Tax Newsletter July 2022

 July 1st, 2022    

In This Issue

  • IRS Increases Mileage Rate for Remainder of 2022
  • TIGTA Releases Public Service Announcements Warning Taxpayers of the Ongoing Threat of IRS Impersonation Scams
  • Senate Bill Sets Stage for Crypto Tax Clarity
  • Illinois—Cook County Minimum Wage Increase on July 1
  • Connecticut Provides a 10-year Statute of Limits, Revises Other Tax Collection Provisions, and Codifies Composite Return Elections
  • Iowa Law Amended Regarding Reciprocal Agreements with Other States
  • TE/GE to Continue Offering Taxpayers Video Meetings
  • Employers Can Still Claim the Employee Retention Credit Via an Amended Tax Return
  • Understanding IRS Guidance – A Brief Primer
  • The Where’s My Refund Tool Improved and Expanded
  • When the Lemonade Stand Makes Bank: Young Entrepreneurs and Taxes
  • IRS Selects New Deputy Chief for Criminal Investigation Division
  • TIGTA Reports on Trends in Compliance Activities
  • Corinthian Student Loan Debt Cancellation
  • Verify Your E-File Application Information
  • Tax Considerations for People Who Are Separating or Divorcing
  • Proposed Legislation Introduced
  • Bernie Sanders Pitches Social Security Benefit Increase, Higher Taxable-Income Cap – Not Law
  • Child Tax Credit Plan Proposal– Not Law

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Issue 1: IRS Increases Mileage Rate for Remainder of 2022

IRS announced an increase in the optional standard mileage rate for the final 6 months of 2022. Taxpayers may use the optional standard mileage rates to calculate the deductible costs of operating an automobile for business and certain other purposes.

For the final 6 months of 2022, the standard mileage rate for business travel will be 62.5 cents per mile, up 4 cents from the rate effective at the start of the year. The new rate for deductible medical or moving expenses (available for active-duty members of the military) will be 22 cents for the remainder of 2022, up 4 cents from the rate effective at the start of 2022. These new rates become effective July 1, 2022. The IRS provided legal guidance on the new rates in Announcement 2022-13.

For travel from Jan. 1 through June 30, 2022, taxpayers should use the rates set forth in Notice 2022-03. View table below.

The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

The 14 cents per mile rate for charitable organizations remains unchanged as it is set by statute.

Midyear increases in the optional mileage rates are rare, the last time the IRS made such an increase was in 2011.

Mileage Rate Changes

 Purpose Rates 1/1 through 6/30/22 Rates 7/1 through 12/31/22
Business 58.5 62.5
Medical/Moving 18 22
Charitable 14 14

Issue 2:  TIGTA Releases Public Service Announcements Warning Taxpayers of the
Ongoing Threat of IRS Impersonation Scams

J. Russell George, the Treasury Inspector General for Tax Administration, announced the release of new public service announcements (PSAs) to educate taxpayers about the continuing threat of Internal Revenue Service (IRS) impersonation scams.

Scammers undermine Federal tax administration by impersonating IRS employees in an effort to obtain personally identifiable information (PII) from unsuspecting taxpayers or to steal their money. Such impersonators may claim to be IRS employees on the telephone or may misuse IRS logos, seals, or symbols to create official-looking letters and e-mails.

Impersonators often tell their victims that they owe money to the IRS and must pay through a preloaded debit card, wire transfer, or gift card from Apple iTunes, Walmart, or Target. Sometimes they trick taxpayers into providing their PII, which the impersonator then uses to commit identity theft.

Between October 2013 and March 2022, TIGTA logged more than 2.5 million contacts from taxpayers who reported that they had communicated with individuals who claimed to be IRS employees. The impersonators told the victims that they owed additional taxes and that if they did not immediately pay, they would be arrested or face other adverse consequences.

As of March 31, 2022, 16,038 victims have reported to TIGTA that they had lost more than $85 million, collectively, to impersonation scams. TIGTA has initiated 893 impersonation scam related investigations, which, as of March 2022, have resulted in 300 individuals being charged in Federal court. Of those, 197 individuals have been convicted and sentenced collectively to more than 910 years’ imprisonment and ordered to pay more than $224 million in restitution.

The top five States by number of victims who have suffered financial losses are California, New York, Texas, Florida, and New Jersey.

