So much for the old saying “spending like a drunken sailor”, Want to drive out of control spending today all you have to say is “Spending like the U.S. Congress. Today 08/15/2021 — The Congressional Budget Office has reported that the estimated federal budget deficit for fiscal year 2021 is now $2.5 trillion. If current laws remain unchanged, the budget deficit will reach $3 trillion by the end of September, CBO said.
The IRS has updated Frequently Asked Questions (FAQs) on the paid sick and family leave tax credits under the American Rescue Plan Act of 2021 (ARPA). The updates clarify that eligible employers can claim the credits for providing leave to employees to accompany a family or household member or certain other individuals to obtain immunization relating to COVID-19 or to care for a family or household member recovering from a COVID-19 immunization. The paid sick and family leave credits reimburse employers for the cost of providing paid sick and family leave for reasons related to COVID-19 and applies for comparable credits for self-employed individuals. The ARPA has extended these credits to leave taken beginning 4/1/21 through 9/30/21. For more information, see www.irs.gov/newsroom/tax-credits-for-paid-leave-under-the-american-rescue-plan-act-of-2021-determining-the-amount-of-the-tax-credit-for-qualified-family-leave-wages .
The IRS is sending the fourth round of refunds related to the mid-tax-season change that made much of the unemployment received by tax payers not taxable after they had already filed their tax returns. These refunds effect the 13 million taxpayers who paid taxes on unemployment benefits. Payments are being made by direct deposit, for taxpayers that had their refund direct deposited, and by paper checks mailed to those for who the IRS does not have direct deposit information.
If you don’t get your refund in this batch, be patient as this will not be the last batch of these refunds the IRS has to process.
What’s taking so long? It’s not just unemployment compensation tax refunds that are going out. The IRS is still sending out: regular 2020 tax refunds, third round stimulus payments, plus-up stimulus payments for those who got shorted, as well as monthly advanced payments of the 2021 child tax credit. As of July 24, 2021, the IRS had 14.7 million unprocessed individual returns, according to today’s operations update. As far as the unemployment refunds, the IRS says it started with the simplest tax returns and is now reviewing more complex returns.
In most, but not all cases, taxpayers don’t have to do anything to get any additional unemployment refund dollars or other credits they’re due. That includes the Recovery Rebate Credit (that’s a balance of 2020 stimulus payments not received in advance), the Earned Income Credit if no dependents, and the Advance Premium Tax Credit (the health insurance subsidy). Essentially, the IRS says will automatically amend your return and issue a refund.
If you have questions or concerns consult your tax advisor, but remember the IRS is not providing answers and some of this will take time, it turns out lots of time, to shake out.
Corporation Liable for Payroll Tax That Should Have Been Paid to Officers: Mr. and Ms. Hacker were co-owners of Blossom Day Care Centers, Inc. (Blossom). In addition, the Hackers were sole shareholders of Hacker Corp. that provided management services to Blossom. Hacker Corp. paid salaries to the Hackers. Blossom paid no salaries to the Hackers. The IRS contended that the Hackers were employees of Blossom and had additional wage income (reasonable wage determination) along with the related payroll tax liability. Blossom argued that if the Hackers were employees, the Hacker Corp. salaries should offset Blossom’s reasonable wage determination. The Tax Court held that the Hackers were employees of Blossom and that Blossom was liable for its share of payroll taxes on the IRS’s reasonable determination of what the corporation should have been paying the officers and Blossom could not offset that reasonable determination with wages from Hacker Corp. Blossom Day Care Centers, TC Memo 2021-86 (Tax Ct.).
It’s Being Replaced With An Attack Dog Consisting Of Scores Of Auditors & Collection Employees
The days of the kinder gentler IRS seem to be coming to and end. IRS SB/SE co-commissioners De Lon Harris and Darren Guillot told attendees at a New York University conference that that the IRS will be hiring thousands of auditors by the end of September 2021, due to the budget increase put forward by President Biden and the House Appropriations Committee.
