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President Biden is looking to add $2.1 billion more to the Department of the Treasury budget over 2023 enacted levels, an increase that would give the agency $16.3 billion in discretionary budget authority, with the majority of those funds earmarked for the Internal Revenue Service.

President Biden is looking to add $2.1 billion more to the Department of the Treasury budget over 2023 enacted levels, an increase that would give the agency $16.3 billion in discretionary budget authority, with the majority of those funds earmarked for the Internal Revenue Service.

"To ensure that taxpayers receive the highest quality customer service and that all Americans are treated fairly by the U.S. tax system, the Budget provides a total of $14.1 billion for the IRS, $1.8 billion, or 15percent, above the 2023 enacted level," the White House stated in the budget document released on March 9, 2023.

On the same day, the Treasury Department released the so-called “Greenbook” which outlines the administration’s revenue proposals for Fiscal Year 2024.

Adding some additional details, the budget document noted that the IRS budget includes "an increase of $642 million to improve the taxpayer experience and expand customer service outreach to underserved communities and the entire taxpaying public," the document states, adding that $290 million will be allocated to information technology modernization.

The budget document also notes that in "addition to the annual discretionary funding, the Budget proposes to maintain deficit reducing Inflation Reduction Act-funded initiatives in 2032 and beyond. This proposal builds on decades of analysis demonstrating that program integrity investments to enforce existing tax laws and increase revenues in a progressive way by closing the tax gap—the difference between taxes owed and taxes paid."

Tax Policy Highlights

The budget document notes that spending within the overall budget will be offset "by tax reforms to ensure that the wealthiest Americans and multinational corporations pay at least a minimum tax rate and reforming taxation of stock buybacks," which is expected to reduce the deficit by $1.17 trillion during the next decade.

On the corporate side, the document states it plans to raise the corporate income tax rate to 28 percent.

The budget also notes that it will invest "in working families, by cutting taxes for working people and families with children, providing paid leave, and improving home care."

President Biden is proposing in the budget to restore "and make permanent the American Rescue Plan expansion of the Earned Income Tax Credit for workers without qualifying children," as well as other tax provisions, including:

• Providing a neighborhood homes credit;
• Expanding and enhancing the low-income housing credit;
• Expanding the child credit, and making permanent full refundability and advanceability;
• Making the adoption tax credit refundable and allowing certain guardianship arrangements to qualify; and
• Making permanent the income exclusion for forgiven student debt.

The Greenbook also provides some additional clarity on the tax policy proposals. The Biden Administration once again will be seeking the implementation of a billionaire minimum tax of 25 percent, targeted at the wealthiest 0.01 percent of individuals to ensure they are paying their fair share of taxes.

The budget also includes health-related tax policy proposals, including the closure of Medicare tax loopholes and increasing the Medicare tax and the Net Investment Income Tax rate by 1.2 percentage points above $400,000 for a total Medicare tax rate of 5 percent on high-income taxpayers. It also looks to expand tax credits for health insurance premiums.

The IRS has offered tips to taxpayers who received an incorrect Form 1099-K, Payment Card and Third-Party Network Transactions or received one of these forms in error. 2022 transactions were reported on the form taxpayers received by January 31, 2023. If the information on the form is incorrect or wrong, taxpayers are directed to contact the issuer of the Form 1099-K immediately. The issuer’s name appears in the upper left corner on the form along with their phone number. Further, taxpayers should keep a copy of all correspondence with the issuer for their records.

The IRS has offered tips to taxpayers who received an incorrect Form 1099-K, Payment Card and Third-Party Network Transactions or received one of these forms in error. 2022 transactions were reported on the form taxpayers received by January 31, 2023. If the information on the form is incorrect or wrong, taxpayers are directed to contact the issuer of the Form 1099-K immediately. The issuer’s name appears in the upper left corner on the form along with their phone number. Further, taxpayers should keep a copy of all correspondence with the issuer for their records.

If taxpayers can’t get a corrected Form 1099-K, they should report the information on Schedule 1 (Form 1040), Additional Income and Adjustments to Income, as follows:

• Part I – Line 8z – Other Income – Form 1099-K Received in Error.
• Part II – Line 24z – Other Adjustments - Form 1099-K Received in Error.

The net effect of these two adjustments on adjusted gross income would be $0.

Personal Item Sold at Loss

If a taxpayer receives a Form 1099-K for a personal item sold at a loss, report the information on Schedule 1 with offsetting transactions. The net effect of these two adjustments on adjusted gross income would be $0.

Personal Item Sold at Gain

If a taxpayer sells an item owned for personal use, they should report the gain as any other capital gain on Form 8949, Sales and other Dispositions of Capital Assets, and Schedule D (Form 1040), Capital Gains and Losses.

Mix of Personal Items Sold

If a taxpayer sold an item owned for personal use at a gain, see Personal items sold at a gain for information on how to report. For personal items sold at a loss, follow the instructions for Personal items sold at a loss.

New Reporting Threshhold

The IRS announced that the new Form 1099-K reporting threshold will start in tax year 2023.

• The old threshold was $20,000 and 200 transactions per year. This applies to tax year 2022 and prior years.
• The new threshold is more than $600. This applies to tax year 2023 and future years.

The IRS has provided relief that permits taxpayers affected by the Coronavirus Disease 2019 (COVID-19) emergency who had a return filing due date postponed by Notice 2020-23, I.R.B. 2020-18, 742, or Notice 2021-21, I.R.B. 2021-15, 986, who did not receive an extension of time for filing such return, and who file timely credit or refund claims, to be credited or refunded amounts deemed paid on April 15 of each year.

