IRS Notice | TaxConnections

12 Sep 2023

IRS Focused On On High-Income, Partnerships, Corporations And Promoters Abusing Tax Rules On The Books

IRS announces sweeping effort to restore fairness to tax system with Inflation Reduction Act funding; new compliance efforts focused on increasing scrutiny on high-income, partnerships, corporations and promoters abusing tax rules on the books.

Agency focus will shift attention to wealthy from working-class taxpayers; key changes coming to reduce burden on average taxpayers while using Artificial Intelligence and improved technology to identify sophisticated schemes to avoid taxes.
WASHINGTON — Capitalizing on Inflation Reduction Act funding and following a top-to-bottom review of enforcement efforts, the Internal Revenue Service announced today the start of a sweeping, historic effort to restore fairness in tax compliance by shifting more attention onto high-income earners, partnerships, large corporations and promoters abusing the nation’s tax laws.

The effort, building off work following last August’s IRA funding, will center on adding more attention on wealthy, partnerships and other high earners that have seen sharp drops in audit rates for these taxpayer segments during the past decade. The changes will be driven with the help of improved technology as well as Artificial Intelligence that will help IRS compliance teams better detect tax cheating, identify emerging compliance threats and improve case selection tools to avoid burdening taxpayers with needless “no-change” audits.

As part of the effort, the IRS will also ensure audit rates do not increase for those earning less than $400,000 a year as well as adding new fairness safeguards for those claiming the Earned Income Tax Credit. The EITC was designed to help workers with modest incomes. Audit rates of those receiving the EITC remain at high levels in recent years while rates dropped precipitously for those with higher income, partnerships and others with more complex tax situations. The IRS will also be working to ensure unscrupulous tax preparers do not exploit people claiming these important tax credits.
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Written by TaxConnections Admin | Posted in IRS Notice • TaxConnections

07 Sep 2023

IRS Reminder: Make Sure To Understand Recent Changes When Buying A Clean Vehicle

The Internal Revenue Service reminded consumers considering an automobile purchase to be sure to understand several recent changes to the new Clean Vehicle Credit for qualified plug-in electric drive vehicles, including qualified manufacturers and tax rules.

The Inflation Reduction Act of 2022 (IRA) made several changes to the new Clean Vehicle Credit for qualified plug-in electric drive motor vehicles, including adding fuel cell vehicles. The IRA also added a new credit for previously owned and commercial clean vehicles.

Before taxpayers purchase a clean vehicle they should be sure that the vehicle was made by a qualified manufacturer. Taxpayers must also meet other requirements such as the modified adjusted gross income limits.

To be a qualified manufacturer, the manufacturer must enter into an approved agreement with the Internal Revenue Service and supply the IRS with valid vehicle identification numbers (VINs) that can later be matched at the time of filing to the VIN reported on the return.

When purchasing a new or used clean vehicle, purchasers should check if the make and model are eligible. In addition, for a new or used clean vehicle to be eligible for a Clean Vehicle Credit, the seller must provide the buyer with a seller report verifying that the vehicle purchased will qualify for the credit, which will include the make, model, and VIN.

Also, the clean vehicles tax credits are non-refundable, meaning that they can increase a refund or reduce the amount of tax owed, they cannot be used to create a tax refund.

The amount of tax owed will determine if the full amount or only a portion of the credit can be claimed.

For more information on these credits and other clean energy credits related to the Inflation Reduction Act, check Credits and Deductions Under the Inflation Reduction Act of 2022.

IR-2023-160

Written by TaxConnections Admin | Posted in Buying A Clean Vehicle • IRS Notice

10 Aug 2023

IRS Cautions Plan Sponsors To Be Alert To Compliance Issues Associated With ESOPs

As part of an expanded focus on ensuring high-income taxpayers pay what they owe, the Internal Revenue Service today warned businesses and tax professionals to be alert to a range of compliance issues that can be associated with Employee Stock Ownership Plans (ESOPs).

“The IRS is focusing on this transaction as part of the effort to ensure our tax laws are applied fairly and high-income filers pay the taxes they owe,” IRS Commissioner Danny Werfel said. “This means spotting aggressive tax claims as they emerge and warning taxpayers. Businesses and individual taxpayers should seek advice from an independent and trusted tax professional instead of promoters focused on marketing questionable transactions that could lead to bigger trouble.”

Werfel noted the IRS is working to ensure high-income filers pay the taxes they owe. Prior to the Inflation Reduction Act, more than a decade of budget cuts prevented IRS from keeping pace with the increasingly complicated set of tools that the wealthiest taxpayers may use to hide their income and evade paying their share.