“We’re going to be ready to go, as soon as that budget hits… to start bringing in what could be double the number of folks that we are looking at bringing in this year, just for exam alone.” They noted that they plan to hire 1300 field revenue officers, 400 tax compliance officers who will be available for “in person audits” (formerly called “office audits”), and 518 automated collection (ACS) phone representatives, according to IRS SB/SE co-commissioners De Lon Harris and Darren Guillot.
The Criminal Division, according to James Lee, commissioner of Criminal Investigations, said that his division will add more than 500 people this year, with about half of those being special agents.
All in all it looks like the IRS is taking aim at taxpayers to increase revenue as everyone at the service knows that increasing tax rates will have an impact on compliance and collections. Now is not the time to give up your tax professional as not only are the tax laws becoming more complex that ever, it also appears that the IRS is setting their sights on being able to squeezing tax payers with more auditors, collections officers and criminal investigators.
The IRS has released a list of it’s “Dirty Dozen” scams effecting tax payers this year. The top 5 scams on this list some old scams we have seen before and some new ones. These scams cost the government and tax payers every year in both time and dollars so it’s important that you know what they are and how to avoid them.
- The first scam involves scammers who create fake organizations to take advantage of the public’s generosity. “They especially take advantage of tragedies and disasters, such as the COVID-19 pandemic,” IRS said. (It’s a good idea to check the IRS Tax Exempt Organization Search tool before making a donation to an organization before making a donation.)
- The second scam relates to immigrant/senior fraud. “These scams are often threatening in nature,” According to the IRS impersonation scam falls within this category. This is where a targeted taxpayer receives a phone call supposedly from IRS and is threatened with jail time, deportation or revocation of a driver’s license. (The best way to handle these calls is to hang up, if you are worried that the call might be real call the IRS on it’s published taxpayer assistance number.) The IRS does not threaten taxpayers with jail and they will never ask for payment by credit or gift card.
- The third scam on the list of dirty deeds is Offer in Compromise “mills,” IRS said. “Offer in Compromise mills contort the IRS program into something it’s not – misleading people with no chance of meeting the requirements while charging excessive fees, often thousands of dollars,” According to IRS, taxpayers should be especially wary of promoters who claim they can obtain larger offer settlements than others or who make misleading promises that IRS will accept an offer for a small percentage. “We’re increasingly concerned that people having trouble paying their taxes are being duped into misleading claims about settling their tax debts for ‘pennies on the dollar,'” said IRS Commissioner Charles Rettig.
- The fourth scam involves unscrupulous tax return preparers. “Taxpayers should be wary of preparers who won’t sign the tax returns they prepare, often referred to as ghost preparers,” IRS said. For e-filed returns, the “ghost” prepares the return but refuses to digitally sign as the paid preparer. The bag of tricks used by unscrupulous tax return preparers also includes the following: requiring payment in cash only without providing a receipt; inventing income to qualify their clients for tax credits; claiming fake deductions to increase the size of a refund; and directing refunds into their bank account instead of the taxpayer’s account.
- The fifth scam relates to unemployment insurance fraud. As described by IRS, “unemployment fraud often involves individuals acting in coordination with or against employers and financial institutions to get state and local assistance to which they are not entitled.” The agency warned states, employers and financial institutions to be aware of the variety of scams related to unemployment insurance, including: identity-theft fraud; employer-employee collusion fraud; misrepresentation of income fraud; fictitious employer-employee fraud; and insider fraud.
Below is a list of tax bills introduced in Congress for which bill text became available between July 2 and July 8, 2021. The bill text for each bill can be accessed by clicking on the bill number.
H.R.2984 – Investing in American Workers Act. To provide a credit for employer-provided worker training.
H.R.3058 – Home Office Deduction Act of 2021. To temporarily allow a deduction for the trade or business expenses of employees.
