In anticipation of National Whistleblower Appreciation Day on July 30, the Internal Revenue Service Whistleblower Office today recognized the important role whistleblowers play in supporting the nation’s tax administration.

Since issuing its first award in 2007 through June 2024, the IRS has paid over $1.2 billion in awards based on the successful collection of $7 billion from non-compliant taxpayers.

“The IRS appreciates the valuable contributions that thousands of whistleblowers have made to help bolster the fair and effective enforcement of our nation’s tax laws,” said IRS Whistleblower Office Director John Hinman. “Information from whistleblowers continues to be an incredibly effective aid to IRS compliance efforts, and we are committed to improving our whistleblower program by increasing our capacity to use high-value whistleblower information effectively, awarding whistleblowers fairly and as soon as possible, and keeping whistleblowers informed of their claim’s status and the basis for IRS decisions on claims.”

The IRS Whistleblower Office is strengthening collaboration with all whistleblower program stakeholders. The office also recently updated Form 211, Application for Award for Original Information PDF, and is currently working on a digital submission portal for whistleblower claims, which it plans to have online in 2025.

In Fiscal Year 2023, the IRS paid awards totaling $88.8 million based on whistleblower information attributable to tax and other amounts collected of $338 million. In Fiscal Year 2023, the Whistleblower Office established 16,932 award claims, an increase of 44% compared to the average of the prior four years.

The IRS values the assistance it’s received from whistleblowers and the whistleblower practitioner community. Whistleblower information that the IRS can act on is an important component of effective tax administration and contributes to identifying non-compliance and reducing the tax gap.

Actionable claims contain specific, timely and credible information. A whistleblower may qualify for an award when use of the whistleblower’s information results in proceeds collected. The awards paid to whistleblowers generally range between 15 and 30% of the proceeds collected and attributable to their information.

The IRS Whistleblower Office was established in 2007 to administer claims from whistleblowers that identify taxpayers who may not be complying with tax laws or other laws the IRS administers, enforces or investigates.

National Whistleblower Appreciation Day is recognized on July 30 because America’s first whistleblower law was passed by the Continental Congress on July 30, 1778. The first law related to whistleblowers on tax violations was enacted almost 90 years later in March 1867.

Source: IRS-2024-199, July 29, 2024

Week 3 of Protect Your Clients; Protect Yourself series focuses on security warning signs

In the third part of a special series, the Internal Revenue Service and the Security Summit partners today urged tax professionals to learn the signs of data theft so they can respond quickly to protect their business and their clients.

The IRS and the Security Summit partners continue to see a relentless string of attempts by identity thieves to target tax professionals in hopes of gaining valuable client tax information. With stronger fraud defenses put in place by the IRS and Security Summit partners, identity thieves have shifted their attention to tax pros to get more detailed information to help prepare bogus tax returns.

“We continue to see instances where tax professionals have had their systems compromised, and they didn’t realize it for week or months,” IRS Commissioner Danny Werfel said. “Identity thieves are creative, and they can find ways of quietly penetrating systems. There are important warning signs tax pros should watch out for that can help alert them more quickly to a security issue, and speed is critical to protect clients and their businesses from a security incident.”

The IRS, state tax agencies and the nation’s tax industry – working together as the Security Summit – reminded tax professionals that they should contact the IRS immediately when there’s an identity theft issue while also contacting cybersecurity experts and insurance companies to assist them with determining the cause and extent of the loss.

This is the third week of an eight-part Protect Your Clients; Protect Yourself summer series, part of an annual education effort by the Security Summit, a group that includes tax professionals, industry partners, state tax agencies and the IRS. The public-private partnership has worked since 2015 to protect the tax system against tax-related identity theft and fraud.

These security tips will be a key focus of the Nationwide Tax Forum, being held this summer in five cities throughout the U.S. In addition to the series of eight news releases, the tax professional security component will be featured at the forums, which are three-day continuing education events. The next forum begins next week in Orlando, Florida, and is already sold out, followed by the week of August 13 in Baltimore, August 20 in Dallas and September 10 in San Diego. The IRS reminds tax pros that registration deadlines are quickly approaching for the Baltimore and Dallas forums, as San Diego has also sold out.

Each year at the tax forums, the IRS hears from tax professionals attending the sessions who realize that they’re victims of a data theft or a security breach, but they hadn’t realized the warnings signs. Here are some things that can help.

