March 24, 2022
Many different factors can affect the timing of a refund after the IRS receives a return. A manual review may be necessary when a return has errors, is incomplete or is affected by identity theft or fraud.
Other returns can also take longer to process, including when a return needs a correction to the Child Tax Credit or Recovery Rebate Credit amount, includes a claim filed for an Earned Income Tax Credit or an Additional Child Tax Credit, or includes a Form 8379, Injured Spouse Allocation , which could take up to 14 weeks to process.
And sometimes, it happens for no apparent reason.
The fastest way to get a tax refund is by filing electronically and choosing direct deposit. Taxpayers who don't have a bank account can find out more on how to open an account at an FDIC-insured bank or the National Credit Union Locator Tool.
The IRS cautions taxpayers not to rely on receiving a refund by a certain date, especially when making major purchases or paying bills. Some returns may require additional review and may take longer. Also, remember to take into consideration the time it takes for a financial institution to post the refund to an account or to receive it by mail.
That's good advice. We've seen taxpayer refunds on e-filed direct-deposit returns sit unpaid by the IRS for months, with no explanation.
6 things that could delay your tax refund - Kay Bell, Don't Mess With Taxes. "IRS security filters could ensnare your return, with the agency then putting a hold on the refund until it is sure your identity hasn't been stolen."
TIGTA Finds High No-Change Rates For Certain Audits - Emlyn Cameron, Law360 Tax Authority ($):
The high rate of Internal Revenue Service examinations that result in no change under the centralized partnership audit regime may indicate noncompliant taxpayers aren't being discovered, the Treasury Inspector General for Tax Administration said in a report released Wednesday.
In a report dated March 17, TIGTA, the IRS' federal watchdog, said that for tax years 2016 through 2019, the rate of return examinations closed by 2022 under the centralized partnership audit regime rules that resulted in no change averaged about 78%. TIGTA said this rate was significantly higher than the rate for all partnership examinations closed for tax years 2016 through 2018 as of Sept. 30, 2020, and may indicate that noncompliant taxpayers aren't detected or that compliant taxpayers are being burdened with the audits.
The "centralized audit regime" is a change in the laws governing assessment and collection of taxes when the IRS examines partnerships. The new rules, also called the "BBA audit rules" after the tax law that enacted them, allow the IRS to assess tax resulting from examination adjustments directly to partnerships. Under prior rules, the IRS had to adjust the tax for each partner, often a tedious process. The result was a miniscule examination rate for partner returns.
BBA Partnership Audits Producing Fewer Changes, TIGTA Says - Jonathan Curry, Tax Notes ($):
The BBA rules apply to all partnerships unless they elect out of it. Partnerships with 100 or fewer partners for the tax year can opt out if all partners are eligible. Early data suggest that most partnerships with the option to opt out have chosen to remain under the regime.
One possible concerning conclusion from the high no-change rate thus far is that compliant taxpayers are being burdened by unnecessary audits while noncompliant taxpayers are escaping scrutiny, TIGTA suggested.
I'll throw another possibility out there, from the tiny sample of partnership examinations I've dealt with. It could be that the examiners simply aren't equipped to deal with the byzantine complexity of partnership tax. Determining entity income is just one step of partnership returns. You also have to determine whether it's allocated properly, whether built-in gains attributable to contributed property are properly allocated and whether depreciation deductions on the property are allocated to the right partners, whether debt is properly allocated and described... and let's not even talk about Sec. 754 adjustments when partners die or sell there interests. Even an experienced business return examiner might be tempted to just issue a "no change" and look for an easier taxpayer to audit.
But be careful: the IRS is hiring, and it is pushing partnership exams. Eventually they will figure it out.
Link: TIGTA report.
Global Tax Overhaul Will Filter To States, Tax Pros Say - Maria Koklanaris, Law360 Tax Authority ($). "The portion known as Pillar Two deals with issues related to globalization and features a global minimum tax of 15%. Pillar One also includes a provision that includes the 'standstill and removal' of digital services taxes adopted by nations, but states continue to show interest in adopting such taxes, the professionals said."
