The Internal Revenue Service today urged taxpayers to take important actions now to help them file their 2023 federal income tax return next year.
This is the second in a series of reminders to help taxpayers get ready for the upcoming filing season. The Get ready page on IRS.gov outlines steps taxpayers can take now to make filing easier in 2024.

Here’s what’s new and what to consider before filing next year.

IRS Online Account enhancements

Taxpayers and Individual Taxpayer Identification Number (ITIN) holders can now access their Online Account and view, approve and electronically sign power of attorney and tax information authorizations from their tax professional.

With an Online Account, individuals can also:

• View their tax owed and payment history and schedule payments.
• Request tax transcripts.

• View or apply for payment plans.
• See digital copies of some IRS notices.
• View key data from their most recently filed tax return, including adjusted gross income.
• Validate bank accounts and save multiple accounts, eliminating the need to re-enter bank account information every time they make a payment.

Avoid refund delays and understand refund timing

Many different factors can affect the timing of a refund after the IRS receives a tax return. Although the IRS issues most refunds in less than 21 days, the IRS cautions taxpayers not to rely on receiving a 2023 federal tax refund by a certain date, especially when making major purchases or paying bills. Some returns may require additional review and may take longer to process if IRS systems detect a possible error, the return is missing information or there is suspected identity theft or fraud.

Also, the IRS cannot issue refunds for people claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) before mid-February. The law requires the IRS to hold the entire refund – not just the portion associated with the EITC or ACTC. The IRS expects most EITC and ACTC related refunds to be available in taxpayer bank accounts or on debit cards by Feb. 27, 2024, if the taxpayer chose direct deposit and there are no other issues with the tax return.

Last quarterly payment for 2023 is due on Jan. 16, 2024

Taxpayers may need to consider estimated or additional tax payments due to non-wage income from unemployment, self-employment, annuity income or even digital assets. The Tax Withholding Estimator on IRS.gov can help wage earners determine if there’s a need to consider an additional tax payment to avoid an unexpected tax bill when they file.

Gather 2023 tax documents

Taxpayers should develop a record keeping system − electronic or paper − that keeps important information in one place. This includes year-end income documents like Forms W-2 from employers, Forms 1099 from banks or other payers, Forms 1099-K from third party payment networks, Forms 1099-NEC for nonemployee compensation, Forms 1099-MISC for miscellaneous income or Forms 1099-INT for interest paid, as well as records documenting all digital asset transactions.

When they have all their documentation, taxpayers are in the best position to file an accurate return and avoid processing or refund delays.

1099-K reporting threshold delayed

Following feedback from taxpayers, tax professionals and payment processors and to reduce taxpayer confusion, the IRS delayed the new $600 Form 1099-K reporting threshold for third party settlement organizations for calendar year 2023.

As the IRS continues to work to implement the new law, the agency will treat 2023 as an additional transition year. This will reduce the potential confusion caused by the distribution of Forms 1099-K sent to many taxpayers who wouldn’t expect one and may not have a tax obligation. As a result, reporting will not be required unless the taxpayer receives over $20,000 and has more than 200 transactions in 2023.

Given the complexity of the new provision and the large number of individual taxpayers affected, the IRS is planning for a threshold of $5,000 for tax year 2024 as part of a phase-in to implement the $600 reporting threshold enacted under the American Rescue Plan (ARP).

It is important for taxpayers to understand why they received a Form 1099-K, then use the form and their other records to help figure and report their correct income on their tax return. It is also important for taxpayers to know what to do if they received a Form 1099-K but shouldn’t have.

There’s no change to the taxability of income. All income, including from part-time work, side jobs or the sale of goods is still taxable. Taxpayers must report all income on their tax return unless it’s excluded by law, whether they receive a Form 1099-K, a Form 1099-NEC, Form 1099-MISC or any other information return.

Understand energy related credits

Taxpayers who bought a vehicle in 2023 should review the changes under the Inflation Reduction Act of 2022 to see if they qualify for the credits for new electric vehicles purchased in 2022 or before or the new clean vehicles purchased in 2023 or after. To claim either credit, taxpayers will need to provide the vehicle’s VIN and file Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit, with their tax return.

If taxpayers made energy improvements to their home, tax credits are available for a portion of qualifying expenses. The Inflation Reduction Act of 2022 expanded the credit amounts and types of qualifying expenses. To claim the credit, taxpayers need to file Form 5695, Residential Energy Credits, Part II, with their tax return.

Speed tax refunds with direct deposit

Filing electronically and choosing direct deposit is the fastest way for taxpayers to get their tax refund. Direct deposit gives individuals access to their refund faster than a paper check.

