In this Issue:

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Issue 1: IRS Spring Regulatory Agenda Includes Three Final and Several Proposed Regulations Expected in December

The Office of Information and Regulatory Affairs (OIRA) has released the Spring 2023 Regulatory Agenda . The Treasury Department has moved the release dates to December 2023 for three expected final regulations and listed over ten proposed regulations coming soon of interest to payroll practitioners.

Final Rules Expected

Proposed Regulations Scheduled

Issue 2: Client Letter: Know the Signs of an Employee Retention Credit Scam-For Your Information No Infringement Intended

Checkpoint has produced a Client Letter (Knowing the Signs of an Employee Retention Credit (ERC) Scam) to provide guidance regarding how to identify ERC schemes and what to do if a business has fallen prey to an ERC mill. The IRS recently identified ERC scams as the #1 worst tax scam of the 2023 Dirty Dozen List and the IRS is urging tax practitioners to communicate with clients regarding this issue.

Dear Client,

If it sounds too good to be true, it probably is. The IRS has sounded the alarm repeatedly regarding a scam involving the Employee Retention Credit (ERC). Third parties have been aggressively promoting that businesses may be eligible for the ERC when they are not.

The ERC is a refundable tax credit that was introduced during the COVID-19 pandemic to provide an incentive to employers to keep employees on the payroll during a government shutdown or significant decline in gross receipts. The ERC was available to eligible employers for qualified wages paid after March 12, 2020, and before October 1, 2021 (with an exception for recovery start-up businesses through December 31, 2021).

The eligibility requirements, applicable time periods, and dollar limitations changed several times due to the passage of various federal legislation thereby claiming the ERC is far more complex than these ERC schemes make out.

Perhaps you have heard advertisements, phone calls or text messages claiming your business is eligible for the ERC and claim the application process is “easy.” These third parties will then charge large upfront fees or charge a fee based on a percentage of the refund amount the ERC generated. However, these ERC scams lie about eligibility requirements and your business will not only need to return the refund and amend employment tax returns but may be subject to penalties and interest.

If you would like to discuss the ERC, please reach out and we can work together to determine if you truly qualify for the credit. If you have claimed the ERC through a third party, please contact us so that we can help you resolve any possible underpayment or erroneous refund that occurred.


Issue 3: Learn the Warning Signs of Employee Retention Credit Scams

Businesses and tax-exempt organizations should watch out for telltale signs of misleading claims involving the Employee Retention Credit.  Scammers and unscrupulous promoters continue to run aggressive broadcast advertising, direct mail solicitations and online promotions for the credit. Many of these ads wildly misrepresent and exaggerate who can qualify for the ERC, which is sometimes also called ERTC or the Employee Retention Tax Credit.

Anyone who improperly claims the ERC will have to pay it back, possibly with penalties and interest. The IRS does not want that to happen. Employers should know what the credit is and who qualifies and be on the lookout for the warning signs of a scam. And they should rely on the advice of a trusted tax professional, not aggressive marketing or unsolicited proposals.

About the ERC
The ERC is a refundable COVID-era tax credit designed for employers that kept paying employees while shut down because of a COVID-19 related government order or that had a requisite decline in gross receipts during the eligibility periods. The credit can be claimed only by eligible businesses and tax-exempt organizations that had employees during specific time periods.

Anyone considering claiming the ERC should carefully review the specific eligibility requirements at

Eligible employers who need help claiming the credit should work with a trusted tax professional.

Warning signs of an ERC scam include:

These promoters may lie about eligibility requirements. In addition, anyone using these promoter’s services could be at risk of someone trying to steal their identity or use their information to take a cut of the improperly claimed credit.

How the promoters lure victims
The IRS continues to see a variety of ways that promoters can lure businesses, non-profit groups and others into applying for the credit.

Aggressive marketing. ERC ads are appearing almost everywhere, including radio, television and online as well as phone calls and text messages.

