March 15, 2022
It's March 15. Have you filed or extended your partnership or S corporations returns? Calendar year 1120S and 1065 filings are due today.
Why it matters: The penalty for filing after today, if you don't extend, is "$210 for each month or part of a month (for a maximum of 12 months) the failure continues, multiplied by the total number of persons who were partners in the partnership during any part of the partnership's tax year for which the return is due."
In other words, a partnership with 10 partners that files one day late incurs a penalty of $210 x 10 partners, or $2,100. Remember - one day is "part of a month."
So file on time, or extend, and keep a record that you did so. The best way is to file or extend electronically. You get an instant record to show that you file, and you get any refund that much quicker.
If you want to do the old-fashioned paper filing of your return or your Form 7004 extension, you can document it the old-fashioned way at the post office via Certified Mail, Return Receipt Requested. Yes, you can just throw the return in the outdoor mailbox and trust the Postal Service to not lose it, or trust the IRS to keep the envelope with the postmark if the return gets misdirected and arrives late. That shows more trust than I have. It’s worth spending a little extra to have that postmark stamp. Be sure you check the instructions and mail to the right place.
The private sector stands ready to help the real last-minute filers. You can timely file using the “mailbox rule” (timely mailed = timely filed) after the post office closes through FedEx, UPS, or DHL, if your neighborhood shipping store is open late. Remember, though, that you have to use the right service. For example, UPS Next Day Air works if you ship today, but UPS Ground does not. Here is the list of qualifying services.
If you use the private services, you have to use a different mailing address, as the private services can’t deliver to post office boxes. Here is the list of addresses to use for private delivery of tax returns. Be sure your mailing slip from the service shows today’s date, and keep it safe.
Remember the states. State due dates and extension deadlines differ. 19 states require partnership returns to be filed by March 15, or extended. Some states automatically extend, while others require extensions to be filed.
Report on IRS’s Dismal 2021 Filing Season Highlights 2022’s Woes - Jonathan Curry, Tax Notes ($):
The TIGTA report, dated March 9 and released March 14, offers a broad evaluation of the IRS’s administration of the 2021 filing season and makes clear that the agency faced exceedingly difficult challenges from the first year of the pandemic going into the second. Information released elsewhere, however, makes clear that those challenges have ratcheted up even further for the current filing season.
The national taxpayer advocate’s own annual report to Congress released in January found the situation even more dire ahead of this year’s filing season, with the IRS having reported 6.2 million unprocessed individual returns, as well as 2.4 million unprocessed amended individual returns, as of mid-December 2021. Many of those were paper-filed — all part of a vast backlog of unprocessed mail that exceeds 25 million pieces.
From the TIGTA report:
We remain concerned with the IRS's continued challenges in hiring sufficient staff needed to work through the backlog inventories. The IRS has unique hiring challenges in comparison to other Federal agencies because of the need for a seasonal workforce to meet the demands of the filing season. This seasonal work does not provide permanent employment or desirable schedules and shifts. During our walkthroughs at the Tax Processing Centers, on-site management expressed frustration and concern with the ability to fill needed positions. As of August 17, 2021, the IRS completed its hiring efforts for Fiscal Year 2021 and achieved just under 67 percent of its hiring goal for Submission Processing. Figure 4 provides a summary of the hiring shortage status as of August 17, 2021, and the state of the workforce as of August 28, 2021.
So contain your enthusiasm for the well-publicized IRS hiring blitz now under way.
We have to hurry up and file, but the IRS can take it's sweet time to process our filings. Do the current deadlines make sense? One tax pro says no in It’s time to update National Tax Day:
It’s a bit like cake. Eating a slice of cake is good. Eating the entire cake in one sitting is bad. We like helping taxpayers comply with the Tax Code. We want our work to be accurate. How can we do our best work when we are forced to eat an entire cake in one sitting? The accounting industry is suffering and something needs to change. Older accountants are retiring. Younger accountants do not want to eat this much cake, so they quickly leave. The sandwich generation of accountants is burned out.
So why not file more extensions and have some work-life balance?
