January 13, 2022
IRS watchdog 'deeply concerned' about upcoming filing season - Aris Foley, The Hill:
National Taxpayer Advocate Erin M. Collins, head of the IRS's in-house watchdog, shared concerns about the upcoming filing season in releasing her office's recent report detailing the major problems that plagued millions of taxpayers last year.
“There is no way to sugarcoat the year 2021 in tax administration," Collins wrote in her office’s 2021 Annual Report to Congress, which was released early Wednesday. “The year 2021 provided no shortage of taxpayer problems.”
Taxpayer Advocate Report Prompts Concern, Emergency Funds Request - Benjamin Guggenhiem, Tax Notes ($):
Foremost among the taxpayer advocate’s concerns was what the backlog of more than 35 million unprocessed tax returns could mean for taxpayers relying on tax credits as a lifeline during the pandemic to pay basic living expenses.
As of mid-December, the backlog included 6.2 million unprocessed Forms 1040, “U.S. Individual Income Tax Return”; 2.8 million Forms 941, “Employer’s Quarterly Federal Tax Return”; and 2.4 million Forms 1040-X, “Amended U.S. Individual Income Tax Return.”
Americans visited IRS refund website 632 million times last year as challenges swamp tax agency ‘in crisis’ - Jeff Stein, Washington Post ($):
The IRS sent more than 14 million math error notices and other proposed adjustments to taxpayers, and received 6.2 million messages from taxpayers in response. The IRS took an average of 199 days to respond to taxpayers’ proposed adjustments, compared with the average of 74 days it took the agency to respond in the year before the pandemic.
In 2021, the IRS received 282 million calls, compared with just 100 million in 2019. The agency’s workforce did not keep pace with the higher demand. Although the IRS answered more calls than recently, it took only 11.4 percent of them — down from 29 percent the year before the pandemic. The IRS reported an average hold time of 23 minutes.
National Taxpayer Advocate: 2021 Tax Year was a Bust - Jay Heflin, Eide Bailly:
The National Taxpayer Advocate report states that paper returns took roughly eight months to process and in 2021 the IRS received approximately 17 million original Form 1040 series returns on paper.
“Overall, 77 percent of individual taxpayers received refunds in 2021, so processing delays translated directly into refund delays,” the report states.
It also states that “telephone service was the worst it has ever been.”
Also: "Another noteworthy problem identified in the report is that the IRS’s Where’s My Refund? tool often could not answer the question."
IRS Processing, Refund Delays May Get Worse, Advocate Says - David van den Berg, Law360 Tax Authority ($):
The Internal Revenue Service will bring millions of unprocessed returns and pieces of taxpayer correspondence into the upcoming filing season, which could worsen a current crisis at the agency, a report from National Taxpayer Advocate Erin Collins released Wednesday said.
The processing delay is largely related to 2020 paper returns, but many taxpayers continue waiting for resolution of electronically filed 2020 returns, amended returns or correspondence replying to notices, according to the report.
From the Taxpayer Advocate Report:
At the close of the 2021 filing season, the IRS had 35.3 million returns awaiting manual processing. As the IRS is preparing to begin the 2022 filing season, it is poised to carry over millions of unprocessed returns and millions of pieces of taxpayer correspondence, resulting in even longer delays for taxpayers who have been patiently waiting for far too long.
Taxpayer phone lines came in for criticism:
The real-world impact to taxpayers and practitioners of this precipitous drop in LOS has been devastating and
ongoing. A few examples of hardships encountered by taxpayers include:
• A taxpayer contacted by the IRS regarding her deceased mother’s return was told to call in but has been trying unsuccessfully for over a year to get through to the IRS.
• A representative seeking to obtain the Advanced Employer Retention Credit on behalf of a taxpayer in extreme financial hardship received a letter asking that additional information be provided over the phone to a specific IRS agent. However, that phone line only plays a recorded message, and there is no way to speak to the agent.
• Intent to levy notices instruct taxpayers to call in to find out how much they owe, but when they do, no one answers.
All this has happened while Congress has given the IRS unprecedented responsibility for COVID stimulus checks, employee retention credits, and monthly child tax credits. That may not be entirely a coincidence.
Math Errors, Lookback Adjustment on Advocate’s Legislative List - Doug Sword, Tax Notes ($). "For the second year in a row, Collins’s top legislative priority is to get more funding at the IRS, which hit a low point in 2021 by only being able to answer a record 11 percent of taxpayer phone calls. Meanwhile, more than 6 million individual tax returns for the 2020 tax year were still unprocessed as of mid-December 2021."