Tax pros: Know the warning signs from clients, their systems

Tax pros should be on the lookout for these critical warning signs from their clients:

• Clients receive notice that an IRS Online Account was created without their consent or that:
  • Someone accessed their IRS Online Account without their knowledge.
  • The IRS disabled their Online Account, either their individual or business Online Account.
• Tax pro clients receive a tax transcript they didn’t request.
• Balance due or other notices from the IRS are received that are not correct based on the tax return filed.
• Clients reach out to the tax pro about calls or emails the tax pro didn’t make.
• Clients receive refunds without filing a tax return.

Tax professionals should also watch for these red flags when their business experiences these situations:

• Slow or unexpected computer or network responsiveness such as:
  • Software is slow or actions take longer to process than usual.
  • Computer cursor moves or changes numbers without touching the mouse or keyboard.
  • Unexpectedly being locked out of a network or computer.
• Client tax returns are being rejected because their Social Security number was already used on another return.
• IRS authentication letters (5071C, 6331C, 4883C, 5747C) are being received even though a tax return hasn’t been filed.
• Getting more e-file receipt acknowledgements than the tax pro actually filed.
• The IRS disabled the tax professional’s online account.
• Transcripts are being delivered to the tax pro’s Secure Object Repository (SOR) that they did not order.
• Notification from the IRS that the tax professional’s Centralized Authorized File (CAF) number has been compromised. If they suffer a data compromise, they should take proactive steps to protect their CAF number and consider requesting a new one to protect themself and their clients.
• Notification from the IRS regarding a client that they do not represent.

While these are only a few examples, tax pros should ensure they have the highest security possible and be ready to react quickly to protect themselves and their clients. To help tax pros, the Summit partners created the Written Information Security Plan PDF or WISP. The newly updated 29-page, easy-to-understand document was developed by and for tax and industry professionals to help keep client and business information safe and secure.

Tax pros should report data theft immediately

If a tax pro or their firm are the victim of data theft, they should:

• Report the incident to their local IRS stakeholder liaison. Speed is critical. IRS stakeholder liaisons will ensure all the appropriate IRS offices are alerted. If reported quickly, the IRS can take steps to block fraudulent returns in the clients’ names and will assist tax pros through the process.
• Visit the Federation of Tax Administrators to find state contact information. Tax professionals can share information with the appropriate state tax agency by visiting the special Report a Data Breach.
• Tax professionals should be proactive with clients who could have been impacted and suggest appropriate actions, such as obtaining an identity protection PIN or completing a Form 14039, Identity Theft Affidavit PDF, if applicable.

Find more information at Data theft information for tax professionals.

Additional resources

• Publication 5293, Data Security Resource Guide for Tax Professionals PDF, provides an overview and resources about how to avoid data theft.
• Tax professionals can also get help with security recommendations by reviewing IRS Publication 4557, Safeguarding Taxpayer Data PDF, and the IRS’ Identity theft information page for tax pros.
• Small Business Information Security: The Fundamentals PDF, by the National Institute of Standards and Technology.

Tax professionals should stay connected to the IRS through subscriptions to e-News for tax professionals and its social media sites.

Source: IRS-2024-193, July 23, 2024

As part of continuing compliance efforts under the Inflation Reduction Act, the Internal Revenue Service today announced the agency has surpassed the $1 billion mark in collections from high-wealth taxpayers with past-due taxes.

As part of larger efforts taking place, the IRS has stepped up activity specifically on 1,600 individuals whose incomes were more than $1 million per year and who each owed the IRS more than $250,000 in recognized tax debt. Since last fall, this IRS compliance effort has generated more than $1 billion in collections from this group, with work continuing in this area.

“With this collection activity, the IRS passed an important milestone in our effort to improve compliance and ensure fairness in the tax system,” said IRS Commissioner Danny Werfel. “Our increased work in this area means these past-due tax bills from high-end taxpayers are no longer being left on the table, like they were too often in the past.”

“Years of funding declines meant the IRS couldn’t get to money that we knew was owed, but we simply didn’t have the resources or staffing to collect,” Werfel added. “Funding from the Inflation Reduction Act is reversing a decade-long decline in our compliance work, including increasing our compliance work involving the wealthiest individuals and groups with tax issues. The collection results achieved in less than a year reveal the magnitude of what can be achieved over the long run as our Inflation Reduction enforcement continues to ramp up in the months ahead.”