COMPETES Act Could Become Host for Major Business Tax Changes - Doug Sword, Tax Notes ($):
The Senate voted 66 to 31 to proceed to the America COMPETES Act of 2022 (H.R. 4521), which the House passed in February. The Senate passed its own version 68 to 32 in June 2021. The Congressional Budget Office has scored the House and Senate bills at $65 billion and $54 billion, respectively. The major portion of both bills are grants for chipmakers and for research.
But the chief executive officers of both Intel Corp. and Micron Technology said that more was needed to close the cost disadvantage they face in competing with manufacturers in East Asia. Both asked that the Facilitating American-Built Semiconductors (FABS) Act and its 25 percent investment tax credit for both semiconductor facilities and equipment be folded into a hoped-for House-Senate conference agreement.
House Dems Pin Midterm Hopes On Developing Tax Agenda - Stephen Cooper, Law360 Tax Authority ($):
Rep. Pramila Jayapal, D-Wash., chair of the House Progressive Caucus, said delivering on the economic security and tax fairness proposals in Biden's domestic agenda would be a key to the midterm success for the Democrats.
"There's also a Venn diagram of what Sen. Manchin supports and what Sen. Sinema supports. Where is that? Where's that sweet spot?" Jayapal quipped. "We thought we had it. Obviously, that didn't work, but we're working on it."
Windfall profits tax, consumer rebate options under discussion - Lindsey McPherson, Roll Call. "Because of Republican opposition, Democrats would have a hard time moving any windfall profit tax bill through regular order, as that would require at least 10 GOP senators to vote with Democrats to end a likely filibuster. It's also unclear how such a measure would be received by Senate Energy and Natural Resources Chairman Joe Manchin III, D-W.Va., a key swing vote for his party whose state is a major fossil fuel producer."
Manchin outlines energy policy objectives - Rachel Frazin, The Hill ($). "During a meeting of the International Energy Agency (IEA) in Paris, Manchin touted a tax credit for clean energy manufacturing, known as 48C, and legislation that would replace fossil fuel generation with advanced nuclear power."
Senator Manchin has no problem with the proposed Biden tax increases. Things like this could be the Manchin's price for supporting other Biden budget priorities from the moribund Build Back Better plan.
IRS offers new guidance on unemployment compensation exclusion - Michael Cohn, Accounting Today:
An updated section of the FAQs asks, “What if I already filed my 2020 tax return? Do I need to file a Form 1040-X to amend my tax return to report the exclusion?”
The answer from the IRS is that unless the taxpayer is entitled to a credit or deduction they didn’t claim on the 2020 tax return they’ve already filed, there's generally no need to file an amended return (Form 1040-X) to report the amount of unemployment compensation received in tax year 2020 to exclude on your 2020 tax return. “The IRS began performing the corrections starting in May 2021 and continues to review tax year 2020 returns and process corrections to issue any applicable refund that is due,” said the IRS fact sheet. “If you already filed your 2020 tax return, we'll determine the correct taxable amount of unemployment compensation
Newsom gas tax relief plan: $400 debit cards and no tax hike - Jeremy White, Politico. "Newsom wants to offer $400 debit cards that are tied to vehicle ownership, capped at two vehicles per household. There would be no income eligibility threshold. He is pressing ahead with a plan to halt a scheduled July 1 hike in the state’s gas tax tied to inflation. And the governor is seeking $750 million to fund three months of free public transit for commuters. The debit cards would go to drivers regardless of whether they own a gas- or electric-powered vehicle, according to the governor’s office."
A Look at Three Tax Cases Decided by Judge Ketanji Brown Jackson - Kelly Phillips Erb, Bloomberg. "In 2012, the plaintiff... was sentenced to 37 months in prison after pleading guilty to willfully attempting to evade or defeat federal income tax. [Plaintiff] had previously been a licensed CPA who marketed corporations to taxpayers as part of a tax savings 'plan' where he touted, among other things, taxpayers’ ability to deduct 'cars, going out to eat, trips' as business expenses. Eventually, he was indicted on five criminal counts before pleading guilty to a single charge that he willfully attempted to evade and defeat taxes on taxpayers’ individual and corporate tax returns."
This is a case I have followed for a long time. The plaintiff was a CPA who was involved with a group of Nebraska doctors who ended up with serious tax trouble - as one will when deducting personal "cars, going out to eat, trips" as business expenses. Interesting to see that it involved a likely Supreme Court justice.
