The Tax Organizers to assist in compiling the information necessary to prepare your 2022 individual income tax return(s) were mailed mid to late January 2023. Please complete the organizer to the best of your ability. In connection with all items of income, if married, please indicate whether the income is the taxpayer, spouse or joint (TSJ). When submitting materials, please include original and/or corrected source documents to ensure we have all copies or at a minimum the most current version (please note the date of changes on the tax documents).  Please contact us if you haven't received your 2022 Tax Organizer or if you would like a blank version.

The Tax Organizers to assist in compiling the information necessary to prepare your 2022 individual income tax return(s) were mailed mid to late January 2023. Please complete the organizer to the best of your ability. In connection with all items of income, if married, please indicate whether the income is the taxpayer, spouse or joint (TSJ). When submitting materials, please include original and/or corrected source documents to ensure we have all copies or at a minimum the most current version (please note the date of changes on the tax documents).  Please contact us if you haven't received your 2022 Tax Organizer or if you would like a blank version.

The Internal Revenue Service and State Taxing Authorities are matching information returns submitted by businesses, employers and financial/investment institutions with amounts reported on individual tax returns.  Negligence penalties may be assessed when income is underreported. Please be certain to mail or bring with you all of the following original unstapled forms:

Please note there is a required response on the first page of your income tax return asking if you have had activity regarding digital assets (i.e., Bitcoin and virtual currencies) so we will need to know the answer.  Due to the COVID-19 global pandemic, please provide documentation relating to PPP loans received and PPP loan forgiveness in 2022.

1)    Dependent information including names, relationship, date of birth and social security numbers (if a dependent is no longer a student please indicate). Please remember that names and social security numbers must match exactly in order for the dependent to be allowed. 

2)    All W-2 forms for wages.

3)    All 1099 forms for interest, dividends, sales of securities, pension / IRA distributions, social security benefits, commissions and other income received as well as brokerage statements and realized gain/loss schedules.  If you have a foreign bank account, please list it and all applicable information.  If you took any early distributions from retirement plans, please be sure to provide the details regarding the reason and amount of the distributions.  If any of these distributions were paid back to the retirement plan in full or in part within 60 days, please provide the details.  Congress has been sharply focused on requiring taxpayer reporting of foreign bank/financial accounts and assets for the last several years.  Besides filing the Report of Foreign Bank and Financial Accounts, information may be required to be attached to the taxpayer's income tax return for those assets with aggregate values exceeding specific thresholds.  If applicable, you will be requested to provide additional information. 

NOTE: Form 114 FinCEN (previously known as Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts) (FBAR) must be electronically filed via the BSA E-Filing System.  Our firm can assist you with the preparation and submission of the electronic FBARs; however, the primary responsibility for this filing remains with the taxpayer.  2022 FBAR filings are due April 18, 2023 with a maximum extension for a 6- month period ending October 16, 2023 to file.

4)    All notices from corporations, financial institutions or mutual funds that advise of special tax treatment for earnings.

5)    Report of tax-exempt interest and dividends received with payer identification.

6)    Supporting information (including 1099-K, 1099-MISC & 1099-NEC forms) for business income and expenses.  For business use of your home, please include the square footage of your home used exclusively for business as well as total square footage of your home (this is required information).

7)    Copies of closing statements for any real estate, co-op or condominium purchases or sales which occurred during the year and a copy of the Form 1099-B received for gross proceeds.  Please remember to include the acquisition date of the property sold, the original cost and improvements. 

8)    All 5498 forms and support for 2022 retirement contributions made to date or anticipated to be made for the 2022 tax year.  Please indicate if you want maximum contribution limits calculated.

9)    All 1098 and 1099-MISC forms supporting rental income and expenses.  Please be sure to include details for all improvements made and capital assets purchased including acquisition dates.

10)  All Schedule K-1 forms from partnerships, limited liability companies, S corporations, trusts and estates including all supporting literature received including state specific K-1s and transmittal/cover letters. 

11)  All 1099-G forms for unemployment and state tax refunds/overpayments issued/received from State Taxing Authorities and Departments of Labor.  These forms are only available online from the applicable Connecticut and New York departments. 

12)  Adjustments to Income – please be sure to include educator expenses, alimony paid/received, health savings account contributions/distributions and student loan interest paid including all 1098-E forms.  For Health Savings Accounts, please include a statement(s) and 1099 -SA and 5498-SA forms that recap the 2022 activity in order to verify the beginning and ending balances of the account.

13)  Real estate and personal property taxes paid – please be sure to include only taxes paid during the calendar year 2022.

14)  All 1098 forms for mortgage interest expense deductions - Please identify for each 1098 form if the loan interest paid is for a home mortgage (secured by principal residence or vacation home) or investment activity.  If your total debt exceeds $1 million for home acquisition loans acquired before December 15, 2017, please include the balance of each loan at January 1, 2022 and December 31, 2022.  In addition, please supply the balance of each loan at January 1, 2022 and December 31, 2022 for new home acquisition loans acquired subsequent to December 15, 2017 if the debt exceeds $750,000. 

15)  Contributions – be careful in reporting your contributions as the IRS is aggressively challenging those which appear to be excessive in dollars and valuation.  Please include supporting documentation for cash contributions with values in excess of $250 and noncash contributions with values that exceed $500 as well as the original costs of noncash items donated.

16)  Child/Dependent Care expenses – Please provide the name, address and social security number and/or employer identification number of the providers as this is required.

17)  Household Employment taxes including W-2 forms for wages paid and quarterly state unemployment returns filed for the 2022 tax year.

18)  A schedule of estimated taxes paid for federal and state income taxes including payments made in January 2023 for the 2022 tax year and payments made in January 2022 for the 2021 tax year.  Please be sure to include the FULL date for each payment made.

19)  All W-2G forms for gambling winnings.

