Federal Tax Posts

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)


More than $1.3 billion in unclaimed tax refunds from 2017 are waiting at the IRS, but they won’t be available much longer. Taxpayers generally have a three-year window to claim tax refunds, and for 2017 that window slams shut on May 17th. The IRS estimates that 1.3 million taxpayers are owed refunds, but they haven’t yet filed their Form 1040s for 2017. The midpoint for these refunds is $865. That is, half of unclaimed refunds are for more than $865, and half are for less. Refunds may “be applied to any amounts still owed to the IRS or a state tax agency and may be used to offset unpaid child support or past due federal debts, such as student loans,” the IRS stated. Contact us for help.


The IRS is reminding taxpayers that even though many federal tax deadlines were extended from April 15, 2021, to May 17, 2021, there are some April 15 tax deadlines still in effect. Among the April 15 deadlines that remain include paying first-quarter 2021 individual estimated taxes, filing calendar year 2020 trust and estate income tax returns and paying any previously unpaid tax, filing 2020 calendar year C corporation income tax returns (Form 1120) and paying any previously unpaid tax, and depositing calendar year corporation first installment of estimated income tax for 2021. If you’re unsure of the tax deadlines for your specific situation, please contact us.


The IRS has updated its FAQs on higher education emergency grants to address questions related to the CARES Act. Enacted in 2020, it allows institutions of higher education to use certain funds to support students with expenses and financial needs related to the COVID-19 crisis. For example, the IRS explains that emergency financial aid grants for unexpected expenses, unmet financial need, or expenses related to the disruption of campus operations (unexpected expenses for food, housing, course materials, technology, health care or childcare) aren’t included in a student’s gross income for income tax purposes. Read the FAQs: https://bit.ly/3dDDDwh 


The IRS’s Get My Payment tool provides taxpayers with information about the status of their 2021 Economic Impact Payments. So, what information can you expect to receive when using the tool? Among other things, a payment status will inform you of whether your payment has been processed and whether it will be sent by direct deposit or mail. It will also provide a payment date if available. If you receive a message saying the IRS needs more information, your payment likely was unable to be delivered. To have your payment reissued as a direct deposit, provide routing and account numbers for a bank account. For more information, visit the Get My Payment FAQ web page: https://bit.ly/3dEu9kj 


U.S. Secretary of the Treasury Janet Yellen has called for a global corporate minimum tax rate. “We’re working with G20 nations to agree to a global minimum corporate tax rate that can stop the race to the bottom,” said Yellen. “Together, we can use [the minimum tax rate] to make sure that the global economy thrives based on a more leveled playing field in the taxation of multinational corporations, and spurs innovation, growth and prosperity.” Yellen made the remarks in an April 5 speech to the Chicago Council on Global Affairs. Also that day on a related topic, three Democratic Senate Finance Committee members published “Overhauling International Taxation” (https://bit.ly/3rTlWxB ).


The IRS has announced that the purchase of personal protective equipment (PPE), such as masks, hand sanitizer and sanitizing wipes, purchased for the primary purpose of preventing the spread of the COVID-19, is a deductible medical expense. Amounts paid by an individual taxpayer for PPE for use by the taxpayer, the taxpayer’s spouse or dependents that aren’t compensated for by insurance are otherwise deductible so long as the taxpayer’s total medical expenses exceed 7.5% of adjusted gross income. In addition, the IRS said that the amounts paid for PPE are also eligible to be paid or reimbursed under flexible spending arrangements or health savings accounts. (Announcement 2021-7)


With many taxpayers working from home due to COVID-19, you may be wondering about the possibility of claiming home office deductions on your tax return. Unfortunately, employees aren’t currently eligible. However, self-employed homeowners and renters who are otherwise eligible can claim deductions. Deductible expenses include mortgage interest, insurance, utilities, repairs, maintenance, depreciation and rent. Taxpayers must meet certain requirements to deduct home expenses, and the deductions may be limited. Recordkeeping is important. If you think you may qualify, we can discuss it when we prepare your tax return.


When filing your tax return, is it better to take the standard deduction or claim itemized deductions? It depends. The standard deduction changes yearly and is based on filing status and age. Itemizing requires more calculations but can save taxes if the total deductions exceed the standard deduction. Those most likely to benefit from itemizing are those who pay state and local income tax, mortgage interest, mortgage insurance, real estate or personal property tax; suffered a large eligible casualty loss; make significant charitable donations; and/or have high medical deductions. We can help choose your best path.