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Saturday November 26, 2022

Washington News

Washington Hotline

Tax Filing Season Opened January 24

In IR–2022–18 the Internal Revenue Service (IRS) announced that it has opened tax filing season for this year. The IRS reminds taxpayers you should use best practices to file an accurate return and receive a prompt tax refund.

The IRS expects to process 2021 tax returns for 160 million individuals. Most will file before the April 18 tax deadline. An exception exists for taxpayers in Massachusetts and Maine, who celebrate the Patriots Day holiday and may file on April 19.

IRS Commissioner Chuck Rettig stated, "IRS employees are working hard to deliver a successful 2022 tax season while facing enormous challenges related to the pandemic. There are important steps people can take to ensure they avoid processing delays and get their tax refund as quickly as possible. We urge people to carefully review their taxes for accuracy before filing. And they should file electronically with direct deposit if at all possible. Filing a paper tax return this year means an extended refund delay."

Taxpayers who file electronically will normally receive a refund within 21 days. The average direct deposit refund last year was $2,800.

Rettig continued, "IRS employees will do everything possible within the available resources to serve taxpayers this year. We will work hard to deliver refunds quickly, serve as many people as possible and work to catch up on past tax returns affected by the pandemic."

The IRS offers multiple tips for a smooth filing season.
  1. e–Filing — You should file electronically and select direct deposit. Paper tax returns will lead to extended delays in issuing refunds.
  2. Accurate Tax Return — You should assemble your records and use online or electronic software to prepare an accurate return. Errors in your tax return may lead to a processing delay and could cause your refund to be delayed for an extended period of time.
  3. Economic Impact Payment (EIP) or Child Tax Credit (CTC) — If you have received a third EIP or an advance CTC in 2021, you will need records to ensure that you enter the correct amounts. If you make an error in these amounts, your refund may be substantially delayed.
  4. Earned Income Tax Credit (EITC) or Additional Child Tax Credits (ACTC) — The IRS is prohibited from issuing a refund for EITC or ACTC until the middle of February. This delay is part of the effort by the IRS to stop fraudulent refunds.
  5. Online Help Resources — The quickest and easiest option for help is irs.gov. There continue to be lengthy delays on IRS phone lines. You may also wish to create an Online Account on irs.gov. This account enhances your access to online tax assistance.
  6. Non–Filers Tool — If you do not usually file a return and qualify for the Recovery Rebate Credit, the Advance Child Tax Credit or the Earned Income Tax Credit, you should file a 2021 tax return to receive all of your available benefits.
  7. Online Free Help — The irs.gov website includes the Interactive Tax Assistant. This help is available 24 hours per day.
  8. Delayed 2020 Tax Return — Individuals whose 2020 tax returns have not yet been processed should still file the 2021 return. If you have not had your return processed for 2020, on the electronic tax software enter zero dollars for your 2021 adjusted gross income (AGI).

How Non-Filers Obtain Tax Credits


In Rev. Proc. 2022–12; 2022–7 IRB 1, the IRS issued guidance for individuals who may qualify to receive benefits when they file tax returns. These individuals may qualify for the Child Tax Credit (CTC), the Recovery Rebate Credit (RRC), the Earned Income Tax Credit (EITC) or other Federal provisions.

Rev. Proc. 2022-12 provides simplified electronic filing methods for individuals to receive these benefits. Many individuals have not been able to file electronically because of the limitations of tax software. This ruling is intended to create simplified procedures to enable them to file.

Section 5 of the Rev. Proc. covers individuals who are not required to file for 2021, have incomes less than the standard deduction amount and are not eligible for the EITC. Section 6 provides a simplified Federal income tax procedure for those individuals who are not required to file an income tax return in 2021, have gross income less than the standard deduction amount and had earned income for purposes of the EITC.

The Child Tax Credit is fully refundable for 2021. Taxpayers will receive credit for $3,000 for each qualifying child aged 6 to 17 and $3,600 for each CTC child under the age of 6. The qualifying child must not have attained age 18 by December 31, 2021 and must have a Social Security Number (SSN).

Many taxpayers received an advance CTC payment during 2021. They must report the amount of the advance CTC payments and the balance will qualify for a credit.

Individuals who have earned income may qualify for the EITC. For the 2021 taxable year, there are four maximum amounts. If there is no qualifying child, the EITC is $1,502. With one qualifying child, the amount is $3,618. Two qualifying children with valid SSN numbers could merit $5,980. With three or more EITC children, the amount is $6,728.

These amounts are available up to a "threshold phaseout amount" that will reduce the benefit. The individual claiming the EITC must also have a valid SSN, a principal place of abode in the United States, have attained age 19 and not be a dependent on another tax return.