Top 10 Taxpayer Problems of 2021 likely to repeat in 2022 - Kay Bell, Don't Mess With Taxes. "The problems included long processing and refund delays, difficulty reaching the IRS by phone, correspondence that went unprocessed for many months, collection notices issued while taxpayer correspondence was awaiting processing, and limited or no information on delayed returns via the agency's online refund tracking tool."
Taxpayer Advocate Urges Change to Info Reporting Penalty Procedures - Andrew Velarde, Tax Notes ($):
The national taxpayer advocate (NTA) is letting Congress know that the IRS’s procedures for assessing foreign information reporting penalties need a substantial change.
The penalties can be high. The initial penalty for failure to file Form 5471A is $10,000, with added penalties for continued failure amounting to another $50,000. The initial penalty for failure to file Form 5472 is $25,000, with an additional $25,000 for each 30-day period after 90 days that the failure continues. Failure to file Form 3520 carries a penalty equal to the greater of 35 percent of the gross reportable amount or $10,000 and is also subject to $10,000 continuation penalties.
Related: IRS Trouble: International Penalty Abatement (recorded webinar).
Down but not out: Dems plot course for Child Tax Credit as payments end - Brian Faler, Politico. "The child credit is not completely gone, it's just reverted to what it looked like before President Joe Biden took office. Out with 2021 were provisions giving a major boost in assistance to the very poorest; increasing the maximum credit to $3,600 per child; and a monthly payment program sending checks to 35 million families."
Fate Of Biz, Energy Tax Policy In Limbo As Dem Agenda Stalls - Stephen Cooper, Law360 Tax Authority. "Lawmakers say Senate negotiations on the House-passed version of the bill continue behind closed doors, even as the Senate spends its time this week commemorating the life of former Senate Majority Leader Harry Reid of Nevada and debating filibuster rules and voting rights legislation. Democrats' inaction on the BBB Act also likely sidelined passage of the group of expiring tax provisions commonly known as tax extenders, which traditionally move with the last major piece of legislation each December."
Maryland Governor Proposes Axing Retirement Taxes, Expanding EITC - Benjamin Valdez, Tax Notes. "During a January 11 news conference ahead of the 2022 legislative session, Hogan announced a series of proposals that would: eliminate all state taxes on retirement income; make the temporary increase to the EITC permanent; extend a manufacturing tax credit program to 2027; and eliminate some filing fees for businesses and farms. According to the governor’s release, the proposals total $4.6 billion, which would make it the largest tax relief package in state history."
Iowa's Gov. Proposes Flat Tax, Retirement Tax Repeal - Asha Glover, Law360 Tax Authority ($):
Reynolds also proposed eliminating the taxation of retirement income, which she said would result in a full income-tax repeal for the vast majority of retired Iowa citizens who rely on their 401(k)s, individual retirement accounts or pensions.
The governor said that the tax repeal on retirement income will extend to the tax on cash-rent payments that farmers receive when they retire from farming and on sales of stock shares employees received from their companies.
Link: Governor's Web Page for the plan.
Iowa Governor Proposes Individual, Corporate Tax Reform - Carolina Vargas, Tax Notes ($):
During her January 11 Condition of the State address, Reynolds said she plans to introduce legislation that would gradually eliminate the multiple individual income tax brackets and replace them with a “flat and fair” tax rate of 4 percent by 2026.
Reynolds’s plan also includes a proposal to use net corporate income tax receipts that exceed $700 million to reduce the current top corporate tax rate each year until it reaches a uniform rate of 5.5 percent, at which point the rate would be capped.
Why US Businesses May Stop Accepting Cryptocurrency - John Reed Stark, Law360 Tax Authority:
As part of this crypto crackdown, the U.S. government has initiated two extraordinary regulatory initiatives — one requiring the reporting of cryptocurrency transactions to the Internal Revenue Service in Forms 8300 and 1099-B, and the other requiring the reporting of cryptocurrency holdings to the Financial Crimes Enforcement Network of the U.S. Department of the Treasury in FinCEN Form 114, for reporting foreign bank and financial accounts.
These two first-time IRS and FinCEN cryptocurrency reporting requirements are game changers, and for those businesses that accept, or are contemplating accepting, cryptocurrency, the choice may suddenly become clear: Don't do it.
