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NEWSLETTERS
Where’s My Refund?
IRS seeks upgrade to dreaded online tool, but don’t hold your breath
In the midst of a particularly horrific tax season, with the beleaguered Internal Revenue Service (IRS) swamped by backlogged returns and citizens waiting anxiously for missing refunds to appear, many taxpayers seeking clarity have been referred to the dreaded online “Where’s My Refund” tracker. In other words, the place where inquiries go to die.
The “Where’s My Refund” tool, which lives on the IRS website, has been of scant help to many visitors, informing taxpayers with late refunds only that their returns are “pending.” It does not offer any estimate of when refunds can be expected, nor does it advise if additional supporting documents are needed. The lack of such basic services was flagged by the Taxpayer Advocate Service (TAS)—the arm of the IRS that ensures fair treatment of citizen taxpayers—which recommended that the IRS supply these features as quickly as possible.
And according to a TAS report, the IRS seems to have taken the first steps. It has submitted several “Unified Work Requests” to its engineers, requesting programming upgrades to the tool that would include more specific reasons for why a refund has been delayed, or a notice if it’s still reviewing whether supporting documents are needed. It also says it’s exploring a system by which taxpayers can digitally transmit documents to the IRS, such as uploading through the IRS.gov website. That could include a permanent extension of the interim rules, allowing people to submit identity verification files over eFax during the COVID-19 pandemic.
But it’s not a done deal by any means: The IRS cautions that such programming upgrades are “subject to funding limitations and competing priorities,” meaning all this could very well amount to nothing if cash is thin or other issues are deemed more important. It’s also worth noting that another request—to supply relevant contact telephone numbers through the “Where’s My Refund” tool—has already been denied “due to funding limitations.” So if you’re still waiting for your 2020 refund, maybe don’t hold your breath.
Further along in the report, the IRS also notes it would not be able to expedite legitimate refunds by modernizing its “obsolete” systems—also “due to funding limitations”—nor would it be sharing data about how long it detains legitimate refunds that are tagged by fraud filters.
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The agency's overall backlog is growing and its processing time is slowing.
While the Internal Revenue Service has made significant progress in slashing the backlog of tax returns from 2021, it is now processing the filings at a slower clip and taxpayers are facing unprecedented months of delays before receiving their refunds.
IRS boasted this week that it has made major strides to dig out from the mountain of unprocessed cases, but National Taxpayer Advocate Erin Collins said in a new report issued Wednesday things have not actually improved. Despite all of the agency’s efforts, the backlog has actually grown since the same period last year and IRS remains unlikely to meet its year-end goals.
“Taxpayers are still experiencing unprecedented delays in receiving their refunds,” Collins wrote. “Taxpayers continue to face unprecedented challenges in reaching the IRS by phone. And the IRS’s unprecedented delays in processing correspondence are contributing to additional refund delays and taxpayer frustrations.”
Collins noted that IRS was processing 242,000 individual paper income tax returns per week in April, but that had declined by 15% in May. The agency would have to process 500,000 forms per week to eliminate the backlog this year. She added it was “deeply concerning” that IRS ended May with a bigger backlog of paper tax returns than it had one year prior.
“The math is daunting,” Collins said. She added she was pleased IRS leadership committed to reducing the backlog to a “healthy” level by the end of the year, but said it “will be a difficult commitment to achieve.” Additionally, she stressed that IRS is now taking six months to distribute refunds to paper-filing taxpayers and implored IRS management to get that down to the normal four-to-six week period before it considers any backlog “healthy.”
Despite the ongoing problems, IRS announced it would complete the processing of individual tax returns without issues from 2021 this week. It will complete business returns filed in 2021 shortly thereafter. As of April, there were still 6 million returns outstanding. The agency has taken several steps to address the backlog, including mandating overtime for 6,000 employees and allowing for voluntary overtime for an additional 10,000 workers, deploying surge teams, bringing on contractors and going on a hiring spree aided by a hastened onboarding process authorized by Congress.
"IRS employees have been working tirelessly to process these tax returns as quickly as possible and help people who are waiting on refunds or resolution of an account issue," IRS Commissioner Chuck Rettig said. "Completing the individual returns filed last year with no errors is a major milestone, but there is still work to do.”
