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The Dirty Dozen

04/05/2023

Here they are, the list that the IRS calls “The Dirty Dozen.” The IRS indicates that the scams are running rampant, so practitioners and taxpayers should beware!   

 

 For a detailed description of each scam, please refer to the list below:

  1. IR-2023-67, Dirty Dozen: Beware of abusive tax avoidance schemes
  2. IR-2023-65, Dirty Dozen: Watch out for schemes aimed at high-income filers; Charitable Remainder Annuity Trusts, monetized installment sales carry risk
  3. IR-2023-63, Dirty Dozen: Watch out for Offer in Compromise "mills" where promoters claim their services are needed to settle IRS debts
  4. IR-2023-62, Dirty Dozen: IRS urges tax pros and other businesses to beware of spearphishing; offers tips to avoid dangerous common scams
  5. IR-2023-61, Dirty Dozen: Taking tax advice on social media can be bad news for taxpayers; schemes circulating involving tax forms
  6. IR-2023-59, Dirty Dozen: IRS warns individuals to stay clear of shady tax preparers; offers tips on carefully choosing tax professionals
  7. IR-2023-57, Dirty Dozen: IRS warns of scammers using fake charities to exploit taxpayers
  8. IR-2023-55, Dirty Dozen: Watch out for third-party promoters of false fuel tax credit claims
  9. IR-2023-54, Dirty Dozen: IRS warns of scammers offering “help” to set up an Online Account; creates identity theft risk for honest taxpayers
  10. IR-2023-51, Dirty Dozen: Watch out for scammers using email and text messages to try tricking people during tax season
  11. IR-2023-49, IRS opens 2023 Dirty Dozen with warning about Employee Retention Credit claims; increased scrutiny follows aggressive promoters making offers too good to be true

Dirty Dozen: IRS scam list includes spear-phishing warning to tax pros - Journal of Accountancy

Dirty Dozen | Internal Revenue Service (irs.gov)

Posted at 01:39 PM | | Comments (0)

Yes! IRS Begins Scanning 940s

03/09/2023

In IR-2023-41, the IRS announced that it’s off to a good start with the digital scanning of Form 940, Employer’s Annual Federal Unemployment Tax Return. In addition to contracts with industry partners, the IRS is using Treasury's designated financial agents to scan as they process incoming payments. This will soon transition to include the scanning of Form 941, Employer’s Quarterly Federal Tax Return and, eventually, the 1040.

"This expansion of scanning is another milestone for the IRS as we work to transform the agency," said Acting IRS Commissioner Doug O'Donnell. "We anticipate expanding scanning of more paper returns in the near future, saving time and creating efficiencies for taxpayers, the business community as well as tax professionals and the IRS."

TXCPA’s Federal Tax Policy Committee urged Congress in August 2022 to require that the IRS implement modern technology for processing tax returns. The committee’s letter supported the National Taxpayer Advocate's push that scanning technology be in place by the start of the 2023 filing season.

Scanning should alleviate the reported 20% error rate due to manually processing the estimated 8 million paper returns that the IRS receives annually.

In a recent report, Putting Taxpayers First, the IRS committed to developing secure and sustainable solutions to improve the taxpayer experience by leveraging industry expertise to digitize paper inventories.

Welcome to the 21st century!

NTA Blog: IRS Deputy Commissioners Respond to Taxpayer Advocate Directive on Scanning Technology; National Taxpayer Advocate Appeals Decision to IRS Commissioner - TAS

Posted at 08:06 AM | | Comments (0)

IRS Issues Renewed Warning on Employee Retention Credit Claims

03/08/2023

In Notice IR-2023-40, the IRS 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. 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 ERC 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.

People and businesses can avoid this scheme by not filing improper claims in the first place. If the business filed an income tax return deducting qualified wages before it filed an employment tax return claiming the credit, the business should file an amended income tax return to correct any overstated wage deduction.

Businesses should be cautious of advertised schemes and direct solicitations promising tax savings that are too good to be true. Taxpayers are always responsible for the information reported on their tax returns. Improperly claiming the ERC could result in taxpayers being required to repay the credit along with penalties and interest.

What is the ERC?

The ERC is a refundable tax credit designed for businesses that continued paying employees while shut down due to the COVID-19 pandemic or that had significant declines in gross receipts from March 13, 2020, to Dec. 31, 2021. Eligible taxpayers can claim the ERC on an original or amended employment tax return for a period within those dates.

To be eligible for the ERC, employers must have:

As a reminder, only recovery startup businesses are eligible for the ERC in the fourth quarter of 2021. Additionally, for any quarter, eligible employers cannot claim the ERC on wages that were reported as payroll costs in obtaining PPP loan forgiveness or that were used to claim certain other tax credits.

