Kilolo Kijakazi, Acting Commissioner of Social Security.

The Social Security Administration bases its annual COLA calculation on the percentage change in the CPI for urban wage earners and clerical workers in the third quarter compared with a year earlier. Those workers cover about 30% of the population, according to the Bureau of Labor Statistics.

Based on the annual adjustment, the maximum amount of earnings subject to the Social Security tax will also increase next year to $168,600 from $160,200.

Overall, U.S. consumer prices advanced at a brisk pace for a second month, reinforcing the Federal Reserve's intent to keep interest rates high and bring down inflation.

By Michael Cohn October 10, 2023

Even though the effective date of the new beneficial ownership rules under the Corporate Transparency Act is less than 90 days away, most businesses are either unaware of the reporting obligations they face or uncertain how they will comply.

A survey released Tuesday by Wolters Kluwer polled 669 U.S.-based companies, along with 328 law firms and accounting firms, about their general awareness of and readiness for complying with the CTA's new beneficial ownership rule. While the rule will apply to approximately half (51%) of the firms that participated in the survey, about three-quarters (74%) of those companies for which the CTA rule will be applicable indicated they only became aware of the rule by having taken the survey. Many respondents who are aware of the CTA were unsure (41%) whether the beneficial ownership rule, as implemented by FinCEN, would apply to them, despite their company's reporting status and revenue size.

By Michael Cohn October 10, 2023

Even though the effective date of the new beneficial ownership rules under the Corporate Transparency Act is less than 90 days away, most businesses are either unaware of the reporting obligations they face or uncertain how they will comply.

A survey released Tuesday by Wolters Kluwer polled 669 U.S.-based companies, along with 328 law firms and accounting firms, about their general awareness of and readiness for complying with the CTA's new beneficial ownership rule. While the rule will apply to approximately half (51%) of the firms that participated in the survey, about three-quarters (74%) of those companies for which the CTA rule will be applicable indicated they only became aware of the rule by having taken the survey. Many respondents who are aware of the CTA were unsure (41%) whether the beneficial ownership rule, as implemented by FinCEN, would apply to them, despite their company's reporting status and revenue size.

Starting Jan. 1, 2024, most U.S. corporations, limited liability companies and U.S. operations of foreign companies will be required to report information about their beneficial owners to the Treasury Department's Financial Crimes Enforcement Network, or FinCEN (see story). The requirements were part of the Corporate Transparency Act of 2021 in an effort to crack down on shell companies used for tax evasion and illicit trafficking, and the clock has been ticking on the approaching deadline. Now some are calling for a delay in the imminent requirements.

By   Michael Cohn October 10, 2023

The Internal Revenue Service and the Treasury Department released guidance on how buyers of electric vehicles can transfer their tax credits to automobile dealers and get advance payments that effectively lower the cost.

Under the Inflation Reduction Act of 2022, buyers of electric vehicles can opt to transfer their new clean vehicle credit of up to $7,500 and their previously owned clean vehicle credit of up to $4,000 to a car dealer starting Jan. 1, 2024. In effect, that will reduce the vehicle's purchase price by giving consumers an upfront down payment on their vehicle at the point of sale, as opposed to needing to wait to claim the credit on their tax return the following year. Only vehicles purchased under the consumer clean vehicle credits are eligible for the tax benefit. 

By   Michael Cohn October 10, 2023

The Internal Revenue Service and the Treasury Department released guidance on how buyers of electric vehicles can transfer their tax credits to automobile dealers and get advance payments that effectively lower the cost.

Under the Inflation Reduction Act of 2022, buyers of electric vehicles can opt to transfer their new clean vehicle credit of up to $7,500 and their previously owned clean vehicle credit of up to $4,000 to a car dealer starting Jan. 1, 2024. In effect, that will reduce the vehicle's purchase price by giving consumers an upfront down payment on their vehicle at the point of sale, as opposed to needing to wait to claim the credit on their tax return the following year. Only vehicles purchased under the consumer clean vehicle credits are eligible for the tax benefit. 

The guidance in Rev.  Proc. 2023-33 also provides information on registration requirements and how the mechanics of the tax credit transfer will work for car dealers. The guidance also includes proposed eligibility rules for the previously owned clean vehicle credit that aim to give consumers extra certainty about their ability to claim and to transfer the credit, proposing to clarify that eligible consumers can transfer the full value of the new or previously owned vehicle credit regardless of their individual tax liability. The IRS also posted a frequently asked questions page with information on the transfer of new and previously owned clean vehicle credits from the taxpayer to an eligible entity for vehicles placed in service after Dec. 31, 2023. Fact Sheet 2023-22 updates FAQs related to new, previously owned and qualified commercial clean vehicles.

"For the first time, the Inflation Reduction Act allows consumers to reduce the upfront cost of a clean vehicle, expanding consumer choices and helping car dealers expand their businesses," said Laurel Blatchford, chief implementation officer for the Inflation Reduction Act at the Treasury Department, in a statement Friday. "The IRS has focused on streamlining this process for car dealers as part of its commitment to improving service and helping taxpayers claim the credits they are eligible for."

Later this month, dealers will be able to register through a new website called IRS Energy Credits Online. For buyers to be eligible to claim or transfer a tax credit starting Jan. 1, 2024, the dealer they purchase their vehicle from must first register with Energy Credits Online. The registration is also a requirement for dealers to offer consumers clean energy tax credits for qualifying products like electric vehicles. Starting in January, registered dealers can submit their sales information to the IRS and receive payment for the transferred tax credits. Dealers will also use Energy Credits Online to submit "time of sale" reports, which will confirm vehicles' eligibility for a credit, whether or not the buyer chooses to transfer the credit to the dealer.

When a buyer opts to transfer the credit, registered dealers will reduce the purchase price of the vehicle or provide cash to the buyer. The amount provided must equal the full amount of the credit available for the eligible vehicle. When completing the sale, the dealer will electronically send information about the transfer, including a time of sale report, to receive an advance payment for the value of the credit. The IRS anticipates it will be able to issue advance payments within 72 hours. 

Tax audit problems

Separately, the Treasury Inspector General for Tax Administration released a report Tuesday on problems with the IRS's faulty audit selection process for the EV tax credit.

The Energy Improvement and Extension Act of 2008 originally created the Qualified Plug-In Electric Drive Motor Vehicle Credit, the report noted. The tax provision was later amended by the American Recovery and Reinvestment Act of 2009, and then modified and extended under the Inflation Reduction Act of 2022 and renamed the Clean Vehicle Credit. The credits of up to $7,500 help taxpayers offset the purchase of a qualifying plug-in electric drive motor vehicle. The Joint Committee on Taxation estimated the credits will cost $5 billion from fiscal years 2022 through 2026, TIGTA noted. 

In response to TIGTA's recommendations in a prior report, the IRS developed filters to identify returns with potentially erroneous Qualified Plug-In Electric Drive Motor Vehicle Credit claims. However, while the IRS has taken steps to address past recommendations, problems with the implementation of some of the filters have made the existing issues even worse. TIGTA's analysis found that 74% of the tax returns flagged by the filter to identify non-qualifying vehicle models flagged qualifying vehicle models in error, resulting in taxpayer burden and unproductive examinations.

In addition, due to issues with the filter, many claims for non-qualified vehicles were not examined. TIGTA identified 13,518 unexamined returns totaling approximately $63 million in credits potentially paid for unqualified vehicles. From 2019 through 2022, TIGTA identified 7,547 returns with credits totaling approximately $23 million that were over the allowable threshold but were not caught by IRS filters.

The inspector general made five recommendations in the report, urging the IRS to review the 13,518 claims for non-qualified vehicles identified by TIGTA for potential examination; to consider adding a manual review to the filter identifying non-qualifying vehicle models until future controls are in place; to expand the use of invalid VIN criteria as additional information in examination selection; to expand controls to identify partial credits; and to review the 7,547 claims that were over the allowed threshold for their vehicle model identified by TIGTA for potential examination. 

The IRS agreed with four of the five recommendations and plans to review the identified claims, expand invalid vehicle identification number criteria for tax year 2023, and update its business rules to incorporate the legislative changes from the IRA related to claims made over the allowable threshold amounts. However, the IRS disagreed with manually reviewing Qualified Plug-In Electric Drive Motor Vehicle Credit claims when the vehicle is a non-qualifying vehicle.

"The IRS relies heavily on available data to identify and select cases in the most efficient manner, and these IRA provisions will allow the IRS to obtain vehicle data to identify noncompliance," wrote Lia Colbert, commissioner of the IRS's Small Business/Self-Employed Division, in response to the report. "For example, these IRA provisions all provide that no credit shall be allowed or determined unless the taxpayer includes a vehicle identification number of their vehicle on their tax return."

She noted that Congress also specifically modified the Tax Code to say that omitting a correct VIN from the tax return would constitute a "mathematical or clerical error," allowing the IRS to address it under its math error authority.

New claims will not be processed until January 2024 at the earliest.

By Mike Giangrande, J.D., LL.M.

The IRS announced today that they have stopped processing all new Employee Retention Credit (ERC) refund claims and will continue their moratorium at least through December 31, 2023. (IR-2023-169)

In IRS Commissioner Werfel’s words:

“The IRS is increasingly alarmed about honest small business owners being scammed by unscrupulous actors, and we could no longer tolerate growing evidence of questionable claims pouring in. … The continued aggressive marketing of these schemes is harming well-meaning businesses and delaying the payment of legitimate claims, which makes it harder to run the rest of the tax system.”

New claims will not be processed until January 2024 at the earliest.

By Mike Giangrande, J.D., LL.M.

The IRS announced today that they have stopped processing all new Employee Retention Credit (ERC) refund claims and will continue their moratorium at least through December 31, 2023. (IR-2023-169)

In IRS Commissioner Werfel’s words:

“The IRS is increasingly alarmed about honest small business owners being scammed by unscrupulous actors, and we could no longer tolerate growing evidence of questionable claims pouring in. … The continued aggressive marketing of these schemes is harming well-meaning businesses and delaying the payment of legitimate claims, which makes it harder to run the rest of the tax system.”

The IRS is continuing to process ERC claims filed prior to today’s announcement, but even those claims will face long processing delays (up to 180 days, from 90 days) because the IRS is placing stricter compliance reviews on all claims.

Today’s release does not specifically advise taxpayers to not file new claims. It only states that the IRS will not process any new claims until January 2024 at the earliest.

Taxpayers whose ERC claims are currently in process may:

• See requests for additional substantiation from the IRS before the claim’s processing is complete;
• Be referred to the IRS’s examination division for audit;
• Be referred to the IRS’s criminal investigation division if the egregious nature of the claims warrants it; or
• Soon be able to withdraw filed, but unprocessed, ERC claims under a special program, the details of which are still being worked out by the IRS.

Additionally, the IRS is developing a new settlement program for taxpayers that received an improper ERC payment. Per today’s release, more information on this program will be available this fall.

The IRS’s release is available at the following link and contains advice for taxpayers whose ERC claims may be in various stages. Go to www.irs.gov/newsroom/to-protect-taxpayers-from-scams-irs-orders-immediate-stop-to-new-employee-retention-credit-processing-amid-surge-of-questionable-claims-concerns-from-tax-pros.

By   Leslie Kaufman August 16, 2023

It's been exactly one year since President Joe Biden signed the Inflation Reduction Act, securing a core part of his domestic agenda with what's by far the most significant climate law in U.S. history. There's been no shortage of numbers attesting to the rapid transformation of the American economy: $86 billion in private investment, 51 new or expanded plants for producing solar panels, 10 new factories for making batteries, more than 100,000 clean-energy jobs.

