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.
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:
- Allows the Revenue Departments to process returns quickly and accurately, saving tax dollars.
- 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.
- Taxpayers who file returns with refunds receive those refunds faster especially if the refund is directly deposited into their bank account.
- 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.
President Biden is looking to add $2.1 billion more to the Department of the Treasury budget over 2023 enacted levels, an increase that would give the agency $16.3 billion in discretionary budget authority, with the majority of those funds earmarked for the Internal Revenue Service.
President Biden is looking to add $2.1 billion more to the Department of the Treasury budget over 2023 enacted levels, an increase that would give the agency $16.3 billion in discretionary budget authority, with the majority of those funds earmarked for the Internal Revenue Service.
"To ensure that taxpayers receive the highest quality customer service and that all Americans are treated fairly by the U.S. tax system, the Budget provides a total of $14.1 billion for the IRS, $1.8 billion, or 15percent, above the 2023 enacted level," the White House stated in the budget document released on March 9, 2023.
On the same day, the Treasury Department released the so-called “Greenbook” which outlines the administration’s revenue proposals for Fiscal Year 2024.
Adding some additional details, the budget document noted that the IRS budget includes "an increase of $642 million to improve the taxpayer experience and expand customer service outreach to underserved communities and the entire taxpaying public," the document states, adding that $290 million will be allocated to information technology modernization.
The budget document also notes that in "addition to the annual discretionary funding, the Budget proposes to maintain deficit reducing Inflation Reduction Act-funded initiatives in 2032 and beyond. This proposal builds on decades of analysis demonstrating that program integrity investments to enforce existing tax laws and increase revenues in a progressive way by closing the tax gap—the difference between taxes owed and taxes paid."
Tax Policy Highlights
The budget document notes that spending within the overall budget will be offset "by tax reforms to ensure that the wealthiest Americans and multinational corporations pay at least a minimum tax rate and reforming taxation of stock buybacks," which is expected to reduce the deficit by $1.17 trillion during the next decade.
On the corporate side, the document states it plans to raise the corporate income tax rate to 28 percent.
The budget also notes that it will invest "in working families, by cutting taxes for working people and families with children, providing paid leave, and improving home care."
President Biden is proposing in the budget to restore "and make permanent the American Rescue Plan expansion of the Earned Income Tax Credit for workers without qualifying children," as well as other tax provisions, including:
- Providing a neighborhood homes credit;
- Expanding and enhancing the low-income housing credit;
- Expanding the child credit, and making permanent full refundability and advanceability;
- Making the adoption tax credit refundable and allowing certain guardianship arrangements to qualify; and
- Making permanent the income exclusion for forgiven student debt.
The Greenbook also provides some additional clarity on the tax policy proposals. The Biden Administration once again will be seeking the implementation of a billionaire minimum tax of 25 percent, targeted at the wealthiest 0.01 percent of individuals to ensure they are paying their fair share of taxes.
The budget also includes health-related tax policy proposals, including the closure of Medicare tax loopholes and increasing the Medicare tax and the Net Investment Income Tax rate by 1.2 percentage points above $400,000 for a total Medicare tax rate of 5 percent on high-income taxpayers. It also looks to expand tax credits for health insurance premiums.
The IRS has offered tips to taxpayers who received an incorrect Form 1099-K, Payment Card and Third-Party Network Transactions or received one of these forms in error. 2022 transactions were reported on the form taxpayers received by January 31, 2023. If the information on the form is incorrect or wrong, taxpayers are directed to contact the issuer of the Form 1099-K immediately. The issuer’s name appears in the upper left corner on the form along with their phone number. Further, taxpayers should keep a copy of all correspondence with the issuer for their records.
The IRS has offered tips to taxpayers who received an incorrect Form 1099-K, Payment Card and Third-Party Network Transactions or received one of these forms in error. 2022 transactions were reported on the form taxpayers received by January 31, 2023. If the information on the form is incorrect or wrong, taxpayers are directed to contact the issuer of the Form 1099-K immediately. The issuer’s name appears in the upper left corner on the form along with their phone number. Further, taxpayers should keep a copy of all correspondence with the issuer for their records.
If taxpayers can’t get a corrected Form 1099-K, they should report the information on Schedule 1 (Form 1040), Additional Income and Adjustments to Income, as follows:
- Part I – Line 8z – Other Income – Form 1099-K Received in Error.
- Part II – Line 24z – Other Adjustments - Form 1099-K Received in Error.
