January 24, 2023
IRS kicks off 2023 tax filing season with returns due April 18 - IRS:
The Internal Revenue Service kicked off the 2023 tax filing season with a focus on improving service and a reminder to taxpayers to file electronically with direct deposit to speed refunds and avoid delays.
Following a successful opening of its systems today, the IRS is now accepting and processing 2022 tax returns. Most of the individual tax returns for the 2022 tax year are expected to be filed before the April 18 tax deadline.
Taxpayers have until April 18 to file their taxes this year, but some taxpayers living overseas and disaster victims may have later filing deadlines. Alabama, California and Georgia storm victims now have until May 15 to file various federal individual and business tax returns and make tax payments.
Not all states are ready to accept e-filed returns yet, and some federal returns may not yet be e-filed if they contain forms that have not yet been cleared by the IRS.
The IRS notes that there is still some unfinished 2021 business:
Taxpayers can check Where's My Amended Return? to find out the status of their tax year 2021 Form 1040-X and can still file their 2022 tax returns even if their 2021 tax returns haven't been processed. Visit the IRS Operations page for more information on what to expect.
Yellen Underscores IRS Revamp as Filing Season Kicks Off - Alexander Rifaat, Tax Notes ($):
Natasha Sarin of Yale University, a former counselor on tax policy and implementation at Treasury, told Tax Notes that while the additional funding for the IRS is crucial in enabling the agency to beef up its customer service capabilities, expectations should be weighed against the scale of the task ahead.
“The reason the agency has a 10-year investment plan is that once you hire a bunch of people, it will take time to train them,” Sarin said.
As Tax Season Starts, a Beleaguered I.R.S. Looks to Bolster Customer Service - Alan Rappeport, New York Times:
As the filing season begins, the I.R.S. is racing to prepare 5,000 recently hired agents to answer the telephones and respond to questions from taxpayers. It is also rolling out new automated systems and staffing up its brick-and-mortar taxpayer assistance centers.
Treasury officials say that the I.R.S. is trying to reduce the time that callers spend on hold with the agency to 15 minutes and that they are hopeful that enhanced automated systems and more staffing will make it easier for people to reach a representative. The agency is also initiating plans to begin automatically scanning paper tax returns and rolling out a system to make it easier for taxpayers to respond to written notices from the I.R.S. online rather than by mail.
SALT Cap Tweaks Back on the Table With New Republicans in Mix - Samantha Handler, Bloomberg ($):
Republicans who oppose the state and local tax deduction cap gained ground on key committees this Congress—and are pushing ahead on ways to work around the limit.
Rep. Nicole Malliotakis (R-N.Y.), a new member of Ways and Means, is mulling tweaks to the cap that still raise revenue but also cut taxes for her New York City constituents. The challenge, though, is finding a fix to the cap that would appease the blue-state Republicans while unraveling a portion of the Trump tax law—drawing some ire from those in their own party.
The article notes challenges facing those attempting to restore full regular tax deductibility of state and local taxes; the deduction was capped at $10,000 for tax years from 2018 through 2025. Obstacles to full deductibility include opposition of some GOP legislators to a break that largely benefits states controlled by Democrats, and the opposition of some Democrats to a deduction that favors high-income taxpayers.
Gorsuch Dissents Over Justices' Nix Of $3M FBAR Challenge - Anna Scott Farrell, Law360 Tax Authority ($):
The U.S. Supreme Court declined Monday to review a Boston woman's challenge to $3 million in penalties for failing to report her Swiss bank account, but Justice Neil Gorsuch disagreed, saying the U.S. government may have violated the woman's constitutional protection against excessive fines.
In his dissent, Justice Gorsuch said the high court should have decided to review the case because the First Circuit erred when it upheld Monica Toth's civil penalties, which amounted to half the balance of her account, not including an additional $1 million in late fees and interest. The appeals court wrongly agreed with the federal government when it decided the excessive fines clause didn't apply to Toth because her case was not tied to an underlying criminal sanction, Justice Gorsuch said.
The case shows how important it is to report foreign accounts, and how brutal and unfair the IRS can be in punishing foot-fault reporting violations. From the Gorsuch dissent:
In the 1930s, Monica Toth's father fled his home in Germany to escape the swell of violent antisemitism. Eventually, he found his way to South America, where he made a new life with his young family and went on to enjoy a successful business career in Buenos Aires. But perhaps owing to his early formative experiences, Ms. Toth's father always kept a reserve of funds in a Swiss bank account. Shortly before his death, he gave Ms. Toth several million dollars, also in a Swiss bank account. He encouraged his daughter to keep the money there — just in case.
