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By Jeff Stimpson April 01, 2024

Four years after the start of the COVID-19 pandemic, the Internal Revenue Service's Criminal Investigation division has investigated 1,644 tax and money laundering cases related to fraud around pandemic relief programs worth potentially $8.9 billion.

Four years after the start of the COVID-19 pandemic, the Internal Revenue Service's Criminal Investigation division has investigated 1,644 tax and money laundering cases related to fraud around pandemic relief programs worth potentially $8.9 billion.

As of the end of February, 795 persons had been indicted and 373 sentenced to an average of 34 months in prison. During the last four years, the IRS has obtained a 98.5% conviction rate in prosecuted COVID fraud cases.

"In the last year alone, we have opened nearly 700 new COVID fraud investigations that collectively add up to $5 billion in potential fraud," added CI chief Guy Ficco. "Our special agents continue to seek out fraudsters who stole money from government loan programs for their personal gain."

"The work by IRS Criminal Investigation plays a vital role in protecting against fraud and serves a key part in the agency's wider efforts to ensure fairness in the nation's tax system," said IRS Commissioner Danny Werfel in a statement.

By Michael Cohn April 15, 2024

The Internal Revenue Service reported stronger performance on Monday, April 15, as it concluded this year's tax filing season, saying it had answered 1 million more phone calls from taxpayers and helped 170,000 people in person compared to last year.

The Internal Revenue Service reported stronger performance on Monday, April 15, as it concluded this year's tax filing season, saying it had answered 1 million more phone calls from taxpayers and helped 170,000 people in person compared to last year.

The IRS has been improving its technology and taxpayer service, thanks to the extra boost in funding from the Inflation Reduction Act of 2022. The agency said it received 75 million more visits to its IRS.gov site, driven by improvements to its "Where's My Refund?" tool that provided more details about refund status and notifications about when the IRS needs more information. The website had nearly 500 million visits, an 18% jump over last year.

The "Where's My Refund?" tool received over 275 million of those visits, up 62 million from 2023 for a 29% increase. The IRS also began testing a free tax program called Direct File in 12 states, and the agency reported Monday that it met its goal of enabling 100,000 taxpayers to successfully file their returns using the new program.

"Taxpayers continued to see major improvements from the IRS during the 2024 tax season," said IRS Commissioner Danny Werfel in a statement Monday. "A well-funded IRS is like night and day for taxpayers. With the help of more funding and added resources, service for taxpayers this filing season eclipsed levels seen during the past decade. This tax season meant real-world improvements for people looking for help, whether calling, visiting in-person or using IRS.gov."

The IRS is hoping to protect as much of its funding as it can. The extra $80 billion over 10 years designated under the IRA has already been reduced by about $20 billion after a deal last year to raise the debt limit, with most of the cuts targeting tax enforcement. 

Through April 6, the IRS processed more than 100 million individual tax returns. Tens of millions more will come in advance of the April deadline, the busiest time of the year for tax returns. The agency also projects about 19 million taxpayers will file extensions, which will be due Oct. 15.

Since the start of the January tax season, the IRS has delivered more than $200 billion in refunds through early April. The average refund was $3,011, a 4.6% increase from last April's average of $2,878.

The IRS added 5,000 new telephone assistors last year, and the level of service on its main phone lines exceeded 88%. That's above the 84% level seen last year and over five time better than during the pandemic, when the level of service dropped to just 15% in 2022.

The IRS answered more taxpayer calls on its live assistor lines this year, a 16.8% increase from 2023. Agency assistors handled 7,608,000 calls, up from 6,513,000 the year before. Automated lines handled another approximately 7 million calls, 280,000 more than the previous year. Taxpayers waited, on average, just over three minutes for help on the IRS main phone lines. That's down from four minutes in 2023 and 28 minutes in filing season 2022.

The tax agency provided callback options on 97% of its phone lines this filing season, and offered callback for over 4 million taxpayers, more than double the 1.8 million calls in 2023. This option, offered when phone lines were busy, saved taxpayers nearly 1.4 million hours of wait time on the phones.