The net effect of these two adjustments on adjusted gross income would be $0.
Personal Item Sold at Loss
If a taxpayer receives a Form 1099-K for a personal item sold at a loss, report the information on Schedule 1 with offsetting transactions. The net effect of these two adjustments on adjusted gross income would be $0.
Personal Item Sold at Gain
If a taxpayer sells an item owned for personal use, they should report the gain as any other capital gain on Form 8949, Sales and other Dispositions of Capital Assets, and Schedule D (Form 1040), Capital Gains and Losses.
Mix of Personal Items Sold
If a taxpayer sold an item owned for personal use at a gain, see Personal items sold at a gain for information on how to report. For personal items sold at a loss, follow the instructions for Personal items sold at a loss.
New Reporting Threshhold
The IRS announced that the new Form 1099-K reporting threshold will start in tax year 2023.
- The old threshold was $20,000 and 200 transactions per year. This applies to tax year 2022 and prior years.
- The new threshold is more than $600. This applies to tax year 2023 and future years.
The IRS has provided relief that permits taxpayers affected by the Coronavirus Disease 2019 (COVID-19) emergency who had a return filing due date postponed by Notice 2020-23, I.R.B. 2020-18, 742, or Notice 2021-21, I.R.B. 2021-15, 986, who did not receive an extension of time for filing such return, and who file timely credit or refund claims, to be credited or refunded amounts deemed paid on April 15 of each year.
The IRS has provided relief that permits taxpayers affected by the Coronavirus Disease 2019 (COVID-19) emergency who had a return filing due date postponed by Notice 2020-23, I.R.B. 2020-18, 742, or Notice 2021-21, I.R.B. 2021-15, 986, who did not receive an extension of time for filing such return, and who file timely credit or refund claims, to be credited or refunded amounts deemed paid on April 15 of each year.
Among other things, Notice 2020-23 postponed certain federal tax return filing and payment obligations that were due to be performed on or after April 1, 2020, and before July 15, 2020, to July 15, 2020. Notice 2021-21 postponed the due date for both filing Form 1040 series returns with an original due date of April 15, 2021, and making federal income tax payments in connection with one of these forms, to May 17, 2021.
Under Code Sec. 6511, a taxpayer must file a refund or credit claim within three years from the time the taxpayer’s return was filed, or two years from the time the tax was paid, whichever period expires later. Under Code Sec. 6511(b)(2), the credit or refund amount is limited to the amount of tax paid within a specified period immediately preceding the filing of the refund or credit claim (the "lookback period"). When a taxpayer files a claim within three years of filing the return, the lookback period is three years plus the period of any extension of time for filing the return. Otherwise, the lookback period is two years.
While Notice 2020-23 and Notice 2021-21 postponed certain return filing due dates, they did not extend the time for filing the returns because a postponement is not an extension. As a result, the postponements did not lengthen the lookback periods.
Relief for Determining Lookback Period
The relief applies for determining the credit or refund amount on the tax for which the return filing or payment due date was postponed:
- For any person with a federal tax return filing or payment obligation that was postponed by Notice 2020-23 to July 15, 2020, the period beginning on April 15, 2020, and ending on July 15, 2020, will be disregarded in determining the beginning of the lookback period.
- For any person with a filing or payment obligation for a Form 1040 series federal income tax return that was postponed by Notice 2021-21 to May 17, 2021, the period beginning on April 15, 2021, and ending on May 17, 2021, will be disregarded in determining the beginning of the lookback period.
The relief is automatic, so affected taxpayers do not have to call the IRS, file any form, or send letters or other documents to receive the relief.
The IRS has issued final regulations for filing certain returns and other documents electronically (e-file). The regulations affect persons required to file returns for partnerships, corporations, unrelated business income tax, withholding, excise taxes, as well as information returns, disclosure statements, and other documents
The IRS has issued final regulations for filing certain returns and other documents electronically (e-file). The regulations affect persons required to file returns for partnerships, corporations, unrelated business income tax, withholding, excise taxes, as well as information returns, disclosure statements, and other documents. The electronic filing requirements generally apply to applicable returns and documents required to be filed beginning in 2024, except for returns of tax-exempt organizations which apply to tax years beginning after July 1, 2019.
