Tax Season – Officially Over – Notice Season Begins – Join Us for our May Webinars
In This Issue:
- Reasons Why Some Tax Refunds Filed Electronically Take Longer Than 21 Days
- IRS Suspends Mailing of Certain Exempt Organization or Government Entity Notices
- Biden Administration 2023 Revenue Proposals – Not Law Yet but You Could Get Questions
- For the First Time, Maximum Educator Expenses Deduction Rises to $300 in 2022; Limit $250 for Those Filing 2021 Tax Returns
- HR 2954 Secure Act 2.0 Update
- Treasury Looking at New Reporting Rules for Foreign Digital Assets
- More Forms, Letters and Publications in Alternative Formats are Available
- Third Round of EIP Payments – Important Steps to Take Involving Missing Payments or Correction
- Residency/Presence Tests for 2021 Foreign Exclusions Waived for Iraq, 4 Other Countries – Rev Proc 2022-18, 2022-13
- Taxpayer Advocacy Panel Welcomes 25 New Members
- Identity stolen? Request an Identity Protection PIN from the IRS
- IRS Letters Going Out to Taxpayers Who May Need to Take Action Related to Qualified Opportunity Funds
- Reminder – Filing Deadline for Tax-exempt Organizations is May 16, 2022
- Applicable Federal Rates for May 2022, Rev. Rul. 2022-9
Our webinars begin in May 2022. Our Quarterly Update is always popular. We are working hard to gather information to share concerning many tax issues. In addition, as we enter Notice Season a few tips will be shared.
Full Schedule Here: https://www.cpehours.com/webinar-schedule/
Issue 1: Reasons Why Some Tax Refunds Filed Electronically Take Longer Than 21 Days
Even though the Internal Revenue Service issues most refunds in less than 21 days for taxpayers who filed electronically and chose direct deposit, some refunds may take longer. Many different factors can affect the timing of a refund after the IRS receives a return. A manual review may be necessary when a return has errors, is incomplete or is affected by identity theft or fraud.
Other returns can also take longer to process, including when a return needs a correction to the Child Tax Credit or Recovery Rebate amount, includes a claim filed for an Earned Income Tax Credit or Additional Child Tax Credit or the return includes a Form 8370, Injured Spouse Allocation, which could take up to 14 weeks to process.
Some returns may require additional review, such as a refund in excess of $10,000, and may take longer. Also, remember to take into consideration the time it takes for a financial institution to post the refund to an account or to receive it by mail.
Issue 2: IRS Suspends Mailing of Certain Exempt Organization or Government Entity Notices
The IRS is suspending the issuance of several notices generally mailed to tax-exempt or governmental entities in case of a delinquent return. Due to the historic pandemic, the IRS has not yet processed several million returns filed by individuals and entities. The suspension of the notices will help avoid confusion when a filing is still in process.
The IRS will continue to assess the inventory of pending returns to determine the appropriate time to resume mailing these notices. Some taxpayers and tax professionals may still receive the notices during the next few weeks. Generally, there is no need to call or respond to the notices as long as the return was filed timely.
The suspended notices are:
|CP214||Reminder Notice About Your Form 5500-EZ or 5500-SF Filing Requirement|
|CP217||Form 940 Not Required – Federal, State, and Local Government Agencies|
|CP259A||First Taxpayer Delinquency Investigation Notice – Form 990/990EZ/990N|
|CP259B||First Taxpayer Delinquency Investigation Notice – Form 990PF|
|CP259D||First Taxpayer Delinquency Investigation Notice – Form 990T|
|CP259F||First Taxpayer Delinquency Investigation Notice – Form 5227|
|CP259G||First Taxpayer Delinquency Investigation Notice – Form 1120-POL|
|CP259H||First Taxpayer Delinquency Investigation Notice – Form 990/990EZ|
|CP403||First Delinquency Notice – Form 5500 or 5500-SF|
|CP406||Second Delinquency Notice – Form 5500|
Issue 3: Biden Administration 2023 Revenue Proposals – Not Law Yet but You Could Get Questions
Increase the Top Marginal Income Tax Rate for High Income Taxpayers
The top income tax rate is presently 37% and is scheduled to revert to 39.6% in 2026. This rate presently applies to taxable income over $539,900 (single) or $647,850 (joint).
The Administration proposes to increase the top rate to 39.6% beginning in 2023. The top rate would apply to taxable income over $400,000 (single) or $450,000 (joint) in 2023 and would be indexed after 2023.
