The IRS Orders an Immediate Stop to New Employee Retention Credit Processing Amid Surge of Questionable Claims

Amid rising concerns about a flood of improper Employee Retention Credit claims, the Internal Revenue Service today announced an immediate moratorium through at least the end of the year on processing new claims for the pandemic-era relief program to protect honest small business owners from scams.

IRS Commissioner Danny Werfel ordered the immediate moratorium, beginning today, to run through at least Dec. 31 following growing concerns inside the tax agency, from tax professionals as well as media reports that a substantial share of new claims from the aging program are ineligible and increasingly putting businesses at financial risk by being pressured and scammed by aggressive promoters and marketing.

The IRS continues to work previously filed Employee Retention Credit (ERC) claims received prior to the moratorium but renewed a reminder that increased fraud concerns means processing times will be longer. On July 26, the agency announced it was increasingly shifting its focus to review these claims for compliance concerns, including intensifying audit work and criminal investigations on promoters and businesses filing dubious claims. The IRS announced today that hundreds of criminal cases are being worked, and thousands of ERC claims have been referred for audit.

The IRS emphasizes that payouts for these claims will continue during the moratorium period but at a slower pace due to the detailed compliance reviews. With the stricter compliance reviews in place during this period, existing ERC claims will go from a standard processing goal of 90 days to 180 days – and much longer if the claim faces further review or audit. The IRS may also seek additional documentation from the taxpayer to ensure it is a legitimate claim.

This enhanced compliance review of existing claims submitted before the moratorium is critical to protect against fraud but also to protect the businesses from facing penalties or interest payments stemming from bad claims pushed by promoters, Werfel said.

"The IRS is increasingly alarmed about honest small business owners being scammed by unscrupulous actors, and we could no longer tolerate growing evidence of questionable claims pouring in," Werfel said. "The further we get from the pandemic, the further we see the good intentions of this important program abused. The continued aggressive marketing of these schemes is harming well-meaning businesses and delaying the payment of legitimate claims, which makes it harder to run the rest of the tax system. This harms all taxpayers, not just ERC applicants."

"For those people being pressured by promoters to apply for the Employee Retention Credit, I urge them to immediately pause and review their situation while we look to add new protections and safeguards to stop bad claims from ever coming in," Werfel said. "In the meantime, businesses should seek out a trusted tax professional who actually understands the complex ERC rules, not a promoter or marketer hustling to get a hefty contingency fee. Businesses that receive ERC payments improperly face the daunting prospect of paying those back, so we urge the utmost caution. The moratorium will help protect taxpayers by adding a new safety net onto this program to focus on fraudulent claims and scammers taking advantage of honest taxpayers."

In addition, the IRS is finalizing details that will be available soon for a special withdrawal option for those who have filed an ERC claim but the claim has not been processed. This option – which can be used by taxpayers whose claim hasn't yet been paid– will allow the taxpayers, many of them small businesses who were misled by promoters, to avoid possible repayment issues and paying promoters contingency fees. Filers of these more than 600,000 claims awaiting processing will have this option available. Those who have willfully filed fraudulent claims or conspired to do so should be aware, however, that withdrawing a fraudulent claim will not exempt them from potential criminal investigation and prosecution.

As part of the wider compliance effort, the IRS is working with the Justice Department to address fraud in the ERC program as well as promoters who have been ignoring the rules and pushing businesses to apply.

The IRS has trained auditors examining ERC claims posing the greatest risk, and the IRS Criminal Investigation division is actively working to identify fraud and promoters of fraudulent claims for potential referral for prosecution to the Justice Department.

IRS Criminal Investigation (IRS-CI) investigates a variety of COVID fraud allegations ranging from fraudulently obtained employee refund tax credits to falsified Paycheck Protection Program loans. To date, IRS-CI has uncovered suspected pandemic fraud totaling more than $8 billion. As of July 31, 2023, IRS-CI has initiated 252 investigations involving over $2.8 billion of potentially fraudulent Employee Retention Credit claims. Of those, fifteen of the 252 investigations have resulted in federal charges. Of the 15 federally charged cases, so far six matters have resulted in convictions, four of those cases have reached the sentencing phase with the average sentence being 21 months.

Criminal Investigation's work is in addition to ERC audits that have started. The IRS has already referred thousands of ERC cases for audit.

