The Treasury Department's Office of Payment Integrity (OPI) deployed Artificial Intelligence(AI)-based fraud detection at the onset of Fiscal Year 2023, resulting in the recovery of over $375 ...
The IRS announced that compliance efforts around erroneous Employee Retention Credit (ERC) claims have topped more than $1 billion within six months. "We are encouraged by the results so fa...
The IRS has announced the federal income tax treatment of certain lead service line replacement programs for residential property owners. It is required by the federal and many state governmen...
The IRS has released guidance to help taxpayers understand what to do with Form 1099-K. Responding to feedback from taxpayers, tax professionals and payment processors, the agency had announced b...
The IRS has provided a waiver for any individual who failed to meet the foreign earned income or deduction eligibility requirements of Code Sec. 911(d)(1) because adverse conditions in a f...
Effective July 1, 2024, through June 30, 2025, the Louisiana natural gas severance tax rate has been set at 9.8¢ per 1,000 cubic feet (MCF) measured at a base pressure of 15.025 pounds per square inc...
The Mississippi Legislature has reenacted and amended a business income tax credit provision for Class II and Class III railroads undertaking qualified railroad reconstruction or replacement and new r...
The Texas Comptroller has issued guidance as to the limitations period for assessments and refunds of franchise tax when a taxpayer requests an extension of the deadline to file and pay any tax due on...
President Biden support extending the individual tax provisions of the Tax Cuts and Jobs Act, many of which are set to expire next year, Department of the Treasury Secretary Janet Yellen said.
President Biden support extending the individual tax provisions of the Tax Cuts and Jobs Act, many of which are set to expire next year, Department of the Treasury Secretary Janet Yellen said.
"The President has made it clear that he would oppose raising back the taxes for working people and families making under $400,000," Secretary Yellen testified before the Senate Finance Committee during a March 21, 2024, hearing to review the White House fiscal year 2025 budget proposal.
She then affirmed that "he would" support extending the individual tax provisions of the TCJA when asked by committee Ranking Member Mike Crapo (R-Idaho), who noted that the budget did not make any mention of this.
Yellen defended the fiscal 2025 budget request against assertions that taxes will indeed go up for those making under $400,000, contrary to President Biden’s promise, because the taxes that are targeted to wealthy corporations to ensure they are paying their fair share will ultimately be passed down to their consumers in the form of higher prices and lower wages.
"I think what the impact when you change taxes on corporations, what the impact is on families involves a lot of channels that are speculative," Yellen said. "They are included in models that sometimes the Treasury used for the purposes of analysis, in a tax that is levied on corporations, that has no obvious direct effect on households."
The proposed budget would increase the corporate minimum tax from the current 15 percent to 21 percent, as well as raise the tax rate on U.S. multinationals’ foreign earnings from the current 10.5 percent to 21 percent. The current corporate tax rate would climb to 28 percent and the budget would eliminate tax breaks for million-dollar executive compensation. It would also increase the tax rate on corporate stock buybacks from 1 percent to 4 percent, among other business-related tax provisions.
By Gregory Twachtman, Washington News Editor
Corporations and billionaires will be paying more in taxes if Congress follows recommendations President Biden gave during his State of the Union address.
Corporations and billionaires will be paying more in taxes if Congress follows recommendations President Biden gave during his State of the Union address.
President Biden highlighted a number of initiatives during the March 7, 2024, address. For corporations, he said that it is "time to raise the corporate minimum tax to at least 21 percent."
"Remember in 2020, 55 of the biggest companies in America made $40 billion and paid zero in federal income taxes," President Biden said. "Zero. Not anymore. Thanks to the law I wrote [and] we signed, big companies have to pay minimum 15 percent. But that’s still less than working people paid federal taxes."
Additionally, he alluded to further recommendations that will likely be included when the administration released its budget proposal, expected as early as the week of March 11, 2024. This includes limiting tax breaks related to corporate and private jets and capping deductions on certain employees at $1 million.
For billionaires, President Biden is looking to increase their tax rate to 25 percent.
"You know what the average federal taxes for those billionaires [is]?" he asked. “"They’re making great sacrifices. 8.2 percent. That’s far less than the vast majority of Americans pay. No billionaire should pay a lower federal tax rate than a teacher or a sanitation worker or nurse."”