Tax Rate on Qualified Dividends and Long-Term Capital Gains
The top income tax rate on qualified dividends and long-term capital gains is presently 20%.
The Administration proposes to tax qualified dividends and long-term capital gains at ordinary income rates, with a top rate of 37% (or 39.6% if the top rate is increased), for taxpayers with income over $1 million, but only to the extent the taxpayer’s income exceeds $1 million ($500,000 for married filing separately), indexed after 2023. This proposal would be effective after the date of enactment.
Transfers of Appreciated Property
Under current law, there is generally a carryover basis for gifts and a basis step-up for transfers at death.
The Administration proposes to treat transfers of appreciated property by gift or on death as realization events. The capital gains tax at death would be deductible against the estate tax.
The Administration also proposes to have assets in a trust or partnership be marked to market every 90 years beginning from January 1, 1940, so that the first possible recognition event would be on December 31, 2030. No discount would be allowed for partial interests. Transfers to or from a trust (other than a wholly owned revocable trust) or partnership would also be recognition events.
Transfers to a U.S. spouse would not be realization events but would receive a carryover basis. Transfers to charity would not be taxable. Transfers to a split-interest trust (a charitable lead trust or a charitable remainder trust) would be taxable except to the extent of the value of the charity’s interest.
The exclusion for gain on the sale of a principal residence would apply. Gain on the transfer of tangible personal property other than collectibles, would be excluded. The Section 1202 exclusion with respect to qualified small business stock would also apply.
There would be a $5 million per person exclusion on property transferred by gift or at death, indexed for inflation after 2022. There would be portability between spouses for this exclusion.
The tax on certain family owned and operated businesses would be deferred until the interest is sold or the business ceases to be family owned and operated.
The tax on appreciated assets other than liquid assets could be paid over 15 years.
This change would be effective for gifts after December 31, 2022, for persons dying after December 31, 2022, and for property owned by trusts and partnerships on January 1, 2023.
Minimum Tax on Wealthiest Taxpayers
At present, gains are not taxable until realized and recognized. The Administration proposes to impose a minimum tax of 20% on total income, including unrealized capital gains, on taxpayers with wealth of over $100 million.
The tax for the first year could be paid in nine equal annual installments, and the tax for subsequent years could be paid in five equal annual installments.
This change would be effective beginning in 2023.
Grantor Retained Annuity Trusts
It is possible to create a short-term grantor retained annuity trust (“GRAT”) in which the remainder interest has little or no value.
The Administration proposes that a GRAT would be required to have a minimum term of 10 years, and a maximum term equal to the life of the annuitant plus 10 years. The remainder interest must have a value at least equal to the greater of 25% of the value contributed to the GRAT or $500,000, but not more than the value of the assets contributed.
Under the proposal, the annuity payments could not decrease during the GRAT term, and the grantor would be prohibited from engaging in a tax-free exchange of any assets held in the trust.
This proposal would be effective upon enactment.
The grantor trust rules for income tax purposes are not the same as the rules for inclusion in the gross estate for estate tax purposes.
Accordingly, it is possible to create a trust that is a completed gift for gift tax purposes, is not included in the estate for estate tax purposes, but which is a grantor trust for income tax purposes.
The Administration proposes that if a taxpayer creates a grantor trust that is not fully revocable, sales between the grantor and the trust would be taxable, effective for sales on or after the date of enactment.
In addition, the grantor’s payment of the income tax on the trust’s income and gains would be treated as a taxable gift, effective for trusts created on or after the date of enactment.
Administration of Trusts and Estates
The Administration proposes various changes to improve the administration of trusts and estates.
For estate tax purposes, if there is no executor or administrator appointed, qualified and acting, any person in actual or constructive possession of any property of the decedent is considered a statutory executor. However, this concept only applies for estate tax purposes. The Administration proposes to expand it to other tax matters, and to allow the IRS to adopt rules to resolve conflicts among multiple executors. This change would be effective upon enactment.
An estate may elect special use valuation to reduce the value of the estate by up to $1,230,000. The Administration proposes to increase this limit to $11.7 million, effective for estates of decedents dying after the date of enactment.
There is a special estate tax lien for 10 years from the date of a gift, or from the date of death. The Administration proposes to extend the lien during any deferral or installment period for unpaid estate and gift taxes.
Trusts do not presently have to report the value of their assets. The Administration proposes to require trusts with an estimated value over $300,000 or gross income over $10,000 to report their value.
