For 2024, the Social Security wage cap will be $168,600, and social security and Supplemental Security Income (SSI) benefits will increase by 3.2 percent. These changes reflect cost-of-living adjustments to account for inflation.

The IRS announced tax relief for individuals and businesses affected by terrorist attacks in the State of Israel. The IRS would continue to monitor events and may provide additional relief.

The IRS announced tax relief for individuals and businesses affected by terrorist attacks in the State of Israel. The IRS would continue to monitor events and may provide additional relief.

Filing and Payment Deadlines Extended

The IRS extended certain deadlines that occurred or would occur during the period from October 7, 2023, through October 7, 2024. As a result, affected individuals and businesses would have until October 7, 2024, to file returns and pay any taxes that were originally due during this period. This extension includes filing for most returns, including:

• individuals who had a valid extension to file their 2022 return due to run out on October 16, 2023. However, because tax payments related to these 2022 returns were due on April 18, 2023, those payments were not eligible for this relief. So, these individuals filing on extension have more time to file, but not to pay;
• calendar-year corporations whose 2022 extensions run out on October 16, 2023. Similarly, these corporations have more time to file, but not to pay;
• 2023 individual and business returns and payments normally due on March 15 and April 15, 2024. These individuals and businesses have both more time to file and more time to pay;
• quarterly estimated income tax payments normally due on January 16, April 15, June 17 and September 16, 2024;
• quarterly payroll and excise tax returns normally due on October 31, 2023, and January 31, April 30 and July 31, 2024;
• calendar-year tax-exempt organizations whose extensions run out on November 15, 2023; and
• retirement plan contributions and rollovers.

The penalty for failure to make payroll and excise tax deposits due on or after October 7, 2023 and before November 6, 2023, would be abated. But the deposits must be made by November 6, 2023.

Notice 2023-71

IR-2023-188

The Internal Revenue Service could release as soon as today the process that businesses can use to withdraw employee retention credit claims.

The Internal Revenue Service could release as soon as today the process that businesses can use to withdraw employee retention credit claims.

The move comes in the wake of the agency announcing that it is halting the processing of new ERC claims until at least the beginning of 2024 and scrutinizing existing claims due to the prevalence of suspected fraudulent claims following a spike in claims in 2023 coupled with the saturation marketing by so-called ERC mills. Thus far, the IRS closer examination of claims has led to thousands already being submitted for auditing.

As part of the heightened scrutiny of claims, the IRS said it would create a process by which businesses would have the ability to withdraw claims before they are processed if they do a more thorough review and determine the claim is not actually a valid claim for the credit that was created as part of the CARES Act to help businesses that may have lost income retain employees during the COVID-19 pandemic.

"I learned this morning that there is going to be an announcement tomorrow [October 19, 2023] on the withdrawal process initiative that the Service is going to be initiating," Linda Azmon, special counsel at the IRS’s Tax Exempt and Government Entities Division, said October 18, 2023, during a session of the American Bar Association’s Virtual 2023 Fall Tax Meeting.

Azmon said that "taxpayers who have not received their claims for refund will be entitled to participate in this process," adding that there is "going to be specific procedures that taxpayers can follow to request their withdrawal of their claims for refund."

She did not provide any specific information on what the process entails, but noted that requesting a withdrawal "means that a taxpayer is requesting that the amended return not be processed at all. And it’s going to be required that the complete return be withdrawn." This is limited to taxpayers who have not had their claim processed, have not received their check or who have the check but have not yet cashed it.

One of the reasons a taxpayer may want to withdraw a claim is "taxpayers have been advised that the only way the Service can recapture claims for refund is through the erroneous refund procedures," she said. "That usually means the service asks for the funds back and if they don’t receive it, the Service asks [the] Department of Justice to bring suit within two years of the payment."

But Azmon points out that taxpayers being told this are being given information that is not entirely correct, as the agency has issued final regulations that allow the IRS to treat an erroneous refund as an underpayment of tax subject to the regular assessment and administrative collections procedures.

"This is a way for the service to recover funds that a taxpayer should have received in an efficient way without the cost of litigation," she said. "And it still provides the administrative processing rights for taxpayers to dispute their claims" without the cost of litigation.

By Gregory Twachtman, Washington News Editor

The Internal Revenue Service detailed how it is proceeding with a pilot program that will allow taxpayers to file their taxes directly on the IRS website as an option along with doing an electronic file or working through a tax professional or other third-party tax preparer.

