April 13, 2023
IRS reminds taxpayers of April estimated tax payment deadline - IRS:
The Internal Revenue Service today reminded people that Tax Day, April 18, is also the deadline for first quarter estimated tax payments for tax year 2023.
These payments are normally made by self-employed individuals, retirees, investors, businesses, corporations and others that do not have taxes withheld or employees that don't have enough taxes withheld by their employers throughout the year.
You don't have to find a stamp:
Form 1040-ES, Estimated Tax for Individuals, includes instructions to help taxpayers figure their estimated taxes. They can also visit IRS.gov/payments to pay electronically.
The best way to make a payment is through IRS online account. There taxpayers can see their payment history, any pending payments and other useful tax information. Taxpayers can make an estimated tax payment by usingIRS Direct Pay; Debit Card, Credit Card or Digital Wallet; or the Treasury Department's Electronic Federal Tax Payment System (EFTPS).
IRS Must Continue Improvements To IT, TIGTA Says - Emlyn Cameron, Law360 Tax Authority ($). "TIGTA said in its report, dated April 6, that the IRS has made progress but needs to make still more IT improvements and continue using advances in technology as part of its efforts to bolster security and operations and update its business systems."
From the report: "Aged information technology hardware infrastructure still in use introduces unnecessary risk that excessive system downtime could occur due to hardware failures. When combined with the fact that components of the infrastructure and systems are interrelated and interdependent, a ripple effect may be caused making outages and failures unpredictable and introduce security risks to taxpayer data that IRS systems must protect."
Maybe we should be more surprised when IRS tech works than when it fails.
Link: Annual Assessment of the Internal Revenue Service Information Technology Program
What Happened When the IRS Got Audited - Ben Cohen, Wall Street Journal:
There were hundreds of IRS applications that have been around for at least 25 years and dozens that have been in existence for more than 50. There were also pieces of software running 15 updates behind the current version. Fifteen! That’s like using a new iPhone with the iOS from the original iPhone.The IRS tends to be risk-averse for cybersecurity reasons, but falling behind on tech is a risk of its own.
Even the most important application used by the IRS requires employees to be fluent in a programming language no longer taught in schools. In fact, there are likely more college graduates these days who can read Latin than write in Cobol. Of course, computer-science majors aren’t going to work in Washington when their talents command huge sums of money across Wall Street and Silicon Valley. But fewer people every year have the niche expertise to keep the agency’s essential systems working properly. That imperils the IRS’s ability to perform its core business: collecting money so the government can pay the bills.
The solution, naturally, is to give the IRS more to do.
Green Tax Credits Are Likely to Be More Popular—and Expensive —Than Expected - Richard Rubin, Wall Street Journal:
Buyers of electric vehicles and clean-energy producers could claim tax credits worth hundreds of billions of dollars more than lawmakers expected when they passed the Inflation Reduction Act, recent estimates from Goldman Sachs Group Inc., researchers at a Brookings Institution conference and the White House Office of Management and Budget suggest.
But the tax-credit boom could undermine another administration talking point about the law: The claim that it will reduce long-run budget deficits. The Goldman and Brookings analyses contend that the tax credits could cost American taxpayers three times as much as the $271 billion forecast when Congress passed the law. The OMB figure points in the same direction, though its estimates about revenue from tougher tax enforcement—which are larger than congressional projections—turn the law from deficit-increasing to deficit-reducing.
IRS Needs 1,200 More Employees to Implement New Energy Incentives - Lauren Loricchio, Tax Notes ($):
In a separate budget document for fiscal 2024, the IRS said it is requesting about $105 million to add 1,221 full-time taxpayer service positions for “climate and clean energy tax credit implementation.”
According to the document, “to fully support the various IRA tax credit provisions, the IRS requires funds above-and-beyond the $500 million provided in IRA to develop or modify forms, instructions, and notifications; conduct taxpayer education and outreach; address increased telephone, correspondence, and face-to-face demands; create processes to allow and track direct payments; and ensure compliance.”
Every employee the IRS has to assign to implement other policy aims is an employee unavailable to actually administer the tax law.
