Tax Update Blog

Tax News & Views Go Manual Like the IRS Roundup

June 23, 2022 | Blog
By Joe Kristan, CPA

Taxpayer advocate sees much larger backlog than IRS reported - Michael Cohn, Accounting Today:

National Taxpayer Advocate Erin Collins expressed concern Wednesday in a midyear report to Congress about continuing delays by the Internal Revenue Service in processing tax returns filed on paper last year, pointing to far higher numbers than the IRS itself claimed just a day ago.

Collins said that at the end of May, the agency had a backlog of 21.3 million unprocessed paper tax returns, an increase of 1.3 million over the same time last year. That total includes 6.1 million individual original returns and 2.7 million individual amended returns left over from 2021. However, on Tuesday, the IRS itself reported that as of June 10, it had processed more than 4.5 million of the more than 4.7 million individual paper tax returns received in 2021, which would leave approximately 200,000 unprocessed (see story).

Reports of IRS operational success are again premature, it seems. 

 

National Taxpayer Advocate report targets IRS service - Paul Bonner, Journal of Accountancy:

"The IRS has said it is aiming to crush the backlogged inventory this year, and I hope it succeeds," Collins said in the release. "Unfortunately, at this point the backlog is still crushing the IRS, its employees, and most importantly, taxpayers."

To help the IRS reach its goal, Collins said, TAS will continue to advocate that the IRS to automate its processing of paper returns, including by adopting her directive in March that it implement 2-D barcoding on tax forms. Others, including a group of U.S. senators, have also commended the technology to the IRS.

"Although IRS leaders have indicated they are not likely to implement 2-D barcoding, I strongly urge them to implement a plan to achieve automation of paper processing in time for the next filing season," Collins said in a preface to the report. "Doing so is critical."

States have successfully used barcoding to sort paper returns now since the early years of the century, and private businesses, including this firm, digitize vast quantities of paper documents daily. Still, scanning is a bridge too far for the IRS.

From Taxpayer Advocate Erin Collins' remarks to Congress yesterday:

The other step the IRS can take is to automate the transcription of paper tax returns. Today, the digits on every paper return must be manually keystroked into IRS systems by an employee. In the year 2022, that doesn’t just seem crazy. It is crazy.

It does seem the IRS could find other work for their highly-skilled employees whose jobs consist of circling numbers on paper returns with a red pen to make it easier for other employees to manually type them into a computer.

IRS Is Falling Further Behind on Tax-Return Backlog, Watchdog Says - Richard Rubin, Wall Street Journal ($). "The IRS is taking 251 days to respond to certain correspondence, up from 74 days before the pandemic started. And just 10% of callers are getting through to IRS employees this year, a success rate similar to last year’s."

 

Senate Taxwriters Unanimously Approve Retirement Bill - Benjamin Guggenheim, Tax Notes ($):

The legislation would make refundable the existing savers credit of up to $1,000 per individual — a top priority for Democrats on the committee. The credit would begin to phase out at $41,000 for joint filers, and the qualifying income threshold would rise slightly from $68,000 to $71,000.

Under the proposed legislation, the modified savers credit would also be deposited directly into a worker’s IRA or 401(k) account rather than be included in a tax refund for the year.

The Savers Credit in current tax law is non-refundable. The relatively low income levels at which it phases out means there is little income tax to reduce, minimizing the credit's value.

Senate Panel Sends Retirement Package To Floor - Asha Glover, Law360 Tax Authority ($). "Like the House's bill, the Senate's proposal would allow older Americans to delay taking mandatory taxable distributions from their retirement plans. While the House's proposal would increase the age to 73 beginning next year and to 75 beginning in 2033, the Senate's bill would allow older Americans to delay taking distributions until 75 beginning after 2031."

Senators Adopt Plan to Disallow Tax Break on Syndicated Easements - Kristen Parillo, Tax Notes ($):

The Senate Finance Committee voted to add a provision to a proposed retirement bill that would disallow tax benefits from syndicated conservation easement deals — without retroactive effect.

The taxwritters cribbed the provision from a 2021 proposal that would be retroactive.

The 2021 proposal, which was based on previous legislative efforts that failed to advance, would deny a section 170 charitable contribution deduction if it exceeds 2½ times the taxpayer’s relevant basis in the passthrough entity that donated the easement. Under the 2021 version and its earlier iterations, the deduction disallowance would apply retroactively to December 23, 2016 — the date the IRS issued Notice 2017-10, 2017-4 IRB 544, designating syndicated easement deals as a listed transaction.

This provision would be effective on date of enactment. This doesn't bless prior easement transactions; it just means the IRS will continue to have to fight flaky easement syndications one-by-one.

Related: IRS Offering Potential Settlement for Syndicated Conservation Easements.

 

The Hill’s Morning Report — Biden gas tax call lands with a thud - Al Weaver, The Hill. "President Biden made his latest push to ease prices for Americans on Wednesday by calling for a gasoline tax holiday. But he faces an uphill climb on Capitol Hill to enact it as Democratic leaders gave the proposal a lukewarm reception."

What Is a Federal Gas Tax Holiday? And How Much Would You Save at the Pump? Veronica Daher and Ayse Kelce, Wall Street Journal ($). "An analysis by the University of Pennsylvania found that the president’s proposed three-month suspension would save Americans an average of $5 to $14 in total, according to Xiaoyue Sun, senior analyst for the Penn Wharton Budget Model."