The taxpayer advocate did note that things have mostly gone smoothly for e-filers, or about 85% of taxpayers. By late May, IRS had received 145 million returns and processed refunds for 66% of them. Overall, however, the backlog has actually grown since the end of May 2021. It is now at 21.3 million, compared to 20 million last year. IRS noted much of this year’s backlog consists of original returns, which can be processed more quickly than amended returns.
Earlier this year, Rettig announced a plan to hire 10,000 new employees by the end of 2023. He told Congress in April the agency was halfway to its goal for 2022. Collins, however, noted IRS had hoped to hire around 5,500 processing employees this year and as of May was more than 3,400 workers short of that goal. It has found more success in hiring for accounts management—workers who handle taxpayer interactions, including by answering calls—hiring 99% of its goal of 5,000 employees.
Still, the agency has struggled immensely to keep pace with demand for service. The number of calls IRS received dropped by more than half this year, but it only grew its answer rate from 9% in 2021 to 10% in 2022. Individuals waited on hold for an average of 29 minutes, up from 20 minutes last year. The agency failed to improve its answer rate as it shifted employees in Accounts Management away from the phones and toward processing correspondence.
“We remain focused on doing everything possible to expedite processing of these tax returns, and we continue to add more people to this effort as our hiring efforts continue this summer," Rettig said.
Collins said IRS should have acted more quickly to reassign employees to processing functions, which would have reduced the existing backlog and allowed the agency to address this year’s returns more quickly. She also faulted IRS for dragging its feet in installing new technology to read paper returns more quickly.
The taxpayer advocate said she would push IRS management over the next year to automate paper returns processing, reduce barriers to e-filing, improve hiring and training and improve telephone service. Congress provided IRS with a funding boost of $675 million as part of the fiscal 2022 omnibus spending bill, a 6% increase and the largest bump since 2001. President Biden requested an additional 18% bump for fiscal 2023, and has sought an $80 billion surge over 10 years as part of his larger social and climate spending package.
President Bidensupportextending the individualtaxprovisions of the Tax Cuts and Jobs Act, many of which are set to expire next year, Department of the Treasury Secretary Janet Yellen said.
PresidentBidensupportextendingtheindividualtaxprovisionsof theTax Cuts and Jobs Act, many of which are set to expire next year, Department of the Treasury Secretary JanetYellensaid.
"The President has made it clear that he would oppose raising back thetaxesfor working people and families making under $400,000,"SecretaryYellentestified before the Senate Finance Committee during a March 21, 2024,hearingto review the White House fiscal year 2025budget proposal.
She then affirmed that"he would"supportextendingtheindividualtaxprovisionsof theTCJAwhen asked by committee Ranking Member Mike Crapo (R-Idaho), who noted that the budget did not make any mention of this.
Yellendefended the fiscal 2025 budget request against assertions thattaxeswill indeed go up for those making under $400,000, contrary to PresidentBiden’s promise, because thetaxesthat are targeted to wealthy corporations to ensure they are paying their fair share will ultimately be passed down to their consumers in the form of higher prices and lower wages.
"I think what the impact when you changetaxeson corporations, what the impact is on families involves a lot of channels that are speculative,"Yellensaid."They are included in models that sometimes the Treasury used for the purposes of analysis, in ataxthat is levied on corporations, that has no obvious direct effect on households."
The proposed budget would increase the corporate minimumtaxfrom the current 15 percent to 21 percent, as well as raise thetaxrate on U.S. multinationals’ foreign earnings from the current 10.5 percent to 21 percent. The current corporatetaxrate would climb to 28 percent and the budget would eliminatetaxbreaks for million-dollar executive compensation. It would also increase thetaxrate on corporate stock buybacks from 1 percent to 4 percent, among other business-relatedtaxprovisions.
Corporations and billionaires will be paying more in taxes if Congress follows recommendations PresidentBiden gave during his State of the Union address.
Corporationsand billionaires will be paying more in taxes if Congress follows recommendationsPresidentBidengave during hisStateof theUnionaddress.
