ERC Compliance Efforts Top $1 Billion in Six Months, IR-2024-78 The IRS announced that compliance efforts around erroneous Employee Retention Credit (ERC) claims have topped more than $1 billion within six months. "We are encouraged by the results so fa...
IRS Releases Guidance on Form 1099-K, FS-2024-7; IR-2024-5 The IRS has released guidance to help taxpayers understand what to do with Form 1099-K. Responding to feedback from taxpayers, tax professionals and payment processors, the agency had announced b...
AZ - Revenue department regulates local sales tax audits Arizona has modified provisions relating to the administration of local excise taxes. The Department may reject a city or town's request to audit a taxpayer engaging in business across multiple cities...
CA - List of Counties impacted by winter storm updated California updated its list of counties impacted by the winter storm, eligible for tax relief. The counties eligible for relief are: Humboldt, Imperial, Monterey, San Diego, San Mateo, Santa Cruz, Ven...
CT - Taxpayer’s petition challenging valuation was timely filed For Connecticut property tax purposes, the trial court erred in determining that it lacked subject matter jurisdiction over the taxpayer’s appeal on the basis that the taxpayer’s petition to the t...
DE - Rules adopted on refund intercept claims from other states Delaware adopted rules that provide guidance on tax refund intercept requests from other states, including:access to information contained in a taxpayer's Delaware and federal personal income tax retu...
NJ - Earned income tax credit discussed The New Jersey Department of the Treasury encourages eligible taxpayers to take advantage of earned income tax credit. For 2023tax year, eligible taxpayers could receive a refundable credit up to USD ...
President Bidensupportextending the individualtaxprovisions of the Tax Cuts and Jobs Act, many of which are set to expire next year, Department of the Treasury Secretary Janet Yellen said.
PresidentBidensupportextendingtheindividualtaxprovisionsof theTax Cuts and Jobs Act, many of which are set to expire next year, Department of the Treasury Secretary JanetYellensaid.
"The President has made it clear that he would oppose raising back thetaxesfor working people and families making under $400,000,"SecretaryYellentestified before the Senate Finance Committee during a March 21, 2024,hearingto review the White House fiscal year 2025budget proposal.
She then affirmed that"he would"supportextendingtheindividualtaxprovisionsof theTCJAwhen asked by committee Ranking Member Mike Crapo (R-Idaho), who noted that the budget did not make any mention of this.
Yellendefended the fiscal 2025 budget request against assertions thattaxeswill indeed go up for those making under $400,000, contrary to PresidentBiden’s promise, because thetaxesthat are targeted to wealthy corporations to ensure they are paying their fair share will ultimately be passed down to their consumers in the form of higher prices and lower wages.
"I think what the impact when you changetaxeson corporations, what the impact is on families involves a lot of channels that are speculative,"Yellensaid."They are included in models that sometimes the Treasury used for the purposes of analysis, in ataxthat is levied on corporations, that has no obvious direct effect on households."
The proposed budget would increase the corporate minimumtaxfrom the current 15 percent to 21 percent, as well as raise thetaxrate on U.S. multinationals’ foreign earnings from the current 10.5 percent to 21 percent. The current corporatetaxrate would climb to 28 percent and the budget would eliminatetaxbreaks for million-dollar executive compensation. It would also increase thetaxrate on corporate stock buybacks from 1 percent to 4 percent, among other business-relatedtaxprovisions.
Corporations and billionaires will be paying more in taxes if Congress follows recommendations PresidentBiden gave during his State of the Union address.
Corporationsand billionaires will be paying more in taxes if Congress follows recommendationsPresidentBidengave during hisStateof theUnionaddress.
PresidentBidenhighlighted a number of initiatives during the March 7, 2024, address. Forcorporations, he said that it is"time to raise the corporate minimum tax to at least 21 percent."
"Remember in 2020, 55 of the biggest companies in America made $40 billion and paid zero in federal income taxes,"PresidentBidensaid."Zero. Not anymore. Thanks to the law I wrote [and] we signed, big companies have to pay minimum 15 percent. But that’s still less than working people paid federal taxes."