Direct mailing. Some ERC promoters are sending letters to taxpayers from non-existent groups like the “Department of Employee Retention Credit.” Scammers will create these letters to look like official IRS correspondence or an official government mailing with language urging immediate action.

Leaving out key details. Third-party promoters of the ERC often do not accurately explain eligibility requirements or how to calculate the credit. They may make broad arguments suggesting that all employers are eligible without evaluating an employer’s individual circumstances. In addition, many promoters don’t tell employers that they can’t claim the ERC on wages that they reported as payroll costs if they received Paycheck Protection Program loan forgiveness.

Issue 4: IRS Commissioner Signals New Phase of Employee Retention Credit Work; with Backlog Eliminated, Additional Procedures Will be Put in Place to Deal with Growing Fraud Risk

With the Internal Revenue Service making substantial progress in the ongoing effort related to the Employee Retention Credit claims, Commissioner Danny Werfel said the agency has entered a new phase of increasing scrutiny on dubious submissions while renewing consumer warnings against aggressive marketing.

Speaking Tuesday at a special roundtable session of tax professionals in Atlanta, Werfel noted the IRS has shifted efforts after successfully clearing the backlog of valid Employee Retention Credits (ERC) claims. Now, the agency is intensifying compliance work and putting in place additional procedures to deal with fraud in the program.

Werfel told a group of tax professionals dealing with fall-out from aggressive ERC claims that the IRS has increased audit and criminal investigation work on these claims, both on the promoters as well as those businesses filing dubious claims.

The Employee Retention Credit, also sometimes called the Employee Retention Tax Credit or ERTC, is a tax credit enacted to help businesses during the pandemic that was subsequently amended three times by Congress. Many businesses legitimately apply for the credit, but aggressive marketing has overshadowed the program. The period of eligibility for the credit for affected businesses is very limited, covering only between March 13, 2020, and Dec. 31, 2021.

Under the current law, businesses can typically continue to file claims for the credit until April 15, 2025.

“The amount of misleading marketing around this credit is staggering, and it is creating an array of problems for tax professionals and the IRS while adding risk for businesses improperly claiming the credit,” Werfel said. “A terrible scenario is unfolding that hurts everyone involved — except the promoters.”

The IRS continues to urge businesses, tax-exempt organizations and others considering applying for this credit to carefully review the official requirements for this limited program before applying. In the meantime, the IRS continues to intensify compliance activities involving ERC claims.

With more than 2.5 million claims coming in since the program was enacted, IRS claims processing slowed due to the complexity of the amended returns. The IRS has made substantial progress on these claims this year, with 99 % of claims approximately three months old as of mid-July.

The IRS has trained auditors examining ERC claims posing the greatest risk, and the IRS Criminal Investigation division is working to identify fraud and promoters of fraudulent claims.

When properly claimed, the ERC is a refundable tax credit designed for businesses that continued paying employees during the COVID-19 pandemic while their business operations were fully or partially suspended due to a government order or that had a significant decline in gross receipts during the eligibility periods. The credit is not available to individuals.

To help tax professionals and others, the IRS continues to provide additional legal clarity around ERC rules. On July 20, the IRS issued a legal advice memorandum applying the statutory requirements to five different scenarios. The memorandum highlighted that employers experiencing supply chain disruptions qualify for ERC only if they had to suspend their business operations because their suppliers were unable to provide critical goods or materials due to a government order that caused the supplier to suspend its operations. Contrary to advice given by unscrupulous preparers, this guidance makes clear that supply chain disruptions do not qualify an employer for the credit unless they are due to a government order.

Warning Signs of Aggressive ERC Marketing
There are important tips that people should be wary of involving the Employee Retention Credit. Warning signs to watch out for include:

How the Promoters Lure Victims
The IRS continues to see a variety of ways that promoters can lure businesses, tax-exempt groups and others into applying for the credit.

To report ERC abuse, submit Form 14242, Report Suspected Abusive Tax Promotions or Preparers. People should mail or fax a completed Form 14242, Report Suspected Abusive Tax Promotions or Preparers, and any supporting materials to the IRS Lead Development Center in the Office of Promoter Investigations. NOTE: When I tried to download form it was unavailable, perhaps it has been pulled for revisions, I would try at a later date.

