While most were nestled all snug in their beds in the waning hours of Dec. 19, House and Senate leaders released the text of the mammoth “omnibus” spending bill, which includes a final SECURE 2.0 package (now officially named the SECURE 2.0 Act of 2022) that retains many of the key provisions supported by the American Retirement Association.
The retirement package aims to help small businesses to adopt retirement plans, as well as make it easier for Americans to save.
Among the key retirement provisions in the Act are:
The Act also includes a number of smaller non-retirement tax provisions including changes to ABLE accounts under § 529A and modifications to the rules governing charitable conservation easements under § 170.
Join us in February for a webinar with Michael Miranda. Date TBD.
In this issue:
Issue 1: Key Items to Remember
Issue 2: Exempt Organizations and Government Entities (TEGE) Have Published Three New Audit Technique Guides
The updated and combine the IRS.gov Audit Technique Guides (ATG) are:
TG 0 Technical Guide Overview
TG 3-4 Exempt Purpose, Scientific Organizations 501(c)(3)
TG 17 Supplemental Unemployment Benefit Trusts
Issue 3: Where Are We at with Marijuana Law – Update
After President Joe Biden’s pardon of Americans convicted of simple possession of marijuana on October 6, 2022, the outlook for marijuana legislation remains questionable. House and Senate Democrats have advanced proposals to decriminalize and tax marijuana at the federal level while Republicans remain largely opposed to these measures due to concerns about safety and the proposed taxes.
Despite the disagreement over legislation, nearly every U.S. state has seen the adoption of recreational and medical marijuana programs, increasing the pressure from the banking industry and others for legislation that provides more clarity and certainty around marijuana laws and regulations. The SAFE Banking Plus Act, which would protect financial institutions from federal punishment should they work with regulated cannabis companies, has perhaps the most promise since there is a level of Republican support for the measure.
Issue 4: IRS Hiring – A Step in the Right Direction for Customer Service
In addition to the more than 4,000 people recently hired to fill critical customer service representative positions, the Internal Revenue Service is now seeking over 700 new employees to help taxpayers at Taxpayer Assistance Centers across the country. Most will assist with the 2023 tax season, but they will be fresh out of training.
Training is generally basic tax law and some on-the-job Notice training. It generally takes 2-3 seasons for a Taxpayer Assistance Center (278 sites) or a Taxpayer Service representative to be well seasoned to address the vast majority of basic questions.
2023 will be the first time in a decade, IRS walk-in sites will be fully staffed. This increase in staffing is part of much wider IRS improvements enabled by the Inflation Reduction Act funding approved in August 2022.
IRS employees collect nearly 96% of the nation’s revenue needed to fund nearly all federal government programs.
Issue 5: Reminders When Closing a Business
File a final tax return and related forms. The type of return to file and related forms depends on the type of business. The various types of business entities are:
A sole proprietor is the sole owner of an unincorporated business. These businesses report their income and expenses on Schedule C (Form 1040), Profit or Loss from a Business. In addition to Schedule C, when selling their business sole proprietors may also need to file:
Form 4797, Sales of Business Property, if closing the business causes the business use of a Section 179 property to drop below 51%.
Form 8549, Asset Acquisition Statement, must be filed by both the seller and the purchaser to report the sale of a business if:
goodwill or going concern value attaches, or could attach, to such assets and
the purchaser’s basis in the assets is determined only by the amount paid for the assets.
A partnership is a relationship between two or more partners to conduct a trade or business. Partnerships report their income and expenses on Form 1065, U.S. Return of Partnership Income. Partnerships must report the business’s closure by filing a final Form 1065. On the final return, partnerships should:
Report capital gains and losses from the sale on Schedule D (Form 1065).
Check the “final return” box (it’s near the top of the front page of the return, below the name and address).
Check the “final return” box on Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, Etc.
Partnerships may also need to file Form 4797 and/or Form 8549 with their final return.