Those without a bank account can learn how to open an account at an FDIC insured bank or through the national Credit Union Locator tool. Veterans should see the Veterans Benefits Banking Program for access to financial services at participating banks.

Prepaid debit cards or mobile apps may allow direct deposit of tax refunds. The prepaid debit cards or mobile apps must have routing and account numbers associated with them to enter on the tax return. Check with the mobile app provider or financial institution to confirm which numbers to use.

Source: IRS-2023-235, Dec. 11, 2023

As part of continuing efforts to combat dubious Employee Retention Credit (ERC) claims, the Internal Revenue Service is sending an initial round of more than 20,000 letters to taxpayers notifying them of disallowed ERC claims. IRS is disallowing claims to entities that did not exist or did not have paid employees during the period of eligibility to prevent improper ERC payments from being made to ineligible entities.

The letters are being sent as the IRS continues increased scrutiny of ERC claims in response to misleading marketing campaigns that have targeted small businesses and other organizations. The IRS mailing is the latest in an expanded compliance effort that includes a special withdrawal program for those with pending claims who realize they may have filed an inaccurate tax return. Later this month, a separate voluntary disclosure program will be unveiled allowing those who received questionable payments to come in and avoid future IRS action.

After an initial review this fall, the IRS determined that a large block of taxpayers did not meet basic criteria for the credit. Starting this week, taxpayers who are ineligible for the credit will begin receiving copies of Letter 105 C, Claim Disallowed.

This group of letters will cover taxpayers ineligible for the ERC either because their entity did not exist or did not have employees for the time period when the credit was claimed.

“With the aggressive marketing we saw with this credit, it’s not surprising that we’re seeing claims that clearly fall outside of the legal requirements,” said IRS Commissioner Danny Werfel. “The action we are taking today is part of an initial set of steps in our compliance work in this area, and more letters will be going out in the near future, including both disallowance letters and letters seeking the return of funds erroneously claimed and received.”

“As we continue our audit and criminal investigation work involving the Employee Retention Credits, we continue to urge people who submitted a claim to review the rules with a trusted tax professional. If they filed an inaccurate claim, we urge them to consider withdrawing their pending claim or use the upcoming disclosure program to repay improper refunds to avoid future action.”

Following concerns about aggressive ERC marketing from tax professionals and others, the IRS announced Sept. 14 a moratorium on processing new ERC claims through at least the end of 2023. The IRS noted that enhanced compliance reviews of existing claims submitted before the moratorium is critical to protect against fraud and also to protect businesses and organizations from facing penalties or interest payments stemming from bad claims pushed by promoters.

When properly claimed, the ERC is a refundable tax credit designed for businesses that continued paying employees during the COVID-19 pandemic while their business operations were either fully or partially suspended due to a government order or had a significant decline in gross receipts during the eligibility periods.

In July, the IRS said it was shifting its focus to review ERC claims for compliance concerns, including intensifying audit work and criminal investigations on promoters and businesses filing dubious claims. The IRS has hundreds of criminal cases being worked, and thousands of ERC claims have been referred for audit.

20,000 letters focus on two ERC problem areas

The mailing reflects just part of the ongoing IRS review of these claims. In this group, two categories of claims have been identified and are being disallowed:

• Entity not in existence during period of eligibility: The ERC applies to qualified wages for periods between March 13, 2020, and Dec. 31, 2021. Entities established after Dec. 31, 2021, are not entitled to the ERC under the law passed by Congress.

• There are no paid employees during the period of eligibility: The ERC is intended as a credit against qualified wages paid. Entities that did not pay any wages are not eligible for ERC.

The IRS respects taxpayer rights, and the disallowance letter will explain that a taxpayer that disagrees with the disallowance can respond with documentation that supports their eligibility or claim amount, or they can file an administrative appeal.

The disallowance letters that identify ineligible claims before they’re paid serve several purposes that help taxpayers and tax administration. They:

• Help ineligible taxpayers avoid audits, repayment, penalties and interest,
• Protect taxpayers by preventing an incorrect refund from going to an ERC promoter, and
• Save IRS resources by disallowing incorrect credits before they enter the audit process.

The IRS plans additional letters beyond the disallowance letters. Plans are also being finalized for a special voluntary disclosure program involving ERC claims that will be announced later this month.

The IRS is also continuing to review ERC claims and may request more information from taxpayers to support their ERC claim.

Source: IRS-2023-230, Dec. 6, 2023

To wrap up National Tax Security Awareness Week, the Internal Revenue Service and the Security Summit partners today reminded taxpayers and tax professionals to stay alert against emerging scams during the upcoming filing season and throughout the year.

With identity thieves constantly changing tactics to try to steal information from taxpayers and businesses, the Security Summit partners remind people to watch out for a variety of aggressive schemes that can surface on email, by text, over the phone or through the mail.

