Tax Newsletter April 2022

 March 31st, 2022    

2022 Filing Season Updates!

In This Issue:

  • Taxpayer Experience Office Formally Established
  • IRS Update Regarding Recent Electronic Filing Challenges in Connection with Form 7203, S Corporation Shareholder Stock and Debt Basis Limitations
  • President Biden Signs Executive Order on Digital Assets
  • Iowa Tax Changes
  • IRS Finalizes Fee Increase for SEE, Proposes Higher EA Fees
  • Crowdfunding May Be Taxable
  • Organization of IRS—customer service—voice and chat bots.
  • JCT publishes Bluebook for 116th Congress – Highlights
  • IRS Issues 2022 Depreciation Limits for Passenger Automobiles – Rev Proc 2022-17
  • Filing Season Update
  • Can You Use that Durable Power of Attorney before the IRS? Form 2848 vs. Durable Power of Attorney
  • Tracking the Amended Return
  • Applicable Federal Rates for April 2022, Rev. Rul. 2022-4

CPE Opportunities

Have you thought about CPE for the 2022 tax year?  CPEhours.com has a listing of our offerings for 2022 with even more to be added in the future.

Take a moment to look through the offerings and think about signing up for our special Unlimited Package Discount.

We have four (4) different Ethics classes as well as our popular Boot Camp that many take to freshen their knowledge and is geared for the new tax professional.  Crypto currency, retirement planning, S corporation, Divorce and many other topics are being offered.

Some classes are offered on more than one date to assist you in planning your education goals. Take a moment to check out our schedule on CPEhours.com.

The above pricing does not include our 8 hours sessions in the Fall or Year End.

Topic Date and Time – Eastern Time Zone – Adjust Your Schedule Instructor
Quarterly Tax Update 2022: Part 2 Thursday, May 12, 2022: 2:00-3:00pm

 

Kristy Maitre
Ethics 1

This class is offered various times throughout the year.

Thursday, May 19, 2022: 2:00-3:00pm

 

Kristy Maitre
Tax Boot Camp: Income Tuesday, June 7, 2022: 2:00-4:00pm

 

Kristy Maitre
Tax Boot Camp: Filing Status Wednesday, June 8, 2022: 2:00-4:00pm

 

Kristy Maitre
Tax Boot Camp: Filing Requirements Thursday, June 9, 2022: 2:00-3:00pm

 

Kristy Maitre
Ethics 2

This class is offered various times throughout the year.

Tuesday, June 14, 2022: 2:00-3:00pm

 

Kristy Maitre
Ethics 3

This class is offered various times throughout the year.

Wednesday, June 15, 2022: 2:00-3:00pm

 

Kristy Maitre
Virtual Currency Part 1: Welcome to the Cryptoverse – Offered again in October Thursday, June 16, 2022: 2:00-3:00pm

 

Amy Wall
Tax Boot Camp: Dependents Friday, June 17, 2022: 2:00-4:00pm

 

Kristy Maitre
Retirement Plans & Tax Planning Tuesday, June 21, 2022: 2:00-4:00pm

 

Michael Miranda
Virtual Currency Part 2: Cryptocurrency Tax Regulations – Offered again in October Thursday, June 30, 2022: 2:00-3:00pm

 

Amy Wall
Boot Camp: Adjustments to Income Wednesday, July 6, 2022: 2:00-3:00pm

 

Kristy Maitre
Virtual Currency Part 3: Applying the Regulations – Offered again in October. Thursday, July 7, 2022: 2:00-3:00pm

 

Amy Wall
Ethics 4

This class is offered various times throughout the year.

Wednesday, July 13, 2022: 2:00-3:00pm

 

Kristy Maitre
Divorce: Untying the Knot Thursday, July 14, 2022: 2:00-4:00pm

 

Amy Wall
Tax Boot Camp: 1040 Navigation Tuesday, July 19, 2022: 2:00-3:00pm

 

Kristy Maitre
Tax Boot Camp: Select Itemized Deduction Wednesday, July 20, 2022: 2:00-4:00pm

 

Kristy Maitre
Tax Boot Camp: Child Tax Credit and ACTC

 

Thursday, July 21, 2022: 2:00-4:00pm

 

Kristy Maitre
Form 3911 – Form 4852 – Form 1099R Tuesday, August 2, 2022: 2:00-3:00pm

 

Kristy Maitre
Writing Your Abatement Letter Wednesday, August 3, 2022: 2:00-3:00pm

 

Kristy Maitre
Innocent and Injured Spouse Thursday, August 4, 2022: 2:00-4:00pm

 

Amy Wall
Tax Boot Camp: Earned Income Tax Credit Tuesday, August 9, 2022: 2:00-4:00pm

 

Kristy Maitre
Tax Boot Camp: American Opportunity Credit and Life- Time Learning Credit  

Wednesday, August 10, 2022: 2:00-3:00pm

 

Kristy Maitre
Quarterly Tax Update 2022: Part 3 Thursday, August 11, 2022: 2:00-3:00pm

 

Kristy Maitre
Medical and Long-Term Care: Making the Best of a Bad Situation Thursday, August 25, 2022: 2:00-4:00pm

 

Amy Wall
Introduction to S Corporations Thursday, September 8, 2022: 2:00-4:00pm

 

Amy Wall
Retirement Plans & Tax Planning Friday, September 9, 2022: 2:00-4:00pm

 

Michael Miranda
Microbusiness Taxation – Schedule C Thursday, September 15, 2022: 2:00-4:00pm

 

Amy Wall
Trusts & Estates Part I Wednesday, October 12, 2022: 2:00-3:00pm

 

Michael Miranda
Trusts & Estates Part II Wednesday, October 19, 2022: 2:00-3:00pm

 

Michael Miranda
Quarterly Tax Update 2022: Part 4 Thursday, November 10, 2022: 2:00-3:00pm

 

Kristy Maitre
Trusts & Estates Part III Thursday, November 17, 2022: 2:00-3:00pm

 

Michael Miranda

 

Issue 1: Taxpayer Experience Office Formally Established to Improve Service Across the IRS – IR-2022-50

As part of a longer-term effort to improve taxpayer service, the IRS has officially established the first-ever Taxpayer Experience Office and will soon begin taking additional steps to expand the effort.