In addition to scam phone calls, taxpayers may encounter fraudulent IRS websites, or receive social media-based communications and/or phishing e-mails, text messages, or other communications, which claim to be from the IRS and ask for sensitive PII or payments in order to receive a tax refund or credit, such as the Economic Impact Payment or Child Tax Credit. These are scams. Taxpayers should not click on any embedded links or open any attached files. Scammers may use these methods to install malicious software on a victim’s phone or computer.

Scammers may also try to convince victims to deposit fraudulent or stolen U.S. Treasury checks into a victim’s bank account. After the victim makes the deposit, the scammers request that the victim send funds from that deposit to another account or use those funds to purchase prepaid cards.

Issue 3: Senate Bill Sets Stage for Crypto Tax Clarity

Recent proposed legislation signals the government’s intent to address longstanding confusion surrounding the tax treatment of digital assets such as cryptocurrencies.

The Responsible Financial Innovation Act (S. 4356), would establish a regulatory framework for digital assets. The first-of-its-kind legislation attempts to validate the mainstream use of digital assets—particularly so-called stablecoin cryptocurrencies that function as fiat currencies—by integrating existing tax and banking laws.

For the purposes of the bill, a digital asset is defined as a “natively electronic asset” that:

  • confers economic, proprietary, or access rights or powers; and
  • is recorded using cryptographically secured distributed ledger technology, or any similar analogue.

This includes virtual currency and “ancillary assets,” payment stablecoins, and other securities and commodities. An ancillary asset refers to an intangible, fungible asset that is offered, sold, or otherwise provided to a person in connection with the purchase and sale of a security through an arrangement or scheme that constitutes an investment contract.

The bill grants regulatory authority to the Commodity Futures Trading Commission, and not the Securities and Exchange Commission. The bill provides a legal distinction between which digital assets are treated as commodities or securities using the Supreme Court’s Howey test for determining whether a transaction qualifies as an investment contract.

The legislation would amend the definition of a digital asset broker provided in the Infrastructure Investment and Jobs Act (IIJA; PL 117-58). The modified definition of a broker would mean “any person who (for consideration) stands ready in the ordinary course of a trade or business to effect sales of digital assets at the direction of their customers.” Importantly, the digital asset reporting requirement under the IIJA would be delayed to January 1, 2025.

If the bill becomes law, the IRS would be required, within one year, to adopt guidance on the disposition of so-called forks and airdrops, merchant acceptance of digital assets, mining and staking, charitable contributions of digital assets, and the legal characterization of payment stablecoins as indebtedness.

Other tax provisions include:

  • A $200 per transaction de minimis exclusion from gross income when virtual currency is used for payment of goods and services.
  • Extends the safe harbors for securities and commodities trading activity by non-U.S. persons who use a U.S.-based financial institution for digital asset trading purposes.
  • Certain decentralized autonomous organizations would be considered business entities and must be incorporated or organized akin to a typical limited liability company, corporation, partnership, or other similar organization.
  • Digital asset lending agreements would generally not be taxable under the bill.

Issue 4:  Illinois—Cook County Minimum Wage Increase on July 1

  • Effective July 1, 2022, the minimum wage for Cook County will increase to $13.35 per hour. The minimum wage rate for tipped employees will increase to $7.40 per hour.
  • The County’s Ordinance on the minimum wageapplies to hourly, salaried, and tipped employees, over the age of 18, working in Cook County, even those who may be working within the County to make deliveries or driving within the County limits.

There are exceptions to the categories of employees covered by the Ordinance.

  • Although the County’s minimum wage Ordinance does not apply to those under the age of 18, the Illinois Minimum Wage Act requires teenage workers to be paid a minimum wage of $9.25 per hour, with annual increases.
  • The Ordinance does not apply to the City of Chicago, which has its own minimum wage requirements.

Issue 5: Illinois—Personal Income Tax—ABLE Account Program Changes

  1. 2022, S3786 (P.A. 102-1024), effective 05/27/2022,for purposes of the ABLE account program, defines “designated representative” to include an entity, as well as a person, who is authorized to act on behalf of a designated beneficiary.

A person or entity seeking to open an ABLE account on behalf of a designated beneficiary must provide certification, subject to penalties of perjury, of the basis for the person’s or entity’s authority to act as a designated representative and that there is no other person or entity with higher priority to establish the ABLE account under §529A and federal regulations.

The bill removes provisions allowing the State Treasurer to recognize specified persons or entities as a designated representative without appointment by a court.