Electronic Filing
The final regulations generally adopt the proposed regulations issued in 2021 for electronic filing under the following Code Section:
- Code Secs. 1474, 6011, 6012, 6033, 6057, 6058, and 6059 for determining whether applicable returns and documents must be filed electronically,
- Code Sec. 6011 for reporting certain excise taxes,
- Code Secs. 1461 and 1474 for withholding income taxes on U.S. source income of foreign persons,
- Code Secs. 6045 and 6050M for certain broker reporting and federal agency contracts, and
- Code Sec. 6050I for reporting financial transactions in cash exceeding $10,000.
Like the 2021 proposals, the final regulations generally require e-filing by taxpayers other than individuals if, during the calendar year, they are required to file 250 or more returns. The final rules also eliminate the e-filing exception for income tax returns of corporations that report total assets under $10 million at the end of their taxable year. Partnerships with more than 100 partners are required to e-file information returns, and they require partnerships required to file at least 10 returns of any type during the calendar year to e-file their partnership return.
Information Returns
Under Code Sec. 6011(e) and related regulations, filers are already required to file information returns and statements electronically if, during a calendar year, they are required to file 250 or more returns. The 2021 proposed regulations would have reduced the applicable threshold to 100 or more returns for returns required to be filed during 2022 and 10 or more returns for returns required to be filed after calendar year 2022.
Because the final regulations are not applicable until calendar year 2024, the proposed electronic-filing thresholds of 100 and 10 returns, respectively are not adopted. Instead, the electronic-filing threshold for information returns required to be filed in calendar years 2022 and 2023 remains at 250. However, the final regulations adopt the electronic-filing threshold of 10 for returns required to be filed on or after January 1, 2024.
In addition, the final regulations adopt the proposed rule without any change that if a person is required to file original information returns electronically, that person must file any corresponding corrected information returns electronically.
Waivers and Exemption
Many of the regulations imposing electronic-filing requirements also provide a waiver from electronic filing to any person who establishes undue hardship. The final regulations adopt several changes in reviewing waiver requests, noting that costs to a taxpayer will only be one factor. The Treasury and IRS anticipate providing additional details on the specific hardship-waiver procedures for each form affected by the final regulations, including exemptions for taxpayers whose religious belief conflict with the electronic filing requirement. The final regulations do not provide for waivers and exemptions in all circumstances or for all tax forms required to be electronically filed.
The Financial Crimes Enforcement Network (FinCEN) has published its first set of guidance materials to aid the public, and especially the small business community, in understanding the beneficial ownership information (BOI) reporting requirements which will take effect on January 1, 2024.
The Financial Crimes Enforcement Network (FinCEN) has published its first set of guidance materials to aid the public, and especially the small business community, in understanding the beneficial ownership information (BOI) reporting requirements which will take effect on January 1, 2024.
The Corporate Transparency Act (CTA) established uniform BOI reporting requirements for certain types of corporations, limited liability companies, and other similar entities created in or registered to do business in the United States. New FinCEN regulations require these entities to report to FinCEN information about their "beneficial owners"—the persons who ultimately own or control the company.
In an effort to make the process as simple as possible, particularly for small businesses who may have never heard of or interacted with FinCEN before, FinCEN has placed several items on its BOI reporting webpage (https://www.fincen.gov/boi), including:
In the coming months, FinCEN expects to publish additional guidance on the BOI webpage, including a Small Entity Compliance Guide.
The American Institute of CPAs is suggesting a series of frequently asked questions for the Internal Revenue service to post and answer on its website regarding the new digital asset question that appears on the 2022 Form 1040.
The American Institute of CPAs is suggesting a series of frequently asked questions for the Internal Revenue service to post and answer on its website regarding the new digital asset question that appears on the 2022 Form 1040.
The 2022 Form 1040 asks the following yes/no question: "At any time during 2022, did you (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, gift, or otherwise dispose of a digitalasset (or a financial interest in a digitalasset)?"
In a February 17, 2023, letter to the agency, AICPA identified 12 questions and offered recommended responses to those questions that the IRS could include on its website to guide taxpayers on how to answer the digital asset question. Among the questions the organization is recommending the IRS answer are:
- What is a digital representation of value?
- What is a cryptographically secured distribution ledger as used in the Form 1040 question?
- How do I determine if my digital asset is recorded on a cryptographically secured distributed ledger?
- What is considered "similar technology" to a cryptographically distributed ledger?
- What are the "characteristics of a digitalasset" as that term is used in the 2022 Form 1040 instructions?
