Tax News & Views Chocolate Chips are No Scam Roundup

Joe Kristan
May 15, 2024
Bing Copilot DALL-E 3 image of chocolate chip cookies on a well-lit kitchen counter.

Key Takeaways

  • Today is the deadline for calendar-year 2023 exempt organization filings.
  • IRS warns of bad advice on fuel tax, family leave, and household employee credits.
  • Import tax boost.
  • Employee retention credit auditors "digging deep."
  • Tennessee franchise tax refund claim opportunity.
  • Tax Court puts Wisconsin anesthesiologist's exemption claim to sleep.
  • Utah man gets 29 months for ERC fraud.
  • Celebrating chocolate chips and numeracy.

It's a Deadline! Calendar-year exempt organization returns are due today. File or extend those Forms 990 and 990-PF. E-filing is best, and likely is mandatory. Extensions may be obtained automatically via Form 8868.

Related: Eide Bailly Exempt Organization Tax Services.


IRS warns taxpayers they may be scam victims if they filed for big refunds; misleading advice leads to false claims for Fuel Tax Credit, Sick and Family Leave Credit, household employment taxes - IRS:

The Internal Revenue Service issued a consumer alert today following ongoing concerns about a series of tax scams and inaccurate social media advice that led thousands of taxpayers to file inflated refund claims during the past tax season.

The IRS warned taxpayers not to fall for these scams centered around the Fuel Tax Credit, the Sick and Family Leave Credit and household employment taxes. The IRS has seen thousands of dubious claims come in where it appears taxpayers are claiming credits for which they are not eligible, leading to refunds being delayed and the need for taxpayers to show they have legitimate documentation to support these claims.

The IRS continues to urge taxpayers to avoid these scams as myths continue to persist that these are ways to obtain a huge refund. Many of these scams were highlighted during this spring’s annual Dirty Dozen series, including the Fuel Tax Credit scam, bad social media advice and “ghost preparers.”

Not everyone on TikTok or Facebook is necessarily telling you the straight story, believe it or not.

IRS holding refunds of filers who made false tax credit claims - Kay Bell, Don't Mess With Taxes. "While the IRS sorts through these questionable claims, those taxpayers aren’t going to see any refund money. Not even that amount unconnected to the questionable credit claims."


Import Tax News

Biden Hits Chinese Electric Vehicles, Chips and Other Goods With Higher Tariffs - Jim Tankersley and Alan Rappeport, New York Times:

The rate on Chinese solar cells will double to 50 percent. The rate on certain advanced batteries, along with critical minerals needed to build them, will rise to 25 percent. Semiconductor tariffs will double to 50 percent. Some of those increases will be delayed in an apparent effort to allow domestic companies time to ramp up their own production and find other sources outside China.

Other tariffs will affect industries in important swing states, including heavy metals. Rates for certain imported steel and aluminum products will triple to 25 percent.


IRS news: ERC exams, collection restart

Employee Retention Credit Auditors Are Digging Deep - Nathan Richman, Tax Notes ($):

Examiners want any records that the taxpayer relied on for the conclusion that their operations were partially suspended by a government order, any records showing a decline in gross receipts, documentation of qualifying employees and what they were paid, relevant communications with employees or customers, and copies of some previously filed tax returns, among other items, IRS National Fraud Counsel Carolyn Schenck said May 14 on a webcast sponsored by the American Bar Association Section of Taxation.

Revenue agents will use summonses when they don’t get that information from taxpayers or third parties and are conducting interviews, Schenck said. “In short, the government is looking for substantiation to understand the nature of the business, its size, how it was impacted, as well as to make sure the entity is actually entitled,” she said.

The story says the IRS moratorium on processing new claims that began in September of last year remains in effect, with no specific date in mind for resumption.