By   Leslie Kaufman August 16, 2023

It's been exactly one year since President Joe Biden signed the Inflation Reduction Act, securing a core part of his domestic agenda with what's by far the most significant climate law in U.S. history. There's been no shortage of numbers attesting to the rapid transformation of the American economy: $86 billion in private investment, 51 new or expanded plants for producing solar panels, 10 new factories for making batteries, more than 100,000 clean-energy jobs.

One number has remained much harder to pin down over the past year: precisely how much will be spent as a result of the IRA. Cost estimates have continued to shift upward and now span a range of more than half a trillion dollars. 

This is a far cry from the headlines that greeted the law's surprising passage through Congress last summer. With some slight variation, news organizations put a price tag of about $370 billion on the climate-spending measures. That number ended up with more or less official stature, repeated in White House assessments. 

But it was always an estimate. In hindsight, the cost of the tax credits and incentives to the U.S. Treasury is clearly going to be much higher — and even after a year, there's no way to pinpoint the amount of spending that will ultimately occur. 

At the core of the forecasting challenge are two structural elements of the IRA's financial mechanics: Most of the spending comes in the form of tax credits that are uncapped, and those unlimited credits are designed to be rolled out over a 10-year span. That introduced a big element of guesswork because there's no restriction on how many businesses or citizens can claim new tax incentives made available to support everything from the purchase of electric vehicles to the production of green hydrogen and assembled-in-America batteries. 

The closest thing to an official price tag comes from the Congressional Budget Office, whose job it is to score legislation for cost. By September 2022, a month after Biden signed the IRA, the clean energy and climate portions of the bill had an estimated cost of about $391 billion between 2022 and 2031. Yet even at the time experts saw it as a lowball figure and they have offered a stream of much higher estimates ever since.

By April, to take one high-profile example, a team of researchers at the University of Pennsylvania's Wharton School, working with Goldman Sachs, updated their own earlier estimate of $385 billion with a staggering new figure in excess of $1 trillion. The report's authors cited "newer implementation" details and more optimistic assumptions about how much private capital will pour into the economy, particularly electric vehicles, in response to the promise of leveraging tax credits.

But that's not nearly the only way experts came up with enlarged estimates of how much spending would be triggered by the IRA. 

John Bistline of the Electric Power Research Institute, along with colleagues, ran a model considering a wide variety of economic variables — what happens if inflation rates continue to rise, for example, or if there is a recession — and came up with a middle figure of $781 billion for tax credit uptake. But even Bistline's work can't overcome the fact that the IRA's true dollar figure will remain a mystery for a long time. 

"One thing our modeling comparison really underscored for me is that a lot of the spending tends to happen close to the end of the 10-year budget window, so closer to 2030," Bistline said. "So we won't really know about costs for a lot of years."

A puzzle for the IRS

Both citizens and corporations will file their first deductions under the IRA next year, and what the Internal Revenue Service allows and doesn't allow under those tax filings could be revealing. But once again, this is just a start.

The IRS is still struggling to issue guidance for some parts of this complicated law. Take the confusion over EV credits. The law wants to see U.S. manufacturers protected, so cars that use parts made in China aren't eligible for the credits. But what about parts made with Chinese capital in other countries? The IRS is still debating.

Similarly, U.S. tax officials have yet to define what projects will qualify for the green hydrogen tax credit. At stake is potentially as much as $120 billion, according to Adithya Bhashyam of BloombergNEF. It's another uncapped incentive, though, so the cost will depend on how much qualifying green hydrogen gets produced.

Macroeconomic trends are also critical. If the inflation that the climate-spending law was named after stays high, that could slow the rollout of new projects due to higher costs. There are behavioral unknowns, too, as in how many people will really buy electric vehicles or heat pumps, even with generous incentives.

Another potent variable is just time. Mona Dajani, global head of energy and infrastructure projects at the law firm Shearman & Sterling, has seen a rush of investors looking to structure projects to best take advantage of IRA incentives. But a year later businesses are still "just dipping their toes in," she said, because there are ongoing political attacks from Republicans in Congress. If that partisan rancor settles down — something unlikely in a presidential election year — then the real "floodgates of investment could open."

That would mean that the cost of the climate and energy provisions of the legislation could skyrocket well past the $1 trillion mark, which could create a negative feedback loop of its own. West Virginia Senator Joe Manchin, a Democrat whose 11th-hour support secured passage of the IRA, has been furious over rising cost estimates and has criticized the Biden administration for issuing guidance that he considers beyond the scope of the law.

Christina DeConcini, director of government affairs at the World Resources Institute, a climate research group, sees ballooning use of the tax credits as a good thing. It represents more people investing. "It's not like there's a window you can just go up to and get money out," she said. 

Indeed, expert estimates indicate private money is pouring into the system and will, if anything, continue to increase. Venture capital investment in climate tech reached a record $70.1 billion last year, according to HolonIQ Global Impact Intelligence, for an enormous 89% rise over 2021. A recently released Goldman Sachs report thinks that the bill will eventually drive a whopping $3.3 trillion in investments, though much of the money will be back loaded to the end of the 10-year period.

"The tax credit is incentivizing this private investment to create manufacturing jobs in parts of the countries that have been overlooked for decades," DeConcini said. "It's good news."

More importantly, said Bill Hoagland, senior vice president at the Bipartisan Policy Center and a former director of the Senate Budget Committee, there are a lot of things that the budget scoring doesn't take into account. Nothing in the IRA attempts to price the social costs of carbon dioxide emissions, which include more frequent natural disasters like this summer's intense heat waves and last week's devastating wildfires in Maui. In addition to tragic loss of lives, such events take a growing toll on federal relief funds. Lower emissions from the law could avoid worst-case scenarios and their costs.

"If you believe in — and I do — that climate change is an existential threat to the economy and that this law will reduce some of these external costs, whether it's health care or disaster coverage," said Hoagland, "then that could be a plus to revenues in the long haul."

 Leslie Kaufman

By Michael Cohn August 02, 2023

The Internal Revenue Service hopes to process all of the tax correspondence, notice responses and nontax forms it receives digitally in the next two years in an effort to reduce the amount of time-consuming paper it receives in the mail.

By Michael Cohn August 02, 2023

The Internal Revenue Service hopes to process all of the tax correspondence, notice responses and nontax forms it receives digitally in the next two years in an effort to reduce the amount of time-consuming paper it receives in the mail.

The IRS launched what it's calling a "paperless processing" initiative Wednesday. Taxpayers would have the option to go paperless for IRS correspondence by the 2024 filing season, with the goal of achieving paperless processing for all tax returns by filing season 2025. The IRS is making the digital push as part of the extra funding it received under last year's Inflation Reduction Act to improve taxpayer service and technology after experiencing a long backlog of unprocessed taxpayer correspondence during the pandemic.

"Today, we are announcing that — by the next filing season — taxpayers will be able to digitally submit all correspondence, nontax forms and notice responses to the IRS," said Treasury Secretary Janet Yellen. "Of course, taxpayers will always have the choice to submit documents by paper. For those taxpayers, by filing season 2025, the IRS is committing to digitally process 100% of tax and information returns that are submitted by paper — as well as half of all paper correspondence, non-tax forms and notice responses. It will also digitalize historical documents that are currently in storage at the IRS."

Currently, the Treasury Department pointed out, taxpayers can't digitally submit many types of forms and pieces of correspondence beyond their annual 1040 tax return, and the IRS is unable to digitally process the paper tax returns it receives. For decades, taxpayers needed to respond to notices for document verification via the U.S. Postal Service, and IRS employees had to manually enter the numbers from paper tax returns into computers one digit at a time, creating significant delays for taxpayers and challenges for IRS staff.

The IRS receives approximately 76 million paper tax returns and forms, and 125 million pieces of correspondence, notice responses and nontax forms every year, according to the Treasury, and its limited capacity to accept forms digitally or digitize all the paper it receives has kept it from delivering the kind of service that taxpayers expect. The IRS has over 1 billion historical documents that cost $40 million per year to store.

After receiving an infusion of $80 billion in extra funding over 10 years under the Inflation Reduction Act (which was later reduced by the deal between President Biden and House Speaker Kevin McCarthy, R-California, to avoid a debt default), the IRS is now able to let taxpayers respond to more notices directly online. The agency has made progress in deploying technology to automate the scanning of millions of paper returns. Under the next phase of its modernization efforts, the IRS is speeding up its paperless processing efforts. 

By next tax season, taxpayers will be able to digitally submit all of their correspondence, nontax forms and responses to notices. The IRS is estimating that over 94% of individual taxpayers will no longer need to send mail to the agency at that point, and up to 125 million paper documents will be submitted digitally per year. However, taxpayers who wish to submit paper returns and correspondence can continue to do that.

Taxpayers will also be able to e-file 20 additional tax forms by the 2024 filing season, allowing up to 4 million more tax documents to be filed digitally every year. That includes amendments to Forms 940, 941, 941-SS and 941 (PR), some of the most common forms taxpayers file when amending their tax returns. At least 20 of the most used nontax forms will be available in digital, mobile friendly formats for taxpayers to complete and submit, including a Request for Taxpayer Advocate Service Assistance when they need help from that office.

By filing season 2025, another 150 of the most used non-tax forms will be available in digital, mobile friendly formats that can allow taxpayers to submit them with their cell phones. By then, the IRS will be able to digitally process all paper-filed tax and information returns, allowing up to 76 million paper documents to be processed digitally every year to speed up taxpayer refunds by several weeks, the Treasury Department estimates. Half of paper-submitted correspondence, nontax forms, and notice responses will be processed digitally by that time, enabling up to 60 million paper documents to be processed digitally every year. 

By filing season 2026, the IRS predicts that all paper documents — including correspondence, nontax forms and notice responses — will be processed digitally, and up to 1 billion historical documents will be digitized, giving taxpayers access to their data and saving the agency an estimated $40 million in storage costs each year.

Some tax experts would like to see the IRS take a cautious approach in its technology plans. "They have very ambitious plans to modernize and improve the technology capability, and that's all good," said Mark Everson, a former IRS commissioner and now a vice chairman at the tax consulting firm Alliantgroup, in an interview last week before the latest announcement. "I'm simply saying better safe than sorry as they go forward. They can't be so hellbent to meet a specific deadline or timeline that it increases the risk significantly of a problem because all hell will break loose if there's a major problem."

Enforcement push

This year, the IRS has been stepping up its enforcement efforts after receiving the extra funding from the Inflation Reduction Act. "The dividends on these investments will take time to see, but the IRS has already taken aggressive action over the past few months to crack down on tax evasion," said Yellen. "In recent months, the agency has closed about 175 delinquent tax cases for millionaires. That has generated about $38 million in recoveries. The IRS has also continued to intensify its effort to enforce against wealthy individuals who fail to file tax returns at all."

Some observers would like to see the IRS use more of the funding it is receiving to improve taxpayer service and technology as opposed to stepping up its enforcement efforts.

"The IRS will need to build a much more robust customer service and business systems infrastructure than even the one envisioned in its strategic plan," said National Taxpayers Union president Pete Sepp in a statement. "Given this need, and the commissioner's warning that recent customer service improvements could hit a funding cliff in a year, it is now more imperative than ever for Congress to redirect the funding infusion the IRS received in 2022 away from heavy-handed enforcement and toward modernization efforts that respect taxpayer rights while increasing voluntary compliance. Prioritization needs to be the key word going forward."