The IRS released substantial new guidance regarding the new clean vehicle credit and the used clean vehicle credit. The guidance updates procedures for manufacturer, dealer and seller registrations and written reports; and provides detailed rules for a taxpayer’s election to transfer a credit to the dealer after 2023. The guidance includes:

The IRS released substantial new guidance regarding the new clean vehicle credit and the used clean vehicle credit. The guidance updates procedures for manufacturer, dealer and seller registrations and written reports; and provides detailed rules for a taxpayer’s election to transfer a credit to the dealer after 2023. The guidance includes:

• -- Rev. Proc. 2023-33, which is scheduled to be published on October 23, 2023, in I.R.B. 2023-43;
• -- NPRM REG-113064-23, which is scheduled to published in the Federal Register on October 10, 2023; and
• -- IRS Fact Sheet FS-2023-22, which updates the IRS Frequently Asked Questions (FAQs) for the clean vehicle credits.

The proposed regs are generally proposed to apply to tax years beginning after they are published in the Federal Register. However, the proposed regs for transferring credits to dealers are proposed to apply beginning on January 1, 2024, which is when the transfer election becomes available. Proposed regs for treating the omission of a correct vehicle identification number (VIN) as a mathematical or clerical error would also apply to the Code Sec. 45W clean commercial vehicle credit. They are proposed to apply to tax years beginning after December 31, 2023.

Comments are requested. Rev. Proc. 2022-42 is superseded in part.

Proposed Regs for the Clean Vehicle Credits

For purposes of the new clean vehicle credit, the used clean vehicle credit, and the commercial clean vehicle credit, the proposed regs would treat a taxpayer as having omitted the required correct vehicle identification number (VIN) for the vehicle if the VIN is missing from the taxpayer’s return or the number reported on the return is an invalid VIN. An invalid VIN is a number that does not match any existing VIN reported by a qualified manufacturer. A taxpayer would also be treated as omitting the VIN if the provided VIN is not for a qualified vehicle for the year the credit is claimed.

With respect to the new clean vehicle credit and the used clean vehicle credit, the proposed regs would clarify that taxpayer must file an income tax return for the year the clean vehicle is placed in service, including a Form 8936, Clean Vehicle Credits. The taxpayer is treated as having omitted the vehicle’s correct VIN if the VIN on the taxpayer’s return does not match the VIN in the seller’s report. In addition, a dealer under the proposed regs would not include persons licensed solely by a U.S. territory. To facilitate direct-to-consumer sales, a dealer generally could make sales outside the jurisdiction where it is licensed; however, it could not make sales at sites outside its own jurisdiction.

New Rules for Used Clean Vehicle Credit

The proposed regs would clarify that a vehicle’s eligibility for the used vehicle credit is not affected by a title that indicates it has been damaged or an otherwise a branded title. In addition, the used vehicle credit could not be divided among multiple owners of a single vehicle. With respect to the MAGI limit for eligible taxpayers, if the taxpayer's filing status for the tax year differs from the taxpayer's filing status in the preceding tax year, the taxpayer would satisfy the limit if MAGI does not exceed the threshold amount in either year based on the applicable filing status for that tax year. These last two rules are consistent with earlier proposed regs for the new clean vehicle credit.

The proposed regs would provide a first transfer rule, under which a qualified sale must be the first transfer of the previously-owned clean vehicle since August 16, 2022, as shown by the vehicle history of such vehicle, after the sale to the original owner. The rule would ignore transfers between dealers. The taxpayer generally could rely on the dealer’s representation of the vehicle history; however, taxpayers would also be encouraged to independently examine the vehicle history to confirm whether the first transfer rule is satisfied.

Under the proposed regs, a used vehicle’s sale price would include delivery charges, as well as fees and charges imposed by the dealer. The sale price it would not include separately-stated taxes and fees required by law, separate financing, extended warranties, insurance or maintenance service charges.

Cancellation of Sale, Return of Clean Vehicle, and Resale of Clean Vehicle

The proposed regs would clarify that a taxpayer cannot claim a clean vehicle credit if the sale is canceled before the taxpayer places th vehicle in service (that is, before the taxpayer takes delivery). The credits also would not be available if the taxpayer returns the vehicle within 30 days after placing it in service. A returned new clean vehicle would no longer qualify as a new clean vehicle. However, a returned used clean vehicle could continue to qualify for the credit if the vehicle history does not reflect the sale and return. A vehicle’s return would nullify any election the taxpayer made to transfer the credit for the vehicle.

Under the proposed regs, a taxpayer acquires a clean vehicle for resale if the resale occurs withing 30 days after the taxpayer places the vehicle in service. The resold vehicle would not qualify for either credit. If the taxpayer elected to transfer the credit, the election remains valid after the resale; thus, the credit is recaptured from the taxpayer, not from the dealer.

