Tax News & Views The Ides Of September Roundup

IRS Stops New Pandemic-era Tax Credit Claims to Curb Scams - Erin Slowey, Bloomberg ($):

The IRS will immediately stop processing new claims for the pandemic-era employee retention tax credit at least through the end of the year in an effort to combat fraud.

The ERC is a refundable tax credit designed to encourage companies to keep employees on their payroll. The relief was passed as part of the CARES Act 2020 to help US businesses and employees stay afloat during the pandemic.

But there has been a boom of third-party companies creating aggressive marketing campaigns to con taxpayers into claiming relief they don’t qualify for.

I.R.S. Freezes Pandemic-Era Tax Credit Amid Fraud Fears – Alan Rappeport, New York Times:

The tax collector also said that it had referred thousands of claims for the so-called Employee Retention Credit for audits and had initiated over 250 criminal investigations involving nearly $3 billion in potentially fraudulent claims.

The moratorium on new claims underscores the high level of alarm within the I.R.S. that the tax credit has been misused and abused.

IRS Hits Brakes on Processing ERC Claims Through End of the Year – Jonathan Curry, Tax Notes ($). “The moratorium begins today and is set to run through at least December 31, the IRS said in an announcement.”

‘The further we get from the pandemic, the further we see the good intentions of this important program abused,’ IRS Commissioner Daniel Werfel said in a statement. ‘The continued aggressive marketing of these schemes is harming well-meaning businesses and delaying the payment of legitimate claims, which makes it harder to run the rest of the tax system. This harms all taxpayers, not just ERC applicants.’

IRS Shuts Door on New Pandemic Tax Credit Claims Until at Least 2024 – Richard Rubin, Wall Street Journal ($):

The Internal Revenue Service made its biggest moves yet to stop what officials say is a wave of fraudulent and overstated claims for a pandemic-era tax break, including an immediate halt to processing new refund requests.

New claims for the employee retention credit, or ERC, won’t be processed until at least 2024, the IRS announced Thursday. The tax agency also plans to give tougher scrutiny to an existing queue of more than 600,000 requests. The IRS will allow employers with pending claims to withdraw them and will let many repay their refunds if they no longer think they qualify. 

Graph from article:

IRS Pauses Processing of New ERC Claims – Joe Kristan, Eide Bailly. "The IRS issued an additional press release, Red flags for Employee Retention Credit claims; IRS reminds businesses to watch out for warning signs of aggressive promotion that can mislead people into making improper ERC claims. It has important information on ERC scams, including this list of warning signs:"

-Unsolicited calls or advertisements mentioning an "easy application process."
-Statements that the promoter or company can determine ERC eligibility within minutes.
-Large upfront fees to claim the credit.
-Fees based on a percentage of the refund amount of Employee Retention Credit claimed. This is a similar warning sign for average taxpayers, who should always avoid a tax preparer basing their fee on the size of the refund.
-Preparers seeking anonymity by refusing to sign the ERC return being filed by the business as well as supplying their identifying information and a tax identification number. Similar to "ghost preparers," this limits the risk to just the taxpayer claiming the credit.
-Aggressive claims from the promoter that the business receiving the solicitation qualifies before any discussion of the group's tax situation. In reality, the Employee Retention Credit is a complex credit that requires careful review before applying.

The IRS announcement is here.

IRS Falls Short on Some Filing Season Goals, Watchdog Says - Erin Slowey, Bloomberg ($):

The Biden administration’s Inflation Reduction Act set aside tens of billions of dollars to help modernize the historically underfunded Internal Revenue Service. Yellen laid out five expectations for the IRS in a speech to agency employees in September 2022.

IRS did not achieve Yellen’s goals of fully resolving the remaining backlog of tax returns, fully staffing its Taxpayer Assistance Centers, and scanning millions of individual paper returns, TIGTA said.

Yellen’s Digitalization Push Accelerated IRS’s Scanning Rollout – Jonathan Curry, Tax Notes ($):

The IRS did hit its goals of enabling taxpayers to upload documents electronically through its document upload tool and of meeting an 85 percent level of service on its phone lines, averaging 85.23 percent, although TIGTA noted that the measurement doesn't include all the agency's phone lines.

For the former, the IRS beat its own expectations. The original goal was for the agency to make it possible to upload documents in response to seven types of notices by the start of the filing season, but it one-upped itself and managed to make the tool capable of taking taxpayer responses to nine of the highest-volume notices.

The report is here.

IRS Could Improve FOIA-Requested Document Releases, TIGTA Says - Caleb Harshberger, Bloomberg ($):

The IRS should improve its processes to better tackle Freedom of Information Act requests and when it should redact or release information, the Treasury Inspector General for Tax Administration said in a report released Thursday.

TIGTA found IRS staff improperly redacted or released information subject to a FOIA request in 22% of cases out of a statistical sample of responses—a 6% increase in the error rate from last year’s analysis.

The report is here. 

Software-Issued Tax Penalty Valid Without IRS Supervisor Signoff - Jeffery Leon, Bloomberg ($):

Tax penalties assessed on a trucking company by an IRS wage-reporting computer program don’t require supervisory approval to take effect, the US Tax Court held in a precedent-setting opinion.

The 'combined annual wage reporting' program is used by the agency to assess tax code Section 6721(e) penalties on small businesses that fail to file tax forms Forms W-2 and W-3 with the Social Security Administration. After two warnings, taxpayers are referred to the IRS, which uses CAWR to send a Letter 98C that asserts the penalty.