Biden’s Toughest-Ever Car Pollution Curbs to Drive EV Sales - Jennifer Dlouhy, Bloomberg ($). . "The Biden administration proposed to crack down on vehicle pollution with tailpipe emission limits so tough they will effectively compel automakers to ensure two out of every three cars and light trucks sold in 2032 are electric models."
Biden’s EV Plan Needs Transmission Lines That Haven’t Been Built - Will Wade, Bloomberg. "That gives utilities nine years to develop transmission infrastructure across the US, a blistering pace for projects that can take decades to permit and build."
Somehow, I suspect tax credits will be involved.
Woman's FBAR Penalty Reduced To $40K Following Bittner - Theresa Schliep, Law360 Tax Authority ($). "A woman's liability for foreign bank account reporting penalties was reduced to $40,000 from roughly $170,000, citing the U.S. Supreme Court's decision Bittner v. U.S. finding the penalties are assessed on a per-form, rather than per-account, basis, according to a judgment from a Texas federal court Wednesday."
Related: U.S. Supreme Court Decides on Leniency for Non-Willful FBAR Violations alerts.
IRS Obsoletes R&D Ruling From 1950s as Amortization Takes Effect - Lauren Vella, Bloomberg ($):
The IRS on Wednesday obsoleted a decades-old ruling from the 1950s that allowed companies to file an amended tax claim for years they didn’t expense their research and development costs, if they chose to use this method of accounting.
The 2017 Tax Cuts and Jobs Act contained a provision amending Section 174, requiring businesses to amortize their research and development costs over a period of 5 years starting in 2022. Previously, businesses were allowed to expense their R&D expenditures the year they were incurred.
Link: Revenue Ruling 2023-8.
Capitol Hill Recap: Eyes on Next Week - Jay Heflin, Eide Bailly. "The truth is, Congress is not really focused on tax issues right now. Its plate is full with debt ceiling debates and whether to fund the federal government."
As European tax looms, a border fee draws bipartisan focus - Bunjamin Hulac, Roll Call. "In the Senate, Louisiana Republican Bill Cassidy is writing a preliminary bill, expected in a few months, to place a fee on foreign products brought into the country that are made with more pollution than similar American products."
Tax Day is coming. Here are some last-minute tips. - Jacob Bogage, Washington Post. "The IRS estimates that you should receive a refund within three weeks, if you file electronically. You can use the IRS’s “Where’s My Refund” tool to track the status of your refund 24 hours after you file. It could take six months or more if you file by paper."
Crypto Donations to Charity Falter on Fuzzy Rules, Dip in Value - Michael Bologna, Bloomberg. "Taxpayers donating more than $500 of crypto must complete IRS Form 8283, applicable to noncash charitable contributions. Donations of cryptocurrency north of $5,000 require the donor to complete Section B of Form 8283 and provide a qualified appraisal—a requirement that investors donating cash and publicly traded securities can ignore."
The U.S. Cracked a $3.4 Billion Crypto Heist—and Bitcoin’s Anonymity - Robert McMillan, Wall Street Journal. "'If there’s one thing the blockchain does really well, it preserves evidence perfectly,' said Jonathan Levin, a pioneer cryptocurrency sleuth and one of the founders of Chainalysis." In case you think the tax man will never know about your crypto.
July 17, 2023, is deadline to claim $1.5 billion in 2019 tax year refunds - Kay Bell, Don't Mess With Taxes. "Nearly 1.5 million people across the United States are due tax refunds they didn't claim in 2020 by filing a 2019 tax year return. They can get that money, which totals almost $1.5 billion, by filing that old return."
Sign of need for modernization - Getting tax refunds to taxpayers - Annette Nellen, 21st Century Taxation. "Why doesn't the IRS just refund the amount to the taxpayer if based on the W-2 and any other information returns, too much tax was paid? The law doesn't allow this; you have to file a return."
You Still Have Time To Fund An IRA For 2022—Here’s What You Need To Know - Kelly Phillips Erb, Forbes. "To benefit from most tax-favored moves for 2022, like making a charitable contribution or buying new technology for the office, you needed to have taken action by December 31, 2022. But there's a significant exception to that rule: contributing to an IRA. The deadline to contribute to your 2022 IRA is April 18, 2023."
