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IRS Head Werfel Talks Audits, Enforcement at First House Hearing - Chris Cioffi and Naomi Jagoda, Bloomberg ($):
House Republicans on Thursday put IRS Commissioner Danny Werfel under the microscope, inquiring about the disclosures of wealthy Americans’ tax information and how supplemental funding would be used to boost enforcement…
Questions covered some familiar ground Republicans have highlighted in recent months, including the plan to spend $80 billion provided in last year‘s Inflation Reduction Act. Many griped that the blueprint lacked details and Werfel promised more in the coming weeks.
During the hearing, Werfel repeated his mantra about audit rates not increasing for taxpayers earning less than $400,000.
IRS Chief Doubles Down on Not Upping Audits on Poorer Taxpayers – Jay Heflin, Eide Bailly:
IRS Commissioner Daniel Werfel repeated his claim on April 27th that the tax agency will not increase audit rates beyond that set in 2018 for taxpayers earning less than $400,000 a year.
Important to note:
Just because the audit rate will not rise for these taxpayers doesn’t mean that no one within these income levels will get audited. For example, according to the 2018 audit rate, 4 out of 1,000 taxpayers earning between $25,000 and $50,000 were audited.
The 2018 audit rate will apparently be the standard for quite a while:
Werfel stressed that the IRS audit rates will not rise above these percentages for years to come.
'I think there can be assurance for the American people that if you are under $400,000…the probability of being audited are not changed at all,' he said.
Some think the IRS audit rate should be higher than what occurred in 2018:
Werfel’s Audit Rate Pledge Leaves Wiggle Room, Researchers Say – Jonathan Curry, Tax Notes ($):
The IRS can and should move quickly to ditch the 2018 tax year audit rate benchmark for limiting its enforcement activity and replace it with one that is more representative of historic audit levels, two researchers say…
[T]he audit rate in 2018 was an anomaly, not just because it came toward the end of a decade of budget cuts that significantly slashed the IRS’s enforcement capacity across the board but because the pandemic further squeezed enforcement activity to a new low…
The IRS will be focused on auditing wealthier taxpayers, complex partnerships, and corporations:
IRS Chief Defends Higher Staff Funding To Audit Wealthy – Stephen Cooper, Law360 Tax Authority ($):
The Internal Revenue Service currently has only about 2,600 employees with the specialized skills to audit these complex returns, and they can't keep up with the work of processing the approximately 390,000 such returns filed annually, Werfel said in testimony before the House Ways and Means Committee.
‘When we have multiple sources of income — like large partnerships, corporations, billionaires and multimillionaires — it takes up to 15 times longer for the IRS to assess and then audit those returns,’ Werfel told the committee. ‘It takes about five hours, on average, to audit a middle- and low-income taxpayer when those audits do occur. It takes 250 hours, or more, to audit a wealthy or more complex return.’
Assuming the agency can hire the right people:
The IRS needs the additional funding promised in August under the Democrats' Inflation Reduction Act to hire more accountants, data scientists and economists to examine the nearly 400,000 tax filings made each year by wealthy individuals, partnerships and corporations, IRS Commissioner Daniel Werfel told a House committee Thursday.
Werfel Defends IRS Funding, Clarifies Hiring and Audit Rates – Doug Sword and Cady Stanton, Tax Notes ($):
Werfel said the exact number of projected hires over the next 10 years would be released in the coming weeks, but noted that less than 3 percent of IRS employees are armed and that there is no planned change in that percentage in the next five years.
Biofuel Tax Credits Out of Danger Zone After GOP Protest - Samantha Handler, Bloomberg ($):
Tight margins for House Republicans and billions of dollars at stake for the Midwest spared biodiesel and carbon capture tax incentives from the chopping block in GOP debt limit discussions, lawmakers and lobbyists said.
These incentives were never in the “danger zone.” The Senate is never going to approve this legislation and President Biden has already issued a veto threat on it. It’s chances for becoming law are lower than my chance for becoming a billionaire by noon today. (Fingers crossed, though.)
Treasury Mulls Concern of Foreign-Parented Group in Book Minimum Tax - Lauren Vella, Bloomberg ($). “Treasury is considering a ‘big’ taxpayer concern about how to determine a foreign-parented multinational group for the purposes of applying the new corporate alternative minimum tax, a department official said Thursday."
‘A question that we’ve gotten formally and informally, I believe, is when you’re determining if you have a foreign-parented group, which is a very important determination to make to know which set of scoping rules you’re under,’ said Brenda Zent, special adviser on international taxation at Treasury. Zent made the comments at the International Fiscal Association’s annual conference in Chicago.