Taxpayers certainly needed help from the IRS: The National Taxpayers Union Foundation also released on Tax Day its annual tax complexity study, using the latest IRS data to estimate the compliance and time burdens associated with filing income taxes. The numbers are enormous: Americans have spent 6.5 billion hours preparing their income tax returns, with an "opportunity cost" of the time spent laboring over taxes exceeding $280 billion for preparation alone. The average American individual income tax return now requires nine hours to complete.

By Jeff Stimpson January 10, 2024

The Internal Revenue Service has substantially improved taxpayer services and has good plans for improvement, but it continues to struggle with such problems as paper processing, response times for tax professionals, and ID theft and the Employee Retention Credit conundrum, according to the 2023 Annual Report to Congress from National Taxpayer Advocate Erin Collins.

"Overall, the magnitude of successes exceeded the areas of weakness in 2023, and most metrics showed significant improvement from the depths of the [COVID-19] pandemic," Collins writes in the report's preface. The report adds that the IRS virtually eliminated its backlog of unprocessed original [1040s] and substantially improved telephone service."

Still, problems remain.

By Jeff Stimpson January 10, 2024

The Internal Revenue Service has substantially improved taxpayer services and has good plans for improvement, but it continues to struggle with such problems as paper processing, response times for tax professionals, and ID theft and the Employee Retention Credit conundrum, according to the 2023 Annual Report to Congress from National Taxpayer Advocate Erin Collins.

"Overall, the magnitude of successes exceeded the areas of weakness in 2023, and most metrics showed significant improvement from the depths of the [COVID-19] pandemic," Collins writes in the report's preface. The report adds that the IRS virtually eliminated its backlog of unprocessed original [1040s] and substantially improved telephone service."

Still, problems remain.

1. Kryptonite. The IRS received more than 11 million individual returns and 15 million business returns on paper last year.
   
   "When I released the National Taxpayer Advocate's 2020 report, I wrote that the IRS in most cases 'can effectively handle whatever it can automate,' and when I released our 2021 report, I wrote that, 'Paper is the IRS's kryptonite,'" Collins said. "Those observations continued to hold true in 2023."
   
   
2. Headline news. At the end of FY23, nearly half a million taxpayers with cases pending in the IRS Identity Theft Victims Assistance unit (many of them low-income taxpayers) were also waiting an average of almost 19 months for the agency to resolve their problems. "If it weren't for the significant number of challenges affecting larger groups of taxpayers, this would be headline news, and it should be," Collins writes.
   
   
3. 'Overage' and out. Despite the IRS eliminating its overhang of paper-filed 1040s, backlogs in processing Forms 1040-X, amended business tax returns and correspondence continued. At the end of calendar 2019 (the most recent pre-pandemic year), the report said, the IRS backlog of unprocessed amended returns was 500,000. The backlog as of late October 2023 was 1.9 million. Taxpayer correspondence and related cases more than doubled over the same period, to 4.3 million. The percentage of "overage" correspondence cases in 2023 reached its highest level in recent years: Nearly 70% of pending cases exceeded normal processing times as of late October.
   
   
4. Hurry up and wait. The report attributes much of the paper inventory backlog to the Treasury Department's decision to prioritize answering telephone calls over processing amended returns and correspondence, meaning that IRS customer service representatives were "simply sitting around waiting for the phone to ring."
   
   During the 2023 filing season alone, CSRs spent 1.27 million hours (34% of their time) waiting to receive calls. That translates to more than 650 unproductive staff years in which these employees could have been processing paper and reducing response times for amended returns and correspondence.
   
   "The IRS cannot easily shuffle employees back and forth between answering phones and processing correspondence, so unproductive employee time was the price it had to pay to improve telephone service levels," Collins writes.
   
