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Tax Season 2022 Is Here, and Pandemic-Related Complications Remain – Richard Rubin, Wall Street Journal ($). “It’s that time again. Tax-filing season is here, and the pandemic and its aftereffects are still causing complications. Here’s a guide to what you should expect as you prepare and file your returns.”
When does tax season start?
The Internal Revenue Service will begin accepting 2021 individual income-tax returns on Jan. 24. Most taxpayers get refunds. Early filers tend to be lower-income households whose primary earnings come from their jobs. They are often trying to get that refund quickly and aren’t waiting on information from partnerships and investments, which are of greater importance to the wealthier investors who tend to file later.
Is there anything unusual this year?
Yes. 2021 was unusual because of the pandemic, and that means an unusual echo into tax filing. Among the significant issues are the child-tax-credit and economic-stimulus payments. The IRS is still struggling with backlogs from closing its offices and administering new pandemic-era programs. Those stresses hamper the agency’s ability to respond to taxpayers.
Downsized, Late Tax Refunds Loom in ‘Perfect Storm’ Tax Season – David Hood and Laura Davison, Bloomberg ($). "In what even the U.S. Treasury says will be a frustrating tax season, families claiming the child tax credit and newly self-employed Americans are among filers likely to see the biggest challenges this year.”
The season starts Monday, and while Internal Revenue Service teams have been working “non-stop” for several months, years of funding and personnel cutbacks, along with a backlog of several million tax returns from previous years, will hamper the agency’s abilities to respond as swiftly as in the past.
Senate Finance Committee Chairman Ron Wyden said he is considering more ways to make the filing season easier, including a possible extension of the filing date. He said he is also looking at ways to grant the IRS more money to fund taxpayer services, though it’s unclear how easily Congress could quickly pass any such measure.
BTAX OnPoint: Key Filing Issues for 2021 Tax Year - Tammara Madison, Bloomberg ($). “Legislation enacted during the Covid-19 pandemic such as the CARES Act, the Consolidated Appropriation Act of 2021, and the American Rescue Plan Act will make the filing season for the 2021 tax year much different from the filing season for the 2020 tax year.”
[T]ax filers should be aware of processing challenges faced by the Internal Revenue Service and are advised to file and pay taxes due electronically, file extensions and verify receipts, and use the IRS website to the greatest extent possible for tasks such as tracking refunds, ordering transcripts, and establishing payment plans.
The Internal Revenue Service today kicked off the 2022 tax filing season with an urgent reminder to taxpayers to take extra precautions this year to file an accurate tax return electronically to help speed refunds.
The start of this year's tax season – which takes place earlier than last year's February 12 opening – signals the IRS is now accepting and processing 2021 tax returns. More than 160 million individual tax returns for the 2021 tax year are expected to be filed, with most before the April 18 tax deadline.
IRS tips for a smoother filing season are here.
IRS to Hire 200 Attorneys to Go After Abusive Tax Transactions - Kaustuv Basu, Bloomberg ($):
The IRS plans to hire up to 200 attorneys nationwide to take on “abusive tax schemes” such as syndicated conservation easements and micro-captive insurance deals, per a Friday press release.
Here is the job posting:
IRS Chief Counsel looking for 200 experienced attorneys to focus on abusive tax deals; job openings posted – IRS. “The Internal Revenue Service's Office of Chief Counsel today announced plans to hire up to 200 additional attorneys to help the agency combat syndicated conservation easements, abusive micro-captive insurance arrangements and other tax schemes.”
‘Combating abusive tax transactions that threaten to undermine our tax system remains a top priority for our enforcement efforts,’ said IRS Commissioner Chuck Rettig. ‘It's critical we work to ensure a fair tax system and adding these new attorneys will help us in on our ongoing efforts in this arena.’
These positions will be available around the country, and the IRS encourages qualified candidates to apply.
IRS begins requiring new ID system for accessing online accounts – Michael Cohn, Accounting Today. “The Internal Revenue Service has implemented a new verification process for taxpayers who want to access their online tax accounts and self-help tools that includes taking a selfie and submitting a photo of their driver’s license or passport to a third-party service, ID.me.”
