Tax News & Views ERC means Emergency Refrigerator Cleanup Roundup

Reset Of Worker Credit Program Coming, IRS Chief Says - David van den Berg, Law360 Tax Authority ($):

The Internal Revenue Service is updating its procedures for reviewing claims for the pandemic-era credit and is working on improving its communications regarding eligibility for the credit, Werfel said. He spoke at a conference hosted by the American Institute of Certified Public Accountants and the Chartered Institute of Management Accountants, held in Washington, D.C., and online.

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Werfel also said the IRS soon plans to instruct employers who received the credit but believe they didn't qualify for it to come forward to reach settlement terms with the agency. He said he hopes to be able to allow employers to repay their credit payment in a way that "works out for those companies economically." He didn't provide any further details on settlement terms.

The IRS had paid over $230 billion in Employee Retention Credit claims before putting a moratorium on new claims. When enacted at the height of the pandemic, Congress anticipated the program would cost around $80 billion. 

Related: IRS Puts Temporary Hold On New ERC Claims.

IRS Taking Partnership Audits to New Level - Kristen Parillo, Tax Notes ($):

To support the IRS’s increased enforcement and audit coverage of large partnerships and complex arrangements involving passthrough entities, the agency announced September 20 that LB&I is forming a new unit dedicated to passthrough issues.

The mega passthrough organization will be highly specialized, Warren said. “It’s going to be much more efficient for us,” he said, explaining that previously there was only some partnership expertise within LB&I and the Small Business/Self-Employed Division. “That’s being combined, and they’re hiring a lot of new people,” he added. 

IRS to ‘Come Down Hard’ If Partnerships Resist Info Requests - Michael Rapoport, Bloomberg ($):

The IRS is “incredibly busy” with its new, stepped-up effort to audit large partnerships, and the agency will “come down hard” on partnerships that resist or ignore its requests for information, an IRS official said Tuesday.

There will be “a whole new level of partnership audits” because of the new effort, said Clifford Warren, a senior counsel in the IRS Office of Chief Counsel, speaking at a conference of the American Bar Association’s tax section in Philadelphia. “We are getting billion-dollar partnership cases sent to us on an almost-weekly basis.”

IRS Refining Partnership Adjustment Process, Official Says - Kat Lucero, Law360 Tax Authority ($)." To correct errors in a return, partnerships have to file an administrative adjustment request under the regime created by the Bipartisan Budget Act of 2015 instead of submitting an amended return, said Clifford Scherwinski, IRS director of pass-through entities in the Large Business and International Division. However, that is proving to be a cumbersome process, Scherwinski said, speaking at a conference hosted by the American Institute of Certified Public Accountants and the Chartered Institute of Management Accountants, held in Washington, D.C., and online."

Werfel Makes Capitalist Pitch in Defense of Direct File - Jonathan Curry, Tax Notes ($)."'One way to improve a product or service is to introduce competition into the market, Werfel continued. If the IRS’s direct-file pilot that launches next year performs well and becomes permanent, that could have an 'ongoing competitive benefit as the various Free File solutions try to get better and better,” he suggested.'"

It sounds like Amtrak, but for tax returns.

IRS Criminal Unit to Open Cyber Crime Data Hub, Add Body Cameras - Erin Slowey, Bloomberg. "The hub, also known as Advanced Collaboration and Data Center or ACDC, will support the IRS as it targets cyber crimes. It will be located in Northern Virginia."

No news on whether you will be able to get to the ACDC on the highway to hell. 

What the House’s ‘Ladder’ Stopgap Means for a Tax Deal - Cady Stanton and Doug Sword, Tax Notes ($):

The three major expired business tax provisions from the Tax Cuts and Jobs Act that Republicans hope to address — net interest expensing, bonus depreciation, and research and development expensing — would cost $47 billion over 10 years to extend them through 2025, according to a Joint Committee on Taxation estimate (JCX-29-23).

Hern said that with a dollar-for-dollar match in child tax credit expansion as advocated by Senate Democrats, the package is set to cost nearly $100 billion. The CR could set up spending bills as viable vehicles, but other options are being explored, Hern said.

Bernie Becker from Politico weighs in: "The big news last week was that Senate Democrats had whittled down what they were seeking in an expansion of the Child Tax Credit to $49 billion over two years — essentially the same cost as a top priority for Republicans, which is reversing three business tax increases from their 2017 tax law."

The three tax increases are capitalizing research costs, the full limits on business interest deductions, and the phase out of bonus depreciation. 

