Tax Update – February 2023
Filing Season Update, At a Glance
- Filing season is going well; there is only a small amount of carryover from last year, which was expected to be finalized at the end of January.
- There are over eight million refunds averaging $1,900 each. Refunds are about 10% lower than last year and that trend is expected to continue due to no stimulus payments, Recovery Rebate Credits, Child Tax Credits, and charitable contributions.
- The IRS hired over 5000 new phone assistants, which is helping the level of service. They are still looking to hire more people to serve in diverse communities, including interpreters at assistance centers.
- The latest change is to allow amended returns to have direct deposits from 2021 through the current year.
- EITC and Additional Child Tax Credits were already released with deposits set for February 28 unless there are issues with the return. The Where’s My Refund tool will show current updates.
- More IRS Forms, Publications, and Instructions are being translated into foreign languages.
- The Tax Forum is going to five cities this year. The IRS has been trying to attract a younger demographic and has established a committee to focus on attracting younger preparers.
ERC Abuses and Circular 230
The IRS is warning employers to be wary of third parties who are advising them to claim the Employee Retention Credit (ERC) when they may not qualify. Their concern is that some third parties are taking improper positions related to taxpayer eligibility and computation of the credit, often charging large upfront or contingency fees.
Section 10.34 of Circular 230 describes a tax professional's duties and obligations while practicing before the IRS and authorizes specific sanctions for violations of the duties and obligations. Forms 14157 and 14157-A are to report tax preparer fraud or misconduct and/or to file a complaint against a tax return preparer or tax preparation business. Regarding ERC, the practitioner community is asking for guidance from the Office of Professional Responsibility (OPR). The goal is to work on compliance pre-filing rather than during filing. If a question arises as to the extent of due diligence on the part of the preparer with regard to ERC, it is unclear how the IRS will check to make sure the affected returns were properly amended.
Seriously Delinquent Tax Dept and The IRS Passport Program
If you receive a CP508C Notice, the IRS has identified your tax debt as meeting the definition of ‘seriously delinquent’ in Internal Revenue Code Section 7345 and has provided that information to the U.S. Department of State. The U.S. Department of State generally will not renew your passport or issue a new passport after receiving this certification from the IRS, and they may revoke or place limitations on your current passport.
The Passport Program does not cover payment plans, collections suspended, or individuals in combat zones. Also, it will not certify a taxpayer in bankruptcy, nor one with ID theft, collectibles, requests pending installment, or anyone with IRS-accepted adjustments. The taxpayer will not be able to get a new or reissued passport until the IRS approves it, within a 90-day period. After 90 days, the application is closed, and the taxpayer will need to go through the entire passport process again. The IRS also notifies the U.S. Department of State, within 30 days, when there is a reversal, via a CP508R Notice.
Expedited decertification is possible by contacting the CP508C by phone, where trained employees can handle passport-related issues. If there is an emergency, you would need a copy of the denial from the U.S. Department of State to expedite decertification. The passport office can be reached at 855.519.4965 (domestic) or 267.941.1004 (international). Overall, the taxpayer needs to stay on top of things to make sure they act quickly to get their issue resolved. Calling the phone numbers will get the case assigned to an agent.
Practitioner Awareness of Fraud Schemes
Fraud schemes are getting more complicated, but many are simplistic in nature and mitigated by due diligence and common sense. Overall, many of the schemes are creative, but can be easily debunked. The biggest concern with the IRS is the ‘intent’ of the taxpayer.
The Office of Fraud Enforcement (OFE) was established in March 2020 and reports to the Small Business/Self-Employed Division’s Deputy Commissioner, Collection & Operations Support. The Office promotes compliance by strengthening the IRS’s response to fraud and mitigating emerging threats. OFE tries to be proactive through internal and external leads. They are currently dealing with many aspects of venture capital, government agencies, and international impacts, using data science to increase efficiency. OFE is continually growing and hiring to enhance its effectiveness. The Office consists of the National Fraud Counsel, an Emerging Threats Mitigation Team, and Fraud Enforcement Advisors.
Please watch for our next NCCPAP Tax Update next month!