“The IRS is now taking swift and aggressive action to close this gap,” Werfel said. “Part of that includes alerting higher-income taxpayers and businesses to compliance issues and aggressive schemes involving complex or questionable transactions, including those involving ESOPs.”
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Written by TaxConnections Admin | Posted in ESOP • IRS Notice

12 Apr 2023

IRS: Early Filers Who Reported Certain State Tax Refunds As Taxable Should Consider Filing Amended Returns

The Internal Revenue Service said that taxpayers who filed their federal income taxes early in this year’s filing season and reported certain state 2022 tax refunds as taxable income should consider filing an amended return.

On Feb. 10, 2023, the IRS provided details clarifying the federal tax status involving special payments made to taxpayers by 21 states in 2022. During a review, the IRS determined that in the interest of sound tax administration and other factors, taxpayers in many states did not need to report these payments on their 2022 tax returns. Consequently, the IRS will not challenge the taxability of state payments related to general welfare and disaster relief.

This means people in the following states don’t need to report these state payments on their 2022 tax return: California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania and Rhode Island. Alaska is in this group as well, but the determination applies only to the special supplemental Energy Relief Payment received.

Taxpayers can see a listing of individual states and the federal tax treatment of their special state refunds or rebates listed on this online chart.
In addition, many people in Georgia, Massachusetts, South Carolina, and Virginia will not include special state 2022 tax refunds as income for federal tax purposes if they meet certain requirements. For these individuals, state payments will not be included for federal tax purposes if the payment is a refund of state taxes paid and the recipient either claimed the standard deduction for tax year 2022 or itemized their tax year 2022 deductions but did not receive a tax benefit.
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Written by TaxConnections Admin | Posted in IRS Notice

15 Mar 2023

Internal Revenue Service Announces Changes To Bridge Phase Of Compliance Assurance Process (CAP) Program

WASHINGTON — The Internal Revenue Service announced changes to the Bridge phase of the Compliance Assurance Process (CAP) program. CAP is a cooperative pre-filing program for large corporate taxpayers.

The CAP program began in 2005 as a way to resolve tax issues through open, cooperative and transparent interactions between the IRS and taxpayers before the filing of a return.

The IRS made significant changes to the program in 2019 to improve its operation and to ensure the best use of limited government resources. One outcome of this change was the development of the Bridge phase in CAP, which is reserved for taxpayers whose risk of noncompliance does not support the continued use of IRS compliance resources.

During the Bridge phase, the IRS will not accept any disclosures, conduct any reviews or provide any assurances. In the three years since its inception, the IRS has received consistent feedback from taxpayers that participation in the Bridge phase deprives them of the most important aspect of CAP – the review by the IRS.

Due to this feedback, the IRS has developed a new pilot phase called “Bridge Plus.” Taxpayers will be required to provide book-to-tax reconciliations, credit utilization and other supporting documentation shortly after their audited financial statement is finalized. An IRS team will risk-assess the documents to determine if the taxpayer is suitable for the Bridge Plus phase.
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Written by TaxConnections Admin | Posted in Compliance Assurance Process (CAP) • IRS Notice

09 Mar 2023

IRS Expands Secure Digital Correspondence For Taxpayers

The Internal Revenue Service is applying technology to provide a more efficient way for taxpayers or their tax professional to submit requested documentation online instead of mailing it to the IRS.

To help people understand this new feature, the IRS is providing additional details about this important new time-saving initiative.

The IRS Document Upload Tool enables digital correspondence with the taxpayer by providing a URL and a time-limited unique access code to a specific taxpayer so they can upload their documents to the IRS. Access originates with the IRS, and it isn’t available for certain documents, such as those requiring physical signatures.

Nine Notices Added To Project, More To Come…

In early 2023, the IRS began including online correspondence as an option on nine of the CP series notices, potentially affecting more than 500,000 taxpayers each year. Taxpayers who receive one of the following notices with the link and access code can choose to upload their documents:
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Written by TaxConnections Admin | Posted in IRS Digital Correspondence • IRS Notice

08 Mar 2023

IRS Issues Renewed Warning On Employee Retention Credit

IRS issues renewed warning on Employee Retention Credit claims; false claims generate compliance risk for people and businesses claiming credit improperly…

The Internal Revenue Service today issued a renewed warning urging people to carefully review the Employee Retention Credit (ERC) guidelines before trying to claim the credit as promoters continue pushing ineligible people to file.

The IRS and tax professionals continue to see third parties aggressively promoting these ERC schemes on radio and online. These promoters charge large upfront fees or a fee that is contingent on the amount of the refund. And the promoters may not inform taxpayers that wage deductions claimed on the business’ federal income tax return must be reduced by the amount of the credit.

