The December 2022 Newsletter will provide the remaining questions and answers from the Fall 2022 virtual sessions.

In addition, 2023 inflation adjustments -selected issues and some tax planning opportunities issues.

In This Issue:


Issue 1: Our Fall Seminars Have Concluded – Part 1 of the Q and A

274 questions were addressed, and I have been able to combine some into one question.  Please review the question-and-answer Summary Part 1 from the six seminars.

These questions and answers detail the first 103 questions. We like to keep the monthly newsletter to a short document to respect your time. The remaining questions will be addressed in the December Newsletter.

Q: When replacing furnaces or A/C units in a building is there a certain % of the units being replaced that governs whether the replacement should be expensed or capitalized?

A: No actual “bright line” standard in the regulations.  You have to rely on “facts and circumstances”.

Q: What about IRS Transcripts? Wouldn’t the W-2 income be separated on the IRS Transcripts for those joint return filers?

A: Yes, W-2 transcripts would need to be ordered for each spouse.  Social Security currently accepts those to prove earnings for Social Security benefits.

Q: I belong to several tax practitioner online groups. One of the biggest weekly discussions is will we as practitioners be in trouble with our clients, whom we have advised the correct rules to them yet, they refuse to comply.  Will we still be penalized and fined for their lack of compliance?  And yes, the advising of rules and instructions are done in writing, whether by letter or email.  They have been given the rules to comply and we can prove we discussed this with them.

A: The fact that you have identified the issue with your client will be a deciding factor in whether a penalty will be accessed. But, continued behavior with lack of correction also puts you in a situation where you must decide whether or not to retain the client. § 10.21 Knowledge of Client’s Omission has been addressed by the Office of Professional Responsibility as the tax practitioner cannot perpetuate an error into the future.  Also § 10.22 requires Diligence to Accuracy.  Both areas of the Circular 230 could be an issue for the tax professional.

Q: If a tractor’s engine blows up and it is rebuilt to run again, is that a capital expenditure or a repair/maintenance?

A: This is probably a repair / maintenance item.  This is because you return to the tractor to the expected life before the engine blew up.  The only question might be if the remaining expected life of the tractor expired, then one could argue that this would be a capital expenditure.  IRS could argue that the life of the unit was extended therefore it should be capitalized. For example, you purchase a tractor with an expected life of 15 years.  The engine blows up in year 2 – repair / maintenance item.  The engine blows up in year 14 – may be a capital expenditure.

Q: Why would you report income that is not taxable or for business? I feel like that is inappropriate.

A: The issue has to do with the updated reporting concerning the Form 1099 K. The reporting requirement for these transactions has changed from totals exceeding $20,000 to exceeding $600, regardless of the total number of transactions.  This could “catch” some individuals who use online sale venues to sell personal assets. If the client receives a Form 1099-K for the sale of a personal asset we are saying that it needs to be reported, to match with the IRS CP 2000 program.  IRS will generally look for this reporting on Form 1040 Schedule C.  By reporting, the client will avoid a future issuance of a Notice CP 2000. Report in income and then take the same amount as an expense.  IRS will be able to see the 1099 K reporting. Many vendors have a way to identity this type of transaction as a personal sale and not a business.  But if the client does not “check the box, so to speak” the vendor will assume it is a business transaction.

Q: It seems like Congress came close to adding changes to the Net Investment Income Tax rules to include S Corp profits. What’s your opinion on the likelihood this change will make its way into legislation in the near future?

A: Not really sure.  Probably will have a better idea after the election and we know what the make-up of Congress will look like for next year.

Q: The client switched jobs. Has a SIMPLE plan at 1st employer in 2022 and 401k plan with 2nd employer in 2nd half of 2022 age 60. They maxed out the SIMPLE contribution with catchup at 1st job $17,000. Are they now limited to $10,000 deferral through 2nd employer 401k for 2022 or can they max out $27,000 into 401k in same year since it’s a different company?

A: The client may contribute the maximum §401(kl) Plan contribution limit ($20,500 and $6,500 catch up) between the two plans for the particular calendar year.

Q: Has there been any guidance on NFT’s and how to treat gains/losses on those?

A: To date I believe that IRS has not formally defined Non-Fungible Token (NFT). If this is a big issue for you might consider setting up a Google Alert so you do not miss anything new.

Q: If you take an after the fact cost seg study, do you have to make a 3115 election and take all the bonus in the current year?

A: Yes

Q: I have a client that I e-filed their tax return before they signed the e-filing form by mistake. They decided to go somewhere else because they had a huge tax liability for IRA distribution, and they were not happy about of taxes due. I informed them that I filed their tax return by mistake without their signature and that they will have to do amended return if they were going to change anything. I know I was right they owed the tax. I informed them in writing and cannot get an answer from them at all. Tried text, calling and a letter, they do not return any contact.   Should I inform the IRS about the e-filing?

A: No, once the return is e-filed an amended return needs to be filed.  You informed them of that issue in writing and did your due diligence. Make sure that you discuss this matter with Malpractice insurance carrier.  Their legal folks will help you with representation issues and should be able to guide you through the best course of action if the client brings suit.

Q: What is the Change of Address IRS Form?

A: The Form is 8822 to make an IRS change of a personal address.

Q: How far along can you do the cost seg study? Ten years after they purchased the property.

A: 10 years may not appropriate due to the time period.  However, anytime within the first three to four years after the assets have been placed in service.

Q: Please explain the 10-year beneficiary rules. Does the beneficiary have to take an RMD each year? I thought that was not the requirement.  Only that the account balance is totally withdrawn within 10 years.

