Tax News & Views ERC Fraud Makes Me Grouchy Roundup

February 16, 2023

IRS Starts Showing Tax Fraud Fruits of Pandemic Investigations - Nathan Richman and Lauren Loricchio, Tax Notes ($):

The government charged the first case against a so-called ERC mill February 1, indicting Zachary Bassett and Mason Warr of Utah, along with their company, COS Accounting & Tax LLC, for tax conspiracy under 18 U.S.C. section 371, false tax return charges under section 7206(2), and wire fraud under 18 U.S.C. section 1343 for allegedly running an ERC claim mill.

ERC mills, which are advisory firms that aggressively advertise their services with promises of large tax refunds, have drawn concern from tax professionals and the IRS.


The IRS went so far as to issue a warning in October 2022 to employers about third parties promoting the availability of the ERC that “often demand large upfront charges or fees that are contingent on the amount of the refund obtained by the employer.”


Tax Pros Ask IRS for Guidance on Employee Retention Credit - Lauren Loricchio, Tax Notes ($): "The groups are seeking guidance on their due diligence in preparing returns when they didn’t prepare the ERC filings; their exposure to Circular 230 or title 26; and the questions they should be asking their clients related to these filings. They also requested guidance on their responsibility when relying on third parties who are not tax professionals but who have prepared ERC filings. And they want to know what to do if they think a client didn’t qualify for the credit or if they discover an improper filing."


IRS Nominee Headed Toward Confirmation, Republicans Say - Cady Stanton, Tax Notes ($):

Daniel Werfel appears likely to be confirmed by the Senate to lead the IRS, but he'll face tough oversight as the agency begins to put $80 billion in new funding into action, according to Finance Committee Republicans.

President Biden’s nominee for IRS commissioner assured Republicans early on in his February 15 Finance Committee nomination hearing that the additional funding for the IRS from the Inflation Reduction Act (IRA, P.L. 117-169) won’t go toward increasing audits on taxpayers making less than $400,000.

IRS Chief Nominee Commits To Improving Customer Service - Asha Glover, Law360 Tx Authority ($). "During his confirmation hearing before the Senate Finance Committee, Daniel Werfel said he has been concerned about gaps in capacity that have impeded the IRS' ability to provide taxpayers with adequate customer service. He added that the agency has also been ill-equipped to handle the complex returns of high-income taxpayers and large corporations."

IRS nominee says agency won’t increase audits of middle-income filers - Jacob Bogage, Washington Post:

The tax provisions of the new law have been a lightning rod for conservatives. Congressional Republicans falsely accused the Biden administration of planning to hire 87,000 armed IRS agents, creating such furor among right-wing extremist groups that IRS leaders ordered a security review of the agency’s 600 facilities nationwide. 

“The notion of armed agents is incorrect,” Werfel said in sworn testimony. “I certainly would have no intention of making that part of any plan going forward.”


MTC Group Weighs Sourcing Partners' Guaranteed Payments - Maria Koklanaris, Law360 Tax Authority ($):

For example, the work group said, unlike distributive share, where the character of the items and the partnership activities determine sourcing, guaranteed payments for services by partners are generally sourced to the location of the partner. So if the MTC goes that route as it prepares more guidance, including a white paper, on the state taxation of partnerships, it will be generally conforming to federal principles.


"The states that address sourcing guaranteed payments take varying approaches, including sourcing where the services are performed, sourcing the same as distributive share, or sourcing with a hybrid approach," noted Jennifer Stosberg, legal division counsel at the MTC. "However, we also found that many states do not have any specific provisions on the sourcing of guaranteed payments."

"Guaranteed payments" is the term for partnership payments to partners for services. The tax law does not allow partners to be W-2 employees of their partnership. When states treat guaranteed payments like other partnership income, the state tax result to the partners can be very different than for employees of the partnership. 


New Taxes, Expiring Breaks to Drive 2023 Surge in Corporate Taxes - Doug Sword, Tax Notes ($):

Corporate income tax collections doubled between 2020 and 2022, and they will rise another $50 billion in 2023 mainly because of the new corporate alternative minimum and stock buyback excise taxes in the Inflation Reduction Act (P.L. 117-169), the CBO said in its revised 10-year budget and economic projections released February 15.

Another driver of this year’s boost in taxes is the less generous treatment for corporate tax breaks — research and development expensing, bonus depreciation, and net interest expensing — because of provisions in the Tax Cuts and Jobs Act.


