Federal Tax Posts

Taxpayer identity theft is alive and well. However, progress has been made in combating this crime. The IRS, state agencies and tax professionals urge taxpayers to protect themselves with an Identity Protection PIN (IP PIN). This 6-digit number must be requested from the IRS and is renewed each year. The number must be entered on your tax return upon filing. The IRS explained that “the IP PIN serves as a critical defense against identity thieves,” who attempt to use your identity to file for a tax refund. You can get an IP PIN proactively rather than after being victimized, but you must first pass an identity verification process. Learn more and request an IP PIN here: https://bit.ly/3onPlRp 


If the proposed Inflation Reduction Act is passed, domestic manufacturers could bear the brunt, warns one lawmaker. U.S. Senator Mike Crapo (R-ID), a member of the Senate Finance Committee, cited analysis by the Joint Committee on Taxation (JCT). While the JCT projects that only about 150 taxpayers annually will be subject to the 15% book minimum tax in the bill, it also estimated that 49.7% of manufacturers would pay the increase. Crapo stated that the proposal “risks severely harming American manufacturers, exacerbating supply-chain disruptions and ultimately costing U.S. jobs and investment.” The proposed tax is estimated to help collect an additional $319 billion in tax over 10 years.


The Affordable Care Act’s (ACA’s) affordability percentage for employers to avoid a shared responsibility payment (penalty) is decreasing in 2023. The ACA’s employer-shared responsibility provision requires applicable large employers to offer minimum essential coverage that’s “affordable” and that provides “minimum value” to full-time employees or potentially make an employer-shared responsibility payment to the IRS. Health insurance coverage is considered “affordable” to an employee if the lowest-cost self-only health plan is 9.5% or less of a full-time employee’s household income (indexed for inflation). The percentage for 2023 will decrease from 9.61% to 9.12%. (IRS Rev Proc 2022-34)


A proposal to appropriate $80 billion over 10 years to the IRS is back on the table as part of the Inflation Reduction Act. (It was originally included in the Build Back Better bill.) The funds would be available to the IRS through Sept. 30, 2031, across four areas of the agency. First, nearly $3.2 billion would help improve taxpayer services. Second, $45.6 billion would go toward reducing the “tax gap.” These funds also would cover litigation and criminal investigation expenses. Third, $25.3 billion would bolster internal IRS operations. Fourth, $4.75 billion would help modernize IRS computer systems. Extending the IRS’s tax enforcement capabilities could raise an estimated $124 billion.


Can you spot a fake IRS employee? Many people tremble at the thought of hearing from the IRS. That fear can make them vulnerable to scams that seek to steal their assets or identities. To combat IRS impersonator scams, the IRS has created a fact sheet explaining how it contacts taxpayers. The first contact is not by text or email. Usually, the first contact is by mail (though under some conditions, the IRS may make contact by phone). IRS employees aren’t permitted to be aggressive or threatening or demand payments by methods such as gift cards or prepaid cards. For more ways to spot an IRS scammer and how to report suspicious contacts: https://bit.ly/3JgznSI 


The American Rescue Plan Act of 2021 expanded tax benefits to reduce the cost of health insurance premiums. But these benefits are scheduled to expire at the end of 2022. Colorado Democratic Senators Bennet and Hickenlooper have proposed that the advanced premium tax credit (APTC) be made permanent. According to the senators, the APTC helped 14.5 million Americans enroll in affordable marketplace insurance during the last open enrollment period. If the APTC is allowed to expire, it will revert to the Affordable Care Act rules and be limited to taxpayers with adjusted gross incomes ranging from 100% to 400% of the federal poverty level. Learn more: https://bit.ly/3HlVW7H 


The electric vehicle (EV) tax credit begins to phase out when 200,000 of a manufacturer’s qualifying vehicles have been sold. But automakers are telling Congress, not so fast! In a letter, GM, Ford, Chrysler and Toyota asked Congressional leaders to give all electric car and light truck buyers a tax credit of up to $7,500. The group says that lifting the limit would give buyers more choices, encourage greater EV adoption and provide stability to autoworkers. Already, GM and Tesla have run out of credits and Toyota is close. As the carmakers stated, they believe “a sunset date set for a time when the EV market is more mature” makes good economic and environmental sense.


