Tax News & Views ID Theft Refund Delay and Ice Cream Cake Roundup

Rampant Identity Theft Is Taxing the I.R.S. - Alan Rappeport, New York Times:

Rampant identity theft has overwhelmed the Internal Revenue Service, resulting in a backlog of 500,000 unresolved fraud cases, leaving taxpayers without refunds and credits that they are due, the agency’s watchdog wrote in a report to Congress on Wednesday.

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The I.R.S. is taking nearly two years to resolve identity theft victims’ assistance cases and has an inventory of approximately 500,000 cases, up from 484,000 cases in September.

Taxpayer Advocate Slams IRS Phone Service Metric - Benjamin Valdez, Tax Notes ($):

The IRS relies too heavily on a misleading level-of-service (LOS) metric to gauge taxpayer service at the expense of other service areas, according to the national taxpayer advocate.

“The measure is causing the IRS to prioritize the wrong work, and it needs to be replaced,” National Taxpayer Advocate Erin Collins wrote in a midyear report to Congress released June 26. The LOS measure, which is based on the amount of calls the IRS answers on its accounts management phone lines, doesn’t present a holistic picture of taxpayer service, she said.

From the report:

The 88% LOS leaves many observers with the impression that IRS employees answered 88% of taxpayer calls. In fact, IRS employees answered only 31% of taxpayer calls.

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In addition to answering telephone calls, AM employees process identity theft victims’ assistance cases, taxpayer correspondence, and amended tax returns. To achieve an AM LOS of 85%, the IRS overstaffs AM telephone lines, leading to unproductive employee time and neglect of other priority work.

Address ERC Backlog, Taxpayer Advocate Urges - Lauren Loricchio, Tax Notes ($).

“The IRS is between the proverbial rock and a hard place when it comes to ERC claims,” Collins said in a June 26 release announcing her midyear report to Congress. “If it pays out ERC claims without adequate review, improper payments may be in the tens of billions of dollars. If it declines to pay ERC claims or delays payments further, the very businesses for which Congress created the ERC will be harmed again.”

The release of the report follows an announcement that the IRS’s moratorium on processing new ERC claims will continue but that some claims received before the moratorium will be processed. IRS Commissioner Daniel Werfel said the IRS is concerned that ending the moratorium might unleash a marketing push by promoters that could lead to an influx of bad claims.

The news isn't all bad. While noting the backlogs and delays, the report says the 2024 filing season was an "overall success":

Although Filing Season 2024 was an overall success, and the IRS met the service goals set by the Secretary of the Treasury, backlogs still persist with amended returns, returns suspended as a result of a possible error, taxpayer correspondence, and Identity Theft Victim Assistance cases. After the filing season, taxpayers will continue to submit correspondence and file tens of millions of tax returns on extension. Thus, it is imperative that the IRS focus substantial resources during the rest of 2024 to catch up on its current backlog, timely process all incoming tax returns, pay out pending refunds, timely resolve Identity Theft Victim Assistance cases, and prevent carryover of unprocessed returns into 2025, while still providing taxpayer service through its toll-free lines and walk-in centers. The IRS needs to eliminate the word “backlog” from its vocabulary by modernizing the processing and scanning of paper returns, focusing on suspended and amended returns, issuing all pending refunds before the close of the year, and starting Filing Season 2025 fresh.

New IRS syndicated easement offer applies to more taxpayers

IRS sending settlement offer letters in July to certain taxpayers who participated in Syndicated Conservation Easement transaction - IRS:

The Internal Revenue Service today announced the mailing of a time-limited settlement offer for certain taxpayers who participated in Syndicated Conservation Easements (SCE) and substantially similar transactions that are under audit in the IRS’s Large Business & International and Small Business and Self-Employed divisions.

The IRS will notify eligible taxpayers by letter with the applicable terms and timelines to respond. The settlement offer requires substantial concession of the income tax benefits and the application of penalties. Taxpayers under examination who receive a letter but opt not to participate, will continue to face IRS enforcement actions, including potential full disallowance of charitable contributions associated with the SCE and the imposition of all applicable penalties.