President Biden said this proposal would raise $500 billion over the next 10 years and suggested some of that additional tax money would help strengthen Social Security so that there would be no need to cut benefits or raise the retirement age to extend the life of the Social Security program.
The IRS has launched a new initiative to improve tax compliance among high-income taxpayers who have not filed federal income tax returns since 2017.
The IRS has launched a new initiative to improve tax compliance among high-income taxpayers who have not filed federal income tax returns since 2017. This effort, funded by the Inflation Reduction Act, involves sending out IRS compliance letters to over 125,000 cases where tax returns have not been filed since 2017. These mailings include more than 25,000 to individuals with incomes exceeding $1 million and over 100,000 to those with incomes ranging between $400,000 and $1 million for the tax years 2017 to 2021. The IRS will begin mailing these compliance alerts, formally known as the CP59 Notice, this week.
Recipients of these letters should act promptly to prevent further notices, increased penalties, and stronger enforcement actions. Consulting a tax professional can help them swiftly file late tax returns and settle outstanding taxes, interest, and penalties. The failure-to-file penalty is 5 percent per month, capped at 25 percent of the tax owed. Additional resources are available on the IRS website for non-filers.
The non-filer initiative is part of the IRS's broader campaign to ensure large corporations, partnerships, and high-income individuals fulfill their tax obligations. Non-respondents to the non-filer letter will face further notices and enforcement actions. If someone consistently ignores these notices, the IRS may file a substitute tax return on their behalf. However, it's still advisable for the individual to file their own return to claim eligible exemptions, credits, and deductions.
An individual’s claim for innocent spouse relief was rejected for lack of jurisdiction because the taxpayer failed to file his petition within the 90-day deadline under Code Sec. 6015(e)(1)(A).
An individual’s claim for innocent spouse relief was rejected for lack of jurisdiction because the taxpayer failed to file his petition within the 90-day deadline under Code Sec. 6015(e)(1)(A). The taxpayer argued that the deadline to file a petition for a denial of innocent spouse relief was not jurisdictional and asked that the Tax Court hear his case on equitable grounds. However, the Tax Court noted that a filing deadline is jurisdictional if Congress clearly states that it is. The IRS argued that argues that the 90-day filing deadline of Code Sec. 6015(e)(1)(A) was jurisdictional because Congress clearly stated that it was and the Supreme Court’s decision in Boechler, P.C. v. Commissioner, 142 S. Ct. 1493, in addition to numerous appellate cases, supported this argument.
The Tax Court examined the "text, context, and relevant historical treatment" of the provision at issue and concluded that the 90-day filing deadline of Code Sec. 6015(e)(1)(A) was jurisdictional. On the basis of statutory interpretation principles, the jurisdictional parenthetical in Code Sec. 6015(e)(1)(A) was unambiguous. It did not contain any ambiguous terms and there was a clear link between the jurisdictional parenthetical and the filing deadline. Specifically, Code Sec. 6015(e)(1)(A) is a provision that solely sets forth deadlines. Further, it was unclear what weight, if any, should be given to the equitable nature of Code Sec. 6015. The statutory context arguments were not strong enough to overcome the statutory text. Accordingly, the Tax Court ruled that the 90-day filing deadline in Code Sec. 6015(e)(1)(A) was jurisdictional.
P.A. Frutiger, 162 TC —, No. 5, Dec. 62,432
The IRS has continued to increase the amount of information available in multiple languages. This was part of the IRS transformation work under the Strategic Operating Plan, made possible by additional resources provided by the Inflation Reduction Act (P.L. 117-169).
The IRS has continued to increase the amount of information available in multiple languages. This was part of the IRS transformation work under the Strategic Operating Plan, made possible by additional resources provided by the Inflation Reduction Act (P.L. 117-169). On IRS.gov, taxpayers can select their preferred language from the dropdown menu at the top of the page, including Spanish, Vietnamese, Russian, Korean, Haitian Creole, Traditional Chinese and Simplified Chinese. Additionally, the Languages page gives taxpayers information in 21 languages on key topics such as "Your Rights as a Taxpayer" and "Who Needs to File."