Related: IRS Puts Temporary Hold On New ERC Claims


Tax Pros Advised to Keep an Eye on Collection Notices - Benjamin Valdez, Tax Notes ($):

“Please read your notices that you receive from the IRS,” Andra Kullman, program manager for IRS collection policy, said during a May 14 Tax Talk Today webinar. “They let you know everything you need to know about where the account is within the collection process” and the options available to taxpayers, she added.

Kullman said the IRS has taken several steps to make its communications more user-friendly, including the addition of QR codes that lead to the agency’s website, a document upload tool, and the IRS2Go mobile app.

The IRS is in the midst of sending out collection notices after a COVID-19-pandemic-related pause, including notices to taxpayers that haven’t filed a return. Kullman said the agency now waits eight weeks — up from five — before sending a second notice to taxpayers that received a CP501 reminder notice to allow them more time to respond or seek representation.

Related: IRS Dispute Resolution and Collections.


IRS Finalizes Slash Of Preparer ID Fee - Jared Serre, Lawa360 Tax Authority ($). "Beginning June 14, it will cost $11 — down from $21 — to renew or apply for a preparer tax identification number, the IRS said in the final rule, keeping unchanged its earlier proposal to reduce the fee."


Tennessee Refund Opportunity

Tennessee Giving $1.6B In Corporate Franchise Tax Refunds - Sanjay Talwani, Law360 Tax Authority ($):

Tennessee will issue nearly $1.6 billion in corporate franchise tax refunds and cut the tax by about $400 million annually going forward under legislation signed into law by the governor. 

Tennessee Republican Gov. Bill Lee signed S.B. 2103 on Friday, changing the calculation of the state's franchise tax starting in the current tax year and allowing rebates of portions of three years of taxes already paid.

Link: Tennessee Department of Revenue guidance on filing for Franchise Tax refunds.


Blogs and bits

FinCEN’s BOI reporting requirements not DOA - National Association of Tax Professionals. "Despite the recent high-profile court decision finding the 2021 Corporate Transparency Act (CTA) and its beneficial ownership information (BOI) reporting requirements are unconstitutional, most businesses are still subject to the act’s reporting rules."

IRS Issues Final Regulations Regarding Clean Vehicle Credits - Parker Tax Pro Library. "The inclusion of graphite to the definition of impracticable-to-trace battery materials allows vehicles with batteries containing graphite produced by China to qualify for the Code Sec. 30D credit until 2027."


IRS Adds Additional Protections To CAF & Transcript Delivery System - Ronald Marini, The Tax Times. "The IRS has become increasingly concerned about the risk a compromised CAF number presents to tax professionals and taxpayers."

Regulations finalize PTIN fees for tax return preparers - Martha Waggoner, The Tax Adviser. "The IRS issued final regulations (T.D. 9997) on Tuesday that finalize the reduction of the fees for the application and renewal of preparer tax identification numbers (PTINs) to an $11 user fee plus an $8.75 third-party contractor fee, for a total annual fee of $19.75. That fee amount has been in place since Oct. 19, 2023."


17th Anniversary of the 21st Century Taxation Blog - Annette Nellen, 21st Century Taxation. 17 years is a longer lifespan than approximately 99.9% of blogs. Heck, 17 months probably is. Congratulations, Annette!



Tax Policy Corner

So-Called Strategic Tariffs Are Still Tariffs—and Still Protectionist - Erica York, Tax Policy Blog. "When it comes to policy, it’s worth examining the goal of higher tariffs on these strategic goods, which include EVs, solar panels, and their component parts. Will shutting out more affordably priced Chinese EVs and solar panels help the U.S. reach its green transition goals faster? Will quadrupling the price of the competition make U.S. products better? Will increasing the costs for key inputs help U.S. manufacturers get off the ground? Will U.S.-made EVs become more internationally competitive with further insulation from international competition?"


Improving Tax Administration, One Math Error Notice at a Time - Margot Crandall-Hollick, TaxVox:

Math error is one tool the IRS has to administer and ensure compliance with the tax code, but it often gets less attention than the more common IRS tool—the audit. However, while audits can be burdensome—and many taxpayers may not even reply to an audit notice—they can provide more legal protections and options for recourse than math error.


