Federal Tax Posts

In a report, the Congressional Budget Office (CBO) provides a budget overview for fiscal year 2021. The federal budget deficit in 2021 totaled nearly $2.8 trillion, almost $360 billion less than the deficit in 2020 but about triple the shortfall incurred in 2019. “During the past two years, deficits were much larger than they have been historically because of the economic effects of the coronavirus pandemic and legislation enacted in response,” the CBO said. Notably, in 2021, federal revenues totaled $4 trillion, which was $626 billion (or 18%) more than receipts recorded in 2020. “That increase was the largest recorded in five decades,” the CBO said. Read the report: https://bit.ly/3rbnmqu 


The National Taxpayer Advocate (NTA) is reporting that as of late October, the IRS had a backlog of more than 2.7 million unprocessed amended tax returns. The IRS claims the processing time for these returns is about 20 weeks. The NTA, however, says that Taxpayer Advocate Service (TAS) cases indicate that it’s taking the IRS “considerably longer than 20 weeks” to process the returns. This affects the ability of the TAS to help taxpayers receive their refunds. Generally, the TAS can’t expedite case resolutions for amended returns that haven’t been processed. Thus, the TAS isn’t accepting new cases if the only issue is amended return processing. For more information: https://bit.ly/3DHcGU6 


The IRS is sending out refunds averaging $1,189 to 430,000 taxpayers. This is the latest batch of refunds based on American Rescue Plan Act (ARPA) changes made after many taxpayers had already filed their 2020 returns. Generally, unemployment benefits are taxable income. But, for 2020, the ARPA allows taxpayers with modified adjusted gross income under $150,000 to exclude unemployment benefits of up to $10,200 from taxable income. Rather than requiring taxpayers who had already filed to amend their returns, the IRS has been adjusting returns and automatically issuing refunds as appropriate. To date, 11.7 million refunds have been issued. For most qualified taxpayers, no action is required.


In a recent audit, the Treasury Inspector General for Tax Administration (TIGTA) evaluated the Taxpayer Advocate Service’s (TAS’s) response to CARES Act issues. “TAS has taken numerous actions to assist taxpayers in response to the enactment of the CARES Act,” the audit said. However, the audit determined that “TAS accepted cases that did not meet its criteria and did not properly track CARES Act issues.” TAS developed criteria specifying the types of issues it would accept. However, a statistical sample of TAS cases showed that 18% of the cases accepted didn’t meet TAS criteria. Read the audit: https://bit.ly/3bDYNJO 


Ten months into the 2021 fiscal year, the estimated federal budget deficit soared to $2.5 trillion, the Congressional Budget Office (CBO) reported. Estimated revenues rose 17% over the same period last FY, which “largely reflects the general strength of the economy over the past year,” the CBO stated. Estimated outlays rose 4%, due to programs related to the pandemic response that “substantially boosted spending” in FY21 and FY20. Notable expenses included recovery rebates, expanded unemployment benefits and the Paycheck Protection Program. If tax and spending laws aren’t changed, the deficit will reach $3 trillion by the end of this FY. Here’s the report: http://bit.ly/3yRPErq 


The deadline for the third 2021 estimated tax payment is rolling up on Sept. 15. Changes in the economy brought by COVID-19 include a new crop of self-employed persons, such as gig-economy workers. Like most people with income that isn’t subject to withholding, these workers may need to make estimated tax payments for the first time. Generally, estimated tax payments are required for those who expect to owe a net tax of $1,000 or more on their 2021 federal tax returns. Underpayments or late payments could result in penalties, even if you expect a refund. To calculate payments, use Form 1040-ES (Estimated Tax for individuals). Contact us with questions. Here’s more: http://bit.ly/2Xh7y8Q 


The National Taxpayer Advocate (NTA) is providing information about what to do if the IRS erroneously assesses tax after a taxpayer petitions the U.S. Tax Court. As a result of recent IRS and Tax Court administrative delays, the IRS has erroneously closed cases and assessed taxes because it wasn’t aware that a taxpayer had petitioned the court with regard to the taxes at issue. The NTA determined that in 2021, it’s taking approximately 75 days for the court to process most of the petitions it receives and to serve notice to the IRS (a period that exceeds the 15-day period IRS procedures have allotted for this process.) To learn more from the NTA about how to proceed: https://bit.ly/3yVfyKK 


