Tax News & Views Busy Muffin Roundup

IRS Website Usage Up From a Year Ago Early in Filing Season - Cady Stanton, Tax Notes ($):

Web usage is up 6 percent two weeks into filing season, according to cumulative statistics comparing the last filing season through February 10, 2023, with this season through February 9. The IRS has touted an improved “Where’s My Refund?” tool and updates to paperless processing allowing taxpayers to digitally submit correspondence, nontax forms, and responses to notices for the 2024 filing season.

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The cumulative statistics, updated February 16, largely show a decline in the number of returns received, returns processed, and refunds issued compared with the same dates in 2023, but the IRS said the timing difference means filing season is still on track.

“Considering the loss of 7 days in this comparison, filing season statistics below show a strong start to filing season 2024, with all systems running well,” the agency wrote on its website above the data.

IRS Is Closed On Presidents Day, But Holiday Ushers In Historically Busy Time - Kelly Phillips Erb, Forbes ($). "If you haven't clicked over to the IRS website in a while, you might be surprised. Most taxpayers are already familiar with some of the online capabilities, like e-filing (according to the IRS, 98% of taxpayers e-file their returns) and Where's My Refund? But thanks to additional funding from the Inflation Reduction Act, the IRS has expanded its online offerings. Notably, if you have a tax ID number such as a Social Security number or Individual Taxpayer Identification Number (ITIN), you can create an IRS Online Account and access some of your tax information immediately online. That includes viewing your balance and payment history, making a payment, or signing up for a payment plan. You can also access your tax records, including your Adjusted Gross Income, from your most recently filed tax return."

Werfel Updates Congress on Pandemic-Era Credit - Naomi Jagoda, Bloomberg ($):

The House has now joined the Senate on recess until late February, but just before leaving tax writers questioned IRS Commissioner Danny Werfel for several hours.

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On the ERC, Werfel said the IRS is still receiving thousands of claims each week, even after the agency paused processing of new claims in September because of concerns about fraud in the pandemic-era program.

“The inventory is growing,” Werfel said, adding that the IRS is processing 1,000 to 2,000 claims a week and has paid out about $1 billion of the claims.

For reference, the IRS was backlogged by about 600,000 ERC claims when it announced its moratorium on processing new claims. Meanwhile, new claims continue to pour in. In other words, if you have a claim pending, expect a wait.

IRS commits to making Child Tax Credit changes quickly - Michael Cohn, Accounting Today:

The Internal Revenue Service would be able to implement changes to the Child Tax Credit within weeks, IRS Commissioner Danny Werfel told Congress, and send out tax refunds promptly.

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"We gave you a range of six to 12 weeks required for implementation from the point of enactment," Werfel responded. "The reason we give a range is because we need to see the final language. But I'm committed to work diligently to make sure we're closer to the six-week end of that range than the 12-week."

State News

Washington Legislature Won't Consider Initiative to End Capital Gains Tax - Paul Jones, Tax Notes ($). "The legislative leaders' comments mean the fate of the 7 percent capital gains tax — approved by Democrats and Gov. Jay Inslee (D) in 2021 and levied on the amount of Washingtonians’ annual long-term capital gains that exceed $250,000 (with exceptions, such as for gains from many kinds of sales of small businesses) — will be decided by voters in November. Under Washington law, legislative initiatives like I-2109, after being qualified via signature-gathering, are first submitted to lawmakers, and if not approved by them, go to voters." 

Governor’s income tax cut bill moves forward, but other proposals still in play - Robin Opsahl, Iowa Capital Dispatch. "Gov. Kim Reynolds’ proposal would retroactively take Iowa’s current 5.7% individual income tax rate to 3.65% in 2024, with another drop to 3.5% in 2025. Additionally, the legislation lowers property taxes for commercial child care providers and makes changes to Iowa’s unemployment insurance system."

Tackling the 1040

I’m the WSJ’s Tax Columnist. Here’s How I Tackle My Own Taxes. - Laura Saunders, Wall Street Journal:

Yet I’m scrupulous with records that could matter for this year or in the future. One of the best ways to win an argument with the IRS is to have what the agency calls “contemporaneous records”—i.e. ones you didn’t reconstruct years later.  

This means our receipts for donations of gently used clothing—always less than $250, so we don’t need notes from the charities—are detailed and dated. Records of eligible home improvements go in another folder.

If You Resold the Hottest Ticket of Summer 2023, You Likely Didn’t Receive a Form 1099-K – But This Won’t Last Forever & Always - Erin Collins, NTA Blog. "In 2021, Congress passed the American Rescue Plan Act of 2021 (ARPA), which substantially lowered the filing threshold in IRC § 6050W(e) for issuing Form 1099-K from a total amount exceeding $20,000 from over 200 transactions to gross payments exceeding $600 with no minimum transaction requirement. The IRS delayed implementation of this rule in 2022 and again in 2023. However, this reporting delay is temporary, as the IRS plans on using a phased-in approach starting in 2024. However, whether you receive a Form 1099-K or not, the income from the sales of goods or services is taxable, and you will need to include it on your tax return."