Werfel noted that Inflation Reduction Act resources continue to help in a variety of areas. In addition to improving taxpayer service during the successful 2024 filing season, the IRS has focused IRA resources on expanded enforcement work to pursue complex partnerships, large corporations and high-income, high-wealth individuals who do not pay overdue tax bills.

“We continue working to add staff and technology to ensure that the taxpayers with the highest income, including partnerships, large corporations and millionaires and billionaires, pay what is legally owed under federal law,” Werfel said. “At the same time, we are focused on improving our taxpayer service for hard-working taxpayers. The additional resources the IRS received under the Inflation Reduction Act are making a difference, both for taxpayers who play by the rules and those who don’t.”

Prior to the Inflation Reduction Act, more than a decade of budget cuts prevented the IRS from keeping pace with the increasingly complicated maneuvers that the wealthiest taxpayers use to hide their income and evade paying their share. The IRS is continuing to take action to close this gap.

Today’s announcement involves a segment of high-income individual taxpayer cases. Last fall, the IRS ramped up efforts to pursue high-income, high-wealth individuals who failed to pay a tax bill. These high-end collection cases are concentrated among taxpayers with more than $1 million in income and more than $250,000 in recognized tax debt.

Out of a total of 1,600 of these cases, the IRS has assigned 1,500 to revenue officers, with over $1 billion collected so far. The $1 billion collected through spring represents payments from over 1,200 individuals, with the IRS anticipating the figure to grow in the months ahead.

IRS continues work on high-wealth non-filers, complex partnerships, large corporations

The IRS has a variety of other efforts underway to improve tax compliance in overlooked areas where the agency did not have adequate resources prior to Inflation Reduction Act funding.

Earlier this year, the IRS announced a new effort focused on high-income taxpayers who have failed to file federal income tax returns in more than 125,000 instances since 2017. Non-filers receive IRS compliance letters alerting them that the IRS is aware of their missing return and encouraging them to file or contact the IRS. The new initiative involves more than 25,000 people with more than $1 million in income, and over 100,000 people with incomes between $400,000 and $1 million between tax years 2017 and 2021.

These are all cases where the IRS has received third party information—such as through Forms W-2 and 1099s—indicating these people received income in these ranges but failed to file a tax return. Without adequate resources, the IRS non-filer program has only run sporadically since 2016 due to severe budget and staff limitations that didn’t allow these cases to be worked. With new Inflation Reduction Act funding available, the IRS now has the capacity to do this core tax administration work.

The IRS anticipates having more details related to this non-filer initiative later this year.

Other elements of the agency’s renewed compliance focus include:

• Abusive use of partnerships. Last month, the IRS announced a new series of steps to combat abusive partnership transactions that allow wealthy taxpayers to avoid paying what they owe.
• Activities involving large corporations and partnerships. These efforts include opening examinations of 76 of the largest partnerships in the U.S., representing a cross section of industries including hedge funds, real estate investment partnerships, publicly traded partnerships, large law firms and other industries. Other activities include expanding the large corporate compliance (LCC) program.
• Aircraft use. In February, the IRS announced plans to begin dozens of audits involving personal use of business aircraft. The audits will focus on aircraft usage by large corporations, large partnerships and high-income taxpayers. The IRS will examine whether the use of jets is being properly allocated between business and personal use.

Source: IRS-2024-185, July 11, 2024

The U.S. Department of the Treasury and the Internal Revenue Service today issued final regulationsrequiring custodial brokers to report sales and exchanges of digital assets, including cryptocurrency. These reporting requirements will help taxpayers to file accurate tax returns with respect to digital asset transactions, which are already subject to tax under current law.

These final regulations reflect consideration of more than 44,000 public comments received last fall on the proposed regulations. They require brokers to report certain sale and exchange transactions that take place beginning in calendar year 2025 and will be reported on the soon-to-be released Form 1099-DA. The regulations implement reporting requirements by the Infrastructure Investment and Jobs Act, enacted in 2021.