Issue 6: Connecticut Provides a 10-year Statute of Limits, Revises Other Tax Collection Provisions, and Codifies Composite Return Elections

Connecticut has enacted legislation revising multiple tax administration provisions relating to tax collection, refunds, penalties, and interest including the following:

  • Provides a 10-year statute of limitations on tax collection.
  • The legislation codifies the Department of Revenue Services’ policy of allowing pass-through entities to make an annual election to remit composite income tax on behalf of nonresident individual members.
  • The legislation makes technical corrections and authorizes the Department to impose more than one sale and use tax deficiency assessment for a tax period.
  • Applicable to taxable years beginning on or after January 1, 2022, the responsible person penalty for willfully failing to collect or pay withholding taxes is amended to include any penalty or interest attributable to such willful failure to collect or truthfully account for and pay over such tax or such willful attempt to evade or defeat such tax in addition to the current penalty, which is equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over.
  • The change in law requires taxpayers who claimed the credit for income tax paid to another state to file an amended return for any tax year in which the qualifying jurisdiction’s tax officials or courts issued an assessment against the taxpayer for failing to file an income tax return with the jurisdiction. If the taxpayer as a result is due a Connecticut tax refund, the amended return must be filed within five years after the original Connecticut return was due to be eligible for the refund.
  • The legislation provides that interest added to a refund of tax issued by the Commissioner of Revenue Services for a tax period may not exceed $5 million and no court may award interest more than $5 million in any tax appeal in connection with a claim for refund of tax for a tax period.
  • The legislation limits the period during which taxpayers may file refund claims for tax periods for which the results of any civil audit, investigation, examination, or reexamination have become final. Taxpayers must file these claims within six months after the date the results become final by operation of law or by exhaustion of all available administrative and judicial rights of appeal, whichever is later. After this six-month period, the tax period covered by the audit, investigation, examination, or reexamination must be closed and the taxpayer may not file any additional refund claims for the period, except for specified refund claims authorized under existing corporation business and personal income tax laws.
  • The legislation authorizes the Commissioner to release return information to the police as part of criminal investigations.

Issue 7:  Iowa Law Amended Regarding Reciprocal Agreements with Other States

Effective July 1, 2022, Iowa law amends the state’s reciprocal agreement law by expanding the types of debt that the Department of Revenue may attempt to collect through reciprocal agreements with other states, including taxes.

The new law clarifies the definition of the words “tax” and “taxes” to include interest and penalties, and provides that the director of revenue has the authority to enter into an agreement with a department or agency of any other state for the purpose of the collection of delinquent accounts, including taxes.

Issue 8: TE/GE to Continue Offering Taxpayers Video Meetings

TE/GE-04-0522-0023 (5/26/2022)

The IRS’s Tax-Exempt and Government Entities (TE/GE) division will continue to offer video meetings via agency-approved platforms to taxpayers and their representatives, according to an internal memo.

In July 2020, TE/GE began offering taxpayers virtual appointments via video conferencing due to the COVID-19 pandemic. Since then, TE/GE has repeatedly extended the use of video meetings.

In this latest memo, the IRS said TE/GE employees may, with a manager’s approval, continue to offer taxpayers video meetings via Microsoft Teams, Webex, and Zoom, which the IRS has approved as videoconferencing platforms.

In addition, taxpayers and their representatives may request to meet virtually with TE/GE employees. If a taxpayer asks for a virtual meeting, the TE/GE employee and their manager will determine whether a video meeting rather than an in-person meeting is the most appropriate means of meeting with the taxpayer and their representative.

Issue 9: Employers Can Still Claim the Employee Retention Credit Via an Amended Tax Return

According to the IRS, employers can still claim the employee retention credit (ERC) by filing amended employment tax returns, even though the coronavirus (COVID-19) pandemic-era tax credit aimed at helping employers and employees during the health crisis expired last year.

Timeline:

The ERC is a provision from the Coronavirus Aid, Relief, and Economic Security Act (CARES; P.L. 116-136) Act that allowed for a tax credit against certain employment taxes for eligible employers that paid qualified wages, including certain health plan expenses, to certain employees. This began on March 12, 2020 and was initially to end at the end of 2020.

The ERC was extended until June 30, 2021, by the Consolidated Appropriations Act (CAA; P.L. 116-260) and further extended through the end of 2021 by the American Rescue Plan Act of 2021.

