Tax Update – June 2023
Taxpayer Experience Office Update
The Office is comprised of 100 employees who run four operating branches:
- Community engagement: the ability to understand and get issues resolved
- Insights/analytics: the use of “big data”
- Multi-channel experience: surveys, focus groups, outreach, and other media
- Portfolio management: keeping track of all goings-on within the Office
The desire is for the IRS to provide world-class levels of service and communications; however, they realize that they aren’t there yet and understand there are many steps to get there.
Form 940/941: Lockbox Scanning & Schema Changes for Next Filing Season
Millions of taxpayers send payments to various lockbox locations around the country. Those agents send the returns to IRS service centers where they are manually processed. Beginning in 2021, planning started with the lockbox agent scanning Forms 940/941 and sharing them with the IRS, after which the paper returns are destroyed. This increases access to digital data and follows the electronic media mandate. The IRS is working on a Pilot Program where they will be scanning the paper-filed tax returns into the Modernized e-File (MeF) systems. This will help with the overall timing to process these returns as well as aiding the Revenue Agent for audits.
Industry Analysis: Identity Proofing
Identity Proofing is verifying that a person is who they say they are, especially pertaining to online interactions. A threat vector is a path or means by which a cybercriminal gains access through one or more main routes into a computer system by exploiting a route vulnerability. The potential threat vectors here include loss of important information, fraud, loss of trust/reputation, and/or harm to the functioning of a business. The challenges for the IRS include how to protect data loss, balancing customer preferences with security risks, ongoing biases and technology changes, and lack of visibility into the identity proofing environment. Recently, the IRS has implemented changes to both taxpayer and Tax Pro accounts using ID.me to enhance security while hopefully making the process run more efficiently.
Identity Theft & Tax Refund Fraud Prevention
There has been an uptick in ‘fabricated’ entities. These so-called entities are retroactively representing themselves as a business in order to obtain an Employee Retention Credit (ERC)—despite having an EIN that was just created in 2023. Some of the fraudsters are generating notices that look like official IRS notices with a fake IRS department or office. Often, Form 941s are submitted without payments, but show taxes; the same is true with W-2s. The IRS has increased its review of many ERC claims. Despite slowing the process, it allows them to ensure that the businesses are legitimate and that the refunds are genuine. The IRS has also been made aware of the number of entities encouraging legitimate business owners to file ERC claims, even if not warranted.
Employee Retention Credit & IRIS Updates
Use Form 14242 if you suspect fraudulent ERC claims or promotions. Email the form to Sbse.email@example.com. The IRS continues to work to fend off the fraudsters, but they cannot possibly audit every ERC claim.
This Office opened in 2022 to provide a centralized resource for Digital Assets, as well as provide a consistent approach regarding guidance/regulations and internal/external communications. When will we get regulations? That is still unknown, but the IRS and Treasury are working to finalize regulations. In the interim, the IRS has issued a variety of informal communications, including Notice 2023-27 (legal tender, Chief Counsel Advice) and Notice 2014-21 (federal tax is applicable to Form 1099-DA and is considered property). The IRS also continues to look at FAQs and update them to keep current.
Please look forward to our next tax update in September.