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IRS Delays, Sudden End to Tax Break Leave Employers Frustrated With Covid Credits – Richard Rubin and Ruth Simon, Wall Street Journal ($). “IRS processing delays and federal policy changes are creating headaches for businesses and nonprofits using a popular wage subsidy that was designed to keep workers on payrolls as the Covid-19 pandemic strained many employers.”
The wait for employers can be as much as six to 10 months for the Internal Revenue Service to process claims for the employee-retention tax credit, business owners, accountants and payroll providers say. That is forcing them to dig deeper into reserves and slowing their recovery.
The article features our own Jim Donovan:
Many employers initially weren’t sure they qualified. So they filed amended tax returns, which typically must be submitted on paper, to claim the credit. As of March 23, the IRS had 1.9 million quarterly employment tax returns to process, plus another 324,000 amended returns. Not all claim the credit, but many do.
‘For some taxpayers, it’s been a real bear,’ said Jim Donovan, a Minneapolis-based partner at accounting firm Eide Bailly LLP. ‘I have taxpayers that are like: ‘Gosh, Jim, I needed the money five months ago. I need it right now. When’s it going to come in? I’m having trouble making payroll.’’ For others, Mr. Donovan said, the money is icing on the cake, cash they can claim because they qualify.
Here’s why your tax refund may be late – Michelle Singletary, Washington Post ($). “For some Americans, this year’s tax season was easy. They filed electronically, elected to have their money sent by direct deposit to their bank account and, in three weeks or less, got their refund.”
The IRS said that, as of March 18, almost 52 million refunds have been issued worth more than $171 billion, with the average payment totaling $3,305.
But for others, a massive return backlog has delayed refunds or held up the processing of returns that were refiled by taxpayers because a correction or change needed to be made.
Regarding the IRS backlog being cleared by year-end, some experts aren't onboard with the timeline:
IRS faces steep climb in clearing old tax returns – Tobias Burns, The Hill. “Former IRS officials and experts are casting serious doubt on the agency's ability to clear by the end of this year tens of millions of unprocessed tax returns delayed by the pandemic.”
IRS Commissioner Charles Rettig vowed to Congress last week that the agency would "absolutely" clear the backlog by the end of 2022, but operational demands that confounded the agency last year show no signs of letting up, raising questions about meeting the deadline.
‘The commissioner said that he commits [the IRS is] going to get through all of the returns by December of 2022, and I would love to see that, but I will be circumspect in thinking that that’s actually going to happen,’ Nina E. Olson, who served as the national taxpayer advocate in the Treasury Department from 2001 to 2019 and is now the executive director of the nonprofit Center for Taxpayer Rights, said in an interview.
IRS to Bring All Teleworkers Back to Office in Phases By June - Erin Slowey, Bloomberg ($). “The IRS will start its return to work plan for remaining teleworkers in phases, beginning in April.”
Leadership will return April 24, with voluntary return for all employees May 8. Normal in-person operations for all employees will begin June 25, according to an internal email sent to IRS employees and provided by the agency to Bloomberg Tax.
The IRS will follow the authorized workplace flexibility and terms of the 2022 National Agreement for bargaining unit employees as workers return.
IRS' AWOL Issue Raises Concerns About Training, Persistency - Joshua Rosenberg, Law360 ($). “The considerable number of IRS employees who were absent without leave in recent years has raised concerns among federal workforce experts about a potential breakdown in training of managers and whether similar AWOL rates may persist at the agency.”
As a recent report from the Treasury Inspector General for Tax Administration demonstrates, the Internal Revenue Service was forced to respond to the coronavirus pandemic in 2020 in an understaffed posture because a potentially substantial portion of its workforce was unavailable.
Between Sept. 30, 2018, and Jan. 2, 2021, nearly 11,000 IRS employees were AWOL, according to the report, and the IRS failed to document that conduct for 8,787 of them. In fiscal year 2020, the agency had more than 75,000 full-time employees.
