March 8, 2023
IRS issues renewed warning on Employee Retention Credit claims; false claims generate compliance risk for people and businesses claiming credit improperly - IRS (my emphasis):
The IRS and tax professionals continue to see third parties aggressively promoting these ERC schemes on radio and online. These promoters charge large upfront fees or a fee that is contingent on the amount of the refund. And the promoters may not inform taxpayers that wage deductions claimed on the business' federal income tax return must be reduced by the amount of the credit.
"While this is a legitimate credit that has provided a financial lifeline to millions of businesses, there continue to be promoters who aggressively mislead people and businesses into thinking they can claim these credits," said Acting IRS Commissioner Doug O'Donnell. "Anyone who is considering claiming this credit needs to carefully review the guidelines. If the tax professional they're using raises questions about the accuracy of the Employee Retention Credit claim, people should listen to their advice. The IRS is actively auditing and conducting criminal investigations related to these false claims. People need to think twice before claiming this."
The IRS also issued a warning to tax pros about ERC claims by email (no link available):
If a practitioner has reason to believe that a client’s excessive ERC claim is owing to the client’s reliance on erroneous or improper advice from another practitioner, tax return preparer, or other third party, the practitioner should, consistent with Circular 230 and the guidance above, advise the client of the overstated claim and any additional tax and penalties that could apply and, if requested, competently assist the client in correcting or mitigating the problem. The practitioner should also consider informing the client of the opportunity to file a complaint about the other adviser using Form 14242, Report Suspected Abusive Tax Promotions or Preparers.
Expect the IRS to work through the client lists of disreputable ERC consultants to claw back improper credits, with penalties and interest.
IRS Clarifies Required Minimum Distribution Reporting Rules - Caitlin Mullaney, Tax Notes ($):
Notice 2023-23, 2023-13 IRB 1, issued March 7, provides necessary reporting form deadlines for financial institutions that maintain retirement accounts and must provide RMDs for 2023.
The notice explains that financial institutions must provide IRA account holders with statements by the end of January informing the owner of the required distribution date and an option for determining the amount. A statement shouldn’t be sent to account holders who will turn 72 during 2023, it says.
Related: Omnibus Bill Brings Expanded Changes for Retirement Savings.
Wyden Pushes Renters Tax Credit, Expanded Housing Credit - Asha Glover, Law360 Tax Authority ($). "The Decent, Affordable, Safe Housing for All Act, or DASH Act, would establish a renters tax credit for property owners who rent to eligible tenants with incomes at or below 30% of area median income, according to the bill's section-by-section summary. The refundable credit would be equal to 110%"
Related: Senate Tax Chief Intro’s Housing Tax Bill
Biden Budget Would Raise Taxes on Wealthy to Save Medicare - Alexander Rifaat, Tax Notes ($). "In a preview of the White House budget slated to be released in the coming days, the Biden administration unveiled March 7 that it will seek to raise the Medicare tax rate from 3.8 percent to 5 percent on earned and unearned income over $400,000."
Biden Eyes Higher Medicare Taxes On Wealthy - Stephen Cooper, Law360 Tax Authority ($). "The U.S. Department of the Treasury could unveil the so-called Green Book as early as Thursday with details of the tax proposals in the president's fiscal 2024 budget. A Treasury spokesperson did not immediately answer a request for details on the upcoming release."
Tax Increases in Biden Budget Unlikely to Become Law - Jay Heflin, Eide Bailly. "Republicans control the House of Representatives and are highly unlikely to approve legislation that includes Biden’s tax increases. Without passage in the House, legislation cannot become law."
Senate to Vote on Werfel Today - Alex Clearfield and Samantha Handler, Bloomberg ($): "Barring the unexpected, Werfel is on track to easily clear the majority threshold needed."
Utah Legislature Passes Tax Cut Bills - Paul Jones, Tax Notes ($):
The main tax cut bill, H.B. 54, now heads to Gov. Spencer Cox (R), who is expected to sign it. In a March 3 release noting the close of the state's 2023 legislative session, Cox lauded the tax cut along with other bills approved by the Legislature.
Lawmakers approved “massive tax cuts, including slashing the income tax from 4.85 percent to 4.65 percent, rolling back Social Security taxes, and providing a double tax exemption for pregnant women,” according to the release.
West Virginia Enacts Tax Cut, Property Tax Rebates - Benjamin Valdez, Tax Notes ($).
West Virginia Gov. Jim Justice (R) has approved legislation that cuts the personal income tax and provides rebates for the business inventory tax.
Justice on March 7 signed H.B. 2526, which cuts the tax rate for each personal income tax bracket, retroactive to January 1.
DOJ Agrees to Settle EcoVest Easement Promoter Lawsuit - Kristen Parillo, Tax Notes. "The settlement will end the promoter injunction lawsuit that the Justice Department filed in December 2018 against Atlanta-based real estate investment company EcoVest, three of its officers, and appraiser Clark. The government alleged that the defendants had promoted or sold ownership interests in a conservation easement syndication scheme that ;amounts to nothing more than a thinly veiled sale of grossly overvalued federal tax deductions under the guise of investing in a partnership.'"