PresidentBidenhighlighted a number of initiatives during the March 7, 2024, address. Forcorporations, he said that it is"time to raise the corporate minimum tax to at least 21 percent."
"Remember in 2020, 55 of the biggest companies in America made $40 billion and paid zero in federal income taxes,"PresidentBidensaid."Zero. Not anymore. Thanks to the law I wrote [and] we signed, big companies have to pay minimum 15 percent. But that’s still less than working people paid federal taxes."
Additionally, he alluded to further recommendations that will likely be included when the administration released its budget proposal, expected as early as the week of March 11, 2024. This includes limiting tax breaks related to corporate and private jets and capping deductions on certain employees at $1 million.
For billionaires,PresidentBidenis looking to increase their tax rate to 25 percent.
"You know what the average federal taxes for those billionaires [is]?"he asked. “"They’re making great sacrifices. 8.2 percent. That’s far less than the vast majority of Americans pay. No billionaire should pay a lower federal tax rate than a teacher or a sanitation worker or nurse."”
PresidentBidensaid this proposal would raise $500 billion over the next 10 years and suggested some of that additional tax money would help strengthen Social Security so that there would be no need to cut benefits or raise the retirement age to extend the life of the Social Security program.
The IRS has launched a new initiative to improve tax compliance among high-incometaxpayers who have not filed federal income tax returns since 2017.
TheIRShas launched a newinitiativeto improve tax compliance amonghigh-incometaxpayerswho have not filed federal incometax returnssince 2017. This effort, funded by the Inflation Reduction Act, involves sending outIRScompliance letters to over 125,000 cases wheretax returnshave not been filed since 2017. These mailings include more than 25,000 to individuals with incomes exceeding $1 million and over 100,000 to those with incomes ranging between $400,000 and $1 million for the tax years 2017 to 2021. TheIRSwill begin mailing these compliance alerts, formally known as theCP59Notice, this week.
Recipients of these letters should act promptly to prevent further notices, increased penalties, and stronger enforcement actions. Consulting a tax professional can help them swiftly file latetax returnsand settle outstanding taxes, interest, and penalties. The failure-to-file penalty is 5 percent per month, capped at 25 percent of the tax owed. Additional resources are available on theIRSwebsitefor non-filers.
The non-filerinitiativeis part of theIRS's broader campaign to ensure large corporations, partnerships, andhigh-incomeindividuals fulfill their tax obligations. Non-respondents to the non-filer letter will face further notices and enforcement actions. If someone consistently ignores these notices, theIRSmay file a substitutetax returnon their behalf. However, it's still advisable for the individual to file their ownreturnto claim eligible exemptions, credits, and deductions.
An individual’s claim for innocent spouse relief was rejected for lack of jurisdiction because the taxpayer failed to file his petition within the 90-day deadline under Code Sec. 6015(e)(1)(A).
Anindividual’sclaimforinnocent spouse reliefwas rejected for lack of jurisdiction because the taxpayerfailedtofilehispetitionwithin the 90-day deadline underCode Sec. 6015(e)(1)(A). The taxpayer argued that the deadline tofileapetitionfor a denial ofinnocent spouse reliefwas not jurisdictional and asked that the Tax Court hear his case on equitable grounds. However, the Tax Court noted that a filing deadline is jurisdictional if Congress clearly states that it is. The IRS argued that argues that the 90-day filing deadline ofCode Sec. 6015(e)(1)(A)was jurisdictional because Congress clearly stated that it was and the Supreme Court’s decision inBoechler, P.C. v. Commissioner, 142 S. Ct. 1493, in addition to numerous appellate cases, supported this argument.
The Tax Court examined the"text, context, and relevant historical treatment"of the provision at issue and concluded that the 90-day filing deadline ofCode Sec. 6015(e)(1)(A)was jurisdictional. On the basis of statutory interpretation principles, the jurisdictional parenthetical inCode Sec. 6015(e)(1)(A)was unambiguous. It did not contain any ambiguous terms and there was a clear link between the jurisdictional parenthetical and the filing deadline. Specifically,Code Sec. 6015(e)(1)(A)is a provision that solely sets forth deadlines. Further, it was unclear what weight, if any, should be given to the equitable nature ofCode Sec. 6015. The statutory context arguments were not strong enough to overcome the statutory text. Accordingly, the Tax Court ruled that the 90-day filing deadline in Code Sec. 6015(e)(1)(A) was jurisdictional.