Internal Revenue Service Lead Development Center
Stop MS5040
24000 Avila Road
Laguna Niguel, California 92677-3405
Fax: 877-477-9135

Issue 5: Additional Information: IRS Updates Employee Retention Credit FAQs

As part of a continuing effort to address concerns with Employee Retention Credit claims, the IRS announced today the agency has started to update frequently asked questions on to help businesses and tax professionals navigate the complex credit. The IRS added 13 frequently asked questions to a special page about the Employee Retention Credit, or ERC. More information will be added in the coming days. The above link will direct you to the IRS FAQ’s

The changes follow a series of concerns raised by tax professionals and others, including feedback IRS Commissioner Danny Werfel received at a special ERC roundtable at the Atlanta Tax Forum. Tax professionals raised concerns about a number of unanswered questions that they are receiving from business clients regarding the credit.

Issue 5: Final Regs Issued Related to Recapture of Certain Excess Employment Tax Credits under COVID-19

The IRS has issued final regs that authorize the assessment of any erroneous refund of the tax credits paid under §§ 7001 and 7003 of the Families First Coronavirus Response Act (including any increases in those credits under        § 7005 thereof), and § 2301 of the Coronavirus Aid, Relief, and Economic Security Act.

The final regs adopt temporary regs, with minor adjustments, TD 9904.

The credits under §§ 7001 and 7003 of the Families First Coronavirus Response Act relate to tax credits to employers to cover wages paid to employees while they are taking time off under the Emergency Paid Sick Leave Act (EPSLA) and the Emergency Family and Medical Leave Expansion Act (EFMLEA).

Under § 2301 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, certain employers experiencing a full or partial business suspension due to COVID-19 shut-down orders from a governmental authority, or experiencing a statutorily specified decline in business, are also allowed a refundable tax credit under the CARES Act of up to 50% of the qualified wages, including allocable qualified health expenses; this credit is limited to $10,000 per employee over all calendar quarters combined (Qualified Retention Wages). This credit is sometimes referred to as the employee retention credit.

Effective Date. The assessment regs apply to all credit refunds under §§ 7001 and 7003 of the Families First Act (including any increases in those credits under section 7005 of the Families First Act), as modified by § 3606 of the CARES Act, advanced or paid on or after July 24, 2020, and all credit refunds under § 2301 of the CARES Act advanced or paid on or after July 24, 2020.

Issue 6: Crypto Exchange on the Hook to Comply with IRS Summons, Court Orders

A crypto exchange platform must supply the IRS with summonsed identifying and transaction information about certain customers in connection with the agency’s investigation into potential noncompliance of digital asset holders, a court authorized despite imposing limitations through a narrowed scope.

An order issued June 30, 3023 by the U.S. District Court for the Northern District of California in United States v. Payward Ventures Inc. (2023 WL 4303653; No. 23-mc-80029-JCS) granted the IRS enforcement of a summons served to Payward subsidiary Kraken, a cryptocurrency service provider.

The court’s order compels Kraken to provide names, dates of birth, taxpayer identification numbers, physical addresses, telephone numbers, email addresses, and certain transaction records for customers meeting those criteria. However, it found that the IRS’ request for all records and ledgers relating to such transactions was overly broad.

Despite narrowing the scope of the summons, the order mostly maintains the IRS established its grounds and reasonings for seeking the summonsed information.

Kraken is headquartered in San Francisco. Since its founding in 2011, Kraken operates in nearly 200 countries and supports trading for 159 cryptocurrencies. It is estimated that Kraken has four million customers, with as many as 50,000 signing up per day at the end of 2017. About $140 billion has been traded on Kraken since its inception, according to Cincotta.

“The IRS expects the summoned records will produce leads to help it identify U.S. taxpayers that have transacted in cryptocurrency at the specified floor level through Kraken at any time during the period specified in the John Doe summons and who may have failed to report such transactions in compliance with internal revenue laws,” read the petition.