A: If the participant reached their Required Beginning Date, then RMDs continue until the end of the 10-year period.

Q: Do you have to take § 179 before taking bonus?

A: IRS rules require that most businesses apply § 179 first, followed by bonus depreciation. § Section 179, you can choose which assets you’ll deduct using this section. You can also decide which items to save for future tax breaks.  You can even split the deduction if you want. For instance, so you buy a new car for the business. You can claim half the cost of the car at purchase and then spread the rest of the purchase over a longer period of time.  Unlike the § 179 deduction, bonus depreciation must cover. 100% of the asset’s cost. All assets must be in the same category. So, if you use depreciation for a five-year asset, you’ll have to apply it for all 5-year assets that you bought that year.  Remember for §179 you need business income; not necessary for bonus depreciation – you can created an NOL.

Q: If a business bought $200,000 of assets (let’s say all 5 or 7 year), which is under the limit for total § 179. I can choose if I want to use 179 on each asset, or vary the amount, but cannot choose bonus.

A: You may elect §179 for some assets and bonus depreciation for other assets (provided that you elect bonus on the entire cost of the asset.

Second question: What if I install a hot water tank in a residential rental?

A: If the purchase and installation is de minimus under the repair regulation, we would write it off if under $2,500 as an expense. No §179 would be allowed if it were over $2,500 then capitalize due to fact it is rental property.

Q: Just to be clear, I could come in a take bonus on all assets and have none be sec 179

A: This is correct.  §179 is an elective section, not a mandatory election (i.e., you need to elect out of the statutory application).  However, bonus depreciation applies automatically under the statute.  You have to elect out of bonus if the asset is going to depreciated under §167 or §168.  This mean if you do not want 100% of the asset to be depreciated in 2022, you have to elect out of all of the asset class and apply the regular depreciation rules (i.e., 7-year MACRS)

Q: Is Secure Act 2.0 passed as law or is it still in proposed state?

A: We still waiting for Congress to pass. Not law yet.

Q: 1099-K. Thoughts on 1040 presentation when the items sold online are not related to a business, e.g., sold your personal-use lawn mower online for $900.

A: You may have to use a “SCHEDULE C – Form 1099-K Personal Items”.  Report the income portion to tie out to the Schedule 1099-K.  Then adjust out the income to result in no tax consequences.  There are questions that the scenario may happen.  Some of the online sellers have a box to check to identify this sale as personal, but the person posting must check that box so the third-party transaction will not require a Form 1099 K. I think we will have CP 2000 matching.  I will check to see if there is anything new out there, we are awaiting some official direction.

Q: Will there be any discussion of Iowa tax law changes today? We are curious about the exclusion of retirement income in 2023 and whether Roth conversions would qualify for exclusion. Because if so, then we may delay some Roth conversions until ’23 vs doing yet in ’22.

A: Based on an inquiry to Iowa Department of Revenue, we believe they will qualify, as long as the participant is age 55 or older or disabled. Iowa Department of Revenue hopes to issue formal guidance by mid-December. Remember this distribution will be on Form 1099 R so I do not know how Iowa would be able to distinguish that it would not qualify under the new law.

Q: Spouse died 5 years ago. How soon does surviving spouse need to roll it into their own? Is it too late now since spouse died 5 years ago? Surviving spouse is 62.

A: From the “tenor” of your question, the surviving spouse maintained “beneficiary” status of the deceased spouse’s retirement plan (IRA) account, because the surviving spouse was under age 59 1/2 at the date of the deceased spouse’s death.  If the surviving spouse had rolled over the deceased spouse’s IRA / Retirement plan asset any distribution the surviving spouse would take place before age 59 1/2 would be subject to the 10% additional tax.  However, if the surviving spouse takes distribution as a beneficiary (the deceased spouse is still considered to be the owner) the 10% additional tax does not apply.  The surviving spouse may rollover the deceased spouse’s IRA and the surviving spouse is the owner (assuming that she was the only beneficiary of the IRA).  This will eliminate the “ghost” rule for the deceased spouse of age 72 that would require RMDs.  Since the surviving spouse is age 62, the surviving spouse will have 10 more years before the RMD rules would apply.

Q: What was new about the new portability election Rev. Proc.?

A: Newly Enhanced Estate Tax Portability Relief under Revenue Procedure 2022-32. Effective July 8, 2022, the IRS issued Revenue Procedure 2022-32 to supersede Revenue Procedure 2017-34 and now allow for a late estate tax exemption portability election to be made up to five (5) years from a deceased spouse’s death.  Look to the Rev. proc. for the procedure to elect.

Q: Under the new BOI reporting rules, are they saying that virtually EVERY business with less than 20 employees must file a BOI report with FinCEN showing the beneficial they ownership of every corporate, LLC, LP, etc. entity?  Although the Fin CEN fact sheet issued on December 7, 2021, indicates that they wanted to minimize the burden on small business (by saying it should cost less $50 to prepare), this truly would be a burden on small business especially with the substantial penalties for failure to file.

A: I would agree with the statement, just note we are awaiting more info and will discuss more in the year end seminar if the final regs are released. I would add that this is directly related to all the US Secretary of states where business either register their name, business or license. FinCen is developing a database which interacts with the states to compare and determine reporting requirements to FinCen, that data base is under development so it will not be required until that is ready to go and tested and the final regs come out.

Q: What is the best line to use when zeroing out the income on the Schedule C?

A: Part V on blank line – just put in a description.

