Deadline day. Today is the day 1040s are due, by the grace of the Tax Reform Act of 1954 and the Emancipation Day holiday in Washington, D.C. Of course, nothing has happened in the last 69 years that makes it harder to meet that deadline.
It's not just 1040s:
- Gift tax returns are due today on paper Form 709, unless you extend with paper Form 8892.
- Calendar-year Trust and estate income tax returns are due today on Form 1041, unless extended with Form 8736.
- Calendar-year C corporation returns are due today on Form 1120, unless extended on Form 7004.
- Estimated taxes are due for individuals, trusts and calendar-year C corporations today.
Many states also have returns due today.
How should you file? If you can file electronically, you should. The IRS still struggles to process paper returns, and that can delay your refund by months.
If you must file on paper, document your filing. Certified Mail, Return Receipt Requested, is the standard. Yes, it costs $4.15, but it can more than pay for itself if the IRS asserts a late filing penalty. If you really are a last-minute filer and you get to the post office after it closes, you can use an authorized private delivery service. Be sure you use the right delivery option; for example, UPS Next Day Air qualifies, but UPS Ground does not. Save your shipping documents.
How should you pay? Consider one of the IRS electronic payment options. You can pay individual estimated tax payments on the IRS direct pay website. This is recommended. Otherwise, you put yourself at the mercy of the postal service and the IRS mailroom.
What if you can't pay? It's still best to file or extend anyway. If you fail to file or extend on time and you have less than 90% of your balance due paid in, you pay a 5% for being one day late, plus 5% for each additional month, up to 25%. If you file or extend on time, that comes down to 1/2% per month. Interest applies to any underpayment as well.
Can I pay in installments? Most taxpayers who owe can qualify online for a payment plan. It doesn't make interest or all penalties go away, but it helps.
Need more time to file taxes? It’s easy to get an extension with IRS Free File - IRS. "One of the easiest ways to get an extension is by using the IRS Free File program."
10 last-minute tips to help you file your tax return - Kay Bell, Don't Mess With Taxes. "Similarly, lots of taxpayers end up owing more because of errors on their returns. Don't join this unnecessarily large club. Double check your 1040 to ensure you don't make any of these 10 common tax filing mistakes."
Tax Tips For Last-Minute Filers - Amber Gray-Fenner, Forbes. "National Taxpayer Advocate Erin Collins famously and truthfully stated, “Paper is the IRS’ kryptonite.” It's always best to file electronically when possible, including filing Form 4868 to request an extension of time to file. Remember to save the acknowledgement that your e-filed document was accepted by the IRS for processing."
April 15th: Media Hype and The Audit Myth - Brett Hersh, Overnight Accountant. "I'll also debunk one of the most pervasive myths out there - that filing an extension somehow increases audit risk."
The Last Minute Scramble: What You Need To Know About Filing Your Return On Tax Day - Kelly Phillips Erb, Forbes. "Tax Day can be a real source of stress for taxpayers—and tax professionals. But don’t let it overwhelm you. Do the best you can and follow-up, if necessary. It’s just one day. Breathe."
Tax Pros Cheer ‘Normal’ Filing Season Amid New IRS Funds - Naomi Jagoda, Bloomberg ($):
National Taxpayer Advocate Erin Collins agreed that this year’s filing season is an improvement over the past few years, but said challenges still remain for the agency.
“My concern is the focus on the phones is starting to contribute to a backlog, especially in the business returns, that I’m hoping they get under control before year end,” she said Monday in an interview with Bloomberg Tax.
IRS Spending Plan Will Boost Compliance, Official Says - David van den Berg, Law360 Tax Authority ($). "Voluntary compliance rates will rise under the plan because of its investments in technology that will lead to more correct filings, which will in turn generate more revenue, [Deputy Treasury Secretary] Adeyemo said, speaking at an Urban-Brookings Tax Policy Center conference held in Washington, D.C. and online."
To Get the EV Tax Credit, You Will Now Have to Buy an American Brand - Sean McLain and Andrew Duehren, Wall Street Journal:
Only 16 models are now eligible for a full or partial tax credit, based on new thresholds that require a certain percentage of the battery parts and minerals to come from a qualifying country.
That is down from 25 electric and plug-in models previously and limits the selection to vehicles built by four car companies: Tesla Inc., Ford Motor Co., General Motors Co. and Stellantis NV, which owns Jeep and Chrysler.
A Surprise Change to Guidance on Energy Community Bonus Credits - Marie Sapirie, Tax Notes ($). "The guidance on locating clean energy projects in energy communities (Notice 2023-29, 2023-20 IRB 1), initially released April 4, took an unexpected turn a few days later when the IRS added the words “on or after January 1, 2023,” to the special rule for beginning of construction. It’s a small change, but not a trivial one for taxpayers seeking production tax credits and the energy community bonus for their clean energy projects. The new limitation excludes projects for which construction started before January 1, 2023, from the special rule for beginning of construction, which means that some early movers miss out on the certainty provided by the special rule. Despite the change’s effect on those taxpayers, the IRS did not announce it publicly."
Taxpayers who receive foreign gifts or control certain foreign corporations and partnerships and fail to file required information returns are subject to penalties under IRC §§ 6038 and 6039 (which are in Chapter 61 of the IRC). IRC § 6038 is one of several code sections that require similar filings and provide for similar penalties for taxpayers with various types of foreign corporations, partnerships, assets, and accounts. These Chapter 61 penalties are peculiar in that each section specifically imposes the penalties but provides no authority to assess and collect the penalties. I raised this concern in my 2020 Annual Report to Congress and recommended that the IRS take steps to protect the government fisc and also taxpayer rights by maximizing taxpayers’ access to administrative and judicial review.