A corporation, including S corporations, are separate taxpaying entities with at least one shareholder. Corporations that are closing down should file Form 966, Corporate Dissolution or Liquidation, after adopting a resolution or plan to dissolve the corporation or liquidate any of its stock.
Corporations also need to file a final tax return (Form 1120, U.S. Corporation Income Tax Return or Form 1120-S, U.S. Income Tax Return for an S Corporation) for the year the business closes. Indicate the return is a final return by checking the “final return” box, which is near the top of the front page of the return, below the name and address.
C corporations should report capital gains and losses from the sale on Schedule D (Form 1120).
S corporations should report capital gains and losses from the sale on Schedule D (Form 1120-S). And check the “final return” box on Schedule K-1 (Form 1120-S), Shareholder’s Share of Income, Deductions, Credits, Etc.
Corporations may also need to file Form 4797 and/or Form 8549 with their final return.
Note: A limited liability company (LLC) is a business entity organized under state law that can choose its classification for federal income tax purposes. An LLC can be a partnership, either type of corporation, or a disregarded entity.
Take Care of Employees
Business owners with one or more employees must pay any final wages or compensation, make final federal tax deposits and report employment taxes.
If the business has one or more employees, it must pay them any final wages and compensation owed. The business must also make final federal tax deposits and report employment taxes.
Note: Failure to withhold and deposit employment taxes may result in the IRS assessing the Trust Fund Recovery Penalty.
A business should file:
Note. Final Forms W-2 can be electronically filed with the Social Security Administration.
Business with tipped employees should file Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips, to report final tip income and allocated tips.
A business that provides its employees with a pension or retirement benefit plan should consult, how to Terminate a Retirement Plan. Businesses that provide Health Savings Accounts or similar programs should see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans.
Report payments to contract workers. Businesses that pay contractors at least $600 for services, including parts and materials, during the calendar year in which they go out of business, must report those payments. Businesses file Form 1099-NEC, Nonemployee Compensation, to report contractor payments.
Cancel EIN and close IRS business account. Business owners should notify the IRS that the business has stopped doing business so the IRS can close the business’s tax account.
To cancel an employer identification number (EIN) and close a business’s tax account, the business needs to send the IRS a letter that includes:
Note. The IRS won’t close the business account until all necessary returns have been filed and all taxes owed are paid. So, a business that wants to close its tax account may need to pay any taxes before they are technically due.
Keep business records. How long a business needs to keep records depends on what’s recorded in each document. Generally,
Records relating to property should be kept until the period of limitations expires for the year in which you dispose of the property. The period of limitations is the period in which the business can amend its tax return to claim a credit or refund, or the IRS can assess additional tax.
All employment tax records should be kept for at least four years.
Issue 6: The Student Loan Forgiveness Moving Target – Chain of Events – Wait and See
On August 24, 2022, President Biden announced a three-part student loan forgiveness plan that further extends the suspension of collection actions and wage garnishments for student loans to provide additional assistance to borrowers through the end of 2022. The plan allows for a certain amount of debt forgiveness for certain individuals and extends the pause on student loan debt repayments until December 31, 2022.
On November 10, 2022, a Texas district court ruled that President Biden’s student loan debt relief plan is an unconstitutional exercise of Congress’s legislative power and must be vacated. The Court said that the HEROES Act justification does not provide the executive branch clear Congressional authorization to create a $400 billion student loan forgiveness program.
On November 14, 2022, the Eighth Circuit Court of Appeals granted a preliminary injunction against Biden’s loan debt relief program. The Court said that the injunction will remain in effect until further order from it or the Supreme Court.
On November 22, 2022, the DOE issued a press release that announced the extension of the pause on student loan repayment, interest and collections. This means any wage garnishments having to do with student loan debt will continue to be postponed until June 30, 2023 (payments resume 60 days after this date). This will allow the Supreme Court time to consider all issues concerning student loan relief.