Taxpayers returning or reselling a clean vehicle more than 30 days after the date the taxpayer placed it in service would generally remain eligible for the applicable clean vehicle credit for purchasing the vehicle. Any election to transfer the taxpayer’s credit to the dealer also remains in effect. The returned or resold vehicle would not remain eligible for either credit. However, the IRS could disallow the credit if, based on the facts and circumstances, it determines that the taxpayer purchased the vehicle with the intent to resell or return it

Taxpayer's Election to Transfer Clean Vehicle Credit to Dealer

A taxpayer that elects to transfer a credit to a registered dealer must transfer the entire amount of the allowable credit. Each taxpayer may transfer a total of two credits per year (either two new clean vehicle credits, or one new clean vehicle credit and one used clean vehicle credit). This is the case even if married taxpayers file a joint return. A transfer election is irrevocable.

Under the proposed regs, the amount of a clean vehicle credit an electing taxpayer could transfer could exceed the electing taxpayer’s regular tax liability; and the amount of a transferred credit would not be subject to recapture merely because it exceeds the taxpayer’s tax liability. The dealer’s payment for the transferred credit, whether in cash or as a partial payment or down payment for the vehicle, is not includible in the electing taxpayer’s gross income. To ensure that the credit properly reduces the taxpayer’s basis in the vehicle, the electing taxpayer is treated as repaying the payment to the dealer as part of the purchase price of the vehicle.

Both the electing taxpayer and the dealer must make detailed disclosures and attestations. Some of these disclosures must be made to the other party, and some must be made through the IRS Energy Credits Online Portal. All must be made no later than the time of the sale. A taxpayer cannot transfer any portion of the new clean vehicle credit that is treated as part of the general business credit.

A seller or a registered dealer must retain records of transferred credits for at least three years after the taxpayer makes the credit transfer election or a seller files its report for the sale.

Manufacturer, Dealer and Seller Registration and Report Requirements

Clean vehicle manufacturers, sellers and dealers must register through an IRS Energy Credits Online Portal that should be available on the IRS website later this month. A representative of the manufacturer, seller or dealer will have to create or sign into an account on irs.gov. Registration help is available at www.irs.gov/registerhelp. Manufacturers, sellers and dealers may check IRS.gov/cleanvehicles for updates.

Taxpayers and sellers may rely on information and certifications by a qualified manufacturer providing that a vehicle is eligible for the new clean vehicle credit or the used clean vehicle credit. However, this reliance is limited to information regarding the vehicle’s eligibility for the applicable credit.

Rev. Proc. 2023-33 details the required registration information for sellers and dealers. The IRS will confirm the information or notify the seller or dealer that it has been unable to do so. If the IRS accepts a dealer registration, it will issue a unique dealer identification number. If the IRS rejects the registration, the dealer may request administrative review.

s for a qualified manufacturer’s written agreement with and a dealer’s written reports to the IRS before January 1, 2024, manufacturers and sellers may still use the procedures described in Rev. Proc. 2022-42. However, as of January 1, 2024, qualified manufacturers must have entered into written agreements with the IRS via the IRS Energy Credits Online Portal, even if they previously registered and filed written agreements under Rev. Proc. 2022-42. Also as of January 1, 2024, qualified manufacturers and sellers must use the Portal to file their required reports to the IRS.

A seller must file its report within three calendar days of the sale, and provide a copy to the taxpayer within another three days. If the information in the report does not match information in IRS records, the IRS may reject the report and notify the seller. The seller must notify the buyer within three calendar days. If the IRS rejects a seller report, a dealer will not be eligible for advance credit payments. A seller must also use the Portal to update or rescind information for a scrivener’s error or the cancellation of a sale as promptly as possible (the seller must also file a new report noting the return of a vehicle). The seller must notify the buyer within three calendar days and provide a copy of the updated or rescinded report.

Advance Credit Payments to Dealers

When a buyer elects to transfer a clean vehicle credit to a dealer, the advance credit program allows the dealer to receive payment of the credit before the dealer files its tax return. The proposed regs would clarify that the advance payments are not included in the dealer’s income and they may exceed the dealer’s tax liability. The dealer cannot deduct the payment made to the electing taxpayer. The advance payment is included in the amount realized by the dealer on the sale of the clean vehicle. If the dealer is a partnership or an S corporation, the advance payment is not treated as exempt income.

To receive advance credit payments, the registered dealer must be an eligible entity under the proposed regs. An eligible entity is a registered dealer that submits additional registration information and is in dealer tax compliance. The IRS will conduct dealer tax compliance checks before disbursing an advance credit payment, and also on a continuing and regular basis.

