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Yellen Says Audits of Top Earners to Increase - Butch Maier, Bloomberg ($):
Treasury Secretary Janet Yellen detailed Thursday how the IRS will ramp up audits of top earners.
During a visit to an IRS facility just outside Washington, Yellen revealed plans to increase audits of top earners to help reduce an amount of unpaid taxes that’s ‘grown to enormous levels.’
The top 1% of earners in 2019 were estimated to owe over a fifth of the so-called tax gap, amounting to around $160 billion, she said.
IRS playbook:
Yellen outlines IRS service improvements for upcoming tax season – Jay Heflin, Eide Bailly:
The Secretary said that the following service improvements would occur within the next six months:
- Fully staff all IRS Tax Assistance Centers, which are projected to serve at least 2.7 million Americans in the coming filing season.
- Improve phone service by hiring 5,000 customer service representatives. The goal is for wait times to be cut in half.
- Automate scanning paper tax returns, which is expected to mean faster processing and faster refunds.
- Enable taxpayers to interact with the IRS online.
'These are bold commitments that the IRS will deliver in just the next six months,' Yellen said...
Sense and Nonsense About the IRS’ Funding Increase From Congress (Opinion) - Charles Rossotti, Former IRS Commissioner, Bloomberg ($).”Some politicians and commentators have attacked the decision to increase IRS funding by spreading misleading claims that are wrong about the facts…”
The IRS will not audit poorer taxpayers because the return is greater when auditing rich folks:
A taxpayer who has $400,000 of income and reports half of it will on average fail to pay $51,866, while a taxpayer with $50,000 of income who reports only half will fail to pay $2,185. Auditing the $400,000 taxpayer will recover more than 23 times as much as an audit of the $50,000 taxpayer. For fairness and efficiency, it only makes sense for the IRS to focus its audits on upper income taxpayers.
There will not be an army of revenue agents because the agency will still be short staffed after the money is gone:
[A]fter all the increased funding, the IRS will have barely more agents than it had 35 years earlier. In the meantime, the economy has more than doubled in size and the tax system is vastly more complex.
IRS audit resources were highly limited, even in the 1990s, and will be even more limited over the next decade, requiring the IRS to be selective in how it deploys these scare resources.
Still, could there be a hitch in the IRS’s giddy-up when it comes to using the new revenue stream the right way?
Yellen to a Newly Funded IRS: ‘Meet the Moment’ – Alexander Rifaat, Tax Notes ($):
While the White House has been portraying the additional IRS funding as a transformational moment in tax administration, questions remain over the efficiency and efficacy of some of the measures.
Alex Muresianu of the Tax Foundation cautioned against potential ‘unknown costs of the policy.’
‘If you increase the number of people you are auditing, you will end up catching some people, but you will also be going after people that are paying their taxes,’ Muresianu told Tax Notes.
‘The big question is: Does the IRS get substantially better at which returns to audit?’ Muresianu said.
Biden Likely to Name Estate Tax Expert as IRS’s Top Lawyer – Nancy Cook and Laura Davison, Blomberg ($):
President Joe Biden is likely to nominate Beth Kaufman, a partner at the law firm Caplin & Drysdale, to be the top lawyer at the Internal Revenue Service as the White House prepares to overhaul the agency’s leadership, according to people familiar with the matter.
IRS Commissioner Charles Rettig’s term is up in the November. No public word yet on his replacement:
The White House has also vetted a shortlist of candidates to succeed IRS Commissioner Charles Rettig, a Donald Trump appointee who took on the job in 2018 and whose term expires November 12. A decision has not yet been made public, but the White House is planning an announcement about the future of IRS leadership in the coming weeks.
Former IRS Commissioner John Koskinen recently suggested that whomever replaces Rettig will have their hands full.
Inspector General to Review IRS Employees’ Tax Compliance – Fred Stokeld and Jonathan Curry, Tax Notes ($):
The review will cover the number of current IRS employees not fully compliant with their federal tax obligations; the number of rehired employees at the IRS who were previously separated or resigned before being disciplined for conduct and performance issues, including failure to pay taxes; what the IRS has done, if anything, to correct employee tax compliance issues; and recommendations, as appropriate, concerning any control weaknesses identified during the review, [I]nspector General J. Russell] George wrote.
Higher Inflation Means a Larger Adjustment to Most Income Tax Provisions – Kyle Pomerleau, American Enterprise Institute:
During the last decade, these annual adjustments have been modest because inflation was modest. From 2011 to 2020, the percent change in the annual average CPI-U was between 0.1 percent and 3.1 percent each year.
As the economy has recovered from the COVID-19 recession, inflation has accelerated. In 2021, the annual average CPI-U rose by 4.7 from the previous year, and according to the Bureau of Labor Statistics, the CPI-U for August 2022 was 8.3 percent higher than it was in August 2021.
Higher inflation means that tax parameters will increase by much more this year than they have over the past decade. Table 1 below shows initial estimates of select individual income tax parameters for 2023 compared to values for 2022. Parameters, such as tax brackets and the standard deduction, will increase by around 7 percent on average in 2023.
Gensler Backs Accounting Plan For More Corporate Tax Disclosure – Nicola White and Andrew Ramonas, Bloomberg ($). “US Securities and Exchange Commission Chair Gary Gensler on Thursday said he endorses the Financial Accounting Standards Board’s proposal that calls on companies to break down in their financial statement footnotes the taxes they paid based on jurisdiction, such as country or state.”
Environmental Excise Taxes - Butch Maier, Bloomberg ($):
The Inflation Reduction Act includes new and increased environmental excise taxes that, while primarily intended to change behavior rather than raise revenue, are projected to levy almost $20 billion combined over a decade.