The efforts at the IRS are moving forward despite resistance in Congress to some of the enforcement efforts.

"This is a huge step forward for the customer experience the IRS provides American taxpayers, and it's precisely the kind of upgrade Democrats intended when we passed the Inflation Reduction Act," said Senate Finance Committee chairman Ron Wyden, D-Oregon. "It's clear that when Congress lays out a clear goal and provides adequate funding, the IRS is able to get the job done. "

Yellen pointed out that the extra funding from the Inflation Reduction Act has enabled the IRS to answer phone calls faster this year, reaching an 87% level of service with live assistance this filing season, more than a five-fold increase over last year. The IRS answered 3 million more phone calls this past tax season than in 2022, and she said the agency cut wait times from 28 minutes down to three minutes. The IRS was able to hire over 5,000 more people with the extra funding.

"Thanks to the IRA, we are in the process of transforming the IRS into a digital-first agency," she said. "This 'paperless processing' initiative is the key that unlocks other customer service improvements. It will enable taxpayers to see their documents, securely access their data, and save time and money. And it will allow other parts of the IRS to rely on these digital copies to provide faster refunds, reduce errors in tax processing, and deliver a more seamless and responsive customer service experience, and much more. I urge Congress to provide stable and sufficient annual appropriations for the IRS in order to sustain and build on this progress."

June 29, 2023

The IRS has been sending a special follow-up mailing to taxpayers in several states affected by disasters to reassure them that they have extra time to file and pay their taxes. This new mailing will be sent in the next few weeks to residents in California, Alabama, Arkansas, Florida, Georgia, Indiana, Mississippi and Tennessee which are designated disaster areas that received the CP14 Balance Due collection notices in late May and June from the IRS. While the earlier mailings were sent out as a legal requirement, the current mailings reiterate that taxpayers have until later this year (to October 16th) to timely pay under the disaster declaration. The letter in English and Spanish includes additional information to help taxpayers understand the disaster relief they have received.

June 29, 2023

The IRS has been sending a special follow-up mailing to taxpayers in several states affected by disasters to reassure them that they have extra time to file and pay their taxes. This new mailing will be sent in the next few weeks to residents in California, Alabama, Arkansas, Florida, Georgia, Indiana, Mississippi and Tennessee which are designated disaster areas that received the CP14 Balance Due collection notices in late May and June from the IRS. While the earlier mailings were sent out as a legal requirement, the current mailings reiterate that taxpayers have until later this year (to October 16th) to timely pay under the disaster declaration. The letter in English and Spanish includes additional information to help taxpayers understand the disaster relief they have received.

The IRS has also updated the insert that will accompany upcoming CP14 balance-due notices to make it clearer that the payment date listed in the letter does not apply to those covered by a disaster declaration, and the disaster dates remain in effect. The plain language insert, which is in English and Spanish, includes a special QR code that takes people to the IRS Disaster page.

By  Greg Stohr June 30, 2023

The U.S. Supreme Court tossed out President Joe Biden's plan to slash the student debt of more than 40 million people, rejecting one of his signature initiatives as exceeding his power.

The justices, voting 6-3 along ideological lines, sided with six Republican-led states that sued to challenge the program, which by one estimate would have cost $400 billion over 30 years.

By  Greg Stohr June 30, 2023

The U.S. Supreme Court tossed out President Joe Biden's plan to slash the student debt of more than 40 million people, rejecting one of his signature initiatives as exceeding his power.

The justices, voting 6-3 along ideological lines, sided with six Republican-led states that sued to challenge the program, which by one estimate would have cost $400 billion over 30 years.

Writing for the court, Chief Justice John Roberts said the administration was "seizing the power of the legislature" by trying to cancel so much student debt.

Biden is likely to face renewed pressure from lawmakers and loan-relief advocates to find an alternative way to cancel debt, possibly using a different legal rationale. For now, the high court ruling strips him of an accomplishment as he looks toward his reelection bid next year. Biden is expected to speak about options later Friday.

Student loan payments are set to resume in late August after a three-year pause. Millions of people could fall behind on their debt.

"This fight is not over," said Senator Elizabeth Warren, a Massachusetts Democrat and proponent of the relief plan. "The president has more tools to cancel student debt — and he must use them."

The three liberals in dissent said that the states lacked the legal right to challenge the loan relief and that Congress authorized the forgiveness plan. "In every respect, the court today exceeds its proper, limited role in our nation's governance," Justice Elena Kagan wrote for the dissenters.

The conservative-dominated Supreme Court has thwarted Biden's agenda on multiple occasions. The court stopped Biden from blocking evictions during the pandemic and requiring workers to get COVID vaccines or regular tests. The justices have also slashed the Environmental Protection Agency's power to address climate change and protect wetlands.

Biden's plan would have forgiven as much as $20,000 in federal loans for certain borrowers making less than $125,000 per year, $250,000 for households.

"Biden's student loan bailout unfairly punished Americans who already paid off their loans, saved for college, or made a different career choice," Republican National Committee Chairwoman Ronna McDaniel said in a statement. "Americans saw right through this desperate vote grab, and we are thankful that the Supreme Court did as well."

The administration contended the student-loan program was authorized by a 2003 law that gives the education secretary special powers when responding to national emergencies. The law, known as the Heroes Act, says the secretary can "waive or modify" provisions to ensure that debtors "are not placed in a worse position financially" because of a national emergency.

Roberts said that law doesn't give the education secretary power to "rewrite that statute from the ground up."

Roberts invoked the "major questions doctrine," a legal concept that has become a potent tool under the current court for limiting the power of federal agencies and departments. The high court has said the executive branch needs clear congressional authorization before taking actions that have sweeping political and economic significance.

The states — Nebraska, Missouri, Arkansas, Iowa, Kansas and South Carolina — and two borrowers challenged the program in separate cases. The court said separately the borrowers lacked standing. The Biden administration argued that all the challengers lack standing to sue because they aren't being directly harmed by the policy.

State standing

Roberts said the states had standing because of the impact on the Missouri Higher Education Loan Authority, a nonprofit, state-created entity that by law must contribute to a fund Missouri uses to pay for projects at public colleges. MOHELA itself wasn't involved in the suit.

"The secretary's plan will cut MOHELA's revenues, impairing its efforts to aid Missouri college students," he wrote. "This acknowledged harm to MOHELA in the performance of its public function is necessarily a direct injury to Missouri itself."

Kagan blasted that reasoning, saying the states "have no personal stake" in the loan-forgiveness program.

"They are classic ideological plaintiffs: They think the plan a very bad idea, but they are no worse off because the secretary differs," Kagan wrote.

The state case is Biden v. Nebraska, 22-506.

— With assistance from Janet Lorin and Emily Birnbaum

Greg Stohr

By  Michael Cohn June 08, 2023, 1:22 p.m. EDT 7 Min Read

Congress' recent move to shift $21.4 billion in funding away from the Internal Revenue Service as a condition for increasing the debt limit isn't deterring the tax agency from moving ahead with its strategic plans to hire more employees, improve taxpayer service and modernize its technology, but it could slow down efforts to close the tax gap and audit more high-income taxpayers and corporations.

And IRS officials are still emphasizing one of their priorities: preventing fraudulent claims for the widely advertised Employee Retention Credit.

By  Michael Cohn June 08, 2023, 1:22 p.m. EDT 7 Min Read

Congress' recent move to shift $21.4 billion in funding away from the Internal Revenue Service as a condition for increasing the debt limit isn't deterring the tax agency from moving ahead with its strategic plans to hire more employees, improve taxpayer service and modernize its technology, but it could slow down efforts to close the tax gap and audit more high-income taxpayers and corporations.

And IRS officials are still emphasizing one of their priorities: preventing fraudulent claims for the widely advertised Employee Retention Credit.

As part of the debt limit deal negotiated by House Speaker Kevin McCarthy, R-California, and President Biden and passed earlier this month to avert an unprecedented default by the federal government, lawmakers agreed to rescind $1.4 billion of the $80 billion allocated to the IRS over 10 years under last year's Inflation Reduction Act, and to make another $20 billion of the funding available to other non-defense programs over the next two years.

"A $20 billion cut, but there's still $60 billion remaining, and that's $60 billion we did not have a year ago," said Douglas O'Donnell, deputy commissioner of services and enforcement at the IRS. "We still have the opportunity to truly transform the agency."

He said the IRS is working now to sort out what the $20 billion cut means.

"We are going through a number of scenarios," said O'Donnell. "We don't know exactly what it's going to look like, but we do think that our original plan for the first five years will hold and it's going to be the further-out years where we're going to have more of a challenge to deal with the reduction. We'll see. There will be more to follow. It's early days."

The IRS has been facing challenges since the pandemic with processing its backlog of returns, although the extra funding from the IRA enabled it to perform better this year. 

"The pandemic did not help us. The ability for taxpayers to get to us was really, really bad," O'Donnell acknowledged. "It dropped to the single digits. We were not able to keep up with the paper that was coming in. We have returns currently that cannot be filed electronically. It's not that people don't want to. It's that they cannot and that's partly due to a lack of investment. We're working to right-size that."

Both paper returns and amended returns are slowing down processing at the IRS (See "Taxpayer Advocate: The IRS has a paper problem.")

"We still are getting a lot of amended returns," said O'Donnell. "Almost all of it is due to relief programs during COVID. The Employee Retention Credit is a huge issue. There's a lot of people who didn't know about it and deserved the credit and filed, and we're processing those. But there is a lot of noncompliance. Some of it is edging into the fraud areas. We're working with the Department of Justice to make sure that we properly administer that space. There's just a lot of problems there."

He urged tax professionals to help the IRS prevent bogus claims for the ERC.

"I've given a couple of interviews just trying to get the word out, but we need to figure out some way, and tax pros can help us with this," said O'Donnell. "These individuals who are being sold this notion that almost anyone can claim this credit by these mills — they are creating a lot of heartache for businesses because when we go out, if they've gotten a refund, we're going to pull it back and there's going to be penalties and interest associated with it. Those folks that have gotten 25% of the refund as a fee for helping them, they're gone. They're not going to represent them. Whatever you can do to help us, we'd appreciate it. You're helping the community more broadly."

The IRS has been using data analytics at its Office of Fraud Enforcement and Office of Promoter Investigations, according to Lia Colbert, commissioner of the Small Business/Self-Employed Division, to detect various types of fraud, including among promoters of dubious ERC claims.

"When I think about what happened with the Employee Retention Credit, it's almost like a veritable business case study in an underfunded and under-resourced agency having to deliver an incredibly complicated tax credit to an incredibly needy population, literally trying to deliver a lifeline of credits to a population of paper returns."

IRS employees had to use pencils to identify risk categories and fraud areas on piles of paper returns to spot trends with promoters of the ERC, weeding out bogus claims from legitimate ones. The service is now in the process of deploying more scanning technology thanks to the extra funding it received last year.

"We still did pretty OK in that space, because we were able to deliver help to nearly 2 million employers and over $150 billion in credits, but we want to do so much more," said Colbert. "This is now that opportunity where we can do a little bit more of that. When it comes to Employee Retention Credits and the Inflation Reduction Act funding, I think about now being able to imagine a world where that 941-X comes in electronically, being able to work with our digital and our scanning teams to be able to get information immediately so we can start to risk assess immediately. I think about working with our IT partners to try to design new ways to capture data more efficiently and new communication strategies. I think about ways we can coordinate across our functions better. That funding and that little bounce really helps us get to this."

