Internal Revenue Service

IRS issues tax relief to 61 Florida counties impacted by Hurricane Debby; deadlines extended to Feb. 3, 2025

133345 — Fri, 09 Aug 2024 21:00:56 +0000

IRS issues tax relief to 61 Florida counties impacted by Hurricane Debby; deadlines extended to Feb. 3, 2025

133345 Fri, 08/09/2024 - 17:00

August 9, 2024

WASHINGTON — The Internal Revenue Service announced today tax relief for individuals and businesses in Florida that were affected by severe storms and flooding that began on Aug. 1, 2024. These taxpayers now have until Feb. 3, 2025, to file various federal individual and business tax returns and make tax payments.

Following the disaster declaration issued by the Federal Emergency Management Agency (FEMA), individuals and households that reside or have a business in Alachua, Baker, Bay, Bradford, Brevard, Calhoun, Charlotte, Citrus, Clay, Collier, Columbia, DeSoto, Dixie, Duval, Escambia, Flagler, Franklin, Gadsden, Gilchrist, Glades, Gulf, Hamilton, Hardee, Hendry, Hernando, Highlands, Hillsborough, Holmes, Jackson, Jefferson, Lafayette, Lake, Lee, Leon, Levy, Liberty, Madison, Manatee, Marion, Monroe, Nassau, Okaloosa, Okeechobee, Orange, Osceola, Pasco, Pinellas, Polk, Putnam, Santa Rosa, Sarasota, Seminole, St. Johns, Sumter, Suwannee, Taylor, Union, Volusia, Walton, Wakulla and Washington counties qualify for tax relief.

The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Aug. 1, 2024, and before Feb. 3, 2025, are granted additional time to file through Feb. 3, 2025. As a result, affected individuals and businesses will have until Feb. 3, 2025, to file returns and pay any taxes that were originally due during this period.

The Feb. 3, 2025, filing deadline applies to:

Individuals who had a valid extension to file their 2023 return due to run out on Oct. 15, 2024. The IRS noted, however, that because tax payments related to these 2023 returns were due on April 15, 2024, those payments are not eligible for this relief.
Businesses with an original or extended due date including, among others, calendar-year partnerships and S corporations whose 2023 extensions run out on Sept. 16, 2024, and calendar-year corporations whose 2023 extensions run out on Oct. 15, 2024.

The Feb. 3, 2025, deadline also applies to any payment normally due during this period, including the quarterly estimated tax payments due on Sept. 16, 2024, and Jan. 5, 2025, and the quarterly payroll and excise tax returns normally due on Oct. 31, 2024, and Jan. 15, 2025. In addition, penalties on payroll and excise tax deposits due on or after Aug. 1, 2024, and before Aug. 16, 2024, will be abated as long as the tax deposits are made by Aug. 16, 2024.

If an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original filing, payment or deposit due date that falls within the postponement period, the taxpayer should call the telephone number on the notice to have the IRS abate the penalty.

The IRS automatically identifies taxpayers located in the covered disaster area and applies filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area should call the IRS disaster hotline at 866-562-5227 to request this tax relief. Disaster area tax preparers with clients located outside the disaster area can choose to use the Bulk requests from practitioners for disaster relief option, described on IRS.gov.

Covered disaster area

The localities listed above constitutes a covered disaster area for purposes of Treas. Reg. §301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected taxpayers

Taxpayers considered to be affected taxpayers eligible for the postponement of time to file returns, pay taxes and perform other time-sensitive acts are those taxpayers listed in Treas. Reg. § 301.7508A-1(d)(1), and include individuals who live, and businesses (including tax-exempt organizations) whose principal place of business is located, in the covered disaster area. Taxpayers not in the covered disaster area, but whose records necessary to meet a deadline listed in Treas. Reg. § 301.7508A-1(c) are in the covered disaster area, are also entitled to relief. In addition, all relief workers affiliated with a recognized government or philanthropic organization assisting in the relief activities in the covered disaster area and any individual visiting the covered disaster area who was killed or injured as a result of the disaster are entitled to relief.

Under section 7508A, the IRS gives affected taxpayers until Feb. 3, 2025, to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; annual information returns of tax-exempt organizations; and employment and certain excise tax returns), that have either an original or extended due date occurring on or after Aug. 1, 2024, and before Feb. 3, 2025, are granted additional time to file through Feb. 3, 2025.

Affected taxpayers that have an estimated income tax payment originally due on or after Aug. 1, 2024, are postponed through Feb. 3, 2025, will not be subject to penalties for failure to pay estimated tax installments as long as such payments are paid on or before Feb. 3, 2025.

The IRS also gives affected taxpayers until Feb 3, 2025, to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2018-58, 2018-50 IRB 990 (December 10, 2018), that are due to be performed on or after Aug. 1, 2024, and before Feb. 3, 2025, are granted additional time to file through Feb. 3, 2025.

This relief also includes the filing of Form 5500 series returns that were required to be filed on or after Aug. 1, 2024, and before Feb. 3, 2025, are postponed through Feb. 3, 2025, in the manner described in section 8 of Rev. Proc. 2018-58. The relief described in section 17 of Rev. Proc. 2018-58, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

Unless an act is specifically listed in Rev. Proc. 2018-58, the postponement of time to file and pay does not apply to information returns in the W-2, 1094, 1095, 1097, 1098 or 1099 series; to Forms 1042-S, 3921, 3922 or 8027; or to employment and excise tax deposits. However, penalties on deposits due on or after Aug. 1, 2024, and before Feb. 3, 2025, will be abated as long as the tax deposits were made by Feb. 3, 2025.

Casualty losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either the year in which the event occurred, or the prior year. In this instance, the 2024 return normally filed next year), or the return for the prior year (the 2023 return filed this year). Taxpayers have extra time – up to six months after the due date of the taxpayer’s federal income tax return for the disaster year (without regard to any extension of time to file) – to make the election. See Publication 547 for details. Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684, Casualties and Thefts PDF and its instructions PDF. Affected taxpayers claiming the disaster loss on their return should put FEMA disaster declaration number, 3605-EM on any return. See Publication 547 for details.

Other relief

The IRS will waive the usual fees and requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned FEMA declaration number (3605-EM), in bold letters at the top of Form 4506, Request for Copy of Tax Return PDF, or Form 4506-T, Request for Transcript of Tax Return PDF, as appropriate, and submit it to the IRS.

Qualified disaster relief payments are generally excluded from gross income. This means that affected taxpayers can exclude from their gross income amounts received from a government agency for reasonable and necessary personal, family, living or funeral expenses, as well as for the repair or rehabilitation of their home, or for the repair or replacement of its contents. See Publication 525 for details.

Additional relief may be available to affected taxpayers who participate in a retirement plan or individual retirement arrangement (IRA). For example, a taxpayer may be eligible to take a special disaster distribution that would not be subject to the additional 10% early distribution tax and allows the taxpayer to spread the income over three years. Taxpayers may also be eligible to make a hardship withdrawal. Each plan or IRA has specific rules and guidance for their participants to follow.

The IRS may provide additional disaster relief in the future.

Affected taxpayers who are contacted by the IRS on a collection or examination matter should explain how the disaster impacts them so that the IRS can provide appropriate consideration to their case. Taxpayers may download forms and publications from the official IRS website, IRS.gov.

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Internal Revenue Service

Hurricane Debby

IRS grants relief to 13 Florida counties impacted by storms on May 10; deadlines extended to Nov. 1

133345 — Wed, 26 Jun 2024 14:17:20 +0000

IRS grants relief to 13 Florida counties impacted by storms on May 10; deadlines extended to Nov. 1

Internal Revenue Service Release

133345 Wed, 06/26/2024 - 10:17

July 19, 2024

Update, July 17: Relief has been extended to include Columbia County.

