National Taxpayer Advocate | TaxConnections

04 Apr 2023

Small Business Filing And Recordkeeping Requirements

There are about 57 million small businesses and self-employed taxpayers in the United States, including:

Corporations and partnerships with assets less than $10 million
Sole proprietors
Independent contractors
Members of a partnership that carries on a trade or business
Others in business for themselves, even if the business is part-time
Gig workers (i.e., Uber/Lyft drivers, owners of Airbnb rentals, delivery services, etc.)

The Taxpayer Advocate Service is sharing the following information with small business taxpayers to:

Help you meet their filing requirements
Share resources for information and tax return preparation
Help you file accurate returns
Small Business Filing Requirements

Generally, the federal tax forms you will need to file vary depending on the type of business:
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Written by National Taxpayer Advocate | Posted in Recordkeeping Requirements • Small Business

28 Mar 2023

Standard Mileage Deduction Rates Should Be Consistent For All Taxpayers

I and others have written tomes about the complexity of the tax code and the burdens that tax law complexity imposes on taxpayers and the IRS alike. Taxpayers (and tax professionals) are often left wanting to pull out their hair, and comedians often mine the tax code for fresh material, especially during tax season.

In my recent report to Congress, I identified one issue that’s a poster child for tax law complexity.

To illustrate the absurdity of the issue, let’s start with an analogy. Have you ever gone into a supermarket to buy a gallon of milk and seen the following sign?

Price of a Gallon of Milk
Customer Price
Men $4.00
Women $3.00
College Students $2.00

I have never seen a sign like that, and I’m guessing you haven’t either.

Yet this is a close analog to the rules governing the deduction for automobile expenses. One would think the cost of operating an automobile (i.e., gas plus wear and tear) would be the same regardless of the circumstance. Yet the current standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical transport, or military relocation purposes are as follows:

Tax Deduction For Automobile Usage
Taxpayer/Purpose Deduction Per Mile
Business Use 65.5¢
Charitable Use 14¢
Medical Transport/Military Relocation 22¢

There are times when tax professionals analyze the intricacies of seemingly absurd legal distinctions and almost see them as logical – until they have to explain them in plain language to a client.
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Written by National Taxpayer Advocate | Posted in Standard Mileage Deduction Rates

10 Feb 2023

The IRS Must Be Proactive In Issuing Timely And Clear Guidance To Resolve Tax Reporting Ambiguities

I have written frequently about the burdens the complexity of the Internal Revenue Code imposes on taxpayers and the IRS alike. One of the burdens it imposes on the IRS and its Office of Chief Counsel is the responsibility to clarify ambiguities in the law and make reporting requirements workable so that taxpayers, tax professionals, and tax return software developers know how to report items of income, deduction, and credit on federal income tax returns.

The IRS must issue guidance and provide education in a proactive and timely manner. Timely guidance is vital to taxpayers, tax professionals, and industry, and it is just good tax administration. It is key to eliminating confusion and frustration for taxpayers and tax professionals, earning the trust of the American people, and providing quality service. Sometimes, timing is everything.

While the IRS deserves credit for the volume of guidance it provides, there are times when it delays or fails to issue timely guidance and thereby creates serious problems, including uncertainty and confusion, for taxpayers, tax professionals, and tax software developers. Two recent, well-publicized examples stand out as instances where the IRS missed the boat.

Special State Tax Refunds or Payments
The first example relates to the federal tax treatment of special state tax refunds or payments to residents of more than 20 states. Among these states are California, Massachusetts, and Virginia. In California, taxpayers who filed 2020 California tax returns reporting adjusted gross incomes up to $500,000 for a joint return or $250,000 for a single return were eligible for Middle Class Tax Relief benefits worth up to $1,050. To date, nearly 17 million payments have been made.

Are they taxable for federal income tax purposes?
The State of California thinks the answer may be yes. The California Franchise Tax Board website says: “Individuals who received a California Middle Class Tax Refund (MCTR) of $600 or more will receive a 1099-MISC for this payment… The MCTR payment may be considered federal income. You should consult IRS Publication 525, Taxable and Nontaxable Income, or your tax professional regarding the federal tax treatment of this payment.”

The Commonwealth of Virginia largely agrees. It provided a one-time tax rebate, and its Department of Taxation’s website says: “If you itemized your deductions, you may be required to report the rebate amount you received as income on your federal return. You’ll receive a Form 1099G in the mail, just like you would if you received a state tax refund.”
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Written by National Taxpayer Advocate | Posted in National Taxpayer Advocate • Tax Reporting Ambiguities

19 Jan 2023

The National Taxpayer Advocate’s Annual Report To Congress

ERIN COLLINS - NATIONAL TAXPAYER ADVOCATE

The National Taxpayer Advocate’s Annual Report to Congress identifies taxpayers’ problems and provides suggestions to further protect taxpayer rights and ease taxpayer burden.

