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
Below is a list tax bills introduced in Congress for which bill text became available between June 3 and June 10, 2021. The bill text for each bill can be accessed by clicking on the bill number.
H.R.2304 – Save Social Security Act of 2021. To amend title II of the Social Security Act and the Internal Revenue Code of 1986 to modify the portion of wages and self-employment income subject to payroll taxes.
H.R.2305 – Senior Accessible Housing Act. To provide a refundable tax credit to seniors who install modifications on their residences that would enable them to age in place.
H.R.2439 – SALT Fairness for Working Families Act. To increase the limitation on the amount individuals can deduct for certain State and local taxes.
H.R.2447 – Veterinary Medicine Loan Repayment Program Enhancement Act. To provide for an exclusion for assistance provided to participants in certain veterinary student loan repayment or forgiveness programs.
S.1399 – Homecare for Seniors Act. To allow qualified distributions from health savings accounts for certain home care expenses.
H.R.2341 – Bring Jobs Home Act. To encourage domestic insourcing and discourage foreign outsourcing.
H.R.2370 – Preserving Family Farms Act of 2021. To increase the limitation on the estate tax valuation of certain real property used in farming or other trades or businesses.
H.R.2653 – MMEDS Act of 2021. To rescue domestic medical manufacturing activity by providing incentives in economically distressed areas of the United States and its possessions.
S.1233 – Small Business Tax Fairness and Compliance Simplification Act. To simplify reporting requirements, promote tax compliance, and reduce tip reporting compliance burdens in the beauty service industry.
S.1256 – Providing Real Opportunities for Growth to Rising Entrepreneurs for Sustained Success (PROGRESS) Act. To provide a tax credit for investors in start-up businesses, to provide a credit for wages paid by start-up businesses to their first employees, and for other purposes.
S.1274 – Remote and Mobile Worker Relief Act of 2021. To limit the authority of States or other taxing jurisdictions to tax certain income of employees for employment duties performed in other States or taxing jurisdictions, and for other purposes.
S.1283 – Tax on Wall Street Speculation Act. To impose a tax on certain trading transactions to invest in our families and communities, improve our infrastructure and our environment, strengthen our financial security, expand opportunity and reduce market volatility.
S.1300 – Promotion and Expansion of Private Employee Ownership Act of 2021. To amend the Internal Revenue Code of 1986 and the Small Business Act to expand the availability of employee stock ownership plans in S corporations, and for other purposes.
H.R.2346 – E–QUIP Act. To allow 10-year straight line depreciation for energy efficient qualified improvement property.
H.R.2406 – Electric Power Infrastructure Improvement Act. To establish a tax credit for installation of regionally significant electric power transmission lines.
H.R.2482 – MICROGRID Act. To provide tax credits for microgrid property.
S.1266 – Hydrogen Utilization and Sustainability Act. To expand the renewable electricity production credit to include electricity produced from hydrogen.
S.1298 – Clean Energy for America Act. To provide tax incentives for increased investment in clean energy.
H.R.2411 – Broadband for All Act of 2021. To provide a tax credit to consumers to reimburse a portion of the cost of broadband infrastructure serving limited broadband districts.
S.1376 – Protect America’s Paper for Recycling Act. To modify the definition of municipal solid waste.
S.1387 – PTC Elimination Act. To repeal the credit for electricity produced from certain renewable resources, and for other purposes.
H.R.2421 – Collegiate Housing and Infrastructure Act of 2021. To provide for collegiate housing and infrastructure grants.
S.1299 – Public Buildings Renewal Act of 2021. To provide for the tax-exempt financing of certain government-owned buildings.
S.1308 – American Infrastructure Bonds Act of 2021. To provide a credit to issuers of American infrastructure bonds.
S.1403 – Move America Act of 2021. To provide for Move America bonds and Move America credits.
S.1272 – SIMPLE Plan Modernization Act. To promote retirement savings on behalf of small business employees by making improvements to SIMPLE retirement accounts and easing the transition from a SIMPLE plan to a 401(k) plan.
S.1273 – Military Spouses Retirement Security Act. To provide a credit to small employers for covering military spouses under retirement plans.
H.R.2350 – Discriminatory Gaming Tax Repeal Act of 2021. To repeal chapter 35 (relating to taxes on wagering).