Dealing with inflated expectations for the ERC can be a headache for tax professionals as well.

"The ERC presents multifaceted challenges, and it's one of the things that keeps me awake at night, in large part because the ERC has probably the single largest potential for buyer's remorse from taxpayers that I've ever seen," James Creech, a senior manager with the tax team at Top 100 Firm Baker Tilly, told Accounting Today. "Baker Tilly, early on in the ERC, spent a significant amount of time developing processes and counterweights and independence, so we could do honest, good-faith credit eligibility calculations."

He noted that his firm began warning about the flood of inappropriate ERC claims with an alert it sent out in October 2021.

"There's a lot of people who get promised the moon that they're going to qualify for ERC so come claim your $20,000 per year per employee," said Creech. "I've heard verbatim from clients that if you didn't fire anyone during COVID, you qualify. There's no mention of gross receipts or suspension [of operations]. It's just if you didn't fire anyone, which isn't the law, but it's persuasive if you're looking at it from hindsight and saying, 'Well, we made it through COVID. We're signing up with a shop that is telling us that they can do this and look at the size of the check. And they're charging a contingency fee.'"

"What happens if you get caught?" he continued. "The IRS is going to ask you to repay the entire thing. They're not going to care that you paid a contingency fee. And if you get caught, you're going to look at 100% repayment, plus potential penalties, plus interest, which is now 7%."

He is seeing claims ranging from $300,000 to $2 million. "Being told you have to repay $2 million in one sitting for a credit you didn't qualify for, but you were promised the moon and the money's already been spent, could be catastrophic," said Creech.

Another Top 100 Firm, Sikich, hosted a program last month for financial clients to give them a rundown on the rules and regulations for the ERC, and in a poll of participants, it found that 58% said they are being approached daily or weekly by ERC providers offering "claim and refund-related services."

"Clients are getting solicited by some of these providers who want to provide a study for them," said Jim Brandenburg, a tax partner at Sikich. "They're getting calls on a fairly regular basis, telling them that they qualify."

Clients will ask his firm what they know about the ERC after receiving such calls or hearing about inflated claims about the ERC in ads. "In some cases, we might have looked at a company and they might qualify, but in other cases, we've made the assessment that we don't think that they're eligible for it, but yet they're still getting some of these calls," Brandenburg told Accounting Today. 

He tries to educate them about how the ERC rules work, such as a reduction of gross receipts in either 2020 or 2021, and whether it was due to government order that led to a parietal or full shutdown. Brandenburg advises them to be careful and make sure they do their due diligence. He expects to see the IRS stepping up its enforcement activity in this area.

"At the IRS, they trained a number of their individuals at the end of last year on the ERC," said Brandenburg. "Some of the agents, I think, were helping out with the regular busy season filing, but my guess is perhaps this summer and into the fall, they will devote more time toward some of the ERC audits. There will probably be more activity over this coming year and even into next year."

By  Michael Cohn April 18, 2023, 10:33 a.m. EDT

The Internal Revenue Service's new commissioner, Danny Werfel, lauded the agency's performance this tax season, thanks to the extra funding from last year's Inflation Reduction Act.

"This marks a special time for the nation with the arrival of the tax-filing deadline," he said during a press conference Monday. "This was a big year for the IRS in many ways. The agency really had its hands full during the pandemic, handling three rounds of stimulus payments and many other changes needed to support our country and our fellow citizens. This is really the first tax season we've had since 2019 where the IRS and the nation were on normal footing, so this was a test of the IRS, and I'm pleased to report that the IRS delivered a solid 2023 filing season by any measure. You can see this progress in every aspect of our operations. The IRS stepped up to help taxpayers in many different ways this tax season. The IRS has answered more calls from taxpayers seeking our help, provided more in-person assistance and offered more online."

By  Michael Cohn April 18, 2023, 10:33 a.m. EDT

The Internal Revenue Service's new commissioner, Danny Werfel, lauded the agency's performance this tax season, thanks to the extra funding from last year's Inflation Reduction Act.

"This marks a special time for the nation with the arrival of the tax-filing deadline," he said during a press conference Monday. "This was a big year for the IRS in many ways. The agency really had its hands full during the pandemic, handling three rounds of stimulus payments and many other changes needed to support our country and our fellow citizens. This is really the first tax season we've had since 2019 where the IRS and the nation were on normal footing, so this was a test of the IRS, and I'm pleased to report that the IRS delivered a solid 2023 filing season by any measure. You can see this progress in every aspect of our operations. The IRS stepped up to help taxpayers in many different ways this tax season. The IRS has answered more calls from taxpayers seeking our help, provided more in-person assistance and offered more online."

On Monday, the Treasury Department delivered a kind of report card for the IRS this past season, showing improvements in performance thanks to the extra $80 billion in funding allocated over 10 years (see story). While most of the funding is for increased enforcement, the IRS was able to use some of the money for hiring of taxpayer service personnel this tax season. 

Due to the 5,000 new hires made possible by the Inflation Reduction Act, IRS customer service representatives answered more than 6.5 million taxpayer calls this year, 2.4 million more calls with live assistance since the start of the year through April 7, compared to the same period in 2022. The IRS added new technology features like customer callback options, which will be available for 95% of taxpayers calling for toll-free live assistance by the end of July 2023. 

The IRS achieved an 87% level of service this year, exceeding Treasury Secretary Janet Yellen's goal of 85%. The agency also reduced phone wait times to four minutes from 27 minutes, served 100,000 more taxpayers in-person, digitized 80 times more returns than in 2022 through the adoption of new scanning technology, cleared the backlog of unprocessed 2022 individual tax returns with no errors, launched two new digital tools, and enabled a new direct-deposit refund option. That represents a big improvement over last year, when the IRS hit just a 15% level of service to taxpayers and millions of refunds were delayed for months.

"This tax day marks an important milestone at the IRS," said Deputy Secretary of the Treasury Wally Adeyemo during the press conference. "Thanks to the Inflation Reduction Act resources, we have dramatically improved services this filing season. IRS employees have shown that when they have the resources, they will provide the services they've always wanted to provide to American taxpayers. Under the vision detailed in the strategic operating plan, taxpayers will be able to seamlessly interact with the IRS in the way that works best for them: on the phone, in person and online. This filing season, the IRS has made great strides in all three areas as shown through the brand new data we're releasing today. First, the IRS has achieved an 87% level of service, exceeding Secretary Yellen's ambitious goal of 85%. It's important to remember how this stacks up to last year, when we were able to perform at less than 15%. IRS customer service representatives answered 2 million more calls and cut waiting times by 85% this year. We've cut it down to four minutes from 27 minutes. That's better than most companies can achieve. Factoring in taxpayers served by automated phone applications, the IRS actually achieved a 93% level of service."

He noted that the IRS has also reopened its in-person Taxpayer Assistance Centers across the country. The Treasury said on its "report card" that the IRS hired hundreds of new TAC employees, with 335 TACs open this filing season, including 17 new or newly reopened TACs that closed last year. The IRS served 428,000 taxpayers in-person as of March 31, 107,000 more taxpayers than during the same period last year. Approximately 92% of TACs were open as of early April, and several are scheduled to open in the coming weeks. The IRS also hosted Taxpayer Experience Days in more than 100 TAC locations to provide in-person help on Saturdays.

The IRS has also expanded its digitization initiative to eliminate the backlog of paper tax returns. The IRS has expanded scanning to some of the most commonly used tax forms — Forms 1040 and 941 — and has scanned 10,000 as of April 13. The IRS is on track to scan millions of returns this year. Thanks to the extra funding from the Inflation Reduction Act, the IRS scanned 470,000 940 forms as of April 13. In the first quarter of the year, the IRS scanned 80 times more returns than in all of 2022.

Online services have improved efficiency in other ways as well. "Taxpayers are now able to respond to notices online," said Adeyemo. "They also have a new online filing option: the new direct deposit refund option. Until this tax season, when taxpayers received notices for things like document verification, they had to respond through the mail. Taxpayers are now able to respond to nine of the most common notices for credits like the Earned Income Tax Credit, saving them time and money. Under the strategic operating plan, the IRS will expand this tool to allow taxpayers to respond online to 72 of the most common notices they receive in the mail. This will make it significantly easier for individuals and small businesses to resolve issues and get their refunds in a timely manner. The IRS also launched an online portal to allow businesses to file 1099s electronically. These forms previously needed to be submitted through the mail. Small business owners often prepare their own taxes rather than hire professionals, and this new tool is saving millions of small business owners time and money."

He noted that in the first five years of the 10-year strategic operating plan, taxpayers will be able to securely file all documents and respond to all notices online and securely access and download their data and account history.

"The new notice and 1099 tools show how the IRS is making progress toward that goal," said Adeyemo. "In addition to service upgrades, the IRS has made major gains in its efforts to eliminate paper backlogs through scanning. The IRS has digitized 480,000 990, 941 and 1040 forms to date through the adoption of the new scanning technology, 80 times more forms in the first quarter of this year than in all of 2022."

He predicted that in the first five years of the 10-year strategic operating plan, the IRS will eliminate the paper backlogs that have delayed taxpayer refunds and transition to a fully digital correspondence process. 

Werfel pledged to help taxpayers more with the extra funding. "Just like during the pandemic, IRS employees worked very hard again this year to help taxpayers, but this time they had help, thanks to funding Congress provided under the Inflation Reduction Act," he said. "These resources made a remarkable difference for taxpayers. This funding allowed us to hire more than 5,000 additional phone assistors, which led to a phone level of service averaging 87% during the filing season. This was a dramatic improvement from last year when those figures came in at under 15%."

He pointed to the reduction in the average wait time on the phone from 27 minutes last year to four minutes this year. "Our customer service representatives have provided assistance on more than 6.5 million calls this year, up from just over 4 million last year," said Werfel. "That means with our additional funding, we helped 2.4 million more taxpayers this year than in 2022. By anyone's measure, our phone service for taxpayers and tax professionals made a quantum leap this year. With the additional funding, we also increased our face-to-face assistance with our Taxpayer Assistance Centers, helping 474,000 people this year, more than a 30% jump from a year ago. And we continue to add staff and reopen Taxpayer Assistance Centers at many locations around the country. We've reopened 16 of these walk-in locations this year, and added one new location and hired 450 new staff, with more to come. Even our volunteer tax preparation services improved. We've had 2 million tax returns prepared under the VITA and TCE [Volunteer Income Tax Assistance and Tax Counseling for the Elderly] program, a jump from less than 1.6 million a year ago. All of this occurs, as the IRS continued to reduce its backlog of tax returns and correspondence from the pandemic. This work did not slow our 2023 filing season operation. We received more than 100 million tax returns through April 7 and refunds rolled out quickly. So far the IRS has delivered more than 69 million tax refunds with close to $200 billion to taxpayers."

The IRS and FTB have extended tax return filing and payment deadlines for those in affected CA counties (all CA counties, except for Lassen, Modoc, and Shasta counties) until October 16^th.

The IRS and FTB have extended tax return filing and payment deadlines for those in affected CA counties (all CA counties, except for Lassen, Modoc, and Shasta counties) until October 16^th.

Because of the long delay without needing extensions, we think this will be a useful tool for taxpayers who either owe a balance due for 2022 or are expecting to make 2023 estimate payments. However, the payment delay does come with a potential risk. The IRS indicates that if a taxpayer receives a penalty notice they should call the IRS for abatement. Last year the IRS was only answering 13% of its calls. They claim they’ll do better this year, but trying to get an erroneous penalty abated could turn into a fiasco, if the prior three years are any indication.  Millions of CA taxpayers may be gambling on how automated the IRS’ and the FTB’s suppression of penalty notices will be.