Dealer tax compliance means that, for all tax periods during the most recent five tax years, the dealer has filed all of its required federal information and tax returns, including for federal income and employment tax; and paid all federal tax, penalties, and interest due at the time of sale (or is current on its obligations under any installment agreement with the IRS). The dealer must also retain information related to the vehicle sale or credit transfer for at least three years. A dealer that does not satisfy this test may still be a registered dealer, but it cannot be an eligible entity until the tax compliance issue is resolved.

The dealer that receives the transferred credit must provide the qualified vehicle’s VIN, the seller report, and the required taxpayer disclosure information through the IRS Energy Credits Online Portal. The IRS will disburse advance payments of the credits only through electronic payments; it will not issue any paper checks.

The IRS may suspend a registered dealer’s eligibility to participate in the advance payment program for sever reasons, including the provision of inaccurate information regarding eligible for the credit; failure to satisfy dealer tax compliance requirements; and failure to properly use the IRS Energy Credits Online Portal. The IRS will notify the dealer of its suspension, and give the dealer an opportunity correct the errors. If a suspended dealer does not correct the errors withing one year, the IRS will revoke its registration.

The IRS may also revoke a dealer’s registration to receive transferred credits and its eligibility for the advance payment program for failure to comply with the registration or tax compliance requirements, for losing its dealer license, for providing inaccurate information, for failing to retain required records for three years, or if it is suspended three times in the preceding year. The IRS will notify the dealer within 30 days of its decision to revoke eligibility for the advance payment program, and the dealer may request administrative review of the decision. The dealer may re-register after one year, but will be permanently barred after three revocations.

The proposed regs would provide that a dealer could not administratively appeal the IRS’s decisions relating to the suspension or revocation of a dealer’s registration unless the IRS and the IRS Independent Office of Appeals agree that such review is available and the IRS provides the time and manner for the review.

Comments Requested

The IRS requests comments on the proposed regs. Comments and requests for a public hearing must be received by December 11, 2023. They may be mailed to the IRS, or submitted electronically via the Federal eRulemaking Portal at https://www.regulations.gov (indicate IRS and REG-113064-23).

Effect on Other Documents

Rev. Proc. 2023-33 supersedes in part Rev. Proc. 2022-42, I.R.B. 2022-52 , 565.

Proposed Regulations, NPRM REG-113064-23

Rev. Proc. 2023-33

FS-2023-22

IR-2023-186

The IRS has released the 2023-2024 special per diem rates. Taxpayers use the per diem rates to substantiate certain expenses incurred while traveling away from home. These special per diem rates include:

The IRS has released the 2023-2024 special per diem rates. Taxpayers use the per diem rates to substantiate certain expenses incurred while traveling away from home. These special per diem rates include:

• 1. the special transportation industry meal and incidental expenses (M&IE) rates,
• 2. the rate for the incidental expenses only deduction,
• 3. and the rates and list of high-cost localities for purposes of the high-low substantiation method.

Transportation Industry Special Per Diem Rates

The special M&IE rates for taxpayers in the transportation industry are:

• $69 for any locality of travel in the continental United States (CONUS), and
• $74 for any locality of travel outside the continental United States (OCONUS).

Incidental Expenses Only Rate

The rate is $5 per day for any CONUS or OCONUS travel for the incidental expenses only deduction.

High-Low Substantiation Method

For purposes of the high-low substantiation method, the 2023-2024 special per diem rates are:

• $309 for travel to any high-cost locality, and
• $214 for travel to any other locality within CONUS.

The amount treated as paid for meals is:

• $74 for travel to any high-cost locality, and
• $64 for travel to any other locality within CONUS

Instead of the meal and incidental expenses only substantiation method, taxpayers may use:

• $74 for travel to any high-cost locality, and
• $64 for travel to any other locality within CONUS.

Taxpayers using the high-low method must comply with Rev. Proc. 2019-48, I.R.B. 2019-51, 1390. That procedure provides the rules for using a per diem rate to substantiate the amount of ordinary and necessary business expenses paid or incurred while traveling away from home.

The IRS provided guidance on the new energy efficient home credit, as amended by the Inflation Reduction Act of 2022 (P.L. 117-169). The guidance largely reiterates the statutory requirements for the credit, but it provides some new details regarding definitions, certifications and substantiation.

The IRS provided guidance on the new energy efficient home credit, as amended by the Inflation Reduction Act of 2022 (P.L. 117-169). The guidance largely reiterates the statutory requirements for the credit, but it provides some new details regarding definitions, certifications and substantiation.

Definitions

For purposes of the requirement that a home must be acquired from an eligible contractor, a home leased from the contractor for use as a residence is considered acquired from the contractor. However, a home the contractor retains for use as a residence is not acquired from the contractor. A manufactured home may be acquired directly from the contractor, or indirectly from an intermediary that acquired it from the contractor and then sold or leased it to a buyer for use as a residence, or to intervening intermediaries that eventually sold it to a buyer for use as a residence.

