January 5, 2023
IRS Found to Be Falling Short on Millionaire Audits - Lauren Loricchio, Tax Notes ($):
In fiscal 2022 millionaires were audited at a rate of 2.38 percent, though just 1.1 percent of them were subject to examinations conducted by revenue agents, according to a January 4 report by Syracuse University’s Transactional Records Access Clearinghouse (TRAC).
The data show that the number of audits of millionaires has grown slightly over the past two years. However, the report explains that the recent increase is “somewhat misleading” since it stems from a greater reliance on correspondence audits, which are less laborious to perform.
IRS audit rates declined further in 2022 - Michael Cohn, Accounting Today:
The report, released Wednesday by Syracuse University's Transactional Records Access Clearinghouse, found that in fiscal year 2022, the IRS audited 626,204 returns (out of more than 164 million individual income tax returns filed), down from 659,003 during FY 2021. The IRS is increasingly relying on correspondence audits. Only 93,595 of the audits were regular audits, compared to 532,609 correspondence audits, with about 85% of audits conducted through the mail.
"Together this means that last year the odds of audit had fallen to 3.8 out of every 1,000 returns filed (0.38%)," said the TRAC report. "For FY 2021, the odds of audit had been 4.1 out of every 1,000 returns filed (0.41%)."
IRS Audits Few Millionaires But Targeted Many Low-Income Families in FY 2022 - Syracuse University TRAC:
In place of face-to-face audits, IRS has increasingly relied on highly automated processes to send letters through the mail (a “correspondence audit”) asking for more documentation on a specific item. In FY 2022, 85 per cent of what IRS counts as audits of 1040 returns were these letters. Even for millionaires the IRS has turned to these. Indeed, last year about half (48%) of millionaire audits consisted of these simple letter inquiries. 
Adding those who received a letter asking for more documentation on a specific item, the odds of millionaires receiving some attention by the IRS rose to 2.8%. Yet this left somewhat under 700,000 millionaires — taxpayers reporting a million or more in total positive income — with absolutely no scrutiny whatsoever.
Success or Failure at the IRS: What Will Make the Difference? - Charles Rossotti, Tax Notes ($):
The IRS receives approximately 30 million Schedule K-1 (Form 1065), “Partner’s Share of Income, Deductions, Credits, etc.,” returns reporting over $1.2 trillion of income from passthroughs but makes no systematic use of this data unless an agent uses it in an audit. With current technology, these returns could all be analyzed to identify and follow up on discrepancies.
In May 2020 the Treasury Inspector General for Tax Administration reported that high-income nonfilers owing billions of dollars in taxes were not being examined. The report noted that the IRS has the information necessary to identify these nonfilers from employers’ Forms W-2, taxpayers’ Forms 1099, and related and prior tax returns.
Charles Rossotti was IRS Commissioner from 1997 to 2002.
Good News on Taxes Came Too Late for Many SPACs - Amrith Ramkumar, Wall Street Journal:
A rare bit of good news came too late for battered SPACs that were liquidating at a record pace last month.
Last week, the Treasury Department and Internal Revenue Service surprised the market when they said that SPAC liquidations wouldn’t be taxed under a new federal buyback levy. Blank-check companies that tried to beat the tax ended up locking in their losses. SPACs that didn’t liquidate have more time to try to find a deal and potentially squeeze out a profit if market conditions shift.
“The timing could not have been worse” for the SPAC liquidators, said Julian Klymochko, who manages a SPAC-focused fund at Accelerate Financial Technologies.
North Dakota Governor Reiterates Call for Tax Relief - Emily Hollingsworth, Tax Notes ($). "The proposed tax cut, which Burgum first announced in August 2022, would replace the income tax brackets for individuals, estates, and trusts — which range from 2.04 percent to 2.9 percent — with a flat rate of 1.5 percent. According to the governor, the change would save taxpayers an estimated $250 million per year."
A Look Ahead: Will IRS and Treasury Assert Themselves in 2023? - Jonathan Curry, Tax Notes ($):
Along with regulatory action, the IRS may already have an effort underway to target so-called Wandry clauses in gifts of hard-to-value assets.
Formula clauses in gifting allow donors to take back some of the gifted property if an IRS adjustment later determines a different fair market value of the property that was transferred for gift and estate tax purposes. Those clauses have historically been uncontroversial, under the right circumstances, according to Miller, noting that courts have long approved of formula clauses that send excess amounts after an IRS adjustment to a charitable beneficiary.
Related: Estate and Gift Tax—Are You Prepared for Changes?
What's new when it comes to filing your 2022 taxes - Kay Bell, Don't Mess With Taxes:
A slightly later filing deadline: Tax Day is still in April, but not April 15. That's on Saturday, so the deadline to get your return and any due taxes to the Internal Revenue Service moves to the next business day. But this year, that's not Monday, April 17.
That day is the Emancipation Day holiday in Washington, D.C., and federal law requires the IRS to follow the national capital's holiday schedule. So Tax Day 2023 is Tuesday, April 18.