These threats are present year-round, but the approach of tax season means that identity thieves will intensify efforts trying to impersonate the IRS and others involved in tax and financial work to get sensitive information.

Identity thieves also use recent news events, including tragedies, to try tricking taxpayers. And in another common tax season scam, identity thieves will pose as new, potential clients to tax professionals by email or over the phone in hopes of obtaining access to company systems. Ultimately, successful attempts to get this information means fraudsters can try filing fake tax returns with a goal of getting a refund.

“Identity thieves are relentless and use a variety of techniques. As Tax Security Awareness Week concludes, we urge people to be careful with their personal information and be wary of email and text scams,” said IRS Commissioner Danny Werfel. “With people anxious to receive the latest information about a refund or other issues during tax season, scammers will regularly pose as the IRS, a state tax agency or others in the tax industry. People should be incredibly wary about unexpected messages that can be an elaborate trap by scam artists, especially during filing season.”

During National Tax Security Awareness Week, now in its eighth year, the Security Summit partnership of the IRS, state tax agencies and the nation’s tax community work to raise awareness among taxpayers, tax professionals and the business community about the importance of safeguarding information to protect against identity theft. The Security Summit formed in 2015 to combat tax-related identity theft through better public-private sector coordination as well as strengthening internal protections in the tax community and raising public awareness about security threats.

With the tax season fast approaching, the Security Summit partners remind taxpayers and others to take extra steps to protect their financial and tax information. As the IRS and the Summit partners have strengthened their internal defenses in recent years to protect against fraud, identity thieves have increasingly focused on more elaborate ways to obtain sensitive taxpayer information in hopes of evading systemic defenses by the IRS and the Summit partners in tax community.

In this final installment of the National Tax Security Week Awareness series, the Summit partners urged taxpayers and tax professionals to be alert to fake communications posing as legitimate organizations in the tax and financial community, including the IRS and states. These messages can arrive in many ways, including an unsolicited text or email to lure unsuspecting victims to provide valuable personal and financial information that can lead to identity theft. These include:

• Phishing is an email sent by fraudsters claiming to come from the IRS or another legitimate organization, including state tax organizations or a financial firm. The email lures the victims into the scam by a variety of ruses such as enticing victims with a phony tax refund or frightening them with false legal/criminal charges for tax fraud.
• Smishing is a text or smartphone SMS message that uses the same technique as phishing. Scammers often use alarming language like, “Your account has now been put on hold,” or “Unusual Activity Report” with a bogus “Solutions” link to restore the recipient’s account. Unexpected tax refunds are another potential target for scam artists.

The IRS initiates most contacts through regular mail, which means taxpayers shouldn’t be getting an unexpected message by email, text or social media regarding a bill or tax refund.

The Summit partners remind taxpayers and others never to click on any unsolicited communication claiming to be the IRS or others because it may surreptitiously load malware. It may also be a way for malicious hackers to load ransomware that keeps the legitimate user from accessing their system and files.

Individuals should never respond to tax-related phishing or smishing or click on the URL link. Instead, the scams should be reported by sending the email or a copy of the text/SMS as an attachment to phishing@irs.gov.

Taxpayers can also report scams to the Treasury Inspector General for Tax Administration or the Internet Crime Complaint Center. The Report Phishing and Online Scams page at IRS.gov provides complete details. The Federal Communications Commission’s Smartphone Security Checker is a useful tool against mobile security threats.

The IRS also warns taxpayers to be wary of messages that appear to be from friends or family but are possibly stolen or compromised email or text accounts from someone they know. This remains a popular way to target individuals and tax preparers for a variety of scams. Individuals should verify the identity of the sender by using another communication method; for instance, calling a number they independently know to be accurate, not the number provided in the email or text.

Signs that a scam may be underway

Taxpayers should watch for a number of tell-tale signs that could be an indication that they have been a victim of identity theft or a tax scam. Among some of the signs are:

• Taxpayers receiving a tax transcript in the mail from the IRS that was not ordered.
• Taxpayers receiving an unrequested Employer Identification Number.
• Taxpayers receiving W-2’s from an unknown employer.
• Taxpayers unexpectedly getting a notice or an email from a tax preparation company that is:
  • Confirming access to an existing online account.
  • Disabling an existing online account.
  • Confirming a new online account.
• Getting a letter from the IRS during a year that the taxpayer didn’t earn income or a tax return hadn’t been filed. In this situation, it’s possible an identity thief has submitted a tax return in the honest taxpayer’s name. In this situation, where the taxpayer didn’t earn money or file a return, the warning sign is a letter showing:
  • Additional tax is owed.
  • A refund was offset because of a balance due.
  • Collection actions have been taken.

