Key Takeaways
- Werfel: we will make fewer Employee Retention Credit denial mistakes.
- Oh, and I plan to serve out my term as IRS Commissioner.
- Tax policy punting to post election, and beyond!
- IRS goes after the easy ones.
- Campaign trail: capital gains, tariffs, narrow tax breaks.
- 3rd quarter estimated tax deadline looms.
- 14 years for ID theft ringleader.
Werfel Anticipates ERC Denial Errors Will Decrease - Benjamin Valdez, Tax Notes ($):
“After weeks of feedback and communication, we realized that the universe of scenarios that they were concerned about represented 10 percent of the 28,000 letters that we sent out," Werfel said.
The commissioner, adding that the IRS will continue to adjust its filter for denying claims in response to the feedback, said he thinks the rate of improper denials will continue to decrease.
IRS Commissioner Says He Is Committed to Finishing Out His Term - Erin Slowey, Bloomberg ($):
Werfel, nominated by President Joe Biden, won Senate confirmation and started his position in March 2023. IRS commissioners are nominated by the president and confirmed by the Senate. They may be removed at the will of the president.
Tax Policy in the Fall
Congress Likely to Punt Tax, IRS Funding to Lame Duck or Beyond - Doug Sword and Cady Stanton, Tax Notes ($):
...
As for more holistic legislative action on tax issues, the $79 billion tax package — the Tax Relief for American Families and Workers Act of 2024 (H.R. 7024) — appears to be in limbo at least until after the election. Meanwhile, uncontroversial and narrower tax bills like the Federal Disaster Tax Relief Act of 2023 (H.R. 5863) have gotten ensnared in the politics of the larger bill.
Federal Tax Policies To Watch In The Rest Of The Year - Asha Glover, Law360 Tax Authority ($):
...
Disaster tax relief and a tax agreement with Taiwan, in addition to technical corrections to the 2022 retirement security law, are ripe for inclusion if lawmakers have an appetite to put together a tax bill during the lame-duck session, tax professionals told Law360.
Ways & Means Set to Mark Up 1099-K, Charitable Donations Bills - Cady Stanton, Tax Notes ($):
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The Saving Gig Economy Taxpayers Act (H.R. 190) — introduced by Ways and Means member Carol D. Miller, R-W.Va., and cosponsored by the majority of Ways and Means Republicans — would repeal the $600 Form 1099-K reporting requirement and return the threshold to $20,000 over at least 200 separate transactions, as it stood before the American Rescue Plan Act of 2021.
As noted in previous items, none of this is likely to move. Most of this is more for sending political messages than for actually changing the tax law.
Picking the low-hanging fruit.
$172 million recovered from 21,000 wealthy taxpayers who have not filed tax returns since 2017 in first six months of new initiative - IRS. "The IRS in February 2024 launched an initiative to pursue 125,000 high-income, high-wealth taxpayers who have not filed taxes since 2017. These are cases where IRS has received third party information—such as through Forms W-2 and 1099s—indicating these people received income between $400,000 and $1 million or more than $1 million, but failed to file a tax return. Prior to the Inflation Reduction Act, the IRS non-filer program ran sporadically since 2016 due to severe budget and staff limitations that did not allow these cases to be pursued."
Tax on the Campaign Trail
Harris walks tightrope when it comes to taxes - Amie Parnes and Tobias Burns, The Hill:
Democratic strategist Anthony Coley said the new proposal underscored that Harris is not the progressive some Republicans have sought to portray her as. While Coley said he has heard some mixed reviews from some in his party, he said it’s a signal to the business community that “she gets it.”
Details Sought on Harris’s Plan to Tax Unrealized Capital Gains - Alexander Rifaat, Tax Notes ($):
...
Pomerleau also pointed out that Harris has yet to explain what would happen if taxpayers subject to the minimum tax have assets that decline in value.
“It’s straightforward to think how this tax would work with gains, but to make this work economically, you also have to provide deductions or offsets for losses,” Pomerleau said. “To make this neutral and avoid tax avoidance, you want to make sure those losses are being deducted at the same rate as gains are potentially being realized and taxed. . . . It’s not clear how they would make that work.”
Trump’s Wall Street pitch: Punishing tariffs, low taxes, ‘explosive’ growth - Sam Sutton and Meridith McGraw, Politico. "In the speech before the Economic Club of New York on Thursday, the former president doubled down on proposals to slash rules on companies, reward those that keep production in the U.S., and impose punishing tariffs on any business that moves jobs or manufacturing overseas."
Trump turns to outlandish promises to offset $7 trillion in tax cuts - Jeff Stein, Washington Post:
...
“Trump is proposing $10 trillion in tax cuts over the decade and looking to pay for it with grandstanding and gimmicks that will save little money,” said Brian Riedl, senior fellow at the Manhattan Institute, a center-right think tank. “If you really want to address the deficit, you really have to make the tough decisions on Social Security, Medicare, the defense and middle class taxes.”