Limit Duration of GST Exemption
Each taxpayer has a GST exemption. The GST exemption is $12,060,000 for 2022 and is indexed for inflation. It is scheduled to drop to one-half of its current level, indexed for inflation, beginning in 2026.
The common law rule against perpetuities is lives in being plus 21 years. Some states have a 90-year statutory rule against perpetuities.
In recent years, approximately one-half of the states have either repealed their rule against perpetuities or lengthened the permissible period of time under the rule against perpetuities, in some cases to as long as 1,000 years.
The administration proposes that the GST exemption would only apply to (a) direct skips and taxable distributions to beneficiaries no more than two generations below the transferor, and to younger generation beneficiaries who were alive at the creation of the trust, and (b) taxable terminations occurring while any person described above is a beneficiary. The provisions resetting the transferor upon the payment of GST tax would not apply, and existing trusts would be treated as having been created on the date of enactment.
Tax carried interests as ordinary income
A partner may receive an interest in future partnership profits (a profits interest or carried interest) for services. To the extent the partnership recognizes long-term capital gain, the partner will reflect his or her share of the gain as long-term capital gain. Gain on the sale of a partnership interest is generally also capital gain.
Income attributable to a profits interest is generally subject to self-employment tax, except to the extent the partnership generates types of income that are excluded from self-employment taxes, such as capital gains, certain interest, and dividends.
The Administration proposes to tax as ordinary income a partner’s share of income on an investment services partnership interest (ISPI) in an investment partnership if the partner’s taxable income from all sources is over $400,000. In addition, partners in such investment partnerships would be required to pay self-employment tax on such income. Finally, the gain on the sale of an ISPI would be ordinary income if the partner is above the income threshold.
Repeal Section 1031 exchanges
Owners of appreciated real estate used in a trade or business may defer gain on the exchange of the property for other real property of a like kind.
The Administration proposes to treat the exchange of such property similar to sales of real property. However, a taxpayer could continue to defer the gain up to $500,000 per taxpayer ($1 million on a joint return).
This change would be effective for exchanges completed in taxable years beginning after December 31, 2022.
Depreciation Recapture for Real Estate
§1245 generally provides for depreciation recapture upon the sale of most depreciable assets. However, depreciation recapture for real estate is generally governed by §1250. Under §1250, there is generally no depreciation recapture on the sale of real estate.
The Administration proposes to require depreciation recapture on the sale of depreciable real estate. This change would not apply to taxpayers with adjusted gross income under $400,000 ($200,000 for married filing separately).
This change would be effective for depreciation after December 31, 2022, and sales after December 31, 2022.
Issue 4: For the First Time, Maximum Educator Expenses Deduction Rises to $300 in 2022; Limit $250 for Those Filing 2021 Tax Returns
Plan ahead for teachers and other educators for 2022 they will be able to deduct up to $300 of out-of-pocket classroom expenses when they file their federal income tax return next year.
This is the first time the annual limit has increased since the special educator expense deduction was enacted in 2002. For tax-years 2002 through 2021, the limit was $250 per year. This means for people currently filing their 2021 tax returns due in April, the deduction is limited to $250. The limit will rise in $50 increments in future years based on inflation adjustments.
For 2022, an eligible educator can deduct up to $300 of qualifying expenses. If they are married and file a joint return with another eligible educator, the limit rises to $600. But in this situation, not more than $300 for each spouse.
Educators can claim this deduction, even if they take the standard deduction. Eligible educators include anyone who is a kindergarten through grade 12 teacher, instructor, counselor, principal or aide in a school for at least 900 hours during the school year. Both public- and private-school educators qualify.
What Is Deductible?
Educators can deduct the unreimbursed cost of:
- Books, supplies and other materials used in the classroom.
- Equipment, including computer equipment, software and services.
- COVID-19 protective items to stop the spread of the disease in the classroom. This includes face masks, disinfectant for use against COVID-19, hand soap, hand sanitizer, disposable gloves, tape, paint or chalk to guide social distancing, physical barriers, such as clear plexiglass, air purifiers and other items recommended by the Centers for Disease Control and Prevention (CDC).
- Professional development courses related to the curriculum they teach or the students they teach. For these expenses, it may be more beneficial to claim another educational tax benefit, especially the lifetime learning credit.