Update, June 28: Relief has been extended to include Jefferson and Santa Rosa counties.

WASHINGTON — The Internal Revenue Service announced on Tuesday tax relief for individuals and businesses in Florida that were affected by severe storms, straight-line winds, and tornadoes that began on May 10, 2024. These taxpayers now have until Nov. 1, 2024, to file various federal individual and business tax returns and make tax payments.

Following the disaster declaration issued by the Federal Emergency Management Agency (FEMA), individuals and households that reside or have a business in: Baker, Gadsden, Hamilton, Lafayette, Leon, Liberty, Madison, Suwannee, Taylor, and Wakulla counties qualify for tax relief.

The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after May 10, 2024, and before Nov. 1, 2024, are granted additional time to file through Nov. 1, 2024. As a result, affected individuals and businesses will have until Nov. 1, 2024, to file returns and pay any taxes that were originally due during this period.

The Nov. 1 filing deadline applies to:

Individuals who had a valid extension to file their 2023 return due to run out on Oct. 15, 2024. The IRS noted, however, that because tax payments related to these 2023 returns were due on April 15, 2024, those payments are not eligible for this relief.
Businesses with an original or extended due date including, among others, calendar-year partnerships and S corporations whose 2023 extensions run out on Sept. 16, and calendar-year corporations whose 2023 extensions run out on Oct. 15.

The Nov. 1, 2024, deadline also applies to any payment normally due during this period, including the quarterly estimated tax payments due on June 17, 2024, and Sept. 16, 2024, and the quarterly payroll and excise tax returns normally due on July 31, 2024, and Oct. 31, 2024. In addition, penalties on payroll and excise tax deposits due on or after May 10, 2024, and before May 28, 2024, will be abated as long as the tax deposits were made by May 28, 2024.

In addition, the Nov. 1, 2024, deadline applies to calendar-year tax-exempt organization returns normally due on May 15, 2024.

The IRS automatically identifies taxpayers located in the covered disaster area and applies filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area should call the IRS disaster hotline at 866-562-5227 to request this tax relief. Disaster area tax preparers with clients located outside the disaster area can choose to use the bulk requests from practitioners for disaster relief option, described on IRS.gov.

Covered disaster area

The localities listed above constitutes a covered disaster area for purposes of Treas. Reg. §301.7508A-1(d)(2) and are entitled to the relief detailed below.

Affected taxpayers

Under section 7508A, the IRS gives affected taxpayers until Nov. 1, 2024, to file most tax returns (including individual, corporate, and estate and trust income tax returns; partnership returns, S corporation returns, and trust returns; estate, gift, and generation-skipping transfer tax returns; annual information returns of tax-exempt organizations; and employment and certain excise tax returns), that have either an original or extended due date occurring on or after May 10, 2024, and before Nov. 1, 2024, are granted additional time to file through Nov. 1, 2024.

Affected taxpayers that have an estimated income tax payment originally due on or after May 10, 2024, are postponed through Nov. 1, 2024, will not be subject to penalties for failure to pay estimated tax installments as long as such payments are paid on or before Nov. 1, 2024.

The IRS also gives affected taxpayers until Nov. 1, 2024, to perform other time-sensitive actions described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2018-58, 2018-50 IRB 990 (December 10, 2018), that are due to be performed on or after May 10, 2024, and before Nov. 1, 2024, are granted additional time to file through Nov. 1, 2024.

This relief also includes the filing of Form 5500 series returns that were required to be filed on or after May 10, 2024, and before Nov. 1, 2024, are postponed through Nov. 1, 2024, in the manner described in section 8 of Rev. Proc. 2018-58. The relief described in section 17 of Rev. Proc. 2018-58, pertaining to like-kind exchanges of property, also applies to certain taxpayers who are not otherwise affected taxpayers and may include acts required to be performed before or after the period above.

Unless an act is specifically listed in Rev. Proc. 2018-58, the postponement of time to file and pay does not apply to information returns in the W-2, 1094, 1095, 1097, 1098 or 1099 series; to Forms 1042-S, 3921, 3922 or 8027; or to employment and excise tax deposits. However, penalties on deposits due on or after May 10, 2024, and before May 28, 2024, will be abated as long as the tax deposits were made by May 28, 2024.

Casualty losses

Affected taxpayers in a federally declared disaster area have the option of claiming disaster-related casualty losses on their federal income tax return for either the year in which the event occurred, or the prior year. In this instance, the 2024 return normally filed next year), or the return for the prior year (the 2023 return filed this year). Taxpayers have extra time – up to six months after the due date of the taxpayer’s federal income tax return for the disaster year (without regard to any extension of time to file) – to make the election. See Publication 547 for details. Individuals may deduct personal property losses that are not covered by insurance or other reimbursements. For details, see Form 4684, Casualties and Thefts and its instructions. Affected taxpayers claiming the disaster loss on their return should put FEMA disaster declaration number, 4794-DR on any return. See Publication 547 for details.

Other relief

The IRS will waive the usual fees and requests for copies of previously filed tax returns for affected taxpayers. Taxpayers should put the assigned FEMA declaration number (4794-DR), in bold letters at the top of Form 4506, Request for Copy of Tax ReturnPDF, or Form 4506-T, Request for Transcript of Tax ReturnPDF, as appropriate, and submit it to the IRS.

The IRS may provide additional disaster relief in the future.

Reminder about tax return preparation options

Eligible individuals or families can get free help preparing their tax return at Volunteer Income Tax Assistance (VITA) or Tax Counseling for the Elderly (TCE) sites. To find the closest free tax help site, use the VITA Locator Tool or call 800-906-9887. Note that normally, VITA sites cannot help claim disaster losses.
To find an AARP Tax-Aide site, use the AARP Site Locator Tool or call 888-227-7669.
Any individual or family whose adjusted gross income (AGI) was $79,000 or less in 2023 can use IRS Free File’s guided tax software at no cost. There are products in English and Spanish.
Another Free File option is Free File Fillable Forms. These are electronic federal tax forms, equivalent to a paper 1040 and are designed for taxpayers who are comfortable filling out IRS tax forms. Anyone, regardless of income, can use this option.
MilTax, a Department of Defense program, offers free return preparation software and electronic filing for federal tax returns and up to three state income tax returns. It’s available for all military members and some veterans, with no income limit.

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Advocacy Alert

Internal Revenue Service

FICPA Government Affairs

IRS provides penalty relief for nearly 5 million 2020 and 2021 returns; notices to restart in 2024

133345 — Fri, 22 Dec 2023 13:24:52 +0000

IRS provides penalty relief for nearly 5 million 2020 and 2021 returns; notices to restart in 2024

Internal Revenue Service Release

133345 Fri, 12/22/2023 - 08:24

December 19, 2023

WASHINGTON — In a major step to help people who owe back taxes, the Internal Revenue Service today announced new penalty relief for approximately 4.7 million individuals, businesses and tax-exempt organizations that were not sent automated collection reminder notices during the pandemic.

The IRS will be providing about $1 billion in penalty relief. Most of those receiving the penalty relief make under $400,000 a year.

Due to the unprecedented effects of the COVID-19 pandemic, the IRS temporarily suspended the mailing of automated reminders to pay overdue tax bills starting in February 2022. These reminders would have normally been issued as a follow up after the initial notice. Although these reminder notices were suspended, the failure-to-pay penalty continues to accrue for taxpayers who did not fully pay their bills in response to the initial balance due notice.

Given this unusual situation, the IRS is taking several steps in advance of resuming normal collection notices for tax years 2020 and 2021 to help taxpayers with unpaid tax bills, including some people who have not received a notice from the IRS in more than a year.