To report tax-related illegal activities relating to ERC claims, submit by fax or mail a completed Form 14242, Report Suspected Abusive Tax Promotions or Preparers and any supporting materials to the IRS Lead Development Center in the Office of Promoter Investigations. Mail to:               

Internal Revenue Service Lead Development Center
Stop MS5040
24000 Avila Rd
Laguna Niguel, CA 92677-3405
Fax 877-477-9135

Employers should also report instances of fraud and IRS-related phishing attempts to the IRS at [email protected] and Treasury Inspector General for Tax Administration at 800-366-4484.

Go to IRS.gov to learn more about eligibility requirements and how to claim the ERC:

 Additional Information

Professional Responsibility and the Employee Retention Credit (govdelivery.com)

ERC claims on returns prepared by others raise questions for tax pros - Journal of Accountancy

Posted at 08:04 AM | | Comments (0)

TXCPA Committee Has Significant Concerns with Forms 3520 and 3520-A Penalty Assessments

02/24/2023

Today, TXCPA’s Federal Tax Policy (FTP) Committee responded to the IRS public comments period on forms related to certain foreign trust transactions. The committee is concerned that the IRS’ current practice of automatically assessing, enforcing and collecting excessive penalties—which are a minimum of $10,000 per year—on late or amended reporting is contrary to Congressional intent. Taxpayers should be given a fair and meaningful reasonable cause review before these penalties are imposed. The committee urges the IRS to substantially revise its procedures for reviewing reasonable cause statements.

Read FTP letter.

https://www.tx.cpa/docs/librariesprovider15/advocacy/tax/2023/txcpa-comment-irs-forms-3520_3520a.pdf?sfvrsn=4718abb1_3

Posted at 01:58 PM | | Comments (0)

IRS Updates Guidance on State Tax Payments

02/15/2023

Better late than March!

The IRS previously delayed its response on the federal taxability of various one-time state-issued rebates, stimulus payments, refunds, etc. It advised millions of taxpayers who qualified for state relief checks to hold off on filing their 2022 tax returns pending a decision on any federal tax implications. What? Many taxpayers who had already filed and/or rely on refunds were undoubtedly concerned.

In an earlier blog, National Taxpayer Advocate Erin Collins called on the IRS to clarify the ambiguity as quickly as possible so that taxpayers, practitioners and software developers will know how to report these items.

On Feb. 10, the IRS acquiesced in a statement, IR-2023-23. See the excerpts below:

“During a review, the IRS determined it will not challenge the taxability of payments related to general welfare and disaster relief. This means that people in the following states do not 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 please see … more nuanced information.

In addition, many people in Georgia, Massachusetts, South Carolina and Virginia also will not include state payments in 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 either the recipient claimed the standard deduction or itemized their deductions but did not receive a tax benefit.”

IR-2023-23 has a listing of special state tax refunds or payments for reference.

There is an inquiry in the TXCPA Exchange on the federal taxability of Texas Travel Industry Recovery Grant (TTIR Program). IR-2023-23 does not mention the TTIR grant. You may access Exchange to offer any insight.

 

UPDATE 3/1/2023: The IRS stakeholder liaison has provided a response to our member's question cited above on how the IRS would treat the federal taxability of the TTIR grant:

Q. If governments use Fund payments as described in the Fund Guidance to establish a grant program to support businesses, would those funds be considered gross income taxable to a business receiving the grant under the Internal Revenue Code (Code)?

A. Yes. The receipt of a government grant by a business generally is not excluded from the business's gross income under the Code and therefore is taxable. However, a grant made by the government of a federally recognized Indian tribe to a member to expand an Indian-owned business on or near reservations is excluded from the member's gross income under the general welfare exclusion.

            CARES Act Coronavirus Relief Fund frequently asked questions | Internal Revenue Service (irs.gov)

26 U.S. Code § 139 - Disaster relief payments | U.S. Code | US Law | LII / Legal Information Institute (cornell.edu)

IRS updates frequently asked questions for states and local governments on taxability and reporting of payments from Coronavirus State and Local Fiscal Recovery Funds | Internal Revenue Service

Posted at 08:56 AM | | Comments (0)

Amending Your 2019 Return -- When is it Due?

02/07/2023

By Julie Quaranta, CPA-Houston

As we prepare for the start of the 2023 tax season, the window to claim a refund for 2019 filings begins to close. The issue of when the three-year refund window begins is usually straightforward, but as with everything in 2020, it is a bit blurry for filings that year. Which 2020 date do we use: April 15, July 15, Oct. 15 or when the return was filed?    

Per IRC Section 6511(a), a claim for refund of tax shall be submitted by the later of three years from the date the return was filed or two years from the date the tax was paid. Section 6511(b) goes further to impose an additional limitation by restricting the allowable refund to a lookback period, including tax paid within the three-year period plus any applicable extension period. As such, when a refund claim in being considered, you have to determine if:

  1. It is being filed within three years from the original return filing, and
  2. If tax payments were made within the three-year period, plus any extension.         