   
5. Professional liability. The report adds that service for tax pros was below average, with an average wait time of 16 minutes. "Roughly 500,000 tax professionals prepare tax returns for more than 85 million taxpayers, so the IRS derives considerable benefit from working collaboratively with the pool of tax professionals," the report says. "Requiring tax professionals to call back repeatedly and wait on hold not only inconveniences them but often results in additional costs to taxpayers for the time their tax professionals bill for waiting on hold."
   
   
6. Credit crunch. Employers who file eligible Employee Retention Credit claims are often waiting six months or longer to receive their credits or refunds. TAS has received several thousand ERC cases, and some have involved nonprofit organizations that provide medical or other critical services and are depending on ERC refunds to stay afloat. As of early December, the IRS had a backlog of approximately 1 million ERC claims.
   
   The report acknowledges the IRS is between a rock and a hard place in handling ERC claims. "If it pays claims quickly without adequate review, it could pay billions of dollars to nonqualifying persons. If it takes the time to review claims carefully, eligible employers will experience significant delays in receiving the credit, and in extreme cases, employers who need the funds immediately could go out of business," the report says.
   
   What to do
   
   The TAS suggests the IRS take several steps to address the biggest problem areas. Among them:
   
   • Improvement of online accounts for individual taxpayers, business taxpayers and tax pros should be the highest priority. During 2023, individual taxpayers filed more than 160 million income tax returns, yet only 16.8 million users accessed individual online accounts.
   • Improve the ability to attract, hire and retain qualified employees. The report says the IRS continues to struggle to hire qualified candidates in many key areas. It says three of the main reasons are failure to advertise positions to the optimal target audience by job series, the slow pace of the hiring process and non-competitive pay. 
   • Upgrade the back end of the "Document Upload Tool" to fully automate the processing of taxpayer correspondence. The IRS has created and implemented the DUT to allow taxpayers to upload documents electronically in response to an IRS notice, letter, telephone conversation or visit. Once the documents reach the IRS, though, they're still processed as if they came in on paper.
   • Enable all taxpayers to e-file their federal tax returns. About 150 to 200 IRS forms still are not eligible for e-filing.

To our business clients.

WITHHOLDING FROM EMPLOYEES' PAYCHECKS:

1a. Social Security - The employee portion of this tax remains at 6.2% with a wage limit of $168,600. The employer’s portion of Social Security for 2024 also remains at 6.2%, on wages up to $168,600.  

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 $168,600, and 2.9% of all wages thereafter. However, there is an additional Medicare withholding of 0.9% on employees earning over $200,000, or $250,000 if married filing joint. So the employee’s normal Medicare tax rate of 1.45%, will rise to 2.35% on their earnings over $200,000 or $250,000 depending on filing status, 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 $168,600. The Medicare tax of 2.9% continues on amounts over $168,600. 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, 2024.  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 1.1 %, and there is no longer a cap on the amount of payroll which will be subject to this tax.

EMPLOYER TAXES PAID QUARTERLY:

1. Federal Unemployment Tax - The 2024 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 2024 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.
   

2024 FEDERAL PAYROLL DEPOSIT REQUIREMENTS: 

Federal Payroll Tax Deposits must follow the monthly or semi-weekly deposit method assigned to each employer by the IRS. The IRS will send a notice if your status changed from 2023; however, the employer is ultimately responsible for determining which deposit schedule actually applies. If you didn’t receive an IRS notice, you can make your own determination as shown below: 

1. An employer’s status as a monthly or semi-weekly depositor should be known before the beginning of each calendar year and is determined annually. This determination is based on the amount of employment taxes the employer reported on the four quarterly reports for the 12-month period from July 1, 2022 through June 30, 2023.
2. Employers who accumulated less than $2,500 of employment taxes during a quarter are only required to make a deposit at the end of the quarter. They can pay their payroll taxes with the quarterly form.
3. Employers who report $50,000 or less of employment taxes (taxes withheld from the employee plus the employer portion) during the 12-month period from July 1, 2022 through June 30, 2023, and all new employers, will be monthly depositors. The deposits will be due the 15th of the following month. NOTE: These deposits will have to be made electronically (see below).
4. Employers who reported more than $50,000 of employment taxes during the 12-month period from July 1, 2022 through June 30, 2023, will be semi-weekly depositors. The deposits will be required on or before either Wednesday or Friday, depending on the timing of the payroll. Semi-weekly depositors will still have at least three banking days after a payday to make the deposit. NOTE: These deposits will have to be made electronically (see below).
   
