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It almost feels like springtime in the northeast. And those spring showers are bringing… flooding to many areas of the country. With less than two weeks to go until the tax season filing deadline, the IRS has announced that taxpayers in Maine and Rhode Island will have until July 15, 2024, to file various federal individual and business tax returns and make tax payments. That follows relief already granted to taxpayers in Alaska, California, Michigan, Washington, and West Virginia for various weather and climate-related issues.
Other taxpayers may be granted automatic extensions, including U.S. citizens or residents who live outside of the U.S. or Puerto Rico, or members of the military and others serving in combat zones or hazardous zone areas.
But if you don’t have an “official” reason for an automatic extension, that doesn’t matter. You can simply request one (here’s how). (☆)
And as tax situations get trickier, it looks like taxpayers are willing to wait to file. Tax filing season statistics still suggest that filers aren’t rushing to file their returns—but tax refunds are continuing their upward trend. As of March 22, 2024, the IRS had received 80,470,000 tax returns, compared to 80,683,000 returns received as of March 24, 2023, a .3% decline. Professionally prepared returns—those accounted for 40,311,000 of e-filed returns received so far in 2024—tend to pick up as the season rolls on. (☆)
Is there an easier way to deal with filing? Some taxpayers are checking out the IRS pilot program called DirectFile. The IRS is testing the pilot—announced last year—in 12 states with a plan to expand. “Expanding Direct File as the tax deadline approaches will provide more taxpayers a way to file directly with the IRS for free, and it will give us more valuable information to assess this pilot,” said IRS Commissioner Danny Werfel. “For those who haven’t filed their taxes in the 12 states, we encourage them to visit IRS.gov and see if Direct File is the right option for them.”
The downside of a DIY plan? You might be missing out on some additional planning techniques. One of those techniques? A qualified charitable distribution (QCD). If you are over 70 1/2 and have charitable inclinations, a QCD might be a good idea. But there are some additional requirements—and some pitfalls—to look out for.
The Saver’s Credit is another overlooked tax break. To qualify, you need to be age 18 or older, not be claimed as a dependent on another person’s return, and not a student. The maximum contribution amount that may qualify for the credit is $2,000 ($4,000 if married filing jointly), making the maximum credit $1,000 ($2,000 if married filing jointly).
Many of us could use an additional tax break—or a break, full stop. A 2023 survey conducted by Payroll.org reported that 78% of Americans live paycheck to paycheck, a 6% increase from 2022. In addition to tax savings, you may need to create—and stick to—a budget. True confession: I’ve never been great at budgets. But I found some of these tips helpful. My favorite? Ask yourself whether you can limit regrets to five minutes max. It’s never too late—I may create and stick to a budget yet.
There was one more bit of news out last week that could prove financially favorable. Last week, Visa and Mastercard announced a settlement of their 19-year federal court battle with merchants. Ultimately, retailers aimed to bring down the average fees they pay the banks for processing purchases made with credit cards. Now, merchants will finally be able to offer customers extra discounts or store rewards for using a specific bank card that costs them less or a payment method—say “pay-by-bank”—that cuts out the card networks and costs sellers a lot less. I’m not encouraging you to spend more—but suggesting you keep an eye out for perks. (☆)
Speaking of perks, I was able to put some time aside to fly out to see my daughter this weekend (she’s in college out of state). I hope you’re able—even in the midst of tax season—to find some time to do something you enjoy.
(With nine days left in tax season, don’t forget about our free Forbes tax guide.)
Thanks for reading!
—Kelly Phillips Erb (Senior Writer, Tax)
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Questions
This week’s question isn’t from an actual reader. It’s from a scammer:
My apology for sending this unsolicited mail to you; I actually got your e-mail contact through my online exploration for proficient business persons and l decided to contact you directly about this business venture.
And another one:
I trust this message finds you well. I am currently seeking a new CPA, and your expertise has caught my attention. Could you please advise on the documents you typically require from clients? I’d like to ensure I have everything prepared for our potential collaboration.
Other scammy emails I received involved attachments sending “Form W2 and 1099 you requested” and several “file upload notifications” advising that the tax documents I was waiting for were now available.
I get a number of these per week—but they tend to ramp up during tax season.
I can’t stress enough how important it is to be vigilant all year when it comes to scams and schemes, especially during tax season. The IRS thinks so, too. The agency recently launched its “Dirty Dozen”—an annual list of common scams taxpayers and tax professionals may encounter.