Q: We have a client made and S corporation election, but the IRS stated they did not get the Form 2553. We also have a lot of reject on s corporation for wrong filling status when trying to file electronically. What can I do to solve this issue? I have the same issues with filing form 2553 for an S Corp for 2 years now they are saying it is a C Corps. Should I call them, write them or what?

A: If you do not have proof of filing, I would file a new one if they are with 3 years and 75 days.

Q: How long before we see a requirement for electronic 941 filing?

A: It would surprise me if we were not required to file electronically within the next 5 years.  IRS conversion to e-file as much as possible is a top priority.  But that is just a guess.

Q: Is the $1200 energy credit a lifetime amount or in addition to the $500 max?

A: We do not have guidance on this issue that I have been able to find. The new law is affective after December 31, 2022. We had $500; do we now get an additional $700 if we used $500 already – not sure. Watch the newsletter for additional info.

Q: If you put a new metal roof on – that would be capitalized?

A: Yes, that is correct.

Q: Is book work, accounting qualify for the real estate 750 hours?

A: To qualify as a real estate professional, the taxpayer must perform at least 750 hours of services during the year on activities directly related to the real estate business and have at least 50 % of their work in these activities.  To avoid the classification of an activity as passive, taxpayers engaged in the rental of real estate must overcome two hurdles. First, the taxpayers must establish that they qualify as real estate professionals to avoid the general rule that all rental activity is per se passive. Second, if the taxpayer qualifies as a real estate professional, the taxpayer must establish that the taxpayer materially participated in the rental real estate activity.  If the taxpayer does not meet both of these requirements, any losses that arise from the rental activity will be considered passive and will be subject to the passive activity loss limitation. 

Material Participation Test Under the Temporary Regulations

Temp. Regs. Sec. 1.469-5T(a) provides that a taxpayer can establish material participation in an activity by satisfying one of seven tests:

  1. The individual participates in the activity for more than 500 hours during such year;
  2. The individual’s participation in the activity for the taxable year constitutes substantially all of the participation in such activity of all individuals (including individuals who are not owners of interests in the activity) for such year;
  3. The individual participates in the activity for more than 100 hours during the taxable year, and such individual’s participation in the activity for the taxable year is not less than the participation in the activity of any other individual (including individuals who are not owners of interests in the activity) for such year;
  4. The activity is a significant participation activity (within the meaning of [Temp. Regs. Sec. 1.469-5T(c)]) for the taxable year, and the individual’s aggregate participation in all significant participation activities during such year exceeds 500 hours;
  5. The individual materially participated in the activity (determined without regard to this paragraph (a)(5)) for any five taxable years (whether or not consecutive) during the ten taxable years that immediately precede the taxable year;
  6. The activity is a personal service activity (within the meaning of [Temp. Regs. Sec. 1.469-5T(d)]), and the individual materially participated in the activity for any three taxable years (whether or not consecutive) preceding the taxable year; or
  7. Based on all of the facts and circumstances (taking into account the rules in [Temp. Regs. Sec. 1.469-5T(b)]), the individual participates in the activity on a regular, continuous, and substantial basis during such year.

A taxpayer bears the burden of establishing material participation by reasonable means. To prove that a taxpayer may not have materially participated, IRS agents are directed in passive activity cases to “[l]ook for time spent by others in the activity. Indicators: commissions, management fees, expenses for cleaning, maintenance, repairs, etc.” 

To meet the seventh test under Temp. Regs. Sec. 1.469-5T(b)(2)(iii), the facts-and-circumstance test, the taxpayer must participate in the activity for at least 100 hours. And, under Temp. Regs. Sec. 1.469-5T(b)(2)(ii), the taxpayer’s services performed in management activities are not taken into account in determining whether he or she materially participates unless (1) no person other than the taxpayer receives compensation for those services and (2) no person performs management services for more hours than the taxpayer.

There is no easy and answer you would have to look at the tests and apply to the facts and circumstances of each client.

Q: How long do the IRS keep the POA’s on file?

A: Generally, 7 years.  If the POA is used often, longer.  But after 7 years and inactivity it usually expires.

Q: Where do we find the Audit Technique guide?

A:, place ATG or Audit technique Guide into the search engine.

Q: If a return has a Schedule C business, do they need to file Form 8822-B?

A: If the business changes it’s address, Form 8822-B can be used for this purpose.

Q: With inherited Roth IRAs, does the person who inherited the account have to take an RMD in subsequent years or recognize income in year of receipt?

A: It depends, but generally if you have Roth’s there is an RMD component that is required.  Some depends on age but there are other rules and variables.  We would need more information to fully address this issue.

Q: Can a trust for minors be the beneficiary of an IRA and what would be the withdrawal period?

A: A trust also can be named as an IRA beneficiary, and in many instances, a trust is a better option than naming an individual. When a trust is named as the beneficiary of an IRA, the trust inherits the IRA when the IRA owner dies. The IRA then is maintained as a separate account that is an asset of the trust.

A trust is not an individual but can be a Designated Beneficiary if certain rules are met which allow the underlying individual beneficiaries of the trust to be considered the Designated Beneficiary in lieu of the trust. A “not designated beneficiary” is a classification for certain nonperson entities who inherit a retirement account. These nonperson entities are subject to different withdrawal rules than eligible designated beneficiaries or designated beneficiaries.

The third new class of beneficiaries, non-designated beneficiaries, are trusts, estates, charities and other organizations that don’t have a life expectancy as a human beneficiary would. They have to follow the same 10-year distribution rules as a designated beneficiary.

Q: What is fiat currency?