The Taxpayer Experience Office will focus on all aspects of taxpayer transactions with the IRS across the service, compliance, and other program areas, working in conjunction with all IRS business units and coordinating closely with the Taxpayer Advocate Service. The office is part of the effort envisioned in the Taxpayer First Act Report to Congress in 2021.

This included input and feedback from taxpayers, tax professionals and the tax community that helped develop the Taxpayer Experience Strategy.

To help drive the IRS strategic direction for improving the taxpayer experience, the Taxpayer Experience Office has identified key activities the IRS is focusing on over the next five years, including those commitments outlined in the President’s Executive Order on Transforming Federal Customer Experience and Service Delivery to Rebuild Trust in Government.

The Taxpayer Experience Office will identify changing taxpayer expectations and industry trends, focus on customer service best practices, and promote a consistent voice and experience across all taxpayer segments by developing agency-wide taxpayer experience guidelines and expectations.

Some of the areas of improvement in the near-term include expanding customer callback, expanded payment options, secure two-way messaging and more services for multilingual customers. These activities build on recent improvements such as digital tools to support Economic Impact Payments and the Advance Child Tax Credit, online chat and online tax professional account.

Issue 2: IRS Update Regarding Recent Electronic Filing Challenges in Connection with Form 7203, S Corporation Shareholder Stock and Debt Basis Limitations

The IRS issued Notice 2022-13, Relief from Addition to Tax for Underpayment of Estimated Income Tax by Individual Farmers and Fishermen which waives the addition to tax for qualifying farmers and fishermen who, by April 18, 2022, or, for those taxpayers who reside in Maine or Massachusetts, by April 19, 2022, file their 2021 federal income tax return and pay in full any tax reported as due on the return.

The IRS is aware of a third-party software issue affecting qualifying farmers and fishermen attempting to electronically file Forms 7203.

Qualifying farmers and fishermen are those who are not subject to an addition to tax for failing to pay the required estimated tax installment payment by January 15, 2022, if they file their returns and pay the full amount of tax reported on the return as payable by March 1, 2022.

Due to these challenges, the Treasury Department and the IRS intend to issue a notice providing penalty relief for qualifying farmers and fishermen filing Forms 7203 if they electronically file their 2021 tax return and pay in full any tax due by April 18, 2022, or by April 19, 2022, for those qualifying farmers and fishermen who live in Maine or Massachusetts.

Farmers and fishermen who filed their returns by the March 1 deadline are unaffected by this news release.

Issue 3: President Biden Signs Executive Order on Digital Assets

President Joe Biden on March 9, 2022, signed a sweeping executive order setting out his administration’s digital asset strategy, which includes exploring greater regulatory oversight of cryptocurrency markets and prioritizing the assessment of a Central Bank Digital Currency (CBDC).

Among numerous other directives in Executive Order on Ensuring Responsible Development of Digital Assets, the Secretary of the Treasury must submit a report to the president on the future of money and payment systems, including an analysis of a U.S. CBDC. The Secretary of Treasury would also need to report to the president, in consultation with the SEC and other agencies.

Also under the order, the Financial Stability Oversight Council (FSOC) is tasked with producing a report recommending how to address financial stability risks and regulatory gaps posed by digital assets.

Lawmakers have yet to embrace the idea of a CBDC, in which currency issued by a central bank is represented by a digital token or other form of electronic record, even as China and other governments move forward with their own digital currencies.

Client Letter: 2023 IRS Cryptocurrency Reporting Requirements

The sample letter below may be used to inform clients who own virtual currency/cryptocurrency about the expansion of information reporting requirements applicable to these digital assets.

Dear Client: Under the broker information reporting rules, brokers must report transactions in securities to both the IRS and the investor. These transactions must be reported on Form 1099-B. Legislation enacted in 2021 extends these broker information reporting rules to cryptocurrency exchanges, custodians, or platforms (e.g., Coinbase, Gemini, or Binance), and to digital assets such as cryptocurrency (e.g., Bitcoin, Ether, or Dogecoin).

In addition to extending the above information reporting requirement to cryptocurrency, the legislation also extends existing cash reporting rules (for cash payments of $10,000 or more) to cryptocurrency, so that businesses that accept payments of $10,000 or more in cryptocurrency will have to report that to the IRS (on IRS Form 8300).

The new reporting rules apply to transactions that take place in 2023 and later years.

Existing broker reporting rules. Under current rules, if you have a stock brokerage account, then whenever you sell stock or other securities, you receive a Form 1099-B at the end of the year. On that form, your broker reports details of transactions, such as sale proceeds, relevant dates, your tax basis for the sale, and the character of gains or losses.

Furthermore, under the “broker-to-broker” reporting rules, if securities are transferred from one broker to another broker, then the old broker must furnish a statement with relevant information, such as tax basis, to the new broker.