Related: Partial Victory for Syndicated Conservation Easements in U.S. Tax Court alerts.
Big Companies Seeing Tax Benefits From Law Change Some of Them Fought - Richard Rubin and Jennifer Williams-Alvarez, Wall Street Journal:
The provision requires companies to spread their deductions for research expenses over at least five years instead of writing them off immediately. As a result, many companies, particularly manufacturers and defense contractors, are facing higher tax bills now.
But there is a counterintuitive benefit for some companies—including Qualcomm Inc., Alphabet Inc., Pfizer Inc., Moderna Inc. and Meta Platforms Inc. —that derive domestic profit from overseas sales, according to securities filings. Those companies now qualify for a bigger tax break for exports because of the way the research-deduction change alters their tax calculations.
Related: Eide Bailly International Tax Services
Taxes for Cryptocurrency Investors - Laura Saunders, Wall Street Journal. "If crypto is used to make a purchase—even of a sandwich—then the transaction typically generates a taxable sale that the buyer must report to the IRS."
Bipartisan group of Senators seeks return of Form 1040 direct charitable tax deduction - Kay Bell, Don't Mess With Taxes. "Charitable giving, which must be claimed as an itemized deduction, has dropped."
Check Those Beneficiary Designations - Kristine Tidgren, Ag Docket. "A recent case from the Iowa Supreme Court highlights the importance of carefully completing and reviewing beneficiary designations for IRAs and other retirement accounts. After acknowledging that there was 'puzzling language' in the beneficiary designation before it, the Court ultimately determined that it must enforce the agreement based upon what it said, not based upon what the owner may have intended."
Tax Court Denies Attorney’s Racing Car Costs Claimed To Be Advertising Expenses For Legal Practice - Leslie Book, Procedurally Taxing. "This case joins one of my favorites in my tax class, Henry v Commissioner, which Paul Caron blogged about a couple of years ago. In that case an accountant attempted to deduct insurance and maintenance cost from his purchase of a yacht on which he flew a red, white, and blue pennant with the numerals ‘1040‘ on it. Henry, like Avery, failed to provide enough evidence to sustain the connection between obtaining clients for his accounting practice and his yachting, and the Tax Court disallowed those expenses as personal nondeductible expenses under Section 262."
Related: Fast-Driving Attorney Goes Off-Track in Tax Court.
Competing for residents rather than businesses - Tyler Cowen, Marginal Revolution. Quoting his Bloomberg column ($). " If Amazon stiffs Northern Virginia, future politicians elsewhere may be less eager to promise tax breaks and infrastructure investments, not to mention spend their reputational capital. Politically speaking, it will be harder for urban and suburban leaders to rise to the top by attracting a new major corporate tenants."
Testimony: Tax Policy’s Role in Expanding Affordable Housing - Garrett Watson, Tax Policy Blog. "Second, it is important to evaluate LIHTC’s broader policy effectiveness before considering options to expand LIHTC. One area of concern is how much of the LIHTC’s benefit goes to low-income households. Several studies have found that between one-third and three-quarters of the subsidy provided by LIHTC go to low-income households, with the rest accumulates to other stakeholders such as developers and investors."
'You're just guilty': IRS still wants tax money from Iowa couple stuck in CA unemployment scam - James Stratton, KCCI:
KCCI Investigates first introduced you to Steven and Gloria Clark last summer. Then, the couple was on the hook for almost $3,800 for taxes on $30,9000 of California unemployment money that was used in Steven's name. The state of California also wanted its share of taxes and hadn't recognized that Steven's identity was fraudulently used.
"It was kind of shocking," Clark said in July. "Because I've never been to California."
Fast forward a few months later, and the state of California did recognize the scam and sent the Clarks a 10-99G tax form showing a zero-dollar balance. However, the IRS has not recognized it, and the Clarks still have an almost $3,800 federal bill.
First, just because the IRS says you owe money doesn't mean you do. Don't ignore IRS notices, but don't just assume they are correct.
Second, ID theft is painful. Sometimes it just happens, but ID thieves often take advantage of carelessness. Protect your identity. Don't send your Social Security Number in an email. Don't send emails with W-2s or other tax documents as attachments. Use secure portals if you need to transmit such items.
East Moline man sentenced to 310 days in prison for willful failure to file income tax returns - IRS (Defendant name omitted):
Defendant... was sentenced on March 7, 2023, to 310 days in prison, to be followed by a 1-year term of supervised release, for willful failure to file income tax returns. He was also ordered to pay $181,033 in restitution to the Internal Revenue Service.
During the sentencing hearing, United States Magistrate Judge Jonathan E. Hawley considered evidence that Defendant owned his own furniture delivery business, and that the business generated substantial income from 2016 through 2020. Despite earning income well above the minimum amount requiring that a tax return be filed, Defendant failed to file tax returns for the tax years 2016 through 2020. As a result, Defendant failed to pay approximately $181,033 in taxes owed to the United States.
As the tax deadline approaches, we can look forward to a flurry of IRS announcements of tax indictments, convictions, and sentencings, to encourage the rest of us.
Holi Typo, Batman! Today is both National Proofreading Day and the first day of Holi, the Hindu festival of colors. No contest which holiday has better food.
This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.