20) HEALTH INSURANCE: Notification received from the provider documenting the existence of health insurance coverage through the Marketplace for 2022 for you, your spouse and/or dependents.  Please provide all Forms 1095-A received for Marketplace insurance as this is required information to prepare your tax return.

21)  Copies of any notices or other communications received during the year from the Internal Revenue Service and State Taxing Authorities.

22) Identity Protection Personal Identification Number – If you have received notification that an IP PIN has been assigned to you and/or your spouse by the IRS, it is imperative that this information be provided to us with your tax documents as you cannot efile your income tax return without it and our firm has no access to this information.  IP PINs can be retrieved online through the IRS website.  If you had one in the past but did not receive a letter for Tax Year 2022 from the IRS, it is likely that you still have one so please check the IRS website before tax filing day arrives.  Please do not wait until the last minute to retrieve this information.

Because of government enforcement regulations and fraud prevention initiatives, we are requesting that you include copies of the social security cards for yourself, spouse and dependents.  If you provided us with copies of social security cards in the past, you do not have to provide it again; however, the driver’s license and passports on file must be current.  Also, if you are a new client to the firm, include a copy of the current driver’s license for yourself and your spouse as we are required to input the current information in order to electronically file. If you have any questions, please call our office to verify your information on file.  The spelling of names must match the social security cards issued or correspondence from the IRS will be generated.  Returns cannot be filed electronically if discrepancies exist between the tax return and the Social Security Administration.  Refunds will not be issued until the matter is resolved.

When providing information related to the Sales of Stocks, Securities, Capital Assets & Installment Sales, special care should be taken in providing complete and accurate information, especially acquisition dates and cost. For re-investment programs, such as mutual funds and dividend reinvestment programs, it is necessary to provide all data since initial acquisition unless the fund/broker provides the cost information.  Taxpayers are required to complete Form 8949, Sales and Other Dispositions of Capital Assets, along with Schedule D to report this activity.  Form 8949 captures the detail data of each individual sales transaction in conjunction with cost basis information as reported by your broker/financial institution under reporting regulations.

In order to continue providing quality service on a timely basis, we urge you to collect your information as soon as possible.  If information from a “pass-through” entity such as a partnership, S corporation, limited liability company, trust or estate is the only data you are missing, please send the data you have assembled and forward the missing information as soon as it is available. Please clearly indicate which information is missing.  If we do not receive your complete information by March 24, 2023, we cannot guarantee timely completion of your tax returns for the April 18, 2023 filing deadline.  

Please be sure to include all of your contact information on the COVER SHEET as well - telephone numbers, fax numbers and email addresses, if applicable and the preferred method of contact.

If you or your spouse worked in New York with your residence outside of New York or you worked in Connecticut with your residence outside of Connecticut, please complete the enclosed Allocation of Wage and Salary Income worksheet.  If you held multiple jobs during the year, please provide a separate allocation schedule for each job.

We appreciate the opportunity to be of service to you.

The following is a discussion of the rules applicable to the filing of 2022 individual income taxes and 2023 at this time.

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When you make retail purchases of goods or services in your resident state, you usually pay sales tax to the seller if the sale of such goods or services is subject to sales tax according to the law of your resident state.  The seller in turn remits the sales tax collected to the state taxing authority.  In general, when these same types of goods or services are purchased outside of your resident state, they are subject to "use tax" when the goods are brought into your resident state.

When you make retail purchases of goods or services in your resident state, you usually pay sales tax to the seller if the sale of such goods or services is subject to sales tax according to the law of your resident state.  The seller in turn remits the sales tax collected to the state taxing authority.  In general, when these same types of goods or services are purchased outside of your resident state, they are subject to "use tax" when the goods are brought into your resident state.

Today, with the increase in catalog and online shopping, many taxpayers are buying items out of state, as well as goods that are being imported, that would be subject to tax if they were purchased in their resident state.  The state tax authorities, especially Connecticut and New York, are actively pursuing the collection of this use tax in order to meet budgetary constraints.  In fact, the states, along with the Internal Revenue Service and U.S. Customs, have signed information sharing agreements to help each other collect all outstanding tax money.  Working together, the authorities have many resources available to gather their information.

Keep in mind that the taxing authorities are specifically targeting the purchase of items such as automobiles (and parts), appliances, furniture, jewelry, cameras, computers, electronics, cigarettes and other tobacco products, alcohol, boats, art and antiques.  However, they are also seeking out those taxpayers who are steady catalog and online shoppers not paying sales tax. 

The individual use tax is declared and paid when you file your resident state individual income tax return. 

If all the goods purchased and brought into Connecticut at one time total $25 or less, you do not have to pay Connecticut use tax.  The $25 exemption does not apply to goods shipped or mailed to you.  Connecticut requires that taxpayers separately list any individual item with a purchase price of $300 or more.  When listing this information, you must provide the date of purchase, a description of goods or service, the retailer or service provider and the purchase price.  Items with an individual purchase price under $300 do not have to be listed separately; instead the total combined purchases must be given to calculate the use tax due.

The general Connecticut sales and use tax rate for 2022 was 6.35%; however, there are categories with different tax rates from the general rates.  There are too many categories to list for the purposes of this letter; however, there are a few that need to be highlighted.  Specifically a use tax rate of 7.75% applies to the following: the sale of most motor vehicles exceeding $50,000, the sale of each piece of jewelry exceeding $5,000, the sale of each piece of clothing or pair of footwear exceeding $1,000 and a handbag, luggage, umbrella, wallet or watch exceeding $1,000.

