With the completion of special mailings of all Letters 6475 to recipients of the third-round of Economic Impact Payments, the Internal Revenue Service reminds people to accurately claim any remaining third-round stimulus payment on their 2021 income tax return as the 2021 Recovery Rebate Credit.

Through December 31, 2021, the IRS issued more than 175 million third-round payments totaling over $400 billion to individuals and families across the country. Most of the third-round payments were issued in the spring and early summer of 2021. The IRS continued to send plus-up payments through December if, after their 2020 tax return was processed last year, the taxpayer was eligible for additional amounts.

As required by law, the IRS is no longer issuing first-, second-, or third-round Economic Impact Payments. Instead, people who are missing a stimulus payment or got less than the full amount may be eligible to claim a Recovery Rebate Credit on their 2020 or 2021 federal tax return.

Most eligible people already received the full amount of their credit in advance and don’t need to include any information about this payment when they file their 2021 tax return. This includes the additional payments – called “Plus-Up” Payments – the IRS issued to individuals who initially received a third-round Economic Impact Payment based on information on their 2019 tax return and were later eligible for a larger amount based on information on their 2020 tax return.

Individuals may securely access their IRS Online Account to view the total amount of the third-round Economic Impact Payment issued to them. This information became available on January 15, 2022, under the Tax Records page in Online Account. For married individuals filing a joint return, each spouse will need to log into their own Online Account or review their own Letter 6475 for their portion of their joint total payment. See FAQs for Topic G: Finding the Third Economic Impact Payment Amount to Calculate the 2021 Recovery Rebate Credit, for more information.

Third-round Economic Impact Payment not received? Double-check records first

Individuals are encouraged to double-check their bank accounts – especially in early spring and summer of 2021 – to see whether they received a third-round payment in advance last year.

If an individual did not receive a third-round payment – and their IRS Online Account shows a payment amount greater than $0, or they received Notice 1444-C or Letter 6475 indicating that a payment was issued to them – they should contact the IRS as soon as possible to see if a payment trace is needed. Note that Online Account shows the most current EIP information, so if a payment was issued and returned to the IRS, the amount shown in Online Account may be less than what is shown in their Letter 6475.

Taxpayers should not request a payment trace to determine if they were eligible for a payment or to confirm the amount of payment they should have received.

Individuals do not need to wait until their trace is complete to file their 2021 tax return. When completing the Recovery Rebate Credit Worksheet or answering EIP questions in the tax software, taxpayers have two options:

• Use the amount on the Letter 6475 (or EIP 3 Amount from Online Account) to calculate the RRC amount on line 30.Contact the IRS to trace the EIP amount. Once the EIP trace is completed, the IRS and the taxpayer will receive notification of the results of the EIP trace (the account it was sent to and the amount or a copy of the cashed check).
  • If the trace indicates the taxpayer received the EIP amount, no further action is necessary.
  • If the EIP amount was not received by the taxpayer, the IRS will adjust the RRC amount on the tax return and issue any refund.
• Use the amount of EIP the taxpayer believes they received to calculate the RRC amount on line 30. If the taxpayer’s calculation does not match the IRS calculation, the processing of the tax return will be delayed, the RRC amount will be adjusted to match IRS records and the taxpayer will receive a notice that includes a telephone number to contact if they disagree with the change to the tax return. If the taxpayer contacts the IRS and disagrees with the changes made, IRS will conduct a trace of the EIP, if necessary. Once the EIP trace is completed, the IRS and the taxpayer will receive notification of the results of the EIP trace (the account it was sent to and the amount or a copy of the cashed check).
  • If the trace indicates the taxpayer received the EIP amount, no further action is necessary.
  • If the EIP amount was not received by the taxpayer, the IRS will adjust the RRC amount on the return and issue any refund.

Correcting a mistake after the 2021 tax return is filed; no amended return needed

Individuals who made a mistake calculating the Recovery Rebate Credit and claimed an amount on line 30 for the 2021 Recovery Rebate Credit should not file an amended return. The IRS will correct the amount of the 2021 Recovery Rebate Credit and send a notice identifying the changes made.