Have An Employee Retention Credit Claim?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

 

IRS To Establish Special Pass-Through Organization To Help With High-Income Compliance Efforts

The Internal Revenue Service will launch a new group focused on scrutinizing pass-through organizations as part of its broader plan for beefing up enforcement work against the wealthy, according to an agency statement on September 20, 2023.

This new unit will leverage Inflation Reduction Act funding to disrupt efforts by certain large partnerships to use pass-throughs to intentionally shield income to avoid paying the taxes they owe. These efforts are consistent with our broader commitment to use Inflation Reduction Act dollars to end the era of historically low error rates for wealthy and large entities, while making sure middle- and low-income filers continue to see no change in audit rates for years to come."

Following a top-to-bottom review of enforcement efforts, the IRS announced on September 8, 2023 the start of a sweeping, historic effort to restore fairness in tax compliance by shifting more attention onto high-income earners, partnerships, large corporations and promoters abusing the nation's tax laws.

President Joe Biden signed the Inflation Reduction Act into law in August 2022. It gave the IRS nearly $80 billion in increased funding, though this year's Fiscal Responsibility Act cut $1.4 billion, including money for IRS enforcement and operations support, and a side deal between the White House and lawmakers cuts $20 billion more from the agency, leaving The IRS with roughly $60 billion in net increased funding for enforcement.

Greater resources are needed to evaluate the compliance of pass-through entities, especially large and complex ones, and pass-through audit rates dropped because of funding cuts, the agency said in the strategic plan.

The agency audited 4.4% of pass-throughs in 2010, and the rate dropped to 0.1% in 2017, the most recent year with nearly all audits closed, according to the plan, which was released in April.

Earn > $400,000 of Income?

Have Unreported/Under Reported Income?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

 

IRS Looks To Hire 3,700 Employees Nationwide To Audit Wealthy Taxpayers

In IR-2023-172 dated Sept. 15, 2023, the IRS explained that as part of larger transformation work underway to make improvements, the Internal Revenue Service announced the opening of  more than 3,700 positions nationwide to help with expanded enforcement work focusing on complex partnerships and large corporations

These compliance positions will be open in more than 250 locations nationwide and is part of a larger effort to add fairness to the tax system and expand tax enforcement involving areas of concern with high-income earners, partnerships, large corporations and promoters. 

The Hiring Will Be For Higher-Graded Revenue Agents,
Which Are Specialized Technical Positions
That Generally Focus On Audits.

This continued hiring effort builds off earlier efforts to add taxpayer service employees at the IRS, part of the landmark Inflation Reduction Act funding approved in August 2022.

"This is another important step for the IRS as we work to transform the agency and make improvements," said IRS Commissioner Danny Werfel. This next wave of hiring will help the IRS add key talent like tax accountants to help reverse a decade-long decline of audits for the wealthy as well as complex partnerships and corporations.

These New Employees Will Be Focused On Higher-Income
And Complex Tax Areas Like Partnerships, Not Average Taxpayers Making Less Than $400,000."

"This is an exciting time to be at the IRS," said IRS Human Capital Officer Traci DiMartini. "The IRS provides a competitive financial package for people with expertise in this high-demand area. For people with accounting and financial backgrounds, we encourage them to take a close look at the benefits of working for the IRS and serving our nation."

Earn > $400,000 of Income?

Have Unreported/Under Reported Income?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

 

TIGTA Says IRS Needs to Leverage the Most Effective Training for Revenue Agents Examining High-Income Taxpayers

The Treasury Inspector General for Tax Administration (TIGTA ) issue Report Number: 2023-30-054 on August 31, 2023 concluding that the IRS Needs to Leverage the Most Effective Training for Revenue Agents Examining High-Income Taxpayers.

In August 2022, the Inflation Reduction Act of 2022 (IRA) was enacted providing almost $80 billion (with $45.6 billion for enforcement activities) to the IRS over a decade. In this report, TIGTA assessed the IRS’s strategy to train employees hired specifically to conduct audits of high earners and large businesses that underreport income.

In August 2022, the Secretary of the Treasury stated that IRA funding was intended in part to increase examination of high-income taxpayers. The Secretary also directed that no additional resources, including any new hires, shall be used to increase the share of small businesses or households below the $400,000 threshold that are audited relative to historical levels. 

The Large Business And International (LB&I) Division
Has Expertise In Training Revenue Agents
On Examining High-Income Taxpayers.

However, the IRS’s efforts to train new hires do not appear to be fully leveraging this expertise. 

