Supplemental application period runs from Feb. 26 through April 10

The Internal Revenue Service today announced it will accept supplemental applications from all qualified organizations for Low Income Taxpayer Clinic (LITC) matching grants from Feb. 26 to April 10.

“LITCs help protect taxpayer rights and ensure justice for thousands of taxpayers across the country,” said National Taxpayer Advocate Erin M. Collins. “Some communities that are underserved, or do not have any clinics to help those taxpayers who have nowhere else to turn, need the assistance that a clinic can provide. The supplemental grant period is a chance for eligible organizations to apply for funding that can help make a difference for vulnerable taxpayers and grow the LITC presence in areas with the greatest need.”

The funding and the period of performance for the grant will be July 1 to Dec. 31. Under Internal Revenue Code (IRC) section 7526, the IRS awards matching grants to qualifying organizations to develop, expand or maintain an LITC. For every dollar of funding awarded by the IRS, an LITC must have a dollar of match. An LITC must provide services for free or for no more than a nominal fee (except for reimbursement of actual costs incurred).

LITCs ensure the fairness and integrity of the tax system for taxpayers by:

• Providing pro bono representation to assist low-income taxpayers in resolving tax disputes with the IRS;
• Educating taxpayers for whom English is a second language (ESL taxpayers) about their rights and responsibilities as taxpayers; and
• Identifying and advocating on issues that impact these taxpayers.

To achieve maximum access to justice for low-income and ESL taxpayers, the IRS has expanded the eligibility criteria for a grant by removing the requirement for eligible organizations to provide direct controversy representation. Representation may be provided by referring taxpayers to qualified representatives who have agreed to handle the referred cases on a pro bono basis. In addition, pursuant to the ESL Education Pilot Program started in 2023 and continuing for 2024, a grant may be awarded to an organization to operate a program to inform ESL taxpayers about their rights and responsibilities under the IRC without the requirement to also provide tax controversy representation to low-income taxpayers. See IRS Publication 3319 for examples of what constitutes a “clinic.”

Although the amount and timing of 2024 appropriations is not yet known, the President’s 2024 budget request includes a continuation of LITC funding at $26 million and a $200,000 per award funding cap, and funding bills approved by the House and Senate Appropriations Committees contains similar language. Consistent with the Administration’s budget request and House and Senate action to date, the IRS will allow applicants to request grants up to $200,000. If Congress does not continue the LITC Program’s funding at $26 million and/or the increased per award funding cap of $200,000, the IRS will adjust awards to reflect any limitations in place at that time.

Despite the IRS’s efforts to foster parity in availability and accessibility when choosing organizations to receive LITC matching grants, there remain communities that are underserved by clinics. Currently, the states of Hawaii, Kansas, Nevada, North Dakota, South Dakota, West Virginia and the territory of Puerto Rico do not have an LITC. The IRS is particularly interested in receiving supplemental applications from organizations that provide services in these underserved geographic areas. Priority will be given to established organizations that can help provide coverage to underserved geographic areas. For the ESL Education Pilot Program, special consideration will be given to established organizations with existing community partnerships that can deliver services to the target audiences.

The LITC Program is administered by the Office of the Taxpayer Advocate at the IRS, led by National Taxpayer Advocate Erin M. Collins. Although LITCs receive partial funding from the IRS, LITCs, their employees and their volunteers operate independently of the IRS.

Supplemental applications must be submitted electronically by 11:59 p.m. Eastern Time on April 10, 2024. The funding number is TREAS-GRANTS-052024-002. Copies of IRS Publication 3319, 2024 Grant Application Package and GuidelinesPDF, can be downloaded from IRS.gov or ordered by calling 800-TAX-FORM (800-829-3676). To assist organizations in applying for funding, a “Reminders and Tips for Completing Form 13424-M” document is available on the LITC grants page. Questions about the LITC Program or the supplemental grant application process can be addressed to the LITC Program Office by email at litcprogramoffice@irs.gov. Alternatively, you may contact Karen Tober by email at karen.tober@irs.gov.

More information about LITCs and the work they do to represent, educate and advocate on behalf of low-income and ESL taxpayers is available in IRS Publication 5066, LITC Program ReportPDF. A short video about the LITC Program is also available on the IRS website.

Join the LITC Program Office for one of two optional webinars, where it will provide information about the LITC Program and the supplemental application process. Details on the dates and times of the webinars are available at LITC Grants – Taxpayer Advocate Service.

Source: IRS-2024-50, Feb. 26, 2024

During the busiest time of the tax filing season, the Internal Revenue Service kicked off its 2024 Tax Time Guide series to help remind taxpayers of key items they’ll need to file a 2023 tax return.

As part of its four-part, weekly Tax Time Guide series, the IRS continues to provide new and updated resources to help taxpayers file an accurate tax return. Taxpayers can count on IRS.gov for updated resources and tools along with a special free help page available around the clock. Taxpayers are also encouraged to read Publication 17, Your Federal Income Tax (For Individuals) for additional guidance.