Qualified expenses do not include expenses for home schooling or for nonathletic supplies for courses in health or physical education. As with all deductions and credits, the IRS reminds educators to keep good records, including receipts, cancelled checks and other documentation.
Issue 5: HR 2954 Secure Act 2.0 Update
The House has passed the Retirement bill (H.R. 2954). H.R. 2954 would amend the tax code to modify rules for retirement plans and tax-favored savings accounts. Several provisions would reduce revenues significantly by expanding automatic enrollment in retirement plans and raising the age at which required minimum distributions (RMDs) from defined contribution retirement plans or traditional individual retirement arrangements (IRAs) must begin.
Other provisions would increase revenues by directing some retirement plans to require catch-up contributions to be designated as Roth contributions and allowing some plans to permit employees to designate their employers’ matching contributions as Roth contributions.
We await the Senate’s approval.
SECURE 2.0’s proposals include:
- Increasing retirement savings through automatic enrollment, new incentives, and expanded coverage
- Promotes saving for retirement earlier by expanding automatic enrollment in 401(k) and 403(b) retirement plans
- Creates a new financial incentive for small businesses to offer retirement plans Increases and modernizes the existing federal tax credit for contributions to a retirement plan or IRA (the Saver’s Credit)
- Allows Americans to save for retirement longer by increasing the required minimum distribution age to 75
- Makes it easier for military spouses to save for retirement by offering small employers a new financial incentive that boosts retirement plan participation by making military spouses eligible for plan participation quicker, increasing eligibility of matching or nonelective contributions, and making military spouses 100% vested in all employer contributions
- Improves coverage for part-time workers in 401(k) plans
- Encouraging more flexibility for Americans’ retirement options
- Expands retirement savings options for non-profit employees by allowing groups of non-profits to join together to offer retirement plans to their employees
- Offers individuals 50 and older the ability to set aside greater savings as they approach retirement
- Permits individuals the choice to pay down a student loan instead of contributing to a 401(k) plan, while still promoting increased retirement savings through an employer match in their retirement plan
- Increases charitable donations permitted through an individual’s IRA
- Protecting Americans’ retirement accounts Safeguards innocent retirees who unknowingly receive retirement plan overpayments
- Creates a national online searchable Retirement Savings Lost & Found Database at the Department of Labor for workers and retirees to find their lost retirement accounts
Issue 6: Treasury Looking at New Reporting Rules for Foreign Digital Assets
The release of the Treasury Department’s Green Book provides an explanation of revenue estimates that were included in the federal budget for fiscal 2023 as proposed by President Joe Biden.
One proposal is § 6038D(b) that would require that stakes in certain foreign financial accounts that hold cryptocurrencies and other digital assets be disclosed to the IRS. The reporting requirement would apply to U.S. taxpayers who have over $50,000 in cryptocurrency, financial accounts, and other assets abroad, according to the proposal’s text.
The proposal would take effect for tax returns that are required to be filed after December 31, 2022.
Another proposal in the Green Book for fiscal year 2023, which begins October 1, would increase reporting by financial institutions and brokers in order to facilitate automatic information exchanges between the U.S. and other governments. Some institutions would have to disclose to the IRS balances for all accounts that are stored at U.S. offices and held by foreign individuals. If adopted and combined with existing law, the proposal “would require brokers, such as U.S. digital asset exchanges, to report information relating to the substantial foreign owners” of some passive entities.
The proposal would be effective for returns that must be filed after December 31, 2023.
Issue 7: More Forms, Letters and Publications in Alternative Formats are Available
In an effort to provide American taxpayers with the service they deserve, the Internal Revenue Service announced the latest expansion of its multilingual products, Braille, text, audio, and large print products are now available in Spanish.
The agency’s Alternative Media Center (AMC) is converting IRS Form 1040, its main schedules and six publications in Spanish Braille and large print. This announcement highlights the agency’s commitment to make alternative format documents and multilingual resources available to those who need them.
The IRS also has a Languages webpage available in 20 languages to help taxpayers find basic tax information, such as how to check a refund status, pay taxes or file a federal tax return.
Taxpayers can complete Form 9000, Alternative Media Preference, to choose to receive their IRS notice or letter in Braille, large print, audio and electronic formats. Taxpayers can include the completed form with their tax return, mail it as a standalone form to the IRS or call 800-829-1040 to elect their preferred format. Form 9000 is also available in Spanish Braille and large print.
Taxpayers who have already received a notice or letter in print format and prefer Braille, large print, audio, or text, and do not have an alternative media designation on file at the IRS can choose one of the options below to request their preference.