However, the Infrastructure Investment and Jobs Act (Infrastructure Act; P.L. 117-58) retroactively terminated the ERC for most employers, beginning on October 1, 2021.

Recovery startup businesses were the only employers allowed to claim the credit through the end of 2021. A recovery startup business is any employer that began operations after February 15, 2020, subject to certain average annual gross receipts requirements.

Law and Forms:

Eligible employers claimed the ERC by reporting their total qualified wages and the related health insurance costs for each quarter on their Form 941, Employer’s Quarterly Federal Tax Return.

To account for COVID-19 tax credits like the ERC, the IRS had to revise Form 941 (and other forms in the 941 series) several times. The IRS also revised Form 941X Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund.

The current version of the Form 941-X has multiple line numbers for making corrections and amendments regarding the ERC. These adjustments are reported on Form 941-X as follows:

  1. Line 18a is for the nonrefundable portion of the ERC.
  2. Line 26a is for the refundable portion of the ERC.
  3. Line 30 is for the qualified wages of the ERC.
  4. Line 31a is for qualified health plan expenses for the ERC.
  5. Line 31b is a checkbox indicating if the employer is eligible for the ERC in the third or fourth quarter of 2021 solely because the employer is a recovery startup business, and
  6. Line 33a is for the qualified wages paid from March 13, 2020, through March 31, 2020, for the ERC.

There are also two worksheets in Form 941-X instructions that related to the ERC.

  • Worksheet 2 is the adjusted ERC for wages paid after March 12, 2020, and before July 1, 2021.
  • Worksheet 4 is the adjusted ERC for wages paid after June 30, 2021, and before January 1, 2022 (October 1, 2021, for most employers, except startup recovery businesses).

According to the Form 941-X instructions, employers may correct overreported taxes on a previously filed Form 941 if the Form 941-X is filed within three years of the date Form 941 was filed or two years from the date you paid the tax reported on Form 941, whichever is later. The instructions also say that employers may correct underreported taxes on a previously filed Form 941 if the Form 941-X is filed three years of the date the Form 941 was filed. The IRS refers to these time frames as a “period of limitations.” And, for purposes of the period of limitations, Forms 941 for a calendar year are considered filed on April 15 of the succeeding year if filed before that date.

Employers can still claim the ERC, even if the employer never claimed the credit during the time the ERC was available.

The window of opportunity to amend employment tax overpayments has not yet expired with relation to the period the ERC was available. So, if an employer currently discovers that it was eligible for the ERC when the credit was available, the employer can file a Form 941-X to report the overpayment in employment taxes and claim the ERC after its termination date.

Issue 10: Understanding IRS Guidance – A Brief Primer

For anyone not familiar with the inner workings of tax administration, the array of IRS guidance may seem, well, a little puzzling. To take a little of the mystery away, here is a brief look at eight of the most common forms of guidance.

In its role in administering the tax laws enacted by the Congress, the IRS must take the specifics of these laws and translate them into detailed regulations, rules, and procedures. The Office of Chief Counsel fills this crucial role by producing several distinct kinds of documents and publications.

Regulations

A regulation is issued by the Internal Revenue Service and Treasury Department to provide guidance for new legislation or to address issues that arise with respect to existing Internal Revenue Code sections.

  • Regulations interpret and give directions on complying with the law.
  • Regulations are published in the Federal Register.

Generally, regulations are first published in proposed form in a Notice of Proposed Rulemaking (NPRM). After public input is fully considered through written comments and even a public hearing, a final regulation or a temporary regulation is published as a Treasury Decision (TD), again, in the Federal Register.

Revenue Rulings

A revenue ruling is an official interpretation by the IRS of the Internal Revenue Code, related statutes, tax treaties and regulations. It is the conclusion of the IRS on how the law is applied to a specific set of facts. Revenue rulings are published in the Internal Revenue Bulletin for the information of and guidance to taxpayers, IRS personnel and tax professionals.

Revenue Procedures

A revenue procedure is an official statement of a procedure that affects the rights or duties of taxpayers or other members of the public under the Internal Revenue Code, related statutes, tax treaties and regulations and that should be a matter of public knowledge.  While a revenue ruling generally states an IRS position, a revenue procedure provides return filing or other instructions concerning an IRS position

Private Letter Rulings

A private letter ruling, or PLR, is a written statement issued to a taxpayer that interprets and applies tax laws to the taxpayer’s specific set of facts. A PLR is issued to establish with certainty the federal tax consequences of a particular transaction before the transaction is consummated or before the taxpayer’s return is filed.