To help taxpayers as the normal processes resume, the IRS will be issuing a special reminder letter starting next month. The letter will alert the taxpayer of their liability, easy ways to pay and the amount of penalty relief, if applied. The IRS urges taxpayers who are unable to pay their full balance due to visit IRS.gov/payments to make arrangements to resolve their bill.

The IRS is also taking steps to waive the failure-to-pay penalties for eligible taxpayers affected by this situation for tax years 2020 and 2021. The IRS estimates 5 million tax returns -- filed by 4.7 million individuals, businesses, trusts, estates and tax-exempt organizations -- are eligible for the penalty relief. This represents $1 billion in savings to taxpayers, or about $206 per return.

As a first step, the IRS has adjusted eligible individual accounts and will follow with adjustments to business accounts in late December to early January, and then trusts, estates and tax-exempt organizations in late February to early March 2024. Nearly 70 percent of the individual taxpayers receiving penalty relief have income under $100,000 per year.

The IRS is releasing Notice 2024-7PDF, which explains how the agency is providing failure-to-pay penalty relief to eligible taxpayers affected by the COVID-19 pandemic to help them meet their federal tax obligations.

"As the IRS has been preparing to return to normal collection mailings, we have been concerned about taxpayers who haven't heard from us in a while suddenly getting a larger tax bill. The IRS should be looking out for taxpayers, and this penalty relief is a common-sense approach to help people in this situation," said IRS Commissioner Danny Werfel. "We are taking other steps to help taxpayers with past-due bills, and we have options to help people struggling to pay."

This penalty relief is automatic. Eligible taxpayers don't need to take any action to get it. Eligible taxpayers who already paid their full balance will benefit from the relief, too; if a taxpayer already paid failure-to-pay penalties related to their 2020 and 2021 tax years, the IRS will issue a refund or credit the payment toward another outstanding tax liability.

The penalty relief only applies to eligible taxpayers with assessed tax under $100,000. Eligible taxpayers include individuals, businesses, trusts, estates and tax-exempt organizations that filed certain Forms 1040, 1120, 1041 and 990-T income tax returns for tax years 2020 or 2021, with an assessed tax of less than $100,000, and that were in the IRS collection notice process -- or were issued an initial balance due notice between Feb. 5, 2022, and Dec. 7, 2023. The IRS notes the $100,000 limit applies separately to each return and each entity. The failure-to-pay penalty will resume on April 1, 2024, for taxpayers eligible for relief.

Taxpayers who are not eligible for this automatic relief also have options. They may use existing penalty relief procedures, such as applying for relief under the reasonable cause criteria or the First-Time Abate program. Visit IRS.gov/penaltyrelief for details.

If the automatic relief results in a refund or credit, individual and business taxpayers will be able to see it by viewing their tax transcript. The IRS will send the first round of refunds starting now through January 2024. If a taxpayer does not receive a refund, a special reminder notice may be sent with their updated balance beginning in early 2024. Taxpayers with questions on penalty relief can contact the IRS after March 31, 2024.

Help for taxpayers needing assistance

The IRS reminds taxpayers that there are a number of payment options and online tools that can help taxpayers with unpaid tax debts, whether it's a new tax bill or a long-standing tax debt for an unfiled return.

"The IRS wants to help taxpayers and provide them easy options to deal with unpaid tax bills and avoid additional interest and penalties," said Werfel. "People receiving these notices should remember that there are frequently overlooked options that can help them set up an automatic payment plan or catch up with their tax filings. Making additional improvements in the collection area will be an important focus for the IRS going forward as we continue and accelerate our transformation work."

Following funding from the Inflation Reduction Act, it's now easier for taxpayers to get assistance with tax bills with new self-help tools, like the IRS Document Upload Tool, improved phone service with callback features and the addition of bots that can answer simple questions, set up or modify a payment plan and request a transcript. The IRS also encourages taxpayers to get an IRS Online Account, where they can see information about an unpaid tax bill or apply for an online payment plan.

Resumption of collection notices begins in 2024

In January, the IRS will begin sending automated collection notices and letters to individuals with tax debts prior to tax year 2022, and businesses, tax exempt organizations, trusts and estates with tax debts prior to 2023, with exceptions for those with existing debt in multiple years. These notices and letters were previously paused due to the pandemic and high inventories at the IRS but will gradually resume during the next several months. Current tax year 2022 individual and third quarter 2023 business taxpayers began receiving automated collection notices this fall as the IRS took steps to return to business as usual.

The pause in collection mailings affected only follow-up reminder mailings. The IRS did not suspend the mailing of the first, or initial, balance due notices for taxpayers such as the CP14 and CP161 notices.

The pause meant that some taxpayers who have long-standing tax debt have not received a formal letter or notice from the IRS in more than a year while some of this older collection work has been paused. To help the taxpayers in this category as the normal processes resume, the IRS will be issuing a special reminder letter to them starting next month.

This reminder letter will alert the taxpayer of the liability and will direct them to contact the IRS or make alternative arrangements to resolve the bill. Tax professionals and taxpayers will see these reminder letters in the form of letter LT38, Reminder, Notice Resumption.

This letter will remind taxpayers about their tax liability, giving them an opportunity to address the tax issue before the next round of letters are issued. After receiving the reminder mailing, these taxpayers with long-standing unresolved tax issues will receive the next notice, informing them of a more serious step in the tax collection process.

The IRS urges taxpayers to carefully read any letter or notice they receive before calling the IRS. There are also important resources available to get help for tax debt on IRS.gov.

The IRS will issue these balance due notices and letters in gradual stages next year to ensure taxpayers who have questions or need help are able to reach an IRS assistor. This will also provide additional time for tax professionals assisting taxpayers.

Here's what taxpayers should know about possible penalties and interest

Taxpayers who owe tax and don't file on time may be charged a failure-to-file penalty. This penalty is usually 5 percent of the tax owed for each month or part of a month that the tax return is late, up to 25 percent.

The failure-to-pay penalty applies if a taxpayer doesn't pay the taxes they report on their tax return by the due date or if the taxpayer doesn't pay the amount required to be shown on their return within 21 calendar days of receiving a notice demanding payment (or 10 business days if the amount is greater than $100,000).

The IRS is required by law to charge interest when a tax balance is not paid on time. Interest cannot be reduced due to reasonable cause. Interest is based on the amount of tax owed for each day it's not paid in full. The interest is compounded daily, so it is assessed on the previous day's balance plus the interest. Interest rates are determined every three months and can vary based on type of tax; for example, individual or business tax liabilities. More information is available on the interest page of IRS.gov.

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Internal Revenue Service

IRS unveils Voluntary Disclosure Program to repay questionable Employee Retention Credit claims

133345 — Fri, 22 Dec 2023 13:15:16 +0000

IRS unveils Voluntary Disclosure Program to repay questionable Employee Retention Credit claims

Internal Revenue Service Release

133345 Fri, 12/22/2023 - 08:15

December 21, 2023

WASHINGTON — As part of an ongoing initiative aimed at combating dubious Employee Retention Credit (ERC) claims, the Internal Revenue Service today launched a new Voluntary Disclosure Program to help businesses who want to pay back the money they received after filing ERC claims in error.

The new disclosure program, which has been in the works for several months, is part of a larger effort at the IRS to stop aggressive marketing around ERC that misled some employers into filing claims. The special disclosure program runs through March 22, 2024, and the IRS added provisions allowing repayment of 80% of the claim received.

The IRS also continues to urge employers with pending ERC claims to consider a separate withdrawal program that allows them to remove a pending ERC claim with no interest or penalty. The IRS has already received more than $100 million in withdrawals as the agency continues intensifying audits and criminal investigation work in this area.