- Faxtheir notice with a cover sheet to the AMC at 855-473-2006. The cover sheet should include their name, address, phone number and the desired format of the document.
- Mailtheir notice or letter with a note stating their preferred format to:
- IRS Alternative Media Center
- 400 N. 8th St., Room G39
Richmond, VA 23219
- Callthe IRS Accessibility Helpline at 833-690-0598 to get help with transcribing the information.
If a taxpayer has questions about IRS accessibility services, they can contact the Accessibility Helpline at 833-690-0598. Help for multilingual taxpayers is also available on the helpline through the over-the-phone interpreter service. This helpline does not have access to taxpayers’ IRS accounts.
Issue 8: Third Round of EIP Payments – Important Steps to Take Involving Missing Payments or Correction
With the completion of special mailings of all Letters 6475 to recipients of the third-round of Economic Impact Payments, the Internal Revenue Service reminds people to accurately claim any remaining third-round stimulus payment on their 2021 income tax return as the 2021 Recovery Rebate Credit.
Through Dec. 31, 2021, the IRS issued more than 175 million third-round payments totaling over $400 billion to individuals and families across the country. Most of the third-round payments were issued in the spring and early summer of 2021. The IRS continued to send plus-up payments through December if, after their 2020 tax return was processed last year, the taxpayer was eligible for additional amounts.
As required by law, the IRS is no longer issuing first-, second-, or third-round Economic Impact Payments. Instead, people who are missing a stimulus payment or got less than the full amount may be eligible to claim a Recovery Rebate Credit on their 2020 or 2021 federal tax return.
Most eligible people already received the full amount of their credit in advance and don’t need to include any information about this payment when they file their 2021 tax return. This includes the additional payments – called “Plus-Up” Payments – the IRS issued to individuals who initially received a third-round Economic Impact Payment based on information on their 2019 tax return and were later eligible for a larger amount based on information on their 2020 tax return.
Third-Round Economic Impact Payment Not Received? Double-check records first
Individuals are encouraged to double-check their bank accounts – especially in early spring and summer of 2021 – to see whether they received a third-round payment in advance last year.
If an individual did not receive a third-round payment — and their IRS Online Account shows a payment amount greater than $0, or they received Notice 1444-C or Letter 6475 indicating that a payment was issued to them — they should contact the IRS as soon as possible to see if a payment trace is needed.
Taxpayers should not request a payment trace to determine if they were eligible for a payment or to confirm the amount of the payment they should have received.
Individuals do not need to wait until their trace is complete to file their 2021 tax return. When completing the Recovery Rebate Credit Worksheet or answering EIP questions in the tax software, taxpayers have two options:
- Use the amount on the Letter 6475 (or EIP 3 Amount from Online Account) to calculate the RRC amount on line 30. Contact the IRS to trace the EIP amount. Once the EIP trace is completed, the IRS and the taxpayer will receive notification of the results of the EIP trace (the account it was sent to and the amount or a copy of the cashed check).
- If the trace indicates the taxpayer received the EIP amount, no further action is necessary.
- If the EIP amount was not received by the taxpayer, the IRS will adjust the RRC amount on the tax return and issue any refund.
- Use the amount of EIP the taxpayer believes they received to calculate the RRC amount on line 30. If the taxpayer’s calculation does not match the IRS calculation, the processing of the tax return will be delayed, the RRC amount will be adjusted to match IRS records and the taxpayer will receive a notice that includes a telephone number to contact if they disagree with the change to the tax return. If the taxpayer contacts the IRS and disagrees with the changes made, IRS will conduct a trace of the EIP, if necessary. Once the EIP trace is completed, the IRS and the taxpayer will receive notification of the results of the EIP trace (the account it was sent to and the amount or a copy of the cashed check).
- If the trace indicates the taxpayer received the EIP amount, no further action is necessary.
- If the EIP amount was not received by the taxpayer, the IRS will adjust the RRC amount on the return and issue any refund.
Correcting a mistake after the 2021 tax return is filed; no amended return needed
Individuals who made a mistake calculating the Recovery Rebate Credit and claimed an amount on line 30 for the 2021 Recovery Rebate Credit should not file an amended return. The IRS will correct the amount of the 2021 Recovery Rebate Credit and send a notice identifying the changes made.
