Tax News & Views Evaluates Your ERC, Not Your Life Roundup

IRS announces withdrawal process for Employee Retention Credit claims; special initiative aimed at helping businesses concerned about an ineligible claim amid aggressive marketing, scams - IRS:

This new withdrawal option allows certain employers that filed an ERC claim but have not yet received a refund to withdraw their submission and avoid future repayment, interest and penalties. Employers that submitted an ERC claim that's still being processed can withdraw their claim and avoid the possibility of getting a refund for which they're ineligible.

The IRS created the withdrawal option to help small business owners and others who were pressured or misled by ERC marketers or promoters into filing ineligible claims. Claims that are withdrawn will be treated as if they were never filed. The IRS will not impose penalties or interest.

Those who willfully filed a fraudulent claim, or those who assisted or conspired in such conduct, should be aware that withdrawing a fraudulent claim will not exempt them from potential criminal investigation and prosecution.

The announcement explains the withdrawal process:

To take advantage of the claim withdrawal procedure, taxpayers should carefully follow the special instructions at IRS.gov/withdrawmyerc, summarized below.

• Taxpayers whose professional payroll company filed their ERC claim should consult with the payroll company. The payroll company may need to submit the withdrawal request for the taxpayer, depending on whether the taxpayer's ERC claim was filed individually or batched with others.
• Taxpayers who filed their ERC claims themselves, haven't received, cashed or deposited a refund check and have not been notified their claim is under audit should fax withdrawal requests to the IRS. The IRS has set up a special fax line to receive withdrawal requests. This enables the agency to stop processing before the refund is approved. Taxpayers who are unable to fax their withdrawal can mail their request, but this will take longer for the IRS to receive.
• Employers who have been notified they are under audit can send the withdrawal request to the assigned examiner or respond to the audit notice if no examiner has been assigned.

Those who received a refund check, but haven't cashed or deposited it, can still withdraw their claim. They should mail the voided check with their withdrawal request using the instructions at IRS.gov/withdrawmyerc.

Taxpayers qualify if they meet all of the following requirements:

• They made the claim on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X).
• They filed the adjusted return only to claim the ERC, and they made no other adjustments.
• They want to withdraw the entire amount of their ERC claim.
• The IRS has not paid their claim, or the IRS has paid the claim, but they haven't cashed or deposited the refund check.

Regret Claiming That Pandemic Employer Tax Credit? IRS Now Lets You Take It Back - Richard Rubin, Wall Street Journal. "The IRS move is part of the agency’s attempt to combat fraud and abuse in the tax credit, known as the ERC. Congress created the credit in 2020 to keep workers attached to jobs during the pandemic. It expired in 2021, but claims then boomed as a cottage industry of consulting firms urged employers to amend old tax returns and claim up to $26,000 per employee. The tax credit has cost U.S. taxpayers about $230 billion, or roughly triple earlier estimates."

New ERC Withdrawal Process Coming From IRS - Lauren Loricchio, Tax Notes ($): "So far, the IRS has received around 3.6 million claims for the ERC, and its open inventory is more than 700,000, but many of the amended returns filed are likely invalid."

IRS To Launch Worker Retention Credit Withdrawal Program - David van den Berg, Law360 Tax Authority:

The forthcoming claim withdrawal program may prove attractive to employers because of final regulations issued in July detailing how the IRS can recover erroneous refunds for the employee retention tax credit, Azmon said. The rules allow the agency to consider mistaken refunds of retention credits to be underpayment of tax subject to regular assessment and administrative collection procedures, she said.

"If you've been told the only way the service can recover the tax is through erroneous refund litigation, that is not true," Azmon said. "We can in fact assess under the recapture regulations. And that includes penalties."

Related: IRS Puts Temporary Hold On New ERC Claims.

‘SALT’ relief on the table in speaker negotiations - Laura Weiss, Roll Call:

Rep. Jim Jordan, R-Ohio, is backing an increased cap on state and local tax deductions in an effort to get some GOP holdouts on board with his speaker bid, according to Rep. Mike Garcia, R-Calif.

Garcia, who supports Jordan’s run for the gavel and opposes the current $10,000 “SALT” limit, said on Wednesday that Jordan is on board with a proposal he came up with to double the deduction limit to $20,000 for single tax filers and $40,000 for married couples who file taxes jointly.

It's about time that this speaker thing got interesting by having a tax angle. Given the likely doomed status of the Jordan speaker bid, don't count on any change in the SALT cap before its scheduled expiration after 2025.

As Partnership Audits Ramp Up, IRS Sets Sights on No-Change Rate - Jonathan Curry, Tax Notes ($):

Reports this year by the Government Accountability Office and the Treasury Inspector General for Tax Administration have concluded that nearly 4out of every 5audits of large partnerships end with no adjustment, which suggests the IRS may be wasting both its time and taxpayer time on unnecessary exams. But the IRS — and presumably taxpayers — want to see that changed.

That's much higher than ordinary exams. A high percentage of no-change exams means the IRS either is wasting time looking at the wrong returns, or it doesn't know what to look for. IRS Large Business and International Commissioner Holly Paz has plans to address the issues:

Chief among them is improving case selection through better use of data to identify potential noncompliance and get more productive exams, Paz said. But that’s still a tall task, she added, explaining that with complex, tiered partnership structures, the IRS needs to figure out how it can more effectively identify the specific partnership with the concerning activities, rather than opening an exam of a different partnership and then “having to work your way to where the noncompliance lies.”