The IRS announced the new authentication procedure last November after a series of high-profile data breaches in recent years on some of its online tools like Get Transcript... The new procedures are garnering fresh attention this week after a report on the cybersecurity blog Krebs on Security and as more of the IRS rolls out the new authentication process across more of its online apps as the start of tax season approaches next Monday.
The IRS is emphasizing that selfies won’t be needed to file and pay taxes online, only for accessing its online accounts and self-help tools.
Venmo, PayPal and other payment apps have to tell the IRS about your side hustle if you make more than $600 a year – Michelle Singletary, Washington Post:
To help identify tax cheats, the IRS as of Jan. 1 started requiring all third-party payment processors in the United States to report payments received for goods and services of $600 or more a year.
This is going to be a jarring change for some self-employed gig workers and people with side hustles.
The Huge Tax Bills That Came Out of Nowhere at Vanguard – Jason Zweig, Wall Street Journal ($). “It’s easy for a small investor to make big mistakes. It would be even easier for giant investment firms to help prevent them—but, sadly, the asset-management industry seems to have other priorities. Just look at what happened last month to some investors in Vanguard’s Target Retirement funds. They got whacked with huge capital-gains distributions. Those payouts triggered painful tax bills they could easily have avoided if Vanguard had simply warned them not to hold these funds outside of a tax-advantaged retirement account.”
Like many investment firms, Vanguard offers target-date funds: bundles of stocks, bonds and cash that automatically become more conservative as investors approach their retirement date.
These funds are tailored for investors in 401(k)s or other retirement plans where taxes are deferred. So target funds aren’t managed to minimize dividends or capital gains. Hold them in a taxable account instead of a retirement plan, and you will owe taxes on those payouts—sometimes much more than you would in other types of funds.
Democrats Start to Sketch Out Revived Build Back Better Package - Andrew Duehren, Wall Street Journal ($). “Democrats began to revive their efforts to pass a major child-care, healthcare and climate package as lawmakers started to accept that they would have to further cater to Sen. Joe Manchin (D., W.Va.) in hopes of reaching a deal on a scaled-back plan."
After Mr. Manchin said last month that he was opposed to the party’s roughly $2 trillion plan, dooming its chances in the 50-50 Senate, the party largely pivoted away from the package for several weeks. Now, after the failure of a separate push on elections legislation, Democrats are again turning to the economic plan, which President Biden said Wednesday the party might cut into separate pieces.
House Speaker Nancy Pelosi (D., Calif.) on Thursday said that Democrats wouldn’t seek to pass multiple pieces of legislation because of the procedural problems it could pose. But the party will likely have to further scale back its ambitions, she said.
Senator Manchin is basically running the show. From the Senator:
‘The main thing we need to do is take care of the inflation, get your financial house in order, get a tax code that works, take care of the pharmaceuticals gouging people with high prices, we can fix that. We can do a lot of good things,’ he said.
Manchin could change the tax increases included in the House-passed bill:
On the revenue side of the equation, Democrats expect their proposed tax increases to win the support of their caucus, though Mr. Manchin has expressed frustration that the party moved away from increases in the top rates for corporations and individual income. The party dropped those tax increases from the package to address the concerns of Sen. Kyrsten Sinema (D., Ariz.).
The party will also still have to grapple with demands to lift the $10,000 cap on the state and local tax deduction. Democrats from high-tax states such as New York and New Jersey have made lifting the cap, which Republicans put into place in their 2017 tax law, a priority in the bill. Other Democrats have said lifting the cap primarily benefits high-income Americans.
Sanders Says Time for Senate to Change Course on Biden’s Agenda - Emma Kinery, Bloomberg ($). “Senator Bernie Sanders said it’s time for Democrats to change course on Joe Biden’s agenda and have senators vote on portions of the president’s key economic bill, then seek to pass what remains as a package.”
After six months of ‘so-called negotiating’ with Democratic senators Joe Manchin and Kyrsten Sinema, ‘we need to start voting,’ Sanders said on CNN’s ‘State of the Union’ on Sunday. ‘We need to bring important pieces of legislation that impact the lives of working families right on to the floor of the Senate.’