The IRS has provided relief that permits taxpayers affected by the Coronavirus Disease 2019 (COVID-19) emergency who had a return filing due date postponed by Notice 2020-23, I.R.B. 2020-18, 742, or Notice 2021-21, I.R.B. 2021-15, 986, who did not receive an extension of time for filing such return, and who file timely credit or refund claims, to be credited or refunded amounts deemed paid on April 15 of each year.

Among other things, Notice 2020-23 postponed certain federal tax return filing and payment obligations that were due to be performed on or after April 1, 2020, and before July 15, 2020, to July 15, 2020. Notice 2021-21 postponed the due date for both filing Form 1040 series returns with an original due date of April 15, 2021, and making federal income tax payments in connection with one of these forms, to May 17, 2021.

Under Code Sec. 6511, a taxpayer must file a refund or credit claim within three years from the time the taxpayer’s return was filed, or two years from the time the tax was paid, whichever period expires later. Under Code Sec. 6511(b)(2), the credit or refund amount is limited to the amount of tax paid within a specified period immediately preceding the filing of the refund or credit claim (the "lookback period"). When a taxpayer files a claim within three years of filing the return, the lookback period is three years plus the period of any extension of time for filing the return. Otherwise, the lookback period is two years.

While Notice 2020-23 and Notice 2021-21 postponed certain return filing due dates, they did not extend the time for filing the returns because a postponement is not an extension. As a result, the postponements did not lengthen the lookback periods.

Relief for Determining Lookback Period

The relief applies for determining the credit or refund amount on the tax for which the return filing or payment due date was postponed:

• For any person with a federal tax return filing or payment obligation that was postponed by Notice 2020-23 to July 15, 2020, the period beginning on April 15, 2020, and ending on July 15, 2020, will be disregarded in determining the beginning of the lookback period.
• For any person with a filing or payment obligation for a Form 1040 series federal income tax return that was postponed by Notice 2021-21 to May 17, 2021, the period beginning on April 15, 2021, and ending on May 17, 2021, will be disregarded in determining the beginning of the lookback period.

The relief is automatic, so affected taxpayers do not have to call the IRS, file any form, or send letters or other documents to receive the relief.

The IRS has issued final regulations for filing certain returns and other documents electronically (e-file). The regulations affect persons required to file returns for partnerships, corporations, unrelated business income tax, withholding, excise taxes, as well as information returns, disclosure statements, and other documents

The IRS has issued final regulations for filing certain returns and other documents electronically (e-file). The regulations affect persons required to file returns for partnerships, corporations, unrelated business income tax, withholding, excise taxes, as well as information returns, disclosure statements, and other documents. The electronic filing requirements generally apply to applicable returns and documents required to be filed beginning in 2024, except for returns of tax-exempt organizations which apply to tax years beginning after July 1, 2019.

Electronic Filing

The final regulations generally adopt the proposed regulations issued in 2021 for electronic filing under the following Code Section:

• Code Secs. 1474, 6011, 6012, 6033, 6057, 6058, and 6059 for determining whether applicable returns and documents must be filed electronically,
• Code Sec. 6011 for reporting certain excise taxes,
• Code Secs. 1461 and 1474 for withholding income taxes on U.S. source income of foreign persons,
• Code Secs. 6045 and 6050M for certain broker reporting and federal agency contracts, and
• Code Sec. 6050I for reporting financial transactions in cash exceeding $10,000.

Like the 2021 proposals, the final regulations generally require e-filing by taxpayers other than individuals if, during the calendar year, they are required to file 250 or more returns. The final rules also eliminate the e-filing exception for income tax returns of corporations that report total assets under $10 million at the end of their taxable year. Partnerships with more than 100 partners are required to e-file information returns, and they require partnerships required to file at least 10 returns of any type during the calendar year to e-file their partnership return.

Information Returns

Under Code Sec. 6011(e) and related regulations, filers are already required to file information returns and statements electronically if, during a calendar year, they are required to file 250 or more returns. The 2021 proposed regulations would have reduced the applicable threshold to 100 or more returns for returns required to be filed during 2022 and 10 or more returns for returns required to be filed after calendar year 2022.

Because the final regulations are not applicable until calendar year 2024, the proposed electronic-filing thresholds of 100 and 10 returns, respectively are not adopted. Instead, the electronic-filing threshold for information returns required to be filed in calendar years 2022 and 2023 remains at 250. However, the final regulations adopt the electronic-filing threshold of 10 for returns required to be filed on or after January 1, 2024.

In addition, the final regulations adopt the proposed rule without any change that if a person is required to file original information returns electronically, that person must file any corresponding corrected information returns electronically.

Waivers and Exemption

Many of the regulations imposing electronic-filing requirements also provide a waiver from electronic filing to any person who establishes undue hardship. The final regulations adopt several changes in reviewing waiver requests, noting that costs to a taxpayer will only be one factor. The Treasury and IRS anticipate providing additional details on the specific hardship-waiver procedures for each form affected by the final regulations, including exemptions for taxpayers whose religious belief conflict with the electronic filing requirement. The final regulations do not provide for waivers and exemptions in all circumstances or for all tax forms required to be electronically filed.