As these special initiatives for ERC continue, the IRS will provide an update in the new year on the status of the moratorium. Additionally, the IRS mailed out 20,000 denial letters to ERC claimants earlier this month.

"The disclosure program provides a much-needed option for employers who were pulled into these claims and now realize they shouldn't have applied," said IRS Commissioner Danny Werfel. "From discussions we have had with taxpayers and tax professionals around the country, we understand that there are many employers eager to correct their error, but who remain concerned about their ability to pay back the portion of the credit that has been lost to the promoter that brought them into this mess. This new option, with an opportunity to get right with a lower financial cost, provides the relief these taxpayers requested. The new initiative will also help with our ongoing efforts to gather information on promoters who created this situation by aggressively pushing people to apply for the credit."

Interested employers must apply to the ERC Voluntary Disclosure Program by March 22, 2024. Those that the IRS accepts into the program will need to repay only 80% of the credit they received. If the IRS paid interest on the employer's ERC refund claim, the employer doesn't need to repay that interest. Employers who are unable to repay the required 80% of the credit may be considered for an installment agreement on a case-by-case basis, pending submission and review of a Form 433-B, Collection Information Statement for Businesses, available on IRS.gov, and all required supporting documentation.

The IRS will not charge program participants interest or penalties on any credits they repay. However, if the employer is unable to repay the required 80% of the credit at the time of signing their closing agreement, then the employer will be required to pay penalties and interest in connection with entering into an installment agreement.

The IRS selected an 80% repayment because many of the ERC promoters charged a percentage fee that they collected at the time of payment or in advance of the payment, and the recipients never received the full amount.

To qualify for this program, the employer must provide the IRS with the names, addresses and telephone numbers of any advisors or tax preparers who advised or assisted them with their claim and details about the services provided. Further qualifications and program details are in Announcement 2024-3PDF, posted today on IRS.gov.

As part of this expanding effort for employers that claimed an erroneous or excessive ERC, the IRS also announced today it has started sending up to 20,000 letters with proposed tax adjustments that will recapture the erroneously claimed ERC. These mailings – which are on top of the 20,000 denial letters announced earlier in December – are currently just for tax year 2020, and work continues for tax year 2021, with additional mailings planned. If the IRS identifies an employer that has received excessive or erroneous ERC, the agency will reclaim that ERC through normal tax assessment and collection procedures.

"These letters are another incentive for businesses that believe they received an erroneous Employee Retention Credit payment to come forward and participate in the disclosure program," Werfel said. "Our compliance activities involving these payments continue to accelerate, and the disclosure program's 80% repayment figure is much more generous than later IRS action, which includes steeper costs and greater risk. We hope these taxpayers take advantage of this window now."

ERC Voluntary Disclosure Program: Who can apply?

A variety of ERC recipients can apply. Any employer who already received the ERC for a tax period but isn't entitled to it can apply if the following are also true:

The employer is not under criminal investigation and has not been notified that they are under criminal investigation.
The employer is not under an IRS employment tax examination for the tax period for which they're applying to the Voluntary Disclosure Program.
The employer has not received an IRS notice and demand for repayment of part or all of the ERC.
The IRS has not received information from a third party that the taxpayer is not in compliance or has not acquired information directly related to the noncompliance from an enforcement action.

How to apply

To apply, the employer must first file Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program, available on IRS.gov. This form must be submitted using the IRS Document Upload Tool. Employers will be expected to repay their full ERC, minus the 20% reduction allowed through the Voluntary Disclosure Program. Employers who are not able to pay the amount in full will have the option to set up an installment agreement under certain conditions.

Employers who outsource their payroll must apply through the third party

Many employers outsource their payroll obligations to a third party who reports, collects and pays employment taxes on the employer's behalf using the third party's Employer Identification Number. In this situation, the third party, not the employer, must file Form 15434. See the form and its instructions for details.

Help options for those considering applying

As part of a larger set of information on ERC, the IRS has provided a set of frequently asked questions to help employers understand the terms of the program.

Once the employer has applied to the program and submitted their Form 15434, an IRS employee will contact them to go over the application and answer any questions.

Next steps after an application is approved

If the IRS approves the employer's application, they will mail the employer a closing agreement. The employer must then repay 80% of the ERC they received, either online or by phone, using the Electronic Federal Tax Payment System (EFTPS). EFTPS is the Treasury Department system that most businesses already use to pay various federal tax obligations.

If the taxpayer is unable to pay the amount in full, they may enter into an installment agreement with the IRS to pay over time. However, under the standard installment agreement policy, penalties and interest will apply, so the IRS encourages those who cannot pay in full to consider obtaining a loan from a financial institution to avoid the costs of an installment agreement with the IRS. Once payment has been made, the employer must return the signed closing agreement to the IRS.

Ongoing ERC initiatives

The new Voluntary Disclosure Program is just the latest step taken by the IRS in its ongoing fight against ERC fraud.

In July, the IRS said it was shifting its focus to review ERC claims for compliance concerns, including intensifying audit work and criminal investigations on promoters and businesses filing dubious claims. The IRS has hundreds of criminal cases being worked, and thousands of ERC claims have been referred for audit.
Following concerns about aggressive ERC marketing from tax professionals and others, the IRS announced Sept. 14 a moratorium on processing new ERC claims. Enhanced compliance reviews of existing claims submitted before the moratorium is critical to protect against fraud and also to protect businesses and organizations from facing penalties or interest payments stemming from bad claims pushed by promoters.
Then, earlier this month, the IRS began sending an initial round of more than 20,000 letters to employers disallowing their ERC claims either because their business did not exist, or they didn't have employees for the period covered by their claim.
As mentioned earlier, the IRS also announced today it has started sending letters to up to 20,000 employers that claimed an erroneous or excessive ERC that propose tax adjustments that will remove the ERC.
In addition to these efforts, IRS audit and Criminal Investigation work involving ERC continues to expand involving dubious claims. The IRS has more than 300 criminal cases being worked with claims worth almost $3 billion, and thousands of ERC claims have been referred for audit.

IRS reminder: Still time to withdraw pending ERC claims

The IRS is also continuing to accept and process requests to withdraw an employer's full ERC claim under the special withdrawal process. Employers have until at least the end of the year to request a withdrawal.

The IRS continues to see a large amount of interest in the withdrawals, with more than $100 million from pending applicants withdrawn by early December. With the announcement of the Voluntary Disclosure Program today, the IRS continues to urge pending applicants to review their claims.

This withdrawal option allows certain employers that filed an ERC claim but have not yet received a refund to withdraw their submission and avoid future repayment, interest and penalties. Employers that submitted an ERC claim that has not yet been paid can withdraw their claim and avoid the possibility of getting a refund for which they're ineligible. They can also withdraw their claim if they've received a check but have not yet deposited or cashed it.

The IRS created the withdrawal option to help small business owners and others who were pressured or misled by ERC marketers or promoters into filing ineligible claims. Claims that are withdrawn will be treated as if they were never filed. The IRS will not impose penalties or interest.

During this period, the IRS warns taxpayers to use extreme caution before applying for the ERC as aggressive maneuvers continue by marketers and scammers. In addition, the IRS continues to urge employers who submitted claims to review the ERC requirements and talk to a trusted tax professional about their eligibility amid misleading marketing around the credit.

When properly claimed, the ERC is a refundable tax credit designed for businesses that continued paying employees during the COVID-19 pandemic while their business operations were either fully or partially suspended due to a government order, or had a decline or significant decline in gross receipts during the eligibility periods.

For more information on ERC eligibility, see the ERC frequently asked questions and the ERC Eligibility Checklist, which is available as an interactive tool or as a printable guide.