New reporting for digital assets (most cryptocurrencies, and potentially some non-fungible tokens (NFTs)). The 2021 legislation expanded the definition of “brokers” who must furnish Forms 1099-B to include businesses that are responsible for regularly providing any service accomplishing transfers of digital assets on behalf of another person (for example, cryptocurrency exchanges). Thus, any platform on which you can buy and sell cryptocurrency will have to report digital asset transactions to the IRS and to you at the end of each year.

The cryptocurrency exchanges/platforms will have to gather information from customers, so that they can properly issue Forms 1099-B at the end of each tax year. Specifically, cryptocurrency exchanges will have to get the customer’s name, address, and phone number, the gross proceeds from the sale of digital assets, and capital gains or losses and whether these were short-term (held for one year or less) or long-term (held for more than one year).

Note that it’s not yet known whether exchanges/platforms will have to file Form 1099-B itself (modified to include digital assets) or some other, new IRS form.

Digital assets defined. For these reporting requirements, a “digital asset” is any digital representation of value recorded on a cryptographically secured distributed ledger or any similar technology. The IRS is allowed to modify this definition.

As it stands, the definition will capture most cryptocurrencies, and could potentially include some non-fungible tokens (NFTs) that are using blockchain technology for one-of-a-kind assets like digital artwork.

Cash transaction reporting on Form 8300 will apply to cryptocurrency. Under a set of rules separate from the broker reporting rules, when a business receives $10,000 or more in cash in a transaction, that business must report the transaction, including the identity of the person from whom the cash was received, to the IRS on Form 8300. For this cash reporting requirement, businesses will have to treat digital assets like cash.

IRS’s Form 8300 requires the reporting of the identifying information of the individual from whom the cash was received-including address, occupation, and taxpayer identification number-as well as other information. The current-law rules that apply to cash usually apply to in-person payments in actual cash. It may be difficult for businesses seeking to comply with the post-2022 reporting rules for more than $10,000 in cryptocurrency to collect the information that must be reported on Form 8300.

What you should know. If you use a cryptocurrency exchange or platform, and it has not already collected a Form W-9 from you (seeking your taxpayer identification number), expect it to do so.

Cryptocurrency exchanges and platforms, in addition to collecting information from their customers, will need to begin tracking the holding period and the buy and sell prices of the digital assets in customers’ accounts.

Be aware that the transactions subject to the new reporting rules will include not only the selling of cryptocurrencies for fiat currencies (government-issued currency such as the U.S. dollar), but also exchanges of cryptocurrencies for other cryptocurrencies.

Finally, it’s good to keep in mind that the cryptocurrency exchanges or platforms will probably not have all the information they need to meet their reporting requirements under the new rules. This may make the first year of reporting for digital assets challenging for investors, as well as exchanges and platforms.

Please feel free to call upon me with any questions or concerns you may have about these new reporting rules.

Very truly yours,

Issue 4:  Iowa Tax Changes

On March 1, 2022, Iowa Governor Kim Reynolds signed House File 2317 (HF 2317), which enacts contingent rate reductions for the state’s corporate income tax and phased-in rate reductions for its individual income tax. HF 2317 also makes significant changes to the state’s research activities credit.

Contingent rate reductions for Iowa’s corporate income tax

For tax years 2021 and 2022, the Iowa corporate income tax is based on the following graduated rate schedule:

  • 5.5% on the first $100,000 of taxable income
  • 9% on taxable income from $100,001 to $250,000
  • 9.8% on taxable income greater than $250,000

HF 2317 amends Iowa Code § 422.33 to reduce the corporate income tax beginning in 2023 if certain revenue triggers are satisfied. The new provision (Iowa Code § 422.33(1)(b)) requires both the Iowa Department of Revenue and the Iowa Department of Management to determine by November 1, 2022 (and by November 1st of each year thereafter) whether net corporate income tax receipts in the prior fiscal year exceeded $700 million. If they did, then the 9% and 9.8% rate brackets would be adjusted to generate $700 million in net corporate income tax receipts. Those rates will apply to tax years beginning on or after the next January 1st following the determination date. In no event, however, can the rates decrease below 5.5%.

Overhaul of Research Activities Credit

Under current law, Iowa allows a refundable research activities credit for 6.5% of Iowa’s apportioned share of qualifying expenditures for increasing research activities. The Iowa research activities tax credit is generally based on the federal research tax credit, except that the Iowa credit is calculated using the ratio of Iowa research expenditures over total research expenditures.

HF 2317 significantly changes the research activities credit. The law limits the amount of credit in excess of the tax liability that can be refunded. The refundable portion of the credit will be phased down 10% each year for a five-year period starting in 2023, so that 90% of excess credit is refundable in 2023 and 50% of excess credit is refundable in 2027. A taxpayer claiming a refund can elect to have the overpayment otherwise eligible for a refund credited to the following tax year’s liability. HF 2317 includes no provision allowing taxpayers to carry forward the unused portion of their refundable credits.

For tax years beginning on or after January 1, 2023, taxpayers are required to compute the research activities credit in a manner consistent with the alternative simplified credit in IRC § 41(c)(4) if they elected, or were required to use, this method for federal income tax purposes for the same tax year. Prior to this change, taxpayers could make an election to alternatively compute the credit in a manner consistent with the alternative simplified credit in IRC § 41(c)(4), regardless of the method they used for federal income tax purposes.