Issue 7: IRS New IRIS Platform for 1099 Filing – Information Returns Intake System (IRIS)
On December 1, 2022, the IRS released new Publication 5717 (Information Returns Intake System (IRIS) Taxpayer Portal User Guide) that provides guidance on the new 1099 filing platform.
Background. § 2102 of the Taxpayer First Act (TFA) requires the IRS to develop an internet platform by January 1, 2023, that will allow taxpayers to electronically file Forms 1099. The new platform will allow users to prepare, file to the IRS and states that participate in the Federal/State Combined Filing Program, provide Forms 1099 suitable for distribution, and create and maintain tax records.
Forms accepted through IRIS. IRIS will launch on January 9, 2023. A 1099 series forms will be accepted through the IRIS including Form 1099-NEC for nonemployee compensation which is due on January 31, 2023. Form 1096 (Annual Summary and Transmittal of U.S. Information Returns) does not need to be filed when using IRIS.
Signing up for IRIS. Publication 5717 notes that filers who would like to use new portal must validate their identity using the latest authentication process prior to completing the IRIS Application for Transmitter Control Code (TCC). This application will be available at www.irs.gov/iris. While the publication says it can take up to 45 days to process an IRIS TCC application, the IRS has already noted that the process is more likely to take only a few days. They are aware of approaching deadlines. The publication provides a list of information required prior to completing the TCC application.
Transmitters must apply for IRIS-specific Transmitter Control Codes (TCC) to use the new user portal. While the bulk filing option (A2A) through IRIS is not currently available, the A2A version will require a separate TCC code. Current FIRE TCCs cannot be used to access IRIS systems. Beginning December 12, 2022, transmitters may apply for an IRIS TCC through a link at http://www.irs.gov/IRIS.
IRIS bulk filing channel. The IRS expects the bulk filing channel for IRIS to launch in May 2023, after Form 1099s are due. The new bulk filing channel will use XML rather than the ASCII format as provided in IRS Publication 1220 for the FIRE system.
Two options for filing. Through IRIS, users may key in data or upload data through a.csv template which will be provided by the IRS. Publication 5717 offers a sneak peek at what IRIS will look like and includes screenshots of the dashboard as well as 1099 form entry screens for users who select the key in option. Users must log into IRIS to get the.csv template so users must obtain log in credentials. The templates will be available on January 9, 2023, when IRIS goes live.
Other functions of IRIS. The publication also provides screenshots and details for other features of IRIS.
Assistance with IRIS. Users may contact the Help Desk Monday through Friday 7:30 a.m. – 7:00 p.m. ET at (866) 937-4130.
Electronically file any Form 1099 for tax year 2022 and later with the Information Returns Intake System (IRIS). If you have 250 or more information returns, you must file them electronically.
Why E-file with IRIS
IRIS is a free service that lets you:
Who Can E-file Forms 1099
Any person or entity can e-file Forms 1099 with IRIS:
Forms 1099 You Can E-file
You can e-file any Form 1099 with IRIS:
Application to Application (A2A)
ATS testing begins May 2023. Schema packages coming soon.
A2A is for large volume filing and typically used by software developers and transmitters.
Issue 8: Automated Collection Notices to Phase Back In, Taxpayer Advocate Says
Temporarily suspended mailings of automated collection notices will resume on a staggered basis to spare IRS customer service representatives and tax practitioners from a deluge of taxpayer correspondence, though it is unclear when this process will—or should—begin. The IRS “has a plan” for how it will restart the mailing of collection notices that were halted in February, which is to “spread it over a period of time.
The applicable individual and business notices and their Spanish language counterparts pertain to outstanding balances, unfiled returns and return delinquencies, intents to levy, and withholding compliance.
Issue 9: Guide to Year-End 2022: Gifts
Year-end processing poses a number of challenges to payroll administrators, accountants, business owners, and employers of all types.
Q: I provide a turkey to each of my workers. Is the value of the turkey taxable?