   Under the semi-weekly rule, the payroll taxes withheld plus the employer’s portion of the FICA/Medicare on payrolls which were paid on Wednesday, Thursday or Friday must be deposited by the following Wednesday. Payroll taxes, accumulated for a payroll period, which were paid on Saturday through Tuesday must be deposited by the following Friday. Remember, your deposit will be due either on a Wednesday or Friday. 
5. Employers who accumulate $100,000 of employment taxes during a monthly or semi-weekly period are required to deposit those taxes by the next banking day. Once you make a next-banking-day deposit, you automatically become a semi-weekly depositor for the remainder of that calendar year and the following calendar year.
   

FEDERAL ELECTRONIC DEPOSIT REQUIREMENTS FOR 2024: 

Employers must use the IRS’ EFTPS for making tax payments. There is an exception for employers with a deposit liability of less than $2,500 for a return period. These employers can remit employment taxes with their quarterly or annual return. 

If you are required to use EFTPS for your Federal tax deposits and fail to do so, you may be subject to a 10% penalty. For deposits made by EFTPS to be considered on time, you must initiate the transaction at least one business day before the date the deposit is due. If you are new to EFTPS you will need to allow seven (7) days to get your pin number and complete your account set-up. 

You may voluntarily participate in the Electronic Federal Tax Payment System even if you are not required to do so. 

To get more information or to enroll in EFTPS, call 1-800-555-4477, or visit the EFTPS web site at www.eftps.gov. 

EMPLOYER’S QUARTERLY FEDERAL TAX RETURN, FORM 941 

Each quarter’s wages subject to income tax, social security and/or Medicare taxes must be reported on Form 941. This form must be filed even if you have no taxes to report. Any employment taxes totaling less than $2,500 for the period and not previously deposited for the quarter can be paid with the report. 

Due dates for 2024 employment tax deposits are April 30, July 31, and October 31, 2024, and January 31, 2025, for the previous quarter. If all taxes have been deposited when due, and no tax is being paid with the return, an additional ten days is allowed to file the return. Late returns are subject to penalties on any unpaid tax due with the return. 

2024 STATE PAYROLL TAX DEPOSIT REQUIREMENTS:

These deposits are required to be paid electronically. The depositing requirements are described below: 

1. State deposit due dates are generally the same as federal deposit due dates.
2. Employers who are required to make federal monthly deposits and have accumulated $350 to $500 of undeposited state income tax withholding, are required to deposit all State Income Tax and State Disability Insurance withholding using the federal monthly deposit schedule.
3. Employers who deposit semi-weekly for federal purposes and have accumulated more than $500 of undeposited state income tax withholding are required to deposit all State Income Tax and State Disability Insurance withholding to the Employment Development Department using the federal semi-weekly deposit schedule.
4. Employers, who accumulate $100,000 of federal employment taxes, and more than $500 of state withholding taxes, must deposit all State Income Tax and State Disability Insurance withholding by the next banking day. Once you make a next banking day deposit, you automatically become a semi-weekly depositor for the remainder of that calendar year and the following calendar year.
5. If you accumulate more than $350 of state withholding taxes in a month or in the cumulative of two or more months, but are not required to make a federal monthly deposit, you are still required to deposit all State Income Tax and State Disability Insurance withheld by the 15th of the following month. Any withholding which is not required to be deposited based on the above will be due on April 30 , July 31, and October 31, 2024 or January 31, 2025 for the preceding quarter.
6. State Unemployment Insurance (SUI) and Employment Training Tax (ETT) must be deposited at least quarterly.

A penalty of 15% plus interest will be charged on late payroll tax payments. 