If a correction is needed, there may be a delay in processing the return. If the taxpayer agrees with the changes made by the IRS, no response or action is required to indicate they agree with the changes. If the taxpayer disagrees, they can call the toll-free number listed on the top right corner of their notice.

Amended return may be needed for those eligible to claim the credit and IRS records show no Economic Impact Payment was issued

For eligible individuals who didn’t claim a Recovery Rebate Credit on their 2021 tax return (line 30 is blank or $0) and IRS records do not show the issuance of an Economic Impact Payment, they will need to file a Form 1040-X, Amended U.S. Individual Income Tax Return, to claim the remaining amount of stimulus money for which they are eligible. This includes individuals who may not have received the full amount of their third-round Economic Impact Payment because their circumstances in 2021 were different than they were in 2020.

Individuals can use the Interactive Tax Assistant, Should I File an Amended Return?, to help determine if they should amend their original tax return.

Taxpayers who need to file an amended return to claim the 2021 Recovery Rebate Credit – even if they don’t usually file taxes – should use the worksheet in the Form 1040-X to determine the amount of the credit. Enter the amount on the Refundable Credits section of the Form 1040-X and include “Recovery Rebate Credit” in the Explanation of Changes section.

Individuals who filed their 2021 return electronically and need to file an amended return, may be able to file Form 1040-X electronically.

If a taxpayer did not file their 2021 return electronically, they’ll need to submit a paper version of the Form 1040-X and should follow the instructions for preparing and mailing the paper form.

Source: IRS-2022-72, March 30, 2022

Your income tax is your life. Do you give your life into anyone’s hands?
We are pretty sure you don’t. And that is why we want to warn you.
Your tax data is your life, and if it is not correctly reported, your fate and possibly your family’s can be seriously jeopardized.
Think about it, choose well to whom you’re going to hand your documents and information for filing your income tax return in the United States.

How can you tell if a professional is qualified enough to take care of your tax life?
Regardless of where you are in the US, when it comes to “Income Tax”, any and all mistakes, from the simplest to those that the tax authorities may perceive as fraud, the responsibility lies solely and exclusively with the taxpayer, which means, your responsibility. So, before choosing who is going to do your tax return, it is good to understand what kind of professional is qualified to do it.
In the US there are two types of licenses available for chartered accountants:
 
CPA – CERTIFIED PUBLIC ACCOUNTANT
Graduated and certified public accountant. His practice is limited to the state where he is registered. He has the competence and knowledge to prepare income tax returns, for both individuals and companies.
In an accounting office, he supervises and signs the taxpayers’ returns as the person legally responsible and accredited.
Most importantly, the CPA is the taxpayer’s representative at the IRS (the Internal Revenue Service) IRS (the U.S. Internal Revenue Service) for several matters, including audits. THE CPA, for example, is the only one who can sign the accounting reports of companies traded on the American Stock Exchange.

EA – ENROLLED AGENT
Like the CPA, the EA is also a trained and certified accountant. The difference with the CPA is in the breadth of practice. While the CPA is best suited for companies and individuals whose business is restricted to one state, the EA has an even broader scope because they have unlimited rights and can represent taxpayers at the IRS throughout the United States.

Another important point is the fact that the CPA and the EA are always being inspected by the IRS and by the accounting council equivalent to the one that exists in Brazil. These two professionals, in order to have active licenses, need to be always improving their skills and attending specific evaluations at the IRS.

SO STAY TUNED!
An accounting firm has several employees in the tax department, but only the CPA and the EA can represent you in the IRS. Another thing you need to know is that in the United States, anyone can establish an accounting office, which has put the taxpayer’s security at risk.
Employees who help prepare tax returns are called “Tax Preparers” and are given a Taxpayer Identification Number (PTIN). Some of these people end up misleading the taxpayer by using the PTINumber as if it were an “endorsement” of the work they offer, and end up giving the false impression that they are qualified to represent them, but they are not.