Taxpayers who don't receive a letter are not eligible for this resolution, and the IRS will continue enforcement-related actions. Taxpayers with cases pending in the United States Tax Court are not eligible for this settlement offer.

IRS Expands Easement Settlements to Nondocketed Case - Kristen Parillo, Tax Notes ($):

An IRS spokesperson confirmed to Tax Notes that taxpayers who are now at IRS Appeals following an audit of a syndicated easement transaction are eligible.

The new settlement initiative represents a more expansive approach by the IRS to reduce the large volume of syndicated easement cases that are working their way through Exam, Appeals, and the Tax Court. The agency’s first settlement initiative, announced in June 2020, applied only to taxpayers with pending docketed Tax Court cases. However, tax professionals said that few settlements were reached because of the program’s restrictive terms and conditions.

IRS warns of tax credit scams

IRS Ramping Up Refund Scam Prevention Measures - Benjamin Valdez, Tax Notes ($):

The task force, formed in March, will provide recommendations to help taxpayers avoid scams proliferating on social media that lead them to falsely claim specialized credits, Jim Clifford, IRS director of return integrity and compliance services, said during a June 26 public meeting of the Electronic Tax Administration Advisory Committee (ETAAC).

The IRS has been raising awareness of the scams for months, noting that many erroneous claims are seeking the sick and family leave credit or the fuel tax credit, a benefit meant for off-highway business and farming use.

International Tax Corner

House Taxwriter Critiques OECD Tax Deal as Unfair Playing Field - Cady Stanton, Tax Notes ($):

“No matter how you change the rules, multinational businesses and market jurisdictions will find a way to play the game to their advantage,” House Ways and Means Committee member Kevin Hern, R-Okla., said at a June 25 conference hosted by the OECD and the U.S. Council for International Business. “I’m concerned that the U.S. is no equipped to play the game as the rules are currently written.”

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House Republicans have long disagreed with the Biden administration’s continued participation in global tax deal talks without more extensive consultation with Congress’s taxwriting committees. Hern said he thinks not much has changed on that front since 17 Republican House taxwriters first raised concerns about the lack of dialogue in a January 2022 letter to Treasury Secretary Janet Yellen.

Global Tax Overhaul Won't Squash Competition, US Rep. Says - Dylan Moroses, Law360 Tax Authority ($):

Nearly 140 jurisdictions, including the U.S., agreed to the two-pronged corporate tax rewrite in 2021. Pillar One is meant to create a taxing right known as Amount A for countries where large companies have customers but not a physical presence that would trigger taxation under existing norms, alongside the Amount B pricing plan for baseline marketing and distribution activities.

In general, Pillar Two involves cross-border top-up taxes to ensure that multinationals with revenue above €750 million ($803 million) pay an effective tax rate of at least 15% in each jurisdiction where they operate. The Pillar Two rules determine an effective tax rate by dividing the total amount of taxes a company paid in a jurisdiction by the total amount of profits it earned there, with adjustments to financial income and local taxes.

Implicit Support Group - Alex Parker, Things of Caesar. "Canada has shown no signs of hesitating with its 3% digital services tax, despite significant pressure from its neighbor to the south. And, on Thursday, it became law, after receiving “royal assent” and being passed by both houses of Parliament. Business groups reiterated their opposition to the idea, and Republicans such as U.S. House Ways & Means Chairman Jason Smith blasted the tax. As the OECD could release text for a Pillar One treaty any moment (maybe by the time you’re reading this), the situation continues to be evolving and chaotic."

US-Russia Tax Treaty Mostly Suspended Beginning August 16th - Russ Fox, Taxable Talk. "One impact: Russians who have gambling income in the US that’s subject to withholding (for example, poker tournaments) will be facing 30% withholding from August 16th onward. That does not impact this year’s World Series of Poker (currently running at the Horseshoe and Paris casinos here in Las Vegas), but will impact the 2025 WSOP."

