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Tax Updates End of June

IRS Updates June 2023 by Paul Davis
July 17 Deadline for 2019 Refunds

The IRS estimates that nearly 1.5 million people in the nation could be due refunds for tax year 2019, if they submit a tax return by the July 17 deadline. The usual deadline for submitting a tax return and getting a refund is 3 years from the initial deadline, but under the COVID-19 emergency, the deadline for 2019 was postponed. Taxpayers can still request key documents from their employers or banks, or request a wage and income transcript from the IRS, online or by filing Form 4506-T, Request for Transcript of Tax Return. 

Advance Energy Project Guidance

The IRS has issued Notice 2023-44, providing further details for applicants seeking section 48C credit allocations in the qualifying advanced energy project credit allocation program under the Inflation Reduction Act. Notice 2023-18 earlier this year established the section 48C(3) program to allocate $10 billion in credits, at least $4 billion of which will be allocated to projects located in certain energy communities census tracts. This guidance is mainly of interest to owners of clean energy manufacturing and recycling projects, greenhouse gas emission reduction projects, and critical material projects. Notice 2023-44 updates the earlier guidance, defining qualifying advance energy projects and the Department of Energy (DOE) application process, in Appendices A and B, respectively. Appendix C has also been added, containing a list of the energy communities census tracts.

Penalty Relief for Corporations

The IRS and Treasury have issued Notice 2023-42, which will grant penalty relief for corporations that did not pay estimated tax in connection with the new corporate alternative minimum tax (CAMT). The Inflation Reduction Act created the CAMT, which imposes a 25% minimum tax on the adjusted financial statement income of large corporations for taxable years beginning after December 31, 2022. Due to the challenges associated with determining the amount of a corporation’s CAMT liability and whether a corporation is subject to the CAMT, the IRS will waive the penalty for failure to pay estimated income tax with respect to its CAMT for a taxable year that falls within specific dates. 

Tax Updates Early May

IRS Updates May 2023 by Paul Davis

Better Late Than Later

The IRS is urging taxpayers who missed the April 18 tax-filing deadline to file as soon as possible. Those who owe taxes should file quickly to minimize penalties and interest, which can accrue over time. For those who should receive a refund, there is no late-filing penalty. Some taxpayers automatically qualify for extra time to file and pay, including disaster victims, military members serving in a combat zone and support personnel, and taxpayers outside the United States. There are options for taxpayers struggling to pay their tax bill. 

May 15 Deadline for Tax-Exempt

The IRS reminds tax-exempt organizations that their filing deadline is May 15, 2023. Those operating on a calendar-year basis must file a return by this date. Form 990-series (information returns such as Form 990, 990-EZ, 990-PF), Forms 990-N, 990-T, and Form 4720 must be e-filed. Those requiring additional time to file beyond the May 15 deadline can request a six-month automatic extension, however this does not extend the time for paying any taxes due. Online Workshops are also available to help exempt organizations comply with their filing requirements. 

Tax Relief for Indiana Victims

Storm victims in Indiana now have until July 31, 2023, to file various federal individual and business tax returns and make tax payments. This relief applies to any area designated by the Federal Emergency Management Agency (FEMA) as a result of tornadoes, severe storms, and wind that occurred on March 31 and April 1. Taxpayers and businesses in Allen, Benton, Clinton, Grant, Howard, Johnson, Lake, Monroe, Morgan, Owen, Sullivan, and White counties qualify, in addition to any other areas later designated. This relief is automatic, and there is no need to contact the IRS unless an affected taxpayer incorrectly receives a late filing or late payment penalty notice. As always, an updated list of eligible localities is available.

Put Withholding Estimator to Work

The IRS suggests taxpayers get a head start on the 2024 filing season by using the Tax Withholding Estimator to help update the amount of tax to have taken out of their 2023 pay. It is especially useful after a major life change such as marriage, divorce, birth or adoption of a child, a home purchase, or a significant change in income. Those who received a large refund or owed a lot of tax this year would also benefit from using the estimator. To receive the most accurate estimate, have on hand recent pay statements (for both spouses if married), other income sources, and the most recent income tax return.