“While this is a legitimate credit that has provided a financial lifeline to millions of businesses, there continue to be promoters who aggressively mislead people and businesses into thinking they can claim these credits,” said Acting IRS Commissioner Doug O’Donnell. “Anyone who is considering claiming this credit needs to carefully review the guidelines. If the tax professional they’re using raises questions about the accuracy of the Employee Retention Credit claim, people should listen to their advice. The IRS is actively auditing and conducting criminal investigations related to these false claims. People need to think twice before claiming this.”

The IRS has been warning about this scheme since last fall, but there continue to be attempts to claim the ERC during the 2023 tax filing season. Tax professionals note they continue to be pressured by people wanting to claim credits improperly. The IRS Office of Professional Responsibility is working on additional guidance for the tax professional community that will be available in the near future.
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Written by TaxConnections Admin | Posted in Employee Retention Tax Credit • IRS Notice

28 Feb 2023

IRS Announces New Pilot Phase For Compliance Assurance Process Program

The Internal Revenue Service announced changes to the Bridge phase of the Compliance Assurance Process (CAP) program. CAP is a cooperative pre-filing program for large corporate taxpayers.

The CAP program began in 2005 as a way to resolve tax issues through open, cooperative and transparent interactions between the IRS and taxpayers before the filing of a return.

Written by TaxConnections Admin | Posted in IRS Notice

16 Nov 2021

IRS Online Tool Helps U.S. Withholding Agents Validate 1042-S Data Prior To Filing

The Internal Revenue Service launched a new online tool designed to help U.S. withholding agents comply with their reporting and withholding responsibilities with respect to IRS Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding.

The tool performs a quality review of data before submission to the IRS. Use of the tool does not change a withholding agent’s obligations to file Forms 1042-S with the IRS and furnish a copy of the Form 1042-S to the payee.

“U.S. withholding agents play an important role in helping the IRS administer the tax code so we are delighted to be able to provide this tool free of charge to assist agents in meeting their filing requirement,” said Nikole Flax, IRS Large Business and International division commissioner.

Written by TaxConnections Admin | Posted in IRS Notice

03 Nov 2021

IRS Delivers 15 Billion In Child Tax Credit Payments In 4th Quarter As Part Of Their Child Tax Credit Program

In October, the IRS delivered a fourth monthly round of approximately 36 million Child Tax Credit payments totaling $15 billion. As part of the continuing process of building out the advance CTC program, which has included outreach to bring in previous non-filers and the launch of the CTC Update Portal that has allowed millions of taxpayers to choose options for their payments, the IRS has also identified certain payees who appear to have mistakenly received advance CTC payments. These payments were made in July, August, and September for children who are too old to qualify for payments or, in some cases, for children who were claimed on multiple tax returns. Fewer than 1% of advance monthly payments fall into these categories. Starting with the October payments, the individuals who received those payments (approximately 220, 000 people) will stop receiving payments.

Written by TaxConnections Admin | Posted in IRS Notice

22 Sep 2021

Thousands Of Taxpayers Received Inaccurate Collection Notices From IRS

MEMORANDUM FOR: COMMISSIONER OF INTERNAL REVENUE

FROM: Michael E. McKenney
Deputy Inspector General for Audit

SUBJECT: Final Audit Report – People First Initiative Actions Helped Taxpayers During the Pandemic; However, Many Taxpayers Received Inaccurate Collection Notices (Audit # 202030628)

This report presents the results of our review to evaluate actions taken by the Small Business/ Self-Employed Division to assist taxpayers in response to the Coronavirus Disease 2019 (COVID-19) pandemic. This review is part of our Fiscal Year 2021 Annual Audit Plan and addresses the major management and performance challenge of Responding to the COVID-19 Pandemic.

Management’s complete response to the draft report is included as Appendix III. Copies of this report are also being sent to the Internal Revenue Service managers affected by the report recommendation.

Report Number: 2021-36-060

Written by TaxConnections Admin | Posted in IRS Notice

13 Jul 2021

IRS Warning About Promoted Abusive Arrangements

IRS wraps up its 2021 “Dirty Dozen” scams list with warning about promoted abusive arrangements.

The Internal Revenue Service concludes the “Dirty Dozen” list of tax scams with a warning to taxpayers to watch out for schemes peddled by tax promoters, including syndicated conservation easements, abusive micro-captive insurance arrangements and other abusive arrangements.

The IRS warns people to be on the lookout for promoters who peddle false hopes of large tax deductions from abusive arrangements. These “deals” are generally marketed by unscrupulous promoters who make false claims about their legitimacy and charge high fees to boot. These promoters frequently devise new ways to cheat the system and market them aggressively. Some taxpayers play the audit lottery hoping they don’t get noticed.

Written by IRS | Posted in IRS Notice