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Key Takeaways
- IRS rejects ERC claims for non-existent, employee-less businesses.
- IRS also planning repayment program for bad claims.
- ERC promoters are still pushing.
- Senate GOP taxwriters wonder whether to bother.
- GOP calls for renewed research cost expensing.
- Minnesota says their rebates are taxable for federal purposes, 1099s coming.
- SECURE 2.0 technical correction bill floated.
- FSA shopping lists.
- Supremes look for Moore off-ramp.
- "Missing middle" housing and tax credits.
- Concrete contractor cements jail time by not paying in withheld taxes.
- National Letter Writing Day.
ERC Compliance Campaign Gets Underway With First Wave of Letters - Jonathan Curry, Tax Notes ($):
More than 20,000 employee retention credit claimants are about to be disappointed when they open their mail in the coming days.
The IRS announced December 6 that it’s sending out a first wave of letters informing more than 20,000 taxpayers that their ERC claims have been denied, either because the business entity didn’t exist during the covered period or because it didn’t have paid employees at the time.
IRS Turns Down 20,000 Refund Claims for Covid Tax Credit - Richard Rubin and Ruth Simon, Wall Street Journal:
The move is the agency’s latest swipe at claims for the Employee Retention Credit, or ERC, a tax incentive created in 2020 to encourage business owners and nonprofits to keep workers attached to jobs during the pandemic. The credit has already cost the government at least $230 billion, roughly triple early estimates. A cottage industry of firms popped up to help employers claim the credit, often in exchange for hefty fees.
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Later in December, the IRS intends to explain how employers that received refunds can repay the government if they now think their claims were invalid. That could be challenging to design because many employers have already spent the money and paid hefty fees to promoters that helped them file the claims.
IRS To Issue More Than 20,000 Letters Denying Employee Retention Credit Claims - Kelly Phillips Erb, Forbes. "If you receive a letter, read it carefully. The letter will explain that if you disagree with the disallowance, you can respond with documentation that supports you eligibility or claim amount, or you can file an administrative appeal."
IRS expands work on aggressive Employee Retention Credit claims; 20,000 disallowance letters being mailed, more action and voluntary disclosure program coming - IRS. "During this period, the IRS warns taxpayers to use extreme caution before applying for the ERC as aggressive maneuvers continue by marketers and scammers. In addition, the IRS continues to urge taxpayers who submitted claims to review the ERC requirements and talk to a trusted tax professional about their eligibility amid misleading marketing around the credit."
Crapo Polling Republican Taxwriters on Next Steps for Tax Talks - Cady Stanton and Doug Sword, Tax Notes ($):
With the parameters of a tax package, including cost, remaining unclear, Senate Finance Committee ranking member Mike Crapo, R-Idaho, brought together Republicans on the committee in a December 5 afternoon meeting to talk about next steps for negotiations and provide a “state of play” on the talks, the taxwriter confirmed.
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But Crapo called the meeting not just to talk numbers, but to discuss whether to proceed with negotiations at all, according to Sen. Chuck Grassley, R-Iowa.
GOP Reps. Call For Renewal Of Business Tax Breaks - Asha Glover, Law360 Tax Authority ($): "House Republicans on Wednesday continued to call for an extension of the 2017 tax law's expired and expiring business provisions, including the research and development tax break, saying during a Ways and Means subcommittee hearing that the provisions would increase economic growth."
Watch for Jay Heflin's weekly Capitol Hill Recap here at www.ebtaxblog.com this afternoon for the latest insights on whether we might see relief for R&D deductions enacted in the coming months.
Minnesota DOR: Taxpayer Rebates Are Taxable at the Federal Level - Emily Hollingsworth, Tax Notes ($):
Ryan Brown, media coordinator with the DOR, told Tax Notes on December 6 that the IRS determined that the state’s rebate payments are taxable at the federal level. He said the IRS "stuck with [its] original guidance," referring to Notice 2023-56 on the federal taxation of state refunds and payments, which was issued in August.
Noting that the payments won’t be subject to state income tax, Brown said that the DOR "will be sending Form 1099-MISC to all rebate recipients for them to use when filing their federal individual income tax return in 2024."
House, Senate Taxwriters Release SECURE 2.0 Corrections Draft - Caitlin Mullaney, Tax Notes ($):
The SECURE 2.0 Technical Corrections Act of 2023, released December 6, would fix erroneous statutory language in some SECURE 2.0 provisions, including an update to catch-up contribution allowances, the age increase for required minimum distributions to begin, and the new savers match. SECURE 2.0 was enacted as part of the Consolidated Appropriations Act, 2023 (P.L. 117-328).