"The IRS is committed to making further improvements for taxpayers in a wide range of areas, including expanding options available to taxpayers in multiple languages," said IRS Commissioner Danny Werfel. "Understanding taxes can be challenging enough, so it’s important for the IRS to put a variety of information on IRS.gov and other materials into the language a taxpayer knows best. This is part of the larger effort by the IRS to make taxes easier for all taxpayers," he added.
If taxpayers cannot find the answers to their tax questions on IRS.gov, they can call the IRS or get in-person help at an IRS Taxpayer Assistance Center. Finally, hundreds of IRS Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs have access to Over the Phone Interpreter services. VITA and TCE offer free basic tax return preparation to qualified individuals.
The IRS has granted to withholding agents an administrative exemption from the electronic filing requirements for Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons.
The IRS has granted to withholding agents an administrative exemption from the electronic filing requirements for Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons. Under the exemption:
- withholding agents (both U.S. and foreign persons) are not required to file Forms 1042 electronically during calendar year 2024; and
- withholding agents that are foreign persons are not required to file Forms 1042 electronically during calendar year 2025.
The exemption is automatic, so withholding agents do not need to file an electronic filing waiver request to use the exemption.
Electronic Filing of Form 1042
Under Code Sec. 6011(e), the IRS must prescribe regulations with standards for determining which federal tax returns must be filed electronically. In 2023, final regulations were published to implement amendments to Code Sec. 6011(e) that lowered the threshold number of returns for required electronic filing of certain returns. The regulations included requirements for filing Form 1042 electronically.
The final regulations provide that:
- a withholding agent (but not an individual, estate,or trust) must electronically file Form 1042 if the agent is required to file 10 or more returns of any type during the same calendar year in which Form 1042 is required to be filed;
- a withholding agent that is a partnership with more than 100 partners must electronically file Form 1042 regardless of the number of returns the partnership is required to file during the calendar year; and
- a withholding agent that is a financial institution must electronically file Form 1042 without regard to the number of returns it is required to file during the calendar year.
The final regulations apply to Forms 1042 required to be filed for tax years ending on or after December 31, 2023. This means that withholding agents must apply the new electronic filing requirements beginning with Forms 1042 due on or after March 15, 2024.
Challenges to Withholding Agents
Since the final regulations were published, the IRS received feedback from withholding agents noting challenges in transitioning to the procedures needed for filing Forms 1042 electronically. Withholding agents expressed concerns about the limited number of Approved IRS Modernized e-File Business Providers for Form 1042, and difficulties accessing the schema and business rules for filing Form 1042 electronically. Withholding agents that do not rely on modernized e-file business providers said that they needed more time to upgrade their systems for filing on the IRS’s Modernized e-File platform. Agents also noted challenges specific to foreign persons filing Forms 1042 regarding the authentication requirements necessary for accessing the platform.
In response to these concerns, the IRS used its power under the regulations to provide the exemption from the electronic filing requirement for Form 1042, in the interest of effective and efficient tax administration.
People are buzzing about Roth Individual Retirement Accounts (IRAs). Unlike traditional IRAs, "qualified" distributions from a Roth IRA are tax-free, provided they are held for five years and are made after age 59 1/2, death or disability. You can establish a Roth IRA just as you would a traditional IRA. You can also convert assets in a traditional IRA to a Roth IRA.
Before 2010, only taxpayers with adjusted gross income of $100,000 or less were eligible to convert their traditional IRA (provided they were not married taxpayers filing separate returns). Beginning in 2010, anyone can convert a traditional IRA to a Roth IRA, regardless of income level or filing status.
Comment: While you can only contribute a maximum of $5,000 to a Roth IRA for 2010 (plus a $1,000 catch-up contribution if you are over age 50), you can convert an unlimited amount from a traditional IRA.
Conversion is treated as a taxable distribution of assets from the traditional IRA to the IRA holder, although it is not subject to the 10 percent tax on early distributions. While paying taxes on conversion is undesirable, the advantages of holding assets in a Roth IRA usually outweigh this disadvantage, especially if you will not be retiring soon. Furthermore, if you convert assets in 2010, you have the option of including them in income in 2011 and 2012 (50 percent each year) instead of 2010.