After protests, Kenya’s president backs down on controversial tax bill - Sammy Westfall and Rael Ombuor, Washington Post. "Kenyan President William Ruto announced Wednesday that he would not sign a controversial finance bill that would have introduced new taxes, a surprise move a day after Kenyans stormed Parliament and escalated massive street protests, which were met by a deadly police crackdown. Though the exact toll is still unclear, rights groups say more than 20 people were killed and hundreds injured in the clashes."

Denmark to charge farmers €100 a cow in first carbon tax on agriculture - Attracta Mooney, Susannah Savage, Alice Hancock, and Emma Agyemang, Financial Times. "Denmark is moving ahead with the world’s first carbon tax on agriculture, with cattle farmers set to be charged almost €100 a year for the greenhouse gas emissions from each of their cows."

Blogs and Bits

Some ERC payments could go out later this summer, says IRS - Kay Bell, Don't Mess With Taxes. "The IRS is starting to process these filings, which it has dubbed low-risk, and the associated correct credit payments should start going out later this summer."

IRS Apologizes To Ken Griffin And Other Billionaires For Tax Leak - Kelly Phillips Erb, Forbes ($). "The Department of Justice declined comment, and the IRS deferred to a public statement on the matter, which said, in part, 'The Internal Revenue Service sincerely apologizes to Mr. Kenneth Griffin and the thousands of other Americans whose personal information was leaked to the press.'"

A Recap of the Moore Decision - Thomas Gorczynski, Tom Talks Taxes. "Since the foreign corporation realized the income taxed by §965, the majority said the realization question did not have to be answered; instead, the majority framed the issue as to whether Congress could impose the tax on that undistributed income on the foreign corporation's owners. The majority said the §965 transition tax was simply an extension of the Subpart F tax regime, which taxes certain U.S. shareholders on certain types of undistributed earnings from foreign corporations."

Foreign Housing Exclusion: A Guide for US Expats - Kasia Strzelczyk, 1040 Abroad. "This exclusion can significantly lower your taxable income by allowing you to exclude certain housing costs from your earnings. However, navigating the intricacies of this benefit can be challenging."

Tax Policy Corner

Tax Policy Questions 2024 Presidential Candidates Should Address - Erica York and Claire Rock, Tax Policy Blog. "Despite the higher costs falling on American consumers and the harms to US employment and production—particularly in the manufacturing sector—both the Trump campaign and the Biden administration have continued to defend the trade war tariffs. That’s likely a reflection of the gap between economic reality (the tariffs have cost American consumers and on net made us poorer) and political messaging (which claims the tariffs hurt foreigners and help Americans)."

Frequently Asked Questions about the Tax Cuts and Jobs Act - Adam Michel and Joshua Loucks, Liberty Taxed. "The top 10 percent of taxpayers pay about 76 percent of the income tax. The lowest‐income half of taxpayers pay 2.3 percent of income tax collections. Because of this imbalance in who pays the majority of the tax burden, the highest‐income Americans benefited from the largest tax cuts in dollar terms. It is hard to cut taxes for people who already aren’t paying any income tax."

Tax Crime Docket

Blackstone man sentenced to three years in prison for defrauding former employer, identity theft and tax evasion - IRS (Defendant name omitted, emphasis added.):

A Blackstone man was sentenced today in federal court in Worcester for defrauding his former employer – a company that operates a national chain of second-hand retail stores – by using others’ identities and repeatedly falsifying working hours for employees and taking all the wages for himself.

Defendant was sentenced by U.S. District Court Judge Margaret R. Guzman to three years in prison to be followed by three years of supervised release. Judge Guzman also ordered Defendant to pay $431,399 in restitution to his former employer and $86,190 to the Internal Revenue Service. In February 2024, Defendant pleaded guilty to six counts of wire fraud, one count of tax evasion and one count of unauthorized use of another’s identity.

Hard to believe he didn't put that income on his 1040.

What Day is It?

Celebrate National Ice Cream Cake Day and National Onion Day today - but perhaps not in the same course.

Tax News & Views ID Theft Refund Delay and Ice Cream Cake Roundup

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Joe B. Kristan, CPA