New York provides two options for calculating the use tax due on purchases of less than $1,000 (excluding shipping and handling) each that are not related to a business, rental real estate or royalty activities - the exact calculation method or the sales and use tax chart.  For the exact calculation method, the taxpayer must provide the purchase price, purchase date and jurisdiction of purchase.  The sales and use tax chart is a simple, time-saving method whereby the taxpayer pays use tax based on their federal adjusted gross income according to the chart established by the state.  The exact calculation method must be used on each purchase of $1,000 or more.  For individual items subject to use tax greater than $25,000, the following information must be provided: date item was purchased, description of item purchased, seller’s name and address, delivery address/address of use and purchase price.

Failure to pay use tax may result in the imposition of penalties and interest.  The states are requiring taxpayers to declare an obligation for use tax on their individual income tax returns.  Zero is a valid declaration if you do not have a liability.  If you do not make an entry on the individual use tax line of your resident tax return, you are considered to not have filed a use tax return.

Therefore, when providing your information for payment of use tax, please be sure to specify the following complete information:

• Details of purchase information as specified by the state thresholds for reporting individual purchases
• Details of purchase information as specified by the special categories in Connecticut

If you have any questions regarding sales and use tax, please give us a call.  Information is also published on each state's website regarding this subject.

Internal Revenue Service regulations along with the tax authorities of Connecticut, New York and Massachusetts mandate that tax preparers electronically file individual, fiduciary and business income tax returns.  We believe that trends will continue with authorities requiring taxpayers and businesses to electronically file of more information including routine filings, responses, tax returns and tax payments.  Therefore, all 2022 income tax returns filed federally and in the States of Connecticut, New York and Massachusetts are required to be filed using the Federal & State Electronic Filing Program (E-File).  The firm will voluntarily file individual returns electronically in the States of California and New Jersey.  We also reserve the right to electronically file in additional states as deemed appropriate and will encourage this method of filing.

Internal Revenue Service regulations along with the tax authorities of Connecticut, New York and Massachusetts mandate that tax preparers electronically file individual, fiduciary and business income tax returns.  We believe that trends will continue with authorities requiring taxpayers and businesses to electronically file of more information including routine filings, responses, tax returns and tax payments.  Therefore, all 2022 income tax returns filed federally and in the States of Connecticut, New York and Massachusetts are required to be filed using the Federal & State Electronic Filing Program (E-File).  The firm will voluntarily file individual returns electronically in the States of California and New Jersey.  We also reserve the right to electronically file in additional states as deemed appropriate and will encourage this method of filing. 

Our firm has informed you of the regulations and mandates for electronic filing.  However, the decision as to whether your income tax returns will be electronically filed or not rests with you, the taxpayer.  If you choose not to file electronically, we will inform you of the necessary procedures that need to be followed for “opting out.”

Electronic filing offers the following benefits:

1. Allows the Revenue Departments to process returns quickly and accurately, saving tax dollars.
2. Taxpayers who have a return with a balance due can file their return early and choose to make payment anytime on or before April 18, 2023.
3. Taxpayers who file returns with refunds receive those refunds faster especially if the refund is directly deposited into their bank account. 
4. Electronically filed returns receive an acknowledgment of receipt from the Internal Revenue Service and the applicable State Tax Authority and are verified to be mathematically correct, eliminating data entry errors and lost or misplaced mail.

If we did not prepare your returns for 2021, we will need copies of your driver’s licenses and social security cards or passports for you and your family members. 

How does this affect the process of preparing your 2022 income tax returns?

The actual preparation process of your return does not change.  However, the administration, review process and completion of the returns will be affected.  The following is an overview of how the electronic filing process will work.

1)   Taxpayers should forward complete information for the preparation of their 2022 income tax returns including all supporting documentation.  Regulations for electronic filing require that our firm maintain copies of the social security cards and driver's licenses for yourself, your spouse and all dependents claimed on the 2022 tax return.  NOTE:  If you provided this information to us last year regarding the preparation of your 2021 tax return, you do not have to provide it again.  However, the driver’s license and passports on file must be current.  Please call our office to verify your information on file if you have any questions.

2)  Electronic filing provides various methods for payment and receipt of your refunds.  Payments can be made by 1) paper check, 2) credit card (a convenience fee will be charged by the processing company used by tax authorities) and 3) direct debit out of a designated account.  Refunds can be issued by 1) paper check, 2) application of all or a portion to the 2023 tax year and 3) direct deposit into designated account(s) – see NOTE below.  Returns filed electronically can be filed early but payment not made until a later date designated by you whether payment is by check, credit card or direct debit until April 18, 2023.  After that date, payment is due with filing.  When submitting the information to prepare your tax return, please indicate to us how you would like to handle payments and/or refunds and return it with the information to prepare your tax return.  If you desire to use direct deposit or direct debit, please enclose a voided check so we have complete account information and the financial institution routing transit number.  It is the taxpayer’s responsibility to provide proper banking information and to verify that the payments have been withdrawn from the designated account.  Please allow enough time when scheduling payments to be made directly from accounts.  If problems with payment by direct debit are encountered, taxpayers need to have enough time available for a paper check to be submitted on a time.

NOTE:  Generally, if you do not elect direct deposit, the State of Connecticut will issue refunds by paper check; however, they are encouraging direct deposit.  Direct deposit will NOT be available for first time Connecticut filers.  IRS and the State of New York are offering the option for receipt of refunds by direct deposit or paper check.    

WARNING: It is suggested that refunds on joint tax returns should only be directly deposited into joint bank accounts.  The federal banking regulations, as applied by each bank, may not accept a joint refund into an individual account; our firm has no knowledge of how your bank will handle this matter.  Also, be aware that refunds will be retained, not issued or decreased for any of the following: 1) delinquent federal taxes, 2) delinquent state taxes, 3) delinquent student loans, 4) delinquent spousal and/or child support, 5) delinquent state unemployment compensation debts and 6) debts owed to other state and/or federal agencies.

