Topics Include Large Corporate Compliance Audits, Child Tax Credit Updates, Passport Revocation Update, and the Marijuana Industry
As reported by Tax Chair, Stephen Mankowski, CPA, CGMA, who recently attended the monthly IRS Meeting.
Large Business & International (LB&I) Division
Large Corporate Compliance (LCC) audits are the largest audits performed by the IRS. The LB&I division annually selects which businesses it will examine based on a risk profile. To determine the LCC population, the program applies an automated application to consider large-case-pointing criteria, such as gross assets and gross receipts. Once the population is determined, the LCC program uses data analytics to identify the returns with the highest compliance risk. The technology also allows LB&I to discover anomalies, patterns, and correlations.
LB&I audits for specific reasons, such as those listed on its website, including: syndicated conservation easements & micro-captive insurance, virtual currency, research credits, Tax Cuts and Jobs Act-related issues (Section 965 Transition Tax, Section 199 Domestic Production, and life insurance reserves), Compliance Assurance Process (CAP), global high wealth, and high income.
Currently LB&I has approximately 4,700 employees—down from nearly 12,000 in 2012. Similar to other areas of the IRS, there are a significant number of employees eligible to retire and they are actively hiring. There are also a number of efforts to increase coverage within partnerships; the IRS hired 50 individuals with partnership experience, and they are gearing up for very large partnership compliance campaigns later this year. The division is also working on form improvements, including Form 1065 and Schedule k2/k3
Advanced Child Tax Credit
A large part of the education effort is letting taxpayers know they are eligible to receive the credits. This year, families who claim the Child Tax Credit will receive up to $3,000 per qualifying child between 6 and 17 years old at the end of 2021. They will receive $3,600 per qualifying child under age 6 at the end of 2021. In addition, important changes to the Child Tax Credit will help many families get advance payments of the credit starting this summer. The IRS will pay half the total credit amount in advance monthly payments beginning July 15. Taxpayers will claim the other half when they file their 2021 income tax return. This Q and A provided by the IRS is very helpful.
The IRS has prepared various communications for taxpayers:
- Letter 6417 will be sent before someone receives their first advance Child Tax Credit payment. It includes the website and toll-free number to unenroll or make an appointment at an assistance center.
- Letter 6418 is a change confirmation letter to confirm a taxpayer’s updates to their account and the impact on the payment amounts. It is still under development.
- Letter 6419 is a reconciliation letter that provides 2021 payment history to reconcile advanced payments on a taxpayer’s return. It is required by law.
Passport Initiative Update
Under the Fixing America’s Surface Transportation (FAST) Act of 2015, the IRS notifies the State Department of taxpayers certified as owing a seriously delinquent tax debt, which is currently $52,000 or more. The law then requires the State to deny their passport application or renewal. If a taxpayer currently has a valid passport, State may revoke the passport or limit a taxpayer’s ability to travel outside the United States. In April 2021, over 638,000 certifications and 269,000 de-certifications were sent to the State Department. As of January 2021, the debt threshold increased to $54,000. The taxpayer must also have notice of tax lien filed, levy issued, or appeal lapsed.
Letter 6152 is sent to taxpayers who have not settled their tax debt. It is a warning that a taxpayer’s passport will be revoked. Before the IRS issues this letter, they must first certify the seriously delinquent tax debt to the State Department. The taxpayer will receive Notice CP 508C once the debt is certified. The IRS will send the written notice by regular mail to the taxpayer’s last known address.
Often, taxpayers wait until the last minute to check (after making reservations) on their passport status. The expedited decertification process requires specific documentation to support the request. If overseas, the taxpayer could get a provisional passport to get home but will still need a new passport after the taxpayer gets decertified.
Farming Resources & the Marijuana Industry
Publication 225 explains how the federal tax laws apply to farming. Publication 536 covers Net Operating Losses for farmers. There are a number of Forms and Publications to assist Farmers available through the IRS.
The marijuana industry continues to grow as more states legalize its usage. To date, 16 states plus Washington, DC, have legalized marijuana use for adults over 21; 37 states have legalized medical marijuana. Regardless, it is still illegal according to federal law. Marijuana falls under IRC 280E. Despite being illegal, tax payments are required. Good record keeping needs to be maintained and should be updated daily. Often, these businesses fall under the rules of cash payments over $10K. At the Nationwide Tax Forums, Key Enforcement Issues will address many topics, including the marijuana industry) during their August session.
Secure Access Digital Identity (SADI) Overview
IRS is redesigning its secure access program to make the identity verification process as safe and secure as possible. SADI is an application that will protect all external facing IRS transactions in the future. It will enable external parties (taxpayers and tax professionals) to securely access IRS resources online. SADI aims to reduce barriers to access IRS online applications by providing higher pass rates, more evidence options & modern support to users. Features include:
- Federated credentials – access applications across different agencies using a single set of credentials. Allows interactions with external Cloud Service Providers & continued support of existing Secure Access e-Authentication credentials.
- Modern Technical Architecture – introduces a simplified, modern, scalable architecture that reduces technical debt & complexity.
- Pass Rates & Coverage – user discovery testing & work with Cloud Service Providers indicate higher success rates.
- More Evidence Options & Data Sources – allows user to verify data across multiple sources.
- Omnichannel & Help Desk Assistance.
- Modern Design – mobile friendly usage.
Thank you and please look for more topics in my next IRS update communications.
The National Conference of CPA Practitioners (NCCPAP) is a professional organization comprised of Certified Public Accountants practicing in the United States. In addition to serving as a forum for education, networking, and community impact, NCCPAP also advocates for its clients. NCCPAP influences tax administration and tax policy by regularly meeting with Internal Revenue Service representatives, state taxing authorities, and elected officials. NCCPAP members represent over one million businesses and individual clients. The organization is headquartered in Woodbury, NY. For more information visit, www.NCCPAP.org.