Archive for the ‘IRS’ Category

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Bozo Tax Tip #1: Everyone Gets the Employee Retention Credit, Right?

Friday, April 14th, 2023

“Russ,” a client began, “Don’t I qualify for that Employee Retention Credit (ERC) that I keep hearing about?”  I told him he didn’t–his business grew during the Pandemic and he didn’t meet the requirements.  Yes, it’s not free money for everyone–you had to qualify:

Eligible taxpayers can claim the ERC on an original or amended employment tax return for qualified wages paid between March 13, 2020, and Dec. 31, 2021. However, to be eligible, employers must have:

All my client’s business did was grow during the pandemic.  Sure, he retained his employees but he didn’t meet the basic standards.  Indeed, the IRS highlighted this in their “Dirty Dozen” of tax schemes.  As the IRS noted,

When properly claimed, 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 a significant decline in gross receipts during the eligibility periods. The credit is not available to individuals.

Yes, not everyone qualifies.  And some of these ERC mills will take your money–lots of it–up front and keep it if you don’t qualify!  As usual, if it sounds too good to be true it probably is.

That does it for the 2023 Tax Season Bozo Tax Tips.  Please, don’t do them.

I’ll be back at the end of April with an update on the first part of the 2023 Tax Season.

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No Foolin’: New York State Not Conforming to IRS Extension for Blizzard Disaster Zones

Saturday, April 1st, 2023

The New York State Department of Taxation and Finance decided not to extend taxpayers impacted by the December blizzards to May 15th; impacted taxpayers still must either file their tax returns by April 18th or file a valid extension (meaning paying 90% of the tax due).  In order to file a New York return, you must complete your federal tax return.  Thus, the federal disaster extension is near useless for impacted taxpayers.

I’m quite surprised–but then again, maybe I shouldn’t be.  New York is not a taxpayer-friendly state, and this sure isn’t aiding in changing anyone’s mind.

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Posted in IRS, New York | Comments Closed

Mississippi Counties Impacted by Tornadoes Have Until July 31st to File

Tuesday, March 28th, 2023

The IRS announced this morning that four Mississippi counties impacted by tornadoes have until July 31st to file.  The extension, for Carroll, Humphreys, Monroe, and Sharkey counties, covers all tax forms and estimated tax payments due between now and July 30th for both business and individual returns.  I would expect the Mississippi Department of Revenue to similarly extend their deadlines for impacted taxpayers.

Posted in IRS, Mississippi | Comments Closed

Certain New York Storm Victims Get an Extra Month to File with the IRS

Friday, March 24th, 2023

The IRS announced today that individuals (and businesses) in five New York counties have an extra month (to May 15th) to file and pay tax returns; this relates to the winter storm that hit between December 23rd and December 28th.  The five counties are Erie, Genesee, Niagara, St. Lawrence, and Suffolk; the primary areas impacted are Buffalo/Niagara Falls and the east end of Long Island.  This extension is automatic.

This extension includes business tax returns that were due in March and individual tax returns due in April and estimated payments due in April.

As of today, this relief is solely for federal (IRS) taxes.  While I do expect the New York Department of Taxation and Finance to conform to this, they have yet to announce that they are conforming.  UPDATE: New York state is not conforming to this extension!

The IRS announcement is here.

Posted in IRS, New York | Comments Closed

Today Is the Partnership & S-Corporation Deadline

Wednesday, March 15th, 2023

You know what today is, right?  Yes, the Ides of March–and the US tax filing deadline for partnerships and S-Corporations.  If your entity isn’t ready to file, download Form 7004 (the extension request) and mail it using certified mail today.  The deadline is a postmark deadline so it doesn’t matter when your extension is received–but you need to maintain proof of filing.  Better yet, efile your extension and you don’t have to stand in line at the Post Office.  (You can also send your extension via an IRS authorized private delivery service.  Beware, not all offerings are authorized and it does matter.)

Most states piggyback onto the federal extension, but not all of them.  New York, for example, requires a separate extension to be filed.

If you’re in most of California, you have an automatic extension until October 16th and you don’t have to send in an extension.

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California (Franchise Tax Board) Conforms to Extension to October 16th

Friday, March 3rd, 2023

The Franchise Tax Board announced late yesterday that California is officially conforming to the IRS extension until October 16th for all tax returns due from January 10th through October 15.  Almost all of California is covered by the extension; only Imperial, Kern, Lassen, Modoc, Plumas, Shasta, and Sierra counties are not covered.  (The largest cities which still have March, April, June, and September deadlines are Bakersfield, El Centro, and Redding.)

The extension covers:

  • 4th quarter 2022 estimated payments due on January 17th;
  • Partnership and S-Corporation returns due on March 15th;
  • Individual, C-Corporation, and Trust/Estate returns due on April 17th;
  • 1st, 2nd, and 3rd quarter 2023 estimated payments due on April 17th, June 15th, and September 15th; and
  • Almost all other tax forms due before October 16th.