A: Fiat currency is the current US currency.  A fiat money is a type of currency that is declared legal tender by a government but has no intrinsic or fixed value and is not backed by any tangible asset, such as gold or silver.

Q: What is the safe harbor rule for rental property?

A: The Internal Revenue Service issued Revenue Procedure 2019-38 that has a safe harbor allowing certain interests in rental real estate, including interests in mixed-use property, to be treated as a trade or business for purposes of the qualified business income deduction under § 199A of the Internal Revenue Code (§ 199A deduction).

If all the safe harbor requirements are met, an interest in rental real estate will be treated as a single trade or business for purposes of the § 199A deduction. If an interest in real estate fails to satisfy all the requirements of the safe harbor, it may still be treated as a trade or business for purposes of the § 199A deduction if it otherwise meets the definition of a trade or business in the § 199A regulations.

This safe harbor is available for taxpayers who seek to claim the § 199A deduction with respect to a “rental real estate enterprise.” Solely for purposes of this safe harbor, a rental real estate enterprise is defined as an interest in real property held to generate rental or lease income. It may consist of an interest in a single property or interests in multiple properties. The taxpayer or a relevant passthrough entity (RPE) relying on this revenue procedure must hold each interest directly or through an entity disregarded as an entity separate from its owner, such as a limited liability company with a single member.

The following requirements must be met by taxpayers or RPEs to qualify for this safe harbor:

The Rev. Proc has further details.

Q: Client inherited antique foundry equipment and donated it to a museum. How do we determine the value of the donation?

A: Ideally an appraisal should have been done at the time of the donation.  If the client has a list of what was donated, they could research potential fair market values online. Pictures of the equipment donated would also be helpful.  Remember to take into to account the age and condition of the equipment.

Q: How about on the roof they need to replace plywood underneath the shingles. When does that become a capitalizable event?

A: I do not think shingles can be reused, and if they have to rebuild any structure on the roof like plywood and new shingles or maybe any supports underneath that are found during the process – capitalize. Facts and circumstances will make a difference, just make sure you get the facts etc.

Q: In addressing the virtual currency question on Form 1040, how about the acquisition of virtual currency by just buying it? Do we answer Yes or No?

A: Buying virtual currency does not need to be disclosed, therefore answer No.

Q: A British married couple became us citizens.  In 2017, they collected a lump sum pension amount and filed the 8833 for the treaty-based return and avoiding the double taxation.  They have are now, in 2022 taking an annual distribution.  Is the 8833 an annual filing, or a onetime only filing?  Or, is the 2017 filing the only one needed?

A: The United States has income tax treaties with a number of foreign countries. Under these treaties, residents (not necessarily citizens) of foreign countries are taxed at a reduced rate or are exempt from U.S. income taxes on certain items of income they receive from sources within the United States. These reduced rates and exemptions vary among countries and specific items of income.

Wages, salaries, pensions, and annuities paid by the governments of the following countries to their residents who are present in the United States as nonresident aliens generally are exempt from U.S. income tax. The conditions under which the income is exempt are stated for each of the countries listed. NOTE: they are now U.S. citizens.

Income, other than a pension, paid from the public funds of the United Kingdom, its political subdivisions, or local authorities to an individual for services performed for the paying governmental body is exempt from U.S. income tax.

However, the exemption does not apply if the services are performed in the United States by a resident of the United States who either: Is a U.S. citizen or did not become a U.S. resident only to perform the services. Pensions paid by, or funds created by, the United Kingdom, its political subdivisions, or local authorities for services performed for the United Kingdom are exempt from U.S. income tax unless the recipient is both a resident and citizen of the United States.

These exemptions do not apply to income or pensions for services performed in connection with a business carried on by the United Kingdom, its political subdivisions, or local authorities.

Based on limited information, it appears these may be taxable now they are a U.S. citizen and taxed on worldwide income. Is it a foreign Social Security Pension?

Absent application of a particular treaty provision, foreign social security pensions are generally taxed as if they were foreign pensions or foreign annuities. They are not eligible for exclusion from taxable income the way a U.S. social security pension might be unless a tax treaty provides for an exclusion.

Most income tax treaties have special rules for social security payments. Generally, U.S. treaties provide that social security payments are taxable by the country making the payments. However, a foreign social security payment may also be taxable in the United States if you are a U.S. citizen or resident, as a result of the saving clause. And remember, not all treaties have the same provisions for foreign social security pensions, so always refer to the specific treaty at issue.

Is it a foreign government pension?

Income tax treaties may also contain special rules for pensions paid in respect of government service (typically found under the Government Service article). Many U.S. tax treaties provide that a pension received for government services will only be taxable by the payor country if the person is a citizen/national of the country to which government services are provided and is not a citizen or lawful permanent resident (green card holder) in the country where the services were performed. Benefits with respect to government pensions may vary from this treatment, so you should refer to the specific treaty at issue for deviations. In addition, it is important to remember that foreign government pensions received by a U.S. citizen or resident may be subject to the saving clause.

Generally, a Form 8833 is an annual filing. A separate form is required annually for each treaty-based return position taken by the taxpayer, although a taxpayer may treat payments or income items of the same type received from the same payor as a single item for reporting purposes

Q: If you choose to take a § 179 deduction won’t that be a disadvantage in later years?

A: That would depend on the economic issues of the business. I would depend on many factors, does the client want to save tax due to the fact he has no money to pay.  How long do they intend to keep asset. Does the asset have a long life 3 years vs 10 year.  What is the financial situation of the business.  Have they paid enough in social security tax to get the benefit; many want to write all off but do not understand if they do not pay in 40 credits, they get no social security. Many factors determine this issue.