3)  Once your return has been prepared, our firm will forward a "Review Copy" to you.  This review copy can be sent electronically using access through a portal system for your protection or by hard copy (either mail or you can pick it up at our office).  Please let us know the delivery method for the "Review Copy" on the bottom of the enclosed engagement letter which should be submitted with your tax information.

4)   If you review the return and are in agreement with the return as prepared, the taxpayer(s) will need to sign Form 8879, IRS e-file Signature Authorization, Form TR-579-IT New York State e-file Signature Authorization, Form FTB 8879 California e-file Signature Authorization, Form M-8453, Massachusetts e-file Signature Authorization, as applicable, and any additional efile form(s) as necessary and included in your "Review Copy" package.  Connecticut and New Jersey accept the federal signature on Form 8879.  Tax returns cannot be filed electronically until our firm is in receipt of the signature authorization forms signed by the taxpayer(s).  We can accept the signed forms electronically.

5)   If you review the return and are NOT in agreement with the return as prepared, please call our office to discuss the questions/issues.  If necessary, a new "Review Copy" and signature authorization forms will be prepared.  Please remember that the only way electronically filed tax returns can be changed is by amending the returns.  Therefore, it is imperative that you are in complete agreement with the returns before returning the signature authorization forms to us.

6)   Once we receive your completed signature authorization forms, our firm will electronically submit your Federal, Connecticut, Massachusetts, New York, New Jersey and/or California income tax returns.  Income tax returns for all other states will be filed on paper at this time unless we deem it appropriate to electronically file in the other state(s).  Once we receive acknowledgement that your electronically filed returns have been accepted by the taxing authorities, we will forward a complete package to you which will include the following documents: 1) your original information if it has not already been returned with your review copy, 2) 2022 payment vouchers to taxing authorities, if necessary, 3) 2022 income tax returns for other states to be filed by paper, if necessary, 4) 2023 estimated tax payments, if necessary, 5) a copy of the 2022 individual return electronic transmission history and acceptance notification, and 6) a final signed copy of your electronically filed 2022 Federal and state income tax returns, if requested.  Please include on the bottom of the enclosed engagement letter how you would like to receive this complete package. Any payments for taxes due to tax authorities should be filed using certified mail, return receipt requested.

Some extensions for filing 2022 tax returns must be filed electronically as paper is no longer an acceptable filing method.  Therefore, taxpayers must allow enough time for completing this process.  Please contact our office by Friday, March 24, 2023 if you will need to file extensions for the 2022 tax year.

We ask for your continued cooperation in implementing income tax return preparation and filing requirements.  If you have any questions, please give us a call.

Proposed regulations spell out the critical mineral and battery component requirements of the new clean vehicle credit, while also clarifying several other components of the credit. The proposed regs, along with modified Frequently Asked Questions on the IRS website, largely adopt previous IRS guidance, including Rev. Proc. 2022-42, Notice 2023-1, and Notice 2023-16. 

Proposed regulations spell out the critical mineral and battery component requirements of the new clean vehicle credit, while also clarifying several other components of the credit. The proposed regs, along with modified Frequently Asked Questions on the IRS website, largely adopt previous IRS guidance, including Rev. Proc. 2022-42, Notice 2023-1, and Notice 2023-16. Similarly, the critical minerals and battery component regs largely adopt the White Paper the Treasury Department released last December.

However, the proposed regs also:

• detail the income and price limits on the credit,
• prohibit multiple taxpayers from dividing the credit for a single vehicle, and
• coordinate the credit with other credits.

The regs are generally proposed to apply to vehicles placed in service after April 17, 2023, but taxpayers may rely on them for vehicles placed in service before that date. Comments are requested.

Critical Minerals Requirement

For purposes of the $3,750 credit for a qualified vehicle that satisfies the critical minerals requirement, the proposed regs provide a three-step process for determining the percentage of the value of the applicable critical minerals in a battery:

• 1. Determine the procurement chain for each critical mineral.
• 2. Identify qualifying critical minerals.
• 3. Calculate qualifying critical mineral content.

The proposed regs define relevant terms, including "procurement chain," "criticalminerals," "criticalmineral content," "extraction," "processing," "constituent materials," "recycling," and "value added."

For vehicles placed in service in 2023 and 2024, the proposed regs consider a critical mineral to meet the test if at least 50 percent of the value added by extracting, processing or recycling the mineral is due to extraction, processing or recycling in the U.S. or a country with which the U.S. has a free trade agreement in effect. The proposed regs identify the following countries as ones with a free trade agreement in effect with the U.S.: Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, and Singapore. The regs also propose criteria for identifying additional countries, such as the factors that are part of the Critical Minerals Agreement (CMA) the U.S. recently entered into with Japan.

Battery Component Requirement

For purposes of the $3,750 credit for a qualified vehicle that satisfies the battery components requirement, the proposed regs provide a four-step process for determining the percentage of the value of the battery components in a battery:

• 1. Identify components that are manufactured or assembled in North America.
• 2. Determine the incremental value of each battery component and North American battery component.
• 3. Determine the total incremental value of battery components.
• 4. Calculate the qualifying battery component.

MAGI Limit

The credit does not apply if the taxpayer’s modified adjusted gross income (MAGI) for the credit year or, if less, the previous year exceeds a limit based on filing status. The proposed regs clarify that if the taxpayer’s filing status changes during this two-year period, this test applies the MAGI limit for each year based on the taxpayer's filing status for that year.

The proposed regs also clarify that the MAGI limit does not apply to a corporation or any other taxpayer that is not an individual for which AGI is computed under Code Sec. 62.

MSRP Limits

A vehicle does not qualify for the credit if the manufacturer’s suggested retail price (MSRP) exceeds $80,000 for a van, sport utility vehicle (SUV), or pickup truck; or $55,000 for any other vehicle. The proposed regs adopt the vehicle classification system the IRS announced in Notice 2023-16. This is the vehicle classification that appears on the vehicle label and on the website FuelEconomy.gov. The regs also provide a more detailed definition of "MSRP" using information reported on the label affixed to the vehicle’s windshield or side window.