“We reviewed thousands of public comments and believe this new guidance addresses those concerns while striking a balance between industry implementation challenges and closing the tax gap related to digital assets,” said IRS Commissioner Danny Werfel. “These regulations are an important part of the larger effort on high-income individual tax compliance. We need to make sure digital assets are not used to hide taxable income, and these final regulations will improve detection of noncompliance in the high-risk space of digital assets. Our research and experience demonstrate that third-party reporting improves compliance. In addition, these regulations will provide taxpayers with much needed information, which will reduce burden and simplify the process of reporting their digital asset activity.”

“Our work to address potential non-compliance in digital currency is another reason why it is so critical to fully fund IRS operations,” Werfel added. “These new assets expand the complexity of our tax system, and the technology and personnel necessary for the IRS to keep pace with these changes is resource intensive. Ultimately, this IRS funding helps address emerging issues and creates significantly more savings than costs to the government’s bottom line.”

The final regulations require reporting by brokers who take possession of the digital assets being sold by their customers. These brokers include operators of custodial digital asset trading platforms, certain digital asset hosted wallet providers, digital asset kiosks, and certain processors of digital asset payments (PDAPs). The majority of digital asset transactions today occur using these brokers. By focusing first on this group, the IRS intends these regulations to cover the greatest number of taxpayers while allowing the IRS and U.S. Treasury Department more time to consider the nuances of transactions involving non-custodial and decentralized brokers.

The final regulations do not include reporting requirements for brokers that do not take possession of the digital assets being sold or exchanged. These brokers are commonly called decentralized or non-custodial brokers. The U.S. Treasury Department and the IRS intend to provide rules for these brokers in a different set of final regulations.

In addition to the broker reporting rules, the regulations provide rules for taxpayers to determine their basis, gain, and loss from digital asset transactions. The regulations also provide backup withholding rules.

The IRS is aware of the challenges that implementing new reporting requirements can pose, which is why the agency is also providing transitional and penalty relief from reporting and backup withholding rules on certain transactions to help phase-in implementation.

Real estate professionals are also required to report the fair market value of digital assets paid by buyers and received by sellers in real estate transactions with closing dates on or after January 1, 2026.

The final regulations provide for an optional, aggregate reporting method for certain sales of stablecoins and certain non-fungible tokens (NFTs) applicable only after sales of these stablecoins and NFTs exceed de minimis thresholds. For PDAP transactions, the regulations require reporting on a transactional basis only if the customer’s sales are above a de minimis threshold.

Finally, basis reporting will be required by certain brokers, for transactions occurring on or after January 1, 2026.

Additional guidance to provide transitional relief regarding digital asset transactions includes:

Transitional relief

Notice 2024-56 PDF provides general transitional relief from reporting penalties and backup withholding for any broker who does not timely and accurately file information returns and furnish payee statements for sales and exchanges of digital assets during calendar year 2025, provided that the broker makes a good faith effort to comply with the reporting obligations. Additionally, the notice provides more limited relief from backup withholding for certain sales of digital assets during 2026 for brokers using the IRS’s TIN-matching system in place of certified TINs. Finally, the Notice also provides backup withholding relief for exchanges of digital assets in return for specified NFTs and real property and for certain sales effected by PDAPs.

Delay on information reporting for certain transactions until future guidance is issued

Notice 2024-57 PDF informs brokers that until the U.S. Treasury Department and the IRS issue further guidance, brokers will not have to file information returns or furnish payee statements on digital asset sales and exchanges for the following six types of transactions:

1. Wrapping and unwrapping transactions,
2. Liquidity provider transactions,
3. Staking transactions,
4. Transactions described by digital asset market participants as lending of digital assets,
5. Transactions described by digital asset market participants as short sales of digital assets, and
6. Notional principal contract transactions.

Transition from universal or multi-wallet approach to allocating basis in digital assets to wallet by wallet or account by account approach. Revenue Procedure 2024-28 PDF generally permits taxpayers to rely on any reasonable allocation of units of unused basis to wallets or accounts that hold the same number of remaining digital asset units based on the taxpayers’ records of unused bases and remaining units in those wallets or accounts.

Source: IRS-2024-178, June 28, 2024

The Internal Revenue Service switched over from focusing its audits on taxpayers earning $10 million or more to those earning $400,000 or more after passage of the Inflation Reduction Act, according to a new report.