National Taxpayer Advocate 2023 Purple Book: Compilation of Legislative Recommendations to Strengthen Taxpayer Rights and Improve Tax Administration

INTRODUCTION

STRENGTHEN TAXPAYER RIGHTS AND TAXPAYER SERVICE

Elevate the Importance of the Taxpayer Bill of Rights by Redesignating It as Section 1 of the Internal Revenue Code

IMPROVE THE FILING PROCESS

IMPROVE ASSESSMENT AND COLLECTION PROCEDURES

Written by National Taxpayer Advocate | Posted in National Taxpayer Advocate • TaxConnections

30 Nov 2022

What The Inflation Reduction Act Means for You

The Inflation Reduction Act, which includes expanded or extended tax credits and additional funding for the IRS, was signed into law on August 16, 2022.

How could the Inflation Reduction Act impact you when filing your next tax return?

Below is a simplified summary of how the Inflation Reduction Act may affect you.

Health Care

The Inflation Reduction Act includes:

Extension of Affordable Care Act (ACA) funding through 2025. This funding, which was due to expire at the end of 2022, will allow consumers to continue to buy insurance with lower premiums through the Health Insurance Marketplace (also referred to as the Marketplace or the Exchange).
Extension of the American Rescue Plan Act (ARPA) temporary exception that allows taxpayers with incomes above 400 percent of the Federal Poverty Level to qualify for the Premium Tax Credit.

Energy Efficient Home Improvement Credit

The Nonbusiness Energy Property Credit was extended through 2032 and renamed the Energy Efficient Home Improvement Credit.

Starting in 2023, the credit will be equal to 30 percent of the costs of all eligible home improvements made during the year. Additionally:

Written by National Taxpayer Advocate | Posted in The Inflation Reduction Act

02 Nov 2022

What The Inflation Reduction Act Means For You

The Inflation Reduction Act, which includes expanded or extended tax credits and additional funding for the IRS, was signed into law on August 16, 2022.

How could the Inflation Reduction Act impact you when filing your next tax return?

Below is a simplified summary of how the Inflation Reduction Act may affect you.

Health Care

The Inflation Reduction Act includes:

Extension of Affordable Care Act (ACA) funding through 2025. This funding, which was due to expire at the end of 2022, will allow consumers to continue to buy insurance with lower premiums through the Health Insurance Marketplace (also referred to as the Marketplace or the Exchange).
Extension of the American Rescue Plan Act (ARPA) temporary exception that allows taxpayers with incomes above 400 percent of the Federal Poverty Level to qualify for the Premium Tax Credit.

Energy Efficient Home Improvement Credit

Written by National Taxpayer Advocate | Posted in Inflation Reduction Act 2022

16 Sep 2022

What The Inflation Reduction Act Means For You

The Inflation Reduction Act, which includes expanded or extended tax credits and additional funding for the IRS, was signed into law on August 16, 2022.

How could the Inflation Reduction Act impact you when filing your next tax return?

Below is a simplified summary of how the Inflation Reduction Act may affect you.

Health Care

The Inflation Reduction Act includes:

Extension of Affordable Care Act (ACA) funding through 2025. This funding, which was due to expire at the end of 2022, will allow consumers to continue to buy insurance with lower premiums through the Health Insurance Marketplace (also referred to as the Marketplace or the Exchange).
Extension of the American Rescue Plan Act (ARPA) temporary exception that allows taxpayers with incomes above 400 percent of the Federal Poverty Level to qualify for the Premium Tax Credit.

Energy Efficient Home Improvement Credit

The Nonbusiness Energy Property Credit was extended through 2032 and renamed the Energy Efficient Home Improvement Credit.

Starting in 2023, the credit will be equal to 30 percent of the costs of all eligible home improvements made during the year. Additionally:

Written by National Taxpayer Advocate | Posted in Inflation Reduction Act of 2022 • National Taxpayer Advocate

15 Sep 2022

National Taxpayer Advocate Reimagines The IRS With A Dramatically Improved Experience: Part 1

IRS Wants To Improve Taxpayer Experience

Last month, Congress passed the Inflation Reduction Act (IRA22), which provides the IRS with supplemental funding of nearly $80 billion over the next ten years. More than half the funding has been earmarked for tax law enforcement, and that has attracted a good deal of public attention. But the legislation also provides about $3.2 billion for taxpayer services, including pre-filing assistance and education, filing and account services, and taxpayer advocacy services; $4.8 billion to modernize the IRS’s information technology (IT) systems, including development of callback technology and other technology to provide a more personalized customer service; and $25.3 billion to support its taxpayer service and enforcement operations, including rent payments, facilities services, printing, postage, physical security, research and statistics of income, telecommunications, and information technology operations and maintenance.

This additional funding should be a game changer for taxpayers and practitioners alike. If spent wisely, the funding will give IRS management the resources it needs to bring U.S. tax administration into the 21^st century by enabling it to hire and train the workforce of the future, replace its antiquated IT systems, and generally revamp the taxpayer experience based on principles of fair and equitable tax administration. I am excited to be part of this historic effort, and I am optimistic that taxpayer service will significantly improve in the near future.