Vehicle with Multiple Owners

The proposed regs generally prohibit any allocation or proration of the credit if multiple taxpayers place a vehicle in service. However, a partnership or S corporation that places a vehicle in service may allocate the credit among its partners or shareholders. The MAGI limits on the credit apply separately to each individual partner or shareholder. The seller’s report for the vehicle lists the entity’s name and TIN.

Final Assembly in North America

To qualify for the credit, the final assembly of a new clean vehicle must occur in North America. The proposed regs reiterate earlier guidance on this requirement, but they also provide more detailed definitions of "final assembly" and "North America." Taxpayers may rely on the vehicle’s plant of manufacture as reported in the vehicle identification number (VIN), or the final assembly point reported on the label affixed to the vehicle. Taxpayers may also continue to rely on the information in the "VIN decoder sites" at https://afdc.energy.gov/laws/electric-vehicles-for-tax-credit and https://www.nhtsa.gov/vin-decoder.

Coordination with Other Credits

While the new vehicle credit is generally a nonrefundable personal credit, the credit for a depreciable vehicle is treated as part of the general business credit. If the taxpayer’s business use of a qualified vehicle is less than 50 percent of its total use, the proposed regs require the taxpayer to apportion the credit. Only the portion of the credit that corresponds to the percentage of the taxpayer’s business use of the vehicle is part of the general business credit; the rest of the credit remains a nonrefundable personal credit.

The proposed regs clarify that when the new clean vehicle credit is allowed for a particular vehicle, a subsequent buyer in a later tax year may still claim the used clean vehicle credit. However, a subsequent buyer cannot claim the commercial clean vehicle credit.

Effective Dates

Taxpayers may rely on the proposed regulations before they are published as final regs, provided the taxpayer follows them in their entirety and in a consistent manner. The regs are generally proposed to apply to new clean vehicles placed in service after April 17, the date the regs are scheduled to be published in the Federal Register.

Comments Requested

The IRS requests comments on the proposed regs. Comments may be mailed to the IRS, or submitted electronically via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG-120080-22). Written or electronic comments and requests for a public hearing must be received by June 16, 2023.

In particular, the IRS seeks comments on the following issues:

• 1. the critical mineral and battery component requirements, including the distinction between processing of applicable critical minerals and manufacturing and assembly of battery components, and related definitions;
• 2. the 50-percent value added test for critical minerals, and the best approach for adopting a more stringent test after 2024;
• 3. the list of countries with which the United States has free trade agreements in effect, proposed criteria for identifying other such countries, and other potential approaches; and
• 4. whether rules similar to those provided for partnerships and S corporation should apply to trusts and similar entities that place a qualified clean vehicle in service.

The IRS is obsoleting Rev. Rul. 58-74, 1958-1 CB 148, as of July 31, 2023. Rev. Rul. 58-74 generally allows a taxpayer that adopted the expense method for research and experimental (R&E) expenses to use a refund claim or amend a return to deduct R&E expenses that the taxpayer failed to deduct when they were paid or accrued.

The IRS is obsoleting Rev. Rul. 58-74, 1958-1 CB 148, as of July 31, 2023. Rev. Rul. 58-74 generally allows a taxpayer that adopted the expense method for research and experimental (R&E) expenses to use a refund claim or amend a return to deduct R&E expenses that the taxpayer failed to deduct when they were paid or accrued.

Rev. Rul. 58-74 conflicts with current procedures for accounting method changes.

TCJA Changes for R&E Expenses

The decision to obsolete Rev. Rul. 58-74 is unrelated to the changes made by the Tax Cut and Jobs Act (TCJA) (P.L. 115-97), even though the ruling relates to pre-TCJA accounting methods for R&E expenses.

Taxpayers could elect to amortize R&E expenses paid or incurred in tax years beginning before 2022, or deduct them currently. If the taxpayer did not make either election, the expenses had to be capitalized. A taxpayer that elected the expense method had to use it for all qualifying expenses unless the IRS consented to a different method for some or all of the expenses.

TCJA ended the expense election for R&E expenses paid or incurred in tax year beginning after 2021. Instead, the expenses must be amortized over five years (15 years for foreign expenses).

Rev. Rul. 57-74 and Change of Accounting Method Procedures

The IRS is obsoleting Rev. Rul. 58-74 because it includes insufficient facts to properly analyze whether the taxpayer’s failure to deduct certain R&E expenditures, such as the cost of obtaining a patent, when it deducted other R&E expenditures, constituted a method of accounting or an error.

For example, Rev. Rul. 58-74 does not explain whether the taxpayer consistently treated the costs of obtaining a patent in determining its taxable income. It also fails to describe the cause and extent of the deviation in the treatment of certain R&E expenditures that were not deducted.

In addition, filing an amended return, refund claim, or administrative adjustment request (AAR) under Rev. Rul. 58-74 is inconsistent with the IRS position that a taxpayer may not, without prior consent, retroactively change from an erroneous to a permissible method of accounting by filing amended returns. Rev. Rul. 58-74 is also inconsistent with the procedures for accounting method changes that qualify for automatic IRS consent.

Prospective Application of Decision to Obsolete Rev. Rul. 58-74

A taxpayer may rely on Rev. Rul. 58-74 if the taxpayer:

However, eligibility to rely on Rev. Rul. 58-74 does not imply that the IRS will grant the refund, deduction, or AAR. Instead, the IRS will continue to challenge the applicability of Rev. Rul. 58-74 when appropriate. For example, the IRS might challenge reliance on Rev. Rul. 58-74 when the taxpayer’s facts are distinguishable from Rev. Rul. 58-74, including where the taxpayer failed to adopt the expense method under pre-TCJA law.