Topics

Internal Revenue Service

IRS mailing 20,000 ERC disallowance letters; more action and voluntary disclosure program coming

133345 — Thu, 07 Dec 2023 13:51:38 +0000

IRS mailing 20,000 ERC disallowance letters; more action and voluntary disclosure program coming

Internal Revenue Service Release

133345 Thu, 12/07/2023 - 08:51

December 6, 2023

WASHINGTON — As part of continuing efforts to combat dubious Employee Retention Credit (ERC) claims, the Internal Revenue Service is sending an initial round of more than 20,000 letters to taxpayers notifying them of disallowed ERC claims. IRS is disallowing claims to entities that did not exist or did not have paid employees during the period of eligibility to prevent improper ERC payments from being made to ineligible entities.

The letters are being sent as the IRS continues increased scrutiny of ERC claims in response to misleading marketing campaigns that have targeted small businesses and other organizations. The IRS mailing is the latest in an expanded compliance effort that includes a special withdrawal program for those with pending claims who realize they may have filed an inaccurate tax return. Later this month, a separate voluntary disclosure program will be unveiled allowing those who received questionable payments to come in and avoid future IRS action.

After an initial review this fall, the IRS determined that a large block of taxpayers did not meet basic criteria for the credit. Starting this week, taxpayers who are ineligible for the credit will begin receiving copies of Letter 105 C, Claim Disallowed.

This group of letters will cover taxpayers ineligible for the ERC either because their entity did not exist or did not have employees for the time period when the credit was claimed.

"With the aggressive marketing we saw with this credit, it's not surprising that we're seeing claims that clearly fall outside of the legal requirements," said IRS Commissioner Danny Werfel. "The action we are taking today is part of an initial set of steps in our compliance work in this area, and more letters will be going out in the near future, including both disallowance letters and letters seeking the return of funds erroneously claimed and received."

"As we continue our audit and criminal investigation work involving the Employee Retention Credits, we continue to urge people who submitted a claim to review the rules with a trusted tax professional. If they filed an inaccurate claim, we urge them to consider withdrawing their pending claim or use the upcoming disclosure program to repay improper refunds to avoid future action."

Following concerns about aggressive ERC marketing from tax professionals and others, the IRS announced Sept. 14 a moratorium on processing new ERC claims through at least the end of 2023. The IRS noted that enhanced compliance reviews of existing claims submitted before the moratorium is critical to protect against fraud and also to protect businesses and organizations from facing penalties or interest payments stemming from bad claims pushed by promoters.

When properly claimed, the ERC is a refundable tax credit designed for businesses that continued paying employees during the COVID-19 pandemic while their business operations were either fully or partially suspended due to a government order or had a significant decline in gross receipts during the eligibility periods.

In July, the IRS said it was shifting its focus to review ERC claims for compliance concerns, including intensifying audit work and criminal investigations on promoters and businesses filing dubious claims. The IRS has hundreds of criminal cases being worked, and thousands of ERC claims have been referred for audit.

20,000 letters focus on two ERC problem areas

The mailing reflects just part of the ongoing IRS review of these claims. In this group, two categories of claims have been identified and are being disallowed:

Entity not in existence during period of eligibility: The ERC applies to qualified wages for periods between March 13, 2020, and Dec. 31, 2021. Entities established after Dec. 31, 2021, are not entitled to the ERC under the law passed by Congress.

There are no paid employees during the period of eligibility: The ERC is intended as a credit against qualified wages paid. Entities that did not pay any wages are not eligible for ERC.

The IRS respects taxpayer rights, and the disallowance letter will explain that a taxpayer that disagrees with the disallowance can respond with documentation that supports their eligibility or claim amount, or they can file an administrative appeal.

The disallowance letters that identify ineligible claims before they're paid serve several purposes that help taxpayers and tax administration. They:

Help ineligible taxpayers avoid audits, repayment, penalties and interest,
Protect taxpayers by preventing an incorrect refund from going to an ERC promoter, and
Save IRS resources by disallowing incorrect credits before they enter the audit process.

The IRS plans additional letters beyond the disallowance letters. Plans are also being finalized for a special voluntary disclosure program involving ERC claims that will be announced later this month.

The IRS is also continuing to review ERC claims and may request more information from taxpayers to support their ERC claim.

IRS reminder: Still time to withdraw pending ERC claims

The IRS is also continuing to accept and process requests to withdraw a taxpayer's full ERC claim under the special withdrawal process. Taxpayers have until at least the end of the year to request a withdrawal.

During this period, the IRS warns taxpayers to use extreme caution before applying for the ERC as aggressive maneuvers continue by marketers and scammers. In addition, the IRS continues to urge taxpayers who submitted claims to review the ERC requirements and talk to a trusted tax professional about their eligibility amid misleading marketing around the credit.

For more information on ERC eligibility, see the ERC frequently asked questions and the ERC Eligibility Checklist, which is available as an interactive tool or as a printable guide.

Topics

Internal Revenue Service

IRS announces delay in Form 1099-K reporting changes

133345 — Mon, 27 Nov 2023 14:41:59 +0000

IRS announces delay in Form 1099-K reporting changes

Internal Revenue Service Release

133345 Mon, 11/27/2023 - 09:41

November 27, 2023

WASHINGTON — Following feedback from taxpayers, tax professionals and payment processors and to reduce taxpayer confusion, the Internal Revenue Service today released Notice 2023-74 announcing a delay of the new $600 Form 1099-K reporting threshold for third party settlement organizations for calendar year 2023.

As the IRS continues to work to implement the new law, the agency will treat 2023 as an additional transition year. This will reduce the potential confusion caused by the distribution of an estimated 44 million Forms 1099-K sent to many taxpayers who wouldn't expect one and may not have a tax obligation. As a result, reporting will not be required unless the taxpayer receives over $20,000 and has more than 200 transactions in 2023.

Given the complexity of the new provision, the large number of individual taxpayers affected and the need for stakeholders to have certainty with enough lead time, the IRS is planning for a threshold of $5,000 for tax year 2024 as part of a phase-in to implement the $600 reporting threshold enacted under the American Rescue Plan (ARP).

Following feedback from the tax community, the IRS is also looking to make updates to the Form 1040 and related schedules for 2024 that would make the reporting process easier for taxpayers. Changes to the Form 1040 series – the core tax form for more than 150 million taxpayers – are complex and take time; delaying changes to tax year 2024 allows for additional feedback.

"We spent many months gathering feedback from third party groups and others, and it became increasingly clear we need additional time to effectively implement the new reporting requirements," said IRS Commissioner Danny Werfel. "Taking this phased-in approach is the right thing to do for the purposes of tax administration, and it prevents unnecessary confusion as we continue to look at changes to the Form 1040. It's clear that an additional delay for tax year 2023 will avoid problems for taxpayers, tax professionals and others in this area."

The ARP required third party settlement organizations (TPSOs), which include popular payment apps and online marketplaces, to report payments of more than $600 for the sale of goods and services on a Form 1099-K starting in 2022. These forms would go to the IRS and to taxpayers and would help taxpayers fill out their tax returns. Before the ARP, the reporting requirement applied only to the sale of goods and services involving more than 200 transactions per year totaling over $20,000.

The IRS temporarily delayed the new requirement last year.

Reporting requirements do not apply to personal transactions such as birthday or holiday gifts, sharing the cost of a car ride or meal, or paying a family member or another for a household bill. These payments are not taxable and should not be reported on Form 1099-K.

However, the casual sale of goods and services, including selling used personal items like clothing, furniture and other household items for a loss, could generate a Form 1099-K for many people, even if the seller has no tax liability from those sales.

This complexity in distinguishing between these types of transactions factored into the IRS decision to delay the reporting requirements an additional year and to plan for a threshold of $5,000 for 2024 in order to phase in implementation. The IRS invites feedback on the threshold of $5,000 for tax year 2024 and other elements of the reporting requirement, including how best to focus reporting on taxable transactions.