CALIFORNIA ELECTRONIC DEPOSIT REQUIREMENTS: 

e-Services for Business can be used to electronically submit all tax payments, wage reports and employment tax returns. Register at https:/www.edd.ca.gov/eServices or contact the Taxpayer Assistance Center at 1-888-745-3886. 

STATE WAGE AND WITHHOLDING REPORTS:

Employers file two quarterly reports, the DE 9 and DE 9C. These reports must be filed by April 30, July 31, and October 31, 2024, and January 31, 2025 for the previous quarter, even if you don’t have payroll during a quarter. A wage item penalty of $20.00 per employee will be charged for late or unreported employee wages. On these reports, be sure to include the full first name, not just the first initial.

The DE 9 and DE 9C forms must be filed on-line together using e-Services for Business. 

STATE REPORTING REQUIREMENTS FOR NEW OR RE-HIRED EMPLOYEES:

All employers are required to report the full name, social security number, home address and start-of-work date of each employee within twenty days of the start-of-work date. 

Form DE 34, Report of New Employees, is used to report new employees.  The information may be filed online through e-Services for Business (edd.ca.gov/eServices), faxed to the EDD at 1-916-319-4400, or mailed to:

Employment Development Department
Document Management Group, MIC 96
P.O. Box 997016
West Sacramento, CA 95799-7016 

The reporting of new employees is required for all newly hired employees, employees rehired or returning to work from a furlough, separation, leave of absence without pay, or termination.  If a returning employee was not formally terminated or removed from payroll records and is returning after less than sixty consecutive days, you don’t need to report the employee as a rehire. 

STATE REPORTING REQUIREMENTS FOR INDEPENDENT CONTRACTORS:

Businesses are required to report specific independent contractor information to the EDD if the following statements all apply:

• You will be required to file a 2024 Form 1099-NEC for the services performed by the independent contractor.
• You pay the independent contractor $600 or more OR enter into a contract for $600 or more.
• The independent contractor is an individual or sole proprietorship.

If all the above statements apply, you must report the independent contractor to the EDD within 20 days of paying/contracting for $600 or more in services. You are not required to report independent contractors that are corporations, general partnerships, limited liability partnerships, and limited liability companies. Form DE 542, Report of Independent Contractor(s), is used. The information may be filed online through e-Services for Business (edd.ca.gov/eServices), faxed to the EDD at 1-916-319-4410, or mailed to:

Employment Development Department
Document Management Group, MIC 96
P.O. Box 997350
Sacramento, CA  95899-7350 

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While we’ll try to inform you of any additional changes made during 2024, please be vigilant yourself and also seek out information on changes from your payroll processors. 

If you need assistance in preparing your payroll checks or have other questions relating to these taxes, please call. 

STANDARD MILEAGE RATES FOR 2024

For 2024, the standard rate for business mileage will be 67 cents per mile. The previous rate was 65.5 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 2024 standard mileage rate for the use of your car for medical expenses or deductible moving expenses will be 21 cents per mile. The previous rate was 22 cents per mile.

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.

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.

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:

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 2023-October 2024.
   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 2024. The employer must have notified the employee in writing by January 31, 2024 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 2025, the employee must be notified in writing by January 31, 2025 or within 30 days of receiving the vehicle, in order to avoid 2025 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 calculated in time to be included on the 2024 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.

President Biden support extending the individual tax provisions of the Tax Cuts and Jobs Act, many of which are set to expire next year, Department of the Treasury Secretary Janet Yellen said.

President Biden support extending the individual tax provisions of the Tax Cuts and Jobs Act, many of which are set to expire next year, Department of the Treasury Secretary Janet Yellen said.

"The President has made it clear that he would oppose raising back the taxes for working people and families making under $400,000," Secretary Yellen testified before the Senate Finance Committee during a March 21, 2024, hearing to review the White House fiscal year 2025 budget proposal.

She then affirmed that "he would" support extending the individual tax provisions of the TCJA when asked by committee Ranking Member Mike Crapo (R-Idaho), who noted that the budget did not make any mention of this.

