September 15, 2022
It's September 15. Things are due. Specifically:
Other state returns and various federal filings may also be due, depending on your situatoin. Disasters in various locations in recent months allow some taxpayers more time to file; check the IRS page Tax Relief in Disaster Situations for more details.
If you can, file electronically. There are so many bad things that can happen to paper on the way to the IRS, and even after it gets there. Estimated payments can also be filed electronically.
If you must file paper, use Certified Mail and save the postmark to document the filing. If the IRS says your return is late, it could be the best $4 investment you'll make. If you are really last minute and can't get to the post office before it closes, you can use a private delivery service. Be sure it's the right delivery product - for example, UPS Next Day Air qualifies, but UPS Ground does not. Use the proper IRS street address, as the private delivery services cannot deliver to post office boxes.
And raise a toast to the expiration of the statute of limitations for 2018 pass-through entity filings - the first year under the "BBA audit rules" that allow the IRS to assess taxes directly to partnerships.
The NTA Reimagines the IRS with a Dramatically Improved Taxpayer Experience: Part One - Erin Collins, NTA Blog:
Since the start of the COVID-19 pandemic, many Americans believe “taxpayer service” at the IRS has been a misnomer. For the millions of Americans – both individuals and businesses – who have had to wait six to ten months or even longer to receive their refunds, and for the nine out of ten taxpayers calling the IRS who have not been able reach a live assistor, taxpayer service seems more like a distant aspiration than reality. These customer service failings have been well documented.
But it is equally important to remember that taxpayer service was poor even before the pandemic began. For example, taxpayers who called the IRS often could not reach a live assistor or were subject to “courtesy disconnects.” Customer callback was not offered as an option for most callers. Many taxpayers who wanted to e-file their tax returns were unable to do so because some of the IRS’s own tax forms are incompatible with its e-filing technology. For the limited number of taxpayers with IRS online accounts, functionality was limited. With the additional IRA22 funding, I believe these shortcomings can be addressed.
Before the IRS moves forward in improving its overall operations, however, it is imperative that it fulfill its core filing season mission by eliminating the backlog of unprocessed original and amended paper-filed tax returns, pay all pending refunds, and work through its backlog of overaged correspondence.
Erin Collins is the National Taxpayer Advocate - a federal employee with the job of advocating for taxpayers within the IRS. She provides a number of recommendations including continued suspension of automated collection notices until the IRS catches up with its processing backlog.
IRS Must First Tackle Paper Backlog, Taxpayer Advocate Says - Asha Glover, Law360 Tax Authority ($):
IRS Commissioner Chuck Rettig has said the agency intends to eliminate the backlog by the end of this year. According to the agency, there were 8.2 million unprocessed individual returns, including those received in 2022, as of Aug. 26. That number included 6.5 million unprocessed paper returns.
By comparison, the agency had about 19.1 million paper returns waiting to be processed on June 10, including 9.1 million originally filed individual returns.
Tesla Shifts Battery Strategy as It Seeks U.S. Tax Credits - Rebecca Elliot and Mike Colias, Wall Street Journal:
Making more batteries domestically could help Tesla qualify for additional tax breaks available under the Inflation Reduction Act, also known as the IRA, which President Biden signed into law last month.
RBC Capital Markets in a research note this week said the tax credit for U.S. battery production could deliver $3 billion to GM in 2025, if the company hits its goal of selling one million EVs in North America that year.
It is also likely to be easier to qualify for the production credits than it will be for consumers to receive the $7,500 tax break, which has been in place since 2009, said Mr. Kunjur, the GM executive. That is because the climate law essentially disqualifies from the consumer tax break vehicles that get battery raw materials or components from China, which dominates the supply chain. The production credits have no such restriction.
Pot Banking Proponents Put Onus on Senate to Get 60 Votes - Wesley Elmore, Tax Notes ($):
Supporters of bipartisan cannabis legislation are confident that it can pass this year, but they say it’s up to the Senate to make the necessary changes to pull in 60 votes in that chamber.
“Whatever they pass in the Senate, we will get passed in the House. And this will be law by the end of this year,” Rep. Ed Perlmutter, D-Colo., said September 14.
State-legal cannabis retailers are shut out of the banking system because of federal anti-drug laws. This makes routine financial transactions cumbersome and dangerous. Paying payroll taxes can involve carrying satchels of currency in person to IRS personnel - and everyone knows what a great idea it is to be downtown with big bags of cash.
Lucrative IRS program targeting wealthy tax cheats is withering from lack of funds - Tobias Burns, The Hill. "The IRS whistleblower program rewards people for coming forward with information about tax cheats and typically pays rewards between 15 and 30 percent of the money the government collects using the whistleblower’s information."
House Republicans Ready to Unveil Tax Plans for 118th Congress - Doug Sword, Tax Notes ($). "But extending the expiring portions of the Tax Cuts and Jobs Act past their December 31, 2025, expiration will be at the core of the Jobs and the Economy task force’s recommendations, said House Ways and Means Committee member Jodey C. Arrington, R-Texas, a task force member."
As President Biden won't be up for re-election until 2024, nothing the GOP proposes for the coming Congressional session will become law anytime soon. These proposals might best be viewed as a preview of the tax section of the upcoming presidential race.