Issue 7: Client Update: Employment Tax Considerations When Hiring Parents or Children

Business owners need to consider things besides family dynamics when hiring their parents or children. One of those things is employment taxes.

Generally, payments made for services rendered to a child by a parent’s business or to a parent from a child’s business are subject to income tax withholding. But these payments may or may not be subject to employment taxes depending on who is the employer and the age of the child.

Child works for parent. When a child works for a parent’s sole proprietorship or a partnership in which each partner is the child’s parent:

In all other circumstances, i.e., the child works for the parent’s corporation, nonparental partnership or estate, the employer treats the child’s wages like those of any other employee.

Parents working for their children. The tax situation changes when a parent works for their child’s sole proprietorship. In this case, payments for the parent’s services are subject to income, social security and Medicare tax, but are not subject to FUTA tax.

In other situations, the child’s entity treats the parent’s wages like those of any other employee.

Parent’s performing nonbusiness services. Need childcare? Hire your parent. Payments for services of a parent are not subject to social security and Medicare taxes, unless the payments are for domestic services and each of the following apply:

Note. This means a child’s payments to a parent for childcare that enables the child to work are not subject to social security and Medicare taxes.

Payments for a parent’s personal services are not subject to FUTA.

Issue 8: IRS Warns of Scam Refund Mailings

Taxpayers need to be on the lookout for a mailing that is part of a tax scam trying to mislead them into believing they are owed a refund. The scheme involves a mailing sent to taxpayers in a cardboard envelope from a delivery service. The envelope contains an official-looking letter purportedly from the IRS stating that it is in relation to their unclaimed refund.

The letter asks the taxpayer to provide personal information, including detailed photos of their driver’s license, that can be used to steal the taxpayer’s identity and seek tax refunds or other sensitive financial information. The IRS said the letters can be identified because they include awkwardly worded requests, odd punctuation, a mixture of fonts and inaccurate information. For example, one letter made the following request: “A Clear Phone of Your Driver’s License That Clearly Displays All Four (4) Angles, Taken in a Place with Good Lighting.”

Issue 9:  The Latest Information on Filing Amended Returns by National Association of Tax Professionals

June 12, 2023

In the ever-evolving world of tax preparation, it’s essential for preparers to stay ahead of the curve and be well-informed on the latest updates and changes in the industry.

One key aspect that nearly all tax preparers will inevitably encounter throughout the year is the filing of amended returns. Whether it’s due to new tax laws, overlooked deductions or simple human error, amended returns are a crucial part of the tax preparation process.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers.

Q: Is there a threshold for which you would file an amended return instead of waiting for the IRS to match the data and correct the return? For example, if a client omitted interest that would increase the tax due by $10, would you file the amended return or wait for the IRS to issue a notice of additional tax due?

Q: I tried to e-file a Form 1040-X for a deceased taxpayer, but the IRS rejected it because the SSN is apparently frozen for the deceased spouse. What now?

Q: How long is the wait for an electronically amended return?

Q: Is a superseded return a Form 1040, U.S. Individual Income Tax Return, or a Form 1040-X?

Issue 10: IRS Anticipates E-Filing for Amended Employment Tax Returns in 2024

The IRS has provided an anticipated timeline for providing an electronic filing option for amended employment tax returns in an unlikely location.

The IRS has released the draft versions of Form 8879-EMP (E-file Authorization for Employment Tax Returns), Rev. December 2023 and Form 8453-EMP (E-file Declaration for Employment Tax Returns), Rev. December 2023.

In these draft forms, the IRS notes that it expects to offer an electronic filing option by 2024 for amended employment tax returns.

Form 8453-EMP. Form 8453-EMP is used to:

Form 8879-EMP. The form is used by a taxpayer and the electronic return originator (ERO) to use a personal identification number (PIN) to electronically sign an electronic original or amended employment tax return. The form may also be used to authorize an electronic funds withdrawal. If Form 8879-EMP is not used to sign the return, Form 8453-EMP must be used.