The CAMT imposes a 15% tax on wealthy corporations with three-year average adjusted financial statement income—also known as “book” income—of over $1 billion.
Guidance timeline unclear:
Treasury Evasive on More Corporate AMT Interim Guidance – Andrew Velarde, Tax Notes ($):
Treasury is proving exceedingly hard to pin down on whether further interim guidance on the corporate alternative minimum tax is forthcoming.
Treasury to Implement OECD Led Crypto Reporting Rule Domestically - Lauren Vella, Bloomberg ($). “The Treasury will ‘start the process’ of implementing an OECD-led cryptocurrency-asset reporting framework, or CARF, in the US in preparation for greater participation internationally, a department official said Thursday.”
‘We are going to start the process of implementing cards domestically, so that the IRS has the information that it can exchange with other countries,’ said Erika Nijenhuis, senior counsel at the Treasury’s Office of Tax Policy. She was speaking at the International Fiscal Association’s annual conference in Chicago.
OECD to Release Minimum Tax Guidance, Info Return This Summer - Isabel Gottlieb, Bloomberg ($):
The OECD expects to release administrative guidance this summer for the global minimum tax, along with the information return companies will file for the tax and details on a safe harbor, an official said.
The Organization for Economic Cooperation and Development led nearly 140 countries to agreement on a global tax deal that includes Pillar Two, a 15% minimum tax for corporations. Now, as countries incorporate the rules into their own laws and prepare to apply them next year, the OECD is working on guidance to answer technical questions, and setting up processes to help ensure a smooth transition.
Treasury Thinking About Modifying ‘Per Se’ Rule in Excise Tax Guidance - Lauren Vella, Bloomberg ($):
The Treasury is thinking about modifying a rule in its stock buyback excise tax guidance regarding foreign corporations’ repurchase of stock.
Brenda Zent, special adviser on international taxation at Treasury, said the department was contemplating tweaking the ‘per se’ rule that’s part of Notice 2023-2.
The Notice is here.
Steady Pursuit of More Corporate Tax Cuts Ripples Across States - Donna Borak, Bloomberg ($):
States of all political and demographic stripes continue to embrace cutting corporate tax rates, and so far there’s been enough money to cover the upfront costs.
States still reaping big budget surpluses from a variety of sources—rising corporate profits, robust sales taxes, and unspent federal pandemic aid—have continued to use this leeway for more tax cuts. Six states started this year with lowered corporate income tax rates, including gradual plans rolling out in Iowa, Pennsylvania, and Nebraska. Idaho and New Hampshire also have freshly minted lower rates. Meanwhile, Arkansas quickly enacted its second rate cut for the year, led by new Gov. Sarah Huckabee Sanders (R).
And the cuts keep on coming:
North Dakota Governor Approves $515 Million Tax Relief Bill - Michael Bologna, Bloomberg ($). “North Dakota Gov. Doug Burgum signed tax overhaul legislation Thursday that he said would put $515 million into state taxpayers’ pockets over the next two years.”
Hamptons Home Gains Must Be Included for NY Taxes, Judge Says - Perry Cooper, Bloomberg ($):
A New York City couple must pay income tax on the full capital gain they realized from the sale of their Hamptons vacation home because they failed to prove what they said they’d spent over the years to fix it up, a New York judge ruled.
From the “You’ve Got Bigger Problems Than This” file:
Bill Proposes Treating E-filed Tax Documents Like Mailed Ones - Chris Cioffi, Bloomberg ($):
A bipartisan Senate duo wants to make sure last-minute electronic filings to the IRS are treated the same way as regular mail.
Sens. Marsha Blackburn (R-Tenn.) and Catherine Cortez Masto (D-Nev.) will introduce a bill Thursday to extend the ‘mailbox rule’ so it applies to digitally submitted documents and payments. The rule allows taxpayer mail postmarked on the due date to be considered timely, even if it’s received after the fact.
The IRS is still grappling with a historically large processing backlog. It is struggling to hire people capable of conducting audits on complex returns. It celebrated the fact that its workers were finally able to answer most phone calls (answering callers’ questions is a different story).
So, sure, introduce legislation ensuring that electronic filings are correctly time stamped – when they are already correctly time stamped:
IRS:
If you file electronically, the date and time in your time zone when your return is transmitted controls whether your return is filed timely. You will later receive an electronic acknowledgement that the IRS has accepted your electronically filed return.
Don your cape! It’s National Superhero Day! Bad doers beware!