- Does a "yes" answer to the 2022 Form 1040 digital asset question mean that I have tax consequences from digital asset transactions that should be reported on my 2022 Form 1040?
AICPA sent the letter in hopes that "IRS will consider posting these or similar FAQs on the website for this 2022 tax return filing season and that the 2023 Form 1040 instructions will be modified for next year to provide greater certainty to taxpayers and their preparers in confidently and properly complying with the question and overall requirements for digitalasset," the letter states.
A copy of this letter can be found with all of AICPA’s tax policy and comment letters here.
The IRS added widely circulating promoter claims involving Employee Retention Credits (ERC) as a new entry in the annual Dirty Dozen list of tax scams.
The IRS added widely circulating promoter claims involving Employee Retention Credits (ERC) as a new entry in the annual Dirty Dozen list of tax scams. These promotions can be based on inaccurate information related to eligibility for and computation of the credit. Eligible taxpayers can claim the ERC on an original or amended employment tax return for qualified wages paid between March 13, 2020 through December 31, 2021.
"The aggressive marketing of these credits is deeply troubling and a major concern for the IRS," said IRS Commissioner Danny Werfel. "Businesses need to think twice before filing a claim for these credits. While the credit has provided a financial lifeline to millions of businesses, there are promoters misleading people and businesses into thinking they can claim these credits. People should remember the IRS is actively auditing and conducting criminal investigations related to these false claims. We urge honest taxpayers not to be caught up in these schemes," he added.
Further, abusive ERC promotions highlight day one of the IRS annual Dirty Dozen campaign. These are a list of 12 scams and schemes that put taxpayers and the tax professional community at risk of losing money, personal information, data and more. Finally, more information can be found here.
The U.S. Government Accountability Office is offering recommendations to close the tax gap, a move it says could yield large fiscal benefits even if there is only a modest narrowing of the gap between what is paid and what is owed.
The U.S. Government Accountability Office is offering recommendations to close the tax gap, a move it says could yield large fiscal benefits even if there is only a modest narrowing of the gap between what is paid and what is owed.
In a "snapshot" report issued February 27, 2023, the GAO cited Internal Revenue Service-reported figures for the years 2014-2016 that show taxpayers owed $3.3 trillion in taxes but paid only $2.8 trillion. GAO analysis of IRS data attributes the gap to three key factors: underreporting ($398 billion); underpayment ($59 billion); and nonfiling ($39 billion).
GAO reported a number of factors that have contributed to the tax gap, including limited third-party information reporting, declines in audit rates, worsening customer service and the complexities of the tax code. It also noted that abusive tax shelters also play a role in contributing to the tax gap. The report did not quantify how much these factors contributed to the tax gap.
"Our work shows there are no easy ways to reduce the taxgap," the report states. "Multiple approaches are needed to address the many causes of tax noncompliance."
The government watchdog recommends that the IRS re-establish quantitative goals to reduce the tax gap; expand third-party information reporting; digitize taxpayer returns to make them more readily available to enforcement programs; and make it easier for individuals to report preparers and promoters involved in abusive tax schemes.
It also is recommending that Congress give the IRS explicit authority to establish professional requirements for paid preparers; expand third-party reporting requirements related to real estate; expand IRS authority to correct errors and discrepancies between taxpayer reported and other government collected information; and requiring paper returns include a scannable code to allow information to be processed digitally.
The GAO did not quantify how much benefit the federal government could get with even a modest reduction in the tax gap.
Panelists convened to testify before the Senate Finance Committee called for enhancements of the low income housing tax credit as a means of making real estate more available and affordable.
Panelists convened to testify before the Senate Finance Committee called for enhancements of the low income housing tax credit as a means of making real estate more available and affordable.
During a March 7, 2023 hearing, Denise Scott, president of Local Initiatives Support Corporation, testified that the credit "has been responsible for the production of most of the affordable housing, and more than 50 percent of the households in tax credit properties are extremely low income families."
An overview of various tax policies was prepared for the hearing by the Joint Committee on Taxation and can be found here.
She suggested Congress could "spur the creation of over 2 million more rental units over the next decade by restoring the 12.5 percent increase to the formula for the allocated tax credits." That increase was enacted in 2018 but expired in 2021.
Sharon Wilson Geno, president of the National Multifamily Housing Council, recommended that the low income housing tax credit be expanded to capture more middle class families and build "off of the success of the low income housing tax credit."
However, Mark Calabria, senor advisor at the Cato Institute, urged a little restraint when it comes to using tax policy to stimulate the housing market.