McCarthy Dares Hardliners to Oust Him as Shutdown Fight Rages - Laura Litvan and Erik Wasson, Bloomberg ($):

House Speaker Kevin McCarthy, thwarted by hardliners from passing measures to fund the government and frustrated by their shutdown demands, dared conservative dissidents to try to oust him.

‘The speaker said, look if you want to make a motion to vacate the chair, bring it on,’ Republican Representative Darrell Issa, a McCarthy ally, told reporters Thursday, using a parliamentary term for removing the speaker as he described McCarthy’s comments.

Passing business-oriented tax measures this year is not a top priority for lawmakers, but a partial shutdown of the federal government would likely put the kibosh on Congress passing such legislation until 2025. 

Capitol Hill Recap: Few Focused on Tax Legislation – Jay Heflin, Eide Bailly:

Passing tax legislation that includes R&D expensing, expanding the 163(j)-interest deduction, and upping Bonus Deprecation to 100% has always been a long shot. If a partial shutdown occurs, passage becomes a longer shot.

Important to note: There is a saying on Capitol Hill that every bill is DOA until it passes. The tax bill is definitely in the DOA category. If it will rise from the dead remains to be seen, but past pieces of legislation with worse prospects for passage have become law. Stay tuned.

Also, the impeachment inquiry into President Biden does not help in passing any piece of legislation.

Senate, House Backers Try to Push 163(j) Relief Into Limelight – Doug Sword, Tax Notes ($):

A September 14 briefing on why Congress should roll back 2022’s tightening of net interest expensing featured one of the Senate’s most successful crafters of bipartisan legislation — Kyrsten Sinema, I-Ariz. — alongside Sen. Shelly Moore Capito, R-W.Va. The two teamed up earlier this year to introduce the American Investment in Manufacturing (AIM) Act (S. 1232), which would reverse a Tax Cuts and Jobs Act provision limiting net interest write-offs to 30 percent of earnings before interest, taxes, depreciation, and amortization.

It wasn’t a coincidence that Sinema and Capito were at an event pushing the issue the day after the House Small Business Subcommittee on Economic Growth, Tax, and Capital Access held a hearing focused largely on section 163(j), Capito said. ‘We’ve been working with the House to try to get a coalition going,’ she said.

Reality check: Neither Sinema or Capito sit on the tax-writing Senate Finance Committee. Tax bills must start in the House. "[T]o try to get a coalition going” means a coalition is currently not going. And the House Small Business Subcommittee does not have jurisdiction over taxes. 

SALT, FairTax, Booze, and Racehorses Highlight W&M Member Day – Doug Sword, Tax Notes ($):

Welcome to Member Day, a long-standing tradition of the House taxwriting committee, when House members can pitch their pet tax, trade, and healthcare proposals.

Thirty members took the opportunity to make their pitches at a three-hour-plus hearing September 14, with proposals including obscure tax breaks for liquor, a tree-planting tax credit, and education savings plans for pilots and airline mechanics, as well as the broader issues of SALT relief and a national sales tax.

Important to note: Just because a provision is mentioned doesn’t mean the Committee will add it to legislation and pass it.

Tim Scott praises the ‘Laffer Curve’ as he vows to make Trump-era tax cuts permanent – Kevin Breuninger, CNBC:

Sen. Tim Scott, R-S.C., on Thursday advocated for cutting taxes and slashing government spending, including targeting welfare programs, as part of his presidential campaign’s new economic plan…

‘I believe the Laffer Curve still works, frankly,’ Scott said.

He was referring to conservative economist Art Laffer’s controversial theory that helped popularize the view that cutting taxes will unleash enough additional economic activity to generate an increase in tax revenue.

The Laffer Curve is definitely controversial, even among Republicans.

Scott is running for president. His plan is here.

Bill to Boost Taiwan-US Chip Investment Moves to Senate Floor - Chris Cioffi, Bloomberg ($):

Legislation providing treaty-like benefits between the US and Taiwan sailed through a Senate committee Thursday, as Washington seeks to woo Taipei’s producers of high-tech products to US shores without angering China.

All 27 Senate Finance Committee members voted to send the bill, which would end double taxation for firms doing business in Taiwan and the US, to the Senate floor. The legislation proposes making the changes through the tax code instead of by a tax treaty because the island democracy isn’t recognized by the US as a sovereign nation. China has claimed it as its own territory.

The odds are likely that Congress will pass this bill - as long as nothing is added to it that is divisive.

From the “It was Only a Matter of Time” file:

Ken Griffin Subpoenas ProPublica Over Secret Tax Returns Leak - David Voreacos, Bloomberg ($):

Hedge fund billionaire Ken Griffin has subpoenaed ProPublica and five of its journalists for documents related to the publication of reports that detailed his secret tax return information.

The Citadel founder requested the information last month as part of his lawsuit against the Internal Revenue Service, according to a filing Tuesday in federal court in Miami. Griffin claims in the suit that the IRS failed to establish 'appropriate administrative, technical, and/or physical safeguards' to protect his private data.

ProPublica has made public tons of private taxpayer information that supposedly came from the IRS. D.C. tax folks have been wondering when a lawsuit would surface.

Happy, Happy, HAPPY National Double Cheeseburger Day! Bring it on!