In a survey conducted by the Taxpayer Advocate Service (TAS), an independent organization within the IRS, pointed out a situation that may greatly complicate the lives of those who need to declare income tax but are not familiar with the American system, which is to entrust non-qualified professionals with their income tax returns. Of the 681,845 PTIN number holders in the country, only 189,650 are CPAs and 53,000 EAs. The 467,263 are not trained, or even qualified, to prepare taxes.  Of the 270,646 licensed tax preparers, only 55,496 (*) have completed the 2022 season program registration for income tax preparation.

A Tax Preparer is not an accountant, and therefore has no responsibility for what is being written on your return, he is not allowed to sign your return, and most importantly, he is not allowed to and does not represent you at the IRS. The volume of erroneous tax returns and the total vulnerability of taxpayers has often resulted in inadvertent errors by preparers that have led to taxpayers paying more tax than they should or paying less and ending up facing actions and IRS enforcement.

The large number of unreasonable errors and frauds that have occurred in the last two years, along with the fact that the responsibility falls on taxpayers who have paid professionals who thought to be, but were not, qualified, has turned on a red light in the US Congress, which has classified the problem as an “alarming situation”.

And for this reason, the congressmen are discussing and should soon vote on the approval of legislation to establish minimum standards of competence for income tax preparers, to empower the IRS to regulate the profession and prevent unqualified people from continuing to prepare taxes and, mainly, to curb the opening of seasonal offices, which take advantage of the taxpayer’s lack of information to fraudulently and easily obtain important data such as the SSN (Social Security) and then sell them on the market, and thus end up hurting the taxpayer even more. By the way, another important factor to be considered concerns “Data Security”. Security”.
Accounting offices under the responsibility of CPA or EA are under constant surveillance to maintain secure systems to protect taxpayer data.
 
SO WATCH OUT!
It is your right, before hiring an accounting professional, to check the licenses of the firm or the professional who will provide the service.
CPA and EA data are public and are available on the IRS website. When hiring an accounting firm to manage your tax life in America, make sure there is a CPA or an EA on staff.
Not being able to count on these professionals is the same as not having a surgeon doctor inside a hospital’s surgical center. Think about it!
Now that you are aware of which professionals can accurately file your tax return and represent you before the IRS, don’t forget: before hiring a professional, make sure they are licensed and accredited to practice their profession.

This article was written by journalist Eleonora Paschoal

More functions coming later in 2022 to help taxpayers with more complex issues

The Internal Revenue Service today announced it has begun using voice and chat bots on two of its specialized toll-free telephone assistance lines and IRS.gov, enabling taxpayers with simple payment or collection notice questions to get what they need quickly and avoid waiting. Taxpayers can still speak with an IRS telephone representative if needed.

“Our phone lines continue to see unprecedented demand, and the IRS continues to look for ways to help people and avoid long wait times,” said IRS Commissioner Chuck Rettig. “Our telephone representatives remain an important part of the service we provide, but these bots can help some people avoid lengthy phone delays for something that could be resolved on the spot. This is part of a larger effort to help people get the assistance they need this tax season.”

The IRS in recent weeks has deployed voice and chat bots in English and Spanish for phone lines that assist taxpayers with tax payments issues or understanding an IRS notice they may have received. People with general tax season questions generally will not encounter these features at this time. The bots are now available to help taxpayers with:

• How to make one-time payments
• Answers to frequently asked questions
• Collection notice clarification

Voice bots are software powered by artificial intelligence (AI) that allow a caller to navigate an interactive voice response (IVR) system with their voice, generally using natural language. Chat bots simulate human conversation through web-based text interaction, also using AI-powered software to respond to natural language prompts. Taxpayers who request to speak with a customer service representative will be placed in queue for English or Spanish ACS telephone assistance. The IRS voice and chat bots currently provide unauthenticated services, which means they cannot provide assistance with a taxpayer’s protected account information.

“Voice and chat bots interact with taxpayers in easy-to-follow ways, which means taxpayers don’t have to wait on hold to handle simple tasks,” said Darren Guillot, Commissioner of Small Business/Self Employed Collection at the IRS.