The Financial Crimes Enforcement Network (FinCEN) has published its first set of guidance materials to aid the public, and especially the small business community, in understanding the beneficial ownership information (BOI) reporting requirements which will take effect on January 1, 2024.

The Financial Crimes Enforcement Network (FinCEN) has published its first set of guidance materials to aid the public, and especially the small business community, in understanding the beneficial ownership information (BOI) reporting requirements which will take effect on January 1, 2024.

The Corporate Transparency Act (CTA) established uniform BOI reporting requirements for certain types of corporations, limited liability companies, and other similar entities created in or registered to do business in the United States. New FinCEN regulations require these entities to report to FinCEN information about their "beneficial owners"—the persons who ultimately own or control the company.

In an effort to make the process as simple as possible, particularly for small businesses who may have never heard of or interacted with FinCEN before, FinCEN has placed several items on its BOI reporting webpage (https://www.fincen.gov/boi), including:

• answers to Frequently Asked Questions about the reporting requirement;
• a Key Filing Dates document;
• a one-page document covering a few Key Questions on the BOI requirement;
• a link to an introductory video; and
• a link to a more detailed video about the BOI requirement.

In the coming months, FinCEN expects to publish additional guidance on the BOI webpage, including a Small Entity Compliance Guide.

The American Institute of CPAs is suggesting a series of frequently asked questions for the Internal Revenue service to post and answer on its website regarding the new digital asset question that appears on the 2022 Form 1040.

The American Institute of CPAs is suggesting a series of frequently asked questions for the Internal Revenue service to post and answer on its website regarding the new digital asset question that appears on the 2022 Form 1040.

The 2022 Form 1040 asks the following yes/no question: "At any time during 2022, did you (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, gift, or otherwise dispose of a digitalasset (or a financial interest in a digitalasset)?"

In a February 17, 2023, letter to the agency, AICPA identified 12 questions and offered recommended responses to those questions that the IRS could include on its website to guide taxpayers on how to answer the digital asset question. Among the questions the organization is recommending the IRS answer are:

• What is a digital representation of value?
• What is a cryptographically secured distribution ledger as used in the Form 1040 question?
• How do I determine if my digital asset is recorded on a cryptographically secured distributed ledger?
• What is considered "similar technology" to a cryptographically distributed ledger?
• What are the "characteristics of a digitalasset" as that term is used in the 2022 Form 1040 instructions?
• Does a "yes" answer to the 2022 Form 1040 digital asset question mean that I have tax consequences from digital asset transactions that should be reported on my 2022 Form 1040?

AICPA sent the letter in hopes that "IRS will consider posting these or similar FAQs on the website for this 2022 tax return filing season and that the 2023 Form 1040 instructions will be modified for next year to provide greater certainty to taxpayers and their preparers in confidently and properly complying with the question and overall requirements for digitalasset," the letter states.

A copy of this letter can be found with all of AICPA’s tax policy and comment letters here.

The IRS added widely circulating promoter claims involving Employee Retention Credits (ERC) as a new entry in the annual Dirty Dozen list of tax scams.

The IRS added widely circulating promoter claims involving Employee Retention Credits (ERC) as a new entry in the annual Dirty Dozen list of tax scams. These promotions can be based on inaccurate information related to eligibility for and computation of the credit. Eligible taxpayers can claim the ERC on an original or amended employment tax return for qualified wages paid between March 13, 2020 through December 31, 2021.

"The aggressive marketing of these credits is deeply troubling and a major concern for the IRS," said IRS Commissioner Danny Werfel. "Businesses need to think twice before filing a claim for these credits. While the credit has provided a financial lifeline to millions of businesses, there are promoters misleading people and businesses into thinking they can claim these credits. People should remember the IRS is actively auditing and conducting criminal investigations related to these false claims. We urge honest taxpayers not to be caught up in these schemes," he added.

Further, abusive ERC promotions highlight day one of the IRS annual Dirty Dozen campaign. These are a list of 12 scams and schemes that put taxpayers and the tax professional community at risk of losing money, personal information, data and more. Finally, more information can be found here.

The U.S. Government Accountability Office is offering recommendations to close the tax gap, a move it says could yield large fiscal benefits even if there is only a modest narrowing of the gap between what is paid and what is owed.

The U.S. Government Accountability Office is offering recommendations to close the tax gap, a move it says could yield large fiscal benefits even if there is only a modest narrowing of the gap between what is paid and what is owed.

In a "snapshot" report issued February 27, 2023, the GAO cited Internal Revenue Service-reported figures for the years 2014-2016 that show taxpayers owed $3.3 trillion in taxes but paid only $2.8 trillion. GAO analysis of IRS data attributes the gap to three key factors: underreporting ($398 billion); underpayment ($59 billion); and nonfiling ($39 billion).

GAO reported a number of factors that have contributed to the tax gap, including limited third-party information reporting, declines in audit rates, worsening customer service and the complexities of the tax code. It also noted that abusive tax shelters also play a role in contributing to the tax gap. The report did not quantify how much these factors contributed to the tax gap.

"Our work shows there are no easy ways to reduce the taxgap," the report states. "Multiple approaches are needed to address the many causes of tax noncompliance."

The government watchdog recommends that the IRS re-establish quantitative goals to reduce the tax gap; expand third-party information reporting; digitize taxpayer returns to make them more readily available to enforcement programs; and make it easier for individuals to report preparers and promoters involved in abusive tax schemes.