A: No. The value of the turkey would not be considered wages. The value is considered de minimis and would not be subject to federal withholding.
Q: My company will be handing out Amazon gift cards ranging from $25 to $500 to our employees at the office holiday party. Are these gift cards taxable?
A: Yes. Gift cards have a cash equivalent value, and that value is considered taxable wages. There is no minimum value for it to be taxable since a gift has a monetary value regardless of if it is only worth a penny. The cash equivalent value is subject to federal withholding and FICA tax.
Q: At our holiday party, we will have a random drawing where one employee will win a 75-inch smart television, valued at over $3,000. I know I have to furnish a 1099-MISC for prizes, but should I also withhold on the value?
A: Actually, the amount is not reported on Form 1099-MISC though it is a prize. Prizes are reported on 1099-MISC for nonemployees. But for an employee, the value is reported as wages on Form W-2 and withholding on that value is required because the prize would not have been awarded if not for the employment relationship and the value is not de minimis. The income must be imputed.
Q: We have cajoled a number of our vendors into providing free gifts for our holiday party. These include airline tickets, weekend stays at bed & breakfasts, and other substantial gifts. Other than the fact that we’re the ones distributing the gifts, we have no connection to them. Are they still taxable to the employees? Do we need to report them?
A: Because you as the employer are distributing the gifts, you must impute the value of the gifts and perform withholding. However, if the vendors are distributing the gifts, you have no connection, and no further action is required. The vendors must then provide a 1099-MISC to the recipient for any prize worth more than $600.
Issue 10: IRS Advisory Council Issues 2022 Annual Report
The Internal Revenue Service Advisory Council (IRSAC) issued its annual report for 2022, including recommendations to the IRS on new and continuing issues in tax administration.
The 2022 Public Report includes recommendations on 21 issues covering a broad range of topics including:
The IRSAC serves as a federal advisory committee to the IRS commissioner that provides an organized public forum for discussion of relevant tax administration issues between IRS officials and representatives of the public. IRSAC members offer constructive observations regarding current or proposed IRS policies, programs and procedures.
The IRSAC is administered under the Federal Advisory Committee Act by the Office of National Public Liaison, part of IRS Communications and Liaison, and draws its members from the taxpaying public, the tax professional community, representatives of the low-income community, small and large businesses, tax-exempt and government entities, the payroll industry and academia. Five subgroups report to the parent council:
Issue 11: New Qualified Amended Return Procedures Released under Treas. Reg. 1.6664-2(c)(3)
The IRS has released new procedures that allow certain taxpayers to avoid the imposition of an accuracy-related penalty by reporting additional tax due or providing adequate disclosure for an item or a position on a previously filed return that is under audit. (Rev Proc 2022-39) These procedures apply to eligible Large Business & International (LB&I) taxpayers who are subject to nearly annual examinations.
Qualified amended returns. Generally, a “qualified amended return” is an amended return that is filed after the return’s due date for the tax year and before the earliest of (1) the date the IRS first contacts the taxpayer about examining the return or (2) for certain pass-through items, the date the IRS first contacts the entity about examining the return the pass-through item relates to. (Reg §1.6664-2(c)(3))
The regs give the IRS the authority to prescribe how taxpayers file a “qualified amended return.” The regs also provide deadlines after which the taxpayer cannot avoid an accuracy-related penalty by filing an amended return.
Rev Proc 94-69 is superseded, it provided procedures for certain taxpayer subject to audit each year to file amended returns to avoid the imposition of accuracy-related penalties. These procedures generally allowed these taxpayers to avoid or reduce accuracy-related penalties if items resulting in additional tax were reported, or a position contrary to a rule was adequately disclosed, in a written statement furnished to the IRS within a 15-day window beginning with the IRS’ written request for such a statement.