With the stock market down in 2022, many taxpayers will likely get tax refunds for 2022. For taxpayers with 2022 tax refunds expected, there’s no reason to delay filing. Their only decision should be about whether to pay their first three 2023 estimated tax installments on the regular dates or wait until October 16^th.

Remember this filing and payment delay generally doesn’t apply to taxpayers not living or working within these counties.

Based upon our experience on the 2019 and 2020 charitable remainder unitrust filings, this filing delay may not get honored for those returns, without a significant battle over IRS late-filing penalty notices. In those past years, when the whole country’s filing dates were delayed, we found the IRS’ computers were not reprogramed and CRUs got $5K penalty notices that took months to get resolved. Since this delay only involves certain CA counties, we really doubt any IRS reprogramming will take place for CRU penalty notices. For CRU returns, we recommend the normal April 18th filing date be observed or the normal extension be filed by April 18th. For similar reasons, we think affected CA taxpayers having Gift Tax returns due or those filing forms 5471 or 8938 (which carry hefty potential penalties if late) should get extended using usual extension forms by April 18th.

Standard Mileage Rates for 2023

For 2023, the standard rate for business mileage will be 65.5 cents per mile. The previous rate was 62.5 cents per mile.

The standard rate for the use of a car when providing services to a charitable organization will remain at 14 cents per mile.

The 2023, standard mileage rate for the use of your car for medical expenses or deductible moving expenses will be 22 cents per mile.

Every year, Americans donate billions of dollars to charity. Many donations are in cash. Others take the form of clothing and household items. With all this money involved, it's inevitable that some abuses occur. Current tax law cracks down on abuses by requiring that all donations of clothing and household items be in "good used condition or better."

Every year, Americans donate billions of dollars to charity. Many donations are in cash. Others take the form of clothing and household items. With all this money involved, it's inevitable that some abuses occur. Current tax law cracks down on abuses by requiring that all donations of clothing and household items be in "good used condition or better."

Good used or better condition
The law does not define good or better condition. For guidance, you can look to the standards that many charities already have in place. Many charities will not accept your donations of clothing or household items unless they are in good or better condition.

Clothing cannot be torn, soiled or stained. It must be clean and wearable. Many charities will reject a shirt with a torn collar or a jacket with a large tear in a sleeve. As one charity spokesperson summed it up, "Don't donate anything you wouldn't want to wear yourself."

Household items include furniture, furnishings, electronics, appliances, and linens, and similar items. Food, paintings, antiques, art, jewelry and collectibles are not household items. Household items must be in working condition. For example, a DVD player that does not work is not in good used or better condition. You can still donate it (if the charity will accept it) but you cannot claim a tax deduction. Household items, particularly furnishings and linens, must be clean and useable.

The law authorizes the IRS to deny a deduction for the contribution of a clothing or household item that has minimal monetary value. At the top of this list you can expect to find socks and undergarments.

Fair market value
You generally can deduct the fair market value of your donation. Unless your donation is new - for example, a blouse that has never been worn - its fair market value is not what you paid for it. Just like when you drive a new car off the dealer's lot, a new item loses value once you wear or use it. Therefore, its value is less than what you paid for it.

If you're not sure about an item's value, a reputable charity can help you determine its fair market value. Our office can also help you value your donations of used clothing and household items.

Get a receipt
Generally, you must obtain a receipt for your gift. If obtaining a receipt is impracticable, for example, you drop off clothing at a self-service donation center, you must maintain reliable written information about the contribution, such as the type and value of the property.

Charitable contributions of property of $250 or more must be substantiated by obtaining a contemporaneous written acknowledgement from the charity including an estimate of the value of the items. If your deduction for noncash contributions is greater than $500, you must attach Form 8283 to your tax return. Special rules apply if you are claiming a deduction of more than $5,000.

Exception
In some cases, the rules about good used or better condition do not apply. The restrictions do not apply if a deduction of more than $500 is claimed for the single clothing or household item and the taxpayer includes an appraisal with his or her return.

If you have any questions about the charitable contribution rules for donations of clothing and household items, give our office a call.

To our business clients:

Form 1099-NEC is to be used for reporting nonemployee compensation (NEC). This form must be filed by January 31, 2024 with the IRS and also provided to the recipient by this date. California participates in the combined Federal/State filing program for Form 1099-NEC which means that a copy of the form won’t need to be sent separately to the FTB.

The form 1099-MISC is still required for other types of payments and information. See below for the specific uses of this form.  

The 1099-NEC form is unusual in that it needs to be both to the IRS and the recipient by January 31^st. Most other 1099s are due to the recipient by January 31st and to the IRS by February 29th. The penalty for each instance of failing to file a correct 1099 form by the due date with the IRS is as follows:

• $60 per form if correctly filed within 30 days of the due date;
• $120 per form if correctly filed after 30 days of the due date but by August 1st;
• $310 per form if filed after August 1st, or not filed (assuming there was no intentional disregard);
• At least $630 per form with no maximum penalty if due to intentional disregard of the requirements.

A similar additional penalty framework applies if the payee isn’t provided their copy by these deadlines.

California imposes its own penalties with the amount ranging between $15 and $50 per information return depending on the reason for the penalty..

Federal business income tax returns contain two questions regarding the filing of 1099 forms. We'll be checking with you about your fulfilment of the 1099 form filing requirements in order to answer those questions correctly.

WHAT IS A 1099 FORM?

A 1099 form is an informational return on which businesses report various sorts of payments they've made to partnerships, sole proprietorships, individuals and certain types of corporations during the calendar year. Some of the most common types of 1099 forms are:

WHO SHOULD WE SEND A 1099 FORM TO?

They should be sent to partnerships, sole proprietorships, limited liability companies (LLC), limited liability partnerships (LLP), and individuals you made payments to in the course of your business. A 1099 should also be sent to any attorney, physician, or a supplier of medical services even if they are a corporation. Any payment on which you take backup withholding for Federal income taxes must be reported on the appropriate Form 1099, regardless of the amount of the payment. This means:

1. Only send 1099s for payments you made related to the operation of your business.
2. You don't need to send 1099s for materials or products you purchased.
3. You don't need to send 1099s to corporations (unless it is for medical or legal services). However, the burden to find out if it's a corporation is on you. If the name has "Incorporated", "Inc.", "Corporation", or "Corp." in it, you can assume it's a corporation. Otherwise, you need to ask.
4. You don't need to send 1099s to exempt organizations, retirement trusts, or IRA accounts.

FILING RETURNS WITH THE IRS

An important change this year is that businesses who file 10 or more informational returns are required to file electronically through the IRS' FIRE System (Filing Information Returns Electronically). We can help you with this.

If you must file any Form 1098 or 1099 with the IRS and you are filing paper forms, you must send a separate Form 1096 with each different type of form, as the transmittal document.

For businesses located in California, the government copies need to be mailed to:

Department of the Treasury
IRS Submission Processing Center
1973 North Rulon White Blvd.
Ogden, UT 84201

CALIFORNIA REPORTING REQUIREMENTS

If you file IRS Forms 1099 series, Forms 5498, 1098 and W-2G with the IRS on paper, you are not required to file a paper copy of the same form with the Franchise Tax Board. The IRS will forward the information to them.

When the Federal and State payment amounts differ, you may file information returns directly with the Franchise Tax Board.

WHAT INFORMATION DO YOU NEED FOR THE 1099 FORM?

1. Name and address of whom you paid.
2. The amount you paid them during 2023.
3. The type of payment made.
4. Their identification number. For an individual this would be their social security number. For a proprietorship, LLC, partnership, or corporation this would be their employer identification number which is a nine-digit number, usually beginning with "94-" or "77-".

IMPORTANT: It is extremely important that the name recorded on the 1099 agrees with the name listed on the Social Security Administration's records for the specified identification number. Therefore, in the case where an individual is self-employed, care must be taken to make  sure that the proper name is listed on the 1099. Any "dba" name should be listed on the  1099 underneath the individual's legal name which agrees with the Social Security Administration's records.

WHAT IF SOMEONE WON'T GIVE US THEIR IDENTIFICATION NUMBER?

If someone won't give you their identification number, you're not sure they're giving you the correct number, or you're not sure they're incorporated as they say, then you should send them a W-9 form (available at the IRS website) by certified mail, return receipt requested. The receipt will document your request for their number and help you avoid the penalty for filing a 1099 form without an identification number. If the W-9 form is completed and returned to you, it will take you off the hook for both the accuracy of the identification number used and as to whether they're really a corporation.

WHAT CAN SEEBA & ASSOCIATES DO TO HELP?

Please give us a call if you would like us to help in the preparation of these 1099 forms. We can:

1. Answer your questions regarding the issues discussed above,
2. Prepare 1099 forms for you from information you've gathered, consisting of name, address, identification number, and amount paid in 2023, or
3. Figure the amount you've paid for 2023 from your books and records. Along with the address and identification number supplied by you, we'll prepare the 1099 forms.
4. e-File your 1099 forms via the IRS system.

*         *         *         *         *

IMPORTANT

Please let us know as soon as possible if we can assist you since the 1099s are due by January 31st.

You should be getting an identification number or completed W-9 form from anyone you pay for services, even if less than $600, before you pay them. Otherwise, you are obligated to withhold 24% of their payment and remit it to the IRS. Please call us if you run into problems where the 24% "backup withholding" may come into effect.

You should also keep in mind that you will need to maintain records of amounts paid to independent contractors as payments are made or contracts are signed in order to comply with the 2024 Employment Development Department reporting requirement for independent contractors.

If you have any questions regarding 1099 filings, feel free to contact us.

To our business clients:

WITHHOLDING FROM EMPLOYEES' PAYCHECKS

1. 1a. Social Security - The employee portion of this tax remains at 6.2% with a wage limit of $160,200. The employer’s portion of Social Security for 2023 also remains at 6.2%, on wages up to $160,200.
   
   1b. Medicare - The employee and employer each pay 1.45% and there is no cap on the amount of payroll which will be subject to this total tax of 2.9%. Because of the unlimited ceiling on Medicare, there is no maximum tax deduction.
   
   Generally, payroll deposits will include 15.3% of wages (6.2% times 2, plus 1.45% times 2) on wages up to $160,200, and 2.9% of all wages thereafter. However, there is an additional Medicare withholding of 0.9% on employees earning over $200,000 regardless of marital status. So the employee’s normal Medicare tax rate of 1.45%, will rise to 2.35% on their earnings over $200,000, but the employer still pays only the 1.45% rate.
   
   
2. The rate for self-employment persons will be 15.3% on wages up to $160,200. The Medicare tax of 2.9% continues on amounts over $160,200. Self-employed people earning over $200,000 and those earning over a combined $250,000 on a joint return will also face the additional .9% Medicare tax. Because the Medicare tax applies to all earnings, there is no maximum self-employment tax. (There is a deduction allowed for self-employed persons for both self-employment tax and income tax computations).
   
   
3. Federal and State Income Tax - The amount of withholding will change for both Federal and State effective January 1, 2023. Please see the updated federal Employer’s Tax Guide Publication 15 (Circular E) on the Internal Revenue Service website at: https://www.irs.gov/pub.irs-pdf/p15.pdf and the California Employment Development Department’s Publication DE 44 at: https://edd.ca.gov/siteassets/files/pdf_pub_ctr/de44.pdf.
   