It also is recommending that Congress give the IRS explicit authority to establish professional requirements for paid preparers; expand third-party reporting requirements related to real estate; expand IRS authority to correct errors and discrepancies between taxpayer reported and other government collected information; and requiring paper returns include a scannable code to allow information to be processed digitally.

The GAO did not quantify how much benefit the federal government could get with even a modest reduction in the tax gap.

Panelists convened to testify before the Senate Finance Committee called for enhancements of the low income housing tax credit as a means of making real estate more available and affordable.

Panelists convened to testify before the Senate Finance Committee called for enhancements of the low income housing tax credit as a means of making real estate more available and affordable.

During a March 7, 2023 hearing, Denise Scott, president of Local Initiatives Support Corporation, testified that the credit "has been responsible for the production of most of the affordable housing, and more than 50 percent of the households in tax credit properties are extremely low income families."

An overview of various tax policies was prepared for the hearing by the Joint Committee on Taxation and can be found here.

She suggested Congress could "spur the creation of over 2 million more rental units over the next decade by restoring the 12.5 percent increase to the formula for the allocated tax credits." That increase was enacted in 2018 but expired in 2021.

Sharon Wilson Geno, president of the National Multifamily Housing Council, recommended that the low income housing tax credit be expanded to capture more middle class families and build "off of the success of the low income housing tax credit."

However, Mark Calabria, senor advisor at the Cato Institute, urged a little restraint when it comes to using tax policy to stimulate the housing market.

"Most indicators suggest that rents would decline over the next 12-to-18 months," he testified before the committee. "So, I would just urge some cautiousness to thinking about adding stimulus to additional construction at a time when we are likely passing the peak of the cycle."

Wilson Geno said that the private market "simply cannot afford to provide housing in the amounts we need it in the lowest income tiers, and also the middle-income tier. So those tax incentives are incredibly useful."

Calabria also cautioned about offering any additional credits that are focused on the demand side of housing equation.

"We need to be cautious about adding demand subsidies that simply run up prices, which is how we’ve gotten the inflationary pressures we face today," he said.

Department of the Treasury Secretary Janet Yellen was noncommittal on the idea of trading a permanent child tax credit for the elimination of the state and local tax deduction.

Department of the Treasury Secretary Janet Yellen was noncommittal on the idea of trading a permanent child tax credit for the elimination of the state and local tax deduction.

Yellen was faced with this question during a March 16, 2023, Senate Finance Committee hearing convened to discuss the Biden Administration’s proposed budget for fiscal year 2024 and the corresponding so-called "Greenbook," which outlines proposed changes to tax policy that in total reflect how the government plans to pay for changes to the overall budget.

Sen. Steve Daines (R-Mont.) noted that the White House budget proposal increases the child tax credit from $2,000 to $3,600 and makes it fully refundable and deliverable on a monthly basis.

"However, I see they didn’t make that change permanent," Sen. Daines said, adding that increase would expire in 2025. "My question is this: does the President believe that the child tax credit should be made permanent for $3,600? And if so, are you willing to eliminate the SALT deduction, which overwhelmingly benefits the wealthy, to give working families an expanded child tax credit that, importantly, never ends?"

Yellen explained that the reason for the proposed expanded tax credit expiring in 2025 is due to other provisions in the Tax Cuts and Jobs Act that will expire in 2025 that affect the child tax credit.

"And then there will need to be consideration of what to do," Yellen said, while offering no explicit comment on the desire to make the child tax credit permanent and not addressing at all the possibility of making the CTC permanent while at the same time eliminating the SALT deduction.

One point Yellen was challenged on was on the promise that there would be no increases in taxes on individuals and corporations making less than $400,000. Sen. Todd Young (R-Ind.) suggested that President Biden would not be able to keep that promise based on provisions in the Tax Cuts and Jobs Act that would sunset in or after 2025.

"Well, there certainly are aspects of the TCJA that, if they sunset, would impact households [with] taxpayers earning under $400,000,”" Yellen testified. "And the President has, as you mentioned, pledged he doesn’t want to see taxes raised by a penny on anyone making under that. He stands ready to work with Congress."

However, when pressed further to provide a list of those sunsetting provisions that could push taxes higher for taxpayers making under $400,000, Yellen said that "I don’t know that I can provide you with that. I think there are a lot of complicated provisions." She declined to commit to providing the information within the two-week time frame that Sen. Young asked for, but pledged to work with the committee to provide the information.

A Mirror Of Previous Testimony

For the questions that covered the budget, the committee touched on many of the same subjects and asked similar questions of Yellen that the House Ways and Means Committee did on March 10, 2023, although conversations about the budget at times took a back seat to discussion on the recent bank failures and the government’s response to it as well as the looming need to address the debt ceiling.

When the budget was discussed, Yellen promoted the improvements to customer service, noting that the Internal Revenue Service has answered "hundreds of thousands" of more call calls this tax season than at the same point last year. She also pushed the Biden Administration’s targeting of the highest earning taxpayers, both individual and corporate, to get them to pay their fair share.

Yellen also reiterated the defense of the United States’ participation in the Organisation for Economic Co-operation and Development’s work on building a framework for implementing a global corporate minimum tax structure. She did emphasize that any agreement would not violate existing tax treaties between the United States and other individual countries, although there was pushback on whether that was accurate.

She also promoted the provisions in the Greenbook that will help close the housing supply gap, noting the budget has provisions to make to make rent and ownership more affordable.