The IRS treats this training as specialized and only offers it when necessary for employees auditing in this specialized area. Commensurate with the new IRA funding, the IRS should revise its training paradigm and expose new hires to the types of issues associated with high-income taxpayer returns. 

• The Small Business/Self-Employed Division’s Fiscal Year 2023 Examination Plan showed no significant increase in the number of high-income individual audits. 
• Additionally, the LB&I Division’s resource allocation plan is not detailed enough for TIGTA to assess the IRS’s intended efforts to examine high-income individuals with the increased enforcement funding. 
• The IRS does not have a unified or updated definition for individual high-income taxpayers. 
• The Tax Reform Act of 1976 required annual publication of data on individual income tax returns reporting income of $200,000 or more. The current examination activity code schema still uses $200,000 as the main threshold. 

The IRS’s Inflation Reduction Act Strategic Operating Plan sets forth leveraging data analytics to improve the IRS’s understanding of the tax filings of high-wealth individuals and to address potential noncompliance. 

Consequently, The IRS Needs To Update Its High-Income Taxpayer Definition To Better Identify And Track Examination Results And Manage Examination Priorities.

TIGTA made six recommendations, including that the IRS leverage the LB&I Division’s extensive knowledge base by embracing its current high-income individual training content and ensure that examination plans follow the Secretary of Treasury’s Directive to prioritize coverage of individual high-income earners over $400,000. 

The IRS agreed or partially agreed with five of the six recommendations and disagreed with one recommendation.

Earn > $400,000 of Income?

Have Unreported/Under Reported Income?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

 

TC - E-Assessment Do Not Need Supervisor Approval

According to Law360, in the case Piper Trucking & Leasing LLC v. Commissioner, docket number 20468-21L, the U.S. Tax Court ruled that digitally calculated penalties imposed on employers who fail to file certain tax forms do not require supervisory approval.

The Internal Revenue Service may proceed with its plan to collect penalties assessed to Piper Trucking & Leasing by the agency's combined annual wage reporting program after the company failed to file Forms W-2 and W-3 with the Social Security Administration.

The SSA twice attempted to reach out to the company to remedy the issue, the opinion said, but after the Ohio-based company failed to respond, the SSA referred the matter to the IRS. Using the software, the agency then assessed Piper a penalty under Internal Revenue Code Section 6721(e), an assessment Piper argued was invalid.

Under Section 6751 of the IRC, no penalties shall be assessed unless the initial determination is approved by the immediate supervisor of the person making the decision. 

However, the Same Section Provides that
Penalties Calculated Without Human Interaction
are not Subject to the Approval Requirement

___________________ 

Have An IRS Penalty Problem?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

 

IRS Announces New Compliance Efforts & Increased Scrutiny On High-Income Taxpayers, Partnerships, Corporations and Promoters

In IR-2023-166 The IRS announced sweeping effort to restore fairness to tax system with Inflation Reduction Act funding; new compliance efforts focused on increasing scrutiny on high-income, partnerships, corporations and promoters abusing tax rules.

Capitalizing on Inflation Reduction Act funding and following a top-to-bottom review of enforcement efforts, the Internal Revenue Service announced on  Sept. 8, 2023 the start of a sweeping, historic effort to restore fairness in tax compliance by shifting more attention onto high-income earners, partnerships, large corporations and promoters abusing the nation's tax laws.

The effort, building off work following last August's IRA funding, will center on adding more attention on wealthy, partnerships and other high earners that have seen sharp drops in audit rates for these taxpayer segments during the past decade. 

The changes will be driven with the help of improved technology as well as Artificial Intelligence that will help IRS compliance teams better detect tax cheating, identify emerging compliance threats and improve case selection tools to avoid burdening taxpayers with needless "no-change" audits.

As Part of the Effort, the IRS Will Also Ensure Audit Rates Do Not Increase for Those Earning Less Than $400,000 a Year... 

"This New Compliance Push Makes Good On The Promise
Of The Inflation Reduction Act To Ensure The IRS
Holds Our Wealthiest Filers Accountable To Pay The
Full Amount Of What They Owe,"
Said IRS Commissioner Danny Werfel.

"The years of underfunding that predated the Inflation Reduction Act led to the lowest audit rate of wealthy filers in our history. I am committed to reversing this trend, making sure that new funding will mean more effective compliance efforts on the wealthy, while middle- and low-income filers will continue to see no change in historically low pre-IRA audit rates for years to come."