The IRS and the U.S. Treasury Department have announced that the August advance Child Tax Credit (CTC) payments have begun to reach eligible families. This second batch of advance monthly payments, worth about $15 billion, are reaching about 36 million families. The IRS is stressing that it’s not too late for low-income families to sign up for advance CTC payments. Anyone who normally isn’t required to file a tax return can use the online tools at IRS.gov to determine eligibility for the advance CTC. These tools can help individuals file a simplified tax return to sign up for CTC payments as well as Economic Impact Payments. For additional information: https://bit.ly/2W1DRYI 


What happens when a tax-exempt agency seems to be skirting tax laws? On its website, the IRS explains the process of filing a complaint when violations of laws or IRS rules are suspected. Agencies that apply for and are granted a tax-exemption can generally operate free of most tax as long as they meet the criteria and operate according to restrictions. The agencies must avoid actions including: lobbying activities; commercial activities unrelated to their exempt purpose; and the use of agency money to benefit private people. If violations are suspected, you can contact the IRS Tax Exempt and Government Entities Division to file a complaint. Here’s more: https://bit.ly/3hmP3HK 


The tax code provides a credit (of up to $7,500) to purchasers of qualified plug-in electric-drive passenger vehicles and light trucks. The IRS has added Ford, Hyundai and Porsche models to the list of vehicles eligible for the credit. They are the 2021: Ford Mustang Mach-E GT ($7,500); Hyundai Ioniq Plug-In Hybrid EV ($4,543); Hyundai Ioniq Electric Battery Vehicle ($7,500); Porsche Cayenne E-Hybrid ($7,500); Porsche Cayenne E-Hybrid Coupe ($7,500); Porsche Cayenne Turbo S E-Hybrid Coupe ($7,500); Porsche Cayenne Turbo S E-Hybrid ($7,500); and Porsche Panamera 4 PHEV, which includes several models ($7,500). For a list of all qualifying vehicles: https://bit.ly/2T5zL0p 


The IRS is providing more information about the advance payments of the Child Tax Credit (CTC) that will begin being made on July 15 to eligible families. On its website, the IRS explained that it will send “Letter 6417” to recipients before it disburses advance payments to them. The letter will inform taxpayers of the amount of their estimated CTC monthly payments and indicate where they can find additional information about them. In January 2022, the IRS will send “Letter 6419” to provide the total amount of advance CTC payments that were disbursed during 2021. Save this letter for when you file your 2021 return. For more details, contact us or visit: https://bit.ly/2SXFB46 


Taxpayers who skirt tax rules could be banned by the IRS from claiming certain tax credits, according to the National Taxpayer Advocate (NTA). These taxpayers could lose the ability to claim: the Earned Income Tax Credit, the Child Tax Credit, the American Opportunity Tax Credit and the credit for other dependents. Most taxpayers act responsibly and some make simple errors. But if the IRS finds that the taxpayer improperly claimed credits “due to reckless or intentional disregard of rules and regulations,” he or she could be banned for up to two years. If fraud was involved, the ban could be for up to 10 years. Here’s more from the NTA: https://bit.ly/3gf4zW6  or contact us with questions.


Cybersecurity challenges continue at the IRS, according to a Government Accountability Office (GAO) report. The GAO noted that, in May 2019, they’d given the IRS eight recommendations for tightening cybersecurity, and the IRS agreed with them. But a more recent look showed “inaction” on six of those issues, including having a comprehensive cybersecurity strategy and protection of sensitive data. Third-party vendors, the GAO stated, should “provide assurance that information is being protected,” noting that while the IRS has developed standards for various third-party vendors, taxpayer information “generally falls outside of these requirements.” Here’s the report: https://bit.ly/3x0u9UD 


In April 13 testimony before the U.S. Senate Finance Committee, IRS Commissioner Charles Rettig said that he believes the annual “tax gap” may total $1 trillion annually. The tax gap is the difference between taxes owed the U.S. government and taxes paid. He noted that this amount was more than double the $441 billion amount that the IRS believed to be the gap from 2011 to 2013. He said that the principal causes of the gap include: the use of cryptocurrencies, income from illegal activities, foreign source income, underreporting by pass-through businesses and the loss of 17,000 IRS enforcement agents. The IRS’s official tax gap estimate will be announced next year.


Spouses filing a joint federal income tax return generally are both liable for the tax owed. But those who qualify may seek “innocent spouse relief” from joint liability. In one case, the ex-wife of an attorney-turned-physician was denied this relief relating to tax returns filed for 2008-2010. She signed the returns and said she assumed the taxes were paid. The 11th Circuit Court of Appeals found that she was aware of prior IRS problems, had actual knowledge of their finances and had reason to know he couldn’t pay the taxes. Her income fell below poverty level, but the court said she failed to show she’d suffer economic hardship if held jointly liable for the taxes. (Sleeth, CA11, 3/19/21)