Later in 2022, IRS voice bots will also enable taxpayers to authenticate their identity to establish payment plans, request a transcript and obtain information about their accounts, such as payoff details. The IRS plans to roll out more voice and chat bots later in 2022 to assist taxpayers with more complex issues.

IRS toll-free telephone lines receive millions of calls a year. A customer service representative spends on average nearly 20 minutes with each taxpayer they help on a collection issue. Freeing up IRS phone assistors for taxpayers with complex collection issues who need to speak with someone is another major benefit of voice and chat bots.

In addition to the payment lines, voice bots helped people calling the Economic Impact Payment (EIP) toll-free line, providing general procedural responses to frequently asked questions. The IRS also added voice bots for the Advance Child Tax Credit toll-free line in February to provide similar assistance to callers who need help reconciling the credits on their 2021 tax return.

The IRS also reminds taxpayers about numerous other self-service options that are available.

Source: IRS – Updated: 14-Mar-2022

The Internal Revenue Service issued a filing season reminder today that those taxpayers who pay expenses for the care of a qualifying person while working or looking for work may qualify for an important tax credit.

The Child and Dependent Care Credit is expanded for tax year 2021. This means that more taxpayers will qualify this year than ever before, and the credit will be worth more. Taxpayers with an adjusted gross income of more than $438,000 are not eligible for this credit.

“There are many important tax credits available for families, and we don’t want anyone to overlook the Child and Dependent Care Credit,” said IRS Commissioner Chuck Rettig. “We encourage families and others who may qualify for this credit to carefully review the criteria to make sure they receive the maximum amount they’re entitled to. We also encourage the tax professional communities and others to share this important information.”

Depending on their income, taxpayers can get a credit worth 50% of their qualifying childcare expenses. For tax year 2021, the maximum eligible expense for this credit is $8,000 for one qualifying person and $16,000 for two or more.

For the purposes of this credit, the IRS defines a qualifying person as:

• A taxpayer’s dependent who is 12 or younger (no age limit if incapacitated) when the care is provided.
• A taxpayer’s spouse who is physically or mentally unable to care for themselves and lived with the taxpayer for more than half the year.
• Someone who is physically or mentally unable to take care of themselves and lived with the taxpayer for six months and is either:
  1. the taxpayer’s dependent or
  2. would have been the taxpayer’s dependent except for one of the following:
     • The qualifying person received gross income of $4,300 or more
     • The qualifying person filed a joint return
     • The taxpayer or spouse, if filing jointly, could be claimed as a dependent on someone else’s return

Source: IRS – March 8, 2022

WASHINGTON — The Internal Revenue Service reminds taxpayers of their reporting and potential tax obligations from working in the gig economy, making virtual currency transactions, earning foreign-source income or holding certain foreign assets. Information available on IRS.gov and instructions on Form 1040 can help taxpayers in understanding and meeting these reporting and tax requirements.

Gig economy earnings are taxable

Generally, income earned from the gig economy is taxable and must be reported to the IRS. The gig economy is activity where people earn income providing on-demand work, services or goods. Often, it’s through a digital platform like an app or website. Taxpayers must report income earned from the gig economy on a tax return, even if the income is:

• From part-time, temporary or side work,
• Not reported on an information return form – like a Form 1099-K, 1099-MISC, W-2 or other income statement or
• Paid in any form, including cash, property, goods or virtual currency.

For more information on the gig economy, visit the gig economy tax center.

Understand virtual currency reporting and tax requirements

The IRS reminds taxpayers that once again there is a question at the top of Form 1040 and Form 1040-SR asking about virtual currency transactions. All taxpayers filing these forms must check the box indicating either “yes” or “no.” A transaction involving virtual currency includes, but is not limited to:

• The receipt of virtual currency as payment for goods or services provided;
• The receipt or transfer of virtual currency for free (without providing any consideration) that does not qualify as a bona fide gift;
• The receipt of new virtual currency as a result of mining and staking activities;
• The receipt of virtual currency as a result of a hard fork;
• An exchange of virtual currency for property, goods or services;
• An exchange/trade of virtual currency for another virtual currency;
• A sale of virtual currency; and
• Any other disposition of a financial interest in virtual currency.

