Larry's Tax Law

The Internal Revenue Service (“IRS”) announced in IR News Release 2023-247 (December 21, 2023) its new Voluntary Disclosure Program (“ERC VDP”) that allows employers who may have received questionable Employee Retention Credits (“ERCs”) to pay them back at a discount. The ERC VDP is a part of the government’s ongoing fight against questionable ERC claims. 

IRS Warning

As you may recall, on November 7, 2022, the IRS issued COVID Tax Tip 2022-170.  It warned employers to be wary of third-party vendors offering assistance in applying for ERCs.  In fact, the IRS stated in that notice:

“Employers should be wary of third parties advising them to claim the employee retention credit when they may not qualify.  Some third parties are taking improper positions related to taxpayer eligibility for and computation of the credit.

These third parties often charge large upfront fees or a fee that is contingent on the amount of the refund.  They may also fail to inform taxpayers that wage deductions claimed on the business’ federal income tax return must be reduced by the amount of the credit.

If the business filed an income tax return deducting qualified wages before it filed an employment tax return claiming the credit, the business should file an amended income tax return to correct any overstated wage deduction.

Businesses should be cautious of schemes and direct solicitations promising tax savings that are too good to true.  Taxpayers are always responsible for the information reported on their tax returns.  Improperly claiming the ERC could result in taxpayers being required to repay the credit along with penalties and interest.”

ERC VDP

The government’s stated goal of the ERC VDP is twofold:

On April 5, 2023, Commissioner Daniel I. Werfel issued the Internal Revenue Service Inflation Reduction Act Strategic Operating Plan (“Plan”).  The Plan, which spans over 145 pages, is a roadmap to how the Service will deploy over the next decade the approximately $80 billion in supplemental funding it will receive as a result of the Inflation Reduction Act enacted by Congress last year (“IRA”).

In the Plan, Commissioner Werfel sums up the strategic goals for the IRS as follows:

“We will make it easier for taxpayers to meet their tax responsibilities and receive tax incentives for which they are eligible. We will adopt a customer-centric approach that dedicates more resources to helping taxpayers get it right the first time, while addressing issues in the simplest ways appropriate. We will address noncompliance, using data and analytics to expand enforcement in certain segments. We will become an employer of choice across government and industry. These changes will enable us to serve all taxpayers more equitably and in the ways they want to be served.”

The Taxpayer Advocate Service (“TAS”) is an independent body housed within the Internal Revenue Service (the “Service” or “IRS”).  Its mission is to ensure taxpayers are treated fairly by the Service and that taxpayers know and understand their rights with respect to the federal tax system.  Further, the TAS was created by Congress to help taxpayers resolve matters with the IRS that are not resolved through normal IRS procedures.  Additionally, the TAS was established to address large-scale, systemic issues that impact groups of taxpayers.

The TAS is currently led by Ms. Erin M. Collins, who joined the TAS in March 2020.  She serves as the National Taxpayer Advocate (“NTA”).  The NTA submits two reports to Congress each year, namely an “Annual Report” in January and what is called an “Objectives Report” in June.

On June 22, 2022, the NTA submitted the TAS Fiscal Year 2023 Objectives Report to Congress.  In addition to identifying the TAS’s objectives for the upcoming fiscal year, Ms. Collins sets out the good, the bad and the ugly relative to the Service’s performance during the year.  As a report card, it does not appear Ms. Collins gave the IRS all A’s.  She expressed critical comments centered primarily around three areas of customer service that include unprocessed paper-filed tax returns, delays in responding to taxpayer correspondence and failures in answering taxpayer telephone inquiries.  Whether the criticism is warranted may be debatable.

As many readers have noticed, I have been silent for the past few months.  That is partly due to exhaustion from reporting on the flurry of tax events that have occurred since the COVID-19 pandemic commenced in 2020 and also partly due to the need to conserve energy to fully learn, digest and report on the highly anticipated, new broad-sweeping federal tax legislation we should see within the next few weeks.  While many commentators are publishing articles on what could be contained in final legislation and what taxpayers should be doing currently, I decided, especially since I do not possess a good crystal ball, to wait until the legislation is passed (or at least gets further along in the legislative process) before reporting on it and advising taxpayers on what they should be doing in anticipation of the legislation.  So, all has been calm on the Larry’s Tax Law blog front.  Once the legislation is passed, however, I expect a nasty storm to ensue.