The IRS has continued to increase the amount of information available in multiple languages. This was part of the IRS transformation work under the Strategic Operating Plan, made possible by additional resources provided by the Inflation Reduction Act (P.L. 117-169).
TheIRShas continued toincreasethe amount of information available in multiplelanguages. This was part of theIRStransformation work under the Strategic Operating Plan, made possible by additionalresourcesprovided by the Inflation Reduction Act (P.L. 117-169). OnIRS.gov,taxpayerscan select their preferredlanguagefrom the dropdown menu at the top of the page, including Spanish, Vietnamese, Russian, Korean, Haitian Creole, Traditional Chinese and Simplified Chinese. Additionally, theLanguagespagegivestaxpayersinformation in 21languageson key topics such as"Your Rights as aTaxpayer"and"Who Needs to File."
"TheIRSis committed to making further improvements fortaxpayersin a wide range of areas, including expandingoptionsavailable totaxpayersin multiplelanguages,"saidIRSCommissioner Danny Werfel."Understanding taxes can be challenging enough, so it’s important for theIRSto put a variety of information onIRS.gov and other materials into thelanguageataxpayerknows best. This is part of the larger effort by theIRSto make taxes easier for alltaxpayers,"he added.
Iftaxpayerscannot find the answers to their tax questions onIRS.gov, they can call theIRSor get in-person help at anIRSTaxpayerAssistance Center. Finally, hundreds ofIRSVolunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs have access to Over the Phone Interpreterservices. VITA and TCE offer free basic tax return preparation to qualified individuals.
The IRS has granted to withholding agents an administrative exemption from the electronic filing requirements for Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons.
TheIRShas granted to withholding agents an administrativeexemptionfrom theelectronic filingrequirements forForm 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons. Under theexemption:
withholding agents (both U.S. and foreign persons) are not required to fileForms 1042electronically during calendar year 2024; and
withholding agents that are foreign persons are not required to fileForms 1042electronically during calendar year 2025.
Theexemptionis automatic, so withholding agents do not need to file anelectronic filingwaiver request to use theexemption.
Electronic FilingofForm 1042
UnderCode Sec. 6011(e), theIRSmust prescribe regulations with standards for determining which federal tax returns must be filed electronically. In 2023, final regulations were published to implement amendments toCode Sec. 6011(e)that lowered the threshold number of returns for requiredelectronic filingof certain returns. The regulations included requirements for filingForm 1042electronically.
The final regulations provide that:
a withholding agent (but not an individual, estate,or trust) must electronically fileForm 1042if the agent is required to file 10 or more returns of any type during the same calendar year in whichForm 1042is required to be filed;
a withholding agent that is a partnership with more than 100 partners must electronically fileForm 1042regardless of the number of returns the partnership is required to file during the calendar year; and
a withholding agent that is a financial institution must electronically fileForm 1042without regard to the number of returns it is required to file during the calendar year.
The final regulations apply toForms 1042required to be filed for tax years ending on or after December 31, 2023. This means that withholding agents must apply the newelectronic filingrequirements beginning withForms 1042due on or after March 15, 2024.
Challenges to Withholding Agents
Since the final regulations were published, theIRSreceived feedback from withholding agents noting challenges in transitioning to the procedures needed for filingForms 1042electronically. Withholding agents expressed concerns about the limited number of ApprovedIRSModernizede-FileBusiness Providers forForm 1042, and difficulties accessing the schema and business rules for filingForm 1042electronically. Withholding agents that do not rely on modernizede-filebusiness providers said that they needed more time to upgrade their systems for filing on theIRS’s Modernizede-Fileplatform. Agents also noted challenges specific to foreign persons filingForms 1042regarding the authentication requirements necessary for accessing the platform.
In response to these concerns, theIRSused its power under the regulations to provide theexemptionfrom theelectronic filingrequirement forForm 1042, in the interest of effective and efficient tax administration.