Essentials to filing an accurate tax return

The deadline this tax season for filing Form 1040, U.S. Individual Income Tax Return, or 1040-SR, U.S. Tax Return for Seniors, is April 15, 2024. However, those who live in Maine or Massachusetts will have until April 17, 2024, to file due to official holidays observed in those states.

Taxpayers are advised to wait until they receive all their proper tax documents before filing their tax returns. Filing without all the necessary documents could lead to mistakes and potential delays.

It’s important for taxpayers to carefully review their documents for any inaccuracies or missing information. If any issues are found, taxpayers should contact the payer immediately to request a correction or confirm that the payer has their current mailing or email address on file.

Creating an IRS Online Account can provide taxpayers with secure access to information about their federal tax account, including payment history, tax records and other important information.

Having organized tax records can make the process of preparing a complete and accurate tax return easier and may also help taxpayers identify any overlooked deductions or credits.

Taxpayers who have an Individual Taxpayer Identification Number or ITIN may need to renew it if it has expired and is required for a U.S. federal tax return. If an expiring or expired ITIN is not renewed, the IRS can still accept the tax return, but it may result in processing delays or delays in credits owed.

Changes to credits and deductions for tax year 2023

Standard deduction amount increased. For 2023, the standard deduction amount has been increased for all filers. The amounts are:

• Single or married filing separately — $13,850.
• Head of household — $20,800.
• Married filing jointly or qualifying surviving spouse — $27,700.

Additional child tax credit amount increased. The maximum additional child tax credit amount has increased to $1,600 for each qualifying child.

Child tax credit enhancements. Many changes to the Child tax credit (CTC) that had been implemented by the American Rescue Plan Act of 2021 have expired.

However, the IRS continues to closely monitor legislation being considered by Congress affecting the Child Tax Credit. The IRS reminds taxpayers eligible for the Child Tax Credit that they should not wait to file their 2023 tax return this filing season. If Congress changes the CTC guidelines, the IRS will automatically make adjustments for those who have already filed so no additional action will be needed by those eligible taxpayers.

Under current law, for tax year 2023, the following currently apply:

• The enhanced credit allowed for qualifying children under age 6 and children under age 18 has expired. For 2023, the initial amount of the CTC is $2,000 for each qualifying child. The credit amount begins to phase out where AGI income exceeds $200,000 ($400,000 in the case of a joint return). The amount of the CTC that can be claimed as a refundable credit is limited as it was in 2020 except that the maximum ACTC amount for each qualifying child increased to $1,500.
• The increased age allowance for a qualifying child has expired. A child must be under age 17 at the end of 2023 to be a qualifying child.

Changes to the Earned Income Tax Credit (EITC). The enhancements for taxpayers without a qualifying child implemented by the American Rescue Plan Act of 2021 will not apply for tax year 2023. To claim the EITC without a qualifying child in 2023, taxpayers must be at least age 25 but under age 65 at the end of 2023. If a taxpayer is married filing a joint return, one spouse must be at least age 25 but under age 65 at the end of 2023.

Taxpayers may find more information on Child tax credits in the Instructions for Schedule 8812 (Form 1040).

New Clean Vehicle Credit. The credit for new qualified plug-in electric drive motor vehicles has changed. This credit is now known as the Clean Vehicle Credit. The maximum amount of the credit and some of the requirements to claim the credit have changed. The credit is reported on Form 8936, Qualified Plug-In Electric Drive Motor Vehicle Credit, and on Form 1040, Schedule 3.

More information on these and other credit and deduction changes for tax year 2023 may be found in the Publication 17, Your Federal Income Tax (For Individuals), taxpayer guide.

1099-K reporting requirements have not changed for tax year 2023

Following feedback from taxpayers, tax professionals and payment processors, and to reduce taxpayer confusion, the IRS recently released Notice 2023-74 announcing a delay of the new $600 reporting threshold for tax year 2023 on Form 1099-K, Payment Card and Third-Party Network Transactions. The previous reporting thresholds will remain in place for 2023.

The IRS has published a fact sheet with further information to assist taxpayers concerning changes to 1099-K reporting requirements for tax year 2023.

Form 1099-K reporting requirements

Taxpayers who take direct payment by credit, debit or gift cards for selling goods or providing services by customers or clients should get a Form 1099-K from their payment processor or payment settlement entity no matter how many payments they got or how much they were for.

If they used a payment app or online marketplace and received over $20,000 from over 200 transactions,

the payment app or online marketplace is required to send a Form 1099-K. However, they can send a Form 1099-K with lower amounts. Whether or not the taxpayer receives a Form 1099-K, they must still report any income on their tax return.

What’s taxable? It’s the profit from these activities that’s taxable income. The Form 1099-K shows the gross or total amount of payments received. Taxpayers can use it and other records to figure out the actual taxes they owe on any profits. Remember that all income, no matter the amount, is taxable unless the tax law says it isn’t – even if taxpayers don’t get a Form 1099-K.