Ms. Toth, now in her eighties and an American citizen, followed her father's advice. For several years, however, she failed to report her foreign bank account to the federal government as the law requires. 31 U. S. C. §5314. Ms. Toth insists this was an innocent mistake. She says she did not know of the reporting obligation. And when she learned of it, she says, she completed the necessary disclosures.
The Internal Revenue Service saw things differently. Pursuant to §5321, the agency charged Ms. Toth with willfully violating §5314's reporting requirement and assessed a civil penalty of $2.1 million — half of the balance of Ms. Toth's account — plus another $1 million in late fees and interest.
Related: Offshore Voluntary Disclosure
Breaking! Gird Your Loins for Greater FBAR Penalties! Supreme Court Denies Review in Toth/ Excessive Fines Issue - Virginia La Torre Jeker, Virginia - US Tax Talk." The First Circuit Court of Appeals held that the civil 'willful' FBAR penalty is not subject to the Excessive Fines Clause since the IRS’s assessment against Ms. Toth was 'not tied to any criminal sanction' and served a 'remedial' (as opposed to a 'punitive') purpose."
IRS Free Portal to Prepare and File 1099s Is Now Live - Chandra Wallace, Tax Notes ($).
Just in time for the start of the 2023 filing season, the IRS launched its long-awaited information returns intake system (IRIS) January 23, providing taxpayers with a free online portal for preparing and filing Forms 1099.
Lia Colbert, commissioner of the IRS Small Business/Self-Employed Division, previewed the launch January 18, touting the new portal as a “game changer” for small businesses in particular, giving them “a new and easy way” to meet reporting obligations. The agency expects the new system to improve filing accuracy through automatic detection of input errors and alerts for missing information, she said.
Links: Information Returns Intake System (IRIS) Taxpayer Portal User Guide; IRS IRIS 1099 portal
January 31 Deadline Draws Near for Forms W-2, 1099-MISC, and 1099-NEC - Parker Tax Pro Library. "Staying on top of the January 31 deadline is critical because substantial penalties can be imposed if taxpayers: (1) don't file a correct information return by the due date and reasonable cause for the failure is not shown; (2) file on paper when they are required to file electronically; (3) fail to report a taxpayer identification number (TIN); (4) report an incorrect TIN; or (5) fail to file paper forms that are machine readable."
What Is FICA Tax and How Does it Work? - E Napoletano, Buy Side. "FICA tax is a 15.3% tax that’s actually a combination of two taxes: Social Security (12.4%) and Medicare (2.9%). You and your employer split these taxes fifty-fifty, each paying 7.65% of your pretax wages as tax each payday. Your employee portion gets deducted from your paycheck, but your employer sends their portion straight to the federal government."
National Taxpayer Advocate Releases 2022 Annual Report to Congress - Erin Collins, NTA Blog. "The good news is that the IRS has made considerable progress, and as I state in the report, we can start to see the light at the end of the tunnel. I am just not sure how far we need to travel before we see sunlight – and timely refunds for our taxpayers."
Supreme Court Dismisses Attorney-Client Privilege Case as Improvidently Granted - Jack Townsend, Federal Tax Crimes. "The Supreme Court does not explain why it dismissed, but I anticipated that dismissal as a possibility based on the comments at oral argument."
Alabama, Georgia residents in tornadoes' paths now have until May 15 to file taxes - Kay Bell, Don't Mess With Taxes. "The new deadline also applies to the Jan. 17 final tax year 2022 estimated tax payment. Although the IRS issued the relief after that date, it says that affected individual taxpayers who didn't meet the January due date can wait and include that fourth quarter estimated tax payment amount with the 2022 return they file on or before May 15."
Taxpayer's Diabetes Did Not Qualify Him to Escape Either Taxation on Retirement Plan Distribution or 10% Tax on a Premature Distribution - Ed Zollars, Current Federal Tax Developments. "Ultimately, nonauthoritative articles can be a helpful starting point in arriving at a supportable position in a tax matter, but the tax adviser must be able to defend his/her position by referencing binding legal authorities if the IRS disputes the treatment."
Garage Door Company Owner Pleads Guilty to Evading Taxes Over $200,000 - Rebekah Barton, TaxBuzz. "Per an official release from the IRS, he did this by operating primarily in cash and failing to file individual income tax and employment tax returns."