The Recovery Rebate Credit is available for individuals who may not have received their full Economic Impact Payments. The credit is generally $1,400 per eligible individual and for each eligible dependent of the individual. There will be a reduction if the individual or spouse does not have a SSN. However, a member of the Armed Forces of the United States will qualify even if the spouse does not have a SSN.

Section 4 creates a simplified electronic procedure for a "zero AGI filer." This is an individual who does not file a federal income tax return, has gross income less than the standard deduction, has zero adjusted gross income and has not already filed a federal income tax return.

Section 5 includes a simplified procedure for filers who qualify for the CTC/RRC. These individuals are not required to file a federal income tax return, have income below the standard deduction, have not previously filed a tax return, have a Social Security or IRS individual taxpayer identification number and have a principal place of abode in the United States.

Section 6 is a simplified procedure for individuals who qualify for an EITC/CTC/RRC benefit. They are not required to file a federal income tax return, have income less than the standard deduction, have earned income under Section 32(c)(2), have no other income in addition to their earned income, are below the "threshold phaseout amount" and have not previously filed a tax return.

IRS Promises Limited Relief For Taxpayers


The IRS announced on January 27, 2022, that it is suspending certain notices and reports to assist taxpayers.

Because of the delay in processing returns during the pandemic, the IRS recognizes there are several million returns and payments by taxpayers that have not yet been processed. The IRS claims to have "aggressively pursued every available option" to resolve these problems. It has used overtime by IRS employees, redeployed employees to other functions, deployed surge teams and taken other actions to accelerate processing. The announcement stated, "We are clearly not where we want to be at present. But our employees have been hard at work to develop innovative processes to expedite inventory reductions during the past year. Despite substantial progress thus far, another challenging filing season is ahead."

To provide taxpayer relief, the IRS will suspend issuance of many automated notices and related actions. They will suspend notices where they have credited taxpayers for payments but do not have a record of a tax return. Ceasing to issue these notices which "could have otherwise been sent to thousands of taxpayers" should reduce confusion.

The IRS notes that there are a number of notices that are required to be issued by statute. The IRS will continue to explore areas in an attempt to reduce the issuance of these notices. However, the IRS computers are automated for the issuance of many of these notices and it will require significant programming changes to stop sending them.

IRS Commissioner Chuck Rettig stated, "Since last year, we have been focused on numerous taxpayer–related issues and have pursued innovative ideas and processes not previously deployed by the IRS in an effort to get healthy and provide meaningful taxpayer services. Our employees have worked long, hard hours during the pandemic to assist taxpayers and successfully modify our systems, despite lacking the funding that we need to adequately serve the American people." Rettig continued, "The IRS has been operating in an all hands on deck approach, leaving nothing off the table for consideration to improve overall service."

The American Institute of CPAs (AICPA) responded with a press release on the IRS statement. AICPA is part of the Tax Professionals United for Taxpayer Relief Coalition.

AICPA President and CEO Barry Melancon, CPA, CGMA, stated, "The actions taken today by the IRS signal their desire to help taxpayers, but we believe that there is more they can do and respectfully disagree with the IRS's assertion that Congressional action is needed to suspend the automatic issuance of notices." Melancon concludes, "We appreciate the strain the IRS is under and continue to urge them to fully implement all of our recommendations to alleviate unnecessary stress on the agency and the taxpayers."

The IRS has recommended that the automated compliance actions be discontinued, requests for account holds be coordinated with the time it takes the IRS to process penalty abatement requests, that the IRS offer a reasonable cause penalty waiver and that taxpayers be provided with targeted relief from underpayment and late payment penalties for the 2021 tax year.

Editor's Note: The IRS computer system with automated penalty notices creates major problems for taxpayers. Thad Inge is a spokesperson for the National Association of Enrolled Agents. He stated, "The reasoning here is pretty simple. The IRS remains way behind on processing all types of returns and payments and correspondence, but these automatic notices are still going out. And so folks are replying to the notices, they are sending in their response, they are sending in their reasoning. And then the matter continues to escalate because those responses are not being processed. And they get penalties, further notices." The IRS is going to have a challenging tax season because its ability to reprogram computers to minimize this problem is quite limited.

Applicable Federal Rate of 1.6% for February -- Rev. Rul. 2022-3; 2022-6 IRB 1 (18 Jan 2022)


The IRS has announced the Applicable Federal Rate (AFR) for February of 2022. The AFR under Section 7520 for the month of February is 1.6%. The rates for January of 1.6% or December of 1.6% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2022, pooled income funds in existence less than three tax years must use a 1.6% deemed rate of return.

Published January 28, 2022
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