The IRS has issued safe harbor deed language that may be used to amend eligible easement deeds intended to qualify for conservation contribution deductions under Code Sec. 170(f)(3)(B)(iii), to comply with changes to the law created by section 605(d) of the SECURE 2.0 Act of 2022.

The IRS has issued safe harbor deed language that may be used to amend eligible easement deeds intended to qualify for conservation contribution deductions under Code Sec. 170(f)(3)(B)(iii), to comply with changes to the law created by section 605(d) of the SECURE 2.0 Act of 2022. If a donor substitutes the prescribed safe harbor deed language for the corresponding language in the original eligible easement deed, and the amended deed is then signed by the donor and donee and recorded on or before July 24, 2023, the amended eligible easement deed will be treated as effective for purposes of Code Sec. 170 and section 605(d)(2) of the SECURE 2.0 Act. If these requirements are met, the amendment must be treated as effective from the date of the recording of the original easement deed.

The following are not considered an"eligible easement deed" for purposes of this safe harbor - any easement deed relating to any contribution:

• which is not treated as a qualified conservation contribution by reason of Code Sec. 170(h)(7);
• which is part of a reportable transaction under Code Sec. 6707A(c)(1), or is described in Notice 2017-10;
• if a deduction under Code Sec. 170 has been disallowed, the donor has contested such disallowance, and a case is docketed in federal court to resolve this dispute scheduled on a date before the date the amended deed is recorded by the donor; or
• if a claimed contribution deduction under Code Sec. 170 resulted in an underpayment penalty under either Code Sec. 6662 or 6663, and such penalty has been finally determined administratively or by final court decision.

If the safe harbor language is substituted according to the requirements spelled out in this Notice, the amended eligible easement deed will be treated as effective as of the date the eligible easement deed was originally recorded for federal purposes, regardless of whether the amended eligible easement deed is effective retroactively under the relevant state law.

The IRS closed out the 2023 Dirty Dozen campaign with a warning for taxpayers to beware of promoters peddling tax avoidance schemes. These schemes are primarily targeted at high income individuals seeking to reduce or eliminate their tax obligation. The IRS advice taxpayers to seek services from an independent, trusted tax professional and to avoid promotres focused on aggressively marketing and pushing questionable transactions.

The IRS closed out the 2023 Dirty Dozen campaign with a warning for taxpayers to beware of promoters peddling tax avoidance schemes. These schemes are primarily targeted at high income individuals seeking to reduce or eliminate their tax obligation. The IRS advice taxpayers to seek services from an independent, trusted tax professional and to avoid promotres focused on aggressively marketing and pushing questionable transactions.

The IRS has compiled a list of 12 scams and schemes that put taxpayers and tax professionals at risk. Some of them are:

• micro-captive insurance arrangements: is an insurance company whose owners elect to be taxed on the captive's investment income only;
• syndicated conservation easements: are arrangements wherein they attempt to game the system with grossly inflated tax deductions;
• offshore accounts & digital assets: unscrupulous promoters lure taxpayers into placing their asssets in offshore accounts under the pretense of being untraceable by the IRS;
• maltese individual retirement arrangements misusing treaty: are arrangements wherein the taxpayers attempt to avoid tax by contributing to foreign individual retirement arrangements in Malta; and
• puerto rican and other foreign captive insurance: are transactions wherein the business owners of closely held entities participate in a purported insurance arrangement with a Puerto Rican or other foreign corporation in which they have a financial interest.

Taxpayers are adviced to to rely on reputable tax professionals they know and trust to avoid such schemes. The IRS has also created the Office of Fraud Enforcement (OFE) and Office of Promoter Investigations (OPE) to coordinate service-wide enforcement activities against taxpayers committing tax fraud and promoters marketing and selling abusive tax avoidance transactions and schemes to effectuate tax evasion.

As part of the Dirty Dozen awareness effort, the IRS encourages people to report taxpayers who promote improper and abusive tax schemes as well as tax return preparers who deliberately prepare improper returns. To report an abusive tax scheme or a tax return preparer, taxpayers should mail or fax a completed and any supporting materials to the IRS Lead Development Center in the Office of Promoter Investigations. The postal address is: Internal Revenue Service Lead Development Center Stop MS5040 24000 Avila Road Laguna Niguel, California 92677-3405 Fax: 877-477-9135.

As part of the annual Dirty Dozen tax scams effort, the IRS and the Security Summit partners have urged taxpayers to be on the lookout for spearphishing emails. Through these emails, scammers try to steal client data, tax software preparation credentials and tax preparer identities with the goal of getting fraudulent tax refunds. These requests can range from an email that looks like it’s from a potential new client to a request targeting payroll and human resource departments asking for sensitive Form W-2 information.

As part of the annual Dirty Dozen tax scams effort, the IRS and the Security Summit partners have urged taxpayers to be on the lookout for spearphishing emails. Through these emails, scammers try to steal client data, tax software preparation credentials and tax preparer identities with the goal of getting fraudulent tax refunds. These requests can range from an email that looks like it’s from a potential new client to a request targeting payroll and human resource departments asking for sensitive Form W-2 information.

Cyber Security Tips to Prevent Spearphishing

Spearphishing is a tailored phishing attempt to a specific organization or business and usually begins with a suspicious email that may appear as a tax preparation application or another e-service or platform. Some scammers will even use the IRS logo and claim something like "Action Required: Your account has now been put on hold." Often these emails stress urgency and will ask tax pros or businesses to click on links to input or verify information.

How to prevent spearphishing:

• Never click suspicious links.
• Double check the requests with the original sender.
• Be vigilant year-round, not just during filing season.

The IRS and its Security Summit partners continue to see spearphishing attempts that impersonate a new potential client, known as the New Client scam. Lastly, taxpayers should never respond to tax-related phishing or spearfishing or click on the URL link. Instead, the scams should be reported by sending the email or a copy of the text/SMS as an attachment to phishing@irs.gov.