The eligibility of payments for supplies to be qualified Iowa research expenses is phased out over five years, starting in 2023. Thus, for tax years beginning on or after January 1, 2027, payments for supplies will not be qualified Iowa research expenses. In addition, HB 2317 limits a taxpayer’s ability to claim the credit on an amended return and adds new provisions for calculating the state’s apportioned share of qualifying expenditures for increasing research activities (certain rules that apply in calculating the federal credit will not apply for Iowa purposes).

Finally, a taxpayer can only file an amended return increasing the credit that was claimed on a timely filed return if the amended return is filed within six months of the due date, including extensions, of the original return or if the increase resulted from an assessment under a federal or Iowa Department of Revenue examination.

Other Tax Credits

HF 2317 limits the amount of the redevelopment tax credit, the third-party developer tax credit, the historic preservation tax credit and the assistive device tax credit that can be refunded. The amount of the refundable credit will be reduced by 5% each year for five-years, so that in 2023 a taxpayer will be allowed 95% of the refundable credit and by 2027 the taxpayer will only be allowed 75% of the refundable credit.

Rate Reductions for Individual Income Tax and Treatment of Retirement Income

HF 2317 phases down individual income tax rates over the next four years to a flat rate of 3.9% by tax year 2026.

Under current law, Iowa does not tax Social Security income or retirement income of $6,000 or less. For tax years beginning in 2023, HF 2317 excludes from income tax the retirement income of someone who is (1) disabled, (2) at least 55 years old, or (3) the surviving spouse of an individual who would have qualified for the exclusion.

Retirement income is defined as the total amount received from all governmental or other pension or retirement plans, including defined benefit or contribution plans, annuities, individual retirement accounts, plans maintained or contributed to by an employer or by a self-employed person as an employer, and deferred compensation plans.

HF 2317 also grants an employee-owner of a qualified corporation one irrevocable lifetime election to exclude from state individual income tax the net capital gain from the sale of the qualified corporation’s capital stock. This exclusion will phase in over three years, beginning in 2023.

Retired farmers also will receive a similar capital gain exclusion as well as a lease income exclusion.

Issue 5: IRS Finalizes Fee Increase for SEE, Proposes Higher EA Fees

The IRS has released final and proposed regulations that increase fees for the special enrollment exam (SEE) as well as for fees to enroll and renew an enrolled agent (EA) designation.

Enrolled Agents. The IRS is authorized to grant enrolled agent (EA) status to individuals who demonstrate competence in tax matters by passing:

1) a written test (Special Enrollment Examination or SEE) and

2) a background check that shows the individual has not engaged in conduct that would justify suspension or disbarment under Circular 230. (31 CFR 10.4(a))

After passing the SEE and the background check, EA candidates must then apply and pay a fee to the IRS to obtain an EA designation. EAs must complete continuing professional education and pay a renewal fee every three years to keep their designation.

In September 2021, the IRS proposed increasing the fee to take the special enrollment exam (SEE) from $81 to $99 (not including any fee charged by the exam administrator). The final regs increase the user fee for each part of the SEE to $99 not including any fee imposed by the exam administrator. The administrator fee is currently $23.

Along with the final regs increasing the fee for the SEE, the IRS released regs proposing to increase the enrollment and renewal fees for EAs. These proposed regs would increase the enrollment and renewal fees for EAs from $67 to $140. The renewal fees for enrolled retirement plan agents would also increase to $140. The final regs are effective and apply on March 31, 2022.

Issue 6:  Crowdfunding May Be Taxable

Understanding Crowdfunding
Crowdfunding is a method of raising money through websites by soliciting contributions from a large number of people. The contributions may be solicited to fund businesses, for charitable donations, or for gifts. In some cases, the money raised through crowdfunding is solicited by crowdfunding organizers on behalf of other people or businesses. In other cases, people establish crowdfunding campaigns to raise money for themselves or their businesses.

Receipt of a Form 1099-K for Distributions of Money Raised Through Crowdfunding
The crowdfunding website or its payment processor may be required to report distributions of money raised if the amount distributed meets certain reporting thresholds by filing Form 1099-K, Payment Card and Third-Party Network Transactions, with the IRS. If Form 1099-K is required to be filed with the IRS, the crowdfunding website or its payment processor must also furnish a copy of that form to the person to whom the distributions are made. The American Rescue Plan Act clarifies that the crowdfunding website or its payment processor is not required to file Form 1099-K with the IRS or furnish it to the person to whom the distributions are made if the contributors to the crowdfunding campaign do not receive goods or services for their contributions.

Prior to 2022, the threshold for a crowdfunding website or payment processor to file and furnish a Form 1099-K was met if, during a calendar year, the total of all payments distributed to a person exceeded $20,000 in gross payments resulting from more than 200 transactions or donations.

For calendar years beginning after December 31, 2021, the threshold is lowered and is met if, during a calendar year, the total of all payments distributed to a person exceeds $600 in gross payments, regardless of the number of transactions or donations.

Accordingly, if a crowdfunding website or its payment processor makes distributions of money raised that meet the reporting threshold, and the contributors to the crowdfunding campaign received goods or services for their contributions, then a Form 1099-K is required to be filed with the IRS. Additionally, if the distributions of the money raised are made to the crowdfunding organizer, a copy of the Form 1099-K must be furnished to the organizer; alternatively, if the distributions of the money raised are made directly to individuals or businesses for whom the organizer solicited funds, the Form 1099-K must be furnished to those individuals or businesses that receive amounts that meet the reporting threshold.