The report, released Monday by the Treasury Inspector General for Tax Administration, noted that in 2020, then-Treasury Secretary Steven Mnuchin directed the IRS to audit a minimum of 8% of individual tax returns filed each year with incomes of $10 million or more. The IRS was supposed to meet that goal starting with 2016 tax returns, but for legal and staffing reasons it began instead with 2018 tax returns. The IRS complied with that directive for three years, but then the agency stopped because officials said the examinations were unproductive due to a high no-change rate. Instead, they shifted their focus to examinations of individuals with incomes of $400,000 or more. More recently, the IRS updated its strategic operating plan for the Inflation Reduction Act of 2022 to focus its audits more on large partnerships and corporations as well as high-income taxpayers.

In February 2020, Mnuchin directed the IRS to audit at least 8% of all high-income individual returns filed each year. In March of that year, IRS Commissioner Chuck Rettig responded that accomplishing the goal would require significant costs but he agreed to comply, specifying a total positive income level of $10 million or more to select returns.  In August 2022, Congress enacted the Inflation Reduction Act, which in part aimed to fund the IRS so it could examine more high-income taxpayers. In an August 2022 directive to the IRS, Treasury Secretary Janet Yellen said no Inflation Reduction Act funding should be used to increase the audit rate of taxpayers with incomes below $400,000. That effectively lowered the threshold.

TIGTA found the IRS complied with the 2020 Treasury Directive for three tax years but stopped monitoring it at the end of fiscal year 2023. An IRS executive told TIGTA in December 2022 that the 2020 Treasury Directive would no longer be followed because the audits were unproductive and had high no-change rates. The IRS said it was embarking on a different approach, focusing on complying with the 2022 Treasury Directive.

In February 2023, IRS executives informed TIGTA that the IRS would continue to audit high-income individual returns with total positive income of $10 million or more but would not aim to achieve the 8% audit rate in the future. IRS executives said at that time that they considered the 2020 Treasury Directive obsolete. The executives explained that the IRS’s new focus would be on compliance with the 2022 Treasury Directive to expand examinations of individuals with incomes of $400,000 or more. In November 2023, the SB/SE Division informed TIGTA that it would no longer generate the agency-wide Audit Rate $10M Monitoring Report and that the last report prepared was through the end of fiscal year 2023. Therefore, the IRS no longer monitors whether it has met or needs to put in process additional examinations to meet the 8% audit rate goal established by the 2020 Treasury Directive for high-income individuals with total positive income of $10 million or more.

TIGTA found that many of the examined returns under the 2020 Treasury Directive were productive, but that depended on which function in the IRS conducted the examinations and which case selection methods were used. The Small Business/Self Employed Division’s closed examinations of individual taxpayer returns with income of $10 million or more, in tax years 2016 through 2021, were generally more productive than income ranges below $10 million. Those higher income ranges yielded four times more dollars assessed per return and twice as many dollars assessed per hour when compared to examinations of returns with income of $400,000 to under $10 million.

On the other hand, the IRS’s Large Business and International Division case selection methods that were in place prior to the 2020 Treasury Directive resulted in better productivity metrics when compared to later results. For example, the no-change rate has increased when comparing pre-directive tax years (tax years 2016 through 2017) to post-directive tax years (tax years 2018 through 2020).

TIGTA also found that some of the opportunity costs the IRS identified at the outset of the 2020 Treasury Directive were overstated by 190 examinations of large and midsized businesses.

TIGTA made two recommendations in the report. It suggested the IRS include a separate category for taxpayers with total positive income of $10 million or more when evaluating the compliance of high-income individual taxpayers for an initiative of the IRS strategic operating plan in order to track and analyze the productivity of examinations on these high-income individual returns in comparison to examinations of taxpayers at other income levels. It also recommended the IRS identify the potential causes behind the Large Business and International Division’s low productivity examination results and monitor the measures so the most productive returns would be selected for examination.

The IRS partially agreed with both of the report’s recommendations and said it already categorizes and monitors productivity measures for high-income high-wealth taxpayers, including those with total positive income of $10 million or more. The IRS said it would identify the potential causes for the low productivity examination results and use enhanced data and analytics to select cases based on the highest risk of noncompliance.

“The IRA provided much-needed funding for the IRS to enforce the tax laws against those wealthy individuals, large corporations and large, complex partnerships who today do not pay what they owe,” wrote Lia Colbert, commissioner of the IRS’s Small Business/Self-Employed Division, in response to the report. “The IRS will not use IRA resources to increase audits for small businesses and taxpayers making under $400,000. Accordingly, the IRS is focusing on high income, high wealth taxpayers, including those reporting $10 million or more, to ensure this population of taxpayers pays what it owes.”

