CALIFORNIA CORNER: FTB Issues Guidance Regarding Payments Made Following Disaster Relief
By: In a Tax News Flash issued September 15, 2023, the California Franchise Tax Board (FTB) has warned taxpayers and tax professionals about combining payments due October 16, 2023. The disaster declarations from the winter storms that were applicable to most counties of California extended the due date for multiple personal and business entity tax payments covering two tax years. To ensure your clients’ payments are processed timely and accurately, please submit separate payments for each payment type and do not combine payments for different tax years. As an example, be sure that payments for 2022 tax year liabilities are made …
IRS Stops All New ERC Processing to Combat Fraud
The IRS has stopped processing all new employee retention credit (ERC) claims in an effort to combat rampant fraud associated with the program. The IRS announced the immediate moratorium on processing all new ERC claims on 9/14/23, which is expected to be in place through at least the end of the year.The move ordered by IRS Commissioner Danny Werfel comes after growing concerns from the IRS and tax pros alike that a substantial share of new claims from the aging program are ineligible and fraudulent, ultimately putting businesses at financial risk by being pressured and scammed by aggressive promoters and …
IRS Readies Boost in Partnership, High-Income Audits Using AI
The IRS has announced the rollout of a sweeping, historic effort to redirect its focus of taxpayer examinations on high-income earners, partnerships, and large corporations. The shift in the agency’s attention to more complex audits comes as a result of increased funding provided to the IRS under the Inflation Reduction Act (IRA) (P.L. 117-169).Key variables in the IRS’s new audit equation include:Prioritization of high-income cases.The IRS will intensify work on nearly 1,600 identified taxpayers with total positive income above $1 million that have more than $250,000 in recognized tax debt.Expansion of pilot focused on largest partnerships leveraging Artificial Intelligence.With the …
BREAKING: IRS Issues Much-Anticipated Section 174 Guidance
Happy Friday before September 15, tax pros. With stellar timing, the IRS has issued much-anticipated guidance intended to clarify the application of § 174, as amended by the 2017 law commonly known as the Tax Cuts and Jobs Act (TCJA) (P.L. 115-97).The guidance in Notice 2023-63 provides a preview of the Treasury Department and IRS’s intent to issue proposed regulations addressing:Capitalization and amortization of specified research or experimental (SRE) expenditures under § 174, as amended;Treatment of SRE expenditures under § 460; andApplication of § 482 to cost sharing arrangements involving SRE expenditures. Background Generally, TCJA’s amendment to § 174 requires …
IRS Issues FAQ for Pass-Through Entities to Report Negative Amounts on Schedules K-2/K-3
ICYMI: In case you missed it this week, the IRS has issued a frequently asked question (FAQ) in Fact Sheet 2023-20 to provide guidance to pass-through entities e-filing Schedules K-2 and K-3 on reporting negative amounts.For tax year 2022, the schema for e-filing Schedule K-2 and K-3 do not permit negative values for certain line items in Part II. Thus, the FAQ issued this week provides guidance to pass-through entities about how to report these amounts. STAY TUNED Stay updated with more breaking tax-related developments by subscribing to Tax Bytes with Jessica Jeane, J.D. SUBSCRIBE TODAY
Employee Retention Credit (ERC) – What Tax Pros Need to Know
By: The Employee Retention Credit (ERC) enacted under the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) was a blessing for many businesses during the COVID-19 pandemic, providing much needed financial assistance to help keep staff on payroll. When Congress changed the law allowing Paycheck Protection Program (PPP) borrowers to retroactively claim the ERC under the Consolidated Appropriations Act, 2021 (P.L. 116-260), which included the Taxpayer Certainty and Disaster Relief Act of 2020 (TCDRA), the flood gates opened, and many more businesses were eligible for the ERC. ERC – Not for the Faint of Heart Determining ERC eligibility and …
IRS Extends New $145,000 401(k) Catch-Up Contribution Rule by Two Years