New qualified amended return procedures. To avoid an accuracy-related penalty for negligence and/or substantial understatement, the new procedures require an eligible taxpayer to submit a properly completed Form 15307, Post-Filing Disclosure for Specified
Large Business Taxpayers, to its examiner no later than 30 days from the date the IRS, asks the taxpayer, in writing, to submit the form.
Note. Form 15307 is treated as a qualified amended return in this situation.
On its Form 15307, the taxpayer must separately describe each item that would result in an adjustment. An item’s description is adequate if it provides information that is reasonably expected to apprise the IRS of the item’s identity, its amount and the nature of the controversy or potential controversy. The taxpayer is also required to include a computation of the increase (or decrease) in taxable income for each item disclosed on Form 15307.
The taxpayer may also disclose information for purposes of establishing the reasonable basis of a position even though the taxpayer does not report any items that would result in adjustments with respect to that tax year.
Any agreed additional tax liability identified on Form 15307 will be treated as an additional amount of tax on a qualified amended return when determining if there is an underpayment of tax subject to a penalty.
Unagreed additional tax liability reported on Form 15307:
These procedures apply to eligible Large Business & International (LB&I) taxpayers who are subject to nearly annual examinations.
Effective date. Generally, Rev Proc 2022-39 is effective for audits of eligible taxpayers that begin after November 16, 2022.
Issue 12: Renew Your Enrolled Agent Status by January 31, 2023
Renewal season for enrolled agents with Social Security numbers ending in 4, 5, or 6 began on November 1. Enrolled agents must renew by January 31, 2023, to ensure they receive their new enrollment card before their current enrollment expires on March 31, 2023.
If you have questions about your enrolled agent renewal, call toll-free 855-472- 5540 (Hours: 6:30 am – 5 pm CT)
Issue 13: 401(k) limit increases to $22,500 for 2023, IRA limit rises to $6,500
The Internal Revenue Service announced on October 21, 2022 that the amount individuals can contribute to their 401(k) plans in 2023 has increased to $22,500, up from $20,500 for 2022. The IRS today also issued technical guidance regarding all of the cost‑of‑living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2023 in Notice 2022-55.
Issue 14: ID.me Overstated Capacity to IRS
ID.me overstated its capacity to conduct identity verification services for the IRS and the amount of federal money lost to pandemic fraud in an apparent attempt to increase demand for its services, according to information released by a committee from the U.S. House of Representatives. The House Select Subcommittee on the Coronavirus Crisis and Committee on Oversight and Reform began investigating ID.me following reports that Americans seeking unemployment benefits using the online identity verification service were facing significant delays and had other concerns about privacy, security and effectiveness.
According to a news release issued by the oversight committee on Nov. 17, ID.me inaccurately downplayed the wait times for users in states that had contracts to provide services to unemployment programs as the IRS considered a contract with ID.me related to advance payments of the child tax credit. During a meeting with IRS leadership, representatives of ID.me told IRS officials that wait times for video chats were roughly two hours when in reality wait times were more than four hours for 14 of the 21 state unemployment programs it served.
The IRS chose to use ID.me to provide identity verification in connection with the implementation of the enhanced child tax credit, the committee said. However, the IRS stopped using the company’s services after the public raised privacy and security concerns over facial recognition technology.
Issue 15: Infrastructure and Investment Jobs Act’s Crypto Reporting Requirements
Crypto reporting requirements under the Infrastructure and Investment Jobs Act (PL 117-58), enacted November 2021, go into effect soon and will affect the industry in the United States.
While buying cryptocurrency generally will not result in a taxpayer being taxed, other types of crypto transactions will. A few examples include converting it to cash, trading it for another crypto, or using it for purchases.
The IRS does require investors to disclose their crypto asset activities yearly by checking a box on their tax returns; however, many investors fail to meet this obligation at tax time.
The new infrastructure bill mandates that crypto exchanges send Form 1099-B, which is commonly used for traditional brokerages, to report a yearly profit or loss of a given crypto asset. There has also been talk about introducing a new tax information reporting form, Form 1099-DA, Digital Assets.