House Democrats will introduce USICA bill this week – Punchbowl News ($):
News: A big USICA push. House Democrats will unveil their new version of USICA (U.S. Innovation and Competition Act) this week, according to multiple sources. The bill could hit the House floor as soon as next week. Speaker Nancy Pelosi recently listed a ‘competitiveness’ bill as one of her top priorities, and House leadership and committees staffers have been scrambling to put the package together.
The House and Senate have already passed versions of this bill, which focuses on China and trade issues. However, it could be a vehicle to pass pieces of the Build Back Better bill. But if the legislation is modified too much, it might not pass the Senate. Meanwhile, the Biden Administration is hopeful for a legislative win and might not want to rock the boat too much when it comes to adding BBB provisions to the bill.
IRS sending some taxpayers erroneous child credit information – Aaron Lorenzo, Politico Pro ($). “Many taxpayers are receiving IRS letters with incorrect child tax credit amounts just before they’re supposed to start filing their tax returns.”
The article features our own Elyse Katz:
The errors could lead to refund delays and other headaches for a lot of them, through no fault of their own.
‘I assume there’s going to be an influx of another round of notices, after people file their 2021 returns and maybe the information doesn’t match what we have on record and what the letters are saying,’ said CPA Elyse Katz, senior manager of the tax controversy and procedure group at the national accounting firm Eide Bailly.
‘It’s going to cause another whole host of problems that we’re going to have to follow up on,’ Katz said.
Families are in distress after the first month without the expanded child tax credit - Deepa Shivarma, NPR. “Had Congress renewed the expanded child tax credit at the end of last year, Jen Cousins would have received $1,000 from the government on Jan. 14.”
She would have used the money to fix the brakes on her family's only vehicle, a minivan. She would have taken her four kids to the eye doctor because they all need new glasses. Some of the money would have gone toward saving for fixing the roof of their house in Orlando, Fla.
But in December, Congress left Washington for winter recess without passing President Biden's 'Build Back Better' agenda, which included an extension of the expanded child tax credit, or CTC.
2 business tax increases go into effect this year - Kyle Pomerleau, AEI. “Two major changes to the business tax base enacted as part of the Tax Cuts and Jobs Act (TCJA) will go into effect this year. First, businesses will be required to amortize research and development (R&D) costs over five years. Second, the limitation on net interest deduction will tighten from 30 percent of earnings before interest, taxes, depreciation, and amortization (EBITDA) to 30 percent of earnings before interest and taxes (EBIT) — a narrower definition of income.”
Both provisions will increase the tax burden on new investment. The effective tax rate on overall investment will increase from 2021 policy by 0.9 percentage points as a result of R&D amortization. This result is driven by the provision’s 16.8 percentage point increase in the tax burden on intellectual property. The EBIT limitation on net interest expense would increase the tax burden on overall investment from 2021 policy by 0.4 percentage points by making debt-financed investment more expensive across all asset types.
Senior House Democrats Eye Earlier Refunds for Tax Credit Filers - Colin Wilhelm, Bloomberg ($). “New Jersey Rep. Bill Pascrell (D) and Ways and Means Committee Chairman Richard Neal (D-Mass.) have introduced a bill to undo refund delays for early tax filers who qualify for the earned income tax or child tax credits.”
By law, the IRS cannot issue refunds to filers who claim the EITC or CTC until Feb. 15, in order to match their income information with employer records, as a fraud prevention mechanism. If the bill were to become law, refunds could be issued before then if the reported income of those claiming either or both credits matched verified W-2 information the tax collection agency already has on file.
Don't hold your breath that this bill becomes law by February 15th. Congress has a lengthy to-do list.
White House Is Set to Put Itself at Center of U.S. Crypto Policy – Jennifer Epstein, Jenny Leonard and Allyson Versprille, Bloomberg ($). “The Biden administration is preparing to release an initial government-wide strategy for digital assets as soon as next month and task federal agencies with assessing the risks and opportunities that they pose, according to people familiar with the matter.”
Senior administration officials have held multiple meetings on the plan, which is being drafted as an executive order, said the people. The directive, which would be presented to President Joe Biden in the coming weeks, puts the White House at the center of Washington’s efforts to deal with cryptocurrencies.
Coalition Pushes to Restore Employee Retention Credit – Fred Stokeld, Tax Notes ($). “Groups representing small businesses and charities are pressing Congress and the White House to revive a recently expired tax credit they say is critical to helping employers cope with the economic consequences of the COVID-19 pandemic.”