For a constructed home, the eligible contractor is the person that built and owned the home and had a basis in it during its construction. For a manufactured home, the eligible contractor is the person that produced the home and owned and had a basis in it during its production.

The United States includes only the states and the District of Columbia.

Certifications

A dwelling unit that is certified under the applicable Energy Star program is considered to meet the program requirements for purposes of the credit. Similarly, a dwelling unit that is certified under the Zero Energy Ready Home (ZERH) program is deemed to meet the requirements for the credit for a ZERH. The ZERH program in effect for purposes of the credit is the one in effect as of the date identified on the Department of Energy’s ZERH webpage at https://www.energy.gov/eere/buildings/doe-zero-energy-ready-home-zerh-program-requirements.

The eligible contractor must obtain the appropriate Energy Star or ZERH certification before claiming the credit. The contractor should keep the certification with its tax records, but does not have to file it with the return that claims the credit.

Rules for homes acquired before 2023, under which eligible certifiers could certify a home and contractors could use approved software to calculate a new home’s energy consumption, do not apply to a home acquired after 2022.

Substantiation

To substantiate the credit, the contractor must retain in its tax records, at a minimum, the home's Energy Star or ZERH certification, including its date; and records sufficient to establish:

1. the address of the qualified home and its location in the United States;
2. the taxpayer’s status as an eligible contractor;
3. the acquisition of the home from the taxpayer for use as a residence, including the name of the person who acquired it; and
4. if applicable, proof that the prevailing wage requirements were met.

However, for a manufactured home the contractor sells to a dealer, a safe harbor allows the contractor to rely on a statement by the dealer to establish the date the home was acquired, its location in the United States, and its acquisition for use as a residence. The statement must:

1. Specify the date of the retail sale of the manufactured home, state that the dealer delivered it to the purchaser at an address in the United States, and provide that the dealer has no knowledge of any information suggesting that the purchaser will use the manufactured home other than as a residence;
2. Provide the name, address and telephone number of the dealer and any intervening intermediaries; and
3. Declare, under penalties of perjury, that the dealer statement and any accompanying documents are true, correct and complete.

Effect on Other Documents

Notice 2008-35, 2008-1 CB 647, and Notice 2008-36, 2008-1 CB 650, are obsoleted for qualified homes acquired after December 31, 2022.

The IRS identified drought-stricken areas where tax relief is available to taxpayers that sold or exchanged livestock because of drought. The relief extends the deadlines for taxpayers to replace the livestock and avoid reporting gain on the sales. These extensions apply until the drought-stricken area has a drought-free year.

The IRS identified drought-stricken areas where tax relief is available to taxpayers that sold or exchanged livestock because of drought. The relief extends the deadlines for taxpayers to replace the livestock and avoid reporting gain on the sales. These extensions apply until the drought-stricken area has a drought-free year.

When Sales of Livestock are Involuntary Conversions

Sales of livestock due to drought are involuntary conversions of property. Taxpayers can postpone gain on involuntary conversions if they buy qualified replacement property during the replacement period. Qualified replacement property must be similar or related in service or use to the converted property.

Usually, the replacement period ends two years after the tax year in which the involuntary conversion occurs. However, a longer replacement period applies in several situations, such as when sales occur in a drought-stricken area.

Livestock Sold Because of Weather

Taxpayers have four years to replace livestock they sold or exchanged solely because of drought, flood, or other weather condition. Three conditions apply.

First, the livestock cannot be raised for slaughter, held for sporting purposes or be poultry.

Second, the taxpayer must have held the converted livestock for:

• draft,
• dairy, or
• breeeding purposes.

Third, the weather condition must make the area eligible for federal assistance.

Persistent Drought

The IRS extends the four-year replacement period when a taxpayer sells or exchanges livestock due to persistent drought. The extension continues until the taxpayer’s region experiences a drought-free year.

The first drought-free year is the first 12-month period that:

• ends on August 31 in or after the last year of the four-year replacement period, and
• does not include any weekly period of drought.

What Areas are Suffering from Drought

The National Drought Mitigation Center produces weekly Drought Monitor maps that report drought-stricken areas. Taxpayers can view these maps at

http://droughtmonitor.unl.edu/Maps/MapArchive.aspx

However, the IRS also provided a list of areas where the year ending on August 31, 2023, was not a drought-free year. The replacement period in these areas will continue until the area has a drought-free year.

With the Internal Revenue Service announcing more details on how it will be targeting America’s wealthiest taxpayers, Kostelanetz’s Megan Brackney offered up some advice on preparing for increased compliance activity.