I plan to provide you with a summary of the most salient provisions of the law and how those provisions may impact taxpayers.  In the interim, I wanted to share some interesting tax trivia just published by the Internal Revenue Service.

In News Release 2020-107, issued Thursday, May 28, 2020, the IRS announced that taxpayers will soon be able to electronically file Form 1040-X, Amended U.S. Individual Income Tax Return.  This is welcome news for taxpayers and tax practitioners!

Background

According to the IRS, more than 90 percent of individual taxpayers electronically file their U.S. Federal Income Tax Returns (Form 1040) each year.  Likewise, approximately three million amended U.S. Federal Income Tax Returns (Form 1040-X) are filed each year.

Currently, a large number of tax forms may be filed electronically, including U.S. Federal Income Tax Forms 1040, 1065, 1120 and 1120S.  Additionally, taxpayers may electronically amend U.S. Federal Income Tax Forms 1065, 1120 and 1120S.  They may not, however, amend U.S. Federal Income Tax Form 1040 (Form 1040-X) electronically.  

Despite repeated pleas by tax practitioners for the ability to file Form 1040-X electronically, the IRS has not been able to accommodate practitioners.  That is about to change! 

Today, in the wake of the recent decision by the Internal Revenue Service (“IRS”) to extend the income tax filing and payment deadlines to July 15, 2020, it announced a new taxpayer-friendly program called the “People First Initiative” (the “PFI”).  The PFI is designed to provide taxpayers with additional relief from the havoc wreaked by COVID-19.

IRS Commissioner Chuck Rettig stated that the PFI is part of the Service’s “extraordinary steps to help the people of our country.”  It is a temporary initiative.  Unless extended, the PFI will be available to taxpayers from April 1, 2020 to July 15, 2020 (“Program Period”). 

The temporary relief offered by the PFI includes postponing Installment Agreement and Offer in Compromise payments, and halting many collection and enforcement actions.  During the Program Period, the IRS will provide needed guidance.

With data breaches becoming a common event throughout the world, the Internal Revenue Service (“IRS”) has been undertaking a number of initiatives aimed at enhancing its security of taxpayer information and preventing the filing of fraudulent tax returns by taxpayer impersonators.  Many of these initiatives are invisible to the public.

The IRS has joined forces with state taxing agencies, tax professionals, software developers and financial institutions to form the “Security Summit.”  This coalition is organized into six working groups, namely:

Earlier this year, rumors surfaced that the IRS plans to clean house and phase out all attorney positions from the Office of Professional Responsibility (“OPR”), an independent arm of the Service tasked with enforcing discipline relating to tax professionals practicing before the IRS. On August 7, 2019, the Taxation Section of the American Bar Association (the “Tax Section”) sent a letter to IRS Commissioner Charles P. Rettig urging him to reconsider this housekeeping plan.

The Tax Section is absolutely correct in its position. Attorney oversight within OPR is critical to ensure OPR’s independence, to ensure the proper interpretation of legal rules applicable to tax practitioners, and to ensure that legal doctrines such as due process and privilege are not undermined.

Judge Ruwe ruled in Jeremy M. Jacobs and Margaret J. Jacobs v. Commissioner, 148 T.C. 24 (June 26, 2017), that a free lunch may exist today under Federal tax law. In this case, the taxpayers, owners of the Boston Bruins of the National Hockey League, paid for pre-game meals provided by hotels for the players and team personnel while traveling away from Boston for games.

Pursuant to the union collective bargaining agreement governing the Bruins, the team is required to travel to away games a day before the game when the flight is 150 minutes or longer. Before the away games, the Bruins provides the players and staff with a pre-game meal and snack. The meal and snack menus are designed to meet the players’ nutritional guidelines and maximize game performance.

During the tax years at issue, the taxpayers deducted the full cost of the meals and snacks. Upon audit, the IRS contended the cost of the meals and snacks were subject to the 50% limitation under Code Section 274(n)(1) which provides in part:

As reported in my April 7, 2016, October 3, 2016 and October 27, 2016 blog posts, former U.S. Tax Court Judge Diane L. Kroupa and her then husband, Robert E. Fackler, were indicted on charges of tax fraud. Specifically, they were each charged with one count of conspiracy to defraud the United States, two counts of tax evasion, two counts of making and subscribing a false tax return, and one count of obstruction of an IRS audit. The indictment was the result of an investigation conducted by the Criminal Investigation Division of the Internal Revenue Service and the United States Postal Inspection Service.