What’s not taxable? Taxpayers shouldn’t receive a Form 1099-K for personal payments, including money received as a gift and for repayment of shared expenses. That money isn’t taxable. To prevent getting an inaccurate Form 1099-K, note those payments as “personal,” if possible.

Good recordkeeping is key. Be sure to keep good records because it helps when it’s time to file a tax return. It’s a good idea to keep business and personal transactions separate to make it easier to figure out what a taxpayer owes.

For details on what to do if a taxpayer gets a Form 1099-K in error or the information on their form is incorrect, visit IRS.gov/1099k or find frequently asked questions at Form 1099-K FAQs.

Direct File pilot program provides a new option this year for some

The IRS launched the Direct File pilot program during the 2024 tax season. The pilot will give eligible taxpayers an option to prepare and electronically file their 2023 tax returns, for free, directly with the IRS.

The Direct File pilot program will be offered to eligible taxpayers in 12 pilot states who have relatively simple tax returns reporting only certain types of income and claiming limited credits and deductions. The 12 states currently participating in the Direct File pilot program are Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington state and Wyoming. Taxpayers can check their eligibility at directfile.irs.gov.

The Direct File pilot is currently in the internal testing phase and will be more widely available in mid-March. Taxpayers can get the latest news about the pilot at Direct File pilot news and sign up to be notified when Direct File is open to new users.

Finally, for comprehensive information on all these and other changes for tax year 2023, taxpayers and tax professionals are encouraged to read the Publication 17, Your Federal Income Tax (For Individuals), taxpayer guide, as well as visit other topics of taxpayer interest on IRS.gov.

Source: IRS-2024-45, Feb. 21, 2024

With a key March deadline quickly approaching, the Internal Revenue Service today highlighted special warning signs that an Employee Retention Credit (ERC) claim may be questionable to help small businesses that may need to resolve incorrect claims.

The agency alerted businesses about seven suspicious warning signs that could signal future IRS problems involving ERC claims. The indicators, built on feedback from the tax professional community and IRS compliance personnel, center on misinformation some unscrupulous ERC promoters used. Many of these groups urged taxpayers to ignore advice from trusted tax professionals and claim the pandemic-era credit even though they may not qualify.

“IRS compliance activity continues increasing involving Employee Retention Credit claims, and those claiming this pandemic-era credit need to quickly review their situation to avoid future problems,” said IRS Commissioner Danny Werfel. “Many businesses were wildly misled about the qualifications, and the IRS is taking a special step to highlight common problems being seen about these claims. The IRS urges ERC claimants to get with a trusted tax professional and review their qualifications before time runs out on IRS disclosure and withdrawal programs. The ‘suspicious seven’ signs released today are clear red flags that ERC claimants should carefully review.”

The alert comes as a March 22, 2024, deadline approaches for the ERC Voluntary Disclosure Program for anyone that filed a claim in error and received a payment; the disclosure program allows businesses to repay just 80% of the claim. Taxpayers who filed a claim previously that hasn’t been processed should also review the guidelines and quickly pursue the claim withdrawal process if they now see their claim is ineligible.

The IRS took steps on the ERC program after the well-intentioned pandemic-era program came under aggressive, misleading marketing that oversimplified or misrepresented eligibility rules. Promoters pushed more applicants into the program, frequently by taking a percentage of the payout. The IRS wants businesses to know about these warning signs, revisit their claim if there are questions and act quickly before the special disclosure and withdrawal programs end. Resolving an incorrect claim through the IRS’s special programs will avoid penalties and interest.

“We’ve heard from the tax pro community and others that sharing more warning signs can help point well-intentioned people in the right direction,” Werfel said. “Many of these taxpayers were misled by overzealous and unscrupulous promoters taking advantage of honest taxpayers. The most beneficial time to resolve any incorrect claims is now before this special window closes.”

The ERC, sometimes called the Employee Retention Tax Credit or ERTC, is complex, and the IRS urged claimants to talk to a reputable tax professional for help with an ERC claim. Taxpayers should avoid working with anyone who doesn’t ask for details or business records, such as payroll records.

7 suspicious signs an ERC claim could be incorrect

Here are some of the common red flags being seen on ERC claims that the IRS is focusing on:

• Too many quarters being claimed. Some promoters have urged employers to claim the ERC for all quarters that the credit was available. Qualifying for all quarters is uncommon, and this could be a sign of an incorrect claim. Employers should carefully review their eligibility for each quarter.

• Government orders that don’t qualify. Some promoters have told employers they can claim the ERC if any government order was in place in their area, even if their operations weren’t affected or if they chose to suspend their business operations voluntarily. This is false. To claim the ERC under government order rules:
  • Government orders must have been in effect and the employer’s operations must have been fully or partially suspendedby the government order during the period for which they’re claiming the credit.
  • The government order must be due to the COVID-19 pandemic.
  • The order must be a government order, not guidance, a recommendation or a statement.