Individuals in the federal disaster area do not need to do anything to obtain an extension: It’s automatic.  However, if you have moved from the area because you were impacted by the flooding or you reside outside of the area and were impacted and need the extension you do need to contact the IRS at 866-562-5227; I would also in such a situation contact the FTB.

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Posted in California, IRS | Comments Closed

FBAR Non-Willful Penalty Is Per Report, Not Per Account

Tuesday, February 28th, 2023

Let’s assume you have a non-willful violation of filing the FBAR (Form 114, the Report of Foreign Bank and Financial Accounts).  Is the maximum penalty ($10,000) per account or per report?  The Circuit Courts of Appeal had split on this question; the Supreme Court decided this issue in Bittner v United States today.

[T]he question before us boils down to this: Does the BSA’s $10,000 penalty for nonwillful violations accrue on a per-report or a per-account basis? Mr. Bittner urges us to agree with the Ninth Circuit and hold that the law authorizes a single $10,000 fine for each untimely or inaccurate report. The government defends the judgment of the Fifth Circuit and asks us to hold that a new $10,000 penalty attaches to each account not timely or accurately disclosed within a report.

That’s the beginning of the Supreme Court opinion in Bittner.  Justice Gorsuch’s majority opinion goes back to the days of Form TD F 90-22.1 (the original form number for the FBAR) and notes,

Instructions included with the FBAR form have cautioned that “[a] person who is required to file an FBAR and fails to properly file may be subject to a civil penalty not to exceed $10,000.” IRS, Form TD F 90–22.1, p. 8 (Mar. 2011). An IRS “Fact Sheet” has advised that, “[f]or the FBAR, the penalty may be up to $10,000, if the failure to file is non-willful.” IRS, Offshore Income and Filing Information for Taxpayers with Offshore Accounts, FS–2014–7 (June 2014). Ms. Boyd herself received a similarly worded letter alerting her that “‘[f]or the failure to file [the FBAR] . . . the penalty cannot exceed $10,000.’”…The drafting history of the nonwillful penalty provision undermines the government’s theory too…

On the government’s view, too, those who willfully violate the law may face lower penalties than those who violate the law nonwillfully. For example, an individual who holds $1million in a foreign account during the course of a year but withdraws it before the filing deadline and then willfully fails to file an FBAR faces a maximum penalty of $100,000. But a person who errs nonwillfully in listing 20 accounts with an aggregate balance of $50,000 can face a penalty of up to $200,000. Reading the law to apply non-willful penalties per report invites none of these curiosities; the government’s per-account theory invites them all. [citations omitted; emphasis in original]

There is good news: Logic and common sense prevailed, and:

Best read, the BSA treats the failure to file a legally compliant report as one violation carrying a maximum penalty of $10,000, not a cascade of such penalties calculated on a per-account basis.

This means the maximum non-willful FBAR violation is now $10,000 per year rather than per account per year.  Of course, there’s an easy way of avoiding all penalties: Just file the FBAR!

 

 

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Posted in FINCEN, International, IRS, Supreme Court | Comments Closed

IRS Extends California (and Alabama and Georgia) Disaster Areas to October 16th from May 15th

Friday, February 24th, 2023

The IRS announced today that most California taxpayers (most of the state is in a disaster zone from flooding in January) now have until October 16th to file any tax returns.  This also means that impacted taxpayers have until October 16th to make 2022 contributions for IRAs and HSAs.  Additionally, 4th quarter 2022 and 1st and 2nd quarter 2023 estimated payments are now due on October 16th.  California’s Franchise Tax Board normally conforms to all federal disaster extensions; I expect to see confirmation from the FTB by Monday.

Meanwhile, California–especially Southern California–is bracing for more miserable weather.  There are blizzard warnings (!) for the Southern California mountains, and my old homestead of Irvine (and most of Los Angeles-Orange Counties) is under a Flood Watch:

Here is the beginning of the IRS announcement:

Disaster-area taxpayers in most of California and parts of Alabama and Georgia now have until Oct. 16, 2023, to file various federal individual and business tax returns and make tax payments, the Internal Revenue Service announced today. Previously, the deadline had been postponed to May 15 for these areas. 

The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA) in these three states. There are four different eligible FEMA declarations, and the start dates and other details vary for each of these disasters. The current list of eligible localities and other details for each disaster are always available on the disaster relief page on IRS.gov.

The additional relief postpones until Oct. 16, various tax filing and payment deadlines, including those for most calendar-year 2022 individual and business returns. This includes: Individual income tax returns, originally due on April 18; Various business returns, normally due on March 15 and April 18; and returns of tax-exempt organizations, normally due on May 15.