In 2020, the IRS used its authority from Section 7508A to issue Notice 2020-23, which postponed the April 15 statutory filing and payment deadline to July 15, 2020. The key in determining the 2019 refund closing date pivots on the fact that the July 15 deadline is not classified as an extended deadline, but merely a postponed deadline. 

Every 2020 return fits into one of three categories:    

  1. Returns filed prior to April 15, 2020. This group is considered filed on April 15, 2020, and has a refund claim closing date of April 17, 2023 (April 15 is on a Saturday this year).
  2. Returns filed between April 16, 2020, and July 15, 2020. Section 6511(a) will begin on the date that the initial return was filed. Section 6511(b) lookback only considers extensions when counting back, so even if a claim is timely filed by July 17, 2023 (July 15 is on a Saturday this year), the lookback period will not reach taxes paid prior to and/or on April 15, 2020. Therefore, if a taxpayer’s 2019 return was not extended, all claims need to be filed by April 17, 2023.     
  3. Returns filed between April 16, 2020, and Oct. 15, 2020 (with a valid extension). Section 6511(a) will begin on the date that the initial return was filed. Since Section 6511(b) lookback includes extensions, a refund claim can be filed up to the corresponding filing date in 2023; e.g., initial filing Aug. 3, 2020 has a claim closing date of Aug. 3, 2023. 

Most taxpayers are aware of the three-year rule, especially since it ties to the assessment status of limitation. The lookback limitation is not as recognized and the distinction between postponed versus extended date is slight but pivotal in determining a 2019 refund claim closing date.   

Posted at 03:42 PM | | Comments (0)

FinCEN Issues Final Beneficial Ownership Reporting Rules

02/01/2023

By David P. Donnelly, CPA-Houston

The Financial Crimes Enforcement Network (FinCEN) issued final rules in September 2022 regarding the beneficial ownership reporting required by the Corporate Transparency Act. These rules become effective, and the reporting will begin for affected entities, on Jan. 1, 2024.

These rules require new disclosures for some, but not all, business entities. These disclosures are somewhat similar to the disclosures currently required to open bank accounts. For existing businesses, however, this will be new reporting and a new level of disclosure (addresses, copies of identification documents and date of birth), which may cause some consternation for business owners.

Reporting entities:

  • Domestic business entities (corporations, LLCs, limited partnerships, business trusts, etc.) that are registered with the states or an Indian Tribe,
  • Foreign business entities that are registered with the states or an Indian Tribe,
  • Large operating companies are excluded:
    • More than 20 full-time employees,
    • More than $5 million in gross receipts, and
    • An operating presence in the U.S.
  • Also excluded are inactive entities:
    • In existence on or before Jan. 1, 2022,
    • Not engaged in a trade or business,
    • No ownership or control by a foreign person, and
    • No assets in the U.S. or abroad.
  • Other excluded entities include accounting firms, SEC-reporting issuers, government authorities, banks, credit unions, bank holding companies, broker/dealers, securities exchanges or clearing agencies, registered investment companies or advisers, insurance companies, public utilities, tax exempt entities and certain other entities.

What will be reported:

  • Beneficial owners, defined as an individual who exercises substantial control over the reporting entity or who owns or controls at least 25% of the reporting entity,
    • Four items are to be reported for each beneficial owner:
      • Name, address, date of birth of each owner,
      • An image of an acceptable identification document with a unique identifying number:
        • Passports and driver’s licenses will be acceptable.
        • FinCEN will also provide a unique identifier.
      • The proposed regulations encouraged the voluntary disclosure of the taxpayer identification number or Social Security number of the owner(s). This was removed in the final rules.
    • For the reporting entity:
      • Full legal name and any assumed or ”doing business as” name,
      • Address,
      • Jurisdiction of formation and registration of the entity, and
      • Taxpayer identification number of the reporting entity.

When to report:

  • On or after Jan. 1, 2024, newly formed entities must report within 30 days after formation.
  • Existing entities will have one year after Jan. 1, 2024, to report.
  • Reporting entities must report changes in beneficial ownership within 30 days.

The reporting format has not been released. FinCEN envisions electronic filing similar to the FinCEN 114. Although the original estimate was that compliance would only take 40 minutes, the current estimate of the time needed to report is up to 11 hours for complex entities.

The penalty for not reporting or for a person “to willfully provide or attempt to provide, false or fraudulent beneficial ownership information” is $500 per day; there are also potential criminal penalties.

This disclosure is not a tax return. However, we can expect that our clients will look to tax professionals to assist them with the reports, especially for existing entities. We should be ready to let our clients know who must report, what must be reported and when to report.

The discussion above is only a summary of the rule; practitioners are encouraged to seek further information on this topic.

FinCEN Beneficial Ownership Information Reporting

Federal Register FinCEN BOI Reporting Requirements

FinCEN BOI Information Reporting Rules Fact Sheet

FinCEN provides time estimates for compiling beneficial ownership details | Journal of Accountancy

 

Posted at 03:32 PM | | Comments (0)

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