What You Need to Know About Taxes if You Use Payment Apps Like Venmo - Kelly Phillips Erb, Bloomberg. "You have a responsibility to report income even if you don’t receive the corresponding form. If you don’t receive Form 1099-K, don’t assume you can skip out on reporting. I’ve faced more than one revenue agent on behalf of taxpayers who had not reported income that should have been reported on a Form 1099. In all of those instances, not once has the IRS ever accepted “I didn’t get a form” as a legitimate excuse for not reporting—they have, however, allowed it as an excuse when there were merely discrepancies in the amount."
Form W-4: Withholding too much, too little or just enough? - Fin Powered Female. "Your tax liability will be the SAME despite how you choose to withhold your taxes. It is just a matter of WHEN you pay the tax. Throughout the year in your withholding, when your tax return is due, or a combination of both. It is the SAME tax liability dependent on your income, filing status, deductions, credits, etc. (excluding penalties)."
Timing Considerations for Expatriation, Tax Compliance and Form 8854 - Virginia La Torre Jeker, Virginia - US Tax Talk. "The US “expatriation tax” provision rules apply only to certain US citizens or long-term residents who have given up their U.S. status. Long-term residents are generally those holding a green card for eight of the past 15 years and have properly ended their U.S. resident status for tax purposes."
Public Safety or Speed Traps? The Conflicts of Interest Behind Fines and Fees - Aravind Boddupalli, TaxVox. "If you have ever been issued a speeding ticket, you probably grumbled about the government using you as a piggy bank. In our new research report, we found that, in many cases, you were right."
Net Operating Loss Provisions: State Treatment and the Economic Benefits - Timothy Vermeer, Tax Policy Blog. "Well-designed NOL provisions increase the tax code’s neutrality by ensuring that entrepreneurs are not unnecessarily punished for taking risks and provide the latitude for innovation. Unfortunately, while many states offer NOL provisions meeting or exceeding those offered by the federal government, a minority of states are remarkably stingy, punishing companies with fluctuating profitability."
What If Congress Made The Child Tax Credit Taxable? - Howard Gleckman, TaxVox. "Still, a taxable credit might cost less and be easier to administer than the tax-free version with multiple phase-outs, which is what most congressional Democrats are aiming for. It might satisfy Sinema since it isn’t a tax rate increase. It might be acceptable to Sen. Joe Manchin (D-WV) who objects to giving benefits to higher-income families though it wouldn’t address his other demand: for a work requirement."
Two Urgent Tax Proposals for 2022 - Travis Nix, National Review. "The No. 1 priority for Congress in 2022 should be to continue to allow research-and-development costs to be fully written off. Unless Congress takes action, starting this tax year, businesses will have to write off the cost of R&D over five years, rather than writing off the full amount in the year it is incurred."
Oregon Man Sentenced to Federal Prison and Ordered to Forfeit Over $18 Million in Stock and Properties After Stealing Millions in Covid-Relief Funds - US Department of Justice (taxpayer name omitted):
According to court documents, beginning in April 2020, Defendant began submitting CARES Act loan applications using numerous business names and personally identification information of relatives and business associates without their consent. Defendant submitted false documentation to justify the loan amounts requested, including IRS forms listing the 2019 wages purportedly paid by entities controlled by Defendant. Defendant claimed these entities paid employees as much as $4.7 million. Defendant’s loan applications included lists of dozens of purported employees and the total wages paid to each. The loan application packages included some of the same information across the different business entities, including the businesses’ physical locations and the names of several dozen employees.
In total, Defendant submitted nine PPP loan applications, six of which were accepted, resulting in a payout of more than $3.4 million. Defendant also applied for numerous EIDLs, of which one was accepted, resulting in an additional $160,000 in payments to Defendant.
But unlike other PPP fraudsters who squandered their PPP loans on sports cars and other frivolities, this one took a more conservative approach.
Upon receipt of the funds, Defendant purchased real estate and invested in securities. Defendant transferred more than $1.8 million of the above-described PPP loan funds to his securities brokerage account. Securities Defendant purchased using the fraudulently acquired funds substantially increased in value. In addition, Defendant purchased more than 25 properties in Oregon and California with the proceeds of his fraud.
In January 2021, agents seized Defendant’s brokerage account, which included 15,740 shares of Tesla, Inc. purchased with proceeds of his fraud. In March 2021, agents seized another account containing more than $660,000 in securities and cash. The securities and cash seized from Defendant’s accounts are presently valued at more than $18 million.
The Moral? Diversify your portfolio. And don't defraud the government. This PPP borrower forfeits his portfolio and incurs the opportunity cost of a 48-month stay at a federal facility.
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This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.