    Some promoters suggest that an employer qualifies based on communications from the Occupational Safety and Health Administration (OSHA). This is generally not true. See the ERC FAQ about OSHA communications and the 2023 legal memo on OSHA communicationsPDF for details and examples.

    The frequently asked questions about ERC – Qualifying Government Orders section of IRS.gov has helpful examples. Employers should make sure they have documentation of the government order related to COVID-19 and how and when it suspended their operations. Employers should avoid a promoter that supplies a generic narrative about a government order.

• Too many employees and wrong calculations. Employers should be cautious about claiming the ERC for all wages paid to every employee on their payroll. The law changed throughout 2020 and 2021. There are dollar limits and varying credit amounts, and employers need to meet certain rules for wages to be considered qualified wages, depending on the tax period. The IRS urges employers to carefully review all calculations and to avoid overclaiming the credit, which can happen if an employer erroneously uses the same credit amount across multiple tax periods for each employee. For details about credit amounts, see the Employee Retention Credit – 2020 vs 2021 Comparison Chart.
• Business citing supply chain issues. Qualifying for ERC based on a supply chain disruption is very uncommon. A supply chain disruption by itself doesn’t qualify an employer for ERC. An employer needs to ensure that their supplier’s government order meets the requirements. Employers should carefully review the rules on supply chain issues and examples in the 2023 legal memo on supply chain disruptionsPDF.
• Business claiming ERC for too much of a tax period. It’s possible, but uncommon, for an employer to qualify for ERC for the entire calendar quarter if their business operations were fully or partially suspended due to a government order during a portion of a calendar quarter. A business in this situation can claim ERC only for wages paid during the suspension period, not the whole quarter. Businesses should check their claim for overstated qualifying wages and should keep payroll records that support their claim.
• Business didn’t pay wages or didn’t exist during eligibility period. Employers can only claim ERC for tax periods when they paid wages to employees. Some taxpayers claimed the ERC but records available to the IRS show they didn’t have any employees. Others have claimed ERC for tax periods before they even had an employer identification number with the IRS, meaning the business didn’t exist during the eligibility period. The IRS has started disallowing these claims, and more work continues in this area as well as other aspects of ERC.
• Promoter says there’s nothing to lose. Businesses should be on high alert with any ERC promoter who urged them to claim ERC because they “have nothing to lose.” Businesses that incorrectly claim the ERC risk repayment requirements, penalties, interest, audit and potential expenses of hiring someone to help resolve the incorrect claim, amend previous returns or represent them in an audit.

Resolving incorrect ERC claims

Businesses that are not eligible for ERC but have received it – as a check that’s been cashed or deposited, or in the form of a credit applied to a tax period – may be able to participate in the IRS’s ERC Voluntary Disclosure Program. The special program runs through March 22, 2024, and allows eligible participants to repay their incorrect ERC, minus 20%.

If a taxpayer’s ERC is incorrect and is paid after Dec. 21, 2023, they aren’t eligible for the ERC VDP. They should not cash or deposit their check. They can withdraw the claim, return the check and avoid penalties and interest.

The withdrawal option lets certain employers withdraw their ERC submission and avoid future repayment, interest and penalties. Businesses can use this option if they haven’t received the payment, or they’ve received a check but haven’t deposited or cashed it. If a taxpayer’s withdrawal request is accepted, the IRS will treat the claim as though it was never filed.

Source: IRS-2024-39, Feb. 13, 2024

The Internal Revenue Service today reminded disaster-area taxpayers who received extensions to file their 2022 returns that these returns are due on Feb. 15, 2024.

Eligible taxpayers were those affected by various disasters that occurred between Aug. 8 and Oct. 9, 2023. This included Hurricane Idalia, Hurricane Lee, Tropical Storm Bolaven, the wildfires in Hawaii, the seawater intrusion in Louisiana and storms and flooding in Illinois. For extension filers, payments on these returns were not eligible for the additional time because they were originally due last spring before any of these disasters occurred.

Locations that qualify for the Feb. 15 filing deadline:

• Forty-nine counties in Florida.
• Thirty-two counties In Georgia.
• All of Guam.
• Maui and Hawaii counties in Hawaii.
• Cook County in Illinois.
• Five parishes in Louisiana.
• All 16 counties in Maine.
• All 14 counties in Massachusetts.
• Six islands in the Northern Mariana Islands.
• All 46 counties in South Carolina.

The IRS normally provides relief, including postponing various tax filing and payment deadlines, for any area designated by the Federal Emergency Management Agency (FEMA). As long as their address of record is in a disaster-area locality, individual and business taxpayers automatically get the extra time, without having to ask for it. The current list of eligible localities is always available on the disaster relief page on IRS.gov.

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers who assisted with relief activities who are affiliated with a recognized government or philanthropic organization.