   
4. State Disability Insurance - The rate will change to 0.9 %, and the wage base will increase to $153,164. Therefore, the maximum deduction for SDI in 2023 will be $1,378.48.

EMPLOYER TAXES PAID QUARTERLY:

1. Federal Unemployment Tax - The 2023 federal unemployment tax rate is .6% on the first $7,000.
   
   
2. State Unemployment Insurance and Employment Training Tax - The wage limit will remain at $7,000. Rates are set individually for employers. You will receive a notice of your 2023 rate in the mail or it can be accessed in your EDD e-Services for Business account. Please send a copy of any notice you receive to your payroll report preparer.
   

2023 FEDERAL PAYROLL DEPOSIT REQUIREMENTS: 

July 1 Change to 2022 Standard Mileage Rates

Due to the gas price increase caused by Russia’s invasion of Ukraine, the IRS is increasing the standard rate for business mileage effective July 1^st to 62.5 cents per mile. The rate for January-June has been 58.5 cents per mile.

Effective July 1st 2022, standard mileage rate for the use of your car for medical expenses or deductible moving expenses will increase to 22 cents per mile. The rate for January-June has been 18 cents per mile.

The standard rate for the use of a car when providing services to a charitable organization will be remain at 14 cents per mile.

BONUSES- Just a reminder - holiday bonuses are subject to all payroll taxes.

BONUSES- Just a reminder - holiday bonuses are subject to all payroll taxes.

This is true whether the bonus is paid in cash, by check or by a gift card. For income tax withholding, the rates are 22% federal and 10.23% state. If you have a net figure in mind, the gross amount can be calculated as follows:

1. If the employee has not passed the wage limits for SDI ($145,600) or FICA ($147,000), divide the desired net by .5902 to arrive at the gross.
2. If the employee has exceeded the SDI limit only, divide the desired net by .6012 to arrive at the gross.
3. If the employee has exceeded both the SDI and FICA limits, divide the desired net by .6777 to arrive at the gross.

Example: You wish to pay Employee A a net bonus of $100.00 -

If the employee has earned $4,000.00 for 2022, they are subject to all taxes. Dividing $100.00 by .5902 (See #1 above) yields a gross of $169.43. Deductions would be:  Federal income tax $37.27 (22%); Social Security $10.51 (6.2%); Medicare $2.46 (1.45%); State income tax $17.33 (10.23%); SDI $1.86 (1.1%).

The percentages and example shown above pertain to checks dated prior to January 1, 2023. For checks dated after December 31, 2022, you must use the 2023 withholding rates and limits.

AWARDS - As part of a meaningful presentation, employers can give employees awards for length of service or safety achievements of up to $400 per year. In order to be deductible to the employer and non-taxable to the employee, the awards must be made with noncash items. Awards of cash or items readily convertible into cash, such as gift certificates, are subject to payroll taxes, no matter the amount.  Length of Service Awards are deductible to the employer if employees have more than five years of service and have not received such an award in the last four years. Safety Achievement Awards aren't deductible if given to a manager, administrator, clerical employee, or professional, nor if given to more than 10% of the other employees. We recommend that any prizes awarded be documented by corporations in their corporate minutes, although the law doesn't require this.

GIFTS - Business gifts are still limited to $25 to any individual per year. They can be made on a discriminatory basis and can be in cash. These gifts are deductible to the business and non-taxable to the recipient.

Items clearly of an advertising nature that cost $4 or less, such as promotional items, aren’t considered gifts and therefore, aren’t included in calculating the $25 limit for an individual.

In addition, gifts that are considered “de minimis” fringe benefits aren’t restricted by the $25 per recipient limit, and are considered to be made tax-free to the employee. For a gift to be considered as a de minimis fringe benefit the value must be nominal, the accounting for such a gift would be administrative nitpicking, it’s only an occasional gift, and it’s given for the purpose of promoting the health, goodwill, contentment or efficiency of the employees. Some examples of such gifts are holiday turkeys, a Christmas luncheon or party.

There is no limit on gifts made to corporations or partnerships.

So that the reporting for this fringe benefit is not so burdensome, the IRS allows employers to include the personal use of business-owned cars during November and December in the following year's W-2s. This means that W-2s for 2022 need to include the value of the personal use of the vehicles from November 1, 2021 to October 31, 2022 and that this value can be calculated now. Those clients using computerized payroll systems which prepare W-2s will have to inform the system of this fringe benefit value which needs to be included in payroll before the end of December.

The following information should serve to remind you of how to calculate the value of the personal use of business-owned cars for W-2 purposes and how to withhold taxes on it:

1. For non-officer/shareholders:  If commuting is the only personal use of a business-owned car allowed by an employer, then the employer would need to include $3 a day in the employee's wages to recognize the value of the commute, plus 5.5 cents/mile for the fuel provided by the employer.

2. For officers and shareholders:  The personal use of a business-owned vehicle must be included in their W-2. The formula for computing the value of their personal use is as follows:
    

   1. Annual lease value based on the IRS table (see attached table) prorated for the number of months the vehicle was used from November 2021-October 2022.
   2. Times this value by the personal use percentage determined from mileage records maintained throughout the year which list business and personal miles driven.
   3. Then add the lesser of the actual cost, or 5.5 cents/mile, for gasoline provided by employer that was used for personal travel
   4. Next subtract any reimbursement that the employer receives from employee.
   5. The result is the value of the personal use of the business-owned vehicle to be included in employee's W-2 compensation.
      
      

                                                                                   or                                      
                                                                 (A x B) + (C - D) = E

3. It is possible to avoid income tax withholding on the value of the personal use of an employer-provided vehicle. However, early action was required in order to avoid withholding income tax for 2022. The employer must have notified the employee in writing by January 31, 2022 or within 30 days after receiving the vehicle during the year, in order to avoid income tax withholding on this fringe benefit. If the employee is not notified of the withholding election by the specified dates, the employer must withhold income taxes on the value included in the W-2. For 2023, the employee must be notified in writing by January 31, 2023 or within 30 days of receiving the vehicle, in order to avoid 2023 withholding on this fringe benefit.

4. Even though an employer can avoid withholding income tax on the value of the personal use of a vehicle (as described in item 3 above), the Social Security tax (FICA), the Medicare tax, and State Disability Insurance (SDI) must be withheld on the value included in the W-2. However, there are some choices available on the timing of these withholdings. The employer is given the option of calculating and withholding these taxes on a pay period, quarterly, semi-annual, or annual basis. As stated previously, the annual period would run from November through October, which means that the employer could wait until the end of October to figure the taxes to be withheld. If the employee will reach the maximum Social Security wages for the year by that time, without considering the fringe benefit, only Medicare tax withholding would be necessary.

Please feel free to contact us if you need help in calculating the value of the personal usage of business-owned cars, but remember it must be done soon and included on the 2022 W-2 forms.

 Click here to view the Business Car Usage

With certain key exceptions, employers must pay nonunion, non-exempt employees (who are not working an alternative workweek schedule) at least time and one-half pay for: *Hours worked in excess of eight hours in one day, *Hours worked in excess of 40 hours in one workweek, and *The first eight hours worked on the seventh day of work in a given workweek.

In addition, employers must pay employees at least double time for any hours worked in excess of 12 hours in one day and hours worked in excess of eight hours on any seventh day of a workweek.

Under the new law compensatory time off in lieu of payment for hours worked by non-exempt employees in excess of the normal workday and workweek (as described above) is no longer permissible

Exceptions

Employees, who on July 1, 1999, were voluntarily working an alternate workweek schedule (adopted without an employee election), may continue to work that schedule, of not more than 10 hours work a day, and continue to be exempt from the overtime rules if the employer approves a written request by the employee to continue to work that schedule. In addition, employees may elect, by two-thirds vote, to work an alternative workweek of up to 10-hour work days within a 40-hour workweek without being subject to the overtime rules.

Personal Time Off

Employees may make up lost time due to a personal obligation by giving a signed, written request to an employer to make up the work. Please note however that, if an employer approves an employee's written request to make up work time that is lost as a result of a personal obligation, the hours of that makeup work time, if performed in the same workweek in which the time was lost, should not be counted toward computing the total number of hours worked in a day for purposes of the overtime pay requirements. The only exception would be in the case of an employee who works more than 11 hours in one day or 40 hours in one workweek.

All businesses are required to report independent contractors, to whom they will be issuing a 1099-MISC form, to the California Employment Development Department. The information provided will be forwarded to state and local child support agencies to help in their efforts to locate parents who are delinquent in their child support obligations.

The information must be reported to the EDD, using form DE 542 ("Report of Independent Contractors"), within twenty days of either entering a contract for $600 or more, or the date during the calendar year when total payments to the independent contractor reach $600. Form DE 542 requests the independent contractors' full name, social security number, address and the contract dates and amounts. You may obtain forms by calling the Employment Development Department at (916) 657-0529, accessing the EDD web site at www.edd.ca.gov, or contacting our office.

Only individuals working as independent contractors are to be reported. Thus, you don't need to report corporations or partnerships which you pay for services provided to your business. However, you must report all independent contractors you hire for $600 or more, regardless of whether the independent contractor lives or works in California or another state. You only need to report an independent contractor one time per each calendar year that you contract or pay the contractor $600 or more.

The completed DE 542 forms can be either mailed or faxed to the Employment Development Department. The mailing address is:Employment Development Department PO Box 997350 MIC 96 Sacramento, CA 95899-7350 And the fax number is: (916) 319-4410

The EDD may assess a $24 penalty for each failure to comply with the reporting requirements within the required time frame. Also, a penalty of $490 may be assessed for the failure to report the required information due to an agreement between you and the independent contractor to disregard the filing requirements.

California's state-run college saving program, Golden State Scholarshare Trust allows parents and others to put aside tax-deferred money for college.

Plan Features

Money that participants (parents, grandparents, businesses, etc.) contribute to the Scholarshare Trust will grow while in the participant's account and be tax free for federal and California purposes upon disbursement to the beneficiary's school of choice. The funds disbursed can cover room and board, as well as tuition fees, books, supplies and equipment required for enrollment or attendance at a "qualified institution" (defined below). The participant retains ownership of his/her deposits in the trust until disbursement, at which time ownership is transferred to the beneficiary (student). Interest earnings disbursed from the trust are not included in the beneficiary's gross income (while attending college).

Qualified Institutions

Neither the beneficiary nor the participant will have to choose a college when opening a Scholarshare account. However, the type of college the beneficiary plans to attend will affect the maximum contribution allowed, i.e., community college, state university, private institution, etc. The student may use the funds to attend any qualified institution. A qualified institution is one that offers credit toward:

A bachelor's degree; An associate's degree; A graduate level or professional degree; and Another recognized post-secondary credential. Certain proprietary and post-secondary vocational schools are also eligible institutions.

At the time the beneficiary enrolls in college, the Scholarshare Program will transfer payments from the participant's Scholarshare account directly to the college to pay the beneficiary's qualified expenses.

Transferability

If the beneficiary dies or does not attend college, the contributor has the option of canceling the account or changing the beneficiary. Cancellation results in a refund equal to the then-current market value less a penalty of no less than 10 percent of the earnings. The penalty is waived in the event of the beneficiary's death.

Without cause and before the beneficiary's admission to college, the contributor may change the beneficiary designation to relatives of the original beneficiary or relatives of the beneficiary's spouse, including the contributor if the contributor is a relative of the original beneficiary or a relative of the original beneficiary's spouse.