The American Institute of CPAs is recommending the Internal Revenue Service place a greater emphasis on service as the agency works on its strategic plan for the $80 billion in additional appropriations provided to the IRS in the Inflation Reduction Act.

The American Institute of CPAs is recommending the Internal Revenue Service place a greater emphasis on service as the agency works on its strategic plan for the $80 billion in additional appropriations provided to the IRS in the Inflation Reduction Act.

"Given the historic low levels of IRS taxpayer services, we are concerned that there was an insufficient allocation of funding to improve taxpayer services to appropriate levels" the AICPA March 28, 2023, letter to the IRS and the Department of the Treasury states, noting that the COVID-19 pandemic "made it painfully clear that the IRS was not funded to accomplish all its responsibilities."

AICPA argued that the agency’s service deficiencies "prevent taxpayers from complying with their tax obligations and hamper our members’ ability to as professional advisors to do their jobs, which is to help these taxpayers comply."

And despite funds being targeted toward enforcement and a stated goal of ensuring that wealthy individuals and corporations are paying their fair share of taxes, AICPA states that "enforcement actions must be in balance with the services the IRS provides to taxpayers."

The Inflation Reduction Act allocates $45.6 billion to enforcement activities and only $3.1 billion to service, and the AICPA suggested that more money be focused on service-related issues, including allocating sufficient funds for employee training to help replace the institutional knowledge that is expected to be lost in the coming years as the aging workforce retires.

AICPA is also calling on the IRS to develop a comprehensive customer service strategy, including creating more empowered employees; better access to timely information; and access to tailored resources, including resources designed specifically for tax professionals.

Additionally, the organization recommended that the agency develop a comprehensive plan to redesign the agency, including adopting a more customer-focused culture; integrating its technical infrastructure so the disparate legacy systems can communicate with each other; and creating a practitioner services division "that would centralize and modernize its approach to all practitioners."

Finally, AICPA recommended that IRS continue with its business systems modernizations initiatives.

"Currently, the IRS has two of the oldest information systems in the federal government making the information technology functions one of the biggest constraints overall for the IRS" the letter states. "Without modern infrastructure, the IRS is unable to timely and efficiently meet the needs of taxpayers and practitioners. … We recommend that the IRS more fully explore options to allocate IRA enforcement funding to BSM issues."

Automated Collection Notices To Resume

Another area that the organization recommends the funds be used for is the ongoing effort by the agency to reduce the backlog of unprocessed paper tax returns and other paper correspondence.

AICPA acknowledged the work done to reduce levels after the backlog spiked during the pandemic, but stated that "more needs to be done to ensure that taxpayers and practitioners are not faced at any time in 2023 with yet another year with significant levels of unprocessed returns, leading to additional delays in processing and incorrect notices and penalties."

And while this is going on, the organization recommends that the IRS "continue the suspension of certain automated collection notices until it is prepared to devote the necessary resources for a proper and timely resolution of matters. Until the IRS can respond to taxpayer replies to notices in a timely manner, these collection notices should not be restarted."

According to the letter, the agency is planning on restarting automated collection notices in June 2023, even though "this June date has not been widely publicized. The IRS should communicate the stat date of automated collection action to the public, specifically identifying what actions will be part of this process and providing resources for taxpayers on dealing with these actions."

Additionally, the organization is calling for "a streamlined reasonable cause penalty waiver without requiring a written request, similar to the procedures of the FTA administrative waiver, based solely on the pandemic’s effects on both the taxpayer and the practitioner."

By Gregory Twachtman, Washington News Editor

National Taxpayer Advocate Erin Collins offered both praise and criticism of the Internal Revenue Service’s Strategic Operating Plan outlining how it will spend the additional $80 billion allocated to the agency as part of the Inflation Reduction Act of 2022.

National Taxpayer Advocate Erin Collins offered both praise and criticism of the Internal Revenue Service’s Strategic Operating Plan outlining how it will spend the additional $80 billion allocated to the agency as part of the Inflation Reduction Act of 2022.

"This is a game changer to transform how the U.S. government administers the tax laws in a more helpful and efficient manner while focusing on providing the service taxpayers deserve,"Collins wrote in an April 6, 2023, blog post about the plan.

However, she reiterated criticism over how the funds would be allocated throughout the next 10 years. The IRA allocates only $3.2 billion going to taxpayer services and $4.8 billion allocated to business system modernization, two areas that are in need of funding to help improve the service the agency provides to taxpayers.

"Combined, that’s just ten percent of the total," she noted. "By contrast, 90 percent was allocated for enforcement ($45.6 billion) and operations support ($25.3 billion). The additional long-term funding provided by the IRA, while appreciated and welcomed, is disproportionately allocated for enforcement activities, and I believe Congress should reallocate IRS funding to achieve a better balance with taxpayer services and IT modernization."

Collins also cited the report in stating that the funds allocated for taxpayer services will be depleted within four years and cautioned that the agency needs to ensure that funds are continually being allocated for this specific purpose beyond that point.

"Although I share the long-term vision of the SOP, I want to caution that the IRS should not lose sight of its core mission and its immediate challenge of reducing the large backlog of amended returns and taxpayer correspondence."

Gregory Twachtman, Washington News Editor

On April 4, 2023, the Internal Revenue Service released the Strategic Operating Plan, which details the agency’s plans to use Inflation Reduction Act resources to transform the administration of the tax system and services provided to taxpayers.

On April 4, 2023, the Internal Revenue Service released the Strategic Operating Plan, which details the agency’s plans to use Inflation Reduction Act resources to transform the administration of the tax system and services provided to taxpayers.