Making Money on I Bonds Was Easy. The Tax Paperwork Isn’t. - Ashlea Ebeling, Wall Street Journal. "For those who bought I bonds for the first time or just need a quick reminder, know this: All that interest income is taxable as regular income. If you cashed in, you need to report the interest on your tax return even if finding a 1099 for I bonds is more complicated than other investments."

Blogs and bits

Signs you should consider withdrawing your employee retention tax credit claim - Kay Bell, Don't Mess With Taxes:

1. Too many quarters being claimed.
2. Government orders that don't qualify.
3. Too many employees and wrong calculations.
4. Business citing supply chain issues.
5. Business claiming ERC for too much of a tax period.
6. Business didn't pay wages or didn't exist during eligibility period.
7. Promoter says there's nothing to lose.

Related: IRS Launches Voluntary ERC Repayment Program with March 22, 2024 deadline.

Money in College Savings Accounts Can Now Go Toward Retirement - Ann Carrns, New York Times. "New rules under the federal law known as Secure 2.0 allow up to $35,000 in a 529 account to be rolled over to a Roth individual retirement account for the beneficiary of the 529 account if certain conditions are met."

A Reminder for Charities and Officers in Charities - Russ Fox, Taxable Talk. "Charities are defined in Section 501(c)(3) of the Tax Code. It seems quite timely to remind everyone that one of the things charities cannot do is endorse a candidate."

Related: How to Protect your Tax-Exempt Status.

Tax Court Sides with Taxpayer: Transfers Between S Corps Were Not Debt Transactions - Parker Tax Pro Library. "The Tax Court held that transfers and payments made by one S corporation to another S corporation (both of which were wholly owned by a taxpayer) were constructive distributions rather than debt transactions, and thus the taxpayer had adequate basis in the S corporation that received the transfers and payments to claim flowthrough losses from it."

Are Pet Expenses Tax-Deductible? - Thomas Gorczynski, Tom Talks Taxes. "Is a non-farm deduction allowed for animal expenses? Yes, depending on the facts and circumstances; however, it will be relatively uncommon."

How Are Remote and Hybrid Workers Taxed? - Noah Peterson, Tax Policy Blog:

Five states tax people where their employer’s office is located, even if they work remotely and never set foot in the state. This is called the “convenience of the employer” rule, and Connecticut, Delaware, Nebraska, New York, and Pennsylvania have it, though they differ on the details.

If your employer is based in one of these states, but you’re working elsewhere for your convenience (not because your employer requires it), then you might pay income taxes both in the state where you live and work and in the state where your employer is based, without an offsetting credit.

Conservation Easements Still Cause Consternation - Renu Zaretsky, TaxVox:

TPC’s Adam Looney is among those who have argued that the tax break costs far too much in revenue compared to the environmental benefits it creates. Looney also noted that the tax breaks can be used for easements on donated land with lower conservation value. 

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Looney’s 2017 analysis reveals another confounding policy challenge presented by conservation easements. For example, data from 2010-12 showed that 36 percent of all conservation easement deductions were taken by taxpayers in Georgia. But Georgia is home to only 1.5 percent of conserved land, per the Land Trust Alliance. Looney also calculated that 25 organizations (out of about 1,700 land trusts in the US) “received about half of all donations of easements, measured in dollar value.”

Perhaps coincidentally, two promoters of syndicated conservation easements who recently received long prison sentences for their work were based in Georgia.

Crime and the Courts, Mailbox Department

Conspirators In $3M IRS Refund Check Theft Get Prison Terms - Peter McGuire, Law360 Tax Authority ($). Recently the Wall Street Journal carried a contrarian piece urging taxpayers to forego e-filing, and instead file paper returns. The piece cited security concerns from e-filing. Astute readers always ask: compared to what? My emphasis:

According to a superseding indictment, the conspiracy began in November 2021 and continued through April 2022. The conspirators stole federal tax refund checks, sometimes from the U.S. Mail, used forged documents to open bank accounts and endorse the checks, then withdrew the money by writing checks to other fraudulent accounts, according to the indictment.

The U.S. Attorney press release on the case has more (defendant names omitted):

In approximately January 2022, authorities learned of a Houston couple who never received their $2,932,446.84 IRS refund check they were expecting in the mail.

The investigation revealed defendants had used fake IDs with the victims’ names, dates of birth and Social Security numbers to open accounts at Regions Bank on various dates in January 2022

On April 13, 2022, authorities arrested Defendant 1 as he was driving a stolen Lamborghini. At that time, he possessed two debit cards for fraudulently-created accounts that were used to receive the proceeds of the aforementioned refund check. These accounts were opened with stolen identities of others to launder the proceeds of the nearly $3 million check.

The moral? The taxpayers who were victimized would have been able to save a lot of hassle for themselves by e-filing, with direct deposit of the refund.

What Day is It?

I vote yes. It's National Muffin Day!