Additionally, he alluded to further recommendations that will likely be included when the administration released its budget proposal, expected as early as the week of March 11, 2024. This includes limiting tax breaks related to corporate and private jets and capping deductions on certain employees at $1 million.
For billionaires,PresidentBidenis looking to increase their tax rate to 25 percent.
"You know what the average federal taxes for those billionaires [is]?"he asked. “"They’re making great sacrifices. 8.2 percent. That’s far less than the vast majority of Americans pay. No billionaire should pay a lower federal tax rate than a teacher or a sanitation worker or nurse."”
PresidentBidensaid this proposal would raise $500 billion over the next 10 years and suggested some of that additional tax money would help strengthen Social Security so that there would be no need to cut benefits or raise the retirement age to extend the life of the Social Security program.
The IRS has launched a new initiative to improve tax compliance among high-incometaxpayers who have not filed federal income tax returns since 2017.
TheIRShas launched a newinitiativeto improve tax compliance amonghigh-incometaxpayerswho have not filed federal incometax returnssince 2017. This effort, funded by the Inflation Reduction Act, involves sending outIRScompliance letters to over 125,000 cases wheretax returnshave not been filed since 2017. These mailings include more than 25,000 to individuals with incomes exceeding $1 million and over 100,000 to those with incomes ranging between $400,000 and $1 million for the tax years 2017 to 2021. TheIRSwill begin mailing these compliance alerts, formally known as theCP59Notice, this week.
Recipients of these letters should act promptly to prevent further notices, increased penalties, and stronger enforcement actions. Consulting a tax professional can help them swiftly file latetax returnsand settle outstanding taxes, interest, and penalties. The failure-to-file penalty is 5 percent per month, capped at 25 percent of the tax owed. Additional resources are available on theIRSwebsitefor non-filers.
The non-filerinitiativeis part of theIRS's broader campaign to ensure large corporations, partnerships, andhigh-incomeindividuals fulfill their tax obligations. Non-respondents to the non-filer letter will face further notices and enforcement actions. If someone consistently ignores these notices, theIRSmay file a substitutetax returnon their behalf. However, it's still advisable for the individual to file their ownreturnto claim eligible exemptions, credits, and deductions.
An individual’s claim for innocent spouse relief was rejected for lack of jurisdiction because the taxpayer failed to file his petition within the 90-day deadline under Code Sec. 6015(e)(1)(A).
Anindividual’sclaimforinnocent spouse reliefwas rejected for lack of jurisdiction because the taxpayerfailedtofilehispetitionwithin the 90-day deadline underCode Sec. 6015(e)(1)(A). The taxpayer argued that the deadline tofileapetitionfor a denial ofinnocent spouse reliefwas not jurisdictional and asked that the Tax Court hear his case on equitable grounds. However, the Tax Court noted that a filing deadline is jurisdictional if Congress clearly states that it is. The IRS argued that argues that the 90-day filing deadline ofCode Sec. 6015(e)(1)(A)was jurisdictional because Congress clearly stated that it was and the Supreme Court’s decision inBoechler, P.C. v. Commissioner, 142 S. Ct. 1493, in addition to numerous appellate cases, supported this argument.
The Tax Court examined the"text, context, and relevant historical treatment"of the provision at issue and concluded that the 90-day filing deadline ofCode Sec. 6015(e)(1)(A)was jurisdictional. On the basis of statutory interpretation principles, the jurisdictional parenthetical inCode Sec. 6015(e)(1)(A)was unambiguous. It did not contain any ambiguous terms and there was a clear link between the jurisdictional parenthetical and the filing deadline. Specifically,Code Sec. 6015(e)(1)(A)is a provision that solely sets forth deadlines. Further, it was unclear what weight, if any, should be given to the equitable nature ofCode Sec. 6015. The statutory context arguments were not strong enough to overcome the statutory text. Accordingly, the Tax Court ruled that the 90-day filing deadline in Code Sec. 6015(e)(1)(A) was jurisdictional.