The groups are boosting the Employee Retention Tax Credit Reinstatement Act (H.R. 6161), which would reinstate the employee retention credit for the fourth quarter of 2021 following the credit’s elimination for that period by the Infrastructure Investment and Jobs Act (P.L. 117-58).
Many small businesses and charities continued to take the credit into the fourth quarter of 2021, which began six weeks before the infrastructure bill was signed into law, the coalition noted in a January 19 letter to President Biden and congressional leaders. Those employers now face a retroactive tax increase and a difficult process of reconciling the credit they now must forfeit, the letter explained.
States Are Swimming in Cash Thanks to Booming Tax Revenue and Federal Aid - Jimmy Vielkind, Wall Street Journal ($). “Numerous states are proposing tax rebates and bonuses for public workers as the fiscal doldrums of early 2021 give way to fat times fueled by booming markets, growing incomes and federal aid.”
State revenues between April and November increased 24% from 2020 to 2021, according to a survey conducted by the Urban Institute think tank. Thirty-two states said revenue collections for fiscal years ending in 2022 were ahead of projections, according to the National Association of State Budget Officers, including South Carolina, Minnesota and Washington.
Governors Push State Tax Cuts Amid Warnings of Uneven Results – Michael Bologna, Bloomberg ($). “Governors from four more states promised tax cuts this week, but a progressive think tank warned of consequences from these strategies. Meanwhile, Maryland is extending its tax filing deadline, Mississippi lawmakers are eyeing taxes on cannabis, and New Jersey has a new law circumventing the federal $10,000 cap on state and local tax deductions.”
This week the governor of South Carolina promised an income tax cut valued at $1 billion over five years, New Mexico’s governor suggested a cut in the sales tax and an end to taxes on Social Security income, and Utah’s governor proposed a $160 million grocery tax credit. And, on Thursday, Minnesota Gov. Tim Walz proposed a $700 million tax rebate program that would send one-time checks of $175 to most individual filers across the state.
Flush with pandemic relief dollars and better-than-expected revenue collections, similar offers have been trotted out in recent weeks in Arizona, California, Georgia, Idaho, Indiana, Iowa, Kansas, Michigan, Mississippi, New York, Wisconsin, and West Virginia.
Hoping to immunize state capitols from a full-blown case of tax-cut fever, the Center on Budget and Policy Priorities briefed the media Thursday about the pitfalls embedded in these tax-cutting agendas. The progressive think tank specified that most of the strategies engineered over the last 20 years have benefited wealthy individuals and corporations, while offering very little to low- and middle-income taxpayers and communities of color.
What’s Certain in State Tax Litigation: Unpredictable Outcomes - Michael Semes, Bloomberg ($):
Typically, a state taxpayer strives for certainty foremost. This article juxtaposes four opinions, two each written by Pennsylvania Supreme Court Justices David N. Wecht and Debra Todd in the last six weeks of 2021, to demonstrate the unavoidable—but perhaps unnecessary—difficulty in predicting the outcome of state tax litigation.
Whitmer to call for repeal of Michigan pension tax in State of the State address – Paul Egan, Detroit Free Press ($). “Gov. Gretchen Whitmer will call for the rollback of Michigan's tax on pensions in her State of the State address Wednesday, the Free Press has learned.”
Whitmer's administration is flush with cash because of federal stimulus funds and higher-than-expected state revenue during an election year. She will tell an estimated 500,000 affected Michigan seniors that repeal of the law is expected to save them about $1,000 a year each, on average, and further stimulate the economy, according to a background document and a source familiar with the planned speech.
New Jersey Court Tosses Challenge to Sales Tax Refund Rules - Sam McQuillan, Bloomberg ($). “A Delaware chemical manufacturer has been denied a tax refund for machine parts used in its chemical making process, after the Tax Court of New Jersey ruled the state’s administrative rules comply with legislative intent.”
The court Wednesday upheld New Jersey rules (N.J.A.C. 18:2-5.8(d)(3), (4)) for sales and use tax refund claim procedures, after Solvay Solexis Inc. and Solvay Specialty Polymers LLC said the Division of Taxation’s application went beyond state law. The consolidated companies sought a refund of more than $1.4 million for sales and use taxes paid on repair part purchases they said should have been exempt under state law.