A PLR is issued in response to a written request submitted by a taxpayer and is binding on the IRS if the taxpayer fully and accurately described the proposed transaction in the request and carries out the transaction as described. A PLR may not be relied on as precedent by other taxpayers or IRS personnel. PLRs are generally made public after all information has been removed that could identify the taxpayer to whom it was issued.

Technical Advice Memorandums

A technical advice memorandum, or TAM, is guidance furnished by the Office of Chief Counsel upon the request of an IRS director or an area director, appeals, in response to technical or procedural questions that develop during a proceeding. A request for a TAM generally stems from an examination of a taxpayer’s return, a consideration of a taxpayer’s claim for a refund or credit, or any other matter involving a specific taxpayer under the jurisdiction of the territory manager or the area director, appeals.

Technical Advice Memoranda are issued only on closed transactions and provide the interpretation of proper application of tax laws, tax treaties, regulations, revenue rulings or other precedents. The advice rendered represents a final determination of the position of the IRS, but only with respect to the specific issue in the specific case in which the advice is issued. Technical Advice Memoranda are generally made public after all information has been removed that could identify the taxpayer whose circumstances triggered a specific memorandum.

Notices

A notice is a public pronouncement that may contain guidance that involves substantive interpretations of the Internal Revenue Code or other provisions of the law. For example, notices can be used to relate what regulations will say in situations where the regulations may not be published in the immediate future.

Announcements

An announcement is a public pronouncement that has only immediate or short-term value. For example, announcements can be used to summarize the law or regulations without making any substantive interpretation; to state what regulations will say when they are certain to be published in the immediate future; or to notify taxpayers of the existence of an approaching deadline.

GLAMS – General Legal Advice Memorandum

A GLAM is issued by executives in the IRS Office of Chief Counsel to national program executives and managers to assist them in administering their programs by providing legal opinions on specific matters, such as industry-wide issues.

Issue 11: The Where’s My Refund Tool Improved and Expanded

The IRS recently rolled out a new and improved Where’s My Refund tool. This updated tool allows taxpayers to check the status of their refunds for the 2021, 2020, and 2019 tax years.

To use the tool, taxpayers will need their Social Security number or ITIN, filing status and expected refund amount from their original tax return for the year they’re checking.

Available on IRS.gov or the IRS2Go mobile app, Where’s My Refund allows taxpayers to track their refund through three stages:

  1. Return received.
  2. Refund approved.
  3. Refund sent.

Using this tool, taxpayers can start checking the status of their refund within:

  • 24 hours after e-filing a tax year 2021 return.
  • Three or four days after e-filing a tax year 2019 or 2020 return.
  • Four weeks after mailing a return.

Issue 12: Tax Tip 2022-88 – When the Lemonade Stand Makes Bank: Young Entrepreneurs and Taxes

Teens and young adults often go into business for themselves over the summer or after school. This work can include babysitting, lawn mowing, dog walking or other part-time or temporary work. When a teen or young adult is an employee of a business, their employer withholds taxes from their paycheck. However, when they are classified as an independent contractor or are self-employed, they’re responsible for paying taxes themselves.

Things to keep in mind:

  • Everyone, including minors, must file a tax return if they had net earnings from self-employment of at least $400.
  • If they owe taxes, teens and young adults should file their own tax return, even if their parent or guardian claims them as a dependent.
  • Teens and young adults can prepare and sign their own tax return. There is no minimum age to sign a tax return.
  • Parents cannot claim a dependent’s earned income on their own tax return.
  • In addition to income tax, people who are self-employed are generally responsible for self-employment tax as well.
  • Teens and young adults can lower the amount of tax they owe by deducting certain expenses.

Here’s what young entrepreneurs can do to keep on top of their tax responsibilities:

Keep records. It’s good to make and keep financial records and receipts during the year. Recordkeeping can help track income and deductible expenses and provide the information needed for a tax return.

Pay estimated tax, if required. If a teen or young adult being claimed as a dependent expect to owe at least $1,000 in tax for 2022, they must make estimated payments on a quarterly basis. They should be sure to pay enough tax on time to avoid a penalty. They can use one of these forms to calculate their estimated taxes:

If a taxpayer also has a job where tax is withheld by their employer, they can request that their withholding be increased to cover their estimated taxes from their self-employed income.