If a correction is needed, there may be a delay in processing the return. If the taxpayer agrees with the changes made by the IRS, no response or action is required to indicate they agree with the changes. If the taxpayer disagrees, they can call the toll-free number listed on the top right corner of their notice.
Amended return may be needed for those eligible to claim the credit and IRS records show no Economic Impact Payment was issued.
For eligible individuals who did not claim a Recovery Rebate Credit on their 2021 tax return (line 30 is blank or $0) and IRS records do not show the issuance of an Economic Impact Payment, they will need to file a Form 1040-X, Amended U.S. Individual Income Tax Return, to claim the remaining amount of stimulus money for which they are eligible. This includes individuals who may not have received the full amount of their third-round Economic Impact Payment because their circumstances in 2021 were different than they were in 2020.
Issue 9: Residency/Presence Tests for 2021 Foreign Exclusions Waived for Iraq, 4 Other Countries – Rev Proc 2022-18, 2022-13 IRB 933
In a Revenue Procedure, the IRS waived the residency and presence tests applicable for the 2021 §911 foreign earned income and foreign housing cost exclusions with respect to certain U.S. individuals in Iraq, Burma (Myanmar), Chad, Afghanistan, and Ethiopia due to adverse conditions in those countries.
- § 911(a) and 911(c)(4) allow a “qualified individual” to exempt from taxation the individual’s foreign earned income (up to the exclusion amount of $108,700 for 2021 and $112,000 for 2022) and the housing cost amount.
A qualified individual is an individual whose tax home is in a foreign country and who is either: (1) a U.S. citizen (or, in certain situations, U.S. resident alien) who satisfies the IRS that they have been a bona fide resident of one or more foreign countries for an uninterrupted period that includes an entire tax year (bona fide foreign residence test), or (2) a U.S. citizen or resident who, during a period of 12 consecutive months, is present in one or more foreign countries for at least 330 full days (foreign physical presence test).
Under certain circumstances, the time requirements of the foreign residence test and the foreign presence test may be waived. If these requirements are waived, the taxpayer is treated as having met the foreign residence requirement for the period during which they were a bona fide resident of the foreign country, or the taxpayer will be treated as having met the foreign presence requirement for the period during which they were present in the foreign country.
Three conditions must be met for the waiver to apply:
(1) the taxpayer must have been a bona fide resident of, or present in, a foreign country for a certain period.
(2) before the taxpayer meets the time requirements for the foreign residence test or the foreign presence test, they must leave the foreign country during a period in which IRS determines, after consultation with the State Department, that individuals had to leave the foreign country because of war, civil unrest or similar adverse conditions in that country that prevented the normal conduct of business by those individuals; and
[(3) the taxpayer must establish to IRS’s satisfaction that he could reasonably have been expected to meet the time requirements but for the war, civil unrest or similar adverse conditions.
2021 waiver for Iraq, Burma, Chad, Afghanistan, and Ethiopia. For 2021, the Treasury secretary, in consultation with the secretary of state, has determined that war, civil unrest, or similar adverse conditions precluded the normal conduct of business in the following countries beginning on the specified date:
|Country||Date of Departure On or After|
|Iraq||January 19, 2021|
|Burma||March 30, 2021|
|Chad||April 17, 2021|
|Afghanistan||April 27, 202|
|Ethiopia||November 5, 2021|
Issue 10: Taxpayer Advocacy Panel Welcomes 25 New Members
The Taxpayer Advocacy Panel (TAP) welcomes 25 new members, plus 10 TAP alternates, for 2022. When added to returning members, these new TAP members will round out the panel with 69 volunteers for 2022.
Members of the TAP work on a variety of issues that affect taxpayers in key areas where the IRS and the public interact the most. Members also serve as a conduit for bringing grassroots concerns raised by the taxpaying public to the attention of the IRS.
Each year, the TAP submits dozens of recommendations to the IRS. In 2021 alone, the TAP made 193 recommendations to the IRS, many of which have already been implemented. For example, the TAP’s recommendations have resulted in many improvements to IRS tax forms, instructions and publications to make them easier for taxpayers to understand.
Another TAP recommendation that was successfully adopted ensured the IRS properly alerted impacted taxpayers when an IRS processing center was closed.
The TAP is a federal advisory committee that serves an important role in tax administration. TAP members are a diverse group of ordinary citizens who possess a sense of civic duty, patriotism, and belief in an effective and well-regarded tax system.