Q: Where can you get a copy of due diligence for each of these? Can they all be consolidated on one form?

A: I assume your question concerns the heighten due diligence required for the 6 issues of credits and the head of household status.  IRS has Form 886 that can assist with determining the types of documents you should review and keep in file to show due diligence was performed.  Go to Google and input Form 886, you will get various hits on the 6 issues.

Issue 2: Notice 2022-44 Special Per Diem Rates Effective October 1, 2022

Notice 2022-44 announces the special per diem rates effective October 1, 2022, which taxpayers may use to substantiate the amount of expenses for lodging, meals, and incidental expenses when traveling away from home.  This notice provides the special transportation industry rate, the rate for the incidental expenses only deduction, and the rates and list of high-cost localities for purposes of the high-low substantiation method.

Rev. Proc. 2019-48 provides the rules for using per diem rates, rather than actual expenses, to substantiate the amount of expenses for lodging, meals, and incidental expenses for travel away from home.  Taxpayers who use per diem rates to substantiate the amount of travel expenses under Rev. Proc. 2019-48 may use the federal per diem rates published annually by the General Services Administration.  Rev. Proc. 2019-48 allows certain taxpayers to use a special transportation industry rate or to use rates under a high-low substantiation method for certain high-cost localities.  The IRS announces these rates and the rate for the incidental expenses only deduction in an annual notice.

Use of a per diem substantiation method is not mandatory.  A taxpayer may substantiate actual allowable expenses if the taxpayer maintains adequate records or other sufficient evidence for proper substantiation.

Issue 3:  IRS Finalizes Increased EA Enrollment Fee and Time to Renew the PTIN – TD 9966, Reg §300.5, Reg §300.6, and Reg §300.9

The IRS has finalized regulations that increase, to $140 from $67, fees for enrolled agent enrollment and renewal.

An enrolled agent (EA) is an individual who has earned the privilege of representing taxpayers before the IRS either by:

(1) passing a three-part comprehensive IRS test (the SEE, or Special Enrollment Exam) covering individual and business tax returns and IRS procedure or

(2) through experience as a former IRS employee.

To obtain EA status, individuals who pass the SEE exam must pay an enrollment fee, promise to adhere to ethical standards, and complete 72 hours of continuing-education courses and pay an enrollment renewal fee every three years.

The renewal fees for enrolled retirement plan agents also increase to $140.

Renewal Time Frame

Renewal cycle: every 3 years based on last digit of SSN.  The November 1, 2022 – January 31, 2023, renewal cycle is for SSNs ending in 4, 5,6.

Renew online using Form 8554.

Renew on paper using Form 8554.

Renewal Reminder List

General EA Renewal Reminders:

Sending in Early EA Renewal Applications:

Continuing Education (CE) Reminders:

It is your responsibility to track and maintain the CE hours you complete and ensure they are properly reported to the IRS.

EA Paper Application Reminders: If submitting a paper EA application:

Paper Check reminders:

The IRS can and will periodically perform audits to verify CE hours. An error in your accounted hours or failure to provide proof of CE hours may result in your EA credential being inactivated or terminated.

Time to Renew Your PTIN

All PTINs expire on December 31 of each year. PTIN renewal open season begins mid-October each year for the following year. You can renew online by logging into your PTIN account or by submitting a paper Form W-12 with the “Renewal” box checked. Online renewal takes about 15 minutes; paper renewals take 4-6 weeks to process.

Renew your PTIN in 3 easy steps:

  1. Access Your Account
  1. Renew Your PTIN
  1. Pay Your Fee

Issue 4: Guidance Issued on Improper Forgiveness of PPP Loans – IR-2022-162

The guidance confirms that, when a taxpayer’s loan is forgiven based upon misrepresentations or omissions, the taxpayer is not eligible to exclude the forgiveness from income and must include in income the portion of the loan proceeds that were forgiven based upon misrepresentations or omissions. Taxpayers who inappropriately received forgiveness of their PPP loans are encouraged to take steps to come into compliance by, for example, filing amended returns that include forgiven loan proceed amounts in income.

Many PPP loan recipients who received loan forgiveness were qualified and used the loan proceeds properly to pay eligible expenses. However, the IRS has discovered that some recipients who received loan forgiveness did not meet one or more eligibility conditions. These recipients received forgiveness of their PPP loan through misrepresentation or omission and either did not qualify to receive a PPP loan or misused the loan proceeds.

The PPP loan program was established by the Coronavirus Aid, Relief and Economic Security Act (CARES Act) to assist small US businesses that were adversely affected by the COVID-19 pandemic in paying certain expenses. The PPP loan program was further extended by the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act.

Under the terms of the PPP loan program, lenders can forgive the full amount of the loan if the loan recipient meets three conditions.

  1. The loan recipient was eligible to receive the PPP loan. An eligible loan recipient:
    • is a small business concern, independent contractor, eligible self-employed individual, sole proprietor, business concern, or a certain type of tax-exempt entity;
    • was in business on or before February 15, 2020; and
    • had employees or independent contractors who were paid for their services, or was a self-employed individual, sole proprietor or independent contractor.
  2. The loan proceeds had to be used to pay eligible expenses, such as payroll costs, rent, interest on the business’ mortgage, and utilities.
  3. The loan recipient had to apply for loan forgiveness. The loan forgiveness application required a loan recipient to attest to eligibility, verify certain financial information, and meet other legal qualifications.

If the three conditions above are met, then under the PPP loan program the forgiven portion is excluded from income. If the conditions are not met, then the amount of the loan proceeds that were forgiven but do not meet the conditions must be included in income and any additional income tax must be paid.