Yellen defended the fiscal 2025 budget request against assertions that taxes will indeed go up for those making under $400,000, contrary to President Biden’s promise, because the taxes that are targeted to wealthy corporations to ensure they are paying their fair share will ultimately be passed down to their consumers in the form of higher prices and lower wages.

"I think what the impact when you change taxes on corporations, what the impact is on families involves a lot of channels that are speculative," Yellen said. "They are included in models that sometimes the Treasury used for the purposes of analysis, in a tax that is levied on corporations, that has no obvious direct effect on households."

The proposed budget would increase the corporate minimum tax from the current 15 percent to 21 percent, as well as raise the tax rate on U.S. multinationals’ foreign earnings from the current 10.5 percent to 21 percent. The current corporate tax rate would climb to 28 percent and the budget would eliminate tax breaks for million-dollar executive compensation. It would also increase the tax rate on corporate stock buybacks from 1 percent to 4 percent, among other business-related tax provisions.

By Gregory Twachtman, Washington News Editor

Corporations and billionaires will be paying more in taxes if Congress follows recommendations President Biden gave during his State of the Union address.

The IRS has launched a new initiative to improve tax compliance among high-income taxpayers who have not filed federal income tax returns since 2017.

The IRS has launched a new initiative to improve tax compliance among high-income taxpayers who have not filed federal income tax returns since 2017. This effort, funded by the Inflation Reduction Act, involves sending out IRS compliance letters to over 125,000 cases where tax returns have not been filed since 2017. These mailings include more than 25,000 to individuals with incomes exceeding $1 million and over 100,000 to those with incomes ranging between $400,000 and $1 million for the tax years 2017 to 2021. The IRS will begin mailing these compliance alerts, formally known as the CP59 Notice, this week.

Recipients of these letters should act promptly to prevent further notices, increased penalties, and stronger enforcement actions. Consulting a tax professional can help them swiftly file late tax returns and settle outstanding taxes, interest, and penalties. The failure-to-file penalty is 5 percent per month, capped at 25 percent of the tax owed. Additional resources are available on the IRS website for non-filers.

The non-filer initiative is part of the IRS's broader campaign to ensure large corporations, partnerships, and high-income individuals fulfill their tax obligations. Non-respondents to the non-filer letter will face further notices and enforcement actions. If someone consistently ignores these notices, the IRS may file a substitute tax return on their behalf. However, it's still advisable for the individual to file their own return to claim eligible exemptions, credits, and deductions.

FS-2024-6

IR-2024-56

An individual’s claim for innocent spouse relief was rejected for lack of jurisdiction because the taxpayer failed to file his petition within the 90-day deadline under Code Sec. 6015(e)(1)(A). 

An individual’s claim for innocent spouse relief was rejected for lack of jurisdiction because the taxpayer failed to file his petition within the 90-day deadline under Code Sec. 6015(e)(1)(A). The taxpayer argued that the deadline to file a petition for a denial of innocent spouse relief was not jurisdictional and asked that the Tax Court hear his case on equitable grounds. However, the Tax Court noted that a filing deadline is jurisdictional if Congress clearly states that it is. The IRS argued that argues that the 90-day filing deadline of Code Sec. 6015(e)(1)(A) was jurisdictional because Congress clearly stated that it was and the Supreme Court’s decision in Boechler, P.C. v. Commissioner, 142 S. Ct. 1493, in addition to numerous appellate cases, supported this argument.

The Tax Court examined the "text, context, and relevant historical treatment" of the provision at issue and concluded that the 90-day filing deadline of Code Sec. 6015(e)(1)(A) was jurisdictional. On the basis of statutory interpretation principles, the jurisdictional parenthetical in Code Sec. 6015(e)(1)(A) was unambiguous. It did not contain any ambiguous terms and there was a clear link between the jurisdictional parenthetical and the filing deadline. Specifically, Code Sec. 6015(e)(1)(A) is a provision that solely sets forth deadlines. Further, it was unclear what weight, if any, should be given to the equitable nature of Code Sec. 6015. The statutory context arguments were not strong enough to overcome the statutory text. Accordingly, the Tax Court ruled that the 90-day filing deadline in Code Sec. 6015(e)(1)(A) was jurisdictional.