A person receiving a Form 1099-K for distributions of money raised through crowdfunding may not recognize the filer’s name on the form. Sometimes the payment processor used by the crowdfunding website, rather than the crowdfunding website itself, will issue the Form 1099-K and be included as the filer on the form. If the recipient of a Form 1099-K does not recognize the filer’s name or the amounts included on the Form 1099-K, the recipient can use the filer’s telephone number listed on the form to contact a person knowledgeable about the payments reported.

Box 1 on the Form 1099-K will show the gross amount of the distributions made to a person during the calendar year, but issuance of a Form 1099-K does not automatically mean the amount reported on the form is taxable to the person receiving the form.  As discussed below, the income tax consequences depend on all the facts and circumstances. If the distributions reported on a Form 1099-K are not reported on the tax return of the recipient of the form, the IRS may contact the recipient for more information. The recipient will have the opportunity to explain why the crowdfunding distributions were not reported on the recipient’s tax return.

Tax Treatment of Money Raised Through Crowdfunding
Under federal tax law, gross income includes all income from whatever source derived unless it is specifically excluded from gross income by law. In most cases, property received as a gift is not includible in the gross income of the person receiving the gift.

If a crowdfunding organizer solicits contributions on behalf of others, distributions of the money raised to the organizer may not be includible in the organizer’s gross income if the organizer further distributes the money raised to those for whom the crowdfunding campaign was organized.

If crowdfunding contributions are made as a result of the contributors’ detached and disinterested generosity, and without the contributors receiving or expecting to receive anything in return, the amounts may be gifts and therefore may not be includible in the gross income of those for whom the campaign was organized.  Contributions to crowdfunding campaigns are not necessarily a result of detached and disinterested generosity, and therefore may not be gifts.  Additionally, contributions to crowdfunding campaigns by an employer to, or for the benefit of, an employee are generally includible in the employee’s gross income.

Taxpayers may want to consult a trusted tax professional for information and advice regarding how to treat amounts received from crowdfunding campaigns.

Recordkeeping for Money Raised Through Crowdfunding
Crowdfunding organizers and any person receiving amounts from crowdfunding should keep complete and accurate records of all facts and circumstances surrounding the fundraising and disposition of funds for at least three years.

Issue 7: Organization of IRS—Customer Service—Voice and Chat Bots

IRS announced that it has begun using voice and chat bots on Economic Impact Payment and Advanced Child Tax Credit (ACTC) toll-free telephone assistance lines and IRS.gov, enabling taxpayers with simple payment of collection notice questions or questions regarding reconciling ACTC credits to get what they need quickly during this tax season. Taxpayers could still speak with IRS telephone representative if needed.

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

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.

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.

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 Advanced Child Tax Credit toll-free line this month to provide similar assistance to callers who need help reconciling the credits on their 2021 tax return.

Issue 8: JCT publishes Bluebook for 116th Congress – Highlights

General Explanation Of Tax Legislation Enacted In The 116th Congress

The staff of the Joint Committee on Taxation has prepared its Bluebook for the 116th Congress. Known formally as the General Explanation of Tax Legislation Enacted in the 116th Congress, the Bluebook provides explanations of more than 200 tax provisions across eight different Acts, starting with the Taxpayer First Act (Public Law 116-25) and ending with the Consolidated Appropriations Act, 2021 (Public Law 116-260).

For each provision, the Bluebook includes a description of present law, an explanation of the provision, and the effective date. For a bill with a Committee report (or, in the absence of one, a contemporaneous technical explanation prepared and published by the Joint Committee staff), the document is based on the language of the report (or explanation).

An appendix provides a table with the estimated budget effects of the tax legislation in the Bluebook.

The document can be found at: https://www.jct.gov/publications/2022/jcs-1-22/

Issue 9: IRS Issues 2022 Depreciation Limits for Passenger Automobiles – Rev Proc 2022-17

The IRS has provided updated tables containing (1) depreciation deduction limits for passenger automobiles placed in service in 2022, and (2) dollar amounts that must be used to determine the annual income inclusion amounts for such vehicles first leased in 2022.

Generally, taxpayers with qualified property (including passenger automobiles) may claim an additional first-year depreciation deduction equal to 100% for qualified property acquired and placed in service after September 27, 2017, and before January 1, 2023.

An additional first-year depreciation deduction is not allowed if, in 2022, the taxpayer:

  • didn’t use the passenger automobile more than 50% for business purposes.
  • elected out of taking an additional first-year depreciation deduction.
  • acquired the passenger automobile used and the acquisition did not meet certain requirements; or
  • acquired the passenger automobile before September 28, 2017 and placed it in service after 2019.
  • 280F (c)(2) reduces the amount allowable as a depreciation deduction to a taxpayer who leases a passenger automobile. This reduction is substantially equivalent to the depreciation deduction limits imposed on taxpayers who own passenger automobiles. To accomplish this reduction, taxpayer lessees must include in gross income an amount (“income inclusion amount”) determined by applying a formula to a dollar amount obtained from a table.)

Rev Proc 2022-17 contains three tables:

Table 1 provides depreciation deduction limits for passenger automobiles acquired by the taxpayer after September 27, 2017 and placed in service by the taxpayer during calendar year 2022, to which the additional first-year depreciation deduction applies.

Table 2 provides depreciation deduction limits for passenger automobiles placed in service by the taxpayer during calendar year 2022, for which the taxpayer isn’t entitled to an additional first-year depreciation deduction.

Table 3 provides a taxpayer who leases a passenger automobile (with a lease term beginning in 2022) with the dollar amount to be used to determine the “income inclusion amount” for that automobile. The table provides dollar amounts for a range of fair market values.