Issue 5: IR-2022-170 IRS Appeals Revises Initial Contact Letter

The Internal Revenue Service Independent Office of Appeals is taking important steps to improve how taxpayers interact and communicate with the IRS by revising their initial contact letters.

First, the revised initial contact letter will clarify that generally, taxpayers and representatives can choose how they meet with Appeals through conferences that can be held by telephone, video or in-person. In addition, Appeals can work with taxpayers and representatives through the mail or secure electronic messaging. Appeals employees can successfully resolve disputes in every type of conference and the type of conference does not impact Appeals’ decision.

Second, in addition to the Appeals Officer’s contact information, the initial contact letter will now provide the name and phone number of the Appeals Officer’s manager. While the Appeals Officer remains the primary contact for all their assigned cases, the addition of the manager’s contact information will ensure an appeal stays on track in the rare instance additional help is needed.

Going forward, taxpayers and representatives will see the new language providing manager contact information and clarifying conference choice in the initial contact letters sent for most cases received in Appeals, including cases relating to an IRS examination determination, penalties, an offer in compromise, a request for a Collection Due Process hearing or participation in IRS e-file.

Issue 6: Corporate Transparency Guidance Issued

While the Corporate Transparency Act of 2019 was passed three years ago and signed into law in early 2021, businesses finally have guidance on when the reporting requirements take effect. According to the new rules, starting Jan. 1, 2024, reporting companies must report beneficial ownership information for individuals who have substantial control over the business or own at least 25% of it to the Financial Crimes Enforcement Network (FinCEN). Beneficial ownership information that must be reported includes the name, birthday, address and a unique identifying number.

The mechanics of how to report this information to FinCEN have yet to be released.

We will be discussing more on this issue in our Year-End seminars.

Issue 7: IRS Addresses Letter 6534 The IRS will start mailing letters in October on behalf of the Center for Medicare & Medicaid services. The letter will contain information about obtaining Marketplace healthcare coverage.

The IRS cannot answer questions about these letters.

Direct your clients to contact the Marketplace Call Center at 800-318-2596 or visit

Issue 8: Required Minimum Distribution Final Regs to be Issued – Notice 2022-53 and 2022-44

In a notice, the IRS said it intends to issue final regulations related to required minimum distributions under § 401(a)(9) that will apply no earlier than the 2023 distribution calendar year.

The §401(a)(9) proposed regulations contain a new 10-year rule for beneficiaries who are not eligible designated beneficiaries, and these regulations impact the next beneficiary as well. It appears the regulations are retroactive to 2021 and 2022; however, penalty relief guidance is forthcoming.

Issue 9: Social Security Wage Base Increases to $160,200 in 2023

The Social Security Administration (SSA) has announced that the maximum earnings subject to Social Security (OASDI) tax will increase from $147,000 to $160,200 in 2023 (an increase of $13,200).

The maximum Social Security employer contribution will increase $818.40 in 2023. The $160,200 wage base for 2023 is significantly greater than the wage base forecasted by the SSA’s Office of the Chief Actuary back in June.

For 2023, the FICA tax rate for both employers and employees is 7.65% (6.2% for OASDI and 1.45% for Medicare).

For 2023, an employer must withhold:

  1. 6.2% Social Security tax on the first $160,200 of employee wages (maximum tax is $9,932.40; i.e., 6.20% × $160,200), plus;
  2. 1.45% Medicare tax on the first $200,000 of employee wages, plus;
  3. 2.35% Medicare tax (regular 1.45% Medicare tax + 0.9% additional Medicare tax) on all employee wages in excess of $200,000 (see Payroll Guide ¶4055 for further information on the 0.9% additional Medicare tax).

Social Security and Supplemental Security Income (SSI) benefits will increase by 8.7% in 2023.

The average monthly Social Security benefit will increase from $1,681 to $1,827, and the maximum federal SSI monthly payment to an individual will increase from $841 to $914.

The maximum federal SSI monthly payment to a couple will increase from $1,261 to $1,371 in 2023.

The amount of earnings that is required in order to be credited with a quarter of Social Security coverage will increase from $1,510 to $1,640.

The retirement earnings test remains in effect for individuals below normal retirement age (age 65 to 67, depending on year of birth) who continue to work while collecting Social Security benefits. For affected individuals, $1 in benefits will be withheld for every $2 in earnings above $21,240 in 2023 (up from $19,560 in 2022).

For working individuals collecting benefits who reach normal retirement age (NRA) in 2023, $1 in benefits will be withheld for every $3 in earnings above $56,520 (up from $51,960 in 2022), until the month that the individual reaches NRA. After that month, there is no limit on earnings.


Social Security Announces 8.7 % Benefit Increase for 2023

Social Security and Supplemental Security Income (SSI) benefits for approximately 70 million Americans will increase 8.7 % in 2023, the Social Security Administration announced today. On average, Social Security benefits will increase by more than $140 per month starting in January.

The 8.7 % cost-of-living adjustment (COLA) will begin with benefits payable to more than 65 million Social Security beneficiaries in January 2023. Increased payments to more than 7 million SSI beneficiaries will begin on December 30, 2022. (Note: some people receive both Social Security and SSI benefits). The Social Security Act ties the annual COLA to the increase in the Consumer Price Index as determined by the Department of Labor’s Bureau of Labor Statistics.