Among other things, this means that eligible taxpayers will also have until Oct. 16 to make 2022 contributions to their IRAs and health savings accounts.

In addition, farmers who choose to forgo making estimated tax payments and normally file their returns by March 1 will now have until Oct. 16, 2023, to file their 2022 return and pay any tax due.

The Oct. 16 deadline also applies to the estimated tax payment for the fourth quarter of 2022, originally due on Jan. 17, 2023. This means that taxpayers can skip making this payment and instead include it with the 2022 return they file, on or before Oct. 16.

The Oct. 16 deadline also applies to 2023 estimated tax payments, normally due on April 18, June 15 and Sept. 15. It also applies to the quarterly payroll and excise tax returns normally due on Jan. 31, April 30 and July 31.

The IRS disaster relief page has details on other returns, payments and tax-related actions qualifying for the additional time. Taxpayers in the affected areas do not need to file any extension paperwork, and they do not need to call the IRS to qualify for the extended time.

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Posted in Alabama, California, IRS | Comments Closed

Good, Bad, and Ugly With the IRS

Thursday, February 9th, 2023

This week I’ve had to call the IRS up for several different items.  There is good news, bad news, and some ugly news.

The good news: In calling the Practitioner Priority Service (PPS), I’ve gotten through every time!  Twice, there was no wait!  I was disconnected once after reaching an agent but I called back and was immediately connected to another agent.  For practitioners, this is great news and will make our lives easier in Tax Season.

The bad news: The IRS remains slow to respond to obvious issues.  For example, the California “Middle Class Tax Rebates” were announced last year.  California exempted them from state taxation (which is their right); how would they be treated for federal tax returns?  There were (and are) two schools of thought: these are taxable as an accession to wealth or these are not taxable based on the “General Welfare” theory.  A ruling from the IRS is due soon.  My suspicion is that the IRS will rule that these aren’t taxed–based on politics, not law.  (This isn’t just a California issue; several states enacted similar programs in 2022.)

The ugly news: Yesterday, I spoke with an IRS Appeals Officer on a case.  We didn’t agree completely on my client’s issues, but we did agree on where to go to move the case forward.  (Like almost everyone I have dealt with at the IRS, she was pleasant and helpful.)  So why am I putting this in “ugly news?”

The issue is her workload.  From everything I’ve seen, Appeals is buried (see below for another example of this).  She confirmed this, and noted that over the past three years the number of Appeals Officers has decreased to a point that she thinks it will take five years to rebuild the staffing.  (You can’t just hire effective Appeals Officers.)  I agree–it will be years before this and other Pandemic-related backlogs are resolved.

Speaking of backlogs, paper remains the IRS’s Achilles heal.  Here’s an example impacting a client of mine.  An individual self-represented for an audit.  That individual lost at the audit, hired me, and I requested an Appeals hearing by certified mail.  That request was received timely (we tracked the mailing), and we received a notification that the file was sent to an IRS office.  No matter, a Notice of Deficiency was issued so now my client must file a Tax Court petition because of an IRS error.  If this ever goes to Tax Court (which isn’t likely–filing the petition will cause the case to be assigned to Appeals), I doubt the court would look favorably at the IRS ignoring its own procedures.

Additionally, yesterday I needed a transcript for a client.  I went onto IRS E-Services to download it (I had an authorization sent to the IRS back in 2021) and it failed.  Why?  Who knows.  I show it was successfully faxed–but it went into the ether.

As I noted above, it’s going to take years for the IRS to work its way out of the backlog and staffing issues.  This isn’t just for Appeals, but for Exam (audit), collections, and all functions of the IRS.  If there’s a budget shutdown or anything else like that, this could delay things even more.

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Is It January 9th Yet?

Friday, January 20th, 2023

Last year, the IRS announced a new system for efiling 1099s (and other information returns) called IRIS.  This system would be available for both professionals and individuals (and businesses) to efile 1099s.  The system was supposed to be available on January 9th.  On January 9th the webpage noted, “…[Y]ou can log in to IRIS starting mid-January 2023.”  Well, today is January 20th and the system still isn’t available.

(I do need to note you must have an IRS IRIS Transmitter Control Code (TCC) to use IRIS.  You can apply for one via a link on the IRIS webpage.)

The deadline for mailing most information returns remains January 31st–and that’s 21 days away.  We are back using the IRS FIRE system (this system is not available to the general public) for one more year as it appears we have no options.  There are many services you can find that will file 1099s, but we have batches of 1099s for our clients that need filing.

Perhaps the original announcement of the IRIS system was correct: the IRS simply didn’t note which year the system would be up on.  After all, there’s a January 9th in 2024, too.

UPDATE: The IRS’s IRIS system went live earlier this week.

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Posted in Information Returns, IRS | Comments Closed

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