The IRS has continued to increase the amount of information available in multiple languages. This was part of the IRS transformation work under the Strategic Operating Plan, made possible by additional resources provided by the Inflation Reduction Act (P.L. 117-169).
TheIRShas continued toincreasethe amount of information available in multiplelanguages. This was part of theIRStransformation work under the Strategic Operating Plan, made possible by additionalresourcesprovided by the Inflation Reduction Act (P.L. 117-169). OnIRS.gov,taxpayerscan select their preferredlanguagefrom the dropdown menu at the top of the page, including Spanish, Vietnamese, Russian, Korean, Haitian Creole, Traditional Chinese and Simplified Chinese. Additionally, theLanguagespagegivestaxpayersinformation in 21languageson key topics such as"Your Rights as aTaxpayer"and"Who Needs to File."
"TheIRSis committed to making further improvements fortaxpayersin a wide range of areas, including expandingoptionsavailable totaxpayersin multiplelanguages,"saidIRSCommissioner Danny Werfel."Understanding taxes can be challenging enough, so it’s important for theIRSto put a variety of information onIRS.gov and other materials into thelanguageataxpayerknows best. This is part of the larger effort by theIRSto make taxes easier for alltaxpayers,"he added.
Iftaxpayerscannot find the answers to their tax questions onIRS.gov, they can call theIRSor get in-person help at anIRSTaxpayerAssistance Center. Finally, hundreds ofIRSVolunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs have access to Over the Phone Interpreterservices. VITA and TCE offer free basic tax return preparation to qualified individuals.
The IRS has granted to withholding agents an administrative exemption from the electronic filing requirements for Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons.
TheIRShas granted to withholding agents an administrativeexemptionfrom theelectronic filingrequirements forForm 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons. Under theexemption:
withholding agents (both U.S. and foreign persons) are not required to fileForms 1042electronically during calendar year 2024; and
withholding agents that are foreign persons are not required to fileForms 1042electronically during calendar year 2025.
Theexemptionis automatic, so withholding agents do not need to file anelectronic filingwaiver request to use theexemption.
Electronic FilingofForm 1042
UnderCode Sec. 6011(e), theIRSmust prescribe regulations with standards for determining which federal tax returns must be filed electronically. In 2023, final regulations were published to implement amendments toCode Sec. 6011(e)that lowered the threshold number of returns for requiredelectronic filingof certain returns. The regulations included requirements for filingForm 1042electronically.
The final regulations provide that:
a withholding agent (but not an individual, estate,or trust) must electronically fileForm 1042if the agent is required to file 10 or more returns of any type during the same calendar year in whichForm 1042is required to be filed;
a withholding agent that is a partnership with more than 100 partners must electronically fileForm 1042regardless of the number of returns the partnership is required to file during the calendar year; and
a withholding agent that is a financial institution must electronically fileForm 1042without regard to the number of returns it is required to file during the calendar year.
The final regulations apply toForms 1042required to be filed for tax years ending on or after December 31, 2023. This means that withholding agents must apply the newelectronic filingrequirements beginning withForms 1042due on or after March 15, 2024.
Challenges to Withholding Agents
Since the final regulations were published, theIRSreceived feedback from withholding agents noting challenges in transitioning to the procedures needed for filingForms 1042electronically. Withholding agents expressed concerns about the limited number of ApprovedIRSModernizede-FileBusiness Providers forForm 1042, and difficulties accessing the schema and business rules for filingForm 1042electronically. Withholding agents that do not rely on modernizede-filebusiness providers said that they needed more time to upgrade their systems for filing on theIRS’s Modernizede-Fileplatform. Agents also noted challenges specific to foreign persons filingForms 1042regarding the authentication requirements necessary for accessing the platform.
In response to these concerns, theIRSused its power under the regulations to provide theexemptionfrom theelectronic filingrequirement forForm 1042, in the interest of effective and efficient tax administration.
The IRS has released the annual inflation adjustments for 2021 for the income tax rate tables, and for over 50 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation.
The IRS has released the annual inflation adjustments for 2021 for the income tax rate tables, and for over 50 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation.