H.R.3068 – FAIR Act. To exclude from gross income any interest paid on an overpayment of tax.
H.R.3196 – Student Loan Marriage Penalty Elimination Act of 2021. To allow married couples to apply the student loan interest deduction limitation separately to each spouse, and for other purposes.
H.R.3216 – To create parity for unmarried individuals and heads of household with respect to the temporary 2021 income phaseouts in the child tax credit.
H.R.3247 – Stop EITC and CTC Seizures Act. To limit the amount that the portion of a taxpayer’s tax refund attributable to the child tax credit and the earned income tax credit may be reduced by reason of student loan debt.
H.R.3265 – Middle Class Savings Act. To apply current income tax bracket breakpoints to capital gains brackets.
H.R.3324 – Incentivize Residential Energy Efficiency Act of 2021. To permanently extend the nonbusiness energy property credit.
S.1753 – Home Energy Savings Act. To extend and update the credit for nonbusiness energy property.
S.1870 – Enhancing Emergency and Retirement Savings Act of 2021. To provide for penalty-free withdrawals from retirement accounts for certain emergency expenses, and for other purposes.
Energy and excise tax.
H.R.3039 – MARKET CHOICE Act. To eliminate certain fuel excise taxes and impose a tax on greenhouse gas emissions to provide revenue for maintaining and building American infrastructure, and for other purposes.
H.R.3180 – Renewable Energy Investment Act. To provide an elective payment for energy property and electricity produced from certain renewable resources, and for other purposes.
H.R.3251 – BTU Act of 2021. To include biomass heating appliances in the energy credit and to extent the credit for residential energy efficient property.
H.R.3272 – Biodiesel, Renewable Diesel, and Alternative Fuels Extension Act of 2021. To extend biodiesel and renewable diesel incentives, and for other purposes.
H.R.3275 – PUMP Act of 2021. To suspend the tax on gasoline other than aviation gasoline.
H.R.3302 – No Subsidies for Government Purchases of Electric Vehicles Act. To prohibit the seller of an electric vehicle from being treated as the taxpayer that placed such vehicle in service and taking the electric vehicle tax credit if such vehicle is sold to the Federal Government.
H.R.3303 – Close the Double Subsidy Loophole for Electric Vehicles Act. To reduce the tax credit for new qualified plug-in electric drive motor vehicles by State subsidies for these vehicles.
S.1791 – FAST Electricity Act. To expand existing tax credits to include non-passenger electric-powered vehicles, associated recharging and refueling infrastructure, and for other purposes.
S.1807 – Clean H2 Production Act. to provide for a production and investment tax credit related to the production of clean hydrogen.
S.1829 – Carbon Capture Improvement Act of 2021. To provide for the issuance of exempt facility bonds for qualified carbon dioxide capture facilities.
S.2118 – Clean Energy for America Act. To provide tax incentives for increased investment in clean energy, and for other purposes.
H.R.3178 – Estate Tax Rate Reduction Act. To reduce the rate of tax on estates, gifts, and generation-skipping transfers.
S.1627 – Estate Tax Rate Reduction Act. To reduce the rate of tax on estates, gifts, and generation-skipping transfers.
H.R.3301 – CEO Accountability and Responsibility Act. To adjust the rate of income tax of a publicly traded corporation based on the ratio of compensation of the corporation’s highest paid employee to the median compensation of all the corporation’s employees, and for other purposes.
S.1656 – Small Business Taxpayer Bill of Rights Act of 2021.To provide a taxpayer bill of rights for small businesses.
S.1802 – Upskilling and Retraining Assistance Act. To expand and modify employer educational assistance programs, and for other purposes.
H.R.3032 – Jonny Wade Pediatric Cancer Research Act. To increase funding for the 10-Year Pediatric Research Initiative Fund by eliminating taxpayer financing of presidential election campaigns.
H.R.3278 – To apply the mailbox rule to certain payments made through the Electronic Federal Tax Payment System.