Tax Updates Mid April

Dirty Dozen Tax Scams, Part 2

The IRS has completed their Dirty Dozen tax scam series, warning individuals and businesses about popular schemes and scams targeting taxpayers. Information to help recognize a scam, and steps to take for those who have been targeted or have fallen prey to such predators. The final scams to be aware of are:

  • Tax advice on social media can lure otherwise honest taxpayers into compromising tax situations. Two recent schemes currently circulating involve filing fraudulent Form 8944 and Form W-2. 
  • Spearfishing emails, where fraudsters attempt to steal client data or professional credentials from tax preparers. These can look like potential new clients or a request targeting payroll or human resource departments asking for Form W-2 information.
  • Offer in Compromise “mills” claiming they can help settle IRS debts for pennies on the dollar. Taxpayers who don’t meet the technical requirements for an offer often face excessive fees from promoters for information easily obtained themselves. Taxpayers should know they can check their eligibility using the IRS’s Offer in Compromise Pre-Qualifier tool.
  • Abusive tax arrangements targeting wealthy taxpayers may involve things like Charitable Remainder Annuity Trusts and monetized installment sales. The promoters often misapply the rules, leaving filers vulnerable. “People should seek out trusted, reputable tax advice and not be fooled by aggressive advertising,” says IRS commissioner Danny Werfel.
  • Bogus schemes to reduce or avoid taxes may involve syndicated conservation easements, micro-captive insurance arrangements. They can also involve international methods; hiding cash and digital assets offshore or using Maltese foreign individual retirement accounts or foreign captive insurance. 
  • A summary of the scams may be found here.

April 18 Deadline Reminder

The IRS reminds taxpayers that Tax Day, April 18, is also the deadline for first quarter estimated tax payments for tax year 2023. These payments are usually due from those who do not have taxes withheld from their paychecks throughout the year, such as the self-employed, retirees, investors, businesses and corporations. Income not subject to withholding includes interest, dividends, capital gains, alimony and rental income. Paying estimated taxes in a timely fashion will lessen and even eliminate any penalties. Eligible taxpayers in recent disaster areas in California, Alabama, Georgia and now Tennessee have several deadlines extended to make their estimated payments. A current list of areas qualifying for disaster relief can be found at Tax Relief in Disaster Situations.

Debunking Tax Myths

“I don’t need to report income since I didn’t receive a Form 1099-K.” “If I file an extension, I don’t have to pay anything until October.” Find the truth about these and other myths before Tax Day.

 

IRS Tax Updates

Filing Season Scams Abound

The IRS has issued an alert warning taxpayers of new scams that urge people to claim false tax credits with inaccurate wage information. One scheme encourages people to use tax software to manually fill out Form W-2, Wage and Tax Statement with false income information. Scam artists instruct people to use the bogus information in their electronically-filed return with the aim of getting a large refund. A variation of the scam involves using Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals to claim a credit based on income earned as an employee. These credits are not available for 2022 tax returns. 

Another warning has been renewed, urging people to carefully review the Employee Retention Credit (ERC) guidelines before trying to claim the credit. Third parties are aggressively pushing ineligible people to use this, misleading people and businesses into thinking they can claim these credits. Penalties are wide-ranging and may include a $5000 fine or criminal prosecution. Those who have participated in such schemes can amend a previous return or consult with a trusted tax professional.

Digital Intake Ramps Up

The IRS has announced an expansion of digital scanning, having already scanned more than 120,000 paper Forms 940 since the beginning of the year. This is a 20-fold increase compared to all of 2022. The effort will expand soon to include scanning of Forms 1040 and Forms 941. The IRS has used various technologies to scan tax returns over the years, but recently took a leap forward thanks to the Inflation Reduction Act. Most tax returns are filed electronically but millions of forms are still filed by paper. With an increased capability to scan and electronically process these paper returns, the IRS will be able to shorten overall processing time.

Retiree Reminder: April 1 Deadline Approaches

The IRS reminds retirees who turned 72 during 2022 that, in most cases, Saturday, April 1, 2023 is the last day to begin receiving payments from Individual Retirement Arrangements (IRAs), 401(k)s and similar workplace retirement plans. These payments, called required minimum distributions (RMDs) are normally made by the end of the year. However, those who reached age 72 during 2022 are covered by a special rule that allows them to wait until as late as April 1, 2023 to take their first RMD. This delayed deadline only applies to the RMD for the first year. In subsequent years the RMD must be made by the year’s end. This means that those who opt for their 2022 RMD by April 1 must still receive their 2023 RMD by December 31, 2023. Both RMDs are taxable and will be reported on the 2023 tax return. Visit the RMD FAQs page for more information.

