Key Takeaways
- Taxpayers without bank accounts struggle to navigate refund process.
- Things that could cause a disappointing tax refund.
- Tax Court: PEOs can't claim employer tax credits for client employees.
- Washington enacts a high-earner income tax.
- Second reconciliation, but no second tax bill?
- Bozo tax tip season begins.
- National Crayon Day.
Taxpayers Struggle to Navigate IRS Shift Away From Paper Refunds - Benjamin Valdez and Katie Lobosco, Tax Notes ($):
Low-income taxpayer clinic directors and volunteer tax return preparers who spoke with Tax Notes described the process of responding to the notice as challenging and time-consuming, especially for older taxpayers who don’t have IRS online accounts and aren’t familiar with ID.me authentication.
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The CP53E notice poses a unique challenge to Native American communities, which have a disproportionate number of unbanked taxpayers, including many who rely on shared P.O. Boxes to receive mail and don’t use email frequently, according to Leslie McLean of DNA-People’s Legal Services, an LITC that provides free legal services to members of seven tribal nations, including the Navajo Nation.
There are legitimate concerns behind the push to eliminate paper checks, including huge problems with mail theft. But the action was taken hastily, with minimal planning and poor follow-through, leaving taxpayers and an understaffed IRS struggling to cope.
Given these problems, taxpayers should file electronically and make sure they include proper banking information on their filings. They should get an IRS online account and make any payments to the IRS electronically. Otherwise, processing and refund hangups are likely.
Why some tax refunds may actually be smaller than expected in 2026 - Jeremy Tanner, Nexstar via The Hill:
-Gig work and missed tax payments – From rideshares to food delivery, gig work is widely popular. However, not all workers know they need to pay quarterly estimated taxes, and failing to do so may trigger a high tax bill and possible penalty.
-Withholding for multiple jobs – Failure to withhold enough for each job during the year could eat into one’s refund at tax time. Similarly, not adjusting withholding after a salary increase during 2025 could result in a lower refund.
I would add to the list failure to make schedule quarterly estimated tax payments, under-withholding on bonuses, and failure to plan for unusual income items.
Canceled IRS Contracts May Delay Taxpayer Service, Watchdog Says - Tyrah Burris, Tax Notes ($):
TIGTA said efforts to update individual and business tax return filing, over-the-phone interpreter services, and expert witness testimony provided during taxpayer litigation are among the services that could be potentially affected.
From the TIGTA report: "The Information Technology business unit had the most contracts cancelled, with 133 (41 percent) contracts of the 322 total cancelled contracts."
Tax Court: Professional Employer Organization Can't Take Employee-Based Credits
Professional Employer Org Can’t Claim $9.5M in Work Credits - Trevor Sikes, Tax Notes ($):
The revenue code doesn’t intend for statutory employers or agents of common-law employers to claim the work opportunity tax credit (WOTC) or the empowerment zone employment credit (EZEC), Judge Ronald L. Buch ruled in a March 30 division opinion in Barrett Business Services Inc. v. Commissioner.
PEOs are a type of payroll service. They handle payrolls for clients in a different way than conventional payroll services. A PEO enters into a co‑employment arrangement with its client. The client remains the common law employer, hiring and firing employees and receiving their services, but the PEO assumes certain legal obligations - including payroll taxes.
The employee W-2s have the PEO's name on them. But the Tax Court ruled that only the common law employer - the employer who actually receives the employee services - qualifies for these credits.
The Tax Court concludes:
The opinion doesn't answer the question of whether the clients of the PEO claimed the WOTC and EZEC credits to which they were entitled. If not, that could trigger awkward conversations between the PEO and their clients.
Related: Eide Bailly Business Credit and Incentive Services.
Washington Enacts Another Income Tax
Washington State Adopts New Tax on Incomes Over $1 Million - Jeanne Whalen, Wall Street Journal ($):
The levy comes as lawmakers and progressive groups in other blue states are debating their own new taxes on the wealthy. Proponents say the taxes are needed to combat inequality and plug budget holes expected from Republicans’ cuts to federal health and nutrition assistance programs in the federal tax bill President Trump signed into law last year.
Washington Governor Signs Millionaire’s Income Tax Bill - Paul Jones, Tax Notes ($):
Democrats designed it to take effect in tax year 2028 in anticipation of a court battle, but have said they believe the state supreme court would decide the tax is constitutional. Republican Senate leaders acknowledged that possibility in a March 30 letter urging Ferguson to veto the bill.
The tax “almost inevitably will come before the state Supreme Court, which has been packed with Democratic gubernatorial appointees over the years,” GOP leaders wrote. “The expectation by supporters, no doubt, is the justices will overturn more than 90 years of constitutional precedent.”
Who is Laffing now? - Allison Schrager, Known Unknowns:
But this is not how policy makers are thinking about it. They’ve generalized that because people don’t change their behavior much for relatively low and small changes in tax rates, we can try a 5% wealth tax, jack up income taxes well above 50% — and they do this at the state level. This is in a world where it is much easier to move because of remote work. Odds are the Laffer curve impact kicks in earlier at the state level and with a wealth tax.