2021 Income Tax Brackets For 2021, the highest income tax bracket of 37 percent applies when taxable income hits:
$628,300 for married individuals filing jointly and surviving spouses,
$523,600 for single individuals and heads of households,
$314,150 for married individuals filing separately, and
$13,050 for estates and trusts.
2021 Standard Deduction The standard deduction for 2021 is:
$25,100 for married individuals filing jointly and surviving spouses,
$18,800 for heads of households, and
$12,550 for single individuals and married individuals filing separately.
The standard deduction for a dependent is limited to the greater of:
$1,100 or
the sum of $350 plus the dependent’s earned income.
Individuals who are blind or at least 65 years old get an additional standard deduction of:
$1,350 for married taxpayers and surviving spouses, or
$1,700 for other taxpayers.
AMT Exemption for 2021 The alternative minimum tax (AMT) exemption for 2021 is:
$114,600 for married individuals filing jointly and surviving spouses,
$73,600 for single individuals and heads of households,
$57,300 for married individuals filing separately, and
$25,700 for estates and trusts.
The exemption amounts begin to phase out when alternative minimum taxable income (AMTI) exceeds:
$1,047,200 for married individuals filing jointly and surviving spouses,
$523,600 for single individuals, heads of households, and married individuals filing separately, and
$85,650 for estates and trusts.
Expensing Section 179 Property in 2021 For tax years beginning in 2021, taxpayers can expense up to $1,050,000 in Code Sec. 179 property. However, this dollar limit is reduced when the Section 179 property placed in service during the year exceeds $2,620,000.
Estate and Gift Tax Adjustments for 2021 The following inflation adjustments apply to federal estate and gift taxes in 2021:
the gift tax exclusion is $15,000 per donee, or $159,000 for gifts to spouses who are not U.S. citizens;
the federal estate tax exclusion is $11,700,000; and
the maximum reduction for real property under the special valuation method is $1,190,000.
2021 Inflation Adjustments for Other Tax Items
The maximum foreign earned income exclusion amount in 2021 is $108,700.
The IRS also provided inflation-adjusted amounts for the:
adoption credit,
lifetime learning credit,
earned income credit,
excludable interest on U.S. savings bonds used for education,
various penalties, and
many other provisions.
Effective Date These inflation adjustments generally apply to tax years beginning in 2021, so they affect most returns that will be filed in 2022. However, some specified figures apply to transactions or events in calendar year 2021.
The IRS has released the 2021 cost-of-living adjustments (COLAs) for pension plan dollar limitations and other retirement-related provisions.
The IRS has released the 2021 cost-of-living adjustments (COLAs) for pension plan dollar limitations and other retirement-related provisions.
Key Unchanged Amounts The 2021 contribution limit remains unchanged at $19,500 for employees who take part in:
401(k) plans,
403(b) plans,
most 457 plans, and
the federal government’s Thrift Savings Plan
The catch-up contribution limit for employees aged 50 and over who participate in these plans also remains unchanged at $6,500.
The limitation for SIMPLE retirement accounts is unchanged at $13,500.
For individual retirement arrangements (IRAs), the limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment, and so remains $1,000.
IRAs and Roth IRAs The income ranges for determining eligibility to make deductible contributions to traditional IRAs and to contribute to Roth IRAs have increased for 2021.
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. The deduction phases out if the taxpayer or his or her spouse takes part in a retirement plan at work. The deduction phase out depends on the taxpayer's filing status and income.
For single taxpayers covered by a workplace retirement plan, the 2021 phase-out range is $66,000 to $76,000, up from $65,000 to $75,000 for 2020.
For married couples filing jointly, when the spouse making the contribution takes part in a workplace retirement plan, the 2021 phase-out range is $105,000 to $125,000, up from $104,000 to $124,000 for 2020.
For an IRA contributor who is not covered by a workplace retirement plan but who is married to someone who is covered, the 2021 phase out range is between $198,000 and $208,000, up from $196,000 and $206,000 for 2020.
For a married individual who is covered by a workplace plan and is filing a separate return, the phase-out range is not subject to an annual COLA and remains $0 to $10,000.