The goal of the changes outlined in the Strategic Operating Plan is to "provide taxpayers with world-class customer service" and reduce the deficit by "hundreds of billions by pursuing tax evasion by wealthy individuals, big corporations, and complex partnerships," said Deputy Secretary of the Treasury Wally Adeyemo.

The Strategic Operating Plan is organized around five key objectives:

• Dramatically improve services to help taxpayers meet their obligations and receive the tax incentives for which they are eligible.
• Quickly resolve taxpayer issues when they arise.
• Focus expanded enforcement on taxpayers with complex tax filings and high-dollar noncompliance to address the tax gap.
• Deliver cutting-edge technology, data, and analytics to operate more effectively.
• Attract, retain, and empower a highly skilled, diverse workforce and develop a culture that is better equipped to deliver results for taxpayers.

The plan outlines a series of initiatives and projects aligned to each objective, including 42 key initiatives, 190 key projects, and more than 200 specific milestones designed to achieve the objectives set forth by the IRS.

Improved customer service, compliance efforts, and technology updates are also essential to achieving the goals set forth in the Strategic Operating Plan.

With long-term funding in place, the IRS has hired more than 5,000 phone assisters, increased walk-in service availability, and added new digital tools, according to IRS Commissioner Daniel Werfel.

"In the first five years of the 10-year plan, taxpayers will be able to securely file documents and respond to notices online," said Werfel. Taxpayers will also be able securely access and download account data and account history. "For the first time, the IRS will help taxpayers identify potential mistakes before filing, quickly fix errors that could delay their refunds, and more easily claim credits and deductions they may be eligible for," he said.

The Strategic Operating Plan also includes targeted efforts to ensure fair tax law enforcement and compliance with existing laws. The plan focuses on "areas where compliance has eroded the most," specifically compliance issues involving "wealthy individuals, complex partnerships, and large corporations," said Werfel. The IRS will increase hiring efforts for experienced accountants and attorneys to ensure enforcement "at the top." Werfel further noted that the IRS does not intend to increase the audit rate for small businesses or households making less than $400,000.

Finally, the Strategic Operating Plan utilizes Inflation Reduction Act funding to modernize the agency’s technology infrastructure to protect taxpayer data. In the first five years of the 10-year plan, the IRS aims to eliminate paper backlogs that have delayed taxpayer refunds by digitizing forms and returns when they are received and transitioning to fully digital correspondence processes.

"This plan is only the beginning of our work," Werfel said. "This is a unique opportunity for the IRS and the nation, and we will continue to work closely with our partners as this effort moves forward. This investment in the IRS is already helping taxpayers this tax season, and this plan shows that historic changes are coming."

The American Institute of CPAs is calling on the Internal Revenue Service to issue guidance related to how digital asset losses affect tax obligations.

The American Institute of CPAs is calling on the Internal Revenue Service to issue guidance related to how digital asset losses affect tax obligations.

"With the complexities and recent bankruptcies involved with digitalasset exchanges, taxpayers and practitioners are facing many issues with the taxtreatment of losses of digitalassets and need guidance," Eileen Sherr, AICPA Director for Tax Policy & Advocacy, said in a statement. "Taxpayers and their advisors need clear guidance to accurately calculate their losses and properly meet their tax obligations and we urge the IRS to adopt our recommendations and provide this guidance."

In an April 14, 2023, letter to the agency, AICPA said it hopes the submission of the comments that the "IRS will provide additional guidance to clarify how digitalassetlosses are handled in various scenarios. Such guidance will provide greater certainty to taxpayers and their preparers in confidently and properly complying with their overall reporting requirements for digitalassets, and better ensure consistent application of the tax law among taxpayers."

The organization offers a range of recommendations on a number of topics related to the tax treatment of digital asset losses, with a focus on losses incurred by an individual investor rather than a trade or business.

One scenario highlighted by the AICPA is the determination of worthlessness of a digital asset. The organization notes that Chief Counsel Advice (CAA) 20230211 "states that ‘a loss may be sustained…if the cryptocurrency becomes worthless resulting in an identifiable event that occurs during the tax year for purposes of section 165(a),"’ adding that the advice notes that cryptocurrency can be valued at less than one cent but still greater than zero because it can still be traded and "that could potentially create future value."

AICPA wrote that if "the position of Treasury and the IRS s that a cryptocurrency is listed on an exchange and has liquidating value greater than absolute zero, we recommend that Treasury and IRS state this in binding guidance (published in the Internal Revenue Bulletin)."

Another topic covered by the comments was the question of when, if ever, might digital assets be securities for tax purposes.

"Authoritative guidance is needed on when, if ever, the section 156(g) worthless security capital losstreatment applies to cryptocurrency and other digitalassets," AICPA wrote. "Binding guidance should also be provided on basis determination for digitalassets (currently the special options are only in non-binding FAQs), as this is a matter relevant to measuring gains and losses."

AICPA also stated that guidance "is needed on the treatment of lending of virtual currency other digital asses under sections 162 such as if the taxpayer is in a business of ‘lending’ digitalassets), 165, 166, 469, 1001, and 1058, and possibly other provisions. This guidance should cover not only losses from ‘lending’ virtual currency and other digitalassets, but the categorization of the income generated (portfolio, business or other) and related expenses."

Other topics covered by the comment letter include:

• What facts indicate abandonment of a digital asset?
• In the case of theft of a digital asset, does the Ponzi loss guidance apply beyond Ponzi-losses to other fraudulent arrangements, including digital asset losses from certain digital asset exchange activities?
• When would section 1234A apply to termination of a digital asset?
• How should a taxpayer report digital asset activity if they are unable to access their records due to bankruptcy of an exchange?
• Is a digital asset considered disposed of by transferring the investor’s interest in a bankruptcy proceeding? Must there be proof of transfer of the underlying digital asset?

This and other tax policy and advocacy comment letters filed by the AICPA can be found here.

By Gregory Twachtman, Washington News Editor