 

Tax Updates Beginning March

Business E-File Regulations Finalized

The IRS and Treasury have issued final regulations amending the rules for filing returns and other documents electronically. Filers of partnership returns, corporate income tax returns, unrelated business income tax returns, withholding tax returns, some information returns and other statements, notifications, and reports will be required to e-file beginning in 2024. A new online portal has been created to help businesses file form 1099 returns electronically.

May 15 Disaster Area Deadlines Extended

Disaster area taxpayers in much of California and parts of Alabama and Georgia now have until Oct 16, 2023 to file various federal tax returns and make payments, the IRS has announced. Previously, the deadline had been postponed to May 15 for these areas. This deadline includes individual and business returns normally due on March 15 and April 18; returns of tax-exempt organizations normally due on May 15. Those affected also have until October 16 to make 2022 contributions to IRAs and health savings accounts. The deadline also applies to various tax payments. Current tax-related disaster information can always be found on the IRS Disaster Tax Relief page.

AMT Guidance for Insurance Providers Issued

The Treasury and IRS have issued Notice 2023-20 which provides interim guidance for insurance companies and some other taxpayers for the new corporate alternative minimum tax (CAMT) until proposed regulations are issued. The Inflation Reduction Act of 2022 created the CAMT, imposing a 15% minimum tax on the adjusted financial statement income of large corporations for taxable years beginning in 2023. Large corporations, including insurance companies, with adjusted financial statement income exceeding $1 billion will be those generally affected by the CAMT. Comments on the rules are welcome and must be submitted by April 3, 2023. 

2022 Return Tax Time Guide

The IRS reminds taxpayers to gather their necessary information and visit IRS.gov or their trusted tax preparer for help with their 2022 tax return. Several changes have been implemented due to the Inflation Reduction Act and American Rescue Plan Act, including the reduction in Earned Income Tax Credit, Child Tax Credit, and Child and Dependent Care Credit amounts. Additionally, those that don’t itemize cannot deduct their charitable contributions this year. More in the Tax Time Guide series will be forthcoming.

IRS Updates Mid- December

2020 Unemployment Exclusion FAQ Update

The IRS has updated the frequently asked questions (FAQs) for the 2020 unemployment compensation exclusion. The updates can be found in Fact Sheet 2022-39, and include questions regarding Form 1040-X; Impact to Income, Credits, and Deductions; Receiving a Refund, Letter, or Notice; and Finding the Unemployment Compensation Amount. 

New for 2023 Filing

Taxpayers are urged to note important changes to tax laws to be better prepared for filing their 2022 federal tax returns. Key changes include:

  • The reporting rules for Form 1099-K. Taxpayers should receive the form if they received third party payments (via Paypal, Venmo, CashApp, for instance) for goods and services that exceeded $600. Taxability of income has not changed, but while the Form was issued only for accounts that had a total of 200 transactions and totaled $20,000 or more for the year, the American Rescue Plan Act has significantly lowered that reporting threshold. 
  • Several Tax Credits return to 2019 levels. The Child Tax Credit of $3000 and $3600 per dependent in 2021 will be $2000; the Earned Income Tax Credit for eligible taxpayers with no children returns to $500 from $1500; the Child and Dependent Care Credit returns to a maximum of $2100 from $8000. 
  • No above-the-line charitable deductions. During COOVID, taxpayers could take up to a $600 charitable donation tax deduction, but for 2022 that is not available.
  • Eligibility rules for the clean vehicle tax credit have changed, thanks to the Inflation Reduction Act. 

More on the “Get Ready” page.

IRA, Retirement Withdrawals for Those Age 72+

The IRS reminds those born in 1950 or earlier that funds in their retirement plans and individual retirement arrangements (IRAs) have upcoming deadlines for required minimum distributions (RMDs) to avoid penalties. RMDs are minimum amounts that many plans and IRA account owners must generally withdraw after age 72. Account holders reaching age 72 in 2022 must take their first RMD by April 1, 2023 (and the second by December 31, 2023, and each year thereafter). In many workplace retirement plans the first RMD is due by April 1 of the year after they turn 72, or the participant is no longer employed. RMDs are taxable and may be subject to penalties if not taken on time. Not taking a required distribution, or not withdrawing enough, could mean a 50% excise tax on the amount not distributed.