If an individual disposed of any virtual currency that was held as a capital asset through a sale, exchange or transfer, they should check “Yes” and use Form 8949 to figure their capital gain or loss and report it on Schedule D (Form 1040).

If they received any virtual currency as compensation for services or disposed of any virtual currency they held for sale to customers in a trade or business, they must report the income as they would report other income of the same type (for example, W-2 wages on Form 1040 or 1040-SR, line 1, or inventory or services from Schedule C on Schedule 1). More information on virtual currency can be found in the instructions for Form 1040 and on the Virtual Currencies page on IRS.gov.

Report Foreign Source Income

A U.S. citizen or resident alien’s worldwide income is generally subject to U.S. income tax, regardless of where they live. They’re also subject to the same income tax filing requirements that apply to U.S. citizens or resident aliens living in the United States.

U.S. citizens and resident aliens must report unearned income, such as interest, dividends, and pensions, from sources outside the United States unless exempt by law or a tax treaty. They must also report earned income, such as wages and tips, from sources outside the United States. An income tax filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the Foreign Earned Income Exclusion or the Foreign Tax Credit, which substantially reduce or eliminate U.S. tax liability. These tax benefits are only available if an eligible taxpayer files a U.S. income tax return.

A taxpayer is allowed an automatic 2-month extension to June 15 if both their tax home and abode are outside the United States and Puerto Rico. Even if allowed an extension, a taxpayer will have to pay interest on any tax not paid by the regular due date of April 18, 2022.

Those serving in the military outside the U.S. and Puerto Rico on the regular due date of their tax return also qualify for the extension to June 15. IRS recommends attaching a statement if one of these two situations apply. More information can be found in the instructions for Form 1040 and 1040-SR PDF, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad and Publication 519, U.S. Tax Guide for Aliens.

Reporting required for foreign accounts and assets

Federal law requires U.S. citizens and resident aliens to report their worldwide income, including income from foreign trusts and foreign bank and other financial accounts. In most cases, affected taxpayers need to complete and attach Schedule B to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.

In addition, certain taxpayers may also have to complete and attach to their return Form 8938, Statement of Foreign Financial Assets. Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. See the instructions for this form for details.

Further, separate from reporting specified foreign financial assets on their tax return, taxpayers with an interest in, or signature or other authority over foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2020, must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). Because of this threshold, the IRS encourages taxpayers with foreign assets, even relatively small ones, to check if this filing requirement applies to them. The form is only available through the BSA E-filing System website.

The deadline for filing the annual Report of Foreign Bank and Financial Accounts (FBAR) is the same as that of Form 1040. FinCEN grants filers who missed the original deadline an automatic extension until October 15, 2022, to file the FBAR. There is no need to request this extension.

This news release is part of a series called the Tax Time Guide, a resource to help taxpayers file an accurate tax return. Additional help is available in Publication 17, Your Federal Income Tax.

Source: IRS – IR-2022-45, March 1, 2022

There’s still time to salvage this year’s tax filing season, or at least make a difference, if the IRS adopts recommended taxpayer relief measures, Jan F. Lewis, CPA, the chair of the AICPA’s Tax Executive Committee, told the U.S. Senate Committee on Finance in a hearing Thursday.

Lewis, who is also a tax partner with Haddox Reid Eubank Betts PLLC in Jackson, Miss., was joined by National Taxpayer Advocate Erin Collins and Jessica Lucas-Judy, director, Strategic Issues, with the U.S. Government Accountability Office, in the committee’s hearing, titled “Spotlighting IRS Customer Service Challenges.”

Practitioner difficulties

Over the past few years, Lewis said in her testimony to the committee, tax practitioners have experienced difficulties in dealing with the IRS, mostly with the Service’s sending erroneous notices to taxpayers, being slow to process returns and correspondence, and failing to answer a large majority of phone calls.

“These problems have been magnified the past two years,” Lewis said, “and at times, we as CPAs feel powerless to help our clients navigate these IRS service issues.”