"The IRS will use this additional time to continue carefully crafting a way forward to minimize burden," Werfel said. "We want to make this as easy as possible for taxpayers. We will work to make the new reporting requirements easier for them, and we'll work closely with third party groups, tax professionals and others to find the smoothest path to ensure compliance with the law. This is consistent with our Strategic Operating Plan. The IRS is focused on meeting taxpayers where they are and helping them get it right the first time."

Expanded information reporting, which will occur as the result of the change in thresholds for Form 1099-K, is important because it increases tax compliance and can reduce burden on taxpayers seeking to follow the law. The IRS believes that expansion must be managed carefully to help ensure that Forms 1099-K are issued only to taxpayers who should receive them. In addition, it's important that taxpayers understand what to do as a result of this reporting, and that tax professionals and software providers have the information they need to assist taxpayers.

The IRS will continue to provide information on IRS.gov/1099k.

What this means

This means that for 2023 and prior years, payment apps and online marketplaces are only required to send out Forms 1099-K to taxpayers who receive over $20,000 and have over 200 transactions. For tax year 2024, the IRS plans for a threshold of $5,000 to phase in reporting requirements.

This phased-in approach will allow the agency to review its operational processes to better address taxpayer and stakeholder concerns.

Taxpayers should be aware that while the reporting threshold remains over $20,000 and 200 transactions for 2023, companies could still issue the form for any amount.

It's important to note that the higher threshold does not affect the actual tax law to report income on your tax return. All income, no matter the amount, is taxable unless it's excluded by law whether a Form 1099-K is sent or not.

Who gets the form

The Form 1099-K could be sent to anyone who's using payment apps or online marketplaces to accept payments for selling goods or providing services. This includes people with side hustles, small businesses, crafters and other sole proprietors.

However, it could also include casual sellers who sold personal stuff like clothing, furniture and other household items that they paid more than they sold it for. Selling items at a loss is not actually taxable income but would have generated many Forms 1099-K for many people with the $600 threshold.

This complexity contributed to the IRS decision to delay the additional year to provide the agency time to update its operations to make it easier for taxpayers to report the amounts on their forms.

What to do

The IRS Understanding your Form 1099-K webpage provides resources for taxpayers who receive a 1099-K, including what to do with a Form 1099-K and what to do if you get a Form 1099-K in error.

Taxpayers who receive a Form 1099-K should review the forms, determine if the amount is correct, and determine any deductible expenses associated with the payment they may be able to claim when they file their taxes.

The payment on a Form 1099-K may be reported in different places on your tax return depending on what kind of payment it is. For example, someone who is getting paid as a ride share driver could report it on a Schedule C.

People who sold personal items must determine if the amounts on their forms were losses or gains. If taxpayers are unsure of the original price, they can learn more on how to figure out the items worth and how to establish basis.

Selling personal items at a loss

If taxpayers sold at a loss, which means they paid more for the items than they sold them for, they'll be able to zero out the payment on their tax return by reporting both the payment and an offsetting adjustment on a Form 1040, Schedule 1. This will ensure people who unnecessarily get these forms don't have to pay taxes they don't owe.

If you sold personal items at a loss, you have 2 options to report the loss:

Report on Schedule 1 (Form 1040)

You can report and then zero out the Form 1099-K gross payment amount on Schedule 1 (Form 1040), Additional Income and Adjustments to Income.

Example: You receive a Form 1099-K that includes the sale of your car online for $21,000, which is less than you paid for it.

On Schedule 1 (Form 1040):

Enter the Form 1099-K gross payment amount (Box 1a) on Part I – Line 8z – Other Income: "Form 1099-K Personal Item Sold at a Loss, $21,000"
Offset the Form 1099-K gross payment amount (Box 1a) on Part II – Line 24z – Other Adjustments: "Form 1099-K Personal Item Sold at a Loss $21,000"

These 2 entries result in a $0 net effect on your adjusted gross income (AGI).

Report on Form 8949

You can also report the loss on Form 8949, Sales and Other Dispositions of Capital Assets, which carries to Schedule D, Capital Gains and Losses.

Selling personal items at a gain

If they were sold at a gain, which means they paid less than they sold it for, they will have to report that gain as income, and it's taxable.

If you receive a Form 1099-K for a personal item sold at a gain, report it on both:

What should not be reported

Reporting is not required for personal transactions such as birthday or holiday gifts, sharing the cost of a car ride or meal, or paying a family member or another for a household bill. These payments are not taxable and should not be reported on Form 1099-K.

Additional information and resources

The IRS provides comprehensive information on the Understanding your Form 1099-K webpage that includes more details on receiving and reporting Forms 1099-K to help taxpayers navigate this complicated issue. In addition, the IRS will continue to update its communications, providing additional details soon.

Topics

Internal Revenue Service

IRS announces withdrawal process for Employee Retention Credit claims

133345 — Thu, 19 Oct 2023 13:36:40 +0000

IRS announces withdrawal process for Employee Retention Credit claims

Internal Revenue Service Release

133345 Thu, 10/19/2023 - 09:36

October 19, 2023

WASHINGTON – As part of a larger effort to protect small businesses and organizations from scams, the Internal Revenue Service today announced the details of a special withdrawal process to help those who filed an Employee Retention Credit (ERC) claim and are concerned about its accuracy.

This new withdrawal option allows certain employers that filed an ERC claim but have not yet received a refund to withdraw their submission and avoid future repayment, interest and penalties. Employers that submitted an ERC claim that’s still being processed can withdraw their claim and avoid the possibility of getting a refund for which they’re ineligible.

Those who willfully filed a fraudulent claim, or those who assisted or conspired in such conduct, should be aware that withdrawing a fraudulent claim will not exempt them from potential criminal investigation and prosecution.

“The IRS is committed to helping small businesses and others caught up in this onslaught of Employee Retention Credit marketing,” said IRS Commissioner Danny Werfel. “The aggressive marketing of these schemes has harmed well-meaning businesses and organizations, and some are having second thoughts about their claims. We want to give these taxpayers a way out. The withdrawal option allows employers with pending claims to avoid future problems, and we encourage them to closely review the withdrawal option and the requirements. We continue to urge taxpayers to consult with a trusted tax professional rather than a marketing company about this complex tax credit.”

When properly claimed, the ERC – also referred to as the Employee Retention Tax Credit or ERTC – is a refundable tax credit designed for businesses that continued paying employees during the COVID-19 pandemic while their business operations were fully or partially suspended due to a government order, or they had a significant decline in gross receipts during the eligibility periods. The credit is not available to individuals.

The ERC is a complex credit with precise requirements to help businesses during the pandemic, and since mid-September, the IRS has received approximately 3.6 million claims for the credit over the course of the program.

The new withdrawal process follows the Sept. 14 announcement of an immediate moratorium on processing new ERC claims. The moratorium, which will last until at least the end of this year, follows a flood of ineligible ERC claims. Payouts for claims submitted before Sept. 14 will continue during the moratorium period but at a slower pace due to more detailed compliance reviews. With stricter compliance reviews in place, existing ERC claims will go from a standard processing goal of 90 days to 180 days – and much longer if the claim faces further review or audit. The IRS may also seek additional documentation from the taxpayer to ensure the claim is legitimate.

Enhanced compliance reviews of existing claims submitted before the moratorium is critical to protect against fraud but also to protect businesses and organizations from facing penalties or interest payments stemming from bad claims pushed by promoters.

The IRS continues to warn taxpayers to use extreme caution before applying for the ERC as aggressive maneuvers continue by marketers and scammers.

The IRS is also working on guidance to help employers that were misled into claiming the ERC and have already received the payment. More details will be available this fall.