Electronic filing of amended employment tax returns expected in 2024. The draft versions of the forms note that IRS expects to make filing amended employment tax returns on Forms 940, 941-X, 943-X, and 945-X available as part of the Modernized e-file (MeF) program.

Issue 11: IRS Releases Updated Publication on Establishing Reasonable Cause for Missing and Incorrect Taxpayer Identification Numbers

The IRS has updated IRS Publication 1586 (Reasonable Cause Regulations and Requirements for Missing and Incorrect Name/TINs).

The objectives of the publication are to:

(1) provide general information needed to avoid penalties for information return documents that are filed with missing or incorrect taxpayer identification numbers (TINs);

(2) describe the actions that must be taken or should have been taken to solicit (request) a TIN; and

(3) explain the requirements for establishing reasonable cause.

Reasonable cause. To support that the failure to include a correct TIN was due to reasonable cause and not willful neglect, filers must establish that they “acted in a responsible manner” both before and after the failure occurred and that: (a) there were significant mitigating factors (for example, an established history of filing information returns with correct TINs), or (b) the failure was due to events beyond the filer’s control (for example, actions of the payee or any other person).

What’s new? The penalty amounts in the publication have been updated to reflect annual inflation adjustments. Penalties may be assessed for information returns that are:

The publication notes that final regulations were promulgated providing an automatic extension for minimum essential coverage providers to furnish individual statements about such coverage and also provide an alternate method for furnishing those statements when the individual shared responsibility payment is zero. Rules relating to reporting by applicable large employers on health insurance coverage offered under employer-sponsored plans, was effective March 8, 2023.

Issue 12: TIGTA Publishes Semiannual Report to Congress

The Treasury Inspector General for Tax Administration (TIGTA) has released its Semiannual Report to Congress—October 1, 2022 to March 31, 2023.

As described by J. Russell George, the inspector general, the Inflation Reduction Act (IRA) provides TIGTA with $403 million in supplemental funding over a nine-year period which it will use “for enhanced oversight of the IRS’ taxpayer services, enforcement, operations support, business systems modernization, and reporting requirements.” The current semiannual report included a new section devoted to oversight efforts related to the IRA and future reports will also include such a section.

During the latest reporting period, TIGTA’s Office of Audit completed 19 audits, the Office of Inspections and Evaluations completed three evaluations, and the Office of Investigations completed 1,053 investigations. “TIGTA’s combined audit and investigative efforts, resulted in the recovery, protection, and identification of monetary benefits totaling more than $68.4 million,” George said.

George also noted that the Office of Investigations is continuing its efforts regarding unauthorized access to and disclosure of federal tax information; threats and violence against IRS employees and facilities; pandemic relief fraud; and the impersonation of IRS employees.

In addition, he highlighted that “TIGTA also works with law enforcement partners to ensure that those who endeavor to corrupt federal tax administration are prosecuted to the fullest extent of the law.”

Issue 13: Minnesota Announces Process for One-Time Tax Rebates

The Minnesota Department of Revenue has announced the process to send 2.4 million one-time tax rebate payments to Minnesotans. This rebate was part of the historic 2023 One Minnesota Budget, signed into law by Governor Tim Walz on May 24, 2023. (News release, Minn. Dept. Rev., 07/10/2023.)

Rebate amount. Under the 2023 One Minnesota Budget, the rebate is equal to $520 for a married couple filing a joint return and $260 for a single filer, head of household, or married taxpayer filing a separate return.

Eligibility for rebate. A taxpayer is eligible for the rebate if the taxpayer meets all of the following requirements:

No application needed. Taxpayers will not apply for this rebate payment. The Department will use tax year 2021 individual income tax or property tax refund returns to determine eligibility and distribute these tax rebate payments in the early fall. Eligible recipients who have not changed their address or banking information from what was on their 2021 income tax or property tax refund returns do not need to take any action.

For such taxpayers, the Department will deposit the refund to the recipient’s bank account or mail a check to the address on the recipient’s 2021 return.