Meanwhile in Utah
Utah Governor Signs Digital Ad Tax Into Law - Paul Jones, Tax Notes ($):
The tax applies to businesses that derive at least half of their annual revenue from targeted advertising, generate at least $100 million from those activities, and have at least $1 million in revenue from targeted advertising in Utah.
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The bill has drawn opposition from business groups. The Council On State Taxation argued in a February 17 letter that the tax will fall on business inputs and be passed on to consumers as a “stealth tax” or force businesses buying advertising to eat the added cost.
Tax Policy: Congress, Crypto, and Reality-Dodging
GOP Shifts Away From Taxes in Push for Second Partisan Megabill - Chris Cioffi, Bloomberg ($):
With Congress in a stalemate over Department of Homeland Security funding, Republicans may need to use the process known as reconciliation to fund parts of the agency—something some key lawmakers have already floated. The GOP also has a chance to fund new priorities, such as military operations in Iran and cuts to health care programs.
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So far, this year’s reconciliation chatter is focusing less on taxes, likely because last year’s package largely cleared the decks, said Molly Reynolds, vice president and director of Governance Studies at Brookings.
Bipartisan Tax Writers Float Draft Crypto Tax Legislation - Chris Cioffi, Bloomberg ($):
The draft builds on something Miller and Horsford released in December, which among other proposals, included language that would provide a safe harbor for some transactions involving stablecoins pegged to the value of the dollar. It would also delay taxation on staking rewards—a process that generates new crypto tokens.
The Transfer Pricing Agreement Backlog
APA Program Reports Smaller Staff, Fewer Agreements for 2025 - Chandra Wallace, Tax Notes ($):
...
Staffing of the APMA program dropped almost 15 percent in 2025, going from 126 employees reported for 2024 to 108.
APAs are binding agreements between taxpayers and tax authorities to determine pricing for multi-national businesses among their controlled entities for cross-border transactions. They are designed to avoid transfer pricing disputes and provide planning certainty for taxpayers.
Chad Martin, leader of the Eide Bailly Transfer Pricing practice, comments:
The cruel irony is that if the IRS APMA continues to struggle administratively, the cuts may lead to foreign jurisdictions (many of whom are ramping up their capabilities to audit US MNEs) gaining the upper hand in the battle for share of the tax pie.
Related: Eide Bailly Transfer Pricing Services.
Blogs and Bits
April 1 is RMD deadline for some. No fooling. - Kay Bell, Don't Mess With Taxes:
In that initial RMD birthday year, account owners can delay their first retirement account distribution until April 1 of the following year.
So, birthday number 73 celebrants in 2025 have until this quickly approaching April 1 — yes, that’s this Wednesday — to take their first RMD. Then in subsequent years, they must take their RMDs by Dec. 31.
Bozo Tax Tip #10: Email You Social Security Number, ITIN, or EIN! - Russ Fox, Taxable Talk. "Seriously, use common sense! Would you post your social security number on a billboard? That’s what you’re doing when you email your social security number."
Refund Statute Closing Soon on Unfiled 2022 Returns - Tom Gorczynski, Tom Talks Taxes. "Under §6513(b)(1) and §6513(b)(2), withholding taxes and estimated tax payments for tax year 2022 are deemed paid on April 15, 2023. For any of those amounts to be refundable, April 15, 2023 must fall within the three-year period immediately preceding the filing of the original 2022 return; thus, it must be filed by April 15, 2026."
Spring Cleaning Tax Roundup: Ranching, Oil, Hobbies, Easements, and Endless Litigation - Peter Reilly, Your Tax Matters Partner. "A married couple formed a single-member LLC as an investment vehicle. They loaded it up with marketable securities and other assets. Then they “donated” a non-voting membership interest to a charity that they founded. They got an upfront deduction and income allocated to charity. There turned out to not be anything charitable about the whole thing. Don’t try this at home."
Don't "Borrow" Withheld Taxes
De Smet man and woman each sentenced to terms in federal prison and home confinement for willful failure to collect or pay over $600,000 in employment tax - IRS (Defendant names omitted, emphasis added):
Throughout calendar years 2017 through 2020, Defendants, on behalf of LLC, withheld taxes from its employees’ paychecks, including federal income taxes, Medicare, and Social Security taxes (collectively referred to as “payroll taxes”), knowing that they had the responsibility to collect, truthfully account for, and pay over LLC’s payroll taxes. Beginning in Jan. 2017, Defendants made no payments of the payroll taxes to the IRS by the required due dates. Beginning in 2017, LLC also failed to file required forms with the IRS. In sum, Defendants willfully failed to truthfully account for and pay over to the IRS all of the payroll taxes withheld and due and owing to the United States on behalf of LLC and its employees. Their conduct continued until about Jan. 2021, adversely impacting LLC’s employees’ accrual of future federal benefits.
When you withhold taxes from employees, that's not your money anymore. It belongs to the IRS, and if you don't turn it over, the agency doesn't like that. As this case shows, it can become a criminal problem. Here the business owners get to spend some time in prison - and they still have to pay over the taxes.
What day is it?
It's National Crayon Day! If you have one of those sweet boxes of 64, get to work!
Make a habit of sustained success.