Who can ask to withdraw an ERC claim

Employers can use the ERC claim withdrawal process if of all the following apply:

They made the claim on an adjusted employment return (Forms 941-X, 943-X, 944-X, CT-1X).
They filed the adjusted return only to claim the ERC, and they made no other adjustments.
They want to withdraw the entire amount of their ERC claim.
The IRS has not paid their claim, or the IRS has paid the claim, but they haven’t cashed or deposited the refund check.

Taxpayers who are not eligible to use the withdrawal process can reduce or eliminate their ERC claim by filing an amended return. For details, see the Correcting an ERC claim – Amending a return section of the frequently asked questions about the ERC.

How to withdraw an ERC claim

To take advantage of the claim withdrawal procedure, taxpayers should carefully follow the special instructions at IRS.gov/withdrawmyERC, summarized below.

Taxpayers whose professional payroll company filed their ERC claim should consult with the payroll company. The payroll company may need to submit the withdrawal request for the taxpayer, depending on whether the taxpayer’s ERC claim was filed individually or batched with others.
Taxpayers who filed their ERC claims themselves, haven’t received, cashed or deposited a refund check and have not been notified their claim is under audit should fax withdrawal requests to the IRS. The IRS has set up a special fax line to receive withdrawal requests. This enables the agency to stop processing before the refund is approved. Taxpayers who are unable to fax their withdrawal can mail their request, but this will take longer for the IRS to receive.
Employers who have been notified they are under audit can send the withdrawal request to the assigned examiner or respond to the audit notice if no examiner has been assigned.

Those who received a refund check, but haven’t cashed or deposited it, can still withdraw their claim. They should mail the voided check with their withdrawal request using the instructions at IRS.gov/withdrawmyERC.

Upcoming webinar and other resources for help

Tax professionals and others can register for a Nov. 2 IRS webinar, Employee Retention Credit: Latest information on the moratorium and options for withdrawing or correcting previously filed claims. Those who can’t attend can view a recording later.

The IRS unveiled a new question and answer checklist last month to help taxpayers understand if they’re eligible for the credit. Since then, the IRS evolved the checklist into an interactive IRS.gov feature to help employers – and the tax professionals working with them – check potential ERC eligibility.

The IRS also continues to encourage employers to seek out a trusted tax professional who understands the complex ERC rules, not a promoter or marketer trying to get a hefty contingency fee while taking advantage of honest taxpayers.

New approach from scammers

Marketers and scammers have already revised their ERC pitches following the Sept. 14 moratorium announcement. Some are pushing employers who submit an ERC claim into agreeing to costly up-front loans in anticipation of a refund. The IRS urges taxpayers to avoid these loans and also learn the warning signs of ERC scams.

Topics

Internal Revenue Service

AICPA requests IRS contingency plan in the event of a government shutdown

133345 — Thu, 28 Sep 2023 21:06:09 +0000

AICPA requests IRS contingency plan in the event of a government shutdown

AICPA Release

133345 Thu, 09/28/2023 - 17:06

September 28, 2023

WASHINGTON, D.C. – The American Institute of CPAs (AICPA) submitted a letter to the Department of the Treasury, the Internal Revenue Service (IRS) and Congressional leadership requesting the release of the IRS contingency plan that would go into effect in the event of a government shutdown on October 1, 2023. Additionally, the AICPA has urged the IRS to base any decision to furlough employees on a broader interpretation of the Office of Management and Budget guidance to include not only the government’s safety of human life and protection of property, but also for the taxpayer, thereby excepting IRS employees.

“We believe that tax practitioners, a critical stakeholder and partner with the IRS, should have the opportunity to provide feedback on, as well as prepare for, the IRS’s plan, and possibly advise their clients on potential consequences of a shutdown,” the letter says.

The letter goes on to express concern that an October shutdown of the government will likely impact the timely processing of extended 2022 tax returns due by Oct 16, 2023, tax-exempt organization returns due November 15, 2023, and expatriate tax returns due December 15, 2023, as has happened with previous government shutdowns.

“We are deeply concerned that a government shutdown with the IRS operating at only a fraction of what is deemed to be its essential workforce would result in a huge strain on taxpayers and practitioners,” says the letter, highlighting the various impacts that a drastically reduced workforce would have on taxpayers and practitioners.

“We recognize that processing of tax returns and collection of money is a critical government function that should continue regardless of a government shutdown. Therefore, at a minimum, taxpayers should have recourse to protect their rights and property. The IRS keeping more essential positions working during the shutdown would help make the 2023 extended filing season operate as smoothly as possible and allow for a smooth start to the 2024 filing season,” the letter notes in closing.

The full text appears below.

Topics

AICPA

Internal Revenue Service

To protect taxpayers from scams, IRS orders immediate stop to new Employee Retention Credit processing amid surge of questionable claims; concerns from tax pros

133345 — Fri, 15 Sep 2023 13:55:11 +0000

To protect taxpayers from scams, IRS orders immediate stop to new Employee Retention Credit processing amid surge of questionable claims; concerns from tax pros

Internal Revenue Service Release

133345 Fri, 09/15/2023 - 09:55

September 14, 2023

Moratorium on processing of new claims through year's end will allow IRS to add more safeguards to prevent future abuse, protect businesses from predatory tactics; IRS working with Justice Department to pursue fraud fueled by aggressive marketing

WASHINGTON — Amid rising concerns about a flood of improper Employee Retention Credit claims, the Internal Revenue Service today announced an immediate moratorium through at least the end of the year on processing new claims for the pandemic-era relief program to protect honest small business owners from scams.

IRS Commissioner Danny Werfel ordered the immediate moratorium, beginning today, to run through at least Dec. 31 following growing concerns inside the tax agency, from tax professionals as well as media reports that a substantial share of new claims from the aging program are ineligible and increasingly putting businesses at financial risk by being pressured and scammed by aggressive promoters and marketing.

The IRS continues to work previously filed Employee Retention Credit (ERC) claims received prior to the moratorium but renewed a reminder that increased fraud concerns means processing times will be longer. On July 26, the agency announced it was increasingly shifting its focus to review these claims for compliance concerns, including intensifying audit work and criminal investigations on promoters and businesses filing dubious claims. The IRS announced today that hundreds of criminal cases are being worked, and thousands of ERC claims have been referred for audit.

The IRS emphasizes that payouts for these claims will continue during the moratorium period but at a slower pace due to the detailed compliance reviews. With the stricter compliance reviews in place during this period, existing ERC claims will go from a standard processing goal of 90 days to 180 days – and much longer if the claim faces further review or audit. The IRS may also seek additional documentation from the taxpayer to ensure it is a legitimate claim.

This enhanced compliance review of existing claims submitted before the moratorium is critical to protect against fraud but also to protect the businesses from facing penalties or interest payments stemming from bad claims pushed by promoters, Werfel said.

"The IRS is increasingly alarmed about honest small business owners being scammed by unscrupulous actors, and we could no longer tolerate growing evidence of questionable claims pouring in," Werfel said. "The further we get from the pandemic, the further we see the good intentions of this important program abused. The continued aggressive marketing of these schemes is harming well-meaning businesses and delaying the payment of legitimate claims, which makes it harder to run the rest of the tax system. This harms all taxpayers, not just ERC applicants."

"For those people being pressured by promoters to apply for the Employee Retention Credit, I urge them to immediately pause and review their situation while we look to add new protections and safeguards to stop bad claims from ever coming in," Werfel said. "In the meantime, businesses should seek out a trusted tax professional who actually understands the complex ERC rules, not a promoter or marketer hustling to get a hefty contingency fee. Businesses that receive ERC payments improperly face the daunting prospect of paying those back, so we urge the utmost caution. The moratorium will help protect taxpayers by adding a new safety net onto this program to focus on fraudulent claims and scammers taking advantage of honest taxpayers."