Social Security Changes 2023

Social Security Changes 2023 2


Issue 10: SSA /IRS Reporter Offers Prevention Tips for Email and Cloud-Based Scams

The Fall 2022 edition of the SSA/IRS Reporter provides a number of tips to tax professionals on how to avoid email and cloud-based scams.

Fraudulent emails and texts. Tax professionals are often the target of malware and scams because their networks contain valuable taxpayer data. A common tactic used is phishing emails and texts that trick a tax professional to click a malicious link or attachment that steals data.

These scammers can play a long game by masquerading as potential clients and exchanging several emails and gaining a tax professional’s trust before they initiate the attack. Once the link or attachment is opened, the malware is unleashed, downloading into the system, providing access to passwords or remote access.

Malware and ransomware attacks. Scammers use malware to gain access to a tax professional’s system and can steal refunds by identifying potential tax returns, changing bank account information, and even completing returns and e-filing them. Downloading a link may unleash ransomware, where thieves will attack a system and encrypt the files then demand a ransom to release the data.

Weak security on cloud-based systems. While storing data on cloud-based systems is convenient, the Reporter notes that thieves take advantage of weak security on these systems. Cloud-based systems should use strong multi-factor authentication (MFA) also known as “Two Factor Authentication” or “Two Step Authentication.”

MFA offers additional layers of security by requiring two or more authenticators to verify identity before access is granted to the system. Cloud-based systems that use MFA are less likely to be hacked because if a password is compromised, the second authentication requirement should stop an attacker from gaining access. MFA may require obtaining a code from a text on a phone or a fingerprint or face scan. Tax professionals should always opt into MFA and if it is not available on a cloud-based system, they should contact their provider to add the feature to the system. The Cybersecurity and Infrastructure Security Agency (CISA) offers a webpage for more information on MFA.

Issue 11: IRS Sending Letters to over 9 Million potentially Eligible Families Who Did Not Claim Stimulus Payments, EITC, Child Tax Credit or Other Benefits

The Internal Revenue Service is sending letters to more than 9 million individuals and families who appear to qualify for a variety of key tax benefits but did not claim them by filing a 2021 federal income tax return. Many in this group may be eligible to claim some or all of the 2021 Recovery Rebate Credit, the Child Tax Credit, the Earned Income Tax Credit and other tax credits depending on their personal and family situation.

The special reminder letters, which will be arriving in mailboxes over the next few weeks, are being sent to people who appear to qualify for the Child Tax Credit (CTC), Recovery Rebate Credit (RRC) or Earned Income Tax Credit (EITC) but have not yet filed a 2021 return to claim them. The letter, printed in both English and Spanish, provides a brief overview of each of these three credits.

Further details on these expanded tax benefits

The three credits include:

Besides these three credits, many filers may also qualify for two other benefits with a tax return filed for 2021:

Claiming these credits has no effect on the ability of someone to be eligible for federal benefits like Supplemental Security Income (SSI), Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), and the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC).  Claiming these credits also has no effect on an individual’s immigration status or their ability to get a green card or immigration benefits

Issue 12: A Simpler Way to Resolve Some S Corporation Issues

Rev. Proc. 2022-19 contains procedures that S corporations and their shareholders can use with confidence to resolve frequently encountered issues, often without having to request a private letter ruling (PLR). The issues identified do not affect the validity or continuation of a corporation’s election to be treated as an S corporation or to treat its corporate subsidiary as a qualified subchapter S subsidiary (QSub).

The areas addressed include:

The revenue procedure provides a sample corporate provision statement and a sample shareholder statement. An officer and affected shareholder must complete and sign these statements to qualify for the relief provided in Rev. Proc. 2022-19, which is effective Oct. 11, 2022, and includes a transition rule for any pending PLRs.

Issue 13: Labor Department Issues Proposed Worker Classification Rules

The U.S. Department of Labor (DOL) has published a proposed rule to revise the Department’s guidance on how to determine who is an employee or independent contractor under the Fair Labor Standards Act (FLSA).

The DOL explains that the Notice of Proposed Rulemaking (NPRM) would rescind an earlier rule on this topic that was published on January 7, 2021 and replace it with an analysis for determining employee or independent contractor status that is more consistent with the FLSA as interpreted by longstanding judicial precedent.

Earlier rule. On January 6, 2021, the DOL under the prior Presidential Administration issued a final rule addressing the distinction between employees and independent contractors under the FLSA, which emphasized the use of two core factors of the economic realities test (the 2021 rule). Those two core factors are:

(1) the nature and degree of the worker’s control over the work, and

(2) the worker’s opportunity for profit or loss based on initiative and/or investment.

These two core factors weighed greater than other considerations. Opponents argued that the 2021 rule ran counter to established court rulings on the matter. The effective date of the 2021 rule was March 8, 2021. The DOL under the current Presidential Administration issued rules in 2021 to delay and withdraw the rule, which were vacated by a federal district court on March 14, 2022. Currently, the two-factor economic reality rule remains in effect.

Announcement of proposed rulemaking. On June 3, 2022, the DOL announced it is developing a proposed rule on determining employee or independent contractor status under the FLSA and held forums in June 2022 to hear perspectives from those who may be affected by employee or independent contractor classification.

Proposed rule. The DOL has said that its proposed rule would reduce the risk that employees are misclassified as independent contractors, while providing added certainty for businesses that engage (or wish to engage) with individuals who are in business for themselves.

The DOL said that it issued the proposed rule because it believes that the worker classification rule from 2021 does not fully comport with the FLSA’s text and purpose as interpreted by courts and departs from decades of case law applying the economic reality test. The DOL said its proposed rule is not using “core factors” but instead aims to return to a totality-of-the circumstances analysis of the economic reality test in which the factors do not have a predetermined weight and are considered in view of the economic reality of the whole activity.

