Federal Tax Posts

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 


The Social Security Administration’s (SSA) Office of the Chief Actuary is projecting that the Social Security wage base will increase from $147,000 to $155,100 in 2023. The SSA provides three forecasts for the wage base (intermediate, low and high cost). All forecasts predict an increase from $147,000 to $155,100 in 2023. Future intermediate forecasts are: $165,300 in 2024; $173,400 in 2025; $180,600 in 2026; $188,100 in 2027; $195,600 in 2028; $203,100 in 2029; $210,600 in 2030 and $218,400 in 2031. Actual annual increases to the Social Security wage base are announced in October based on current economic conditions. As a result, the forecasts, especially the longer-range ones, may change.


The “Military Spouse Hiring Act,” was introduced in the U.S. Senate and is currently under review. The proposed legislation is mirrored by a bill in the U.S. House. The bill seeks to expand the Work Opportunity Tax Credit to include qualified military spouses as a targeted group that qualifies for the credit. A “qualified military spouse” is defined as any individual who is certified by the designated local agency as being a spouse of a member of the armed forces as of the hiring date. Stay tuned to see if this bill passes and becomes law.


Americans living and working abroad: You have less than a week to file your federal income tax return. The due date is June 15 if your tax home and residence are outside the U.S. and Puerto Rico, or you’re serving in the military outside the U.S. and Puerto Rico on the regular tax filing date. You’ll need to attach a statement to your return indicating which situation applies. If you can’t meet the deadline, request an extension (to Oct. 17) online (https://bit.ly/3xaYq5n  ) or on paper by filing Form 4868. Military members may qualify for an additional extension of at least 180 days. The IRS encourages taxpayers to remit any tax due electronically. Payments must be in U.S. dollars.


The Treasury Inspector General for Tax Administration (TIGTA) has issued an audit that evaluates whether the IRS timely and accurately processed individual paper and e-filed tax returns during the 2022 filing season. As of March 4, 2022, the IRS received 54.7 million tax returns and issued $129.2 billion in refunds. The audit found that “significant staffing shortages continue to hamper the IRS’s efforts to address backlog inventories and affect the [agency’s] ability to ensure that current-year tax returns are processed timely.” Some 8.4 million tax returns remained to be processed as of the end of 2021, the audit noted. Read the TIGTA audit: http://bit.ly/3LC88S7 


What happens if taxpayers can’t pay the taxes the IRS says they owe? An “offer in compromise” (OIC) may allow them to settle their tax debts for less than full liability. It can be difficult to get an OIC accepted, but individuals are eligible to apply if they’ve filed all required tax returns, made required estimated tax payments and met other requirements. (Taxpayers in open bankruptcy proceedings aren’t eligible.) The IRS considers such factors as an individual’s ability to pay, income, expenses and asset equity. It generally accepts an OIC if the amount represents the most the tax agency believes it can expect to collect within a reasonable period of time.