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Taxpayer Advocate Calls for Extended ERC Appeal Window - Caitlin Mullaney, Tax Notes ($):

The national taxpayer advocate recommended the IRS extend the 30-day deadline for businesses to appeal employee retention credit claim denials following a lengthy processing delay.

The IRS recently issued 28,000 notices rejecting ERC claims, and several tax professionals who reviewed the notices said the letters were unclear about the basis of disallowances and failed to include information on businesses' appeals rights. The IRS should be flexible considering these errors and the lengthy timeline that included a moratorium on ERC claim processing, National Taxpayer Advocate Erin Collins said in an August 21 blog post.

The Taxpayer Advocate heads an office within the IRS whose purpose is to represent taxpayer interests. From her blog post (my emphasis underlined):

The manner in which the IRS generated this most recent batch of ERC disallowances and the process the IRS will use to review taxpayers’ responses to these denials deviates significantly from normal IRS procedures. Typically, the IRS issues a notice of claim disallowance after conducting an examination (audit) of the taxpayer’s claim. During this examination, the taxpayer can provide support for their refund claim. If the IRS disallows a taxpayer’s claim, the taxpayer can choose to have the examiners’ determination reviewed by the IRS’s Independent Office of Appeals (Appeals) by submitting a protest requesting an administrative review of the IRS’s determination, which under IRS administrative rules should generally be submitted 30 days from the date on the notice of claim disallowance. As the 30 day period is only an administrative deadline, we recommend that the IRS provide additional time for taxpayers to submit a protest. Considering the long delay in processing these claims and the errors in the notices of claim disallowance the IRS should be flexible.

By contrast, the IRS did not subject disallowed ERC claims to an examination; rather, the IRS conducted a risk-scoring analytic process. For these disallowed claims, the IRS’s analytics determined the claim showed a high risk of being incorrect without first conducting an examination. Another stark difference from normal IRS processes is the processing pipeline in which a taxpayer’s response to a notice of claim disallowance will travel. In fact, it almost turns normal IRS processes on its head. Specifically, when a taxpayer responds to a notice of claim disallowance they believe they are submitting a protest of the denial to Appeals, which is standard practice. However, this response will generally first be reviewed by the IRS and sent to a Revenue Agent for consideration.

If you get an ERC disallowance letter and you think it may be wrong, watch the deadlines.

IRS exam news

IRS Resumes Automated Levy Notices - Benjamin Valdez, Tax Notes ($):

The IRS has begun sending notices of intent to levy to taxpayers with outstanding balances, signaling a shift in its work to restart collection notices after the COVID-19 pandemic.

Several tax professionals have recently begun to see an influx of LT11 notices, which the IRS sends to taxpayers with unpaid taxes to notify them that the agency intends to levy to collect the amount if it isn’t paid in 30 days. The letters also notify taxpayers of their right to appeal.

IRS can take more than a decade to pay whistleblowers who report tax cheats - Julie Zauzmer Weil, Washington Post:

But the nearly 20-year-old program has been beset by complaints about the opaque and lumbering process that has seen collections plunge more than 75 percent from their 2018 peak. Some participants are so frustrated that they discourage would-be informants from disclosing what they know. And the number of whistleblowers who actually collect their fee has been dropping for years; some have waited more than a decade.

...

Robert Gardner, who was the first director of the whistleblower office after it was created by an act of Congress in 2006, said the wait is so long that it deters people from submitting claims in the first place. “There’s not a whole lot of attorneys nor whistleblowers that can wait out 20 years,” Gardner said.

Congress and the 2025 tax fights

Lobbying Swells for TCJA Rewrite, High Tide Forecast for 2025 - Doug Sword, Tax Notes ($):

Lawmakers, lobbyists, and Capitol Hill tax watchers say the intensity of lobbying is growing in advance of the 2025 expiration of much of the Tax Cuts and Jobs Act, that Congress’s narrow majorities mean no member will be ignored, and that most of the tax code will be up for review.

...

As a starting point, extending the TCJA’s provisions past their December 31, 2025, expiration would cost $4.6 trillion, according to the Congressional Budget Office. Something approaching that amount could also be added to the mix, considering the expensive niche tax provisions arising out of the presidential contest when it comes to Social Security taxation, the child tax credit, tip tax exemptions, and further corporate income tax rate cuts.

Schumer Pledge to End SALT Cap Signals Strained Tax Talks Ahead - Samantha Handler, Bloomberg ($):

Republicans imposed the $10,000 state-and-local tax deduction limit in the 2017 tax overhaul, drawing opposition from GOP members from high-tax states. Since then, the cap has spurred intra-party battles among both Democrats and Republicans. The deduction is crucial to New York and California members from both parties, but resonates less with lawmakers and taxpayers in other parts of the country.

The cap is one of several tax provisions that expire at the end of 2025, along with a slate of other individual tax cuts. If either party holds a slim majority or there’s divided government, votes from high-tax state lawmakers will be key to passing a tax package next year.

Tax on the Campaign Trail

3 Questions Raised By Harris' Support For 28% Corp. Tax Rate - Asha Glover and Dylan Moroses, Law360 Tax Authority ($):

The corporate tax base has changed since the passage of the TCJA, Watson said. Lawmakers paid for cutting the corporate rate to 21% from 35% by broadening the base with other provisions, including removing the Internal Revenue Code Section 199 manufacturing deduction.