IRS Scores Win on Appeal Over Law on Approving Penalties - Aysha Bagchi, Bloomberg ($). “The IRS only needs to get a supervisor’s approval of penalties before assessment or, if earlier, only before the relevant supervisor loses approval discretion, a federal appeals court ruled.”
The Friday decision from the U.S. Court of Appeals for the Ninth Circuit marked a significant win for the tax enforcement agency, which has faced a series of lawsuits over whether its penalty practices have met a requirement under tax code Section 6751(b) to get written supervisory approval of various initial penalty determinations.
IRS Finalizes FAQs for Tribal, Alaska Native Covid Payments – Bloomberg:
The IRS issued finalized frequently asked questions for Payments by Indian Tribal Governments and Alaska Native Corporations to Individuals under Covid relief legislation, based on input from tribal government and Alaska Native Corporations leaders, according to the agency’s Friday news release.
The FAQs relating to the tax treatment and information reporting of payments made from tribes to tribal members should be considered to apply equally to payments made from Alaska Native Corporations to their shareholders and other eligible recipients.
IRS Suspends EO Notices for Delinquent Returns – Fred Stokeld, Tax Notes ($):
The suspended notices are:
- CP214, Reminder Notice About Your Form 5500-EZ or 5500-SF Filing Requirement;
- CP217, Form 940 Not Required — Federal, State, and Local Government Agencies;
- CP259A, First Taxpayer Delinquency Investigation Notice — Form 990/990EZ/990N;
- CP259B, First Taxpayer Delinquency Investigation Notice — Form 990PF;
- CP259D, First Taxpayer Delinquency Investigation Notice — Form 990T;
- CP259F, First Taxpayer Delinquency Investigation Notice — Form 5227;
- CP259G, First Taxpayer Delinquency Investigation Notice — Form 1120-POL;
- CP259H, First Taxpayer Delinquency Investigation Notice — Form 990/990EZ;
- CP403, First Delinquency Notice — Form 5500 or 5500-SF; and
- CP406, Second Delinquency Notice – Form 5500.
Trade Your Crypto. Buy Your NFTs. And Pay Your Taxes – David Yaffe-Bellany and Rob Lieber, New York Times ($). “The Internal Revenue Service may run on ancient technology, but that isn’t stopping it from taking its cut from your newfangled cryptocurrency winnings.”
In case you didn’t notice last year — or pretended not to — the I.R.S. moved the question about whether you sold, exchanged or ‘otherwise’ disposed of any financial interest in virtual currency. It’s now high up on the 1040 form — above even where you list your wages.
How serious is the government getting about crypto? This month, President Biden signed an executive order that raised the possibility of a central bank digital currency. And the next day — perhaps driving home the point about the tax implications of all this — the I.R.S. announced that two owners of a cryptocurrency company were going to prison for a combined eight years for tax evasion.
As Home Sale Prices Surge, a Tax Bill May Follow – Ann Carrns, New York Times ($). “It has been a seller’s market for houses in recent years, particularly in the pandemic. But bigger profits for homeowners may, in some cases, mean a large tax bill.”
For decades, most Americans have been shielded from paying capital gains taxes on the sale of their homes unless their profits exceeded certain limits. But the surge in housing values means that more homeowners could see taxable windfalls when they sell, especially if they have owned a home for a long time, accountants say.
What Retirement Means for Your Taxes – Mark Miller, New York Times ($). “If you dread tax day every year, here’s a bit of good news: Your tax burden probably will lighten when you retire.”
You’ll still pay taxes on income you receive from sources that haven’t been taxed yet, such as 401(k) and individual retirement accounts or a defined benefit pension. Your Social Security benefits also may be taxed, depending on your income. And higher-income seniors pay surcharges on Medicare premiums that, while not technically taxes, certainly feel like it to retirees.