The Revenue Procedure applies to automobiles placed in service during calendar year 2022 or with a lease term beginning in calendar year 2022.

Issue 10: IRS Criminal Investigation Highlights

Below is just a small example of the types of cases in which CI has led or been significantly involved in over the last few years. These cases show the breadth and skill of CI’s Special Agents in various types of fraud and criminal activity that have had significant impacts on the financial system at home and abroad. Despite having 25% less staff over the course of the decade, CI has consistently delivered strong results. An increase in funding would help to add more investigations to the pipeline, ensure more criminals are held accountable, and shore up the global financial system.

Narcotics/Counterterrorism/National Security Investigations

IRS:CI targets the illicit financial flows of Transnational Criminal Organizations to reduce the economic incentive of narcotics trafficking, terrorist financing, and money laundering. IRS:CI has key positions to enhance operational coordination at DEA SOD, EO-OCDETF, OCDETF Fusion Center, FinCEN, IOC2, HIDTA, J-CODE in addition to Joint Terrorism Task Force (JTTF) and National Counterintelligence Task Force (NCITF). Investigations involve money laundering (Title 18) and currency violations (Title 31). IRS:CI is the largest user of Bank Secrecy Act data to identify significant financial criminal activity. Investigative areas include money laundering, narcotics, public corruption, corporate fraud, terrorism, healthcare fraud, and financial institution fraud.

Aguirre – 12/03/21

  • Herman Aguirre, the leader of transnational drug conspiracy tied to the El Chapo Mexican drug cartel, was convicted of narcotics conspiracy, and operating a continuing criminal enterprise and money laundering conspiracy. He was sentenced to serve life in prison.
  • Aguirre was the leader of a transnational drug trafficking organization that utilized contacts and a source of supply whose territory included Mexico, Arizona, California, and elsewhere. The source of supply was the Sinaloa Cartel, led by Joaquín “El Chapo” Guzmán and Ismael “El Mayo” Zambada.

Vasquez-Hernandez – 11/24/14

  • Alfredo Vasquez-Hernandez, 59, was sentenced to 22 years in prison for his role in a $1 billion trafficking conspiracy.
  • Vasquez-Hernandez was a high-ranking member of the Sinaloa cartel and a close lieutenant of Joaquin ‘El Chapo’ Guzman.
  • Hernandez was the logistics man behind shipping tons of drugs by train from Mexico to Chicago concealed amid furniture cargo.

Singapore Solution – 9/28/2021

  • Six offshore financial service executives and a Swiss financial services company were charged with conspiracy to defraud the IRS for allegedly helping three large-value U.S. taxpayer-clients conceal more than $60 million in income and assets held in undeclared, offshore bank accounts to evade U.S. income taxes.

Defense Attorney Money Laundering Conspiracy – 10/28/2021

  • A federal jury convicted an attorney of conspiracy to commit money laundering after evidence showed that received drug proceeds from clients and associates who engaged in drug trafficking and used bank accounts of the law firm where he practiced to launder more than a million dollars.

Zong Money Laundering Case – 12/7/2018

  • In December 2018, in Anchorage, Alaska, Mitchell Zong was sentenced to 30 months in prison for conspiracy to commit money laundering with his father, Kenneth Zong. Mitchell Zong laundered approximately $980,000 of Iranian derived funds knowing the funds came from his father’s illegal transactions with Iranian nationals.

UniCredit Bank IEEPA Case – 4/15/2019

  • In 2019, UniCredit Bank AG (UCB AG), a financial institution headquartered in Munich, operating under the name HypoVereinsbank, and part of the UniCredit Group agreed to plead guilty to conspiring to violate IEEPA and to defraud the United States by processing hundreds of millions of dollars of transactions through the U.S. financial system on behalf of an entity designated as a weapons of mass destruction proliferator and other Iranian entities subject to U.S. economic sanctions.
  • UniCredit Bank Austria (BA), another financial institution in the UniCredit Group, headquartered in Vienna, Austria, agreed to forfeit $20 million and entered into a non-prosecution agreement to resolve an investigation into its violations of IEEPA. UniCredit SpA, the parent of both UCB AG and BA, agreed to ensure that UCB AG and BA’s obligations are fulfilled.

Cyber/Cryptocurrency Investigations

Since 2014, CI Cyber Crimes has proportionately grown in both resources and results. Beginning with one Cyber Crimes Unit in the Washington, DC area, CI was able to successfully prosecute some of the first known criminal actors in this space (e.g., Liberty Reserve, Silk Road and Btc-e). These investigations set the foundation and framework for our future efforts. Soon after, CI established a second Cyber Crimes Unit in the Los Angeles Field Office followed by cyber coordinators across the nation and additional support personnel to provide investigative research and analysis.

In FY21, CI was responsible for the seizure of cryptocurrency valued at more than $3.5B. To date in FY22, CI has already surpassed that amount.

BITCONNECT – 2/25/2022

  • A citizen and resident of India was indicted for his alleged role in a massive criminal conspiracy involving the cryptocurrency company he founded, BitConnect.
  • The individual and his co-conspirators allegedly defrauded global investors of over $2 billion—believed to be the largest cryptocurrency fraud ever charged.

BITFINEX – 2/8/2022

  • Two individuals were arrested in Manhattan for an alleged conspiracy to launder stolen cryptocurrency from a virtual currency exchange, presently valued at approximately $4.5 billion. Thus far, law enforcement has seized cryptocurrency valued over $3.6 billion linked to that hack.

Silk Road $1B Seizure – 11/5/2020

  • This case involved cryptocurrency CI traced which was stolen from the administrator of Silk Road that we indicted several years ago.