 "There is a sea change taking place at the IRS in every aspect of our operations. Anchored by a deep respect for taxpayer rights, the IRS is deploying new resources towards cutting-edge technology to improve our visibility on where the wealthy shield their income and focus staff attention on the areas of greatest abuse. 

We will increase our compliance efforts on those posing the greatest risk to our nation's tax system, whether it's the wealthy looking to dodge paying their fair share or promoters aggressively peddling abusive schemes. These steps are critical for the future of the nation's tax system."

For the broader compliance work going on across the IRS, this will be an expansive effort with more details to be announced in the weeks and months ahead. Key elements of this new effort include:

Prioritization of high-income cases. In the High Wealth, High Balance Due Taxpayer Field Initiative, the IRS will intensify work on taxpayers with total positive income above $1 million that have more than $250,000 in recognized tax debt. Building off earlier successes that collected $38 million from more than 175 high-income earners, the IRS will have dozens of Revenue Officers focusing on these high-end collection cases in FY 2024. The IRS is working to expand this effort, contacting about 1,600 taxpayers in this category that owe hundreds of millions of dollars in taxes.

More scrutiny on FBAR violations. High-income taxpayers from all segments continue to utilize Foreign Bank accounts to avoid disclosure and related taxes. A U.S. person with a financial interest over a foreign financial account is required to file a Report of Foreign Bank and Financial Accounts (FBAR) if the aggregate value of all foreign financial accounts is more than $10,000 at any time. IRS analysis of multi-year filing patterns has identified hundreds of possible FBAR non-filers with account balances that average over $1.4 million. The IRS plans to audit the most egregious potential non-filer FBAR cases in Fiscal Year 2024.

Have Unreported Income?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

 

IRS Proposes New Crypto Currency Tax Rules For 2025

According to CoinTracker, to improve crypto tax compliance, starting the 2025 tax year, the IRS has proposed crypto brokers issue a new tax form called Form 1099-DA (similar to stock brokers) showing capital gains and losses.

1099-DA forms will make crypto tax compliance easier if your transactions are contained within an exchange with no transfers in or out.

Moderate and advanced crypto users will need CoinTracker to compute gains & losses and supplement 1099-DAs with data gaps.

The bipartisan Infrastructure Investment and Jobs Act passed in November 2021 required digital assets “brokers” to report users’ gain & loss information to the IRS in the way that stock brokers already do. On August 25, 2023, the IRS issued proposed regulations (Regs) defining the term “broker” and outlining requirements brokers must follow to comply with tax reporting rules related to cryptocurrency transactions.

Who are brokers?

According to the proposed Regs, a broker is “any person that in the ordinary course of a trade or business stands ready to effect sales to be made by others.” There are five potential categories of brokers.

• 
  Digital asset platforms: This category includes centralized exchanges, cryptocurrency ATMs, and certain DeFi platforms where the operator is in a “position to know the identity of the party that makes the sale” and “maintains sufficient control or influence” over the service provided.
• Digital asset-hosted wallet providers: This category includes web3 wallet providers that allow users to swap digital assets directly. Note: If the wallet does not offer a swap feature, it is not a broker.  
• Digital asset payment processors: This category includes products and services that intake cryptocurrency, convert it into USD, and send it to merchants.
• Other brokers: This category includes stablecoin issuers.
• Real estate persons: This category includes middlemen involved in real estate transactions involving cryptocurrency payments.

Merchants who sell goods or services in exchange for digital assets, Proof of Work (PoW) and Proof of Staking (PoS) validation providers, and people who sell hardware and software wallets (without any crypto swap features), are not classified as brokers.

What transactions are subject to broker reporting?

The proposed regulations subject cryptocurrency sold for cash and crypto-to-crypto trades, including the payment of transaction fees in crypto, to broker reporting. Non-fungible token (NFT) transactions are also subject to reporting. Brokers are expected to report gains and losses generated from these activities to users and the IRS on a new tax form called Form 1099-DA.

Note that airdrops, hard forks, and gains & losses related to loan transactions, transferring assets into liquidity pools, and wrapping and unwrapping transactions are not addressed in the proposed regulations due to an absence of guidance in these areas.

It is possible, however, that these transactions will be included in future iterations of 1099-DAs or other tax forms. Note that these transactions are still reportable on your tax return and may be taxable even though they are not immediately reported on 1099-DAs.

Timing of the rules

The crypto community has a 60-day comment period ending on October 24, 2023, to respond to the proposed regulations published by the IRS and the Treasury. After the comment period ends, the IRS will take all comments into consideration, make whatever changes it deems appropriate based on those comments, and issue final regulations, most likely in 2024.