State Tax Policy Trends to Watch in 2023 - David Stewart, Paul Jones, and Valerie Dickerson, Tax Notes Opinions. "The passthrough area, I believe, is an area where we will see continued development, and as you just mentioned, those are probably some of the areas. We've seen multistate tax commissions start to poke around in investment partnerships. We have seen some starting of defining terms in that area."
IRS return processing backlog shrinks, but remains an issue - Wolters Kluwer Tax & Accounting. "The agency posted on its website that as of December 9, 2022, it had 2.5 million individual returns received during the 2022 calendar year that are still unprocessed, including returns from both the 2021 tax year as well as late returns filed from previous years. An estimated one million of these returns are paper returns that are awaiting review and processing."
Final Regs Permanently Extend Deadline for Furnishing Forms 1095-B and 1095-C - Parker Tax Pro Library. "The IRS finalized regulations that provide an automatic extension of time for providers of minimum essential coverage (including health insurance issuers, self-insured employers, and government agencies) to furnish statements regarding such coverage and that also provide an alternative method for furnishing individual statements when the individual shared responsibility payment amount is zero. However, the IRS rejected practitioners' suggestions that the IRS reconsider its termination of the transitional good faith relief at least for calendar years 2022, 2023, and 2024."
Related: Eight Steps to Affordable Care Act Compliance.
Overseas Americans: Fast Facts About Amending a US Income Tax Return - Virginia La Torre Jeker, Virginia - US Tax Talk. "Many people fear that filing an amended tax return will cause the statute of limitations to be extended. In general, the filing of an amended tax return does not extend the statute of limitations on assessment."
IRS Amnesty Programs for Accidental Americans and other late filers - Kasia Strzelczyk, 1040 Abroad. "For accidental Americans and other late filers, catching up on those returns may be easier now than ever, as there are several programs to assist U.S. citizens living abroad. If you haven’t kept up with your foreign reporting obligations – find out which Amnesty Programs are available and what makes you eligible to use them."
Related: Offshore Voluntary Disclosure.
Calomiris on Gramm Ekelund and Early on Income Distribution. - John Cochrane, The Grumpy Economist. "Why has work collapsed in the bottom decile? Here we might have a big debate. $11.76 per hour (2017) isn't a lot. But the previous graphs certainly contain a suggestion worth pursuing: The effective marginal tax rate in the lowest three quintiles is effectively 100%. Earn a dollar, and lose a dollar of benefits. Why work?"
Why Would Politicians Make It Harder To File Tax Returns And Easier To Cheat? - Howard Gleckman, TaxVox. "Still, we know quite a lot. Of the nearly $80 billion in new money, about $46 billion will go to enforcement. Some will be used to hire more examiners but part of the money could be used improve technology that could reduce the chances that taxpayers get caught in needless and burdensome audits."
The IRS Audits Trump - Andy Grewal, Procedurally Taxing. "If the IRS and Congress establish new rules on Presidential audits, they should take into account complex returns. An expeditious audit may be possible for only simple returns. If Congress set a short statutory deadline for the IRS to complete Presidential audits, that would create risks related to missed issues."
Former chief financial officer faces charges for failing to pay over $3.6M in employee tax withholdings and for pocketing $130,000 from his employer’s bank account - IRS (Defendant name omitted):
A former chief financial officer and vice president of finance for a company with offices in Oklahoma made an initial appearance in federal court Wednesday for failing to pay over to the IRS $3.6 million in income and FICA tax withholdings and for embezzling more than $130,000 from the company.
As part of the scheme, Defendant was the chief financial officer and vice president of finance at a company that maintained offices in the Northern District of Oklahoma. In his role at the company, Defendant was responsible for withholding income taxes and FICA taxes from employees' paychecks and for paying the monies over to the IRS. The Indictment alleges that from April 2014 through January 2016, Defendant withheld the funds but failed to pay over to the IRS more than $3.6 million worth of income and FICA taxes.
In addition, Defendant is charged with bank fraud. As chief financial officer, Defendant was entrusted with a company credit card and was responsible for paying the monthly credit card bill by authorizing the electronic transfer of funds from the company's checking account at Mabrey Bank, in Bixby, to the company's Visa account. From January 2014 through December 2015, Defendant is alleged to have fraudulently used the Visa credit card to make $130,000 worth of purchases for his own benefit then paying for those charges with funds from the company's checking account at Mabrey Bank.
Two major mistakes here, if the allegations pan out. The first is not remitting withholding. For all the flaws in IRS data processing, IRS systems reliably detect failures to remit withholding in seven figures. Second mistake: thinking nobody will notice about $10,000 per month in personal charges on the company credit card.
Related: Risk Management: How to Minimize Risk in Your Organization.
Fill your feeder. Today is National Bird Day! It is also Carver Day, commemorating George Washington Carver, who surely would have taken good care of his backyard birds.
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.