She noted that the IRS recovered $520 million as of Jan. 2024 from taxpayers with more than $1 million in income who have either not filed their taxes or failed to pay their tax debts.

Source: AccountingToday

The Internal Revenue Service today announced the release of draft Form 6765, Credit for Increasing Research ActivitiesPDF, also known as the Research Credit.

The IRS received helpful comments from various external stakeholders that have informed several revisions the IRS is making to reduce taxpayer burden. The feedback and changes will alleviate taxpayer burden, provide taxpayers with a consistent and predefined format and improve the information received for tax administration.

The changes include:

Optional reporting of Section G

Section G, which was labeled “Section F” in the version of the form that IRS shared last fall, requests the Business Component Detail. The instructions will provide that Section G will be optional for:

• Qualified Small Business (QSB) taxpayers, defined under section 41(h)(1) & (2) who check the box to claim a reduced payroll tax credit; or
• Taxpayers with total qualified research expenditures (QREs) equal to or less than $1.5 million, determined at the control group level, and equal to or less than $50 million of gross receipts, as determined under section 448(c)(3) (without regard to subparagraph (A) thereof), claiming a research credit on an original filed return.

Reduced scope of Business Component Detail and other revisions

In response to feedback from stakeholders, the IRS reduced the number of business components that must be reported on Section G. Taxpayers should report 80% of total QREs in descending order by the amount of total QREs per business component, but no more than 50 business components (with special instructions for taxpayers using the ASC 730 directive who can report ASC 730 QREs as a single line item on Section G).

The amount of information that must be provided with respect to the reduced number of business components on Section G has also been reduced. For example, the IRS eliminated whether a business component is new/improved, a sale/license/lease and the narrative requirement (for original returns) that describes the information sought to be discovered. The selections for the type of business component are reduced, and the definitions for officers, controlled group reporting and business component descriptive names will be clarified in the instructions.

The revised Section G will be optional for all filers for tax year 2024 (processing year 2025). This will allow taxpayers time to transition to the Section G format. Section G will be effective for tax year 2025 (processing year 2026), subject to the guidelines noted above.

On Sept. 15, 2023, the IRS released a preview of proposed changes to Form 6765 and solicited comments from interested parties. The preview included a new Business Component Detail section for reporting quantitative and qualitative information for each business component, new questions seeking various information and reordering some of the existing questions on the form. The solicitation requested feedback on whether the new Business Component Detail section should be optional for certain taxpayers.

Please see Form 6765PDF. Instructions will be released at a later date.

Source: IRS-2024-171, June 21, 2024

The Department of the Treasury and the Internal Revenue Service issued final regulations today on the prevailing wage and apprenticeship (PWA) requirements related to increased credit or deduction amounts for certain clean energy incentives, enacted as a part of the Inflation Reduction Act (IRA).

The IRA provides increased credit or deduction amounts for taxpayers who satisfy certain PWA requirements regarding the construction, alteration or repair of certain clean energy facilities or properties, projects or equipment. By satisfying the PWA requirements, taxpayers can generally increase the base amount of the credit or deduction by five times.

“The increased credit or deduction for taxpayers meeting prevailing wage and apprenticeship requirements creates opportunities for both workers and employers,” IRS Commissioner Danny Werfel said. “The IRS is committed to ensuring that taxpayers claiming the clean energy credits comply with all of the applicable prevailing wage and apprenticeship requirements. The additional resources the IRS has received are making a difference for our efforts to ramp up taxpayer service and enforcement, and we will continue to build on these improvements.”

To qualify for the PWA increased credit or deduction amounts, taxpayers generally need to:

• Ensure that laborers and mechanics employed in the construction, alteration or repair of the facility or property, project or equipment are paid wages at rates not less than applicable prevailing wage rates.
• Meet certain requirements related to employing qualified apprentices from registered apprenticeship programs.
• Meet specific recordkeeping and reporting requirements.

The PWA requirements apply to all contractors and subcontractors of the taxpayer who employ laborers and mechanics in construction, alteration or repair work. However, taxpayers claiming the increased credit or deduction are solely responsible for ensuring that the PWA requirements are satisfied.