Harris and Trump Would Create Hyper-Narrow Targeted Tax Breaks - Howard Gleckman, TaxVox. "The current crop of highly targeted tax break proposals not only would be unfair and inefficient but present a tempting opportunity to game the revenue code. And that would create an administrative nightmare for the IRS, which, for example, would have to define eligible tipped workers or exactly which fertility treatment would trigger a credit."
Blogs and Bits
Don't miss next week's Sept. 16 estimated tax deadline - Kay Bell, Don't Mess With Taxes:
1. To owe at least $1,000 in taxes for 2024 after subtracting their withholding and tax credits.
2. Their withholding and tax credits to be less than the smaller of:
-90% of the tax to be shown on their 2024 tax return or
-100% of the tax shown on their complete 12-month 2023 tax return.
Need for a Legislative Fix to Eliminate the Disaster Lookback Trap for Refund Claims - Erin Collins, NTA Blog. "The IRS has the authority in certain situations to postpone filing deadlines, such as for disaster relief, to provide taxpayers who are dealing with difficult circumstances some much-needed additional time to prepare and file their tax returns. However, these postponements can also create a trap for some taxpayers several years down the road, preventing them from receiving a refund even if they could otherwise file a meritorious, timely claim. While this trap is known to some, it catches most people off guard."
Tax Breaks: The Hang On To Those Receipts Edition - Kelly Phillips Erb, Forbes. "When taxpayers ask for an easy way to avoid tax trouble, outside of the obvious—file and pay on time—I almost always say, 'Keep great records.'"
Why Neutral Cost Recovery Matters - Alex Muresianu and Erica York, Tax Foundation. "To understand the purpose of neutral cost recovery, one must understand the structure of today’s corporate tax. The corporate income tax is a tax on profits, namely revenues minus costs. Ideally, companies would be able to deduct the full cost of their capital investments, just as they can deduct the cost of their operating expenses like wages, salaries, and other costs of goods sold."
Treating Business Costs Correctly in the Tax Code - Adam Michel and Joshua Loucks, Liberty Taxed. "A deduction delayed is a deduction partially denied because time and inflation erode the value of the write-off years later. Under the normal tax system, a $100 investment deduction that must be incrementally used over 15 years is only worth about $74 to the business in present value (assuming 2 percent inflation). Fifteen years of waiting erodes a quarter of the deduction’s value to the business, which increases the after-tax cost of investing. When costs rise, investment falls."
Tax ID Theft Watch
Leader of sophisticated stolen identity tax refund scheme sentenced - IRS (Emphasis added, defendant names omitted):
...
As part of the scheme, and to avoid fraud detection procedures the IRS established, Defendant recruited and directed [co-defendants] to provide addresses to him for the purpose of receiving mail, including IRS correspondence such as identity verification letters. Defendant and others obtained stolen Centralized Authorization File (CAF) numbers for their victims, which is a unique nine-digit identification number and is assigned the first time return preparers file a third-party authorization with IRS. They used the stolen CAF numbers to falsely persuade the IRS they were legitimate representatives. The defendants then directed the IRS to change the addresses on file for the taxpayers and to send their tax information, including account transcripts and wage records, to the addresses and emails the defendants controlled. Communicating over Telegram, Defendant instructed his defendants to send him photographs of the mail the IRS had sent and then instructed them to destroy the mail.
The defendants used this information to electronically file more than 370 tax returns claiming fraudulent refunds and directed the IRS to split the refunds among several prepaid debit cards registered in the names of the victim taxpayers. Prior to issuing tax refunds to some taxpayers, the IRS sent verification letters to the addresses the defendants controlled, and the defendants and others, pretending to be the taxpayers, instructed the IRS to release the refunds.
[Defendants] obtained the prepaid debit cards that were to be used to receive the fraudulently claimed refunds. Once the refunds were deposited onto the prepaid debit cards, they further concealed the funds by purchasing, among other things, money orders from local stores in amounts that were designed to avoid having to furnish identification or trigger reporting requirements. They also used prepaid debit cards and money orders to purchase designer clothing, home renovation materials and used cars at auction. The defendants kept or received money orders purchased with the fraudulent refunds as their share of the illegal proceeds.
I'm not always a big fan of harsh prison sentences, but considering the hassle and cost to the hundreds of taxpayers whose identities were stolen - not to mention the $30 million stolen - I can't argue with this one.
Unfortunately, ID thieves are still out there. This makes information security everyone's job. Protect your private tax information. Use your preparer's secure upload portal whenever you transmit tax documents. Never put your social security number in an email. Never attach tax documents as email attachments. And consider getting an Identity Protection PIN to thwart the ID thieves.
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