Making the list this year? Phishing and smishing. Phishing and smishing may sound fun (the ‘90s grunge fan in me immediately thinks of moshing), but they are far from it. These are fake communications posing as actual notices from legitimate organizations intended to trick you. Phishing is a form of email sent by scammers impersonating the IRS or other legitimate organizations, while smishing involves text or smartphone SMS messages instead of email. (☆)
Be skeptical about emails you aren’t expecting, even if they look like they are from your tax professional (or client). And use trusted platforms, such as dedicated portals, to upload and download emails and other data.
Don’t respond to any unsolicited communication claiming to be from the IRS via email or text. Any engagement could put you at risk. Remember, this is how scammers make a living—their goal is to persuade you to give up your information, so don’t give them an additional opportunity. Instead, forward the text or email, preferably with the full email headers, to [email protected]. Send the whole email and not a scan (simply forwarding scanned images removes valuable information). The IRS also asks that you include the sender’s contact information (email or phone number), date, time, time zone, and the number that received the message.
Don’t think it could happen to you? Neither did this Texas-based accounting firm—until one small click changed their minds. (☆)
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Do you have a tax question or matter that you think we should cover in the next newsletter? We’d love to help if we can. Check out our guidelines and submit a question here.
SUSPICIOUS ACTIVITY ON THE RISE
Earlier this year, the U.S. Department of the Treasury announced it had recovered over $375 million using an enhanced fraud detection process involving Artificial Intelligence (AI).
According to the Treasury, check fraud has increased nationwide by 385% since the pandemic. To address the increase, the Treasury is using a new AI-related system to mitigate check fraud in near real-time by strengthening and expediting processes to recover potentially fraudulent payments from financial institutions.
Last year, the Treasury issued an alert to banks and financial institutions related to suspicious activity at banks tied to Employee Retention Credit and stimulus check fraud.
In 2021, financial institutions filed over 350,000 Suspicious Activity Reports (SARs) to FinCEN to report potential check fraud, a 23% increase over the number of check fraud-related SARs filed in 2020. This upward trend continued into 2022, when the number of SARs related to check fraud reached over 680,000, nearly double the previous year’s filings.
Under the Bank Secrecy Act, financial institutions must file a suspicious activity report—called a SAR—for a reportable transaction. What constitutes suspicious activity can vary but can include a lack of evidence of any business purpose in certain transactions, unusually large numbers or volumes of wire transfers, and unusual mixed deposits of money orders, third-party checks, and payroll checks into a business account.
A DEEPER DIVE
Courts have been busy looking at tax matters this season.
First up, a U.S. district court that had invalidated the temporary section 245A regulations in 2022 granted the government’s motion for summary judgment in Liberty Global Inc. v. United States. The court order endorsed an expansive interpretation of the economic substance doctrine codified in section 7701(o). The decision, which Liberty Global almost immediately appealed to the Tenth Circuit, has rattled tax advisors and multinationals and led to predictions that the economic substance doctrine—which disallows tax benefits if the transaction does not have economic substance or lacks a business purpose—will become a recurring feature in transfer pricing disputes.
A November 2023 U.S. Tax Court decision also has the tax community talking over the court’s view of a private equity company’s U.S. operations. In YA Global Investments v. Commissioner, the company was liable for over $57 million, plus penalties and interest, for failing to withhold taxes on income that was effectively connected with a U.S. trade or business. The IRS took the position that YA Global was not in an investment business or trader, but an underwriter—exposing them to tax. The matter went to court, which rejected the IRS’s view as too broad but still ruled for the IRS on different grounds involving documentation and instructions. The court effectively said, “There is a burden of proof that has to be met by the taxpayer that these fees are not for services. The taxpayer did not meet that burden, and therefore we think that you’re providing services.” The result was a finding that the company had U.S. business activity and was subject to tax.
Federal courts are limited in the types of cases that they can hear. If a matter is moot—meaning there’s no legally recognizable dispute—the courts won’t hear them. But what constitutes mootness came under the microscope in a March 22, 2024 decision by the Court of Appeals for the Third Circuit. In Zuch v. Commissioner, a taxpayer contested a tax liability for which the IRS issued notice it would levy to collect. The taxpayer requested a CDP (collection due process) hearing—which gave her the right to be heard at the administrative level. Eventually, the matter went to court. In the meantime, the IRS had applied overpayments from other tax years to fully satisfy the tax debt. That, the IRS said, rendered the argument moot. The court disagreed, finding that even though the levy was no longer imminent, she was still able to challenge the existence or amount of the underlying liability. This is a different result from the Tax Court’s decision in a previous case, likely setting up a challenge.