With the Internal Revenue Service announcing more details on how it will be targeting America’s wealthiest taxpayers, Kostelanetz’s Megan Brackney offered up some advice on preparing for increased compliance activity.

The first step, especially for those that fall within the agency’s announced parameters for who is being targeted, is to review recent tax filings. The agency announced in September it would be targeting large partnerships.

"I would say to look back over the last three years because that’s the typical statute of limitations period for the IRS to audit and assess, maybe look back even a little bit longer," Brackney, partner at the law firm, said in an interview.

In particular, she recommended a focus on major financial transactions.

"Look at significant transactions and make sure that you have all the substantiation because a lot of times, the issue isn’t so much a legal question or anything to complex," she continued. "It’s just whether or not you know [for example if] the partnership sold an asset, do they actually have records that substantiate their basis?"

Brackney expects that after the agency completes its work on the largest partnerships, it will continue this kind of compliance work on those high earning partnerships that may be outside of the original targeted thresholds.

Other things to start thinking about if you are a large partnership is how you plan to respond to an audit if you end up targeted for enforcement action by the IRS, especially if you have significant transactions that might draw extra scrutiny. Some questions to ponder are whether you have the in-house expertise to handle an audit or if you plan on going to an outside source.

"Nobody is going to do those things until they are actually audited, but its good to start thinking about it and planning it," she said. "And if you do have a really significant transaction, maybe go ahead and have someone take a look at it already to make sure it is properly documented."

She also suggested that if a partnership finds an error as they look back on their own to go ahead and correct it with the IRS before the agency "is poking around and looking at it."

Training Concerns

And while the IRS is moving forward with its plans to audit high earning partnerships, Brackney expressed some concerns relative to agent training.

She recalled a few years ago when the IRS announced global high net worth audits program that ended up collecting very little.

"Most of those audits resulted in no change letters," Brackney said, "which is wild because you audit a normal middle-class taxpayer with a Schedule C business, you are going to have a change [and] not because anybody is trying to cheat. There is going to be something that they can’t substantiate."

She said it was hard to understand how most of the global high net worth audits had no changes, and expressed some concerns that this could happen again, but is hopeful that with the agency’s supplemental funding from the Inflation Reduction Act will come proper training to handle the complexities of reviewing these tax returns.

"I support the IRS being fully funded," she said. "It’s good for tax administration and it makes a fairer society because it’s not like people are just getting away with stuff because the IRS doesn’t have the resources."

By Gregory Twachtman, Washington News Editor

The IRS has cautioned taxpayers to be vigilant about promotions involving exaggerated art donation deductions that may target high-income individuals and has also provided valuable tips to help people steer clear of falling into such schemes. Taxpayers can legitimately claim art donations, but dishonest promoters may employ direct solicitation to make unrealistically promising offers. In a bid to boost compliance and protect taxpayers from scams, the IRS has active promoter investigations and taxpayer audits underway in this area.

The IRS has cautioned taxpayers to be vigilant about promotions involving exaggerated art donation deductions that may target high-income individuals and has also provided valuable tips to help people steer clear of falling into such schemes. Taxpayers can legitimately claim art donations, but dishonest promoters may employ direct solicitation to make unrealistically promising offers. In a bid to boost compliance and protect taxpayers from scams, the IRS has active promoter investigations and taxpayer audits underway in this area.

Also, the IRS has employed various compliance tools, including tax return audits and civil penalty investigations, to combat abusive art donations. Taxpayers, especially high-income individuals, are advised to watch out for aggressive promotions. Additionally, following Inflation Reduction Act funding the IRS has intensified the efforts to ensure accurate tax payments from high-income and high-wealth individuals.

The Service has advised taxpayers to watch-out for the following red flags:

• Be wary of purchasing multiple works by the same artist with little market value beyond what promoters claim.
• Watch for specific appraisers arranged by promoters, as their appraisals often lack crucial details.
• Taxpayers are responsible for accurate tax reporting, and engaging in tax avoidance schemes can lead to penalties, interest, fines, and even imprisonment.
• Charities should also be cautious not to inadvertently support these schemes.

In order to to properly claim a charitable contribution deduction for an art donation, a taxpayer must keep records to prove:

• Name and address of the charitable organization that received the art.
• Date and location of the contribution.
• Detailed description of the donated art.

Also, The IRS has a team of trained appraisers in Art Appraisal Services who provide assistance and advice to the IRS and taxpayers on valuation questions in connection with personal property and works of art.

Finally, the taxpayers can report tax-related illegal activities relating to charitable contributions of art using:

• Form 14242, Report Suspected Abusive Tax Promotions or Preparers, to report a suspected abusive tax avoidance scheme and tax return preparers who promote such schemes.
• They should also report fraud to the Treasury Inspector General for Tax Administration at 800-366-4484.