Income Tax Issues

There are no income tax deductions to the contributor for placing funds into a Scholarshare program. Taxation is avoided on the earnings. Amounts paid for tuition will also be eligible for both the HOPE credit and Lifetime Learning credit, subject to the rules that regularly apply to each of those credits.

Gift Tax Issues

For gift tax purposes, deposits are completed gifts of present interests to the designated beneficiary and therefore qualify for the annual gift tax and generation-skipping transfer tax exclusion of $15,000 per year per donee as indexed. They do not qualify as excludable education expenses under the gift tax rules which allow education expenses to be paid in addition to the $15,000 annual exclusion. If the deposit exceeds the annual exclusion amount, the contributor may elect to take the balance into account ratably over a five-year period on their gift tax return.

The Internal Revenue Service is still working on the details of how it is going to help taxpayers that may have fallen for deceptive marketing that led them to improperly receive employee retention tax credits.

The Internal Revenue Service is still working on the details of how it is going to help taxpayers that may have fallen for deceptive marketing that led them to improperly receive employee retention tax credits.

Internal Revenue Service Commissioner Daniel Werfel said that the agency is still working to figure out the process of how to help those who have already received their ERC "and now realize they believe they received it inappropriately," including how to come forward preemptively before the IRS takes collection action against them, as well as "on settlement terms for paying back in a way we hope works out for those companies economically."

He also noted the agency is working on updating its procedures "for how we review credits, how we communicate with stakeholders to make sure there’s exact clarity, and we’re even stronger in our outreach in terms of what are the issues that we see companies in thinking they’re eligible when they are not." Werfel made his comments November 14, 2023, at the AICPA & CIMA National Tax & Sophisticated Tax Conference.

The IRS already has issued procedures on how taxpayers can withdraw claims for the employee retention credit if the claim has not been processed, as well as placed a moratorium on processing claims until at least the end of year.

Werfel also used his speech to reiterate previously highlighted improvements in customer service and compliance and enforcement following the supplemental funding provided by the Inflation Reduction Act.

National Taxpayer Advocate Erin Collins also acknowledged the improvement in the wake of the issues that arose during the COVID-19 pandemic.

"The good news is the IRS is in a much better place than it was over the last three years," Collins said during the conference. "The not-so-good news is we still have a long way to go."

In particular, she targeted the continued filing of paper returns as a key contributor to delays in processing returns and other correspondence. The IRS has been working to improve the abilities to filing tax returns and other correspondence electronically as a means of speeding up the processing, and she noted that what has been accomplished thus far "is a good thing."

However, she noted that another challenge is that even if they are electronically filed, they are still manually processed and more work needs to be done to improve the technology to help get them electronically processed.

By Gregory Twachtman, Washington News Editor

The IRS has announced that calendar year 2023 would continue to be regarded as a transition period for enforcement and administration of the de minimis exception for reporting by third party settlement organizations (TPSO) under Code Sec. 6050W(e).

The IRS has announced that calendar year 2023 would continue to be regarded as a transition period for enforcement and administration of the de minimis exception for reporting by third party settlement organizations (TPSO) under Code Sec. 6050W(e). The IRS has also planned for a threshold of $5,000 for tax year 2024 to phase in implementation. Previously, in Notice 2023-10, the IRS announced that 2022 would be regarded as a transition period for the same issue. Specifically, the transition period focuses on the implementation of the amendment to Code Sec. 6050W(e) by the American Rescue Plan Act of 2021 (P.L. 117-2) that lowered the de minimis exception for TPSOs to $600.

Background

Code Sec. 6050W requires a TPSO to file an information return (Form 1099-K) each calendar year to report the annual gross amount of reportable payment transactions to the IRS and provide a copy of the return to the participating payee. A de minimis exception to this reporting requirement is provided in Code Sec. 6050W(e). Prior to the amendment by the American Rescue Plan Act, a TPSO was exempt from the reporting requirement if the gross amount that would otherwise be reported did not exceed $20,000 and the number of such transactions with that participating payee did not exceed 200. Section 9674(a) of the American Rescue Plan Act amended the de minimis exception to require a TPSO to file an information return if the gross amount of total reportable payment transactions exceeds $600, effective for tax years beginning after December 31, 2021.

Transition Period

Notice 2023-74 extends the transition period issued under Notice 2023-10 to the 2023 calendar tax year. Under the transition period, a TPSO would not be required to file Form 1099-K to report payments in settlement of third-party network transactions unless the gross amount of aggregate payments to be reported exceeds $20,000 and the number of such transactions with that participating payee exceeds 200. Further, a TPSO exempt from reporting due to the transition period would not be subject to penalties under Code Secs. 6721 or 6722 for the failure to file or furnish Form 1099-K.

The transition period is limited to the amendments made by the American Rescue Plan Act to Code Sec. 6050W(e) and does not apply to other requirements under Code Sec. 6050W. In addition, the transition period does not apply to backup withholdings under Code Sec. 3406(a). TPSOs that have performed backup withholding for a payee during calendar year 2023 must file a Form 945 and a Form 1099-K with the IRS provide copies to the participating payee if total reportable payments to the payee exceeded $600.

The IRS has released the annual inflation adjustments for 2024 for the income tax rate tables, plus more than 60 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation.

The IRS has released the annual inflation adjustments for 2024 for the income tax rate tables, plus more than 60 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation.

2024 Income Tax Brackets

For 2024, the highest income tax bracket of 37 percent applies when taxable income hits:

• $731,200 for married individuals filing jointly and surviving spouses,
• $609,350 for single individuals and heads of households,
• $365,600 for married individuals filing separately, and
• $15,200 for estates and trusts.

2024 Standard Deduction

The standard deduction for 2024 is:

• $29,200 for married individuals filing jointly and surviving spouses,
• $21,900 for heads of households, and
• $14,600 for single individuals and married individuals filing separately.

The standard deduction for a dependent is limited to the greater of:

• $1,300 or
• the sum of $450, plus the dependent’s earned income.

Individuals who are blind or at least 65 years old get an additional standard deduction of:

• $1,550 for married taxpayers and surviving spouses, or
• $1,950 for other taxpayers.

Alternative Minimum Tax (AMT) Exemption for 2024

The AMT exemption for 2024 is:

• $133,300 for married individuals filing jointly and surviving spouses,
• $85,700 for single individuals and heads of households,
• $66,650 for married individuals filing separately, and
• $29,900 for estates and trusts.

The exemption amounts phase out in 2024 when AMTI exceeds:

• $1,218,700 for married individuals filing jointly and surviving spouses,
• $609,350 for single individuals, heads of households, and married individuals filing separately, and
• $99,700 for estates and trusts.

Expensing Code Sec. 179 Property in 2024

For tax years beginning in 2024, taxpayers can expense up to $1,220,000 in section 179 property. However, this dollar limit is reduced when the cost of section 179 property placed in service during the year exceeds $3,050,000.

Estate and Gift Tax Adjustments for 2024

The following inflation adjustments apply to federal estate and gift taxes in 2024:

• the gift tax exclusion is $18,000 per donee, or $185,000 for gifts to spouses who are not U.S. citizens;
• the federal estate tax exclusion is $13,610,000; and
• the maximum reduction for real property under the special valuation method is $1,390,000.

2024 Inflation Adjustments for Other Tax Items

The maximum foreign earned income exclusion amount in 2024 is $126,500.

The IRS also provided inflation-adjusted amounts for the:

• adoption credit,
• earned income credit,
• excludable interest on U.S. savings bonds used for education,
• various penalties, and
• many other provisions.

Effective Date of 2024 Adjustments

These inflation adjustments generally apply to tax years beginning in 2024, so they affect most returns that will be filed in 2025. However, some specified figures apply to transactions or events in calendar year 2024.

The 2024 cost-of-living adjustments (COLAs) that affect pension plan dollar limitations and other retirement-related provisions have been released by the IRS. In general, many of the pension plan limitations will change for 2023 because the increase in the cost-of-living index due to inflation met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged.

The 2024 cost-of-living adjustments (COLAs) that affect pension plan dollar limitations and other retirement-related provisions have been released by the IRS. In general, many of the pension plan limitations will change for 2023 because the increase in the cost-of-living index due to inflation met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged.

The SECURE 2.0 Act (P.L. 117-328) made some retirement-related amounts adjustable for inflation beginning in 2024. These amounts, as adjusted for 2024, include:

• The catch up contribution amount for IRA owners who are 50 or older remains $1,000.
• The amount of qualified charitable distributions from IRAs that are not includible in gross income is increased from $100,000 to $105,000.
• The limit on one-time qualified charitable distributions made directly to a split-interest entity is increased from $50,000 to $53,000.
• The dollar limit on premiums paid for a qualifying longevity annuity contract (QLAC) remains $200,000

Highlights of Changes for 2024

The contribution limit has increased from $22,500 to $23,000 for employees who take part in:

• -401(k),
• -403(b),
• -most 457 plans, and
• -the federal government’s Thrift Savings Plan

The annual limit on contributions to an IRA increased from $6,500 to $7,000.

The catch-up contribution limit for individuals aged 50 and over is subject to an annual cost-of-living adjustment beginning in 2024 but remains $1,000.

The income ranges increased for determining eligibility to make deductible contributions to:

• -IRAs,
• -Roth IRAs, and
• -to claim the Saver's Credit.

Phase-Out Ranges

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. The deduction phases out if the taxpayer or their spouse takes part in a retirement plan at work. The phase out depends on the taxpayer's filing status and income.

• -For single taxpayers covered by a workplace retirement plan, the phase-out range is $77,000 to $87,000, up from between $73,000 and $83,000.
• -For joint filers, when the spouse making the contribution takes part in a workplace retirement plan, the phase-out range is $123,000 to $143,000, up from between $116,000 and $136,000.
• -For an IRA contributor, who is not covered by a workplace retirement plan but their spouse is, the phase out is between $230,000 and $240,000, up from between $218,000 and $228,000.
• -For a married individual covered by a workplace plan filing a separate return, the phase-out range remains between $0 and $10,000.
• The phase-out ranges for Roth IRA contributions are:
• -$146,000 and $161,000, for singles and heads of household,
• -$230,000 and $240,000, for joint filers, and
• -$0 to $10,000 for married separate filers.

Finally, the income limit for the Saver' Credit is:

• -76,500 for joint filers,
• -$57,375 for heads of household, and
• -$38,250 for singles and married separate filers.

The IRS reminded taxpayers who may be entitled to claim Recovery Rebate Credit (RRC) to file a tax return to claim their credit before the April-May, 2024 deadlines. It has been estimated that certain individuals are still eligible to claim RRC for years 2020 and 2021. The deadlines to file a return and claim the 2020 and 2021 credits are May 17, 2024, and April 15, 2025, respectively. Additionally, the IRS reminded that taxpayers must first file a tax return to make their RRC claims irrespective of income slab and source of income.

The IRS reminded taxpayers who may be entitled to claim Recovery Rebate Credit (RRC) to file a tax return to claim their credit before the April-May, 2024 deadlines. It has been estimated that certain individuals are still eligible to claim RRC for years 2020 and 2021. The deadlines to file a return and claim the 2020 and 2021 credits are May 17, 2024, and April 15, 2025, respectively. Additionally, the IRS reminded that taxpayers must first file a tax return to make their RRC claims irrespective of income slab and source of income.