Congress may raise 1099-K reporting threshold in tax extenders package – Michael Cohn, Accounting Today:
Advocates are pushing for Congress to restore the $20,000 threshold for reporting transactions from payment cards and third-party networks after it was lowered by the American Rescue Plan Act to just $600, warning of a tidal wave of Forms 1099-K hitting millions of unsuspecting taxpayers and an already overburdened Internal Revenue Service and overworked tax preparers.
They are hoping that lawmakers will suspend the change in the threshold during the lame duck session in Congress after the midterm elections as part of an end-of-year tax extenders package or at least find some middle ground in between. Last month, a group of over 70 mostly conservative and free market organizations, including the National Taxpayers Union, Americans for Tax Reform, the Center for a Free Economy and the American Business Defense Council, sent an open letter to congressional leaders emphasizing the urgency of the issue.
Currently, it is not clear if there will even be a year-end, tax extender bill. And if there is one, it is not clear if this provision will make it on the bill. It is hard to see how lawmakers complaining about tax cheats (real or not) will ease reporting requirements.
Slow Start for Tax Extenders Could Complicate Crunch Time – Doug Sword, Tax Notes ($):
Despite the extraordinarily long list of tax provisions that have become law during the 117th Congress, there is still a long list of tax issues looking to hitch a ride on a year-end extenders bill.
But Democrats and Republicans have barely started talks about a tax extenders package, and the 43 remaining legislative days in the year will be dominated by averting a government shutdown, midterm electioneering, and the shaping of a post-election omnibus spending bill.
‘It’s probably as uncertain an environment as I’ve seen heading into the year-end extenders issue,’ said House Ways and Means Committee ranking member Kevin Brady, R-Texas, who is finishing his 26th and final year in the House.
Conservation Easements — Dirt Law Meets Tax Law – Erin McManus, Tax Notes ($). “Conservation easements and the financial incentive for donors to grant them involve the sometimes mucky combination of state property law and federal tax law. Nowhere are the differences more apparent than in the treatment of the condemnation proceeds clauses, over which much time and money has been spent arguing what wording will satisfy the IRS.”
State Tax Revenues Rose 11% in Second Quarter; Texas Up 21% - Bloomberg ($). “State tax revenues increased 11% to $448.7 billion in the second quarter compared with the same period last year, according to U.S. Census Bureau data.”
The biggest revenue winners and losers:
- Tax receipts rose $44.8 billion from last year and $89.3 billion, or 25%, from the previous quarter
- Among the 10 biggest states by tax revenues:
- Texas increased the most, up 21% from the year-earlier quarter to $24.5 billion
- Illinois fell the most, down 16% to $14.2 billion
Massachusetts to Send Individual Tax Refunds Due to Revenue Surplus - Angélica Serrano-Román, Bloomberg ($):
Massachusetts taxpayers will receive one-time tax rebates after State Auditor Suzanne Bump on Thursday certified a Department of Revenue report providing relief under a 1986 state law.
The state will remit $2.941 billion in tax refunds under Chapter 62F, a law that provides for Massachusetts to issue a credit to taxpayers if total tax revenue exceeds an annual amount tied to wage and salary growth.
Mo. State Sen. Expects Tax Session To Lead To 'Significant' Cut – Michael Nunes, Law360 Tax Authority ($):
The chairman of the Missouri Senate tax committee said Thursday that the numerous bills already filed during the Legislature's special session will likely lead to a ‘significant tax cut.’
The comments from Senate Ways and Means Committee Chairman Andrew Koenig, R-Manchester, come as lawmakers introduced more than 20 bills that would cut the state's top income tax rate and eliminate the corporate income tax, as well as reduce the gas tax and extend agricultural tax credits.
‘As a staunch supporter of reducing taxes, including income and personal property taxes, I am optimistic my colleagues and I will reach an agreement and pass a significant tax cut,’ he said in a statement.
5th Circ. Upholds Revoking Man's Passport For Unpaid Taxes – Anna Scott Farrell, Law360 Tax Authority ($). “The Fifth Circuit on Thursday upheld a ruling revoking a man's passport because of his $400,000 tax debt, saying U.S. Supreme Court guidance shows that the freedom to travel internationally isn't a fundamental right protected by the U.S. Constitution.”
Germany urges firms to make tax-free payments to employees – Associated Press. “The German government is urging companies to make a one-off payment to their employees of up to 3,000 euros (dollars) as a way of addressing the impact of rising prices while preventing a spiral of inflation in Europe’s biggest economy.”
From the “insult-veiled-as-compliment” file:
Taxpayers trust tax pros more than politicians or media – Michael Cohn, Accounting Today:
Taxpayers trust professional advice and tax authorities, according to a new global survey, but are less sure about politicians and the press.
A report released Tuesday by the Association of Chartered Certified Accountants and the International Federation of Accountants found that in relation to the tax system, people have the highest level of trust in professional tax accountants, with 67.1% saying they trust or highly trust them, and professional tax lawyers at 64.6%. Across the sample in the survey, 41.2% of respondents reported using the services of a professional accountant to manage their tax affairs.
Respondents demonstrated a clear belief that accountants play a positive role, contributing to a more efficient (71.9%), more effective (70.2%) and fairer (67.4%) tax system.
Comparing tax pros to professions with more than their fair share of liars isn’t a compliment. That's like comparing the trustworthiness of a nun to a thief. It lumps together two very different groups with few similarities. Why not compare tax professionals with a more trusting profession? Like lawyers. Never mind.
Salute! It’s National Working Parents Day!
National Day Calendar:
Working parents face a range of challenges. While juggling daycare and schedules top the list, they also struggle to find time with each other and their children. It’s often a balancing act that requires excellent communication skills, patience, and lots of love.
What do they need? Affordable daycare!
What do they want? Happy Hour!