Taxpayers who are eligible for the rebate and need to update their address or bank information should visit a new online portal at to update that information before 5:00 pm CST on Friday, July 28, 2023.

Taxpayers who exceeded the income limits or who did not file a 2021 do not qualify for this tax refund payment.

Rebate payments.  Eligible recipients of the one-time tax rebate can expect to get their rebate payment in the early fall.

Issue 14: Post-Release Changes to Forms W-2 and W-2c Highlight E-Filing Requirements

The IRS released two post-release changes to Forms W-2 and W-2c on July 7, 2023, that highlight the updated electronic filing mandate for these forms.

The first change notes that Forms W-2, W-2AS, W-2GU, W-2VI, and Form 499R-2/W-2PR, but not Form W-2CM, are required to be filed electronically if employers are filing 10 or more such forms beginning with tax year 2023.

In order to calculate the number of returns being filed to be subject to the mandate, employers must include all Forms W-2 as previously listed, as well as the following forms: Form 1042-S, the Form 1094 series, Form 1095-B, Form 1095-C, Form 1097-BTC, Form 1098, Form 1098-C, Form 1098-E, Form 1098-Q, Form 1098-T, the Form 1099 series, Form 3921, Form 3922, the Form 5498 series, Form 8027, and Form W-2G.

The second change clarifies that the Form W-2c is required to be filed electronically only if the originally filed Form W-2 was required to be filed electronically.

Issue 14: Werfel Announces Upcoming Expansions to In-person, Online Services – IR 2023-126 and IR 2023-127

Three months following the conclusion of this year’s tax filing season, the IRS provided an update on how it has been, and plans to, implement funding from the Inflation Reduction Act (PL 117-169) to expand taxpayer assistance and online capabilities.

During that time, Taxpayer Assistance Centers (TACs) were either shut down or understaffed, leading to “record low levels of service” underscored by paltry call center phone response rates and staggering paper return backlogs.

Among new announcements made during the call was a “special series of events” called Community Assistance Visits, which will function as temporary TACs in select areas of the country with underserved communities of considerable distance from the nearest permanent TAC location. The first Community Assistance Visit was held in Paris, Texas, “more than 90 miles from the closest IRS office,” according to Werfel.

Seven other locations have already been picked for future visits: Alpena, Michigan; Hastings, Nebraska; Twin Falls, Idaho; Juneau, Alaska; Lihue, Hawaii; Baker City, Oregon; and Gallup, New Mexico. Werfel also said that since the enactment of the inflation bill, the IRS has opened 35 permanent TACs since last August, nine of which were established in the past three months. He said the IRS’ goal is “meeting taxpayers where they are.”

“In the next five years, taxpayers will be able to securely file all documents and respond to all notices online, as well as securely access and download their data and account history,” said Werfel. “This will simplify and streamline the tax process for millions of taxpayers.”

By the end of fiscal 2023, taxpayers will be able to validate bank accounts in their online individual IRS accounts. Secure messaging, live chat, and a virtual assistant are other features coming to individual accounts.

For professional accounts, also by the end of fiscal 2023 the IRS is implementing account authorization management and payment viewing. Live chat and two-way messaging is coming sometime in fiscal 2024. Finally, “the IRS is launching the business online account and enabling businesses to view outstanding balances, make payments online, and conduct a business tax check,” Werfel said. “Business Online Account will initially be available for sole proprietors by the end of fiscal year 2023.”

Other projects are in the works for the next tax filing season, including “homepage updates, filing fees and content updates, and more intuitive global site navigation,” according to Werfel. Further, in tax season 2024, third-party transmitters and software developers will be able to bulk transmit “hundreds of thousands” of Forms 1099 to the IRS Information Return Intake System, or IRIS, which was first rolled out this January.

Issue 15: Applicable Federal Rates for August 2023, Rev. Rul. 2023- 13

AFR Rates August 2023

AFR Rates August 2023 Table 2

AFR Rates August 2023 Table 3

AFR Rates August 2023 Table 5