Gov. Youngkin outlines legislative priorities including sweeping tax cuts, education changes - Shayna Estulin, WTOP News. “Virginia Gov. Glenn Youngkin has announced dozens of bills and budget amendments he’s supporting to further what he calls his Day One Agenda.”
In a statement on Friday, the Governor said they reflected ‘bipartisan priorities.’
‘These initiatives will make Virginia’s communities safer, restore academic excellence, lower the cost of living, and I look forward to seeing these bills come to my desk,’ Youngkin said.
The bills include substantial tax cuts such as doubling Virginia’s standard income tax deduction to $9,000 for single tax filers and $18,000 for married couples filing jointly, sending out a one time tax refund of $300 to $600 dollars, a new requirement that voters approve local property tax hikes and tax cuts for veterans.
Marijuana tax bringing in more money than projected in first year – Mark Phillips, ABC 15. “Arizona’s law legalizing recreational marijuana use for adults is a year old and it didn’t take long before a backstreet business turned into a mainstream industry.”
Combined with medical marijuana sales, Arizona’s cannabis industry now exceeds $1 billion in revenue. At dispensaries like Harvest in Tempe, business is brisk.
‘We saw a program that jumped in a way we hadn't seen in any other place across the country. We expect that to continue to grow over the next few years,’ said Steve White, President of Trulieve, which owns Harvest.
Indiana House backs GOP tax cut plan that has uncertain fate – Tom Davies, Associated Press. “Republicans pushed a plan for broad cuts to Indiana’s business and individual income taxes through the state House on Thursday, sending it to an uncertain fate in the GOP-dominated Senate."
House members voted 68-25 mostly along party lines in favor of the proposal potentially cutting more than $1 billion a year in various taxes.
Republican supporters called the plan a responsible way of returning money to taxpayers following a big jump in tax collections helped by federal COVID-19 relief funding that is projected to boost state government’s cash reserves to a highest-ever level of $5.1 billion, or 29% of state spending, by the end of next June.
Democrats criticized the proposal for mostly benefitting corporations and the wealthy rather than using the money to reduce college tuitions, help pay child care expenses and cover high prescription drug bills.
OECD Global Tax Deal a Testament to Multilateralism, Yellen Says – Stephanie Soong Johnston, Tax Notes ($). “The two-pillar global tax reform agreement brokered through the OECD framework is a 'remarkable testament' to the Biden administration’s leadership and its commitment to multilateralism, U.S. Treasury Secretary Janet Yellen said.”
Speaking January 21 during the virtual Davos Agenda, organized by the World Economic Forum, Yellen extolled the agreement that 137 jurisdictions finalized in October 2021 to revamp the global corporate tax rules. She reiterated that the agreement would end the race to the bottom among countries on corporation tax and stabilize the outdated international tax system for the 21st century.
IRS Issues Final Regs on Determining Stock Ownership – Tax Notes ($). “The IRS has issued final regulations (T.D. 9960) on the treatment of domestic partnerships when determining amounts included in the gross income of their partners regarding foreign corporations. T.D. 9960 is effective January 24, 2022.”
T.D. 9960 is issued concurrently with proposed regulations (REG-118250-20) on the treatment of domestic partnerships and S corporations that own passive foreign investment companies and their domestic partners and shareholders as well as on other PFIC and controlled foreign corporation-related issues.
From Bloomberg:
The proposed rules treat partnerships as aggregates of their partners, rather than entities separate from their partners, when tallying foreign income such as Subpart F income or global intangible low-taxed income (GILTI). That means the partners themselves are deemed to own the partnership’s assets and run its operations, and they count their shares of the partnership’s offshore income as part of their own gross income.
The domestic-partnership rules were originally part of a package of proposed rules that also included a “high-tax exclusion” allowing companies to opt out of GILTI on foreign income on which they’ve already paid offshore taxes over a certain rate. But the two matters were later separated, and final rules on the high-tax exclusion (RIN 1545-BP15) were issued in 2020.
Happy National Peanut Butter Day! My go-to food for when I’m craving sweets or protein. Mind you, not the best choice. But it sure tastes good!