Unlike an audit, absent a taxpayer response to the initial notice, the adjustment stands, leaving the taxpayer with limited remaining legal options.

Scoring zero in court

IRS Awake to Reject Anesthesiologist’s Zero-Income Claim - Erin McManus, Tax Notes ($). "A physician learned that neither IRS employees nor the Tax Court will be found dozing when taxpayers attempt the 'wages aren’t income' argument."

Tax Court Judge Mark Holmes writes the most entertaining Tax Court opinions. This one covers a Wisconsin anesthesiologist whose Minnesota practice issued him a $500,000 W-2 with $140,000 of tax withheld. Judge Holmes takes up the story (taxpayer names omitted):

On his 2019 joint return the Taxpayers claimed (and then) received a refund of the amount withheld from Dr. Taxpayer's paychecks.1 They did so, according to a sworn statement that accompanied the return, because the payments made by AAPA to Dr. Taxpayer “did not result from any federally taxable activity whatsoever and do not constitute any taxable income under relevant Income Tax Law. . . ."

They had reported zero taxable income.

That doesn't work.

Section 61 makes it clear enough that wages are income. By performing services for and receiving money from AAPA — as evidenced by a W-2 — Dr. Taxpayer received income. Sanctions are appropriate here for taking a frivolous position and — we stress to petitioners — the amount of sanctions can always increase for repeated offenses.

The sanctions? From the opinion (no free link available):

The Commissioner supports his motion with uncontested proof that he warned Dr. Taxpayer that his position was frivolous. We observe that there can be no dispute that a doctor earning more than half a million dollars from his practice is highly educated. And that the State of Minnesota likewise warned him in his parallel state-income tax proceeding that his argument was frivolous.

Because of Dr. Taxpayer's education and persistence in frivolity we conclude a $5,000 penalty is called for.

The Moral? There are plenty of places on the internet where you can find detailed, arcane, and passionate arguments that you don't have to pay income tax. Remember that the IRS, every federal judge, and those nice people in the Federal Marshals Office all think that you do.


St. George businessman sentenced to 29 months’ imprisonment for fraudulently receiving over $685,000 in COVID-relief funds - IRS. Bad ERC claims are now working their way to the federal prison system (defendant name omitted, emphasis added):

Defendant, of St. George, was sentenced today to over two years’ imprisonment, three years’ supervised release and ordered by the court to pay $685,845.05 in restitution. The sentence, imposed by U.S. District Court Chief Judge Robert J. Shelby, comes after Defendant admitted to fraudulently obtaining government funds from programs intended to help employees and small businesses during the COVID-19 pandemic.

According to court documents and statements made at the change of plea hearing, Defendant pled guilty in September 2023 to wire fraud, money laundering, and false claims.

Defendant admitted that from 2020 to 2022, he devised a scheme to defraud and obtain money by fraudulently submitting requests for Employee Retention Tax Credits, by filing 22 Forms 941s with the Internal Revenue Service on behalf of his four businesses... As a result of his fraudulent filings, Defendant received $482,058.46 from the IRS.

Paying back credits with penalties and interest is one thing. 29 months is something else again.


What day is it?

It's National Chocolate Chip Day! It's also National Numeracy Day UK, so remember that a billion chocolate chips is a thousand times more than a million of them.

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About the Author(s)

Joe Kristan

Joe B. Kristan, CPA

After 38 years centered on tax consulting for closely held businesses and their owners, Joe is joining Eide Bailly's National Tax Office. Joe's responsibilities include communication, process improvement and training. He is a principal contributor to the Eide Bailly Tax News and Views blog, providing daily updates on tax reform and other tax news. Joe is a Certified Public Accountant and a member of the AICPA Tax Section and Iowa Society of Public Accountants.

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.