Last week, the IRS started sending letters to the 9 million households who may still be eligible for several lucrative tax benefits, including the third round of stimulus payments, worth as much as$1,400 for an individual and $2,800 for couples.
October 20, 2022
Employers warned to beware of third parties promoting improper Employee Retention Credit claims - IRS:
The Internal Revenue Service today warned employers to be wary of third parties who are advising them to claim the Employee Retention Credit (ERC) when they may not qualify. Some third parties are taking improper positions related to taxpayer eligibility for and computation of the credit.
These third parties often charge large upfront fees or a fee that is contingent on the amount of the refund and may not inform taxpayers that wage deductions claimed on the business' federal income tax return must be reduced by the amount of the credit.
If the business filed an income tax return deducting qualified wages before it filed an employment tax return claiming the credit, the business should file an amended income tax return to correct any overstated wage deduction.
Businesses are encouraged to be cautious of advertised schemes and direct solicitations promising tax savings that are too good to be true. Taxpayers are always responsible for the information reported on their tax returns. Improperly claiming the ERC could result in taxpayers being required to repay the credit along with penalties and interest.
The IRS is, if anything, understating the problem. Not all businesses qualify for the credit, and nobody can tell you for sure whether you qualify without your financial information. More from the IRS:
To be eligible for the ERC, employers must have:
- sustained a full or partial suspension of operations due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19 during 2020 or the first three quarters of 2021,
- experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021, or
- qualified as a recovery startup business for the third or fourth quarters of 2021.
As a reminder, only recovery startup businesses are eligible for the ERC in the fourth quarter of 2021. Additionally, for any quarter, eligible employers cannot claim the ERC on wages that were reported as payroll costs in obtaining PPP loan forgiveness or that were used to claim certain other tax credits.
The ERC does have broad application and has helped many businesses and non-profits deal with COVID reverses. It's not a magic money tree. Contact an Eide Bailly tax professional to find out whether you can benefit from the ERC.
Observers Expect Delay of Some Crypto Reporting Requirements - Lauren Loricchio, Tax Notes ($):
The Infrastructure Investment and Jobs Act (P.L. 117-58), enacted in November 2021, includes changes to section 6045 requiring digital asset brokers to report crypto transactions starting in 2024.
“The current statute is the only real guidance that industry has to rely on, and it says that cost-basis tracking and transfer-statement reporting begin January 1” of 2023, John Schoenecker of TaxBit Inc. told Tax Notes.
But “almost a year later and a few months from the law’s outlined effective date, there is still ambiguity about these reporting requirements,” Schoenecker said.
Related: The Infrastructure Act and Cryptocurrency Transactions.
Foreign Gifts, Forms 3520, Big Penalties, and a Pending Case - Hale Sheppard, Tax Notes ($):
Receiving a significant gift of money from a foreign person is a good news/bad news situation for a U.S. person. On the positive side, receipt of cash from abroad generally does not trigger U.S. income tax; the recipient gets the money tax free. On the negative side, he must disclose the gift by filing a timely Form 3520, “Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts.” If a U.S. person fails to submit this obscure international information return, the IRS penalizes him. Sanctions can reach 25 percent of the total unreported gift.
Yes, that letter from the IRS is real. You could be owed $1,400. - Michelle Singletary, Washington Post:
If you didn’t get the full amount of the pandemic-related Economic Impact Payment under the $1.9 trillion American Rescue Plan, you may be able to claim the 2021 credit. But you must submit a 2021 tax return — even if you don’t usually file taxes.
State PTE elections: A big picture perspective - Patrick Walsh, The Tax Adviser:
This election pushes the responsibility for paying SALT income taxes on flowthrough income up to the PTE and allows it to deduct those taxes at the entity level under the provisions of Notice 2020-75, simultaneously providing a credit to the owners to avoid double taxation. Unfortunately for the practitioner, the only thing that can be relied on consistently regarding state PTE elections is inconsistency.
As a result, practitioners may face a difficult analysis in helping their clients understand their possible PTE election opportunities. A single state election can be complex on its own, let alone navigating the differences among multiple states' elections on seemingly minor mechanics that can have broad ramifications.
Related: Working Around the SALT Deduction Cap
Is Anyone Happy In Tax Professional Land? - Russ Fox, Taxable Talk:
I saw lots of tax professionals leaving the profession over the past two to three years, and it didn’t make sense to me. This is a good profession where we help our clients. I enjoy the work (yes, someone has to). But this past Tax Season was the first year I felt, at times, that I didn’t like what I was doing; I now understand why tax professionals are retiring.
This has major impacts to our clients. The Law of Supply and Demand holds throughout the world (no matter what politicians say). If Supply decreases, Price increases. Even if inflation were 0% (and it’s not), prices would be increasing significantly. Add in the huge inflation we’re seeing (example: paper prices at Costco have increased from $28.99/case to
$35.99$36.99/case since November 2021), and most tax professionals will be increasing prices dramatically for the 2023 Tax Season.
2023 inflation-adjusted income tax brackets mean more money for you, not IRS - Kay Bell, Don't Mess With Taxes. "I just want to remind you once again that these 2023 numbers, like all the figures in the upcoming series segments, will apply to returns you'll file in 2024. The return that you'll submit to the IRS next year (2023) is for this current tax year (2022)."