As 2015 winds down, another temporary extension of the tax extenders appears almost certain. Despite talk in early 2015 about finding a permanent solution to the on-again, off-again extenders, the arrival of November brings a short window for Congress to extend these tax breaks. The expected late passage of these popular tax breaks also adds uncertainty to year-end tax planning as well as possibly causing a delay to the start of the 2016 filing season.

As 2015 winds down, another temporary extension of the tax extenders appears almost certain. Despite talk in early 2015 about finding a permanent solution to the on-again, off-again extenders, the arrival of November brings a short window for Congress to extend these tax breaks. The expected late passage of these popular tax breaks also adds uncertainty to year-end tax planning as well as possibly causing a delay to the start of the 2016 filing season.

Tax extenders

A host of temporary but popular tax incentives expired after December 31, 2014. Under current law, these incentives are unavailable for 2015 (although a very small number, notably bonus depreciation, have special provisions that may make them available in 2015 to qualified taxpayers).

For individuals, the popular state and local sales tax deduction, higher education tuition and fees deduction, exclusion of cancellation indebtedness on principal residence, the Code Sec. 25C residential energy credit, charitable distributions from IRAs, and the teachers' classroom expense deduction, have all expired. Unless extended, taxpayers will not be able to claim these incentives when they file their 2015 returns in 2016.

For businesses, the list of expired extenders is lengthy. Along with enhanced expensing under Code Sec. 179, other expired extenders for businesses include:

• New Markets Tax Credit;
• Employer wage credit for activated military reservists;
• Subpart F exceptions for active financing income;
• Look-through rule for related controlled foreign corporation payments;
• Railroad track maintenance credit;
• Seven-year recovery period for motorsports entertainment complexes;
• 100 percent exclusion for gain on sale of qualified small business stock;
• Reduced recognition period for S corporation built-in gains tax;
• Enhanced deduction for charitable contributions of food inventory;
• Tax incentives for empowerment zones;
• Indian employment credit;
• Accelerated depreciation for business property on Indian reservations;
• Special expensing rules for qualified film and television productions;
• Mine rescue team training credit;
• Election to expense advanced mine safety equipment;
• Qualified zone academy bonds;
• Low-income tax credits for non-federally subsidized new buildings;
• Low-income housing tax credit treatment of military housing allowances;
• Treatment of dividends of regulated investment companies (RICs);
• Treatment of RICs as qualified investment entities;
• S corporations making charitable donations of property; and
• Economic development credit for American Samoa.

Pending legislation

A Senate bill, the Tax Relief Extension Act of 2015, may be the likely vehicle to extend the extenders. The Senate bill would extend the tax breaks for individuals and businesses for two years: 2015 and 2016 (retroactive to January 1, 2015 and through 2016). The Senate bill also tweaks some of the extenders. For example, the Senate bill adds the long-term unemployed to the list of eligible targeted groups for the Work Opportunity Tax Credit. The Senate bill also enhances the employer wage credit for activated military reservists, the special expensing rules for film and television, and transit benefits. Our office will keep you posted of developments as extenders legislation moves through Congress.

Not all expired

While taxpayers wait for action on the extenders. Some popular individual tax breaks are available for 2015. They include the American Opportunity Tax Credit (AOTC) (an enhanced version of the Hope education credit available through 2017) and the Code Sec. 25D energy efficiency credit (available through 2016). Additionally, the $1,000 child tax credit is permanent (although some the current provision that reduces the earnings threshold for the refundable portion of the child tax credit to $3,000 is only extended through 2017.). The student loan interest deduction and the child and dependent care credit are also permanent.

Please contact our office if you have any questions about the tax extenders.

After acknowledging earlier this year that hackers breached one of its popular online apps, the IRS has promised more identity theft protections in the 2016 filing season. The IRS, along with partners in the tax preparation community, has identified and tested more than 20 new data elements on returns to help detect and prevent identity-theft related filings. The agency is also working to prevent criminals from accessing tax-time financial products.

After acknowledging earlier this year that hackers breached one of its popular online apps, the IRS has promised more identity theft protections in the 2016 filing season. The IRS, along with partners in the tax preparation community, has identified and tested more than 20 new data elements on returns to help detect and prevent identity-theft related filings. The agency is also working to prevent criminals from accessing tax-time financial products.

Identity theft

Combatting identity theft is on ongoing process as criminals continue to create new ways of stealing personal information and using it for their gain. Tax-related identity theft typically peaks early in the filing season. Criminals file bogus returns early so taxpayers remain unaware you have been victimized until they try to file a return and learn one already has been filed. Between 2011 and 2015, the IRS identified 19 million suspicious returns and prevented the issuance of some $60 billion in fraudulent refunds. During the 2015 filing season, the IRS detected and stopped more than 3.8 million suspicious returns.