Jay Heflin's Capitol Hill Recap tomorrow will cover prospects for a year-end tax deal in depth.

Death of Partnership SECA Campaign Audits Has Been Overstated - Nathan Richman, Tax Notes ($). "The campaign addresses the IRS’s concern that taxpayers have been improperly claiming to be limited partners for purposes of a SECA exception. There are several open Tax Court cases in which the parties are litigating limited partner status under section 1402(a)(13)."

"SECA" means self-employment tax. The tax law has long excluded "limited partners" from self-employment tax, but the rules have never been updated to deal with LLCs and similar entities. The IRS campaign attempts to prevent taxpayers from improperly claiming "limited partner" exemption from self-employment tax. 

Tax-reducing deductions, credits, and exclusions get an inflation bump in 2024 - Kay Bell, Don't Mess With Taxes. "In 2024, the QBI threshold will be $383,900 for married couples filing joint returns, and to $191,950 for married individuals filing separate returns, single taxpayers, and heads of households who operate pass-through businesses."

IRS Launches Initiative for Taxpayers to Withdraw Noncompliant ERC Claims - Tax School Blog. "Due to the complexity of the credit and the rampant marketing from ERC mills encouraging taxpayers to claim the credit without considering their eligibility, taxpayers can use this withdrawal method to reverse their claim of the ERC and potentially avoid penalties."

Updates to the Corporate Transparency Act for 2024 and Beyond - Adam Sweet, Eide Bailly. "Under the CTA and its regulations, a reporting company generally must disclose certain information regarding the individuals who “beneficially own” the reporting company. "

As 2024 Approaches, Are You Ready For The Corporate Transparency Act? - Kelly Phillips Erb, Forbes. "Penalties will apply for failing to provide the information or for providing false information (there is a good faith exception). The penalties are steep—$500 a day up to $10,000, and possible jail time of up to two years. The law also provides penalties for the misuse or unauthorized disclosure of this information."

IRS Whistleblower Office Did Not Abuse Discretion in Determining Award Amount - Parker Tax Pro Library. "The Tax Court held that the IRS Whistleblower Office (WBO) did not abuse its discretion in determining that a whistleblower was entitled to an award of 22 percent of collected proceeds rather than an award of 30 percent, the award amount the whistleblower received in other claims involving the same tax scheme."

Dwindling Savings and Increasing Financial Stress Highlights Need for Tax Reforms - Alex Durante, William McBride, and Garrett Watson, Tax Foundation. "The current federal tax code generally discourages saving, since the income tax applies once to wages and again to the return on wages that are saved. By contrast, there is no additional tax on wages that are consumed rather than saved. To make up for this effect, the tax code contains a patchwork of preferences for saving with complicated rules that generally benefit higher-income households (e.g., those who participate in employer-sponsored retirement plans)."

The Hidden Cost of Your Federally Subsidized Rum: The Rum Cover‐Over Program - Adam Michel, Liberty Taxed. "The transfer of approximately $700 million a year in excise tax revenue from the US Treasury to the territories is called a 'cover‐over.'"

Lifetime Social Security Benefits And Taxes: 2023 Update - Eugene Steuerle and Karen Smith, TaxVox. "Reforms could scale back the rate of growth of benefit increases and still allow lifetime benefits to increase significantly for each cohort of future retirees. Policymakers could also consider tax increases and longer work lives to address the challenge of having fewer workers supporting more and more retirees. But whatever mix of reforms Congress chooses, these findings reflect how the current math for these programs doesn’t add up."

Minnesota Owner of Lighting Installation Business Pleads Guilty to Tax Evasion - US Department of Justice (Defendant name omitted). "According to court documents and statements made in court, from 2000 until 2023, Defendant, of Prior Lake, owned and operated a business that installs Christmas lighting, special event lighting and decoration displays for its customers. In 2018, Defendant filed for bankruptcy and listed the IRS as a creditor for his unpaid federal income taxes. As part of the bankruptcy, Defendant was required to sign and file, under penalty of perjury, a bankruptcy petition and schedules providing information regarding his assets, income and other financial affairs. Defendant attempted to evade the payment of his delinquent taxes by filing false bankruptcy schedules that concealed assets to hinder IRS collection efforts. In total, Defendant admitted that his conduct resulted in a tax loss to the IRS of $429,848."

If you don't pay your taxes and try to use bankruptcy to keep the cash, you need to make sure you illuminate all your assets, or the IRS will put you on their naughty list. 

Leftover night. It's National Clean Out Your Refrigerator Day!