When tax season rolls around, young taxpayers can review the information and forms, gather their records and e-file their tax return. When preparing to file a tax return, they should make sure to review all their records, including estimated tax they’ve already paid.

Issue 13: IRS Selects New Deputy Chief for Criminal Investigation Division

The Internal Revenue Service has announced the selection of Guy Ficco as the next Deputy Chief for IRS Criminal Investigation (IRS-CI). He will oversee 20 field offices and 11 foreign posts, including approximately 2,000 special agents investigating tax fraud and other financial crimes.

Ficco currently serves as IRS-CI’s Executive Director of Global Operations where he oversees CI’s policies related to investigations, as well as the agency’s international footprint. He provides executive leadership over CI’s Financial Crimes, Asset Recovery and Investigative Services, Special Investigative Techniques, and Narcotics and National Security sections, as well as CI’s International Field Operations.

Ficco will replace Jim Robnett, who will be retiring July 15 after 36 years of service at the IRS, 28 of which were with IRS-CI.

In previous IRS-CI positions, Ficco served as Special Agent in Charge, providing oversight and direction in matters relating to criminal investigation activities and programs for the Philadelphia Field Office. Additionally, during his tenure he held various leadership roles including Supervisory Special Agent in the Washington Field Office, Senior Analyst in both Financial Crimes and International Operations sections, Assistant Special Agent in Charge for the Washington Field Office, Director of Special Investigative Techniques, Washington DC, and long-term actor for Deputy Director, Strategy.

Ficco served as a Congressional Fellow through the Government Affairs Institute at Georgetown University, assigned to the Permanent Subcommittee on Investigations in the Senate Homeland Security Committee. He holds a bachelor’s degree in business administration with a concentration in Accounting from Dominican College in New York. He is a Certified Fraud Examiner and joined IRS Criminal Investigation in 1995.

IRS-CI is the criminal investigative arm of the IRS, responsible for conducting financial crime investigations, including tax fraud, narcotics trafficking, money-laundering, public corruption, healthcare fraud, identity theft and more. IRS-CI special agents are the only federal law enforcement agents with investigative jurisdiction over violations of the Internal Revenue Code, boasting a nearly 90 percent federal conviction rate. The agency has 20 field offices located across the U.S. and 11 attaché posts abroad.

Issue 14: TIGTA Reports on Trends in Compliance Activities

The Treasury Inspector General for Tax Administration recently released an audit aimed at providing statistical data on activities of the IRS’s collection and examination functions through fiscal year 2020. (Audit Report No. 2022-30-033) According to the audit, during FY 2020:

  • Taxpayers filed 157 million individual and 11.3 million business income tax returns. These filings resulted in $3.5 trillion of total revenue collected.
  • The IRS’s budget increased by 2% between FY 2016 and FY 2020. By the end of FY 2020, the agency workforce had increased by about 1,400 full-time equivalents from the previous year.
  • The agency collected $51.1 billion in enforcement revenue in FY 2020. The all-time high in this area was $59.4 billion in FY 2018.
  • During FY 2020, 74% of enforcement revenue was collected within the IRS’s systemic collection processes.
  • The Automated Collection System supported the IRS’s enforcement operations by collecting $2.8 million per full-time equivalent in FY 2020, while revenue officers within Field Collection collected on average $1.8 million each.
  • During FY 2020, the agency completed a total of 509,917 examinations, composed of 370,175 (73%) via correspondence and 139,742 (27%) by field examinations. Compared with FY 2016, correspondence examinations declined 55% and field examinations dropped 59%. The 9.75% decrease in staffing with the Examination functions has contributed to the decline in examinations. The trending decline in enforcement activity is likely causing growth in the overall tax gap as taxpayers are less likely to be subject to an examination.

Issue 15: Corinthian Student Loan Debt Cancellation

The Education Department announced that students who attended Corinthian Colleges will be receiving full federal student loan forgiveness. The forgiveness comes in the form of borrower defense to repayment, a program designed to help students who have been defrauded by their schools. The Education Department will be sending out notices to students who qualify, and eligible loans will be discharged automatically in the next few months.

Though cancellation of debt is normally taxable, there are some exceptions. One exception is for student loan debt canceled between Dec. 21, 2020, and before Jan. 1, 2026, if the loan was provided expressly for postsecondary education expenses and was made or backed by the U.S. A Form 1099-C will not be issued. There may be state tax implications, depending on whether the state conforms to the federal provisions.