"Most indicators suggest that rents would decline over the next 12-to-18 months," he testified before the committee. "So, I would just urge some cautiousness to thinking about adding stimulus to additional construction at a time when we are likely passing the peak of the cycle."
Wilson Geno said that the private market "simply cannot afford to provide housing in the amounts we need it in the lowest income tiers, and also the middle-income tier. So those tax incentives are incredibly useful."
Calabria also cautioned about offering any additional credits that are focused on the demand side of housing equation.
"We need to be cautious about adding demand subsidies that simply run up prices, which is how we’ve gotten the inflationary pressures we face today," he said.
Department of the Treasury Secretary Janet Yellen was noncommittal on the idea of trading a permanent child tax credit for the elimination of the state and local tax deduction.
Department of the Treasury Secretary Janet Yellen was noncommittal on the idea of trading a permanent child tax credit for the elimination of the state and local tax deduction.
Yellen was faced with this question during a March 16, 2023, Senate Finance Committee hearing convened to discuss the Biden Administration’s proposed budget for fiscal year 2024 and the corresponding so-called "Greenbook," which outlines proposed changes to tax policy that in total reflect how the government plans to pay for changes to the overall budget.
Sen. Steve Daines (R-Mont.) noted that the White House budget proposal increases the child tax credit from $2,000 to $3,600 and makes it fully refundable and deliverable on a monthly basis.
"However, I see they didn’t make that change permanent," Sen. Daines said, adding that increase would expire in 2025. "My question is this: does the President believe that the child tax credit should be made permanent for $3,600? And if so, are you willing to eliminate the SALT deduction, which overwhelmingly benefits the wealthy, to give working families an expanded child tax credit that, importantly, never ends?"
Yellen explained that the reason for the proposed expanded tax credit expiring in 2025 is due to other provisions in the Tax Cuts and Jobs Act that will expire in 2025 that affect the child tax credit.
"And then there will need to be consideration of what to do," Yellen said, while offering no explicit comment on the desire to make the child tax credit permanent and not addressing at all the possibility of making the CTC permanent while at the same time eliminating the SALT deduction.
One point Yellen was challenged on was on the promise that there would be no increases in taxes on individuals and corporations making less than $400,000. Sen. Todd Young (R-Ind.) suggested that President Biden would not be able to keep that promise based on provisions in the Tax Cuts and Jobs Act that would sunset in or after 2025.
"Well, there certainly are aspects of the TCJA that, if they sunset, would impact households [with] taxpayers earning under $400,000,”" Yellen testified. "And the President has, as you mentioned, pledged he doesn’t want to see taxes raised by a penny on anyone making under that. He stands ready to work with Congress."
However, when pressed further to provide a list of those sunsetting provisions that could push taxes higher for taxpayers making under $400,000, Yellen said that "I don’t know that I can provide you with that. I think there are a lot of complicated provisions." She declined to commit to providing the information within the two-week time frame that Sen. Young asked for, but pledged to work with the committee to provide the information.
A Mirror Of Previous Testimony
For the questions that covered the budget, the committee touched on many of the same subjects and asked similar questions of Yellen that the House Ways and Means Committee did on March 10, 2023, although conversations about the budget at times took a back seat to discussion on the recent bank failures and the government’s response to it as well as the looming need to address the debt ceiling.
When the budget was discussed, Yellen promoted the improvements to customer service, noting that the Internal Revenue Service has answered "hundreds of thousands" of more call calls this tax season than at the same point last year. She also pushed the Biden Administration’s targeting of the highest earning taxpayers, both individual and corporate, to get them to pay their fair share.
Yellen also reiterated the defense of the United States’ participation in the Organisation for Economic Co-operation and Development’s work on building a framework for implementing a global corporate minimum tax structure. She did emphasize that any agreement would not violate existing tax treaties between the United States and other individual countries, although there was pushback on whether that was accurate.
She also promoted the provisions in the Greenbook that will help close the housing supply gap, noting the budget has provisions to make to make rent and ownership more affordable.
Yellen also said the IRS plan to spend the $80 billion that was allocated to agency in the Inflation Reduction Act would be ready in the coming weeks.