If the proposed Regs become finalized with no changes, for the 2025 tax year, brokers will be required to issue 1099-DA forms with only gross proceeds (sales) amount. For the 2026 tax year and onwards, brokers must issue complete 1099-DAs that report process, cost basis, and gains & losses to taxpayers.

Impact on you & why you need CoinTracker

Tax compliance will be easier for simple crypto users

If you are a single-exchange user, the proposed 1099-DAs will simplify your crypto tax compliance. If implemented effectively (similar to in the stock world), you can rely on the gains & losses reported on these forms to complete your tax return without relying on a crypto tax tool like CoinTracker. Expect to receive complete 1099-DAs for the 2026 tax year.

Moderate & advanced users will need CoinTracker

In the following scenario(s) you will need CoinTracker to reconcile your crypto transactions and compute gains & losses accurately.

You have crypto & NFT transactions in the 2023, 2024, and 2025 tax years
Complete 1099-DAs will not roll out until at least the 2026 tax year. You will need CoinTracker to track your cost basis and gains & losses until you receive complete 1099-DAs from brokers.

You have transactions not reported on the early phases of 1099-DAs.
For example,  airdrops, hard forks, loan transactions, wrapping/unwrapping coins & adding/removing liquidity to/from liquidity pools will not be reported on early 1099-DAs. You will need to compute income and gains & losses related to these transactions using CoinTracker.

You have transferred assets from one broker to another broker.
For example,  Shehan buys 1 BTC on Coinbase, then transfers it to Gemini to sell it there because it offers cheaper trading fees. Under the current implementation of the proposed Regs, Coinbase is not required to share cost basis information with Gemini, so Gemini will not know the cost basis of your BTC unless you track it using CoinTracker. If you don’t keep track of the cost basis, you will likely inflate your capital gains and overpay taxes in this scenario.  

You have transferred assets from a broker to your self-custody wallet.
For example,  Shehan buys $100 of BTC every Friday on Coinbase. At the end of each month, he transfers these coins to his ledger wallet for long-term secure storage. To keep track of the cost basis for each coin and the date purchased (which is required for future capital gain calculations), Shehan will need CoinTracker.

You have transferred assets from your self-custody wallet to a broker.
Continuing with the above example, Shehan transfers 0.1 BTC to Coinbase towards the end of the year and sells it for cash (or exchanges it with another coin). Shehan will need CoinTracker to compute the correct gain & loss by taking the right cost basis into account. Coinbase will not have the cost basis information in this scenario.

You have transferred assets from one self-custody wallet you own to another self-custody wallet you own.
For example, Shehan transfers 0.1 BTC (cost basis $1,000) from self-custody wallet A to Self-custody wallet B. In order to properly maintain the cost basis lots on a per-wallet basis and accurately apply HIFO or LIFO identification methods, Shehan will need to use CoinTracker.

You have staking or mining income directly credited into your self-custody wallet.
For example,  Shehan stakes Cardano and receives rewards directly to his self-custodial wallet. Here, Shehan will need CoinTracker to compute income at the time of receipt and calculate gains & losses when he sells the rewards in the future.

You have transactions in non-broker platforms
For example, Shehan trades cryptocurrency in an overseas exchange (like Binance.com) or a DeFi platform not classified as a broker. In this scenario, Shehan will not receive any 1099-DAs at all. He will need CoinTracker to reconcile his activity and compute gains & losses accurately.

The proposed Regs also require you to maintain cost basis lots on a per-wallet basis. CoinTracker already supports this feature. Moreover, Specific identification of lots such as Highest-in-First-Out (HIFO) or Lowest-in-First-Out (LIFO) is allowed as long as you keep detailed records of your lots held in your self-custodial wallet. You can already keep detailed track of your lots and identify them under HIFO or LIFO methods using CoinTracker. (If you don’t have CoinTracker or another way to accurately identify the lots, your tax lot ID method defaults to First-in-First-out (FIFO), which is not generally tax advantageous).

Overall, the IRS is planning to narrow the tax gap by requiring brokers to report your crypto gains and losses directly to the IRS and compare these reported amounts with the numbers you report on your Form 1040. 

If there is a discrepancy, the IRS system will automatically send you a notice to correct your error. This new system will ultimately allow the IRS to focus its audit efforts on bad actors while giving compliant good actors peace of mind with crypto taxes.

Have An IRS Tax Problem?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)