Speaking of challenges, the Supreme Court recently heard oral arguments in a case involving a split between circuit courts. In Connelly v. United States, an executor filed a federal estate tax return and reported the value of stock equal to the value of a corporation redemption paid for with life insurance. The IRS disagreed with the value, arguing that valuation failed to account for the increase in the company’s value resulting from the payout of the life insurance proceeds. The estate filed suit, arguing that the life insurance proceeds were not a corporate asset because they were offset by a corresponding liability—the redemption obligation. The Supreme Court heard oral arguments on March 27, 2024, where, it turns out, whether to include the value of life insurance used to pay for a corporate stock redemption—common in closely-held businesses—is a complicated question. (☆)
IMPORTANT DATES
📅 April 13, 2024, 9 a.m. to 4 p.m. The IRS will open many Taxpayer Assistance Centers (TACs) nationwide on Saturday to offer in-person help without an appointment. Normally, TACs are open weekdays by appointment.
📅 April 15, 2024. Individual federal income tax returns are due (or file for an extension) for most taxpayers.*
📅 April 17, 2024. Individual federal income tax returns are due (or file for an extension) for taxpayers in Maine and Massachusetts.
📅 May 15, 2024. Information tax returns (series 990) are due (or file for an extension) for tax-exempt organizations with a tax year ending in December.
📅 May 17, 2024. Deadline for filing for refunds for tax year 2020. The IRS has announced that almost 940,000 people have unclaimed refunds for tax year 2020.
* The IRS has announced some relief for taxpayers Check the IRS’ natural disaster page for more information.
NOTEWORTHY
The IRS continues to hire new employees. Several positions were recently posted on the IRS Careers page, including openings for Tax Counsel.
The ABA Section of Taxation is looking for volunteers for its 2024-2025 Law Student Tax Challenge (LSTC). The LSTC is an annual competition where students compete in teams of two to draft a memorandum and client letter analyzing a complex tax problem. The top teams advance to the oral competition round, where they present their analyses before a panel of 3-5 judges who will act as “senior partners” or “clients.” The competition is held annually in person at the ABA Tax Section’s Midyear Meeting. Volunteer applications are due May 17, 2024.
The overall average charge for preparing individual tax returns increased by $35 in 2023, while the overall average charge for preparing business returns increased by $85. That’s according to a National Association of Tax Professionals (NATP) Tax Professional Fee Study.
Registration is open for the National Association of Enrolled Agents (NAEA) 2024 Capitol Hill Fly-In Day. Over three days, May 20-22, 2024, NAEA will meet with policymakers, IRS experts, and DC thought leaders about Congress and its implications for enrolled agents.
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TRIVIA
In fiscal year 2023, what percentage of IRS-Criminal Investigation (CI) investigations were initiated based on Bank Secrecy Act data like suspicious activity reports (SARs)?
A. 14%
B. 28%
C. 72%
D. 100%
Find the answer at the bottom of this newsletter.
OUR TEAM
I hope you’ll get to know some of our staff and contributors. Since we highlighted finances this week, I asked: What was the best piece of financial advice that anyone ever gave you?
Kelly Phillips Erb (Senior Writer, Tax): Every little bit helps. (my mom). I’ve especially taken that to heart in a financial world that often emphasizes big is better. It’s okay to start small.
Bob Ivry (Writer, Money Team): Never bet on the Jets. (my son)
Nic Thibodeau (Senior SEO Strategist, Investing): Automate savings and retirement deposits. You will save without even realizing it.
Jena McGregor (Senior Editor, Leadership Team): Start early. (my dad)
Brandon Kochkodin (Writer, Money Team): Far more money has been lost by investors in preparing for corrections, or anticipating corrections, than has been lost in the corrections themselves. — fund manager Peter Lynch
Mitchell Martin (Editor, Digital Assets): “You can never be too conservative with your retirement money.” That came from Trude Latimer, who was a stock strategist and regular press source in the 1980s-90s in a private conversation I had with her. She didn’t mean “you should put all your money in FDIC-insured savings accounts” as much as “it would be better to have a little less in your IRA on the first day of your retirement because you didn’t chase speculative returns than to have a lot less because you did.”
KEY FIGURES
That’s the number of persons who were estimated to “prepare tax returns for individuals or small businesses” in the U.S. in 2023, according to the Bureau of Labor Statistics. That number excludes those who identify as “Accountants and Auditors.”
TRIVIA ANSWER
The answer is (A) 14%.
According to the most recent data, in fiscal year 2023, BSA data was queried in over 89.6% of CI investigations, and 14% of CI’s investigations were initiated based on BSA information.
Former CI Chief Jim Lee described CI’s valued role in the BSA program, saying, “The Bank Secrecy Act exists to prevent financial institutions from being used as a vehicle by criminals to conceal or launder their ill-gotten gains. It also serves as a safety net for crime victims. Hundreds of millions of dollars in restitution have been awarded to crime victims because our agents were able to use BSA data to prove a crime was committed.”
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