The 2021 income phase-out ranges for Roth IRA contributions are:
$125,000 to $140,000 for singles and heads of household (up from $124,000 to $139,000 in 2020),
$198,000 to $208,000 for married filing jointly (up from $196,000 to $206,000 in 2020), and
$0 to $10,000 for married filing separately.
Saver’s Credit The income limit for low- and moderate-income workers to claim the Saver's Credit under Code Sec. 25B has also increased for 2021:
$66,000 for married couples filing jointly (up from $65,000 in 2020),
$49,500 for heads of household (up from $48,750 in 2020), and
$33,000 for singles and married filing separately (up from $32,500 in 2020).
The IRS has provided guidance to taxpayers that want to apply either Reg. §1.168(k)-2 and Reg. §1.1502-68, or want to rely on proposed regulations under NPRM REG-106808-19.
The IRS has provided guidance to taxpayers that want to apply either Reg. §1.168(k)-2 and Reg. §1.1502-68, or want to rely on proposed regulations under NPRM REG-106808-19, for:
certain depreciable property acquired and placed in service after September 27, 2017, by the taxpayer during its tax years ending on or after September 28, 2017, and before the taxpayer's first tax year that begins on or after January 1, 2021;
certain plants planted or grafted after September 27, 2017, by the taxpayer during its tax years ending on or after September 28, 2017, and before the taxpayer's first tax year that begins on or after January 1, 2021; and
components acquired or self-constructed after September 27, 2017, of certain larger self-constructed property and placed in service by the taxpayer during its tax years ending on or after September 28, 2017, and before the taxpayer's first tax year that begins on or after January 1, 2021.
Rev. Proc. 2020-25, 2020-19 I.R.B. 785, and Rev. Proc. 2019-43, 2019-48 I.R.B. 1107, are modified.
Change in Accounting Method The guidance applies to taxpayers who are changing their method of accounting for depreciable property that includes:
components described in Reg. §1.168(k)-2(c) or NPRM REG-106808-19 where the component election has already been made; and
specified plants for which the Code Sec. 168(k)(5) election has been made and that are planted, or grafted to a plant that was previously planted, after September 27, 2017, during the taxpayer’s 2017, 2018, 2019, or 2020 tax year.
This guidance does not apply to property or a plant:
that is impacted by a late election, or withdrawn election under Code Sec. 163(j)(7) after November 16, 2020, pursuant to Rev. Proc. 2020-22;
for which the taxpayer is changing from deducting the cost or other basis of such property as an expense to capitalizing and depreciating the cost or other basis, or vice versa; or
that the taxpayer does not own at the beginning of the year of change, with some exceptions.
In addition, this guidance cannot be used to make a late election, or revoke an election, under Code Sec. 168, Code Sec. 179, or Reg. §1.1502-68.
Taxpayers have a choice of applying the 2020 final regulations under T.D. 9916, the previous final regulations under T.D. 9874, or both the final regulations under NPRM REG-106808-19. However, once a taxpayer applies Reg. §1.168(k)-2 and Reg. §1.1502-68, the taxpayer must apply Reg. §1.168(k)-2 and Reg. §1.1502-68 to all subsequent tax years.
Automatic Extensions of Time Applicable taxpayers may make a late Code Sec. 168(k)(5) election, a late Code Sec. 168(k)(7) election, a late Code Sec. 168(k)(10) election, a late component election, a late designated transaction election, or a late proposed component election, by filing either:
an amended Form 1065 for the placed-in-service year of the property, or for the planting year of the specified plant, as applicable, on or before December 31, 2021; or
a Form 3115 with the taxpayer’s timely filed original Federal income tax return or Form 1065 for the taxpayer’s first or second tax year succeeding the tax year in which the taxpayer placed in service the property or the planting year of the specified plant, or, if later, the taxpayer’s timely filed original Federal income tax return or Form 1065 that is filed on or after November 6, 2020, and on or before December 31, 2021.
Effective Date This guidance is effective on November 6, 2020.