The Recovery Rebate Credit, is a refundable credit for those who missed out on one or more Economic Impact Payments such as stimulus payments which were issued in 2020 and 2021. The persons eligible to claim the 2020 and 2021 RRC must:

• have been a U.S citizen or U.S resident alien in the respective year;
• not have been a dependent of another taxpayer for the respective year;
• have a social security number issued before the due date of the tax return which is valid for employment in the U.S;
• for 2021 RRC- have a valid social security number as above or claim a dependent who has a Social Security number issued by the due date of the tax return, or claim a dependent with an Adoption Taxpayer Identification Number.

For qualified taxpayers who require one-on-one tax preparation help, they can avail the same through the Free tax return preparation assistance available on the IRS website. The IRS urges people to look into possible benefits available to them under the tax law. People can make use of their IRS Online Account also to keep track of payments due to them.

The Internal Revenue Service is looking to improve its customer service metrics as well as improve its technology offerings in the coming tax filing season.

The Internal Revenue Service is looking to improve its customer service metrics as well as improve its technology offerings in the coming tax filing season.

Building on the supplemental funding from the Inflation Reduction Act, the IRS has already seen improvements to its phone service and is now looking to improve on it.

"Massive investments in customer service mean taxpayers will get the information and support they deserve," Department of the Treasury Secretary Janet Yellen said November 7, 2023, during an event at IRS headquarters.

For the 2024 tax filing season, the IRS is committed to maintaining the 85 percent level of service it achieved in the 2023 filing season on the agency’s main taxpayer help line. It also is targeting a hold time of five minutes or less while offering 95 percent call back availability when projected wait times are expected to exceed 15 minutes.

IRS Commissioner Daniel Werfel, speaking at the event, also highlighted a trust target.

"This past filingseason, 84 percent of taxpayers who interacted with our phone assisters stated that this interaction increased their trust in the IRS," Werfel said. "That’s up from 70 percent two years ago. In the coming filingseason, we want to continue to again [the Office of Management and Budget’s] trust goal of 75 percent."

Yellen also highlighted how the "Where’s My Refund?" tool will be improved for the coming season, including incorporating "conversational voice-bot technology to help taxpayers get answers more quickly, and it will provide clearer and more detailed information so taxpayers can address barriers to processing their returns and receive their refunds quickly."

She also said that Taxpayer Assistance Centers increase the hours of face-to-face assistance provided by more than 8,000 hours compared to what was provided in the 2023 filing season.

Yellen also stated that the IRS has met a technology goal and in the 2024 filing season, taxpayers will be able to "digitally upload all correspondence and responses to notices instead of mailing them. … The impact will be significant and far reaching. Taxpayers will save time and effort. The IRS will reduce errors and storage costs and will speed up processing time for the system as a whole."

Additionally, there will be 20 more forms that taxpayers can electronically file in the 2024 filing season.

Yellen and Werfel also reiterated recent announcements on compliance and enforcement efforts and committed to continuing to ensure everyone is paying their fair share of taxes owed.

By Gregory Twachtman, Washington News Editor

The Internal Revenue Service announced the launch of the first phase of rolling out business taxpayer accounts, as well as enable taxpayers to respond to notices online.

The Internal Revenue Service announced the launch of the first phase of rolling out business taxpayer accounts, as well as enable taxpayers to respond to notices online.

In an October 20, 2023, statement, the agency announced that the first phase will allow "unincorporated sole proprietors who have an active Employer Identification Number to set up a business tax account, where they can view their business profits and manage authorized users."

The IRS noted that the business tax accounts will expand to allow taxpayers "to view letters or notices, request transcripts, add third parties for power of attorney or tax information authorizations, schedule or cancel tax payments, and store bank account information."

The business tax accounts were enabled by the agency’s receiving of supplemental funding from the Inflation Reduction Act.

Another technology improvement announced allowing taxpayers to respond online to notices, something that previously required responses via mail.

"During the filing season 2023, taxpayers were able to respond to 10 of the most common notices for credits like the Earned Income and Health Insurance Tax Credits online, saving them time and money," the agency reported, adding that as of September 29, 2023, it has received more than 32,000 responses to notices via the online tool.

Additionally, the IRS will now accept electronic submissions for three forms via a mobile device-friendly forms. Those forms include:

• Form 15109, Request for Tax Deferment;
• Form 14039, Identity Theft Affidavit; and
• Form 14242, Reporting Abusive Tax Promotions and/or Preparers

The next form expected to have a mobile-friendly option later this fall is Form 13909, Tax-Exempt Organization Complaint, and at least 20 more of the most-used tax forms will have mobile device availability in early 2024, the IRS stated.

"An estimated 15 percent of Americans rely solely on mobile phones for their internet access – they do not have broadband at home – so it is important to make forms available in mobile-friendly formats," the agency sad.

For tax professionals, their online accounts also received enhancements, including helping practitioners manage their active client authorizations on file with the Centralized Authorization File database as well as the ability to view their client’s tax information, including balance due.

By Gregory Twachtman, Washington News Editor

The U.S. Supreme Court has granted a petition for certiorari in the case of A. Bittner, CA-5, 2021-2 USTC ¶50,242 . In Bittner, the U.S. Court of Appeals for the Fifth Circuit held that each failure to report a qualifying foreign account on the annual Report of Foreign Bank and Financial Accounts (FBAR) constituted a separate reporting violation subject to penalty. This means that the penalty applies on a per-account basis, not a per-form basis. The Fifth Circuit disagreed with a Ninth Circuit panel that adopted a per-form interpretation ( J. Boyd, CA-9, 2021-1 USTC ¶50,112).

The U.S. Supreme Court has granted a petition for certiorari in the case of A. Bittner, CA-5, 2021-2 USTC ¶50,242 . In Bittner, the U.S. Court of Appeals for the Fifth Circuit held that each failure to report a qualifying foreign account on the annual Report of Foreign Bank and Financial Accounts (FBAR) constituted a separate reporting violation subject to penalty. This means that the penalty applies on a per-account basis, not a per-form basis. The Fifth Circuit disagreed with a Ninth Circuit panel that adopted a per-form interpretation ( J. Boyd, CA-9, 2021-1 USTC ¶50,112).

—

Background

U.S. citizens and residents must keep records and/or file reports when the person makes a transaction or maintains a relation for any person with a foreign financial agency ( 31 USC 5314). Each person with a financial interest in a financial account in a foreign country must report the relationship to the IRS for each year the relationship exists by providing specified information on and filing the FBAR. The FBAR generally must be filed by June 30 of each calendar year for foreign financial accounts over $10,000 maintained during the previous calendar year (31 C.F.R. §§1010.350, 1010.306).

If the person fails to file the FBAR, the IRS can impose a penalty of up to $10,000 for non-willful violations, unless the violation was due to reasonable cause. For a willful violation, the maximum penalty is the greater of $100,000 or 50 percent of (1) the amount of the transaction when a violation involves a transaction, or (2) the balance in the account at the time of the violation when a violation involves a failure to report the existence of an account. There is no reasonable cause exception for willful violations ( 31 USC 5321).

Fifth Circuit: FBAR Penalty Per Account

In A. Bittner, the Fifth Circuit ruled that the text, structure, history, and purpose of the relevant statutory and regulatory provisions showed that the "violation" of 31 USC 5314 contemplated by the 31 USC 5321 penalty was the failure to report a qualifying account, not the failure to file an FBAR. Therefore, the $10,000 penalty cap applied on a per-account basis, not a per-form basis.

The Fifth Circuit agreed with the government that the district court had erred in determining what constituted a "violation" under 31 USC 5314 by focusing on the regulations under section 5314 to the exclusion of section 5314 itself. Section 5314 does not create the obligation to file a single report, stated the Fifth Circuit, but instead gives the Treasury Secretary discretion to prescribe how to fulfill the statute’s requirement of reporting qualifying accounts.

The Fifth Circuit observed that by authorizing a penalty for any "violation of ... any provision of section 5314," as opposed to the regulations under section 5314, section 5314 "naturally reads" as referring to the statutory requirement to report each account, not the regulatory requirement to file FBARs in a particular manner. Further, the circuit court stated that the reasonable cause exception for non-willful violations was framed in terms of "the transaction" and "the account," and thus it also "naturally reads" as excusing the failure to report a transaction or account, not the failure to file an FBAR.

Ninth Circuit: FBAR Penalty Per Form

In J. Boyd, the Ninth Circuit ruled that the IRS can impose only one non-willful penalty when an untimely but accurate FBAR is filed, regardless of the number of foreign financial accounts. The Ninth Circuit determined that the statutory and regulatory scheme under 31 USC 5314 authorizes a single non-willful penalty for the failure to file a timely FBAR, and that the taxpayer’s conduct in failing to timely file the FBAR amounted to one non-willful violation.

The Ninth Circuit was not persuaded by the government's argument that, based on the statutory scheme as a whole and legislative intent, the penalty amount could be assessed on a per-account basis. The Ninth Circuit found nothing in the statute or regulations to suggest that the penalty could be calculated that way for a single failure to file a timely FBAR that is otherwise accurate. The Ninth Circuit presumed that Congress had purposely excluded the per-account language from the non-willful penalty provision because it had included such language in the previously-enacted willful penalty provision. Further, the inclusion of per-account language in the reasonable cause exception supported the view that Congress had intentionally omitted per-account language from the non-willful penalty provision.

Probably one of the more difficult decisions you will have to make as a consumer is whether to buy or lease your auto. Knowing the advantages and disadvantages of buying vs. leasing a new car or truck before you get to the car dealership can ease the decision-making process and may alleviate unpleasant surprises later.

Probably one of the more difficult decisions you will have to make as a consumer is whether to buy or lease your auto. Knowing the advantages and disadvantages of buying vs. leasing a new car or truck before you get to the car dealership can ease the decision-making process and may alleviate unpleasant surprises later.

Nearly one-third of all new vehicles (and up to 75% of all new luxury cars) are leased rather than purchased. But the decision to lease or buy must ultimately be made on an individual level, taking into consideration each person's facts and circumstances.

Buying

Advantages.

• You own the car at the end of the loan term.
• Lower insurance premiums.
• No mileage limitations.

Disadvantages.

• Higher upfront costs.
• Higher monthly payments.
• Buyer bears risk of future value decrease.

Leasing

Advantages.

• Lower upfront costs.
• Lower monthly payments.
• Lessor assumes risk of future value decrease.
• Greater purchasing power.
• Potential additional income tax benefits.
• Ease of disposition.

Disadvantages.

• You do not own the car at the end of the lease term, although you may have the option to purchase at that time.
• Higher insurance premiums.
• Potential early lease termination charges.
• Possible additional costs for abnormal wear & tear (determined by lessor).
• Extra charges for mileage in excess of mileage specified in your lease contract.

Before you make the decision whether to lease or buy your next vehicle, it makes sense to ask yourself the following questions:

How long do I plan to keep the vehicle? If you want to keep the car or truck longer than the term of the lease, you may be better off purchasing the vehicle as purchase contracts usually result in a lower overall cost of ownership.

How much am I going to drive the vehicle? If you are an outside salesperson and you drive 30,000 miles per year, any benefits you may have gained upfront by leasing will surely be lost in the end to excess mileage charges. Most lease contracts include mileage of between 12,000-15,000 per year - any miles driven in excess of the limit are subject to some pretty hefty charges.

How expensive of a vehicle do I want? If you can really only afford monthly payments on a Honda Civic but you've got your eye on a Lexus, you may want to consider leasing. Leasing usually results in lower upfront fees in the form of lower down payments and deferred sales tax, in addition to lower monthly payments. This combination can make it easier for you to get into the car of your dreams.

If you have any questions about the tax ramifications regarding buying vs. leasing an automobile or would like some additional information when making your decision, please contact the office.