By: The IRS issued Notice 2023-62, extending the effective date for a new SECURE Act 2.0* Roth catch-up contribution rule for eligible participants with more than $145,000 in compensation. Under this new rule, catch-up contributions for such participants must be made to a designated Roth account (DRA). Notice 2023-62 extends the effective date from 2024 to 2026. *SECURE Act 2.0 was enacted as Division T of the Consolidated Appropriations Act, 2023, Pub. L. 117-328, 136 Stat. 4459 (2022). Notice 2023-62 also corrected a SECURE Act 2.0 error, which unintentionally repealed IRC Section 402(g)(1)(C). IRC Section 402(g)(1)(C permits catch-up contributions. How We …
Congressional Report: Tax Prep Companies Share Taxpayer Data with Big Tech
A recent congressional report is spotlighting major tax preparation companies’ dissemination of sensitive taxpayer data to Big Tech firms such as Meta (parent company of Facebook) and Google. The 54-page report, Attacks on Tax Privacy, details the findings of a 7-month long investigation spearheaded by Sen. Elizabeth Warren, D-Mass., and Senate Finance Committee Chair Ron Wyden, D-Ore.In a letter to the IRS summarizing the report, the lawmakers’ participating in the investigation wrote, “the findings of this report reveal a shocking breach of taxpayer privacy by tax prep companies and by Big Tech firms that appeared to violate taxpayers’ rights and …
IRS Releases Much-Anticipated Digital Asset Reporting Guidance
The IRS dropped much-anticipated (some may even say late) guidance last Friday on digital asset reporting under Sec. 6045, which implements an expanded definition of brokers required to report sales and exchanges of digital assets to the IRS. The 282-page proposed regulations, REG-122793-19, were posted to the Federal Register on August 25 and cover a range of digital asset issues including further defining brokers and requiring proceeds to be reported to the IRS and taxpayers on a new Form 1099-DA. Crypto Industry Weighs In “The proposed broker regs are subjecting most decentralized exchange platforms to broker reporting in addition to centralized …
IRS Paperless Processing – Who Dis?
Sound the trumpets: the IRS has launched its “paperless processing initiative” with the goal of paperless processing for all tax returns by the 2025 tax filing season. And if that doesn’t sound exciting enough, the agency expects that taxpayers will be able to digitally submit all correspondence, including non-tax forms and responses to all notices by the 2024 tax filing season. As a result, the IRS estimates more than 94 percent of individual taxpayers (and their tax pros – aayy) will no longer need to send mail to the IRS. IRS Paperless Processing for the 2024 Tax Filing Season In …
Knock knock. Who’s there? Not the IRS.
The IRS states it will end most unannounced visits by revenue officers: In a major policy change, the IRS stated that it will end most unannounced visits by revenue officers. Instead of a surprise visit, taxpayers can now expect to receive an appointment letter, known as a 725-B, and schedule a follow-up meeting with the revenue officer.The move comes as part of the larger effort to transform operations under the new IRS Strategic Operating Plan. IRS Commissioner Daniel Werfel said, “We are taking a fresh look at how the IRS operates to better server taxpayers and the nation, and making …
IRS Continues to Send Erroneous Collection Notices
By: In case you haven’t heard (or opened the mail), the IRS continues to send erroneous collection notices to certain taxpayers affected by natural disasters even though they are eligible for a delayed tax return filing and payment deadline. Shocker.That’s right; many taxpayers are receiving CP14 balance due notices from the IRS telling them tax payments are currently due and that the IRS will begin to charge interest and penalties if the taxpayer doesn’t pay up months earlier than IRS guidance permits. You might recall (you don’t) that I mentioned this issue on Twitter last month with the help of funny …
Congress Receives NTA’s Mid-Year Report and Forecast on IRS Improvements
Last week, while the family and I were getting poison ivy camping in Maine, the National Taxpayer Advocate (NTA) Erin M. Collins released her statutorily mandated mid-year report to Congress. And by family, I don’t mean “The Family” as in the Mob. I’m not sure how much camping they do anyway, though I’m sure they do end up in the woods a fair amount. No, I mean my husband and our four wild, smart-mouth boys. Same thing, maybe. For background, the NTA is required by statute to submit two reports to Congress each year: an annual report issued in January …
IRS Drops Guidance on Transferring Clean Energy Credits