As most readers of this blog know, the National Taxpayer Advocate is required by law to submit two annual reports to Congress that, among other things, make administrative recommendations to mitigate taxpayer problems. Frequently, IRS leaders tell us they agree with our recommendations in concept, but they lack the resources to implement them. With the supplemental funding it has received, now is the time to act on my recommendations.

Written by National Taxpayer Advocate | Posted in National Taxpayer Advocate

19 Jul 2022

Some of Our Nation’s Most Vulnerable Taxpayers Will Automatically Have Their Accounts Excluded From Assignment To Private Collection Agencies

Background: Since 2018, TAS has been urging the IRS to stop assigning to private collection agencies (PCAs) the accounts of taxpayers who receive Supplemental Security Income (SSI) or Social Security Disability Income (SSDI). In 2019, Congress passed the Taxpayer First Act (TFA), which required the IRS to exclude these accounts. Specifically, TFA § 1205(a) amended Internal Revenue Code § 6306(d)(3) to exclude from assignment to PCAs the debts of taxpayers “substantially all of whose income consists of disability insurance benefits under section 223 of the Social Security Act or supplemental security income benefits under title XVI of the Social Security Act.”

The IRS had no trouble systemically excluding the accounts of taxpayers who receive SSDI. SSDI payments are reported to the IRS by the Social Security Administration (SSA) on Form 1099, and the IRS therefore knows the identities of SSDI recipients. But the IRS was not able to systemically exclude the accounts of taxpayers who receive SSI benefits. The SSA does not issue 1099s with respect to SSI recipients, and the SSA took the position that privacy law barred it from sharing the names of SSI recipients with the IRS.

In the Consolidated Appropriations Act, 2021, Congress fixed this. It authorized the Secretary of the Treasury to disclose to SSA the identities of taxpayers whose delinquent accounts are eligible for PCA assignment, and it required the SSA Commissioner to enter into an agreement with the Secretary of the Treasury under which the SSA indicates whether such individuals receive SSI or SSDI benefits. Over the past 18 months, the IRS and the SSA have been working out procedures to allow for computer matching the list of SSI recipients against the list of taxpayers with delinquent accounts otherwise eligible for PCA assignment.

Written by National Taxpayer Advocate | Posted in National Taxpayer Advocate

06 Jul 2022

Tax Return Backlog Is Still Crushing IRS

National Taxpayer Advocate Erin M. Collins released her statutorily mandated mid-year report to Congress. The report expresses concern about continuing delays in the processing of paper-filed tax returns and the consequent impact on taxpayer refunds. At the end of May, the agency had a backlog of 21.3 million unprocessed paper tax returns, an increase of 1.3 million over the same time last year.

“The IRS has said it is aiming to crush the backlogged inventory this year, and I hope it succeeds,” Collins wrote. “Unfortunately, at this point the backlog is still crushing the IRS, its employees, and most importantly, taxpayers. As such, the agency is continuing to explore additional processing strategies.”

Backlog of Unprocessed Paper Tax Returns

Written by National Taxpayer Advocate | Posted in National Taxpayer Advocate

30 Jun 2022

Some Of Our Nation’s Most Vulnerable Taxpayers Will Automatically Have Their Accounts Excluded From Assignment To Private Collection Agencies

Written by National Taxpayer Advocate | Posted in National Taxpayer Advocate

24 Jun 2022

National Taxpayer Advocate Issues Midyear Report To Congress

Congressional Report - National Taxpayer Advocate

National Taxpayer Advocate Issues Midyear Report To Congress; Expresses Concern About Continued Refund Delays And Poor Taxpayer Service

WASHINGTON — National Taxpayer Advocate Erin M. Collins released her statutorily mandated midyear report to Congress. The report expresses concern about continuing delays in the processing of paper-filed tax returns and the consequent impact on taxpayer refunds. At the end of May, the agency had a backlog of 21.3 million unprocessed paper tax returns, an increase of 1.3 million over the same time last year.

The report points out that the significant majority of individual taxpayers receive refunds. “At the end of the day, a typical taxpayer cares most about receiving his or her refund timely,” Collins wrote. “Particularly for lower income taxpayers who receive Earned Income Tax Credit benefits, tax refunds may constitute a significant percentage of their household income for the year. Thus, these processing delays are creating unprecedented financial difficulties for millions of taxpayers and outright hardships for many.”

Among business taxpayers, many have been waiting extended periods to receive Employee Tax Retention Credits for which they are eligible, in addition to their regular refunds.

Key taxpayer challenges this year have included return processing delays, correspondence processing delays, and difficulty reaching the IRS by phone.

Backlog of Unprocessed Paper Tax Returns

Written by National Taxpayer Advocate | Posted in National Taxpayer Advocate • National Taxpayer Advocate Report