No Stepped-Up Basis for Trust Assets That Were Not Included in Gross Estate - Parker Tax Pro Library. "The IRS ruled that the step-up basis adjustment under Code Sec. 1014 does not apply to the assets of an irrevocable grantor trust not included in the deceased grantor's gross estate for estate tax purposes."
Related: IRS Rules No Stepped Up Basis for Assets in an Irrevocable Grantor Trust.
Taxpayer Wins! Foreign Gift Not Reported: DOJ Concedes he had “Reasonable Cause” - Virginia La Torre Jeker, US Tax Talk. "These penalties amounted to 25 percent of the value of the gifts made in each of those years. The Notices stated that ignorance of the tax laws was not a basis for penalty abatement under the 'reasonable cause' standard and that ordinary business care and prudence require that taxpayers be aware of their tax obligations and file or deposit accordingly."
IRS Strategic Operating Plan Shows Promise, but Concerns Remain - Alex Muresianu, Tax Policy Blog. "Additionally, a report from the Government Accountability Office documents that most of the revenue generated from audits over the last decade has come from returns with income below $200,000. The report also shows that in 2021, for each hour spent auditing returns with income below $25,000, the IRS recommended an average additional tax liability of $2,120. And for each hour spent auditing Earned Income Tax Credit returns, the IRS recommended an average additional tax liability of $3,130."
The IRS Thinks Big About How To Spend $80 Billion - Janet Holtzblatt, TaxVox. "I very much want the IRS to succeed. What worries me is that its plan is dependent on their ability to hire and retain high-skilled certified public accountants and tax lawyers to handle complicated audits, as well as the computer scientists who can update and transform the IRS’s technological infrastructure."
Bozo Tax Tip #2: Cash Isn’t Taxable - Russ Fox, Taxable Talk:
Everything went smoothly, and an hour or so later his returns were complete and electronically filed, he had his copies of the returns, and the Bozo festivities (unknowingly to me) were about to begin.
He asked me if I’d take cash. “Sure,” I replied.
The client then handed me an amount exactly 10% less than the amount of the invoice. “This way you don’t have to report it—after all, it’s cash so there won’t be any record.”
Every time someone insists on being paid in cash, a potential IRS informant gets its wings.
Tax Court Disallows Premature Business Loss Deduction - Mary Katherine Browne, The Hill. "The Tax Court disallowed a business loss deduction claimed by a couple who wrote a check in December 2012 that wasn’t received or cashed by the government until March 2013 because it was claimed for the wrong tax year."
The check related to a settlement of a regulatory dispute with the government. Judge Holmes explains the timing (taxpayer names omitted):
The Taxpayers did not themselves deliver the check to the government at the end of 2012. They instead gave it to their lawyer to deliver to the government when the settlement was finally approved. (And one might, though the parties don't, question whether the Taxpayers owed anything under the settlement at all before it was finally approved.) Their lawyer delivered the check to the United States only on March 18, 2013. A copy of the United States's payment record confirms that this is the date that the check was received. That check was not cashed by the United States (i.e., actually paid) until March 22, 2013 — after the DOJ reviewed and approved the agreement.
The opinion notes that the taxpayers involved are cash-method taxpayers, so the timing of the payment is critical:
But the Taxpayers argue that under Oklahoma law a payment is made when there is a tender of payment. They purchased a cashier's check and delivered it to their attorney in the case who then offered to give it to the Assistant U.S. Attorney who worked the case. He said that he could not hold the check since the settlement agreement had not been approved. The Taxpayers argue that under Oklahoma law, this uncontested sequence of events is a tender of payment.
Judge Holmes says Oklahoma rules are not OK here, and that under federal law, delivering a cashiers check to their attorney isn't the same as delivering it to the government.
The moral? When you are a cash basis taxpayer - as most of us are - you need to be careful when making year-end payments. For many expenses, a check mailed by year end (watch the postmark!) works. Letting your attorney sit on a check for a few months, maybe not.
Take a tree to lunch. It's International Plant Appreciation 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.