Generally, the IRS starts with a mailed paper bill to a person who owes taxes. If a taxpayer wants to verify what taxes they owe the IRS, they should view tax account information. But they should not click on links in email or texts saying they owe a bill.

Protect against becoming a victim, again

Taxpayers who believe they’re victims of tax-related identity theft – and who have not received an IRS letter alerting them to ID theft – should complete Form 14039, Identity Theft AffidavitPDF.

The IRS will work to verify the legitimate taxpayer, clear the fraudulent return from their account and generally place a special marker on the account that will generate an IP PIN each year for the taxpayer who is a confirmed identity theft victim. This ensures that the criminal does not come back in the future claiming to be the victim and trying to commit the fraud yet again.

In most tax-related identity theft cases, there is no need for taxpayers to file Form 14039, Identity Theft AffidavitPDF. That’s because the IRS identifies a suspicious tax return based on hundreds of processing filters and pulls the suspicious return for review. The IRS will send a letter to the taxpayer and will not process the tax return until hearing back from the taxpayer.

Help for taxpayers: Get an IRS Identity Protection PIN

An IP PIN protects a taxpayer’s account, even if they don’t need to file a tax return, by rejecting any e-filed tax return filed not using the unique PIN. New IP PINs are sent automatically from the IRS every year for added security. Once an individual enrolls in the IP PIN program, there is no way to opt-out. To obtain an IP PIN, taxpayers can visit the IRS online tool Get an IP PIN.

Create a personal IRS account online directly with the IRS

Taxpayers can create an IRS Online Account before scammers can use their stolen personal information to create one first. An IRS Online Account usually only takes five to 10 minutes to set up. Once an account is created, scammers can’t create a fraudulent one for the same person.

Reporting scams and tax fraud

Taxpayers should report suspicious IRS, Treasury or tax-related online or email phishing scams to phishing@irs.gov. They should not click on any links, open attachments or reply to the sender.

If taxpayers receive an IRS-related phone call, but do not owe taxes, they should hang up immediately and contact the Treasury Inspector General for Tax Administration to report the IRS impersonation scam call. The caller ID and callback number can be reported to phishing@irs.gov with the subject line of “IRS Phone Scam.”

Source: IRS-2023-229, Dec. 1, 2023

The Department of the Treasury and the Internal Revenue Service today issued two items of guidance on the excluded entity restriction of the section 30D clean vehicle credit, as amended by the Inflation Reduction Act. Under the excluded entity restriction, vehicles are not eligible for the clean vehicle credit if the battery contains battery components manufactured or assembled or applicable critical minerals extracted, processed or recycled by a foreign entity of concern (FEOC).

The proposed regulations provide definitions and proposed rules for qualified manufacturers of vehicles to determine eligibility for the clean vehicle credit regarding the excluded entity restrictions. In particular, the proposed regulations provide rules for determining whether applicable critical minerals (and their associated constituent materials) and battery components are FEOC compliant, meaning such materials do not violate the excluded entity provision.

Revenue Procedure 2023-38PDF provides procedural rules for qualified manufacturers of new clean vehicles to comply with the reporting, certification, and attestation requirements regarding the excluded entity restriction, under which the IRS, with analytical assistance from the Department of Energy, will review compliance with the excluded entity restrictions. In addition, this revenue procedure updates and consolidates the procedural rules for qualified manufacturers with respect to the clean vehicle credit, the previously-owned clean vehicle credit, and the qualified commercial clean vehicle credit.

Excluded Entity Restrictions

Section 30D provides a credit for new clean vehicles that are placed in service by the taxpayer during the taxable year, worth a maximum credit of $7,500 per vehicle, consisting of $3,750 if certain critical minerals requirements are met and $3,750 if certain battery components requirements are met.

Under the excluded entity restriction, in order to be eligible for the section 30D credit, vehicles placed in service beginning in 2024 must not have batteries containing battery components manufactured or assembled by a FEOC. In addition, vehicles placed in service beginning in 2025 must have not batteries containing applicable critical minerals extracted, processed, or recycled by a FEOC.

The proposed regulations regarding the section 30D credit incorporate the statutory definition of FEOC from the IIJA, which is administered by the Department of Energy (DOE), as well as implementing guidance promulgated by the DOE. In addition, the proposed regulations provide due diligence requirements for qualified manufacturers; specific rules for the determination of when applicable critical minerals (and associated constituent materials), battery components, battery cells, and batteries are compliant with the FEOC rules; a regime for review of FEOC-compliance determinations; and penalty rules.

For more information about tax benefits from the Inflation Reduction Act, go to Inflation Reduction Act of 2022.

Source: IRS-2023-228, Dec. 1, 2023