Comment: Generally, this income-splitting would be advantageous to any taxpayer who does not expect a sharp increase in income in 2011 or 2012. A wildcard factor is that the lower income tax rates that have been in effect since 2001 will expire after 2010 and could increase in 2011.
There are four ways to convert a traditional IRA to a Roth IRA:
- A rollover - you receive a distribution from a traditional IRA and roll it over to a Roth IRA within 60 days;
- Trustee-to-trustee transfer - you direct the trustee of the traditional IRA to transfer an amount to the trustee of a Roth IRA;
- Same-trustee transfer - the trustee of the traditional IRA transfers assets to a Roth IRA maintained by the same trustee; or
- Redesignation - you designate a traditional IRA as a Roth IRA, instead of opening a new Roth account.
Comment: The account holder does not have to convert all of the assets in the traditional IRA.
Another advantage of converting assets from a traditional IRA to a Roth IRA is that you can change your mind and put the assets back into the traditional IRA. This is known as a recharacterization. You have until the due date, with extensions, for the return filed for the year of conversion. Thus, if you convert assets in 2010, you have until mid-October in 2011 to undo the conversion.
This ability to recharacterize the conversion allows you to use hindsight to check whether your assets declined in value after the conversion. Since you are paying taxes on the amount converted, a decline in asset value means that you paid taxes on phantom income that no longer exists. However, if you convert assets into multiple Roth IRAs, you can choose to recharacterize the assets in a Roth IRA that decreased in value, while maintaining the conversion for a Roth IRA's assets that appreciated in value.
The use of a Roth IRA can be a savvy investment, but whether to convert assets is not an easy decision. If you would like to explore your options, please contact this office.
Yes, but only for a limited time. In late December 2009, Congress passed the 2010 Defense Appropriations Act (2010 Defense Act). The new law temporarily extends the eligibility period for COBRA premium assistance through February 28, 2010 and the duration of the subsidy for an additional six months (up to 15 months).
Reduced premiums
Individuals who are involuntarily separated from employment between September 1, 2008 and February 28, 2010 may be able to make reduced premium payments for COBRA continuation coverage. Instead of paying the full monthly premium, assistance eligible individuals pay 35 percent of the premium and their former employers pay the remaining 65 percent of the premium. The former employer is reimbursed by a payroll tax credit.
Extension
Originally, Congress set a December 31, 2009 deadline for eligibility for COBRA premium assistance. The 2010 Defense Act extended the deadline for eligibility to February 28, 2010. The 2010 Defense Act also extended the maximum period for receiving the subsidy an additional six months (from nine to 15 months).
In some cases, an individual may have exhausted his or her nine months of COBRA premium assistance before Congress approved the extension. The 2010 Defense Act provides an extended period for the retroactive payment of the individual's 35 percent payment. To continue coverage, the assistance eligible individual must pay the 35 percent of premium costs by February 17, 2010 or, if later, 30 days after notice of the extension is provided by their plan administrator.
In other cases, an individual may have exhausted his or her nine months of COBRA premium assistance and paid 100 percent of the COBRA premium for December. Individuals who paid the full COBRA premium in December are entitled to a refund under the 2010 Defense Act.
Automatic
Individuals who qualify for COBRA premium assistance are automatically eligible to pay reduced premiums for up to six more months for a total of 15 months. The individual must continue to be eligible for the subsidy. If he or she becomes eligible for other group health coverage (such as a spouse's plan) or Medicare the individual is no longer eligible for COBRA premium assistance.
Income limits
Higher-income individuals may qualify for COBRA premium assistance but find they have to repay it. If an individual's modified adjusted gross income for the tax year in which the premium assistance is received exceeds $145,000 (or $290,000 for married couples filing a joint return), the amount of the subsidy during the tax year must be repaid. For taxpayers with adjusted gross income between $125,000 and $145,000 (or $250,000 and $290,000 for married couples filing a joint return), the amount of the premium reduction that must be repaid is reduced proportionately.
Higher-income individuals may permanently waive the right to COBRA premium assistance. However, they may not later obtain the subsidy if their adjusted gross incomes end up below the limits. Our office can help you decide which option is best.