Besides those who received extensions to file their 2022 returns, there are other returns, payments and time-sensitive tax-related actions that also qualify for the Feb. 15 deadline. For details, see the IRS disaster relief page, especially the disaster relief announcements for each state and territory.

The tax relief is part of a coordinated federal response to the damage caused by these disasters and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov.

Source: IRS-2024-29, Jan. 31, 2024

The Internal Revenue Service and partners around the nation today launched the annual Earned Income Tax Credit Awareness Day outreach campaign to help millions of low-to-moderate income working Americans that are eligible to claim the Earned Income Tax Credit (EITC).

For the past 18 years, the IRS has invited community organizations, elected officials, state and local governments, schools, employers and other interested parties to join this national grassroots effort.

According to the most recent figures, approximately 23 million workers and families received about $57 billion in EITC for tax year 2022, and the average amount of EITC received was about $2,541. The IRS estimates that about one in five of EITC eligible taxpayers don’t claim this valuable credit, a statistic that stresses the importance of the annual EITC Awareness Day outreach campaign.

“The IRS and our partners across the nation urge people to look into this frequently overlooked tax credit that can help millions of taxpayers,” said IRS Commissioner Danny Werfel. “On EITC Awareness Day and throughout the filing season, the IRS and our partners work hard to reach eligible taxpayers and provide useful information and resources to help people determine their eligibility and how to properly claim this valuable credit. Even people who don’t normally file might still be eligible for the Earned Income Tax Credit, which can be thousands of dollars.”

Werfel attended a special EITC Awareness Day event Friday in Baltimore sponsored by the CASH (Creating Assets, Savings and Hope) Campaign of Maryland. IRS leaders across the nation are also participating in local events this month highlighting the importance of EITC, which helps millions of taxpayers each year.

The IRS administers the EITC, which Congress originally approved in 1975. It was developed in part to offset the burden of Social Security taxes and provide an incentive to work.

Who is eligible to claim the EITC?

Workers must meet certain requirements and file a tax return, even if they are not required to file due to earned income levels. The IRS estimates that a third of those who qualify for EITC became eligible for the first time this year due to changes in their marital, parental or financial status.

The IRS encourages workers to use the EITC Assistant to check for eligibility or visit Child-related tax benefits comparison for basic eligibility rules.

Eligible workers must have valid Social Security numbers for themselves, their spouse if filing a joint return, and for each qualifying child claimed for the EITC. There are special rules for those in the military or those out of the country.

Those with qualifying children can receive a maximum of $7,430 when claiming the EITC, up from $6,935 in 2022.

Eligible workers between the ages of 25 and 64 with no dependents can also receive up to $600 by claiming the EITC. Married but separated spouses who do not file a joint return may qualify to claim EITC if they meet certain requirements.

EITC is for workers whose income does not exceed the following limits in 2023:

• $56,838 ($63,398 married filing jointly) with three or more qualifying children who have valid Social Security numbers (SSNs).
• $52,918 ($59,478 married filing jointly) with two qualifying children who have valid SSNs.
• $46,560 ($53,120 married filing jointly) with one qualifying child who has a valid SSN.
• $17,640 ($24,210 married filing jointly) with no qualifying children with valid SSNs.
• Investment income must be $11,000 or less.

Filing options to choose from when claiming the EITC

To get the EITC, workers must file a tax return and claim the credit. The IRS also reminds taxpayers that the quickest way to get a tax refund is by filing an accurate tax return electronically and choosing direct deposit for their refund.

Here are some options on how to claim the EITC:

• Free File on IRS.gov. Qualified taxpayers can prepare and file federal income tax returns online free of charge using guided tax preparation software. Free File also provides Free File Fillable Forms to help taxpayers regardless of income level who are comfortable preparing their own returns.

• Find a reputable tax professional. The IRS offers tips for choosing a return preparer, including certified public accountants, enrolled agents, attorneys and many others who don’t have a professional credential, along with details about national tax professional groups on IRS.gov.

• Free tax preparation assistance. There are thousands of Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) sites across the country available to help taxpayers who are eligible to claim the EITC. Visit IRS.gov, the IRS2go smartphone app or call toll-free 800-906-9887. Taxpayers should bring all required documents and information.

When to expect EITC refunds

Most EITC or Additional Child Tax Credit (ACTC) related refunds should be available in bank accounts or on debit cards by Feb. 27 if taxpayers chose direct deposit and there are no other issues with their tax return. Taxpayers can check Where’s My Refund?for their personalized refund date. Where’s My Refund? will be updated with projected deposit dates for most early EITC/ACTC refund filers by February 17.

Take advantage of other valuable tax credits

Taxpayers should make IRS.gov their first stop to find valuable info this filing season. Even if a taxpayer does not qualify for the EITC, they may be eligible for other credits or deductions. The Interactive Tax Assistant is a helpful tool for taxpayers to see if they qualify for the Child Tax Credit, Additional Child Tax Credit or Credit for Other Dependents.