Issue 16: Verify Your E-File Application Information

As you transition into the next filing season, remember to take time to review your e-file application information through the IRS’s e-Services. Your e-file application information should be updated within 30 days of any changes, such as individuals involved, addresses or telephone numbers. Failure to do so may result in the inactivation of your EFIN.

Your application should only include individuals as principals who are authorized to act for the entity in legal and/or tax matters. Your application should also include a responsible official, which is an individual who has authority over the provider’s IRS e-file operation at a location, is the first point of contact with the IRS and has authority to sign revised IRS e-file applications.

Issue 17: Tax Considerations for People Who Are Separating or Divorcing

When people go through a legal separation or divorce, the change in their relationship status also affects their tax situation. The IRS considers a couple married for filing purposes until they get a final decree of divorce or separate maintenance.

  • Update withholding
    When someone becomes divorced or separated, they usually need to file a new Form W-4 with their employer to claim the proper withholding. If they receive alimony, they may have to make estimated tax payments.
  • Understand the tax treatment of alimony and separate maintenance
    Amounts paid to a spouse or a former spouse under a divorce decree, a separate maintenance decree, or a written separation agreement may be alimony or separate maintenance payments for federal tax purposes. Certain alimony or separate maintenance payments are deductible by the payer spouse, and the recipient spouse must include it in income.

However, individuals cannot deduct alimony or separate maintenance payments made under a divorce or separation agreement executed after 2018 or executed before 2019 but later modified if the modification expressly states the repeal of the deduction for alimony payments applies to the modification. Alimony and separate maintenance payments received under such an agreement are not included in the income the recipient spouse.

  • Determine who will claim a dependent child if filing separate returns
    Generally, the parent with custody of a child can claim that child on their tax return. If parents split custody fifty-fifty and are not filing a joint return, they will have to decide which parent gets to claim the child. There are tie-breaker rules if the parents cannot Child support payments are not deductible by the payer and aren’t taxable to the payee.
  • Report property transfers, if needed
    Usually, there is no recognized gain or loss on the transfer of property between spouses, or between former spouses if the transfer is because of a divorce. People may have to report the transaction on a gift tax return.
  • Consider filing status
    Divorcing couples who are still married as of the end of the year are treated as married for the year and must determine their filing status.

Here the statuses separating or recently divorced people should consider:

  • Married filing jointly. On a joint return, married people report their combined income and deduct their combined allowable expenses. For many couples, filing jointly results in a lower tax than filing separately.
  • Married filing separately. If spouses file separate tax returns, they each report only their own income, deductions, and credits on their individual return. Each spouse is responsible only for the tax due on their own return. People should consider whether filing separately or jointly is better for them.
  • Head of household. Some separated people may be eligible to file as head of household if all of these apply.

o Their spouse didn’t live in their home for the last six months of the year.
o They paid more than half the cost of keeping up their home for the year.
o Their home was the main home of their dependent child for more than half the year.

  • Single. Once the final decree of divorce or separate maintenance is issued, a taxpayer will file as single starting for the year it was issued, unless they are eligible to file as head of household or they remarry by the end of the year.

Issue 18: Proposed Legislation Introduced

S4103. Introduced on April 28, 2022, and currently under review in the Senate Committee on Finance, the “Helping Parents Save for College Act of 2022” would allow individuals to take funds from a long-term qualified tuition program and rollover to a Roth IRA after the account has been maintained 10 years.

S3909. The “Military Spouse Hiring Act,” first introduced in May 2021, was introduced again on March 23, 2022. This bill is mirrors HR2974 in the House. The legislation seeks to expand the Work Opportunity Tax Credit (WOTC) to include qualified military spouses as a targeted group that qualifies for the tax credit. A “qualified military spouse” is defined as any individual who is certified by the designated local agency as being a spouse of a member of the Armed Forces as of the hiring date.

S4289. This bill, introduced on May 24, 2022, and currently under review in the Senate Committee on Committee on Health, Education, Labor, and Pensions, seeks to prohibit employers from terminating an employee’s health coverage under a group plan while the employer is engaged in a lock-out.

HR7435. Introduced on April 7, 2022, and currently under review in the House Committee on Ways and Means, the “Health Savings for Seniors Act” would permit seniors to use or create new Health Savings Accounts (HSAs) while covered by Medicare. Current law prohibits this.