Bitcoin Hamas – 8/13/2020

  • Investigation revolved around cryptocurrency fundraising for several terrorist organizations.
  • Hammas/Al Queda/ISIS used cryptocurrency fundraising intended to carry out criminal acts.
  • IRS CI helped shut this down – largest crypto seizure tied to terrorism to date.

Welcome to Video – 10/16/19

  • Largest darknet marketplace for child exploitation.
  • Resulted in over 330 arrests and 23 kids saved who were being actively abused.

Tax Investigations

IRS:CI is the only federal law enforcement agency authorized to investigate Title 26 (federal criminal tax) violations. Priority areas include: abusive tax schemes, employment tax fraud, non-filer, questionable refund program, abusive return preparers, and identity theft. Crossover between tax and non-tax crimes is common.

Fisher Syndicated Conservation Easement – 3/1/2022

  • A federal grand jury returned a superseding indictment on Feb. 24 charging seven individuals with conspiracy to defraud the US and other crimes arising out of their alleged promotion of fraudulent tax shelters and $1.3Billion in alleged false tax deductions.

Kingston Investigation – 3/16/2020

  • A federal jury convicted a California businessman of criminal charges related to a $1 billion renewable fuel tax credit scheme. The individual used his company as part of a conspiracy to corrupt the biofuel tax credit program in an effort to steal over $1 billion from taxpayers and to launder the proceeds of this fraud.

Brockman Investigation – 10/15/2020

  • The CEO of an Ohio-based software company was indicted with tax evasion, wire fraud, money laundering, and other offenses. The charges stem from an alleged decades-long scheme to conceal approximately $2 billion in income from the IRS as well as an alleged scheme to defraud investors in the software company’s debt securities.

Issue 11: Filing Season Update

The IRS is processing tax returns and delivering refunds. As of the ending March 11, the IRS has issued more than 45 million refunds worth almost $152 billion. The average refund is $3,352.

Tax year 2021 electronically filed tax returns will be rejected if the taxpayer is required to reconcile advance payments of the premium tax credit on Form 8962, Premium Tax Credit, but does not attach the form to the tax return.

IRS reminds taxpayers they must check a box on Form 1040, 1040-SR or 1040-NR on virtual currency transactions for 2021

The IRS reminds taxpayers that there is a virtual currency question at the top of Form 1040, Form 1040-SR and Form 1040-NR. It asks: “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?”

All taxpayers filing Form 1040, Form 1040-SR or Form 1040-NR must check one box answering either “Yes” or “No” to the virtual currency question. The question must be answered by all taxpayers, not just taxpayers who engaged in a transaction involving virtual currency in 2021.

When taxpayers can check “No”

Taxpayers who merely owned virtual currency at any time in 2021 can check the “No” box when they have not engaged in any transactions involving virtual currency during the year, or their activities were limited to:

  • Holding virtual currency in their own wallet or account.
  • Transferring virtual currency between their own wallets or accounts.
  • Purchasing virtual currency using real currency, including purchases using real currency electronic platforms such as PayPal and Venmo.
  • Engaging in a combination of holding, transferring, or purchasing virtual currency as described above.

When taxpayers must check “Yes”

The list below covers the most common transactions in virtual currency that require checking the “Yes” box:

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

If a taxpayer received any virtual currency as compensation for services or disposed of any virtual currency that 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, 1040-SR, or 1040-NR, line 1, or inventory or services from Schedule C on Schedule 1).

Issue 12: Can You Use that Durable Power of Attorney before the IRS? Form 2848 vs. Durable Power of Attorney

Many taxpayers create durable powers of attorney for estate planning or other purposes. Durable powers of attorney are commonly used to confer authority to make healthcare and financial decisions for the “principal” (i.e., the individual granting the power). What most distinguishes a durable power of attorney from other types of powers of attorney is that it remains in effect and operative, or becomes effective, when the principal becomes incompetent or incapacitated to act for themselves. All 50 states, the District of Columbia, Puerto Rico, Guam, and the U.S. Virgin Islands recognize and have laws regarding durable powers of attorney.

Tax professionals who regularly represent taxpayers before the IRS are generally well acquainted with Form 2848, Power of Attorney and Declaration of Representative, its uses, the requirements for a valid Form 2848, and the recording of the authorization on the IRS’s Centralized Authorization File (CAF). Depending on the nature of their practice, attorney practitioners may often prepare or have occasion to prepare general or durable powers of attorney for their clients. While attorneys, CPAs, and other practitioners may have clients or prospective clients who have existing durable powers of attorney, the effect of these powers of attorney on federal tax matters, however, may not be well understood by taxpayers (i.e., the principals), the agent or attorney-in-fact (who is usually a spouse or other family member), or tax practitioners retained to represent the taxpayers. The issue typically surfaces when a taxpayer who signed a durable power of attorney later becomes physically or mentally incompetent such that the taxpayer cannot sign a Form 2848 if a tax matter with the IRS arises.

Whether the IRS can accept a durable power of attorney in place of a Form 2848 depends in each case on whether the following requirements are met. As a very general starting point, the IRS will accept a durable power of attorney instead of a Form 2848 if the durable power of attorney includes all of the elements specified in IRS procedural regulations at 26 CFR sections 601.501 – 601.509 (reprinted as IRS Publication 216, Conference and Practice Requirements.). See 26 CFR
§ 601.503(b)(4) (discussing durable powers of attorney). Specifically, the durable power of attorney must include all the elements of section 601.503(a):

  • Taxpayer’s name and mailing address.
  • Taxpayer’s TIN (i.e., SSN, EIN, etc.).
  • An employee plan number, if applicable.
  • Name and mailing address of the appointed representative(s).
  • A description of the matter or matters for which the representation is authorized that must include, as applicable—
    • Type of tax involved.
    • Federal tax form number involved.
    • Specific year(s) or non-annual period(s) involved; and
    • Decedent’s date of death in estate matters.