Source: IRS-2024-22, Jan. 26, 2024

The Treasury Department and Internal Revenue Service today issued an announcement informing businesses that they do not have to report the receipt of digital assets the same way as they must report the receipt of cash until Treasury and IRS issue regulations.

The Infrastructure Investment and Jobs Act revised the rules that require taxpayers that are engaged in a trade or business to report receiving cash of more than $10,000 by considering digital assets to be cash. Announcement 2024-4PDF provides transitional guidance as Treasury and the IRS implement the new provisions. This particular provision requires Treasury and the IRS to issue regulations before it goes into effect.

The announcement does not affect the rules in effect before the Infrastructure Investment and Jobs Act for cash received in the course of a trade or business, which must be reported on Form 8300, Report of Cash Payments over $10,000 Received in a Trade or Business, within 15 days of receiving the cash.

Treasury and the IRS intend to issue proposed regulations to provide additional information and procedures for reporting the receipt of digital assets, giving the public an opportunity to comment both in writing and, if requested, at a public hearing.

Source: IRS-2024-12, Jan. 16, 2024

More than $482 million recovered from 1,600 millionaires who have not paid tax debts

The Internal Revenue Service announced today continued progress to expand enforcement efforts related to high-income individuals, large corporations and complex partnerships as part of wider efforts to transform the agency.

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

The IRS shared today progress in its focus on people using partnerships to avoid paying self-employment taxes as well as new details on current enforcement priorities. The IRS is also continuing to pursue millionaires that have not paid hundreds of millions of dollars in tax debt, with an additional $360 million collected on top of the $122 million reported in late October. The IRS has now collected $482 million in ongoing efforts to recoup taxes owed by 1,600 millionaires with work continuing in this area.

“The IRS continues to increase scrutiny on high-income taxpayers as we work to reverse the historic low audit rates and limited focus that the wealthiest individuals and organizations faced in the years that predated the Inflation Reduction Act. We are adding 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, offering them more in-person and online resources as part of our effort to deliver another successful tax season in 2024. The additional resources the IRS has received is making a difference for taxpayers, and we plan to build on these improvements in the months ahead.”

Werfel highlighted these as part of a quarterly update on the IRS Strategic Operating Plan, the transformational effort using IRA funding. As these initiatives to improve compliance among high-income individuals, complex partnerships and large corporations increase, the IRS continues its work to improve customer service and modernize core technology infrastructure.

Ensuring complex partnerships, large corporations and high-income, high-wealth individual taxpayers pay taxes owed

The IRS is working to ensure large corporate, large partnership and high-income individual filers pay the taxes they owe. Prior to the Inflation Reduction Act, more than a decade of budget cuts prevented the IRS from keeping pace with the increasingly complicated set of tools that the wealthiest taxpayers use to hide their income and evade paying their share. The IRS is now taking swift and aggressive action to close this gap.

• Prioritization of high-income cases: The IRS has ramped up efforts to pursue high-income, high-wealth individuals who have either not filed their taxes or failed to pay recognized tax debt, with dozens of revenue officers focused on these high-end collection cases. These efforts are concentrated among taxpayers with more than $1 million in income and more than $250,000 in recognized tax debt. In an initial success, the IRS collected $38 million from more than 175 high-income earners. The IRS last fall began contacting about 1,600 new taxpayers in this category that owe hundreds of millions of dollars in taxes. The IRS has assigned over 900 of these 1,600 cases to revenue officers, with over $482 million collected so far. This brings the total recovered from millionaires through these new initiatives to $520 million.

• Pursuing multi-million-dollar partnership balance sheet discrepancies: The IRS has identified ongoing discrepancies on balance sheets involving partnerships with over $10 million in assets, which is an indicator of potential non-compliance. Taxpayers filing partnership returns are showing millions of dollars in discrepancies between end-of-year balances compared to the beginning balances the following year. The number of these discrepancies has been increasing, with many taxpayers not attaching required statements explaining the difference. The IRS announced an initiative to address the balance sheet discrepancy in September and as of the end of October had sent 480 compliance alerts.

• Ramp up of audits of 76 largest partnerships leveraging Artificial Intelligence (AI): The complex structures and tax issues present in large partnerships require a focused approach to best identify the highest risk issues and apply resources accordingly. In 2021, the IRS launched the first stage of its Large Partnership Compliance (LPC) program with examinations of some of the largest and most complex partnership returns in the filing population. The IRS announced in September that it would expand this program to additional large partnerships. With the help of AI, the selection of these returns is the result of groundbreaking collaboration among experts in data science and tax enforcement, who have been working side-by-side to apply cutting-edge machine learning technology to identify potential compliance risk in the areas of partnership tax, general income tax and accounting, and international tax in a taxpayer segment that historically has been subject to limited examination coverage. As of December, the IRS had open examinations of 76 of the largest partnerships in the U.S. that represent a cross section of industries including hedge funds, real estate investment partnerships, publicly traded partnerships, large law firms and other industries. On average, these partnerships each have more than $10 billion in assets.