Biden asks Congress to enact a summer gas tax holiday - Kay Bell, Don't Mess With Taxes. "Most Republicans are opposed, on policy and/or political grounds, to the gas tax holiday idea. Even House Speaker Nancy Pelosi (D-California) was noncommittal on Biden's request."

 

Punchbowl News reports that renewal of expiring Affordable Care Act tax credits may be difficult:

If Congress doesn’t act, as many as 13 million Americans will get a letter this fall informing them that their health care premiums are going to skyrocket come 2023. This could be a major headache for Democrats just weeks before the midterm elections.

The prevailing wisdom is that Democrats will try to insert language in a budget reconciliation package – the next version of Build Back Better – to extend the current tax credits, which were expanded last year as part of the American Rescue Plan. We don’t see another way for the Senate to avert a premium increase for ACA enrollees besides including it in a reconciliation package, which could pass with just 50 votes.

The obstacle is a familiar one: Senator Manchin. The article says Manchin is "borderline negative" to renewal of the credits. The article also says Machin feels a deal on a reconciliation package - what is left of the Biden "Build Back Better" plan - "isn't particularly close." 

 

Seattle's 'Amazon Tax' Upheld By Wash. State Appeals Court - Sanjay Talwani, Law360 Tax Authority ($). "The tax, adopted by Seattle in 2020 in response to the city's 2015 proclamation of an emergency related to homelessness, applies to payroll expenses for employees in Seattle with annual compensation of at least $150,000, and is paid by businesses with total annual payrolls of at least $7 million."

 

After Chrisley Convictions, What You Need to Know About Tax Crimes - Kelly Phillips Erb, Bloomberg. "According to the IRS, the most common attempt to evade or defeat a tax involves filing a false return that omits income and claims deductions to which the taxpayer is not entitled. You’ve probably seen this mentioned in high-profile cases like the Chrisleys’. By not reporting income, the taxpayers create a deficiency. Ditto for claiming deductions for which you are not entitled."

Don’t “need” to file an estate tax return? Non-filing can be an expensive mistake. - Chantal Stennerson, Eide Bailly. "While married couples can file a joint 1040, there's no such thing as a joint estate tax return, for obvious reasons."

US Supreme Court to Decide: FBAR Penalty, $10K per Form or per Account? - Virginia La Torre Jeker, Virginia - US Tax Talk. "The US Supreme Court just agreed to resolve the split in the circuit courts whether the FBAR $10,000 civil nonwillful penalty is to be applied on a 'per account' rather than 'per form' basis."

McDonald’s: Beware the Tax Whistleblower Unions - Nana Ama Sarfo, Tax Notes Opinions. "But the entire case begs the question: Why would labor unions get involved in multinational tax affairs, potentially undercutting their members’ own interests by pursuing large, complex litigation that could expose member companies to hefty fines and reputational damage?"

 

A Federal Gas Tax Holiday Is A Terrible Idea - Howard Gleckman, TaxVox. "Proposing a gas tax holiday may reap Biden small short-term political benefits. But suspending the tax  would only worsen inflation."

The U.S. Tax Burden on Labor - Daniel Bunn, Tax Policy Blog. "In 2021, the Organisation for Economic Co-operation and Development (OECD) reported that the overall tax burden on an average income single worker in the U.S. with $68,000 in pretax income was $19,340, amounting to a 28.4 percent tax wedge. This is 6 percentage points lower than the average tax burden on labor for single workers among OECD countries."

 

Once Avenatti Is Sentenced, Feds Plan To Drop Other Charges - Lauren Berg, Law360 Tax Authority ($). "Now that Michael Avenatti has pled guilty to four counts of wire fraud and one of tax fraud without a plea deal, prosecutors told a California federal judge Tuesday that they plan to drop the remaining 31 charges against the disgraced attorney as soon as he is sentenced."

The attorney who became briefly famous for his work on behalf of stripper and alleged Trump paramour Stormy Daniels faced tax charges relating to a coffeeshop chain he owned

          Some of the tax charges relate to Avenatti’s ownership of Global Baristas US LLC (GBUS), which operated Tully’s Coffee. Starting in late 2015 and continuing into 2017, GBUS failed to file employment tax returns and failed to pay approximately $3.2 million in federal payroll taxes, according to the indictment, which notes that this figure includes at least $2.3 million in “trust fund taxes” that GBUS had withheld from its employees’ paychecks. In 2016, the IRS initiated a collection action against GBUS, and, in June 2017, the IRS filed a federal tax lien against GBUS as part of its attempts to collect nearly $5 million in unpaid federal payroll taxes and penalties.

          Further, Avenatti allegedly attempted to obstruct the IRS’s efforts to collect the taxes. The indictment alleges that he lied to an IRS revenue officer, opened a new bank account to receive funds related to credit card transactions at Tully’s coffee shops, and directed Tully’s employees to deposit cash receipts into a bank account belonging to a car racing outfit that Avenatti also owned. Some of the money that should have been used to pay GBUS’ tax debt was transferred to bank accounts associated with Avenatti’s law firms, and some of that money was used to make lulling payments to Clients 1 and 2.

"Clients 1 and 2" allegedly had their legal settlement proceeds stolen by Mr. Avenatti.

The IRS has very little tolerance for employers using withheld payroll taxes for other things, and doing so is a good way to get in hot water.

This likely spells the end of Mr. Avenatti's presidential hopes, but the T-shirts remain available

 

Tell the typing pool I need this right away. Today is both National Typewriter Day and National Pink Day. If you happen to have a pink typewriter, you get the day off. 

 


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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.