“A clear expression of the taxpayer’s intention concerning the scope of authority granted to the…representative(s).”

A valid durable power of attorney that includes the necessary elements will only be recorded on the CAF if a filled-in Form 2848 is also submitted with Part II of the form, Declaration of Representative, completed and signed by the appointed representative(s).

By its nature, a durable power of attorney generally will not have the necessary elements, including the tax matters mentioned above, required by the regulations. However, this problem can be cured in limited circumstances. The IRS will accept a Form 2848, in conjunction with a durable power of attorney, under two conditions:,

  1. The “attorney-in-fact”—the individual authorized in the durable power of attorney to act for the “principal” (i.e., the taxpayer)—executes a Form 2848 on behalf of the taxpayer that includes the missing information, such as the type(s) of tax, tax form numbers, and tax periods applicable to the situation for which the representation before the IRS is needed; and
  2. The durable power of attorney authorizes the attorney-in-fact to handle federal tax matters or encompasses this authority “(e.g., the power of attorney includes language…that the attorney-in-fact has the authority to perform any and all acts [for the incompetent individual]).” 26 CFR § 601.503(b)(3)(i).

Also, the attorney-in-fact must attach a written statement to the Form 2848, signed under penalty of perjury, stating that the durable power of attorney is valid under the laws of the state or other jurisdiction in which the durable power of attorney was signed. 26 CFR § 601.503(b)(3)(ii).

The requirements enumerated above for an acceptable power of attorney, including a durable power of attorney, are generally referenced in the Instructions to Form 2848, under “Substitute Form 2848” (see p.5, stating “[t]he IRS will accept a power of attorney other than Form 2848 provided the document satisfies the requirements for a power of attorney. See Pub. 216, Conference and Practice Requirements, and 26 CFR 601.503(a).”)

If a durable power of attorney does not authorize in some manner the attorney-in-fact to handle federal tax matters, then the best, or maybe only, option is for a conservator, guardian, or similar fiduciary to be appointed under state law to act for the incompetent taxpayer if one has not already been appointed. The fiduciary can complete the necessary Form 2848 (to authorize representation by a tax practitioner) and should also submit IRS Form 56, Notice Concerning Fiduciary Relationship.

Issue 13: Tracking the Amended Return

Track the status of a Form 1040X, Amended U.S. Tax Return using the IRS web application or toll-free application.  Go to Where is My Refund or call 1-866-464-2050. The Where’s My Refund provides the status of Form 1040X for the current year and up to three prior years. You will need the following information:

  • Taxpayer Identification Number – for most clients this is the Social Security Number.
  • Date of Birth
  • Zip Code

Issue 14: Applicable Federal Rates for April 2022, Rev. Rul. 2022-4

Rev. Rul. 2022-8 TABLE 1

Applicable Federal Rates (AFR) for April 2022

    Period for Compounding
    Annual Semiannual Quarterly Monthly
Short-term
AFR 1.26% 1.26% 1.26% 1.26%
110% AFR 1.39% 1.39% 1.39% 1.39%
120% AFR 1.52% 1.51% 1.51% 1.51%
130% AFR 1.65% 1.64% 1.64% 1.63%
Mid-term
AFR 1.87% 1.86% 1.86% 1.85%
110% AFR 2.06% 2.05% 2.04% 2.04%
120% AFR 2.24% 2.23% 2.22% 2.22%
130% AFR 2.43% 2.42% 2.41% 2.41%
150% AFR 2.81% 2.79% 2.78% 2.77%
175% AFR 3.29% 3.26% 3.25% 3.24%
Long-term
AFR 2.25% 2.24% 2.23% 2.23%
110% AFR 2.48% 2.46% 2.45% 2.45%
120% AFR 2.71% 2.69% 2.68% 2.68%
130% AFR 2.93% 2.91% 2.90% 2.89%

Rev. Rul. 2022-8 TABLE 2

Adjusted AFR for April 2022

    Period for Compounding
    Annual Semiannual Quarterly Monthly
Short-term
adjusted AFR
0.96% 0.96% 0.96% 0.96%
Mid-term
adjusted AFR
1.41% 1.41% 1.41% 1.41%
Long-term
adjusted AFR
1.71% 1.70% 1.70% 1.69%

 

Rev. Rul. 2022-8 TABLE 3

Rates Under § 382 for April 2022

Adjusted federal long-term rate for the current month:  1.71% 1.71%
Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted

federal long-term rates for the current month and the prior two months.)  1.71%

1.71%

 

Rev. Rul. 2022-8 TABLE 4

Appropriate Percentages Under § 42(b)(1) for April 2022

Note: Under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings

placed in service after July 30, 2008, shall not be less than 9%.

Appropriate percentage for the 70% present value low-income housing credit: 7.47% 7.47%
Appropriate percentage for the 30% present value low-income housing credit:  3.20% 3.20%

 

Rev. Rul. 2022-8 TABLE 5

Rate Under § 7520 for April 2022

Applicable federal rate for determining the present value of an annuity, an interest in life or a

term of years, or a remainder or reversionary interest.     2.2%

2.2%

 

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