• Large Foreign-Owned Corporations Transfer Pricing Initiative: The IRS is increasing compliance efforts on the U.S. subsidiaries of foreign companies that distribute goods in the U.S. and do not pay their fair share of tax on the profit they earn of their U.S. activity. These foreign companies use transfer pricing rules year after year to report losses that are engineered through the improper use of these rules to avoid reporting an appropriate amount of U.S. profits. To crack down on this strategy, as of mid-November the IRS has sent compliance alerts to more than 180 subsidiaries of large foreign corporations to reiterate their U.S. tax obligations and incentivize self-correction.

• Expansion of the Large Corporate Compliance program: The Large Business & International Division’s (LB&I) Large Corporate Compliance (LCC) program focuses on noncompliance by using data analytics to identify large corporate taxpayers for audit. LCC includes the largest and most complex corporate taxpayers with average assets of more than $24 billion and average taxable income of approximately $526 million per year. As new accountants come on board in early 2024, LB&I is expanding the program by starting an additional 60 audits of the largest corporate taxpayers selected using a combination of artificial intelligence and subject matter expertise in areas such as cross-border issues and corporate planning and transactions.

• Partnership Self-Employment Tax Initiative: As part of the agency’s increased focus on the tax issues applicable to partnerships and partners, the IRS has been increasing compliance to ensure that Self-Employment Contributions Act (SECA) taxes are being properly reported and paid by wealthy individual partners who provide services and have inappropriately claimed to qualify as “limited partners” in state law limited partnerships (such as investment partnerships) not subject to SECA tax. In contrast to wage earners whose employment taxes (Federal Insurance Contributions Act/FICA) are deducted from their paychecks, self-employed individuals are required to report and pay their SECA taxes on their federal income returns. The IRS efforts to date include over 80 audits of wealthy individuals. Additionally, in November 2023, the Tax Court issued an opinion in Soroban Capital Partners LP v. Commissioner that agreed with the IRS’s position that the limited partner exception to SECA tax does not apply to a partner who is “limited” in name only. As a result, partners who actively participated in the state law limited partnership must report their partnership share as net earnings from self-employment subject to SECA tax.

New examples of cases closed since the Inflation Reduction Act passed follow:

• In January 2024, two individuals were sentenced to 25 years and 23 years respectively in prison for conspiracy to commit wire fraud, aiding and assisting the filing of false tax returns and money laundering for their role in promoting a fraudulent tax shelter scheme involving syndicated conservation easements.

• In December, a Swiss Bank entered into a Deferred Prosecution Agreement (DPA) and agreed to pay approximately $122.9 million to the U.S. Treasury for their role in assisting U.S. taxpayer-clients with evading their U.S. taxes by opening and maintaining undeclared accounts. The bank also maintained accounts of certain U.S. taxpayer-clients in a manner that allowed them to further conceal their undeclared accounts from the IRS. In total, from 2008 through 2014, the bank held 1,637 U.S. Penalty Accounts, with aggregate maximum assets under management of approximately $5.6 billion in January 2008, on behalf of clients who collectively evaded approximately $50.6 million in U.S. taxes.

• In December, an individual was sentenced to 10 years and 10 months and ordered to pay more than $130,000 in restitution, another was sentenced to 102 months in prison and ordered to pay more than $2.5M in restitution and a third individual was sentenced to four years in prison and ordered to pay more than $2.5M in restitution for their involvement in a RICO Conspiracy for cyber intrusion and tax fraud. These individuals used the dark web to purchase server credentials for the computer servers of Certified Public Accounting and tax preparation firms across the country.

• In December, an individual was sentenced to 28 months in federal prison and ordered to pay over $470,000 in restitution to the IRS for filing a false tax return while working as a money mule for romance scams. The individual opened and maintained bank accounts to collect proceeds from the schemes and to send the money to himself and others overseas.

• An individual was sentenced to 57 months in prison for their failure to pay more than $1.35 million of taxes arising from their operation of several restaurants in the Washington, D.C. area. The individual evaded taxes by concealing assets and obscuring the large sums of money they took from the businesses by purchasing property in the name of a nominee entity and causing false entries in the businesses’ books and records to hide personal purchases using business bank accounts.

Hiring additional top talent to pursue high-income individuals, complex partnerships and large corporations

The IRS offered positions to more than 560 new skilled accountants in November and December, key positions in ramping up work to pursue high-wealth individuals, complex partnerships and large corporations that do not pay taxes owed. Importantly, the IRS has been modernizing its hiring processes and holding more direct hiring events to better compete with the private sector and quickly bring top talent on board.