The proposal provides multiple economic realities factors to be considered when determining worker status. The DOL notes that the list is not exhaustive, and no single factor is dispositive. These factors are:

The DOL is further proposing to return the consideration of investment to a standalone factor, provide additional analysis of the control factor (including detailed discussions of how scheduling, supervision, interpretation of the integral factor, which considers whether the work is integral to the employer’s business.

State Updates

Issue 14: Iowa Certifies Corporate Income Tax Rate Reductions for Tax Years beginning on or After January 1, 2023

On September 27, 2022, the Director of the Iowa Department of Revenue issued Order 2022-03, certifying that the top corporate income tax rates will be reduced to 8.4% from 9.0% and 9.8% in 2023.

House File 2317, which was enacted earlier in 2022, amended Iowa Code Section 422.33 to reduce the corporate income tax beginning in 2023 if certain revenue triggers were satisfied. New Iowa Code Section 422.33(1)(b) requires both the Iowa Department of Revenue (DOR) and the Iowa Department of Management (DOM) to determine by November 1, 2022 (and by November 1st of each year thereafter) whether net corporate income tax receipts in the prior fiscal year exceeded $700 million. If the revenue triggers are satisfied, then the 9% and 9.8% rate brackets will be adjusted to generate $700 million in net corporate income tax receipts. The new rates will apply to tax years beginning on or after January 1st of the year following the determination date. The rates cannot decrease below 5.5%.

Corporate income tax rates for 2023

On September 26, 2022, the DOM concluded that the net corporate income receipts exceeded $700 million for the prior fiscal year. The following day, the DOR determined that the top corporate income tax rates should be reduced and announced that the corporate income tax rate schedule for tax years beginning on or after January 1, 2023 is as follows:

Bracket Tax rate

$0 – $25,000       5.5%

$25-001 – $100,000         5.5%

$100,001 – $250,000       8.4%

$250,001 and above       8.4%

Issue 15: Iowa Failure to File Penalty – Regulation Adopted

The Iowa Department of Revenue has adopted, effective November 9, 2022, new Iowa Admin. Code § 701—10.9 (Failure to File Penalty), to reflect law changes to the penalty imposed on a taxpayer for failure to file a tax return within 90 days of written notice from the Department. The new rule describes the demand letter that will be sent to a taxpayer to start the 90-day period and explains what constitutes a showing of “good reason” for which the penalty may be waived.

Issue 16: Iowa Updates Income Tax Withholding Reporting Requirements, Establishes Penalty for Late and Inaccurate Forms W-2/1099

Legislation adopts the administrative policy that the due date for filing Iowa Forms W-2/1099 is February 15.

A penalty of $500 applies to each occurrence of filing a late or inaccurate Form W-2/1099.

Starting with tax year 2022, the Verified Summary of Payments (VSP) is no longer required.

The Iowa Department of Revenue has issued a proposed rulemaking that implements law changes enacted this year and makes other changes to better conform the law changes with how the IDR currently administers withholding filings.

A list of changes effective beginning with tax year 2022 follows:

All Forms W-2/1099 with Iowa income tax withholding must be filed using GovConnectIowa

Issue 17: Maryland Sets Interest Rate for 2023

The Maryland Comptroller’s Office has set the interest rate for refunds and delinquent taxes for calendar year 2023 at 9%.

Other News

Issue 18: 401(k) limit increases to $22,500 for 2023, IRA limit rises to $6,500

The Internal Revenue Service announced 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.

Highlights of changes for 2023

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $22,500, up from $20,500.

The limit on annual contributions to an IRA increased to $6,500, up from $6,000. The IRA catch up contribution limit for individuals aged 50 and over is not subject to an annual cost of living adjustment and remains $1,000.

The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $7,500, up from $6,500. Therefore, participants in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan who are 50 and older can contribute up to $30,000, starting in 2023. The catch-up contribution limit for employees aged 50 and over who participate in SIMPLE plans is increased to $3,500, up from $3,000.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs, and to claim the Saver’s Credit all increased for 2023.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or the taxpayer’s spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor the spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase out ranges for 2023:

The income phase-out range for taxpayers making contributions to a Roth IRA is increased to between $138,000 and $153,000 for singles and heads of household, up from between $129,000 and $144,000. For married couples filing jointly, the income phase-out range is increased to between $218,000 and $228,000, up from between $204,000 and $214,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.

The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $73,000 for married couples filing jointly, up from $68,000; $54,750 for heads of household, up from $51,000; and $36,500 for singles and married individuals filing separately, up from $34,000.

The amount individuals can contribute to their SIMPLE retirement accounts is increased to $15,500, up from $14,000.

Issue 19: IRS to Initiate New Pilot for PPS line

The IRS has initiated a pilot program that now requires Practitioner Priority Services callers to repeat phrases before being transferred to an IRS assistor. This pilot uses speech recognition to help ensure a live person is calling and not a mechanical device. The new process is intended to improve customer service by reducing unnecessary wait times.

Issue 20: IRS Issues 2023 Tax Inflation Adjustments – IR 2022-182; Rev. Proc. 2022-38

IRS has issued inflationary adjustments concerning 62 items.  Please watch for our 2022 Special Addition Tax Planning Newsletter to be Posted Soon on under Blog.

Issue 21: Applicable Federal Rates for November 2022, Rev. Rul. 2022-20

AFR Rates November 2022

AFR rates November 2022 Table 2

AFR Rates November 2022 Table 5