TAP members volunteer their time and energy to improve IRS services and taxpayer satisfaction by listening to taxpayers, identifying issues, and making recommendations to improve IRS service and customer satisfaction.
Oversight and program support for the TAP are provided by the Taxpayer Advocate Service, an independent organization within the IRS led by the National Taxpayer Advocate. TAS helps resolve taxpayer account problems and makes administrative and legislative recommendations to mitigate systemic problems with tax administration.
TAP members volunteer to serve a three-year appointment and are expected to devote 200 to 300 hours per year to panel activities. To the extent possible, TAP members are demographically and geographically diverse, providing balanced representation from all 50 states, the District of Columbia and Puerto Rico. In addition, there is one TAP member representing the interests of taxpayers working, living or doing business abroad.
The new TAP members by location:
|Anthony Jackson, Jr.||Louisiana|
|George Hampton Williams||Mississippi|
|Shequeila Birdsong||New York|
|Charles Harvey||New York|
|Patricia Thompson||Rhode Island|
|Melissa Harvey||West Virginia|
Issue 11: Identity stolen? Request an Identity Protection PIN from the IRS
Some identity thieves use taxpayers’ information to file fraudulent tax returns. By requesting Identity Protection PINs from the Get an IP PIN tool on IRS.gov, taxpayers can prevent thieves from claiming tax refunds in their names.
Identity Protection PINs and how to get one
An IP PIN is a six-digit number the IRS assigns to an individual to help prevent the misuse of their Social Security number or Individual Taxpayer Identification Number (ITIN) on federal income tax returns. The IP PIN protects the taxpayer’s account, even if they’re no longer required to file a tax return, by rejecting any e-filed return without the taxpayer’s IP PIN
Taxpayers should request an IP PIN:
- If they want to protect their SSN or ITIN with the IRS,
- If they want to protect their dependent’s SSN or ITIN with the IRS,
- If they think their SSN, ITIN or personal information was exposed by theft or fraudulent acts or
- If they suspect or confirm they’re a victim of identity theft.
Taxpayers can go to IRS/getanippin to complete a thorough authentication check. Once authentication is complete, an IP PIN will be provided online immediately. A new IP PIN is generated every year for added security. Once an individual is enrolled in the IP PIN program, there’s no way to opt-out.
The IRS may automatically assign an IP PIN if the IRS determines the taxpayer’s a victim of tax-related identity theft. The taxpayer will receive a notification confirming the tax-related ID theft incident along with an assigned IP PIN for future tax-return filings.
Taxpayers will either receive a notice with their new IP PIN every year in early January for the next filing season or they must retrieve their IP PIN by going to IRS/getanippin.
Tax-related identity theft and how to handle it
Tax-related identity theft occurs when someone uses a taxpayer’s stolen SSN to file a tax return claiming a fraudulent refund. In the vast majority of tax-related identity theft cases, the IRS identifies a suspicious tax return and pulls the suspicious return for review. The IRS then sends a letter to the taxpayer and won’t process the tax return until the taxpayer responds.
Depending on the situation, the taxpayer will receive one of three letters asking them to verify their identity:
- Letter 5071C, asks them to use an online tool to verify their identity and tell the IRS if they filed the return in question.
- Letter 4883C, asks the taxpayer to call the IRS to verify their identity and tell the IRS if they filed the return.
- For those who have been a victim of a data breach, they may receive Letter 5747C and be asked to verify their identity in-person at a Taxpayer Assistance Center.
If the taxpayer receives any of these letters, they don’t need to file an https://www.irs.gov/newsroom/when-to-file-an-identity-theft-affidavit(Form 14039). Instead, they should follow the instructions in the letter.
When to file an Identity Theft Affidavit
If a taxpayer hasn’t heard from the IRS but suspects tax-related identity theft, they should complete and submit a Form 14039, Identity Theft Affidavit. Signs of possible tax-related identity theft include:
- A taxpayer can’t e-file their tax return because a duplicate tax return was filed using their Social Security number. (Check that there’s no error in the SSN, such as transposed numbers.)
- A taxpayer can’t e-file because a dependent’s Social Security number or ITIN was already used by someone on another return without the taxpayer’s knowledge or permission. (Also check that the SSN or ITIN is correct and be sure the dependent hasn’t filed a separate tax return.)
- A taxpayer receives a tax transcript in the mail they did not request.
- A taxpayer receives a notice from a tax preparation software company confirming an online account was created in their name, and they did not create one.