But for most households, tax rates fall in retirement, according to research by the Investment Company Institute and the Internal Revenue Service. ‘Some of the decline is due to the fact that you’re not making payroll tax contributions, but income taxes tend to fall both because your total income is typically lower and because only a portion of Social Security is taxable,’ said Peter Brady, senior economic adviser at the institute, a trade group representing the asset management industry.
IRS Issues Multiple Employer Plan Legal Exposure Rule - Austin Ramsey, Bloomberg ($). “The Internal Revenue Service is replacing a proposed regulation issued in 2019 with a similar plan, passed by Congress, to relieve employers’ legal exposure in pooled retirement plans.”
The new proposed rule would implement portions of the 2019 SECURE Act (Pub.L.116-94) establishing pooled employer plans and limiting legal exposure for employers participating in multiple employer plans.
More on Retirement – David Hood and Butch Maier, Bloomberg ($). “Retirement savings options for workers would be expanded under a bill slated for floor consideration this week.”
H.R. 2954, which builds on the 2019 retirement law known as the “SECURE Act” (Public Law 116-94), would include additional tax changes, including increasing a tax credit for small businesses to help offset the cost setting up retirement plans.
The House is scheduled to consider the bill under suspension of the rules on March 29. A two-thirds majority would be required for passage.
Manchin Signals He Wants to Restart Talks on Climate, Tax Package – Andrew Duehren and Andrew Restuccia, Wall Street Journal ($). “Sen. Joe Manchin, a pivotal vote in Democrats’ efforts to pass elements of President Biden’s economic agenda, has indicated in recent days he wants to restart talks soon on a party-line package focused on energy policy, according to people familiar with his private comments.”
The West Virginia Democrat’s remarks, made in conversations with energy executives and lobbyists, echo his previous public calls for legislation centered on raising taxes, reducing the deficit, lowering drug costs and offering clean- energy incentives… Mr. Manchin previously has said he would restart work on the legislation in the second quarter, which begins in April, according to a person familiar with his remarks.
Manchin envisions enough tax increases to not only pay for the cost of the bill, but also lower the deficit. That means the legislation will likely include plenty of tax increases. Currently, it is unclear which tax increases will be included.
Mr. Manchin has sought to revive tax proposals popular with most Democrats—including hiking the corporate tax rate and raising taxes on capital gains and carried-interest income—but previously dropped from the party’s plans because of a lack of support from Sen. Kyrsten Sinema (D,. Ariz.). Ms. Sinema has repeatedly stood by her opposition to those tax plans, while favoring alternative ways for raising revenue in the bill.
Mr. Manchin’s priorities for climate-focused legislation include the extension of a tax credit to boost U.S. manufacturing of low-carbon energy technologies, which he hopes will benefit communities that have suffered following the closure of coal-fired power plants. He has also touted measures to boost hydrogen, which he has said he wants to turn into an industry in West Virginia, and nuclear power.
Scoop: Manchin outlines BBB deal requirements – Hans Nichols, Axios. “Sen. Joe Manchin (D-W.Va.) told a group of climate activists and energy executives he's open to supporting revised Build Back Better legislation narrowly addressing three issues: climate change, prescription drug prices and deficit reduction.”
And Manchin is insisting on reducing the deficit with at least half of the revenue from new corporate taxes, as well as the estimated savings from allowing Medicare to directly negotiate the cost of prescription drugs.
The bottom line: Any skinnier Build Back Better legislation still faces numerous hurdles.
They include agreement from Sen. Kyrsten Sinema (D-Ariz.) on the revenue side, and acceptance from progressives that $550 billion on energy and climate is the only deal they'll get.
President Biden's budget comes out today and it also wants to lower the deficit. Coincidence?
From the White House:
The President will announce his Budget for Fiscal Year 2023, which will reduce deficits by more than $1 trillion over the next decade, advance safety and security at home and around the world, and make the investments needed to build a better America. The Budget projects that the Biden-Harris Administration is on track to reduce the deficit by more than $1.3 trillion this year, the largest one-year reduction in the deficit in U.S. history.