Under the IRS’s approach to IRC § 6038, taxpayers assessed a $10,000 penalty must pay the penalty, file a claim for refund, and, if necessary, file a refund suit in the appropriate U.S. district court or the U.S. Court of Federal Claims. As a practical matter, taxpayers make a business decision weighing the cost of representation and legal action in the district court or the U.S. Court of Federal Claims against the cost of conceding and paying the penalty. Such a structure is neither efficient nor equitable for taxpayers and violates their fundamental right to pay no more than the correct amount of tax. This approach is not good for tax administration.
IRS Lacks Statutory Authority to Assess Certain Form 5471 Penalties - Matthew Roberts, Freeman Law. "Under section 6038(b)(1), the IRS can impose civil penalties against taxpayers who fail to file Forms 5471. Generally, the civil penalties are $10,000 per failure to file; however, these civil penalties may be increased to $50,000 if the IRS notifies the taxpayer of the failure to file, and the taxpayer continues not to file a timely and complete Form 5471 by a prescribed period of time. In this latter case, the IRS may impose increased “continuation penalties” of $50,000 in addition to the initial $10,000 civil penalty."
Lawmakers, Unions Eye Tax Code Change to Advance Labor Agenda - Diego Areas Munhoz and Samantha Handler, Bloomberg:
There may also be hurdles for smaller businesses in figuring out what deductions would be disallowed, said Joe Kristan, a tax partner at Eide Bailly LLP based in Iowa.
“Every time you make things this much more complicated, you favor the big players that can put together a tax team that can include people with a labor background,” Kristan said. “How many local preparers can deal with that sort of thing? Very few.”
Bozo Tax Tip #1: Everyone Gets the Employee Retention Credit, Right? - Russ Fox, Taxable Talk. "Yes, not everyone qualifies. And some of these ERC mills will take your money–lots of it–up front and keep it if you don’t qualify! As usual, if it sounds too good to be true it probably is."
Auditors Asked the IRS To Figure Out Why So Many Taxpayers Make Mistakes. The IRS Said 'No.' - Eric Boehm, Reason. "This is a persistent issue for the IRS, but the GAO's audit found that the tax agency 'does not have a process to identify and analyze their underlying causes. This limits IRS's ability to reduce instances of recurring errors and anticipate potential future problems.'"
IRS Provides Safe Harbor Language for Conservation Easement Deeds - Parker Tax Pro Library. "The notice also describes the process donors may use to amend an original eligible easement deed to substitute the safe harbor language for the corresponding language in the original deed and provides that taxpayers have until July 24, 2023, to record their safe harbor deed amendments."
A closer look at IRS guidance on treating NFTs as collectibles - National Association of Tax Professionals. "The IRS’s recent announcement that it would treat certain nonfungible tokens (NFTs) as collectibles ended an ongoing debate about whether gains from the sale of NFTs would be subject to the ordinary capital gains tax or the higher tax on collectibles. The distinction is significant for investors who are weighing whether to invest in NFTs or other digital assets like Bitcoin."
Is that the IRS with your refund? No, it’s a ChatGPT scam - Benjamin Guggenheim, Politico. "When Sergey Shykevich, a threat intelligence manager at the cybersecurity company Check Point Research, prompted ChatGPT to produce an example of a tax scam email containing malware, the AI chatbot spit back a grammatically immaculate email on the Employee Retention Credit that asked the recipient for their Employer Identification Number, payroll information and a list of their employees and their social security numbers."
The Taxman Will Eventually Come for AI, Too - Tyler Cowen, Bloomberg via Washington Post. "Since AIs do not enjoy leisure as humans do, arguably their labor should be taxed at a higher rate than that of humans. Still, AIs shouldn’t be taxed too much. At prohibitively high rates of taxation, AIs will have lower stocks of wealth to invest in improving themselves, which in turn would lower long-run tax revenue from AI labor. Yes, they’re AIs, but incentives still matter."
New Report: Four Ways to Simplify Taxpaying - Adam Michel, Liberty Taxed:
3. Simplify Savings Programs
There are 18 different retirement and education savings accounts, each with its own eligibility rules, income and contribution thresholds, early withdrawal penalties, and employer requirements. These accounts should be consolidated.
Congress should also create a Universal Savings Account. USAs operate like retirement accounts but without restrictions on how you spend the funds. Without withdrawal restrictions, taxpayers, instead of politicians, get to decide how to spend their savings.
Sergeant Bluff Business Owner Sentenced in Federal Court for Tax Evasion - US Department of Justice (Defendant name omitted):
The owner of a Sergeant Bluff, Iowa construction firm was sentenced on Friday, April 14, 2023, to two years in federal prison for his role in tax evasion offenses, including for evading payment of his company’s employment taxes, his personal income taxes, and evading payment of a company’s employment taxes which he kept in the name of another....
During IRS collection proceedings, Defendant accepted responsibility for paying K&L Construction’s outstanding tax balance. Defendant, however, submitted a false form to the IRS that concealed some of his assets... Defendant was found liable, for sentencing purposes, of at least $757,314.74 in tax liability for Circle A Construction. Defendant also willfully evaded paying his personal income taxes for 2014, 2015, and 2016, totaling $667,544 in personal income tax loss.
Defendant was sentenced in Sioux City by United States District Court Chief Judge Leonard T. Strand to 24 months’ imprisonment. He was ordered to make $1,678,722.39 in restitution. He must also serve a 2-year term of supervised release after the prison term. There is no parole in the federal system.
Don't do that. The IRS may not be what it once was, but it still has teeth.
Status: empathetic. It's not only tax day, it's Piñata Day!