Congress is getting serious about addressing the confusion surrounding the tax treatment of digital assets such as cryptocurrencies. A bipartisan bill dubbed the Responsible Financial Innovation Act was recently introduced in the U.S. Senate. The bill would establish a regulatory framework for digital assets. The first-of-its-kind proposed legislation would attempt to validate the mainstream use of digital assets, particularly so-called stablecoin cryptocurrencies that function as fiat currencies, by integrating existing tax and banking laws. If the bill becomes law, the IRS would be required, within one year, to adopt guidance on merchant acceptance of digital assets. Stay tuned.


“It is time to scrap the cap, expand benefits, and fully fund Social Security,” Independent Senator Bernie Sanders stated in a Senate Budget Committee hearing on June 9. With the support of seven Democratic co-sponsors, Sanders introduced the Social Security Expansion Act, which would increase Social Security benefits by $2,400 annually. This increase would be funded by lifting the current $147,000 cap on the maximum amount of income subject to the Social Security payroll tax. The proposed bill would apply payroll tax to all income over $250,000, including capital gains. If lawmakers don’t “fix” Social Security, officials say benefits are scheduled to be reduced by 25% starting in 2035.


Seriously delinquent tax debt (SDTD) is no minor issue and could result in revocation of a passport. An SDTD is a federal tax liability that has been assessed, exceeds $55,000 in 2022 (inflation adjusted), is unpaid, legally enforceable and is subject to a filed lien notice or levy. One taxpayer had SDTD totaling $90,201, incurred over several years ($28,912 was interest). She satisfied $17,346 of her 2003 tax bill, leaving a current balance of $72,855. She requested a collection due process hearing to challenge the underlying debt. The request was denied because the time limit to do so had expired. The U.S. Tax Court upheld the IRS’s position. (TC Memo 2022-54)


Good news for those who use a vehicle for business purposes and are frustrated by the sky-high cost of gas! Starting July 1, 2022, the IRS is increasing the standard mileage rate for business use to 62.5 cents (from 58.5 cents for Jan. 1 – June 30, 2022) per mile. The rate for medical use and moving will rise to 22 cents (from 18 cents), but the charitable use rate of 14 cents will remain the same. As before, taxpayers may use either the standard rate per mile or actual expenses when deducting vehicle use costs on their federal tax return.


Employers that withhold taxes from employees but don’t pay them over to the IRS may face harsh penalties. The Trust Fund Recovery Penalty (TFRP) equals 100% of the unpaid tax. The TFRP can be assessed personally against responsible parties and may include prison time. One taxpayer who operated an ammunition manufacturing and sales business withheld federal taxes from his employees’ paychecks. A U.S. Dept. of Justice (DOJ) investigation showed that from 2013 to 2016 he failed to pay over withheld taxes of roughly $356,280. The taxpayer was charged a TFRP of $356,280 and was sentenced to 18 months in prison. Here’s the DOJ press release about the case: https://bit.ly/3NxQNM5 


Chief financial officers (CFOs) of some major U.S. companies are seeking help from U.S. Treasury Secretary Janet Yellen. In a letter, they said the final foreign tax credit (FTC) regs issued on Dec. 28, 2021, are a “radical departure from well-established law.” The final regs, they added, put U.S companies at a “competitive disadvantage” with foreign companies. For over a century, foreign income tax paid by companies has been “creditable” (deductible on their U.S. tax returns). The final regs could deny those deductions, which the CFOs call “double taxation of U.S. companies.” They warn this could result in lost jobs and other harm to U.S. workers. The letter asks Yellen to modify the regs.


The IRS often can’t attempt to collect debt from taxpayers whose debt has been discharged in bankruptcy. A U.S. Bankruptcy Court in West Virginia recently ruled against the IRS after the agency sent multiple collection notices to a debtor who had a discharge order. The IRS excused its actions by saying they were inadvertent and that the notices were sent via an automated system. But the court rejected this argument. It cited the fact that it took almost 12 months for the IRS to enter the discharge information into its systems despite receiving many notices and complaints. In the end, the court ordered the IRS to pay damages to the debtor. (McAuliffe, 5/26/22)


Taxpayers beware, warned the IRS, as it issued the 2022 “Dirty Dozen” scams list. The list starts with four potentially abusive arrangements to avoid, including: charitable remainder annuity trusts, Maltese individual retirement arrangements, foreign captive insurance and monetized installment sales. If these schemes appear on a tax return, they will likely draw unwanted IRS focus. “Think twice,” said IRS Commissioner Chuck Rettig. “Taxpayers are legally responsible for what’s on their return, not a promoter making promises and charging high fees.” He urged taxpayers to rely on “reputable tax professionals they know they can trust.” Here’s more: https://bit.ly/3xbE0Jk