The catch-up contribution technical fix was a top concern for tax professionals in the employee benefits arena after a drafting error in SECURE 2.0 unintentionally banned all catch-up contributions after 2023. The IRS already clarified that catch-up contributions will still be permitted after 2023 for plan participants age 50 and older, regardless of income.
Items to add to your year-end medical FSA shopping list - Kay Bell, Don't Mess With Taxes. "Most accidents happen at home, and a lot more of them happen during the holidays as some of us go to extreme lengths to deck our halls and other places in and outside our homes. A first kit is an approved FSA expenditure. Or you can make your own by collecting bandages, antibiotic ointments, pain medications, cold packs, antiseptic solution, a thermometer, and more in a container."
Fifth Circuit Affirms Denial of Construction Contractor's Claims for Research Credits - Parker Tax Pro Library. "The Fifth Circuit affirmed a district court and held that a construction contractor could not claim the Code Sec. 41 research credit because it did not perform qualified research when completing four representative projects."
Tax Case Illustrating the First Rule of Persuasion--Avoid Irritating the Person You Seek to Persuade - Jack Townsend, Federal Tax Procedure. "I am not sure there is any federal tax procedure issue involved in the opinion, except that tax procedure necessarily involves trial procedures. For that reason, this decision is a doozy, primarily because the judge appears (my inference) to be irritated with the Government claims on the motion."
The Supreme Court’s Search For An Off-Ramp In the Moore Case - Howard Gleckman, TaxVox. "Yesterday’s oral arguments in Moore v. United States made one thing clear: The Supreme Court has little interest in blowing up the tax code. While many lawyers and economists feared that a far-reaching opinion in an otherwise insignificant dispute could undermine the foundations of much of US tax law, the justices seemed to realize they had fired up an earthmover when a shovel would do."
Personal Property De Minimis Exemptions Slash Compliance Burdens at Trivial Cost - jared Walczak, Tax Foundation. "Idaho recently exempted 90 percent of all businesses at a cost of about 1.1 percent of property tax collections. Indiana exempted at least 70 percent of businesses for less than 0.5 percent of property tax collections. The District of Columbia exempted 97 percent of businesses from TPP taxes by forgoing less than 1 percent of its property tax revenue. And Colorado recently raised its threshold from $7,900 to $50,000—exempting the majority of businesses—at a cost of less than one-sixth of one percent (0.15 percent) of property tax revenue."
Wyden Allies With GOP on ‘Missing Middle’ Housing Credit Push - Samantha Handler, Bloomberg ($):
Wyden, along with Sen. Dan Sullivan (R-Alaska) and Reps. Jimmy Panetta (D-Calif.) and Mike Carey (R-Ohio), sponsored the Workforce Housing Tax Credit, which would provide tax credits to build affordable housing for middle-income residents. The bill is part of a housing tax policy push from Wyden, who earlier this year made housing one of the Senate Finance Committee’s priorities.
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The bill would build on the existing Low-Income Housing Tax Credit program by providing tax credits for developers to build housing for tenants between 60% or 100% of area median income, a benchmark used to determine eligibility for certain affordable housing properties.
"Tax credits - is there anything they can't do?" I don't think they can fix two key problems that drive high housing costs:
- Permitting and zoning rules that make it difficult to build housing where people want to live.
- High interest rates.
These things aren't controllable by federal taxwriters, so they propose tax credits. Until other problems are fixed, tax credits for housing might be like trying to clear a clogged drain by turning on the faucet.
Local business owner sentenced for failure to pay employment taxes and file federal tax return - IRS (Defendant name omitted):
A Bondurant (Iowa) man was sentenced today to 15 months in federal prison for failure to pay over employee trust fund taxes and failure to file a federal tax return.
According to court documents, from 2015 to 2020, Defendant operated a local concrete business, failed to pay $355,049 in employment taxes to the Internal Revenue Service (IRS). This included the failure to pay taxes that he had collected from employees through withholding, as well as matching employer contributions to Social Security and Medicare. Defendant also failed to file federal tax returns for 2015, 2016, 2018, 2019 and 2020.
After completing his term of imprisonment, Defendant will be required to serve three years of supervised release. There is no parole in the federal system. Defendant was also ordered to pay $355,049.68 in restitution to the IRS.
The IRS really doesn't like it when you don't pay over taxes you withheld from your employees. Sometimes employers rationalize that they are just "borrowing" the money. The IRS doesn't see it that way.
Write it up. It's National Letter Writing Day! If you are stuck for a correspondent, the National Today website, the source of all of these fun holidays, also has celebrity birthdays - so you can tell Larry Bird, for example, how much you have appreciated his contributions to the University of Indiana basketball program. Oh, wait...