A significant amount of revenue to pay for the rate cut took the form of tax increases on the foreign earnings of U.S. companies, through the implementation of the U.S. tax on global intangible low-taxed income, the base erosion and anti-abuse tax, and a transition tax under IRC Section 965 for taxpayers who historically deferred U.S. tax on foreign earnings and kept them overseas.

"What that just means is that changing the rate to 28% is not the same thing as changing the rate pre-2018 because of those base changes," Watson said.

Walz’s Progressive Policies Spark Debate Back Home in Minnesota - Mark Niquette, Bloomberg. "Business groups and Republicans say Walz’s support for increased spending, stricter regulations and higher taxes on the wealthy and companies discourages investment and hinders economic growth. Unions and supporters say the governor’s progressive policies make Minnesota a better place to live and work."

Harris’ Housing, Newborn Tax Break Plans Diverge From Biden’s - Chris Cioffi, Bloomberg ($). "Harris has staked out some of her own territory on housing by proposing a credit for homebuilders constructing starter homes. She also called on Congress to pass a bill introduced by Sen. Sherrod Brown (D-Ohio) that nixes some breaks for taxpayers who own more than 50 homes."

Trump's bigger tariff proposals would cost the typical American household over $2,600 a year - Kimberly Clausing and Mary Lovely, Peterson Institute for International Economics. "We find that imposing a 20 percent across-the-board tariff combined with a 60 percent tariff on China would cost a typical US household in the middle of the income distribution more than $2,600 a year. That’s up from the $1,700 loss in after-tax income that would result from his earlier plan."

International Tax Corner

Witnesses at IRS Hearing Call for Easing of Foreign-Trust Rules - Michael Rapoport, Bloomberg ($):

US citizens who live and work abroad need more clarity from the IRS to prevent them from falling victim to harsh, costly reporting requirements for foreign trusts, taxpayers and advocates told IRS and Treasury Department officials Wednesday.

Many Americans overseas have foreign retirement plans the US regards as foreign trusts that have to file with the IRS. The foreign-trust rules are often unclear and hard to interpret, and the IRS needs to be clearer about when offshore retirement plans do and don’t need to be disclosed, witnesses told the officials at a public hearing.

Speakers Implore IRS for Non-U.S. Pension Reporting Relief - Andrew Velarde, Tax Notes ($).

Rebecca Lammers of Democrats Abroad argued that the reporting regime is creating barriers to saving for retirement for overseas citizens and that although they are reported on forms 3520 and 3520-A, pensions aren’t foreign trusts.

...

“It's like Russian roulette whether the IRS will take a third of [the taxpayer’s] life savings for a genuinely innocent filing mistake,” Lammers said. “Once you know about it, there's still confusion on what's reportable, like when a taxpayer seeks guidance on how to report their non-U.S. savings and retirement accounts. One can speak to multiple different tax preparers, and they will all have a different interpretation of whether a particular account is subject to foreign trust reporting or not. . . . Nothing is clear. Everything is ambiguous."

IRS Commitment To Assist International And Overseas Taxpayers - Virginia La Torre Jeker, US Tax Talk. "One of the major issues for international taxpayers has been the reporting of large gifts from foreign persons. U.S. taxpayers receiving gifts over $100,000 from foreign individuals must report these gifts to the IRS, even though no tax is imposed on such gifts. However, many taxpayers and their advisors are unaware of this requirement until it is too late, resulting in severe penalties that can be as high as 25% of the gift’s value."

Blogs and Bits

EV tax breaks available for new, used vehicles…for now - Kay Bell, Don't Mess With Taxes. "If you’re considering an EV purchase, want (or need) the tax break to buy it, and are worried about that benefit being axed by a Trump return to the White House, here’s what you need to know to claim it now."

IRS announces underpayment, overpayment rates for 2024 Fourth Quarter - Bailey Finney, Eide Bailly. "The 8% underpayment rate also applies for computing penalties for underpayment of estimated tax."

IRS reminder for schoolteachers: Up to $300 in classroom expenses deductible for 2024 - IRS. "This deduction is available for teachers, instructors, counselors, principals and aides who work at least 900 hours a school year in a school providing elementary or secondary education."

Bad ideas in financial management

South L.A. man sentenced to more than seven years in federal prison for using Instagram to solicit bank account holders to deposit stolen checks - IRS (Defendant name omitted, emphasis added):

From October 2020 to August 2023, Defendant and other co-conspirators engaged in an elaborate bank fraud scheme using third-party bank accounts and stolen checks. Some co-conspirators stole checks from the U.S. mail stream, including from post office mail collection boxes located outside post offices.

The conspirators took possession of the stolen checks. They, along with others, then solicited bank account holders through social media to provide their debit cards and bank account information, promising these account holders a cut of any fraudulent funds deposited into their accounts.

To circumvent the fraud protections of the banks and credit unions, Defendant and others specifically requested bank accounts that had been open for a certain amount of time so they could get access to the stolen funds more quickly.

Bank account holders responded to the social media advertisements and provided members of the conspiracy with the information requested on the ads, including bank account numbers, PIN numbers, debit cards and online banking log-in information.

Call me old-fashioned, but I don't find it wise to give your bank account information to social media friends to launder stolen money.

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Joe B. Kristan, CPA