Lawmakers Indefinite on SPAC Buyback Tax Relief - Chandra Wallace and Doug Sword, Tax Notes ($). "Without relief, SPACs, which typically trade at around $10, reflecting their per-share buy-in, would see their prices drop by a dime, or a bit more in a handful of cases, according to a market observer."
Inheritance and Estate Taxes Can Impact Ordinary Taxpayers, Too - Kelly Phillips Erb, Bloomberg. "While we don’t have an exception for royalty in the US, we do have a king-sized exclusion available: The federal estate tax exemption in 2022 is $12,060,000 per person or $24,120,000 per married couple."
New website has more on inflation act's energy tax breaks - Kay Bell, Don't Mess With Taxes. "Visitors are sent to pages such as Energy.gov's solar energy resources for consumers, and the Internal Revenue Service's site for drivers who are considering a plug-in electric drive vehicle. EnergyStar also gets several links."
Couple Can't Avoid Accuracy-Related Penalties Based on Filing of Amended Returns - Parker Tax Pro Library.. "The Tax Court held that a couple's amended tax returns which reported income not disclosed on their original returns were not "qualified amended returns" under Reg. Sec. 1.6664-2(c)(3), precluding liability for accuracy-related penalties, because the returns were filed after the service of a John Doe summons. The court also held that the six-year statute of limitations for substantial omissions of income was suspended under Code Sec. 7609(e) until the summons was finally resolved by the IRS's withdrawal of the summons."
Can You Go to Jail for Not Paying Your IRS Taxes? - Matthew Roberts, Freeman Law. "Taxpayers who submit false information to the IRS run an increased risk that the government will use the submission itself as an affirmative act to support a felony tax evasion case. Moreover, the false submission may constitute an additional and separate federal crime."
Breaking Down the Inflation Reduction Act’s Green Energy Tax Credits - Alex Muresianu, Tax Policy Blog. "The Inflation Reduction Act’s impact on foreign emissions is uncertain. As Holman Jenkins of The Wall Street Journal has argued, promoting clean energy in the United States and prompting Americans to switch away from fossil fuels should lower fossil fuel prices globally, which would then spur additional consumption of fossil fuels in foreign markets. This would increase emissions and partly cancel out the benefits of reduced domestic emissions."
Tax Court Affirms Fraud Penalties for Concealed Swiss Accounts - Michael Smith, Tax Notes ($). "The U.S. Tax Court has upheld civil fraud penalties against a taxpayer who concealed over $750,000 of income in undisclosed Swiss accounts for more than seven years."
The opinion, by Tax Court Judge Buch, involves a deceased taxpayer. A detail from the opinion shows how the IRS started cracking Swiss bank secrecy (taxpayer name omitted):
In 2011, Mr. Taxpayer's returns became the subject of an IRS examination. Before getting into the details of that examination, context is helpful to understand how this came about.
In 1996, the United States and Switzerland entered into a tax treaty whereby they agreed to exchange taxpayer information to avoid double taxation and prevent fraud. Pursuant to that treaty, UBS entered into an agreement with the IRS in January 2001. That agreement established reporting procedures to help the IRS identify UBS's unnamed U.S. clients.
Records and testimony provided in connection with a congressional investigation show that in 2001 or 2002, UBS took steps to limit the agreement's effect. UBS began dividing U.S. clients into two groups: those who were willing to report their accounts to the IRS and those unwilling to do so. UBS representatives helped the unwilling group maintain “anonymity” and “fraudulently evade large amounts of tax.” UBS's practices garnered scrutiny from the U.S. Department of Justice, which launched an investigation that was publicized in a July 2008 congressional hearing held on the matter. In the wake of these events, UBS stopped providing “offshore banking or securities services to U.S. residents.” It was also in 2008 that Mr. Taxpayer closed his UBS account and moved his assets to Dresdner.
The IRS also tried to protect its interests as events unfolded. In summer 2008, the IRS issued UBS a summons that requested information about UBS's U.S. accountholders in 2002 through 2007. UBS responded with certified records, including account opening documents, account statements, and correspondence. Through those records, the IRS discovered Mr. Taxpayer's UBS account. The records were assigned to revenue agents for examination and form a significant part of the record before us. The examination began in May 2011.
Unlike taxpayers who get hit with absurd penalties for foreign account paperwork foot-faults, this taxpayer seemed to actually be up to something, according to the opinion:
Mr. Taxpayer's actions in funneling income into his Swiss accounts, and carefully accessing those accounts in manners to avoid detection, make clear that their very purpose was concealment. He hid the UBS account from his wife and did not disclose it to the state court during his divorce proceeding in 2003. He deposited only foreign income into his Swiss accounts.
Win for IRS.
The moral? Don't count on foreign account secrecy as a tax reduction tool. Same goes for cryptocurrency. If you have such accounts, report them sooner, not later. The deadline for reporting 2021 foreign financial accounts is October 15.
Related: Eide Bailly Offshore Voluntary Disclosure.
In case your tax filing is a disaster? Today is Get Ready Day, "to prepare American citizens and their communities for emergency crisis situations like natural disasters or hazards."
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.