Tax Updates November 28

IRA Owners Can Give, Tax-Free

The IRS reminds IRA owners age 70½ or over that they have the option to transfer up to $100,000 to charity tax-free each year. These qualified charitable distributions (QCDs) offer an easy way to give to charity before the end of the year. For those who are at least 72, QCDs count toward the required minimum distribution (RMD) for the year. Those interested in making a QCD for 2022 should contact their IRA trustee soon so the transaction can be completed in a timely manner. Typically, IRA distributions are taxable. However, a QCD paid directly from the IRA to an eligible charitable organization makes the distribution tax-free. An IRA owner age 70½ or over can exclude up to $100,000 of gross income with this method, and a married couple (both age 70½ or over, and both holding IRAs) can exclude a total of up to $200,000 per year. QCDs must be reported properly on the federal income tax return.

Five Year Plan in Spanish

The IRS has announced that the agency’s Strategic Plan for Fiscal Years 2022-2026 is now available in Spanish, for the first time ever. This aligns with their continued intentions of expanding tax resources in more languages and increasing product and service availability to support the needs of all communities. The Strategic Plan will guide the IRS’ programs and operations focusing on service to taxpayers, enforcement of tax law, strengthening relationships with non-agency partners, and transformation of the IRS into a more resilient, agile, and responsive agency, so as to narrow the tax gap. 

Get Ready to File

The IRS encourages taxpayers to take steps before the end of the year to make filing their 2022 federal tax return easier. With some preparation, awareness of tax changes, and online tools, taxpayers can be well equipped to handle the upcoming tax season. The Get Ready page offers information and organizing tips, and a list of available resources. Changes to this year’s tax laws should also be noted. For instance, the American Rescue Plan Act changed the information reporting threshold for third-party payment processing networks. Previously Form 1099-K would be issued if total transactions exceeded 200 for the year and totaled more than $20,000; now a single $600 transaction will trigger the form. This enables taxpayers to more easily track the amounts received. 

 

Late September IRS Updates

Improperly Forgiven PPP Loans are Taxable

The IRS has released guidance addressing improper forgiveness of Paycheck Protection Program (PPP) loans. When a PPP loan is forgiven based upon misrepresentations or omissions, the taxpayer is not eligible to exclude the forgiven loan proceeds from taxable income. Taxpayers who inappropriately received PPP loan forgiveness are encouraged to file amended returns and come into compliance. 

September 30 Deadline for COVID Penalty Relief

The IRS reminds struggling individuals and businesses affected by the pandemic that they may qualify for late-filing penalty relief if they file their 2019 and 2020 returns by September 30, 2022. This aims to help not only taxpayers but to allow the IRS to focus resources on processing backlogged tax returns in an effort to return to normal operations for the 2023 filing season. The relief applies to the failure-to-file penalty, usually assessed at a rate of 5% per month, up to 25% of the unpaid tax, when a return is filed late.

Victim Relief Abounds

  • Victims of storms and flooding that began on September 15 in parts of Alaska now have until February 15, 2023, to file various individual and business tax returns and make tax payments. This applies to those in FEMA-designated areas, currently the Regional Education Attendance Areas of Bering Strait, Kashunamiut, Lower Kuskokwim and Lower Yukon. 
  • Hurricane Fiona victims in all 78 Puerto Rican municipalities also have until February 15, 2023, to file various returns and make payments. 
  • Farmers and ranchers in applicable regions forced to sell livestock because of drought conditions have more time to replace their livestock and defer tax on any gains from the forced sales. This includes parts of 44 states, and generally applies to gains realized on the sales of draft, dairy, or breeding livestock. Sales of other livestock held for slaughter or sport, or poultry, are not eligible. More information is available in Notice 2022-43.
  • Look for much of Florida to be offered relief shortly. Updated localities are always available on the disaster relief page of IRS.gov.
  • Employers using payroll service providers should ensure their provider has a fiduciary bond in place to protect the employer against a possible default. Using the Electronic Federal Tax Payment System (EFTPS) to make federal tax deposits and business tax payments makes it easy and convenient to pay the government even when disaster displaces employees and businesses. Any business can create an EFTPS account.