Ensuring that taxpayers claiming the PWA increased credit or deduction amounts have met the requirements – along with enforcing the requirements for other clean energy tax credits – is a top priority for the IRS. In the months ahead, the IRS will dedicate significant resources to promoting and enforcing compliance with the final clean energy rules.

The IRS is committed to working with taxpayers, their advisors and other stakeholders to ensure compliance, including conducting appropriate education and outreach. The IRA funding will support efforts for effective tax administration of these novel and cross-cutting provisions.

As part of this effort, the IRS also released Publication 5983, IRA Prevailing Wage and Apprenticeship Requirements Fact SheetPDF updated Publication 5855, IRA Prevailing Wage & Registered Apprenticeship OverviewPDF and the Prevailing wage and apprenticeship frequently asked questions.

Publication 5855 provides a summary of the PWA requirements. The frequently asked questions provide more details about the PWA requirements and information for how to alert the IRS of suspected tax violations related to the PWA requirements. The IRS takes referrals of alleged tax violations seriously and may use the information received about potential violations in connection with any applicable audit.

The PWA provisions include a significant penalty framework for failures to meet the PWA requirements. The penalty structure is intended to create incentives for real-time compliance with the PWA requirements.

Given the potential increased credit or deduction amounts available under the PWA provisions and the significant penalties at stake, taxpayers should consider establishing frameworks to support timely compliance with the PWA requirements, including the associated reporting and recordkeeping requirements. To minimize the potential for mistakes and significant penalties, taxpayers who know they intend to claim an increased credit or deduction amount through satisfaction of the PWA requirements should proactively take steps to position their project for compliance with the PWA requirements.

These steps could include, but would not necessarily be limited to:

• Regularly reviewing payroll records.
• Ensuring all contracts require that contractors and their subcontractors adhere to PWA requirements.
• Regularly reviewing the classifications of laborers and mechanics, prevailing wage rates, and percentage of labor hours to be performed by qualified apprentices.
• Posting information about prevailing wage rates in a prominent and accessible location or otherwise providing written notice of prevailing wage rates to laborers and mechanics during construction, alteration, and repair work.
• Establishing procedures for individuals to report suspected failures to comply with the PWA requirements without fear of retaliation or adverse action.
• Investigating reports of suspected failures to comply with the PWA requirements.
• Contacting the Department of Labor’s Office of Apprenticeship or the relevant state apprenticeship agency for assistance in locating registered apprenticeship programs.

The U.S. Department of Labor (DOL) determines the applicable prevailing wage rates for each classification of laborers and mechanics in a prescribed geographic area for a particular type of construction. For more information about prevailing wage rates please visit the Department of Labor’s website.

To support the IRS’s efforts in ensuring taxpayer compliance with the PWA requirements, DOL and the IRS are working on a Memorandum of Understanding (MOU) to be signed by the end of the year. Harnessing DOL’s extensive prevailing wage and registered apprenticeship expertise, the MOU will facilitate joint and cooperative education and public outreach and development of training content for IRS examination personnel. The MOU will also facilitate DOL’s review and comment as part of the development of PWA tax forms. Finally, the MOU will formalize a process for DOL to share with the IRS any credible tips or information that DOL receives as to potential noncompliance with the PWA requirements.

More information can be found on the Inflation Reduction Act of 2022 page on IRS.gov.

Source: IRS-2024-168, June 18, 2024

The Department of the Treasury and Internal Revenue Service issued Revenue Procedure 2024-26PDF today for the submission of information by qualified manufacturers of new clean vehicles and dealers and sellers of new clean vehicles and previously-owned clean vehicles.

Today’s guidance provides additional procedures for qualified manufacturers to submit attestations, certifications and documentation demonstrating the qualified manufacturer’s compliance with certain requirements regarding new clean vehicles placed in service after Dec. 31, 2024.

The guidance updates procedures for qualified manufacturers to submit information regarding new clean vehicles for upfront review by the IRS, with analytical assistance from the Department of Energy, to ensure the vehicles satisfy relevant requirements for the calendar year and are eligible for the new clean vehicle credit.

Finally, this revenue procedure provides rules regarding seller report updates and rescissions and provides clarification for qualified manufacturers for the transition rule for impracticable-to-trace battery materials.

More information can be found on the Inflation Reduction Act of 2022 page on IRS.gov.

Source: IRS-2024-158, June 7, 2024