IRS Issues Applicable Federal Rates (AFR) for March 2023 - Bailey Finney, Eide Bailly. "The Section 382 long-term tax-exempt rate used to compute the loss carryforward limits for corporation ownership changes during March 2023 is 2.92%"

Nearly 50 Jurisdictions Moving On Global Minimum Tax - Kevin Pinner, Law360 Tax Authority ($). "Forty-five jurisdictions have taken steps to enact the global minimum tax plan known as Pillar Two or have publicly announced they're exploring enacting it, according to an Organization for Economic Cooperation and Development official's presentation Wednesday during a conference."

Don't miss these 24 tax deductions that don't require itemizing - Kay Bell, Don't Mess With Taxes. "IRA deduction (line 20): If you have a traditional IRA, you might be able to deduct some or all of your contribution. This Schedule 1 deduction depends on many variables, such as income and workplace retirement plans, both for you and, if you're married and file jointly, your spouse."

IRS Guidance On Federal Taxability Of State Refunds Remains Problematic - Amber Gray-Fenner, Forbes. "It’s almost as if the guidance created more questions than answers."


Lawsuit Challenging IRS Seizure Of Crypto Account Records Is Back In Court - Kelly Phillips Erb, Forbes. "The IRS wasn't sure whether any particular Coinbase customers had failed to properly report income but assumed, based on high rates of cryptocurrency trades, that many taxpayers had failed to report taxable cryptocurrency transactions."

More of the Latest: Digital Asset Reporting for Mr. Taxman @IRS - Virginia La Torre Jeker, Virginia - US Tax Talk. "Just a quick reminder for those who think the IRS does not know about crypto holdings. It is just a matter of time until it does! I’ve seen it all –disgruntled lovers, friends and associates turning into an IRS whistleblower; crypto firms going bankrupt and public listings of creditors including names of the investors who haven’t been tax compliant, the exchange turning over names to the IRS…."


New York, Oregon, and Other States Eye Much Higher Taxes on High Earners - Jared Walczak, Tax Policy Blog. "These states aren’t in financial crisis; their revenues are growing. These tax proposals have been justified as ensuring that the wealthy pay their 'fair share.' An objectively agreed-upon definition of fairness is elusive, as policymakers well know. But there are some observable realities, and one of them is this: plenty of other states are ready to welcome these well-off taxpayers with open arms."

Marriage Costs Black Couples More Than White Couples At Tax Time - Janet Holtzblat, Swati Joshi, and Nora Cahill, TaxVox. "One reason for the link between marriage penalties and kids is that the earned income tax credit (EITC) begins to phase out for married couples at levels that are less than twice the phaseout thresholds for unmarried parents. Thus, the married couple’s combined income may cost them some or all the EITC, compared to what they would receive filing as unmarried."

Some reservations about a land tax - Tyler Cowen, Marginal Revolution, quoting his paywalled Bloomberg column: "One of the arguments for the pure land-value tax is to encourage new construction, thereby making housing more affordable. But it is likely to encourage interventions that increase both the taxes and the political difficulty of new construction. If you think local real estate-related political squabbles are intense today, just think how crazy they will be when all that land-tax revenue is at stake."

The land tax, which first achieved prominence when proposed by Henry George in the 19th Century,  was originally proposed to replace all taxes with a single tax on the unimproved value of land. It is experiencing a mini-boom in policy circles. 


Minnesota attorney charged with employment tax and false return crimes - IRS (defendant name omitted):

According to the indictment, from 2016 through 2019, Defendant owned and operated a law practice... The indictment alleges that Defendant did not file the required Employer's Quarterly Federal Tax Returns (Forms 941) for his law practice or pay over to the IRS the employment taxes withheld from his employees' wages.

The indictment further alleges that, for 2017 through 2019, Defendant knowingly aided in the preparation of his own false individual income tax returns (Forms 1040) by claiming that his law practice withheld federal income taxes from his wages and had paid those withholdings over to the IRS. According to the indictment, as owner and sole shareholder of his law practice, Defendant allegedly knew his law practice had not paid over to the IRS any of the federal income taxes he claimed had been withheld from his wages.

Never "borrow" amounts withheld for taxes for use in your business, or otherwise. It can lead to problems much bigger than repaying the "loan. 


I'm waiting. Today is Do a Grouch a Favor Day!

Expand Full Article

We're Here to Help

We are here to help
From business growth to compliance and digital optimization, Eide Bailly is here to help you thrive and embrace opportunity.
Speak to our specialists