P.A. Frutiger, 162 TC —, No. 5, Dec. 62,432

The IRS has continued to increase the amount of information available in multiple languages. This was part of the IRS transformation work under the Strategic Operating Plan, made possible by additional resources provided by the Inflation Reduction Act (P.L. 117-169).

The IRS has continued to increase the amount of information available in multiple languages. This was part of the IRS transformation work under the Strategic Operating Plan, made possible by additional resources provided by the Inflation Reduction Act (P.L. 117-169). On IRS.gov, taxpayers can select their preferred language from the dropdown menu at the top of the page, including Spanish, Vietnamese, Russian, Korean, Haitian Creole, Traditional Chinese and Simplified Chinese. Additionally, the Languages page gives taxpayers information in 21 languages on key topics such as "Your Rights as a Taxpayer" and "Who Needs to File."

"The IRS is committed to making further improvements for taxpayers in a wide range of areas, including expanding options available to taxpayers in multiple languages," said IRS Commissioner Danny Werfel. "Understanding taxes can be challenging enough, so it’s important for the IRS to put a variety of information on IRS.gov and other materials into the language a taxpayer knows best. This is part of the larger effort by the IRS to make taxes easier for all taxpayers," he added.

If taxpayers cannot find the answers to their tax questions on IRS.gov, they can call the IRS or get in-person help at an IRS Taxpayer Assistance Center. Finally, hundreds of IRS Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs have access to Over the Phone Interpreter services. VITA and TCE offer free basic tax return preparation to qualified individuals.

The IRS has granted to withholding agents an administrative exemption from the electronic filing requirements for Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons.

The IRS has granted to withholding agents an administrative exemption from the electronic filing requirements for Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons. Under the exemption:

• withholding agents (both U.S. and foreign persons) are not required to file Forms 1042 electronically during calendar year 2024; and
• withholding agents that are foreign persons are not required to file Forms 1042 electronically during calendar year 2025.

The exemption is automatic, so withholding agents do not need to file an electronic filing waiver request to use the exemption.

Electronic Filing of Form 1042

Under Code Sec. 6011(e), the IRS must prescribe regulations with standards for determining which federal tax returns must be filed electronically. In 2023, final regulations were published to implement amendments to Code Sec. 6011(e) that lowered the threshold number of returns for required electronic filing of certain returns. The regulations included requirements for filing Form 1042 electronically.

The final regulations provide that:

• a withholding agent (but not an individual, estate,or trust) must electronically file Form 1042 if the agent is required to file 10 or more returns of any type during the same calendar year in which Form 1042 is required to be filed;
• a withholding agent that is a partnership with more than 100 partners must electronically file Form 1042 regardless of the number of returns the partnership is required to file during the calendar year; and
• a withholding agent that is a financial institution must electronically file Form 1042 without regard to the number of returns it is required to file during the calendar year.

The final regulations apply to Forms 1042 required to be filed for tax years ending on or after December 31, 2023. This means that withholding agents must apply the new electronic filing requirements beginning with Forms 1042 due on or after March 15, 2024.

Challenges to Withholding Agents

Since the final regulations were published, the IRS received feedback from withholding agents noting challenges in transitioning to the procedures needed for filing Forms 1042 electronically. Withholding agents expressed concerns about the limited number of Approved IRS Modernized e-File Business Providers for Form 1042, and difficulties accessing the schema and business rules for filing Form 1042 electronically. Withholding agents that do not rely on modernized e-file business providers said that they needed more time to upgrade their systems for filing on the IRS’s Modernized e-File platform. Agents also noted challenges specific to foreign persons filing Forms 1042 regarding the authentication requirements necessary for accessing the platform.

In response to these concerns, the IRS used its power under the regulations to provide the exemption from the electronic filing requirement for Form 1042, in the interest of effective and efficient tax administration.

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).

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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.