Biden Budget Woos Moderates With Deficit Cuts, Flexibility – Justin Sink, Laura Davison and Erik Wasson, Bloomberg ($). “President Joe Biden’s budget release on Monday is shaping up as a direct appeal to moderate Democrats, emphasizing deficit reduction and flexibility on social spending as the White House hopes to win support for new legislation before November’s midterm elections.”
The request will show a $1 trillion reduction in deficit spending over the coming decade, generated in part by a new tax targeting the income and unrealized capital gains of billionaires. Federal spending will decline $1.3 trillion from last year alone, as pandemic assistance programs and emergency financing offered to state and local governments are eliminated.
Biden to Include Minimum Tax on Billionaires in Budget Proposal – Zolan Kanno-Youngs, New York Times ($). “The White House will ask Congress on Monday to pass a new minimum tax on billionaires as part of a budget proposal intended to revitalize President Biden’s domestic agenda and reduce the deficit.”
The tax would require that American households worth more than $100 million pay a rate of at least 20 percent on their income as well as unrealized gains in the value of their liquid assets, such as stocks and bonds, which can accumulate value for years but are taxed only when they are sold.
Mr. Biden’s proposal to impose a tax on billionaires is the first time he has explicitly called for a wealth tax.
Those already paying more than 20 percent would not owe any additional taxes, although those paying below that level would have to pay the difference between their current tax rate and the new 20 percent rate.
The payments of Mr. Biden’s minimum tax would also count toward the tax that billionaires would eventually need to pay on unrealized income from assets that are taxed only when they are sold for a profit.
Biden to Propose New Minimum Tax on Wealthiest Americans – Richard Rubin and Andrew Deuhren, Wall Street Journal ($):
The proposal would affect fewer than 20,000 households, and it would apply only to those who don’t pay at least 20% in tax on a combination of income as typically defined and their unrealized gains on unsold assets such as stocks and closely held businesses. The plan would generate roughly $360 billion in revenue over 10 years, according to a White House fact sheet released in advance of Monday’s full budget proposal. That is about twice as much money as raising the top individual income-tax rate to 39.6% from 37%, and it would affect a much smaller group of people.
Biden’s Budget: Taxes on Wealthy, Defense and Deficits in Focus – Amara Omeokwe, Wall Street Journal ($). “The White House is set to release its multitrillion-dollar budget for fiscal year 2023 on Monday. The spending plan will include a proposal to levy new taxes on the wealthiest Americans.”
The proposal is in line with the Biden administration’s recent focus on deficit reduction, which administration officials have said the forthcoming budget would also emphasize. Some analysts and economists believe that lowering the deficit can help subdue inflation, which is at a 40-year high, by reining in government spending and reducing aggregate demand in the economy.
The budget plan would reduce the U.S. deficit by more than $1 trillion over a decade, the White House said.
Important point: Just because the president includes a tax increase in his budget doesn’t mean it becomes law.
Does Congress have to do what the White House asks?
No. Lawmakers routinely ignore the White House’s budget requests in favor of their own plans. The White House budget is generally seen as the first step in the long process that leads to the government being funded.
Budgets are important for one main reason – they’re reflections of the values of the party putting it forward. The proposal will become a punching bag for Republicans, and it is oftentimes politically unpalatable for the party in power.
FWIW: President Biden opposed a wealth tax on the 2020 campaign trail while other presidential candidates supported it, like Senator Elizabeth Warren (D-Mass.). During his first year in office, Biden decided to not support a wealth tax. Here is an article published roughly one-year ago today (March 30, 2021) that shows his position back then:
Biden decides to shelve Warren’s wealth tax – Megan Cassella and Natasha Korecki, Politico:
President Joe Biden will not call for a wealth tax to help pay for his multitrillion-dollar Build Back Better initiative, according to multiple people familiar with the White House’s thinking. In doing so, he will sidestep a proposal that progressive Democrats, led by Sen. Elizabeth Warren (D-Mass.), say would raise trillions of dollars in revenue and narrow income inequality.