The U.S. Supreme Court has ruled that the $10,000 maximum penalty under the Bank Secrecy Act (BSA) for the nonwillful failure to file a compliant Report of Foreign Bank and Financial Accounts (FBAR) accrues on a per-report, not a per-account, basis. This ruling settles a split in authority between the Ninth Circuit (J. Boyd, CA-9, 2021-1 ustc ¶50,112) and the Fifth Circuit (A. Bittner, CA-5, 2021-2 ustc ¶50,242).
The U.S. Supreme Court has ruled that the $10,000 maximum penalty under the Bank Secrecy Act (BSA) for the nonwillful failure to file a compliant Report of Foreign Bank and Financial Accounts (FBAR) accrues on a per-report, not a per-account, basis. This ruling settles a split in authority between the Ninth Circuit (J. Boyd, CA-9, 2021-1 ustc ¶50,112) and the Fifth Circuit (A. Bittner, CA-5, 2021-2 ustc ¶50,242).
Background
U.S. citizens and residents must keep records and/or file reports when the person makes a transaction or maintains a relation for any person with a foreign financial agency (31 USC 5314). Each person with a financial interest in a financial account in a foreign country must report the relationship to the IRS for each year the relationship exists by providing specified information on and filing the FBAR. The FBAR generally must be filed by June 30 of each calendar year for foreign financial accounts over $10,000 maintained during the previous calendar year (31 C.F.R. 1010.350, 1010.306). If the person fails to file the FBAR, the IRS can impose a penalty of up to $10,000 for nonwillful violations, unless the violation was due to reasonable cause (31 USC 5321).
Here, the taxpayer nonwillfully failed to report his interests in multiple foreign bank accounts on annual FBAR forms for several years. The government assessed $2.72 million in civil penalties against the taxpayer: $10,000 for each unreported account each year for five years. The district court found the taxpayer liable and denied his reasonable cause defense, but reduced the assessment to $50,000 because it determined that the $10,000 maximum penalty attached to each failure to file an annual FBAR, not to each failure to report an account.
The Fifth Circuit ruled that the text, structure, history, and purpose of the relevant statutory and regulatory provisions showed that the "violation" of 31 USC 5314 contemplated by the 31 USC 5321 penalty was the failure to report a qualifying account, not the failure to file an FBAR. Therefore, the $10,000 penalty cap applied on a per-account basis, not a per-report basis.
FBAR Penalty Per Report
In the majority opinion by Justice Gorsuch, the Court determined that 31 USC 5314, which delineates an individual’s legal duties under the BSA, does not mention accounts or their number, but instead addresses the legal duty to file reports which must include various kinds of information about an individual’s foreign transactions or relationships. Further, 31 USC 5321 authorizes the Treasury Secretary to impose a civil penalty of up to $10,000 for “any violation” of section 5314. The nonwillful penalty provision in section 5321 does not speak in terms of accounts or their number, but instead pegs the quantity of nonwillful penalties to the quantity of violations. While multiple deficient reports may yield multiple $10,000 penalties, and even a simple deficiency in a single report may expose an individual to a $10,000 penalty, the Court ruled that the penalties for nonwillful violations accrue on a per-report basis, not a per-account basis. Also, while section 5321 does tailor penalties to accounts for certain cases that involve willful violations, Congress did not say in section 5321 that the government may impose nonwillful penalties on a per-account basis.
The Court found other contextual clues that cut against the government’s arguments. First, the government's guidance to the public in various warnings, fact sheets, and instructions seemed to tell the public that the failure to file a report represented a single violation exposing a nonwillful violator to one $10,000 penalty. Also, when Congress amended the law in 2004 to authorize penalties for nonwillful violations, it did not apply language from previous amendments to willful penalties to authorize per-account penalties for nonwillful violations.
The Court also observed that other features of the BSA and its regulatory scheme suggested that the law aimed to provide the government with a report sufficient to tip it to the need for further investigation, not to ensure the presentation of every detail or maximize revenue for each mistake. Finally, the Court stated that the government’s per-account penalty reading of the statute invited anomalies, such as subjecting willful violators to lower penalties than nonwillful violators, that are avoided by reading the nonwillful penalty to apply on a per-report basis.
The Court concluded that, best read, the BSA treats the failure to file a legally compliant report as one violation carrying a maximum penalty of $10,000, not a cascade of such penalties calculated on a per-account basis.
Dissenting Opinion
Justice Barrett’s dissent (joined by Justices Thomas, Sotomayor, and Kagan) stated that the most natural reading of the statute establishes that each failure to report a qualifying foreign account constitutes a separate reporting violation, so the government can levy penalties on a per-account basis.