Yellen also said the IRS plan to spend the $80 billion that was allocated to agency in the Inflation Reduction Act would be ready in the coming weeks.

The U.S. Supreme Court has ruled that the $10,000 maximum penalty under the Bank Secrecy Act (BSA) for the nonwillful failure to file a compliant Report of Foreign Bank and Financial Accounts (FBAR) accrues on a per-report, not a per-account, basis. This ruling settles a split in authority between the Ninth Circuit (J. Boyd, CA-9, 2021-1 ustc ¶50,112) and the Fifth Circuit (A. Bittner, CA-5, 2021-2 ustc ¶50,242).

The U.S. Supreme Court has ruled that the $10,000 maximum penalty under the Bank Secrecy Act (BSA) for the nonwillful failure to file a compliant Report of Foreign Bank and Financial Accounts (FBAR) accrues on a per-report, not a per-account, basis. This ruling settles a split in authority between the Ninth Circuit (J. Boyd, CA-9, 2021-1 ustc ¶50,112) and the Fifth Circuit (A. Bittner, CA-5, 2021-2 ustc ¶50,242).

Background

U.S. citizens and residents must keep records and/or file reports when the person makes a transaction or maintains a relation for any person with a foreign financial agency (31 USC 5314). Each person with a financial interest in a financial account in a foreign country must report the relationship to the IRS for each year the relationship exists by providing specified information on and filing the FBAR. The FBAR generally must be filed by June 30 of each calendar year for foreign financial accounts over $10,000 maintained during the previous calendar year (31 C.F.R. 1010.350, 1010.306). If the person fails to file the FBAR, the IRS can impose a penalty of up to $10,000 for nonwillful violations, unless the violation was due to reasonable cause (31 USC 5321).

Here, the taxpayer nonwillfully failed to report his interests in multiple foreign bank accounts on annual FBAR forms for several years. The government assessed $2.72 million in civil penalties against the taxpayer: $10,000 for each unreported account each year for five years. The district court found the taxpayer liable and denied his reasonable cause defense, but reduced the assessment to $50,000 because it determined that the $10,000 maximum penalty attached to each failure to file an annual FBAR, not to each failure to report an account.

The Fifth Circuit ruled that the text, structure, history, and purpose of the relevant statutory and regulatory provisions showed that the "violation" of 31 USC 5314 contemplated by the 31 USC 5321 penalty was the failure to report a qualifying account, not the failure to file an FBAR. Therefore, the $10,000 penalty cap applied on a per-account basis, not a per-report basis.

FBAR Penalty Per Report

In the majority opinion by Justice Gorsuch, the Court determined that 31 USC 5314, which delineates an individual’s legal duties under the BSA, does not mention accounts or their number, but instead addresses the legal duty to file reports which must include various kinds of information about an individual’s foreign transactions or relationships. Further, 31 USC 5321 authorizes the Treasury Secretary to impose a civil penalty of up to $10,000 for “any violation” of section 5314. The nonwillful penalty provision in section 5321 does not speak in terms of accounts or their number, but instead pegs the quantity of nonwillful penalties to the quantity of violations. While multiple deficient reports may yield multiple $10,000 penalties, and even a simple deficiency in a single report may expose an individual to a $10,000 penalty, the Court ruled that the penalties for nonwillful violations accrue on a per-report basis, not a per-account basis. Also, while section 5321 does tailor penalties to accounts for certain cases that involve willful violations, Congress did not say in section 5321 that the government may impose nonwillful penalties on a per-account basis.

The Court found other contextual clues that cut against the government’s arguments. First, the government's guidance to the public in various warnings, fact sheets, and instructions seemed to tell the public that the failure to file a report represented a single violation exposing a nonwillful violator to one $10,000 penalty. Also, when Congress amended the law in 2004 to authorize penalties for nonwillful violations, it did not apply language from previous amendments to willful penalties to authorize per-account penalties for nonwillful violations.

The Court also observed that other features of the BSA and its regulatory scheme suggested that the law aimed to provide the government with a report sufficient to tip it to the need for further investigation, not to ensure the presentation of every detail or maximize revenue for each mistake. Finally, the Court stated that the government’s per-account penalty reading of the statute invited anomalies, such as subjecting willful violators to lower penalties than nonwillful violators, that are avoided by reading the nonwillful penalty to apply on a per-report basis.

The Court concluded that, best read, the BSA treats the failure to file a legally compliant report as one violation carrying a maximum penalty of $10,000, not a cascade of such penalties calculated on a per-account basis.

Dissenting Opinion

Justice Barrett’s dissent (joined by Justices Thomas, Sotomayor, and Kagan) stated that the most natural reading of the statute establishes that each failure to report a qualifying foreign account constitutes a separate reporting violation, so the government can levy penalties on a per-account basis.

A taxpayer changing its method of accounting must either request advance IRS consent or apply for automatic IRS consent on Form 3115, Application for Change in Accounting Method, to make the change. Automatic consent is more favorable because the taxpayer can request the change on its return filed after the year it makes the change. A taxpayer requesting automatic consent must submit Form 3115 by the due date of the return for the year of the change. Recent IRS actions indicate that a taxpayer who fails to make a timely request for a change of accounting method may qualify for an extension of time to request the change.

A taxpayer changing its method of accounting must either request advance IRS consent or apply for automatic IRS consent on Form 3115, Application for Change in Accounting Method, to make the change. Automatic consent is more favorable because the taxpayer can request the change on its return filed after the year it makes the change. A taxpayer requesting automatic consent must submit Form 3115 by the due date of the return for the year of the change. Recent IRS actions indicate that a taxpayer who fails to make a timely request for a change of accounting method may qualify for an extension of time to request the change.