US Tax Inflation Adjustments for 2023 – Impact on the International Family - Virginia La Torre Jeker, Virginia - US Tax Talk. "For taxable years beginning in 2023, the foreign earned income exclusion amount under § 911(b)(2)(D)(i) is $120,000."
IRS Raises More Questions on New Retirement Account Provisions (1) - Kelly Phillips Erb, Don't Mess With Taxes. "Congress claimed they wanted to make saving for retirement easier by passing the SECURE Act of 2019. But, as taxpayers and tax professionals are learning, the SECURE Act did not simplify things. A set of proposed regulations earlier this year confounded many—and while a notice issued this month offers some relief, other questions remain unanswered."
IRS Extends Filing Date For 2019 & 2020 Tax Returns For COVID Penalty Relief In Disaster Areas - Robert Wood, Forbes. "Under Notice 2022-36, penalties for late-filing certain tax returns, as well as penalties for not reporting certain required information on the Form 1065 or Form 1120-S, are waived or abated if the relevant return was filed on or before Sept. 30, 2022. That date is past, but individuals and households that reside or have a business in recently declared FEMA disaster areas have postponed deadlines to file the return to get this relief, as noted below."
Tax professionals and taxpayers can expect improved clarity in IRS Appeals Office Notices - Mark Friedlich, Wolters Kluwer Tax & Accounting. "Tax professionals and their tax clients have been frustrated for years in dealing with the Internal Revenue Service Independent Office of Appeals (Appeals Office) when trying to resolve tax disputes without resorting to costly and time-consuming litigation."
Judge Nixes America's First Digital Ad Tax, Sets Precedent - Rebekah Barton, TaxBuzz. "In a case filed by telecommunication giants Verizon Media and Comcast, Anne Arundel County Circuit Judge Alison Ali ruled that the state tax on online advertisements is, in fact, unconstitutional and a violation of existing federal law."
7 Tips to Lower Your Tax Bill - Fin Powered Female. "Contributing to your employer provided retirement plan (401K, 403b, 457, etc.) will transfer pre-tax money into your retirement account. These contributions will reduce your taxable income and thus lower your tax bill."
Debts Owed by Insolvent Taxpayers to the IRS - Marilyn Ames, Procedurally Taxing. "Lurking in Title 31 of the United States Code is an unpleasant surprise for all creditors whose debtor also owes a debt to the United States... This statute provides that when a person indebted to the United States is insolvent and some action occurs such as the debtor making a voluntary assignment of his property that threatens the government’s ability to collect its debt, or when a deceased debtor dies and the property of the estate is insufficient to pay all the debts of the debtor, the claim of the United States is to be paid first."
Coloradans Could Lower Their Income Taxes This Fall - Janelle Fritts, Tax Policy Blog. "When Coloradans go to the polls this November, they will be given the opportunity to permanently lower their income taxes—or to increase those tax burdens. Colorado Proposition 121 would reduce the state’s flat statutory income tax rate from 4.55 percent to 4.4 percent, effective retroactively for tax year 2022. Colorado Proposition FF, on the other hand, would create a tax cliff and introduce a marriage penalty in an effort to limit deductions for high earners."
Throwing Money at the IRS Won't Fix Its Problems - Katherine Mangu-Ward, Reason. "Do you know who else will want to hire mid- and senior-level tax professionals with experience if tax enforcement starts to ramp up dramatically, especially on the well-off? The folks on the other side of every IRS audit battle. And they typically pay better than the government can manage, even with an additional $8 billion a year on top of the agency's existing $14 billion budget."
Interview: Breaking Down the Inflation Reduction Act’s Corporate AMT - Joseph Thorndike and Robert Goulder, Tax Notes Opinions. "All over the world, you have investors making decisions about where to invest their money. They're looking at these financial statements, and they're trusting the numbers that they see. What happens if they figure out that those numbers are being manipulated for the sake of saving taxes, which I think is going to happen?"
Louisville attorney sentenced to 27 months in federal prison for tax evasion - IRS (Defendant name omitted).
According to court documents and evidence presented at trial, Defendant... evaded the payment of federal income taxes, penalties, and interest due and owing by him to the United States for the calendar years 2000, 2001, 2002, 2006, 2008, and 2011, totaling $1,124,620, by concealing assets in various ways. Among the methods Defendant used to conceal his assets from the United States Internal Revenue Service were storing personal income in a client escrow account, storing personal income in a nominee bank account, purchasing a home through a nominee as an alleged charitable donation, and by recycling cashier's checks, which is the practice of engaging in a cycle of purchasing a cashier's check, using a small portion of the check, and then purchasing another cashier's check of lesser value. The evidence presented at trial showed that Defendant also intentionally provided false and misleading information regarding his assets and income to Internal Revenue Service civil collections personnel.
Lots of false moves here. Many attorneys have fallen to the temptation to hide income in client accounts. In addition to being bad legal ethics, it can be uncovered if the state bar chooses to examine the accounts. And providing false information to an IRS examiner is a great way to turn a mere IRS exam into a criminal investigation.
Stop reading here. Today is Information Overload Day.
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.