H.R.2427 – NFA Modernization Act of 2021. To increase the transfer tax on certain firearms.
H.R.2466 – Law Enforcement Protection Act of 2021. To include armor-piercing, concealable weapons within the definition of ‘‘firearm’’ under the National Firearms Act.
S.1314 – Tobacco Tax Equity Act of 2021. To provide tax rate parity among all tobacco products, and for other purposes.
H.R.2422 – To move the April 15, 2021 estimated tax payment deadline to May 17, 2021 for individuals and corporations.
H.R.2437 – To extend to May 17 the first scheduled individual estimated tax payment for 2021.
You open your mailbox and see a “scary” looking letter addressed to you from the IRS. It’s a notice of payment due. What should you do?
Do not automatically assume the letter is correct and submit payment to make it “go away”. There have been many recent tax law changes and very little time to implement the changes – the IRS can be wrong, and it happens more often than you’d think. These IRS letters, called correspondent audits, need to be taken seriously, but not without undergoing a solid review. So, what should you do if you receive one?
Open the envelope. Remember that the first step to taking care of whatever issue lies inside the envelope is to open it. Stay calm and try not to over-react to the correspondence. We know this is easier said than done, but remember the IRS sends out millions of these types of letters each year. Most of them correct simple oversights or common filing errors.
Review it. Review the letter and understand exactly what the IRS is telling you needs to be changed, and determine whether or not you agree with their findings. Speak to your tax professional to gain understanding and determine what next steps should be.
Timely Response. The IRS will include in the letter what they believe you should do and within what time frame. Do NOT ignore this information. Delays in responses can generate penalties and additional interest payments.
Help is a phone call away. You are not alone. Utilize your tax preparer and planner, who deals with this all the time. At RMS Accounting we are here year-round to help you should an issue with your return arise.
Don’t assume the problem is resolved. Do not ignore the letter and be on the lookout for further correspondence. Until you receive definitive confirmation that the problem has been resolved, you need to assume the IRS still thinks you owe them money. If no correspondence confirming the corr3ection is received, a written follow-up to the IRS will be required.
The idea of saving for retirement is drilled into our heads. 401(k)s or IRAs are where we stock away funds as we prepare for the day we say goodbye to the workforce. But did you know, the government actually requires you to take money out of those accounts once you reach retirement? It’s called the Required Minimum Distribution (RMD) rule.
Surprised to hear this? Keep reading to learn what you should know about RMDs well before you reach retirement age.
One year hiatus: not anymore. In 2020 the required minimum distribution rules were suspended. They have been reactivated in 2021. This will catch many by surprise, so remind any loved ones over the age of 72to make their distribution calculation.
Penalties. Don’t withdraw the required amount of money? The IRS can assess a penalty equal to 50 percent of the amount that should have ben withdrawn in addition to the regular tax due. The rules require you to withdraw a certain amount of money revery year from tax-deferred r3etirement plans like 401(k)s sand traditional IRAs after you reach the age of 72 (regardless of whether you want to).
Plan in advance. Don’t wait until you’re 72 to start thinking about required distributions. You can start withdrawing funds from retirement accounts without penalty after you reach 59½. If you start planning a tax-efficient withdrawal strategy before the required distribution rules kick in, you can manage what tax rate will be applied to your retirement distributions.
How much do I have to withdraw? What you’re required to withdraw is based partially on the average life expectancy of someone your age. Utilizing your prior year retirement account balance in conjunction with the calculation based upon the IRS’s life expectancy tables, a required withdrawal amount is determined. The financial institution handling your retirement account will usually do the calculation for you.
What if I am not retired yet? If you reach 72 and are still working for an employer with a provided 401(k), you usually do NOT have to take a distribution from that account as long as you don’t own 5 percent or more of the company. You do, however, have to take funds from other plans where you have assets.
Do all accounts require distributions? Not all. Roth IRA accounts do not have the minimum distribution requirement, while allowing you extra flexibility to manage your other taxable withdrawals during retirement.
Required Minimum Distribution (RMD) rules can be complex and confusing. Tax planning is an important piece of a retirement strategy. At RMS Accounting we are here year round to help you in your tax planning – we’re only a phone call away.