Possible extension
Many lawmakers in Congress support extending eligibility for COBRA premium assistance beyond February 28, 2010. In fact, the House of Representatives approved a bill in December extending eligibility through June 30, 2010. However, the Senate has yet to vote on the bill. Our office will keep you posted of developments.
The first-time homebuyer tax credit has proven to be one of the most popular tax incentives in recent years. Until recently, the credit was generally limited to "first-time homebuyers." Although the full ($8,000) is still limited to "first-time" homebuyers, "long-time" homeowners of the same principal residence may be eligible for a reduced credit of $6,500. This new provision can give a boost to younger homeowners looking to trade up, or simply move on from their current home, as well as seniors looking to downsize.
The new "new homebuyer" tax credit
The homebuyer tax credit would have expired on November 30, 2009 had Congress not extended the credit. The new credit is extended to homes purchased before (1) May 1, 2010, or (2) July 1, 2010 if the taxpayer enters into a written binding contract before May 1, 2010 to close on the home before July 1, 2010. The credit amount remains at a maximum of $8,000, or 10 percent of the home's purchase price (whichever is less). However, the new law places a cap on the home's purchase price, which cannot exceed $800,000 in order to claim the credit. In addition, a modified credit is available for "repeat" homebuyers, discussed below.
Comment. The "first-time homebuyer credit" is somewhat of a misnomer. Under the original - and now extended - credit, you did not (and still do not) technically have to be purchasing your very first home to qualify for and take the credit. A first-time homebuyer for purposes of the $8,000 credit is a taxpayer who an individual (and spouse, if married) who had no present ownership interest in a principal residence during the three-year period ending on the date the home is purchased. This means that you could have previously owned a home as long as you have not had any ownership interest in a personal residence for at least the three years prior to purchasing the home for which you are claiming the credit.
Congress raises income limits
The homebuyer tax credit is also now available to a greater segment of the home-buying population. The new law has increased the income limits that phase out the credit, allowing higher income individuals and families to qualify.Phase-out of the credit begins under the new law at $125,000 modified adjusted gross income (AGI) for single taxpayers (up from $75,000) and at $225,000 for married taxpayers filing joint returns (up from $150,000). The phaseout range itself is $20,000, thereby reducing the credit to zero for individual taxpayers with modified AGI of more than $145,000 ($245,000 for married joint filers). The credit is reduced proportionately for taxpayers with modified AGIs between these amounts.
"Long-time" homeowners qualify for reduced $6,500 credit
A reduced homebuyer tax credit may be claimed by existing homeowners who have owned and lived in their home for a long period of time. The reduced tax credit, of up to $6,500, may benefit long-time homeowners who are ready to move up or simply move on from their current home. The tax credit is equal to 10 percent of the home's purchase price up to a maximum of $6,500. Purchases of homes priced above $800,000 are not eligible for the tax credit.
To qualify for the reduced $6,500 credit, you must be a "long-time resident" as defined by the law. For purposes of the credit, a "long-time resident" is defined as a person who has owned and resided in the same home for at least five consecutive years of the eight years prior to the purchase of the new residence. Importantly, for married taxpayers, the law tests the homeownership history of both the spouses.
If you are an existing, repeat homebuyer who qualifies for the reduced credit, you do not have to purchase a home that is more expensive than your previous home to qualify for the tax credit. There is no requirement that the new principal residence be a "move up" property; it can be less expense than your former home. However it must be your new "principal residence" in order to claim the credit. Moreover, a repeat homebuyer does not need to sell or otherwise dispose of his or her current residence to qualify for the $6,500, either, as long as your new home becomes your principal residence.
Example. Bob and Edith are married and are both eligible to claim the reduced $6,500 credit for existing "long-time residents." Their modified AGI is $240,000, which results in being $15,000 over the beginning of the phaseout for married taxpayers filing jointly. They will be able to claim a partial reduced homebuyer credit in the amount of $1,650 (15,000/$20,000 = 0.75; 1.0-0.75 = 0.25. $6,500 x 0.25 = $1,625).
While the homebuyer credit can be very valuable, it is also very complex. In addition to the provisions we have described, there are special rules for repayment, new documentation requirements, a purchase price cap, and more. Please contact our office for more details about the first-time homebuyer credit.
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