When an individual taxpayer files an extension request with the IRS, it only grants additional time to file the tax return. It does not extend the time to pay. Therefore, taxpayers must pay their tax liability by April 15 or face interest and penalties on any unpaid liability. Taxpayers may or may not have all of their information available to properly calculate their tax by the April 15 date. Taxpayers and tax professionals seeking assistance from the IRS may not have their calls answered. Without almost fully preparing a tax return, it is difficult to properly calculate someone’s tax liability. Get it wrong and the taxpayer faces penalties and interest. The extension process for individual taxpayers is burdensome.
While extensions are a lifesaver, the IRS makes the process harder than it needs to be. She offers the solution of either moving the due date back or making extensions penalty free and filing free, to enable taxpayers to spread a years worth of return over more than 3 1/2 months. It would also ease the IRS seasonal hiring problems highlighted in yesterday's TIGTA report. The author has started a petition. I signed.
Congress Presses IRS On Filing Season Relief - Emlyn Cameron, Law360 Tax Authority ($). "In light of filing season woes, the Internal Revenue Service should explain what notices it's authorized to suspend but hasn't, and why it hasn't done so, by the end of business Monday, according to bipartisan, bicameral letters from Congress."
Sixth Circuit Blesses Contested Easement Proceeds Regulation - Nathan Richman, Tax Notes ($):
The Sixth Circuit declined to reach the same result as the Eleventh and affirmed the Tax Court’s holding that Treasury’s conservation easement regulation is procedurally valid.
The March 14 decision affirming Oakbrook Holdings LLC v. Commissioner could set up a Supreme Court hearing because of the circuit split.
The regulation has allowed the IRS to disallow syndicated easement deductions by finding paperwork problems, rather than the more time-consuming process of challenging the often extraordinarily-optimistic valuations used to provide charitable deductions from the easements.
Link to decision: Oakbrook Land Holdings LLC et al. v. Commissioner; No. 20-2117.
Maryland Judge Allows Digital Ad Tax Challenge to Proceed - Andrea Muse, Tax Notes ($):
Comcast and Verizon are seeking to have the digital advertising tax declared unconstitutional. The tax is imposed on digital advertising services using an apportionment fraction based on global annual gross revenues at rates ranging from 2.5 percent to 10 percent and applies to companies with global annual gross revenues of at least $100 million.
The Maryland General Assembly in February 2021 overrode Republican Gov. Larry Hogan’s veto of H.B. 732 and adopted the digital ad tax. A subsequent bill that became law without the governor’s signature in June 2021, S.B. 787, prohibited companies from directly passing on the cost of the tax to a customer through a separate fee, surcharge, or line item; exempted broadcast and news media entities from the tax; and delayed the effective date of the tax until tax years beginning after December 31, 2021.
Arizona Court Strikes Down Proposition 208 Tax to Fund Education - Paul Jones, Tax Notes ($). "The March 11 decision in Fann v. Arizona is a win for the state’s conservative Republican leaders and a blow to the progressive groups that fought to pass Proposition 208 — a 3.5 percent tax on income over $250,000 for single filers and $500,000 for joint filers — to fund teacher pay increases and educator recruitment, training, and retention efforts."
IRS probe targets oligarchs to ID sanctioned properties - Tobias Burns, The Hill. "One of the techniques available to investigators involves dismantling so-called cryptocurrency tumblers, services that pool together different digital currencies to make them difficult to trace."
If they can unravel the oligarch's crypto transactions, they can unravel yours.
CTC and filing season surprises - Bernie Becker, Politico. "Generally speaking, those who took the monthly payments will at least see a modest decrease in their refund. Look at it this way: The expanded CTC offered at most $3,600 a child — so $1,800 at tax time, and $1,800 through monthly payments. The credit maxed out at $2,000 a child before the Democrats’ expansion."
What Can the IRS Do Instead of Facial Recognition? - Marie Sapirie, Tax Notes. "Another option is the inverse of the model that SADI deployed. Instead of having taxpayers submit their biometric information to an outside service, the system could be designed so that biometrics, if used at all, never leave their personal devices."