Lower 1099-K Threshold Would Put Gig Workers on More-Equal Footing - Lillian Hunter, TaxVox. "Lowering the 1099-K reporting threshold is an imperfect and incomplete solution to the complicated tax issues surrounding the gig economy. But it is not an additional tax, and it is not a sales tax on online transactions. Not only could Form 1099-K reporting put gig workers on more-equal tax footing with employees, it could reduce many headaches for both workers and the IRS."
Iowa Proposal to Rein in Property Taxes Misses the Mark - Jared Walczak, Tax Policy Blog. "A better approach would be to convert HF 1’s property tax limitation regime into a county-level levy limit. Instead of the current “soft cap,” Iowa policymakers could follow other states’ lead in requiring voter approval for property tax collections to grow above a certain amount within a given county. (These limits exist in red and blue states alike. In fact, both New York and Massachusetts provide good models.) If property values soared, local governments would have to cut millages to curtail the growth of collections—unless they secured an override from voters."
What The Proposed ‘FAIR Tax’ Really Looks Like - Peter Reilly, Forbes. "If you have strong feelings about the Fair Tax concept, you might think that I have it wrong, because you know what the Fair Tax is supposed to be. Well this was not about the Fair Tax as an ideal, it was about the Fair Tax Act of 2023, which is what will be voted on."
Here’s what you need to know about the GOP bill to abolish the tax code - Tobias Burns, The Hill. "The Fair Tax Act introduced by Rep. Buddy Carter (R-Ga.) and supported by 30 other Republicans would institute a massive 30 percent sales tax on all purchases in exchange for doing away with income, Social Security and Medicare taxes."
UTPR in the Air: Making Sense of the OECD's Most Controversial New Rule - Alex Parker, Things of Caesar. "The biggest problem is that the UTPR would allow for extra-territorial taxation–it would be a tax levied on a domestic corporation, but based on income earned by a different subsidiary in a different jurisdiction. The overall system, also known as Pillar Two, is designed to prevent a company from ever having income taxed below 15% anywhere. Ideally, the company’s home country would tax the income through Pillar Two’s primary provision, the income inclusion rule. But in cases where the home country chooses not to, that income could be collected by other countries where that corporation operates."
Brazil's International Tax Reform: What Took So Long? - Ryan Finley, Tax Notes Opinions. "The divergence between Brazil's intercompany pricing regime and a transfer pricing system based on the arm's-length principle — the standard for allocating income among associated enterprises, which is endorsed in nearly every bilateral tax treaty and by the OECD's influential transfer pricing guidelines — has long made Brazil something of a rogue state in multilateral tax affairs."
Treasury Loses in Bid to Plug Multi-Billion-Dollar Gap in 2017 Tax Law - Richard Rubin, Wall Street Journal.
The case stems from international tax rules created by Congress in 2017 aimed at making it easier for U.S. companies to repatriate foreign profits. Congress subjected accumulated past foreign profits to a one-time tax as part of a transition to the new system. It then imposed a minimum tax on new foreign profits and created a new deduction so foreign profits beyond that minimum tax were effectively tax-free for U.S. companies.
But Congress set the effective dates for those different tax rules in ways that didn’t match up, so companies could get different results depending on when their foreign subsidiaries’ fiscal years ended. In some cases, this mismatch let companies generate foreign profits that qualified for the new tax deduction but weren’t yet subject to the minimum tax.
Former Los Angeles City politician José Huizar pleads guilty to racketeering conspiracy and tax evasion charges - IRS:
Former Los Angeles City councilmember José Huizar pleaded guilty today to federal criminal charges for using his powerful position at City Hall to enrich himself and his associates, and for cheating on his taxes.
Huizar, of Boyle Heights, pleaded guilty to one count of conspiracy t violate the Racketeer Influenced and Corrupt Organizations (RICO) Act and one count of tax evasion. The plea agreement was filed Thursday in United States District Court. Huizar represented Council District 14 (CD-14), which includes downtown Los Angeles and its surrounding communities, from 2005 until his resignation in 2020.
In his plea agreement, Huizar admitted to leading the CD-14 Enterprise, which operated as a pay-to-play scheme in which Huizar – assisted by others – unlawfully used his office to give favorable treatment to real estate developers who financed and facilitated bribes and other illicit financial benefits.
Specifically, Huizar and other city officials demanded and accepted cash bribes, casino gambling chips, prostitution and escort services, political contributions, flights on private jets and commercial airlines, stays at luxury hotels and casinos, expensive meals, tickets to concerts and sporting events, and other benefits.
It just goes to show that you don't need to get a 1099 for your income to be taxable. I assume no 1099s were issued for the items in that last paragraph, anyway.
You look good enough to eat! It's both National Compliment Day and National Peanut Butter Day.
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.