In 2013, the IRS issued “repair regs” that determine whether a taxpayer must capitalize or can deduct its costs related to the use of tangible property. To take advantage of the treatment provided in the regs, taxpayers often had to change their accounting methods. The IRS provided automatic consent for taxpayers to change their methods of accounting to comply with the repair regs.

Regulatory Elections

If a taxpayer fails to make a “regulatory” election on time, the IRS has discretion to grant an extension of time for making the election. A regulatory election is whose deadline is established by the IRS in regulations or other guidance, in contrast to an election whose deadline is set by statute. A taxpayer must submit a private letter request asking for an IRS ruling that grants relief. The IRS will grant relief only if it is satisfied that the taxpayer acted reasonably and in good faith when it failed to make a timely election, and that granting an extension will not prejudice the government.

Extensions Granted

The IRS has granted extensions of time to several taxpayers who missed the deadline for requesting automatic IRS consent to change a method of accounting under the repair regs. The IRS gave the taxpayer an additional 60 days (after the IRS issued the favorable letter ruling) to make the election.

In one sample ruling request, the taxpayer (a corporation) was required to submit the original of Form 3115 with its timely income tax return filed for the year of change, and to provide a copy of the Form 3115 to the IRS in Ogden, Utah. The taxpayer’s return preparer timely e-filed the taxpayer’s Form 1120, prepared Form 3115, and submitted a copy of the form to Ogden. However, the preparer inadvertently failed to scan the Form 3115 and include it with the taxpayer’s return. The preparer discovered the omission and the taxpayer applied for an extension. The IRS granted the taxpayer an additional 60 days to elect the change of accounting method permitted under the repair regs.

Responding to growing concerns over the scope of tax-related identity theft, the House has approved legislation to give victims more information about the crime. The House also took up a bill expanding disclosure of taxpayer information in cases involving missing children and the Ways and Means Committee approved a bill impacting disclosures by exempt organizations.

Responding to growing concerns over the scope of tax-related identity theft, the House has approved legislation to give victims more information about the crime. The House also took up a bill expanding disclosure of taxpayer information in cases involving missing children and the Ways and Means Committee approved a bill impacting disclosures by exempt organizations.

Stolen identity refund fraud

Tax-related identity theft occurs when a criminal uses the personal identification of another to obtain a fraudulent refund. According to the IRS and the Treasury Inspector General for Tax Administration (TIGTA), tax-related identity theft continues to grow despite efforts to uncover and apprehend criminals. In 2014, the IRS estimated that it prevented the issuance of nearly $25 billion in fraudulent refunds. However, criminals obtained more than $5 billion in fraudulent refunds.

More often than not, individuals are unware they have been victims until they file their return and discover that a return has already been filed by an identity thief. In some cases, the IRS may send a letter to the taxpayer reporting that the agency identified a suspicious return using the individual’s personal information.

On May 19, the House approved the Stolen Identity Refund Fraud Prevention Act of 2016 (HR 3832). HR 3832 would require the IRS to notify victims of tax-related identity theft as soon as practicable that his or her personal information was used without authorization. The IRS also would be required to notify victims of tax-related identity theft of any criminal changes brought against the alleged identity thief.

Additionally, the bill would create a centralized point of contact for victims of identity theft. The centralized point of contact may be a team or subset of specially trained employees who can work across functions to resolve problems for the victim and who is accountable for handling the case to completion. The makeup of the team may change as required to meet IRS needs, but the procedures must ensure continuity of records and case history and may require notice to the taxpayer in appropriate instances.

The bill also would make willful misappropriation of a taxpayer’s identity for the purpose of making any return a felony. Under the bill, this offense would be punishable by a fine of up to $250,000 ($500,000 for a corporation), imprisonment for up to five years, or both, plus prosecution costs.

Disclosures

The House approved the bipartisan Recovering Missing Children Bill (HR 3209) on May 10. The bill amends the Tax Code to grant law enforcement access to taxpayer information while investigating missing and exploited children. Under Code Sec. 6103, return information is confidential.

Exempt organizations

The Preventing IRS Abuse and Protecting Free Speech Bill (HR 5053) limits the contributor information that must be reported by a Code Sec. 501(c) on its annual return. Generally, the IRS may not require an exempt organization to report the name, address, or other identifying information of any contributor to the organization with respect to any contribution, grant, bequest, devise, or gift of money or property, regardless of amount. The bill is awaiting action by the full House after having been approved by the Ways and Means Committee.

If you have any questions about these or other pending bills, please contact our office.

As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important federal tax reporting and filing data for individuals, businesses and other taxpayers for the month of May 2016.

As an individual or business, it is your responsibility to be aware of and to meet your tax filing/reporting deadlines. This calendar summarizes important federal tax reporting and filing data for individuals, businesses and other taxpayers for the month of May 2016.

May 2
Employers. File Form 941 for the first quarter of 2016 for employment taxes if you have not deposited the tax for the quarter timely, properly, and in full. Deposit or pay any undeposited tax under the accuracy of deposit rules. 
Deposit federal unemployment tax owed through March if more than $500. 

May 4
Employers. Semi-weekly depositors must deposit employment taxes for April 27–29. 

May 6
Employers. Semi-weekly depositors must deposit employment taxes for April 30 and May 1–3. 