S.1777 – Don’t Weaponize the IRS Act. To codify the Trump administration rule on reporting requirements of exempt organizations, and for other purposes.
S.1788 – Restoring the IRS Act. To provide appropriations for the Internal Revenue Service to overhaul technology and strengthen enforcement, and for other purposes.
S.1723 – Budgeting for Opioid Addiction Treatment Act. To establish a stewardship fee on the production and importation of opioid pain relievers, and for other purposes.
S.1805 – SHELTER Act. To provide a credit against tax for disaster mitigation expenditures.
S.1857 – Stop CHEATERS Act. To provide appropriations for the Internal Revenue Service to overhaul technology and strengthen enforcement, and for other purposes.
S.1982 – A bill to amend the tax on private foundation excess business holdings to treat as outstanding any employee-owned stock purchased by a business enterprise pursuant to certain employee stock ownership retirement plans.
Internal Revenue Service is focusing on tax evasion done with virtual currencies like Bitcoin and nonfungible tokens. This is done by using data analytics to uncover transactions that crypto users assumed are hidden. As crypto and other virtual currencies have become more main stream investors are not the only ones interested then, the IRS is also an interested party. IRS has even added a check box to individual tax returns, where the taxpayer needs to indicate if the bought, sold or traded virtual or crypto currency.
According to IRS Commissioner Chuck Rettig, IRS is leveraging data analytics technology and artificial intelligence to assist its overburdened staff, especially at a time when the IRS has been facing employee shortages.
The crypto world has been changing rapidly, and the IRS has been leveraging technology to keep up with it. Eric Hylton, who was recently commissioner of the IRS’s Small Business/Self-Employed division and previously spent over 20 years at IRS Criminal Investigation, told Accounting Today, “Quite a bit of attention has been associated with it. It’s being reported on the 1040, trying to give insight as to how widely cryptocurrency has been adopted. From a compliance standpoint, I think IRS CI has done a great job in really addressing cryptocurrency as it relates to the dark web, but also in moving further in working with a number of firms to really address the potential issue of tax evasion.”
The IRS is using new approaches, including greater computing capacity and artificial intelligence, analyze and trace digital transactions in the real world. With more ability to trace these transactions we can count on more audit recovery by the government of unreported taxes and more criminal cases.
Beginning July 15, the IRS will start sending taxpayers that filed 2019 or 2020 returns with qualifying children and advance payment of the Child Tax Credit. The payment will amount to ½ of the Child Tax Credit for 2021. The American Rescue Plan Act increased the credit for 2021 from $2,000 to $3,000 for children between 6 and 18 and increased the credit to $3,600 for children under 6 years of age in 2021.
The increases of $1,000 or $1,600 are phased out for taxpayers with modified AGI of over $75,000 for singles, $112,500 for heads-of-households, and $150,000 for joint filers and surviving spouses; and after applying the above phase-out rule to the increased amount, your remaining $2,000 of the credit is subject to the existing phase-out rules (i.e., the $2,000 of credit is phased out for taxpayers with modified AGI of over $200,000/$400,000 for joint filers).
Most eligible taxpayers will receive the advanced credit as a direct deposit to the bank account they used for their tax refund or payment. Individuals with a qualifying child or children that were not required to file a 2019 or 2020 tax return can apply on the IRS website. It is also possible to eliminate the advance payment so that that credit can be used in full to offset taxes due when filing your 2021 tax return.
For more information on and to file for your payment or cancel the advance payment see the IRS web site or contract your tax advisor. https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021
Some Key West Restaurants recently found out that the Department of Labor means business when they were assessed $162,000 is back wages for overtime violations. Employers need to keep good records of hours worked, comply with wage and hour regulations and properly pay employees for time worked. It’s also important to under stand the rules governing exempt and non-exempt employees.
For more on this case check out the news release from the U.S. Department of Labor Wage and Hour Division. https://www.dol.gov/newsroom/releases/whd/whd20210603