However, criminals continue to probe for weaknesses. In May, the IRS discovered that criminals had breached its Get Transcript app. Return information of as many as 300,000 taxpayers may have been compromised, the IRS reported.

New protections

In March, the IRS began working with the return preparation community and the tax software industry to develop a coordinated response to tax-related identity theft. The stakeholders, the IRS reported, have focused on a number of areas including improved validation of the authenticity of taxpayers and information on returns, increased information sharing to improve refund fraud detection and expand prevention, as well as more sophisticated threat assessment and strategy development to prevent risks and threats.

One outgrowth of the process is the creation of new data elements that can be shared at the time of filing with the IRS to help authenticate a taxpayer's identity. The IRS explained that there are more than 20 new data components. They will be submitted with electronic return transmissions during the 2016 filing season. Some of the data elements are

• Reviewing the transmission of the tax return, including the improper and/or repetitive use of internet addresses from which the return is originating;
• Reviewing the time it takes to complete a tax return, so computer mechanized fraud can be detected.
• Capturing metadata in the computer transaction that will allow review for identity theft related fraud.

"We are taking new steps upfront to protect taxpayers at the time they file and beyond," IRS Commissioner John Koskinen said at a news conference in Washington, D.C. "Thanks to the cooperative efforts taking place between the industry, the states and the IRS, we will have new tools in place this January to protect taxpayers during the 2016 filing season."

Financial products

Previously, the IRS announced that it would limit the number of direct deposit refunds to a single financial account or pre-paid debit card to three. Fourth and subsequent valid refunds will convert to paper checks and be mailed to the taxpayer. The IRS emphasized that it will continue to bolster its efforts to curb tax-time financial product fraud.

If you have any questions about tax-related identity theft, please contact our office.

IR-2015-117, FS-2015-23

As the calendar approaches the end of 2015, it is helpful to think about ways to shift income and deductions into the following year. For example, spikes in income from selling investments or other property may push a taxpayer into a higher income tax bracket for 2015, including a top bracket of 39.6 percent for ordinary income and short-term capital gains, and a top bracket of 20 percent for dividends and long-term capital gains. Adjusted gross incomes that exceed the threshold for the net investment income (NII) tax can also trigger increased tax liability. Accordingly, traditional year-end techniques to defer income or to accelerate deductions can be useful.

As the calendar approaches the end of 2015, it is helpful to think about ways to shift income and deductions into the following year. For example, spikes in income from selling investments or other property may push a taxpayer into a higher income tax bracket for 2015, including a top bracket of 39.6 percent for ordinary income and short-term capital gains, and a top bracket of 20 percent for dividends and long-term capital gains. Adjusted gross incomes that exceed the threshold for the net investment income (NII) tax can also trigger increased tax liability. Accordingly, traditional year-end techniques to defer income or to accelerate deductions can be useful.

Techniques for deferring income include:

• Hold appreciated assets;
• Consider a tax-fee like-kind exchange or property if disposing of appreciated assets used for investment or in a business;
• Sell depreciated capital assets, especially if capital gains have been realized;
• Hold U.S. savings bonds;
• Sell property on the installment basis;
• Defer bonuses earned in 2015 until 2016;
• Make salary-reduction contributions into employer-sponsored plans, such as 401(k) plans, 403(b) plans, and 457 plans, and into flexible spending accounts;
• Minimize retirement distributions;
• Defer billings and collections;
• Recharacterize a Roth IRA as a traditional IRA if the traditional IRA was converted to a Roth IRA in 2015, and the assets in the Roth IRA have subsequently declined in value.

It is important to monitor the progress of tax legislation. Congress has not yet renewed individual and business tax extender provisions that expired at the end of 2014, but historically Congress does renew these provisions. Extenders for individuals include the state and local sales tax deduction (in lieu of the state and local income tax deduction), the higher education tuition and fees deduction, the teacher's classroom expense deduction, and the residential energy property credit.

Techniques for accelerating deductions include into 2015:

• Bunch itemized deductions into 2015 by paying medical expenses, making charitable contributions, and paying miscellaneous expenses such as employment-related items (don't delay bill payments until 2016);
• Accelerate payments of state and local taxes by increasing withholding or making the final state estimated tax payment installment in 2015;
• Make payments/contributions by credit card (timing is based on payment by credit card, not on payment of the credit card bill);
• Use Code Sec. 179 for business expensing and bonus depreciation to write off the costs of newly-acquired equipment.