Taxpayers are encouraged to review IRS guidance and tools for helping determine ERC eligibility, including frequently asked questions and a new question and answer guide released today to help businesses understand if they are actually eligible for the credit.

The IRS is developing new initiatives to help businesses who found themselves victims of aggressive promoters. This includes a settlement program for repayments for those who received an improper ERC payment; more details will be available this fall.

In addition, the IRS is finalizing details that will be available soon for a special withdrawal option for those who have filed an ERC claim but the claim has not been processed. This option – which can be used by taxpayers whose claim hasn't yet been paid– will allow the taxpayers, many of them small businesses who were misled by promoters, to avoid possible repayment issues and paying promoters contingency fees. Filers of these more than 600,000 claims awaiting processing will have this option available. Those who have willfully filed fraudulent claims or conspired to do so should be aware, however, that withdrawing a fraudulent claim will not exempt them from potential criminal investigation and prosecution.

As part of the wider compliance effort, the IRS is working with the Justice Department to address fraud in the ERC program as well as promoters who have been ignoring the rules and pushing businesses to apply.

The IRS has trained auditors examining ERC claims posing the greatest risk, and the IRS Criminal Investigation division is actively working to identify fraud and promoters of fraudulent claims for potential referral for prosecution to the Justice Department.

IRS Criminal Investigation (IRS-CI) investigates a variety of COVID fraud allegations ranging from fraudulently obtained employee refund tax credits to falsified Paycheck Protection Program loans. To date, IRS-CI has uncovered suspected pandemic fraud totaling more than $8 billion. As of July 31, 2023, IRS-CI has initiated 252 investigations involving over $2.8 billion of potentially fraudulent Employee Retention Credit claims. Of those, fifteen of the 252 investigations have resulted in federal charges. Of the 15 federally charged cases, so far six matters have resulted in convictions, four of those cases have reached the sentencing phase with the average sentence being 21 months.

Criminal Investigation's work is in addition to ERC audits that have started. The IRS has already referred thousands of ERC cases for audit.

ERC: A complex credit designed to help during the pandemic; taxpayer risk growing amid aggressive marketing and potential to have to repay improper claims

When properly claimed, the ERC – also referred to as the Employee Retention Tax Credit or ERTC -- is a refundable tax credit designed for businesses that continued paying employees during the COVID-19 pandemic while their business operations were fully or partially suspended due to a government order or they had a significant decline in gross receipts during the eligibility periods. The credit is not available to individuals.

The ERC is a complex claim with precise requirements to help businesses during the pandemic, and the IRS has received approximately 3.6 million of these claims over the course of the program.

"As we move nearly two years beyond the 2021 eligibility date for the program and beyond the end of the pandemic, the reality that we're seeing and hearing from tax professionals and others is that many of the affected businesses have already come in," Werfel said. "This means we must increase our safeguards to protect against fraud and revenue loss."

Although promoters advertise that ERC submissions are "risk free," there are significant risks facing businesses as the IRS increases its audit and criminal investigation work.

The IRS reminds anyone who improperly claims the ERC that they must pay it back, possibly with penalties and interest. A business or tax-exempt group could find itself in a much worse financial position if it has to pay back the credit than if the credit was never claimed in the first place. This underscores the importance of taxpayers taking precautionary steps to independently verify their eligibility to receive the credit before applying through a promoter. Taxpayers should take particular precautions because a promoter can collect a contingency fee of up to 25% of the ERC refund.

Advice for taxpayers: What to do as IRS works to help businesses facing questionable ERC claims

As the IRS continues working additional details on ERC, there are several steps that the agency recommends for businesses, depending on where they are in the process:

For those currently awaiting an ERC claim. For those who currently have an ERC claim on file, the IRS will continue processing these claims during the moratorium period but at a greatly reduced speed due to the complex nature of these filings and the need to protect businesses from being improperly paid. Normal processing times could easily stretch to 180 days or longer. The IRS cautions that many applications will be facing additional compliance scrutiny, which means the payments could take even longer to be processed. While the IRS works on compliance measures during this period, the agency cautions businesses to expect extended wait times due to the large volume of claims and the complexity of the applications.

Due to the large volumes and the need for compliance checks to protect against fraud, the IRS is unable to expedite individual claims. The IRS believes many of the applications currently filed are likely ineligible, and tax professionals note anecdotally that they are seeing instances where 95 percent or more of claims coming in recent months are ineligible as promoters continue to aggressively push people to apply regardless of the rules.

For those currently with a pending application at the IRS, they should review the options below to see if any of those could help with their current situation.

For those who haven't filed a claim yet, consider reviewing the guidelines and waiting to file: For those considering filing a claim, the IRS urges businesses to carefully review the ERC guidelines during the processing moratorium period. The IRS urges businesses to talk to a trusted tax professional – not a tax promoter or marketing firm looking to make money generating applications that takes a big chunk out of the ERC claim. The new question and answer guide can also help. A careful review of the rules will show that many of these businesses do not qualify for the ERC, and avoiding a bad claim will avoid complications with the IRS.
Withdraw an existing claim for businesses that have already filed: For those who have filed and have a pending claim, they should carefully review the program guidelines with a trusted tax professional and check the new question and answer guide. For example, the IRS is seeing repeated instances of people improperly citing supply chain issues as a basis for an ERC claim when a business with those issues will very rarely meet the eligibility criteria. Under any scenario, if a business claimed the ERC earlier and the claim has not been processed or paid by the IRS, they can withdraw the claim if they now believe it was submitted improperly – even if their case is already under audit or awaiting audit. More details will be available shortly.
Wait for the IRS ERC settlement program to be finalized: If a business has already received an ERC that they now believe is in error, the IRS will be providing additional details on the settlement program in the fall that will allow businesses to repay ERC claims. The settlement program will allow the businesses to avoid penalties and future compliance action. The IRS is continuing to assess options on how to deal with businesses that had a promoter contingency fee paid for out of the ERC payment.

Warning flags to watch out for; help for properly claiming the ERC

The IRS has a list of red flags to watch out for aggressive marketing and questionable ERC claims.

The ERC is an incredibly complex credit, and there are very specific eligibility requirements for claiming the ERC. Employers can claim the ERC on an original or amended employment tax return for qualified wages paid between March 13, 2020, and Dec. 31, 2021. However, to be eligible, employers must have:

Sustained a full or partial suspension of operations due to orders from an appropriate governmental authority limiting commerce, travel or group meetings because of COVID-19 during 2020 or the first three quarters of 2021,
Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021, or
Qualified as a recovery startup business for the third or fourth quarters of 2021.

More information is available on IRS.gov/erc.

Topics

Internal Revenue Service

FICPA requests IRS extend relief to Brevard, Orange and Osceola counties

133345 — Tue, 05 Sep 2023 12:54:37 +0000

FICPA requests IRS extend relief to Brevard, Orange and Osceola counties

By FICPA Staff

133345 Tue, 09/05/2023 - 08:54

September 5, 2023

The FICPA on Friday sent a letter to Internal Revenue Service and its Small Business Self-Employed Division thanking the IRS for granting relief to Florida counties impacted by Hurricane Idalia and requesting that the IRS clarify which counties are covered under the extension.

Specifically, three Florida counties - Brevard, Orange and Osceola - were included in FEMA's Florida Disaster Declaration on Aug. 30 but were not included in the IRS' list of counties being granted extensions through Feb. 15.

Our letter requests that the IRS update its communications as soon as possible to include Brevard, Orange and Osceola.

The FICPA will advise its members living or working in these areas of any updates or corrections.

The full letter appears below.

Topics

Idalia Updates

FICPA Disaster Resources

Internal Revenue Service