For example, at a December hiring event in Houston, the IRS hired 160 skilled accountants in two days, compressing the typical three to six month hiring process into one day. These events are marketed in advance, and onsite Human Capital Office staff review all applicants’ credentials and ensure they are qualified for the position. Following this initial screening, applicants are interviewed by hiring managers and passed to selecting officials for a final decision. Successful applicants are given tentative offers, sponsored and fingerprinted on site, leaving only background and tax checks to be completed.

Improving taxpayer service

The IRS is focused on helping taxpayers get it right the first time — claiming the credits and deductions they are eligible for and avoiding back-and-forth with the agency when errors arise. To help taxpayers get it right, the IRS is working toward taxpayers being able to seamlessly interact with the agency in the ways that work best for them on the phone, in-person and online. The IRS is expanding in-person service and meeting taxpayers where they are, particularly those in underserved and rural communities. The IRS is continuing to expand Taxpayer Assistance Centers across the country.

• Opening Taxpayer Assistance Centers: Currently, the IRS has opened or reopened 54 Taxpayer Assistance Centers since the passage of the Inflation Reduction Act, including four since November:
  • Bellingham, Washington
  • Eau Claire, Wisconsin
  • Washington, Pennsylvania
  • Media, Pennsylvania

Taxpayer Assistance Centers, which provide in-person support to local communities across the country, will collectively offer over 8,000 more hours of in-person assistance than they did last filing season.

• Taxpayer Assistance Center hiring update: As of the end of December, the IRS has hired 858 employees to staff Taxpayer Assistance Centers. This represents a 410 net increase in Taxpayer Assistance Center staffing compared to Fiscal Year 2022, and IRS continues to hire to replace departing staff.

Taxpayers deserve the same functionality in their online accounts that they experience with their bank or other financial institutions. As detailed in the Strategic Operating Plan, in the next five years, taxpayers will be able to securely file all documents and respond to all notices online and securely access and download their data and account history. The IRS has hit or has in progress several milestones toward this goal, including the launch of Business Tax Account, the expansion of the Document Upload Tool to accept responses to nearly all notices and letters, and the launch of digital mobile-adaptive forms.

• Respond to notices online: Taxpayers are now able to respond to notices online. Until Filing Season 2023, when taxpayers received notices for things like document verification, they had to respond through the mail. During Filing Season 2023, taxpayers were able to respond to 10 of the most common notices for credits like the Earned Income and Health Insurance Tax Credits online, saving them time and money. By July 2023, taxpayers had the option to respond to 61 IRS notices and letters, and by October 2023, taxpayers could respond to all notices and letters that do not have a filing or payment action. As of December, the IRS has received more than 45,000 responses to notices via the online tool.

• Processing Status for Tax Forms dashboard: The IRS has launched a public facing Processing Status for Tax Formsdashboard listing current processing status for key forms (e.g., 1040, 941) and general correspondence. The IRS operations: Status of mission-critical functions webpage has also been updated to link to the new dashboard. For electronically filed forms, processing status is the typical number of days it currently takes to process a form after receipt from the taxpayer. For paper forms, processing status reflects which month of receipt is currently being processed. The IRS included forms that had significant volumes of submission in paper format and lead to a follow-on action for the taxpayer after submissions are processed. For example, forms that trigger refunds or the receipt of an Individual Taxpayer Identification Number (ITIN). The page is updated weekly to reflect current processing status.

• Voice bots on Where’s My Refund? and Where’s My Amended Return?: IRS launched natural voice language voice bots for taxpayers calling about refunds and amended returns. These voice bots allow callers to ask questions using natural language instead of following menu-driven prompts.

In addition, the IRS continues to expand the functionality of several online platforms:

• With the latest updates to Individual Online Account, individuals can now save multiple bank accounts, validate bank account information and display their bank name. Individuals can also schedule and cancel payments and expand and revise payment plans.

• The IRS launched the second phase of Business Tax Account that expands its capabilities and eligible entity types. As a result, individual partners of partnerships and individual shareholders of S corporation businesses are now eligible for a business tax account, in addition to sole proprietors with an employer identification number (EIN). Eligible entities can now access business tax transcripts and view digital notices and letters.

• Enhancements to Tax Pro Account include the ability to manage active client authorizations with the Centralized Authorization File (CAF) database, view and manage active authorizations, and view their individual and business clients’ tax information including business balance due and canceled and returned checks for individuals.

Modernizing technology

On the technology side, the IRS is modernizing decades-old technology to drive the agency’s efforts to provide world-class customer service and protect taxpayers’ data.

• Digitalization: The IRS also continues to make significant progress scanning and e-filing paper returns. By the end of February, the IRS will have replaced scanning equipment that is older than five years and the automated mail-sorter machines in the six highest-volume locations, streamlining the process of mail sorting, opening and scanning. As of the end of December, the IRS had scanned more than 1.5 million forms during the 2023 calendar year — more than 484,000 Forms 940, 907,000 Forms 941 and more than 111,000 Forms 1040. Digitization has far-reaching implications for how the IRS can improve service.

Source: IRS-2024-09, Jan. 12, 2024