Democrats push to loosen gig worker tax reporting threshold - Laura Weiss, Roll Call. "Previously, reporting was triggered when someone received payments at least 200 times per year totaling a minimum of $20,000. The March 2021 pandemic aid law cut the limit down to only $600 in payments starting this year, a move estimated to generate about $8.4 billion in tax revenue through 2031."
What this data tell us is that over 70% of all IRS individual audit closures for TY 2018 returns involved EITC despite the fact that only 17.2% of individual income tax returns claim the EITC. This is up from what I reported in the 2005 Annual Report to Congress, when 48% of IRS individual examinations involved the EITC despite only 17% of individual income tax returns claim the EITC. And remember – these “audit” numbers don’t include “unreal audits” involving EITC, such as math errors under IRC § 6213. Further, EITC audits constitute more than 2/3 of the no-change individual audit closures.
So. The primary method of auditing low income individual taxpayers is by correspondence. If you are more affluent, you are more likely to have a single auditor assigned to your case in office or field exam, but not if you are low income – i.e., in correspondence exam, no one employee is assigned to your case. If you are more affluent, the IRS is more likely to spend more time looking at your documentation, and communicating with you. Not so if you are low income. If you are more affluent, the IRS makes more of an effort to actually locate a more current address if mail is returned undeliverable. Not so if you are low income.
Nina Olson was the IRS Taxpayer Advocate from 2001 to 2019.
Lowest-Income Taxpayers Are the Most Likely To Be Audited - Elizabeth Nolan Brown, Reason. "Data from the Transactional Records Access Clearinghouse (TRAC) at Syracuse University shows the IRS audited the lowest-income Americans—"wage earners with less than $25,000 in total gross receipts"—at five times the rate of everyone else during government fiscal year 2021."
No itemizing needed to claim these 25 tax deductions - Kay Bell, Don't Mess With Taxes. "Technically, these write-offs are adjustments to income. They've been around for ages and used to be on the old long Form 1040 — with a few on the old 1040A, too — just before the last line of the form's first page. That last line was where you entered your adjusted gross income (AGI). That led to their collective name in the tax world as above-the-line deductions."
What if Tax Rates Rise? - Roger McEowen, Agricultural Law and Taxation Blog. "In a stable tax environment (which hasn’t been present for some time) when tax rates are not anticipated to change, the typical strategy is to delay income recognition and accelerate deductions. But, when tax rates are expected to rise, the opposite strategy is true – accelerate income into the current (lower tax rate) year and postpone deductions to the next (higher tax rate) year."
Foreign Gifts | When Do You Have To Report Them? - T.L. Fahring, Freeman Law. "For purposes of federal income tax, gross income generally does not include the value of property acquired by gift, bequest, devise, or inheritance. However, a U.S. person who receives foreign gifts that exceed certain threshold amounts during the taxable year must report the gifts on a Form 3520."
Section 911 Housing Cost Amounts Updated for 2022 - International Tax Blog. "Code §911(a) allows a qualified individual to elect to exclude from gross income an 'Exclusion Amount' related to foreign earned income and a “Housing Cost Amount.” The Exclusion Amount for 2022 is $112,000."
Related: Eide Bailly Global Mobility Services.
Edward Brown Constitution Ranger - Part I - The Appeal - Peter Reilly, Forbes. "The appeal in the Frist Circuit was about Commander Brown's sentence for a dramatic standoff that he and his then wife Elaine engaged in with US Marshals and other law enforcement in 2007. They had been convicted on tax related charges on January 18, 2007. Rather than surrender, Ed and Elaine hunkered down at their home and became minor celebrities among right wing extremists."
Litigator Who Specialized in Tax Fraud Cases Is Liable for Tax Fraud Penalty - Parker Tax Pro Library. " The court rejected [Taxpayer's] contention that the funds were being held for his clients' benefit after noting that, subsequent to the funds being wired into his investment account at UBS, [he] treated the funds as his own."
Today's not only a tax deadline, it's National Shoe The World Day. "Each day, over 500 million children, teens, and adults do not have a pair of shoes to wear."
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.