Happy Friday, tax pros. In case you missed the major guidance drop out of the IRS this week, temporary and proposed regulations as well as FAQs were issued on June 14 that address direct-pay elections and transferability of certain clean energy tax credits under the Inflation Reduction Act (IRA) (P.L. 117-169) and the CHIPS and Science Act of 2022 (P.L. 117-167). The package of guidance on the Inflation Reduction Act of 2022 (P.L. 117-169) and the CHIPS and Science Act of 2022 (P.L. 117-167) includes: Proposed regulations addressing applicable entities that earn certain clean energy credits and make an …
House GOP Revs Tax Talk Engine with Release of Individual, Business Tax Package
House Republicans have revved the engine on congressional tax talks this year by releasing a trio of bills for an individual and business tax package. The following three bills, released on June 9, make up the American Families and Jobs Act package and serve as the starting line for this year’s congressional tax negotiations: Tax Cuts for Working Families Act (H.R. 3936), Small Business Jobs Act (H.R. 3937), and Build It in America Act (H.R. 3938). A Look Under the Hood at the American Families and Jobs Act Package Generally, taking a quick look under the hood shows us that …
Congress Extends Debt Limit, Cuts IRS Funding
Congress has approved a bipartisan debt limit bill, which avoids a federal government default and takes a sizeable bite out of the IRS’s much-needed makeover funding. See what I did there? The Fiscal Responsibility Act of 2023 (H.R. 3746) now heads to President Biden’s desk where he is expected to sign it as early as today. The bipartisan bill cleared the Senate on June 1 by a 63-36 vote. The House approved the measure by a 314-117 vote on May 31. Notably, the bill will suspend the federal debt limit through January 1, 2025, and immediately rescind $1.4 billion of …
Supreme Court Backs IRS’s Summons Power Notice Exception
No Notice, No Problem The U.S. Supreme Court has backed the IRS on a third-party notice exception to its summons power of financial records. Last week, the high Court unanimously held in Polselli v. IRS, No. 21-1599 (S. Ct. May 18, 2023), that the IRS in efforts to collect an assessed tax liability has authority to summon banking and other records under Internal Revenue Code § 7609(c)(2)(D(i) without issuing notice to third parties.In other words, the IRS can issue a summons to gain access to sensitive third-party financial information without notice to the account holder, and yes, even when the IRS …
CALIFORNIA CORNER: Newsom Signs Retroactive Student Tax Relief Bill
California Governor Gavin Newsom has signed a retroactive tax relief bill for current and former students impacted by economic hardships during the COVID-19 pandemic. A.B. 111, signed by Newsom on May 15, makes certain student loan debt relief and other pandemic relief provided to students through postsecondary education institutions tax free at the state level. Specifically, the temporary provisions will: exclude from an individual’s gross income student loan discharges for taxable years beginning on or after January 1, 2021, and before January 1, 2026, in conformity with the federal exclusion under the American Rescue Plan Act; exclude from an individual’s …
Capitol Hill Connection: Werfel in Hot Seat Before Senate Finance Committee
Happy first Friday after Tax Day, tax pros. You made it. And if you don’t read this because you refused to check your email today, I can’t blame you. But there was a noteworthy development on Capitol Hill this week, and as your “boots on the ground” here in Washington, D.C., let me fill you in. Werfel Sits in Congressional Hot Seat IRS Commissioner Danny Werfel felt the heat from lawmakers this week during an April 19 Senate Finance Committee (SFC) hearing examining the IRS’s budget and 2023 tax filing season. This was Werfel’s first time testifying before Congress since …
IRS: Taxpayers Who Reported Certain 2022 State Refunds as Taxable Should Consider Filing Amended Return
The IRS announced today that taxpayers who filed their federal income taxes earlier in this year’s filing season AND reported certain state 2022 tax refunds as taxable income should consider filing an amended return. To Tax or Not to Tax: That WAS The Question You might recall that on the heels of a February Procedurally Taxing post, the IRS released a statement noting that it was aware of taxpayer uncertainties involving special tax refunds or payments made by states during 2022 and was working to determine whether those payments are subject to federal tax. On February 3, the IRS recommended against …