- A taxpayer receives a notice from their tax preparation software company that their existing online account was accessed or disabled when they took no action.
- A taxpayer receives an IRS notice informing them that they owe additional tax, or their refund was offset to a balance due, or that they have had collection actions taken against them for a year they did not earn any income or file a tax return.
- The IRS sends a taxpayer a notice indicating that the taxpayer received wages or other income from an employer for whom they didn’t work.
- The taxpayer was assigned an Employer Identification Number (EIN), but they did not request or apply for an EIN.
The IRS will work to verify the legitimate taxpayer, clear the fraudulent return from the taxpayer’s account and, generally, place a special marker on the account that will generate an IP PIN each year for the taxpayer who is a confirmed victim.
Signs of non-tax-related identity theft; no need to file form 14039
Non-tax-related identity theft occurs when someone uses stolen or lost personal identifiable information (PII) to open credit cards, obtain mortgages, buy a car or open other accounts without their victim’s knowledge.
Potential evidence of non-tax-related identity theft can include:
- An individual receives balance due bills from companies with whom they didn’t conduct business, magazine subscriptions they didn’t order, notifications of a mortgage statement and/or credit cards for which they didn’t apply.
- An individual receives notices of unemployment benefits for which they didn’t apply.
- An individual receives a Notice CP 01E, Employment Identity Theft.
- An individual receives a Form W-2 or 1099 from a corporation or employer from whom they did not receive the income reported and they have not received a notice or letter from the IRS questioning them about that income.
- A taxpayer cannot e-file because a dependent’s SSN or ITIN was already used by someone who is known to the taxpayer but is not the parent or legal guardian, and the taxpayer did not provide permission for that person to claim the dependent.
Issue 12: IRS Letters Going Out to Taxpayers Who May Need to Take Action Related to Qualified Opportunity Funds
The Internal Revenue Service announced that taxpayers who may need to take additional actions related to Qualified Opportunity Funds (QOFs) should begin receiving letters in the mail in April.
Taxpayers who attached Form 8996, Qualified Opportunity Fund, to their return may receive Letter 6501, Qualified Opportunity Fund (QOF) Investment Standard. This letter lets them know that information needed to support the annual certification of investment standard is missing, invalid or the calculation isn’t supported by the amounts reported. If they intend to maintain their certification as a QOF, they may need to take additional action to meet the annual self-certification of the investment standard requirement.
To correct the annual maintenance certification of the investment standard, these taxpayers should file an amended return or an administrative adjustment request (AAR). If an entity that receives the letter fails to act, the IRS may refer its tax account for examination. Investors who made an election to defer tax on eligible gains invested in that entity may also be subject to examination.
Additionally, taxpayers may receive Letter 6502, Reporting Qualified Opportunity Fund (QOF) Investments, or Letter 6503, Annual Reporting Of Qualified Opportunity Fund (QOF) Investments. These letters notify them that they may not have properly followed the instructions for Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments, since it appears that information is missing, invalid or that they may not have properly followed the requirements to maintain their qualifying investment in a QOF with the filing of the form.
If these taxpayers intend to maintain a qualifying investment in a QOF, they can file an amended return or an AAR with a properly completed Form 8997 attached. Failure to act will mean those who received the letter may not have a qualifying investment in a QOF and the IRS may refer their tax accounts for examination. This may result in letter recipients owing taxes, interest and penalties on gains not properly deferred.
Issue 13: Reminder – Filing Deadline for Tax-exempt Organizations is May 16, 2022
IRS reminds us that calendar-year tax-exempt organizations that their filing deadline is May 16, 2022.
The May 16, 2022, deadline applies to calendar year (CY) organizations that need to file the following returns:
- Form 990 series annual information returns (Forms 990, 990-EZ, 990-PF)
- Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations Not Required to File Form 990 or Form 990-EZ
- Form 990-T, Exempt Organization Business Income Tax Return (other than certain trusts)
- Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code
Mandatory electronic filing. The IRS requires tax-exempt organizations filing CY 2021 returns to electronically file all of the above returns.
Form 990-N can be e-filed using the tool on the IRS’s Form 990 webpage.
Extension of time to file. Tax-exempt organizations that need additional time to file beyond the May 16 deadline can request an automatic six-month extension by e-filing Form 8868, Application for Extension of Time to File an Exempt Organization Return.
Issue 14: Applicable Federal Rates for May 2022, Rev. Rul. 2022-9
REV. RUL. 2022-9 TABLE 5