HR7487.  Introduced on April 7, 2022, and currently under review in the House Committee on Ways and Means, the “Employee Access to Worksite Health Services Act” would allow individuals who have access to certain healthcare services through a worksite health clinic to be eligible to make pre-tax contributions to a health savings account (HSA). The bill clarifies that individuals who are eligible to receive services at a healthcare clinic will not be considered to be under a health plan, thereby opening access for the individual to participate in an HSA.

HR7489. Introduced April 11, 2022, the “Time Off to Vote Act,” currently under review by the House Committee on Education and Labor, seeks to require employers with 25 or more employees to provide up to two consecutive hours of paid leave to vote in federal elections upon an employee’s request. Under the bill, the employer may determine when the employee takes leave. Employers are prohibited from interfering with an employee’s right to paid voting leave and from retaliating against an employee for exercising their right to paid leave. The bill provides a civil penalty of up to $10,000 for violating its provisions. The bill also states that its provisions would not supersede state or local laws that are more beneficial to the employee. The legislation would take effect with the first federal election held after enactment of the bill.

HR7549. Introduced April 21, 2022, the “Seasonal Worker Solidarity Act of 2022,” currently under review in the House Committee on the Judiciary, seeks to reform the temporary nonagricultural work visa program. The bill would require employers to conduct nationwide recruitment efforts, including consider applications from workers and labor organizations from other regions, including U.S. territories and would require state workforce agencies to assist in recruitment. The bill would also require state workforce agencies to provide workers displaced due to a natural disaster to seek employment as a temporary nonagricultural worker. The U.S. Department of Labor would be required to create a website, no later than a year after enactment, as a platform to facilitate the nationwide recruitment of seasonal and temporary workers for employers seeking H-2B visa workers. Employers are required to provide United States workers the same benefits, wages, and working conditions offered to H-2B workers, including transportation and housing. Job postings on the platform must be posted no less than 60 days before the employer applies for an H-2B labor certification. The bill also provides protections to H-2B visa workers by improving labor standards for guest workers and their families and provides a path to citizenship.

HR7749. The “TASK Act,” introduced May 12, 2022, currently under review by the House Committee on Education and Labor, seeks to amend the Fair Labor Standards Act (FLSA) to exempt certain individuals who perform services in postsecondary vocational institutions to obtain a recognized postsecondary credential from minimum wage and overtime requirements.

HR7841. Introduced on May 19, 2022, and currently under review in the House Committee on Veterans’ Affairs, the “Military Family Leave Act of 2022” seeks to provide two weeks of unpaid military family annual leave to a spouse, son or daughter, or parent of a military servicemember who receives notice of an order to active duty or is deployed. Leave under the bill could be taken intermittently or on a reduced leave schedule where the employee works a reduced number of hours per day or per workweek. An employer may request certification for the need of leave. Employers may not require an employee to substitute unpaid leave with accrued paid time off. Employment and benefits are protected under the bill. Currently, under the Family and Medical Leave Act, military family leave is available to a family member when a “qualifying exigency” exists due to a family servicemember being called to duty. A “qualifying exigency” may be a need that arises such as finding alternative childcare arrangements or tending to the financial or legal needs of the servicemember. The FMLA also provides military caregiver leave when an eligible employee must provide care to a covered servicemember due to medical treatment for serious injury or illness.

Issue 19: Bernie Sanders Pitches Social Security Benefit Increase, Higher Taxable-Income Cap – Not Law

Sen. Bernie Sanders, has introduced legislation that would increase Social Security benefits by $2,400 annually, ensuring the program remains solvent for the next 75 years.

The increased benefit that is titled the Social Security Expansion Act would be funded by lifting the cap on the maximum amount of income subject to the Social Security payroll tax, including capital gains. Currently the cap is $147,000, allowing those earning over $1 million a year to stop paying into the fund by the end of February.

An additional factor that has affected Social Security financing is that the share of total earnings subject to the payroll tax has declined since 1983 because of an increasing concentration of earnings among the highest earners.

Issue 20: Child Tax Credit Plan Proposal– Not Law

Senator Mitt Romney presented a revised plan this week to consolidate family-focused tax incentives, including the child tax credit. Under the plan, families would receive up to $350 per month for children under the age of 6 and $250 per month for children ages 6 to 17. Phaseout thresholds for the benefit would be like the phaseout thresholds of the child tax credit.

Issue 21: Applicable Federal Rates for July 2022, Rev. Rul. 2022-12

July 2022 AFR Table 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

July 2022 AFR Table 2

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