May 10
Employers. File Form 941 for the first quarter of 2016 for employment taxes if you deposited the tax for the quarter timely, properly, and in full.
Employees who work for tips. Employees who received $20 or more in tips during April must report them to their employer using Form 4070. 

May 11
Employers. Semi-weekly depositors must deposit employment taxes for May 4–6. 

May 13
Employers. Semi-weekly depositors must deposit employment taxes for May 7–10. 

May 16
Employers. For those to whom the monthly deposit rule applies, deposit employment taxes and nonpayroll withholding for payments in April. 

May 18
Employers. Semi-weekly depositors must deposit employment taxes for May 11–13. 

May 20
Employers. Semi-weekly depositors must deposit employment taxes for May 14–17. 

May 25
Employers. Semi-weekly depositors must deposit employment taxes for May 18–20. 

May 27
Employers. Semi-weekly depositors must deposit employment taxes for May 21–24. 

June 2
Employers. Semi-weekly depositors must deposit employment taxes for May 25–27. 

June 3
Employers. Semi-weekly depositors must deposit employment taxes for May 28–31.

The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) made permanent many popular but previously temporary tax breaks for individuals and businesses. The PATH Act also enhanced many incentives. These enhancements should not be overlooked in tax planning both for 2016 and future years. Some of the enhancements are discussed here. If you have any questions about these or other tax breaks in the PATH Act, please contact our office. 

The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) made permanent many popular but previously temporary tax breaks for individuals and businesses. The PATH Act also enhanced many incentives. These enhancements should not be overlooked in tax planning both for 2016 and future years. Some of the enhancements are discussed here. If you have any questions about these or other tax breaks in the PATH Act, please contact our office.

Business incentives

Code Sec. 179 expensing. The PATH Act made permanent the Code Sec. 179 $500,000 dollar limit and $2 million investment limit. For tax years beginning after 2015 these amounts are adjusted for inflation. The IRS has announced that 2016 will not see any increase in the $500,000 limit and only a slight rise to $2,010,000 for the investment limit.

Enhancements, for tax years only beginning after 2015, include allowing the Code Sec. 179 expense deduction for air conditioning and heating units. Additionally, the $250,000 limitation on the amount of Code Sec. 179 property that can be attributable to qualified real property is eliminated, with a corresponding removal of carryforwards of disallowed amounts.

Bonus depreciation. Under the PATH Act, bonus depreciation is available at its 50 percent level starting in 2015 through 2017. However, the bonus rate is reduced from 50 percent to 40 percent for property placed in service in 2018 and to 30 percent for property placed in service 2019, after which it sunsets (ending after 2020, in the case of certain noncommercial aircraft and property with a longer production period). Effective for property placed in service after 2015, bonus depreciation for qualified leasehold improvement property is replaced with a bonus depreciation deduction for "qualified improvement property" made to the interior portion of a nonresidential building whether or not the building is subject to a lease; and the improvement need not be made only more than three years after the building was placed in service.

Research tax credit. The PATH Act made permanent the research tax credit. Effective for tax years beginning after December 31, 2015, a qualified small business during a tax year may elect to apply a portion of its research credit against the 6.2 percent payroll tax imposed on the employer’s wage payments to employees. The research credit is also added to the list of general business credit components designated as "specified credits" that may offset alternative minimum tax (AMT) as well as regular tax.

Work Opportunity Tax Credit. The Work Opportunity Tax Credit (WOTC) is extended through December 31, 2019 by the PATH Act. The WOTC also is expanded and made available to employers that hire individuals who are qualified long-term unemployment recipients beginning work for the employer after December 31, 2015.

Film/TV/live theatrical productions. The special expensing provision for qualified film and television productions is expanded by the PATH Act to apply to qualified live theatrical productions. These productions must commence after December 31, 2015, and before January 1, 2017.

Incentives for individuals

Exclusion from gross income of discharges of acquisition indebtedness on principal residences. The PATH Act extended for two additional years (through December 31, 2016) the exclusion from gross income for discharges of qualified principal residence indebtedness. The provision also provided for an exclusion from gross income in the case of those taxpayers whose qualified principal residence indebtedness was discharged on or after January 1, 2017, if the discharge was pursuant to a binding written agreement entered into prior to January 1, 2017.

Code Sec. 25C credit. The PATH Act extended and modified the popular Code Sec. 25C credit for energy-efficient improvements. For property placed in service after December 31, 2015, the standards for energy efficient building envelope components are modified to meet new conservation criteria.

Teachers’ classroom expense deduction. The $250 annual limit for the now permanent above-the-line deduction for classroom expenses under the PATH Act is inflation-adjusted starting in 2016. Due to low inflation, the $250 limit will not rise for 2016. Starting in 2016, expenses for professional development are added to the list of eligible expenses.

Your tax planning needs to respond to changes in the tax laws. Please contact our office and we can discuss how these and other changes in recent tax legislation may impact your comprehensive tax planning.

The IRS has issued the 2016 optional standard mileage rates for calculating the deductible costs of operating an automobile for business, charitable, medical, and moving purposes (Notice 2016-1; IR-2015-137). The decline in gas prices appeared to spur the drop in the optional rates.

The IRS has issued the 2016 optional standard mileage rates for calculating the deductible costs of operating an automobile for business, charitable, medical, and moving purposes (Notice 2016-1; IR-2015-137). The decline in gas prices appeared to spur the drop in the optional rates.