KEY TAKE AWAYS:
Issue 16: GAO Calls for More Preparer Oversight
The U.S. Government Accountability Office (GAO) issued a report recommending that Congress grant the IRS authority to establish professional requirements for paid tax preparers. The GAO made the recommendation after noting that an estimated $26 billion in refundable credits issued for 2021 were for the wrong amount or missing documentation. About half of those credits were claimed by taxpayers using paid preparers.
The GAO said the IRS designed its Refundable Credits Return Preparer Strategy program to address improper payments made to taxpayers claiming refundable tax credits and other benefits. The program operates through education and enforcement actions against paid preparers that demonstrate a high probability of errors. However, the GAO found the IRS has yet to develop a long-term plan that identifies and links long-term goals, objectives, activities and performance measures to the program.
While the Refundable Credits Return Strategy program encourages preparers to comply with due diligence requirements, IRS data has shown that it reached less than 2% of preparers in 2021. Additionally, the GAO said preparers are not held to uniform standards because the IRS lacks the authority to establish professional requirements, which puts taxpayers at risk of enforcement actions due to insufficient or incompetent preparers. It concluded that if Congress acts to provide the IRS with the authority to establish requirements for all preparers, the agency could more efficiently target noncompliant preparers.
Issue 17: IR-2021-256 Remains Employers and Self-Employed Individuals that Deferred Payments of part of their 2020 Social Security Tax Obligation is Due on January 3, 2023
Most affected employers and self-employed individuals received reminder billing notices from the IRS. The agency noted, however, that those affected are still required to make the payment on time, even if they did not receive a bill.
As part of the COVID relief provided during 2020, employers and self-employed people could choose to put off paying the employer’s share of their eligible Social Security tax liability, normally 6.2% of wages. Half of that deferral is now due on January 3, 2022, and the other half on January 3, 2023.
Under separate COVID relief, employers could choose to forgo withholding Social Security taxes from eligible employees, and instead withhold tax this year and then pay those amounts to the IRS.
How to repay the deferred taxes
Employers and individuals can make the deferral payments through the Electronic Federal Tax Payment System or by credit or debit card, money order or with a check. To be sure these payments are credited properly, they must be made separately from other tax payments.
EFTPS has an option to make a deferral payment. On the Tax Type Selection screen, choose Deferred Social Security Tax and then change the date to the applicable tax period (typically, the calendar quarter in 2020 for which tax was deferred). Visit EFTPS.gov, or call 800-555-4477 or 800-733-4829 for details.
Individual taxpayers can also use Direct Pay, available only on IRS.gov. Select the “balance due” reason for payment. If paying with a debit or credit card, select “installment agreement.” Apply the payment to the 2020 tax year where the payment was deferred.
Issue 18: TIGTA: Random Returns Chosen for NRP Audit
The IRS’s National Research Program (NRP) randomly selected returns for 2017 and 2019 to audit, according to a Treasury Inspector General for Tax Administration (TIGTA) report. The IRS uses NRP to gather information about compliance and reporting by selecting random returns for examination. TIGTA reviewed the process NRP used to choose returns for audit following media reports that specific high-profile taxpayers had been singled out for audits of their 2017 and 2019 returns.
TIGTA found that key decisions related to the NRP’s return selection process for the 2017 and 2019 tax years were made before the filing season for those years. TIGTA also confirmed that the computer programs used to select the audited returns worked as designed and found no malicious code that would pull the returns of specific taxpayers for review. Finally, key IRS officials involved in the NRP said they were not instructed to add specific taxpayers to the returns selected for the years examined.
Issue 19: Applicable Federal Rates for January 2023, Rev. Rul. 2023-1
REV. RUL. 2023-1 TABLE 4
Appropriate Percentages Under Section 42(b)(1) for January 2023 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 7.89%
Appropriate percentage for the 30% present value low-income 4 housing credit 3.38%