The IRS has adopted previously issued proposed regulations ( REG-106808-19) dealing with the 100 percent bonus depreciation deduction. In addition, some clarifying changes have been made to previously issued final regulations ( T.D. 9874). Changes to the proposed and earlier final regulations are largely in response to various comments submitted by practitioners, and generally relate to:
The IRS has adopted previously issued proposed regulations ( REG-106808-19) dealing with the 100 percent bonus depreciation deduction. In addition, some clarifying changes have been made to previously issued final regulations ( T.D. 9874). Changes to the proposed and earlier final regulations are largely in response to various comments submitted by practitioners, and generally relate to:
the definition of qualified used property;
the election to claim bonus depreciation on components acquired or self-constructed after September 27, 2017, for larger self-constructed property for which manufacture, construction, or production began before September 28, 2017;
application of the mid-quarter convention;
clarifications to the definition of qualified improvement property, predecessor, and class of property; and
clarifications to the rules for consolidated groups The rules for consolidated groups have also been moved from Proposed Reg. §1.168(k)-2(b)(3)(v) to new Reg. §1.1502-68.
Used Property The 2019 final regulations provide that in determining whether the taxpayer or a predecessor had a depreciation interest in property prior to its acquisition, only the five calendar years immediately prior to the current placed-in-service year are considered. The latest IRS regulations clarify that the five calendar years immediately prior to the current calendar year in which the property is placed in service by the taxpayer, and the portion of such current calendar year before the placed-in-service date of the property without taking into account the applicable convention, are taken into account. In addition, the five-year look-back period applies separately to the taxpayer and a predecessor.
Furthermore, if the taxpayer or a predecessor, or both, have not been in existence during the entire look-back period, then only the portion of the look-back period during which the taxpayer or a predecessor, or both, have been in existence is taken into account.
Expanded Component Election The prior regulations allow taxpayers to election to claim 100 percent bonus depreciation on components of certain larger constructed property that qualifies for bonus depreciation if the construction of the larger property began before September 28, 2017. The components must be acquired or constructed after September 27, 2017, and the larger property must be placed in service before 2020 (2021 in the case of property with a longer construction period). The final regulations remove the 2020/2021 cutoff date. In addition, the final regulations provide that eligible larger self-constructed property also includes property that is constructed for a taxpayer under a written contract that is not binding and that is entered into prior to construction for use in the taxpayer’s trade or business. The definition of a larger constructed property is also clarified.
Qualified Improvement Property The 15-year recovery period for qualified improvement property applies only to improvements "made by the taxpayer." The final regulations clarify that an improvement is considered made by a taxpayer if the property is constructed for the taxpayer. However, qualified improvement property received by a transferee taxpayer in a nonrecognition transaction described in Code Sec. 168(i)(7) is not eligible for bonus depreciation.
Mid-Quarter Convention The final regulations clarify that depreciable basis is not reduced by the amount of bonus deduction in determining whether the mid-quarter convention applies.
Binding Contracts Generally, property acquired pursuant to a binding contract entered into after September 27, 2017, does not qualify for bonus depreciation at the 100 percent rate. The final regulations clarify that a contract for a sale of stock of a corporation that is treated as an asset sale as the result of a Code Sec. 336(e) election made for a disposition described in Reg. §1.336-2(b)(1) is a binding contract if enforceable under state law.
Floor Plan Financing The IRS intends to issue guidance relating to transition relief for taxpayers with a trade or business with floor plan financing indebtedness that want to revoke elections not to claim bonus depreciation for property placed in service during 2018.
The IRS will not allow a taxpayer to limit the amount of its otherwise deductible floor plan interest in order to qualify for bonus depreciation. However, guidance will address transition relief for the 2018 tax year for taxpayers that treated Code Sec. 168(j)(1) as providing an option for a business with floor plan financing indebtedness to include or exclude its floor plan financing interest expense in determining the amount allowed as a deduction for business interest expense for the tax year.
Effective Date In general, the regulations apply to property acquired after September 27, 2017, and placed in service during or after a tax years that begins on or after January 1, 2021. However, they may be relied on for earlier tax years.