Tax Court Chief Expecting More Partnership Audit Cases - Kat Lucero, Law360 Tax Authority ($):

IRS Plans to Clarify Research Amortization for Software Upgrades - Nathan Richman, Tax Notes ($). "The IRS and Treasury are planning to clarify the difference between software enhancements subject to the new research amortization regime and still deductible maintenance costs, according to an IRS official."

Related: The Impact of Changes to Section 174.

IRS Quietly Launches Online Business Tax Accounts - Jonathan Curry, Tax Notes ($):

The IRS’s long-anticipated online tax accounts for businesses went live the week of October 9, but the agency has yet to promote the new service.

For now, the account is limited to sole proprietors who file their business tax returns using an employer identification number, and it offers just a small slate of features, like requesting a “tax check to see if your business is compliant,” according to the IRS website.

Warren Wants Microsoft to Answer for $29 Billion IRS Tax Claim - Chris Cioffi, Bloomberg ($): "Sen. Elizabeth Warren (D-Mass) is calling on Microsoft‘s top executive to provide answers around a $28.9 billion tax bill the IRS claims the software giant owes in unpaid transfer pricing tax claims, which the tech giant vowed to fight."

GOP lawmaker attacks tax-exempt status of US colleges failing to condemn Hamas' 'barbaric' attacks - Thibault Spirlet, Business Insider. "'Some organizations that have celebrated the unspeakable acts of terror that claimed the lives of 30 Americans and hundreds of Israeli men, women, and children currently enjoy tax-exempt status in the United States, and their statements call into question the academic or charitable missions they claim to pursue,' Ways and Means Committee Chairman Jason Smith said, in a statement released on Wednesday."

In case you think politician involvement in tax administration is wise, consider how it works outside the U.S:

Terror Probe, Tax Raids: Journalists See Efforts to Silence Dissent in India - Tripti Lahiri and Shan Li, Wall Street Journal. "In February, Indian tax authorities carried out raids on BBC offices in India after the British broadcaster aired a documentary critical of Modi’s record on the treatment of Muslims in India. In 2021, tax raids were carried out against Hindi-language newspaper Dainik Bhaskar, whose coverage that year had been critical of the government’s handling of the Covid-19 crisis."

Nationwide Tax Forum FAQs – Part Two - Erin Collins, NTA Blog. "There are a lot of concerns and confusion throughout the tax world and at the tax forums about the new reporting requirements of Form 1099-K, Payment Card and Third Party Network Transactions, which is required to report certain payments for goods and services. As a part of the American Rescue Plan Act of 2021, the Form 1099-K minimum threshold for reporting payments made by third party settlement organizations like Venmo, PayPal, or Cash App was reduced from $20,000 to $600 for calendar years beginning after December 31, 2021."

13 states could participate in IRS' 2024 Direct File pilot - Kay Bell, Don't Mess With Taxes. "The agency today announced that its finalizing a Direct File program that will involve at least four states. Arizona, California, Massachusetts, and New York officials have decided be a part of the 2024 filing program, which will be under total IRS purview rather than in conjunction with the tax software industry as is the current Free File system."

IRS Will Pilot Direct File Program For 2024 Tax Season For Taxpayers In Some States - Kelly Phillips Erb, Forbes. "According to the IRS, all states were invited to join the pilot, but not all states were able to join the pilot at this time. Werfel suggested that timing was the main consideration in the decision not to participate at this time."

Tax Court: Godfather Actor Made IRS an Offer It Could Refuse - Kristen Parillo, Tax Notes ($): 

The IRS didn’t abuse its discretion when it refused to issue a letter ruling to the late actor James Caan waiving the 60-day deadline for IRA rollovers, the Tax Court held in a case involving an issue of first impression.

...

“This case is a quintessential example of the pitfalls of holding nontraditional, non-publicly traded assets in an IRA,” the opinion says. “Failure to follow the labyrinth of rules surrounding these assets can mean forfeiting their tax-advantaged status.”

From the opinion (my emphasis):

This case concerns a portion of the late actor's wealth, namely, two individual retirement accounts (IRAs) that he held at the Union Bank of Switzerland (UBS). One IRA held cash, mutual funds, and stock in exchange-traded funds. The other held similar assets as well as a partnership interest in P&A Multi-Sector Fund, L.P., a hedge fund (P&A Interest and P&A Fund, respectively).

IRAs are not limited to holding traditional assets such as cash, bonds, and publicly traded securities; they can still qualify for tax advantages while holding alternative assets, such as non-publicly traded partnership interests like the P&A Interest. However, in that case the Internal Revenue Service (IRS) requires that the IRA's trustee or custodian report the fair market value of the alternative assets yearly, valued as of December 31 of the preceding year... The custodial agreement that governed Mr. Caan's two IRAs at UBS reflected that requirement; it was Mr. Caan's responsibility to provide UBS with the yearend fair market value of the P&A Interest every year. In 2015 Mr. Caan did not provide UBS with the P&A Interest's 2014 yearend fair market value; as a result, UBS refused to continue serving as the P&A Interest's custodian and sent a letter to Mr. Caan notifying him of a distribution of the P&A Interest.

The result? The court upheld a deficiency of $779,915.

The Moral? Keep partnership interests out of your IRA, gosh darn it.

Link: 161 T.C. No. 6

The bisque, please. Today is both Evaluate Your Life Day and National Seafood Bisque Day.