Some clients have received notices instructing them to file forms and returns they had already filed or to allow more time to resolve an issue about which they did not receive any original notice, she said.

“We’ve had clients receive notices regarding payroll Form 941 [Employer’s Quarterly Federal Tax Return], stating that the IRS needs more time, but the client has no employees and does not even file payroll tax returns,” she said.

Other clients who did file Form 941 or the amended version, Form 941-X, on which they claimed an employee retention credit for 2020 or 2021, are still waiting for the resulting refunds, she said.

“I could go on for hours with examples,” Lewis said, but she described one particularly frustrating example: Several passthrough entities were unable to file returns before the 2020 extended due date because of pandemic-related difficulties, she said. None of the returns were more than a couple of months late.

“But despite the IRS’s indication that there would be penalty relief for late filings due to COVID, the telephone assisters had no knowledge of any special pandemic relief when we called,” and penalties were assessed, Lewis said.

The IRS did have its own dislocations to deal with, she noted, including shuttered offices and significant new tasks handed it by Congress, such as administering economic impact payments.

“Frankly, though, we expected a little more flexibility, and a little more empathy from IRS leadership,” Lewis said.

Strategic recommendations

While the AICPA has communicated long-term strategic recommendations to improve IRS service, it continues, with its partners in the Tax Professionals United for Taxpayer Relief Coalition, to advocate shorter-term recommendations that Lewis reiterated for the committee: temporarily postpone all automated compliance actions, adjust account hold times, liberalize the reasonable-cause penalty waiver process, and provide targeted relief from underpayment and late-payment penalties.

Lewis added another specific recommendation: The IRS should delay implementing its requirement that passthrough entities with “items of international tax relevance” file Schedules K-2, Partners’ Distributive Share Items — International, and K-3, Partner’s Share of Income, Deductions, Credits, etc. — International, and similar forms for S corporations.

She noted with appreciation that the IRS on Wednesday clarified that some entities did not have to file the schedules for 2021. But the schedules’ instructions were revised during the current filing season, and affected entities are currently unable to e-file them, Lewis pointed out, potentially exacerbating existing challenges for both taxpayers and the IRS.

The Tax Professionals United for Taxpayer Relief Coalition also on Thursday released its letter dated Feb. 16 to the House Oversight Subcommittee in support of Collins’s testimony there on Feb. 8 and restating the coalition’s relief recommendations.

IRS resources and backlog

Several senators questioned the witnesses on issues of IRS funding and the Service’s resources, particularly its outmoded and in some respects antiquated computer systems and processes that often rely on personnel performing manual tasks.

In describing the IRS’s still “snowballing” backlog of unprocessed returns and correspondence, Collins reiterated her earlier assessment that the IRS is buried in paper. Clearing the backlog and putting the IRS in a stable and healthy condition will require expanding electronic submission and automating not just returns but other forms and taxpayer correspondence as well.

While e-filing can be efficient, “paper is different,” Collins said.

“The IRS still transcribes paper line by line, number by number,” Collins said. The Service received roughly 17 million original paper returns last year, and processing them has extended over 10 months.

“And still we have over 4 million amended returns that taxpayers are waiting to be processed,” Collins said.

Lucas-Judy’s testimony, which the GAO also released as a report Thursday, focused on challenges in the IRS’s 2021 filing season, which included a tripling of taxpayer correspondence over 2019 levels and a fivefold increase in telephone calls.

Both Lucas-Judy and Collins pointed out the IRS’s alternative for taxpayers’ most likely reason for calling, its Where’s My Refund? online portal, leaves much to be desired: It tells taxpayers at the beginning of the process that the Service has received a return and at the end that a refund has been authorized and sent, but little to no information about what happens in the meantime.

In response to a question from Sen. Ben Cardin, D-Md., about the impact of the IRS’s problems on small businesses, Lewis said she is “passionate about” the issue, having grown up as the daughter of a pharmacist and store owner.

“It is burdensome, it is complex, but we’re here to help in any way that we can,” Lewis said. “But what’s burdening my small business clients right now is the unending notices and not being able to reach the IRS.”

Source: AICPA