Inside the White House, the idea that Biden would embrace Warren’s approach after plainly rejecting it during the campaign was difficult to square. Biden aides also don’t see any political risk in casting a wealth tax aside, noting that he supports several tax hikes on the wealthy already, according to several people familiar with his thinking.
What’s changed? Political pressure. Certain Democrats think increasing taxes on the wealthy in instrumental to getting re-elected in November.
However, the budget will include few tax details, according to Bloomberg:
Biden to Sidestep ‘Build Back Better’ Proposals in His Budget – Justin Sink, Bloomberg ($). “President Joe Biden will broadly endorse the climate, social safety net and tax-code changes the White House has pursued as part of his ‘Build Back Better’ agenda in his budget proposal Monday, but he won’t specify the costs or revenues in a bid to avoid disrupting congressional negotiations.”
Instead, the fiscal 2023 budget document will include a placeholder known as a ‘deficit-neutral reserve fund,’ signaling Biden’s commitment to sweeping policy changes without spelling out the costs and benefits.
As a result, Biden’s budget tables won’t include the prices of proposals such as universal free pre-school, an expanded Child Tax Credit, and funding to combat climate change, and also won’t assume deficit reductions from policies such as prescription-drug reforms or tax increases on corporations and wealthy Americans… That also means Biden’s proposals won’t impact long-term projections within the budget, including what a White House official said was an anticipated $1 trillion in deficit reduction over the next decade.
In leaving out the details of ‘Build Back Better,’ Biden’s goal is to avoid upsetting delicate congressional negotiations, according to three people familiar with the strategy who asked not to be identified discussing the budget ahead of its release. The White House believes the approach will preserve maximum flexibility and avoid the budget release spoiling talks during a critical legislative window.
BBA Issues for S Corporations That Own Interests in Lower-Tier Partnerships – Matthew Lay, Tax Notes ($):
In this article, Lay examines how an S corporation that is a passthrough partner under the centralized partnership audit rules can become subject to some of those rules if it owns an interest in a lower-tier partnership.
Success of BBA Audit Regime Goes Beyond Numbers – Kristen Parillo, Tax Notes ($). “A Treasury watchdog’s review of the IRS’s implementation of the centralized partnership audit regime put too much emphasis on no-change rates and not enough on staffing needs, according to tax professionals.”
Those who spoke with Tax Notes said that while the Treasury Inspector General for Tax Administration’s report dated March 17 and released March 23 provided interesting data, it may not give a complete picture when judging the IRS’s efforts in implementing the audit regime created by the Bipartisan Budget Act of 2015.
‘Success here should be measured by more than just no-change rates,’ said Rochelle Hodes of Crowe LLP.
Tax Hiring Outlook 2022 – Tony Santiago, Tax Notes ($). “After the challenges of the 2020 COVID-19 pandemic, 2021 was a year of unexpectedly robust recovery. While we had anticipated that the lingering negative effects of 2020 would be minor, last year’s rebound surprised everyone. That recovery — coupled with the white-hot market — is still at play and is likely to significantly affect your ability to both retain tax talent and recruit new employees. Thus, tax leaders must be prepared for both planned and unexpected turnover, and this series of articles aims to help you do just that.”
The article provides five reasons for why hiring will be challenging:
Limited labor pool and decreasing supply of U.S. tax professionals.
Increasing demand for U.S. tax talent.
Heightened pressure on racially diverse hiring.
Remote/hybrid/in-office work policy and vaccine-related influences.
Salary and title inflation.
Tax Breaks to Ease Inflation Advance in Connecticut, California – Laura Mahoney, Bloomberg ($):
More state lawmakers want to relieve consumers from inflation with gas tax holidays and rebates. New Jersey, Florida, and Arizona move one step closer to figuring out how to handle taxes and cryptocurrency. New York investigators want records from RSM LLP related to its accounting work for former President Trump.