Reconstructing records after a disaster may be required for tax or insurance purposes or getting federal assistance. For more information, visit National Preparedness Month.

IRS Updates End of June

Expanded Voice Bot Assistance

To help improve taxpayers’ experiences with the department, the IRS has expanded the voice bot capabilities of their customer service phone lines. Now, in addition to general and procedural answers to Economic Impact Payment (EIP) or Advance Child Tax Credit queries and other toll-free lines, voice bots will be able to help eligible taxpayers verify their identity to set up or modify a payment plan – without the long wait times. More functions are planned to be rolled out this year, including the ability to get account and return transcripts, payment history and current balance information. 

Processing Backlog Progresses

The IRS is finally wrapping up the last of the paper individual tax returns (Form 1040, error-free) filed in 2021. Due to the pandemic and staffing limits, there are about twice as many returns awaiting processing at this point compared to a typical year. Steps have been taken to address this backlog and keep up with returns filed this year. Business paper returns filed in 2021 are next, while the IRS continues to work on the remaining individual returns that need corrections or additional information. Taxpayers are encouraged to file their returns electronically to avoid future processing delays.

Electronic Corrections, Amendments Expanded

The IRS has announced that more forms can now be amended electronically, including Form 1040-NR (US Nonresident Alien Income Tax Return), Forms 1040-SS (US Self-Employment Tax Return) and Forms 1040-PR (Self-Employment Tax Return – Puerto Rico). This development will assist the IRS in avoiding continued processing backlogs. Forms 1040-X and other corrected forms have had electronic filing options in place in recent years, and paper versions of the forms may still be submitted.

Reinstated Superfund Chemical Tax FAQ

The IRS issued frequently asked questions (FAQs) regarding the reinstated Superfund chemical excise tax. Thanks to the Infrastructure Investment and Jobs Act (IIJA), beginning July 1, 2022, excise taxes on certain chemicals and imported chemical substances will be reinstated. The FAQs detail what the Superfund chemical excise tax is, how the tax is computed, and who may be liable for the tax. Currently 151 substances are listed as taxable, though that number will likely change.

 

Tax Updates Mid April

Educator Expense Deduction to Increase

For the first time since it was enacted in 2002, the special educator expense deduction limit has increased from $250 per year to $300 per year. The increase begins in 2022, so out-of-pocket classroom expenses for the current year can be claimed in the deduction when filing 2022 federal income tax return next year. Those filing for 2021 are still subject to the $250 limit. Deductible expenses include books, supplies, other classroom materials, professional development courses, computer equipment and software, and COVID-19 protective items such as face masks, hand sanitizer, disposal gloves, tape, paint or chalk to guide social distancing, and other CDC recommended items.

Foreign Account Report Deadline Approaches

The IRS reminds citizens and other entities that the deadline for filing their annual Report of Foreign Bank and Financial Accounts (FBAR) is April 15. However, those who miss the deadline will receive an automatic extension until October 15, 2022. An FBAR is required for those who have: (1) Financial interest in, signature authority or other authority over one or more accounts, such as a bank account, brokerage account, mutual fund or other financial account in a foreign country, and (2) The aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year. Civil and criminal penalties may apply for those who fail to report accurately.

First Quarter Deadline Approaches

The IRS reminds taxpayers that Monday, April 18 is the deadline to make estimated tax payments. This applies to the self-employed, retirees, investors, businesses and corporations. Taxes are “pay as you go” and for those who aren’t subject to payroll withholding, estimated taxes are paid quarterly. There is assistance for figuring one’s estimated taxes, as well as streamlined methods for making payments online.

EIP Letters, Corrections

The IRS has completed mailing Letters 6475 to recipients of the third round of Economic Impact Payments (EIPs) and reminds filers to double-check records when filing their 2021 tax return. Most people received the full amount in advance, but for those who didn’t, the 2021 Recovery Rebate Credit may be claimed. If a mistake was made regarding this credit on a 2021 return which has already been filed, an amended return is not necessary. The IRS will make the correction and, if the filer agrees with the correction, no action on their part is required. There may be a delay in processing a return that requires correction.