The optional standard mileage rate for business will drop from 57.5 cents a mile (for 2015) to 54 cents a mile for 2016, a decrease of 3.5 cents, and the lowest rate in five years. The optional standard mileage rates for medical and moving expenses drops from 23 cents for 2015 to 19 cents per mile for 2016, a decrease of four cents and, again, the lowest rate in five years. The optional standard mileage rate for charitable expenses, which is set by statute, remains at 14 cents per mile for 2016.

Rules for use

Rev. Proc. 2010-51 provides rules for computing deductible costs of operating an automobile, including the use of the optional standard rates. The business standard mileage rate is a substitute for all the costs of an automobile for business use, including depreciation, maintenance and repairs, and gasoline.

However, a taxpayer may not use the business standard mileage rate after using a depreciation method under Code Sec. 168 or after claiming the Code Sec. 179 deduction for that vehicle. Furthermore, a taxpayer may not use the business rate for more than four vehicles at a time.

To compute the allowance under a fixed and variable rate plan, the standard automobile cost may not exceed $28,000 for cars or $31,000 for trucks and vans.

Depreciation

For automobiles used for business, a taxpayer must use 24 cents per mile as the portion of the standard mileage rate treated as depreciation for 2016. For prior years, these amounts are 24 cents for 2015, 22 cents for 2014, and 23 cents for both 2012 and 2013. These amounts are used to calculate basis reductions for depreciation taken under the standard mileage rate.

The tax rules surrounding the dependency exemption deduction on a federal income tax return can be complicated, with many requirements involving who qualifies for the deduction and who qualifies to take the deduction. The deduction can be a very beneficial tax break for taxpayers who qualify to claim dependent children or other qualifying dependent family members on their return. Therefore, it is important to understand the nuances of claiming dependents on your tax return, as the April 18 tax filing deadline is just around the corner.

The tax rules surrounding the dependency exemption deduction on a federal income tax return can be complicated, with many requirements involving who qualifies for the deduction and who qualifies to take the deduction. The deduction can be a very beneficial tax break for taxpayers who qualify to claim dependent children or other qualifying dependent family members on their return. Therefore, it is important to understand the nuances of claiming dependents on your tax return, as the April 18 tax filing deadline is just around the corner.

Dependency deduction

You are allowed one dependency exemption deduction for each person you claim as a qualifying dependent on your federal income tax return. The deduction amount for the 2010 tax year is $3,650. If someone else may claim you as a dependent on their return, however, then you cannot claim a personal exemption (also $3,650) for yourself on your return. Additionally, your standard deduction will be limited.

Only one taxpayer may claim the dependency exemption per qualifying dependent in a tax year. Therefore, you and your spouse (or former spouse in a divorce situation) cannot both claim an exemption for the same dependent, such as your son or daughter, when you are filing separate returns.

Who qualifies as a dependent?

The term "dependent" includes a qualifying child or a qualifying relative. There are a number of tests to determine who qualifies as a dependent child or relative, and who may claim the deduction. These include age, relationship, residency, return filing status, and financial support tests.

The rules regarding who is a qualifying child (not a qualifying relative, which is discussed below), and for whom you may claim a dependency deduction on your 2010 return, generally are as follows:

-- The child is a U.S. citizen, or national, or a resident of the U.S., Canada, or Mexico;

-- The child is your child (including adopted or step-children), grandchildren, great-grandchildren, brothers, sisters (including step-brothers, and -sisters), half-siblings, nieces, and nephews;

 -- The child has lived with you a majority of nights during the year, whether or not he or she is related to you;

 -- The child receives less than $3,650 of gross income (unless the dependent is your child and either (1) is under age 19, (2) is a full-time student under age 24 before the end of the year), or (3) any age if permanently and totally disabled;

 -- The child receives more than one-half of his or her support from you; and

 -- The child does not file a joint tax return (unless solely to obtain a tax refund).

Qualifying relatives

The rules for claiming a qualifying relative as a dependent on your income tax return are slightly different from the rules for claiming a dependent child. Certain tests must also be met, including a gross income and support test, and a relationship test, among others. Generally, to claim a "qualifying relative" as your dependent:

-- The individual cannot be your qualifying child or the qualifying child of any other taxpayer; -- The individual's gross income for the year is less than $3,650; -- You provide more than one-half of the individual's total support for the year; -- The individual either (1) lives with you all year as a member of your household or (2) does not live with you but is your brother or sister (include step and half-siblings), mother or father, grandparent or other direct ancestor, stepparent, niece, nephew, aunt, or uncle, or inlaws. Foster parents are excluded.

Although age is a factor when claiming a qualifying child, a qualifying relative can be any age.

Special rules for divorced and separated parents

Certain rules apply when parents are divorced or separated and want to claim the dependency exemption. Under these rules, generally the "custodial" parent may claim the dependency deduction. The custodial parent is generally the parent with whom the child resides for the greater number of nights during the year.

However, if certain conditions are met, the noncustodial parent may claim the dependency exemption. The noncustodial parent can generally claim the deduction if:

-- The custodial parent gives up the tax deduction by signing a written release (on Form 8332 or a similar statement) that he or she will not claim the child as a dependent on his or her tax return. The noncustodial parent must attach the statement to his or her tax return; or

-- There is a multiple support agreement (Form 2120, Multiple Support Declaration) in effect signed by the other parent agreeing not to claim the dependency deduction for the year.