Mississippi Lawmakers Agree to Largest Tax Cut in State History – Jennifer Kay, Bloomberg ($). “Mississippi lawmakers agreed Sunday on a deal for $525 million annually in tax cuts, setting the state on a path to eventually phase out its personal income tax.”
Now it’s up to Gov. Tate Reeves (R) to make good on his boast that he’s 'prepared to do whatever it takes to eliminate the income tax in Mississippi.'
The legislation (H.B. 531) would eliminate the state’s 4% income tax bracket, which would result in the first $18,300 in income for a single person or $36,600 for a couple filing jointly being tax-free. The state’s 5% tax bracket would gradually be reduced to 4% in 2026.
By that point, the measure would require lawmakers to consider additional tax cuts until the individual income tax was eliminated.
Minnesota DOR Issues Information on Power of Attorney, Accessing Client’s Income, Sales, Excise Tax Information – Bloomberg ($):
The Minnesota Department of Revenue (DOR) March 24 issued answers to frequently asked questions on powers of attorney and accessing a client’s individual income, corporate income, trust income, sales and use, property, estate, and excise tax information. The DOR provides answers to questions, including: 1) how do tax professionals get a power of attorney for their clients; 2) how long does a tax professional’s power of attorney last; 3) how do tax professionals change or remove an existing power of attorney; and 4) can tax professionals get access to their clients’ e-Services for business accounts? Tax professionals can contact the DOR in case of further questions.
Wash. To Ask State Justices To Restore Capital Gains Tax - Maria Koklanaris, Law360 ($). “The Washington attorney general appealed to the state's highest court Friday in a bid to overturn a lower court ruling that struck down the state's tax on capital gains.”
The appeal by Democratic Attorney General Robert Ferguson had been expected. On March 1, when the tax was struck down by Superior Court Judge Brian Huber, Ferguson said in a statement that the state would appeal. The only question was whether he would appeal to the Washington Supreme Court or an intermediate appeals court.
Colo. Court Says State Can Claw Back Unpaid Pot Taxes - Katryna Perera, Law360 ($). “The Colorado Court of Appeals ruled the state's Department of Revenue can be considered a "victim" for restitution purposes and remanded a case involving unpaid marijuana excise taxes back to the trial court for further proceedings.”
In a unanimous opinion written by Judge Terry Fox, the three-judge panel reversed a trial court's finding that the Department of Revenue could not recover unpaid marijuana excise taxes on behalf of Coloradans under the Colorado Restitution Act.
Pillar 2's Complexity Vexes Biz In Sweden, Estonia - Todd Buell, Law360 ($). “The complexity of proposed rules linked to a global minimum tax is worrying business representatives in Sweden and Estonia, who fear that envisioned changes to tax laws could make their operations more expensive and put them at a competitive disadvantage.”
While the rules' complexity is a concern for business leaders in both countries, the problem is compounded in Estonia, where entrepreneurs fear that the country's unusual tax system, which they say promotes investment, could be in danger.
The proposed pace of change is too fast for some in the Swedish business community, who object to the French government's plan to try to push through agreement on the minimum tax — the second so-called pillar of a sweeping global tax deal — at a meeting of European Union finance ministers next month.
‘If we don't decide on Pillar Two in three weeks, is it the end of the world?’ said Krister Andersson, a former head of tax at Sweden's business confederation. ‘Why can't we wait?’
Happy National Weed Appreciation Day! (Not that kind of weed!)
From National Day Calendar:
Do you remember as a small child the fun you had with dandelions? Well, these bright yellow flowers serve a purpose. Dandelions are a food source for insects and some birds. Humans eat young dandelion leaves and enjoy tea and wine made from the leaves and flowers. The Native Americans used dandelions to treat specific ailments. Nutritionally, dandelions contain a source of vitamin A and C, calcium, iron, and fiber.