EITC Audits Will Once Again Begin; Proactively Responding to an EITC Audit Is Crucial - NTA Blog. "If taxpayers are eligible for EITC and are being audited, they should not be deterred if the paperwork they can produce supports their EITC claims but does not exactly match what the IRS is requesting. Practitioners and taxpayers should think carefully and creatively about what documentation is available that would address the areas covered by the audit. The taxpayer can be his or her own best advocate and should not be discouraged by the audit process."
Remote Work, Tax Prep Fraud, And A Fuel Tax Cut Across the Pond - Renu Zaretsky, Daily Deduction. "Nebraska lawmakers hit reset on their tax cut package. To gain broader support among rural lawmakers, the state’s Revenue Committee voted to extend the phase-in of proposed income tax cuts from three years to five and added an income tax credit to offset property taxes that fund community colleges. Other lawmakers want to scrap the rate cuts entirely and instead give taxpayers a one-time, $200 rebate and adjust income tax brackets for inflation. Nebraska’s current tax rate on individual income is 6.84 percent."
Estate Taxes In RI And Lawn Care In Minn.: SALT In Review - David Brunori, Law360 Tax Authority ($). "Should the U.S. Supreme Court accept an appeal by bank associations involving Washington state's surtax on large banks? Yes, of course, it should. The 2019 law at issue imposed a 1.2% business and occupation surtax on the Washington-sourced gross receipts of members of 'consolidated financial institution groups' that have at least $1 billion in global annual net income. The tax was, in my opinion, clearly unconstitutional. The tax is aimed at big banks and only big banks operating outside Washington."
General Discharge Denial in Chapter 7 Based on Taxes - Keith Fogg, Procedurally Taxing. "Mr. Kresock’s case shows that if your behavior is bad enough, the failure to properly file taxes or to respond to questions from the IRS can play a major role in denying a discharge"
Determinative Factors: “Debt” v. “Equity” and Your Loan to a Foreign Corporation (Part I) - Virginia La Torre Jeker, Virginia - US Tax Talk. "Evaluating cases when the factors are not brightly lining up on one side or the other requires experience and judgment. It pays to get the proper tax advice when faced with making what the taxpayer believes will be a 'loan' to a corporation or when faced with a situation involving a 'debt'/'equity' classification."
Chaotic IRS Filing Season Shows the Perils of Running Social Policy Through the Tax Code - Alex Meresianu and Garrett Watson, Tax Policy Blog:
As the deadline for the 2022 tax filing season nears, the IRS faces scrutiny for its backlog of returns, inaccessible taxpayer service, and delays in issuing certain refunds. As of January 28th, the Internal Revenue Service (IRS) had 23.7 million returns awaiting action, compared to a typical backlog at that point of roughly 1 million returns. IRS Commissioner Charles Rettig recently testified the IRS will catch up on the return backlog by the end of the year by creating surge teams and planning to hire an additional 10,000 workers, but that will do little to alleviate the pain of this year’s filing season ending in less than a month.
In many ways the current chaos is the culmination of a problematic trend in fiscal policy. For the past few decades, policymakers have increasingly relied on the tax code to deliver major social spending initiatives, adding benefits administration to the IRS’s normal responsibilities as a revenue collection agency. At the same time, IRS capacity has not expanded enough to match its major new responsibilities. In the long term, the most stable solution is to move social spending out of the tax code and let the IRS focus its resources on revenue collection.
Congress treats the tax code as the Swiss Army Knife of public policy. The more gadgets you add to it, the less well it works as a pocketknife.
Is Inflation a Tax? - Robert Goulder and Joseph Thorndike, Tax Notes Opinions. "Taxes are compulsory government extractions imposed by law, usually to raise funds for public purposes, sometimes to regulate behavior. But taxes are not simply things that cost people money or drain our pocket books or lighten our wallets. Even if those things result indirectly from government action. Otherwise, any government action that costs us money could be described as a tax and certainly any sort of regulation that raises the cost of a product might be called a tax."
An Alleged Fraud Uncovered by a Short Seller Ends in Gunfire - Ben Foldy, Wall Street Journal ($). "Authorities were asking questions about a high-return, zero-risk investment plan that his law firm helped run." The gunfire seems inconsistent with the "zero-risk" part.
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.