Congress was back to work this week but didn’t make much progress on tax and spending-related bills. For starters, there’s still no movement on the tax bill that would expand the child tax credit. The Senate has not yet scheduled a vote on the proposal.
The delay on the bill likely explains why early tax season filing numbers are still down in almost every category. One bright spot for taxpayers? Average refunds are up: $3,207 per taxpayer as of February 16, 2024, compared to $3,140 in 2023. That’s not a huge bump, but taxpayers likely hope it’s a trend. (☆)
The House and Senate did vote to avoid a shutdown—for one week. The bill punts the spending deadlines from March 1 and March 8 to March 8 and March 22, respectively. Without a vote by the end of the day on Friday, funding would have run out for several government agencies. (☆)
That means funding won’t run out yet for government agencies, but lawmakers are at odds on spending. A popular target is the IRS. Earlier this year, House Speaker Mike Johnson (R-La.) and Senate Majority Leader Chuck Schumer (D-N.Y.) reached a $1.59 trillion spending agreement, which included an additional $10 billion in cuts to the IRS mandatory funding for a total of $20 billion (all of which would be clawed back in 2024). Those cuts will come from the nearly $80 billion promised to the IRS in the Inflation Reduction Act.
Not everyone thinks that’s a great idea. Professor Natasha Sarin and Mark Mazur, both formerly at Treasury, discussed the effect the IRS’s funding from the Inflation Reduction Act would have on tax revenue and compliance with Tax Notes’ Robert Goulder (written transcript available). Sarin noted “the logic is pretty obvious, which is that if you watch your neighbor get audited or if you yourself get audited, in response to that increased enforcement activity you’re going to adjust your behavior affirmatively.”
The IRS hopes that’s true. IRS Commissioner Danny Werfel announced that 125,000 letters will go out to high-earners who have not filed tax returns—more than 25,000 are targeted to those with more than $1 million in income. According to Werfel, money from the Inflation Reduction Act will allow the agency to see the process through from sending out the notices to resolution. Werfel also confirmed the agency’s commitment that the historical audit rate for those earning under $400,000 will not increase. (☆)
Despite the lack of movement on existing bills in Congress, lawmakers aren’t shy about introducing new proposals. Rep. Ro Khanna (D-Calif.) and Rep. Debbie Dingell (D-Mich.) have introduced a bill, dubbed the “Made in the USA Tax Credit Act,” which would create a refundable tax credit of up to $2,500 for single filers or $5,000 for joint filers for purchases of American-made products. Don’t get too excited—Govtrack.us gives the “Made in the USA Tax Credit Act” a 0% chance of passing.
Finally, while I’m so tired that I put my glasses on while still wearing my contacts and convinced myself I had gone blind, Kristopher Thomas is taking industrious to a whole other level. Thomas, who is currently in federal prison for a gang-related murder, has been charged with drug trafficking and ERC-related fraud that he allegedly committed while serving time. According to court documents, Thomas was the head of a drug trafficking organization responsible for shipping large quantities of drugs to at least four states (Hawaii, Oklahoma, Alabama, and New Jersey) and smuggling fentanyl into the prison. During the investigation, Drug Enforcement Administration agents identified seven contraband cell phones they said were used by Thomas while inside the prison to direct operations. But wait—there’s more.
DEA agents noted that, in certain calls and text messages, Thomas appeared to be involved in a tax fraud scheme. That triggered the DEA to request assistance from the IRS-CI and FBI, who allege that Thomas and his co-conspirators filed over 400 payroll tax returns for fake business entities, businesses with overstated wages and numbers of employees, and businesses that were defunct, claiming over $550 million in fraudulent ERC tax refunds—and you thought you were busy! (☆) (There are 45 days remaining until Tax Day.)
Thanks for reading!
—Kelly Phillips Erb (Senior Writer, Tax)
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Questions
A hot-button issue right now is the expansion of the child tax credit, which some Senate Republicans have suggested would be available to undocumented immigrants. That’s not true—only children with Social Security numbers can benefit.
The flurry of discussions, however, has led to questions about tax identification numbers. Here’s what you need to know.
U.S. citizens can request a Social Security number (SSN) through the Social Security Administration. Some noncitizens may be able to request an SSN for work, school, and certain nonwork reasons.
An Individual Taxpayer Identification Number (ITIN) is assigned to a taxpayer who is not eligible for an SSN.
An ITIN does not entitle you to Social Security benefits, change your immigration status, or give you the right to work in the U.S. It also doesn’t make you eligible for tax benefits (like the earned income tax credit) that require a Social Security number.
ITINs are intended to be used for tax purposes. If you haven’t used yours on a federal tax return at least once in the last three years, it will expire. A tax return filed with an expired ITIN will be processed, but related tax benefits will not be allowed. If your ITIN has expired, you can renew it at any time—the easiest way is to include Form W-7 when you file your tax return.
That brings me to another question—this one from a reader who wrote in because her husband is not a U.S. citizen and does not have a Social Security number. Her question, in part, is:
I need to submit paperwork to get him a ITIN number and that will take time to process. I read that it would take up to 11 weeks. Today is February 27, 2024 and if I wait that long I will need to file an extension which I don’t want to do. I was thinking of filing as SINGLE this time and next time, when I have his information file as married but filing separately or maybe I file single now and later amend it.
The reader is correct: The process takes about seven weeks—or up to 11 weeks if requested during peak tax time, which is January 15 through April 30 or from abroad. Here are some additional thoughts:
- Don’t be scared to file for an extension. It will not increase your audit risk, and it’s a smart move if your return is incomplete.
- Filing as single and amending later will cause confusion and potential penalties. You can, however, still file as Married Filing Separately (MFS) since you’re not required to have an ITIN or SSN for a non-resident or foreign spouse.
- Finally, you can apply for a new ITIN at the same time you file your return. Simply attach Form W-7 to your tax return and file on or before the due date for the return. One note: you’ll have to file by paper in the first year—you can’t e-file using an ITIN in the year the ITIN is assigned.
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SHUTDOWN HISTORY
It seems we throw the word shutdown around a lot these days, but they used to be rare.
A government shutdown happens when there’s not sufficient funding in the budget. That wasn’t a problem until 1974, when, under President Richard Nixon, Congress gave itself deadlines to pass federal budgets as part of the Congressional Budget Act of 1974. President Gerald Ford vetoed a funding bill two years later, resulting in the first federal funding gap—but not a shutdown.
In 1980, Attorney General Benjamin Civiletti issued legal opinions related to those gaps, stating, in part, “On its face, the plain and unambiguous language of the Antideficiency Act prohibits an agency from incurring pay obligations once its authority to expend appropriations lapses.” The result? Government shutdowns.
Years later, Civiletti told the Washington Post, “I couldn’t have ever imagined these shutdowns would last this long of a time and would be used as a political gambit.” You can read more in an interview with Civiletti in Government Executive, government’s business news daily.
A DEEPER DIVE
Trusts can be efficient, flexible tools for estate planning and asset-protection purposes. A recent Tax Court case offers a cautionary tale about getting sucked into the narrative that trusts can be used as a personal piggy bank. In this case, the taxpayers attended a seminar held by National Trust Services and subsequently created several trusts. They funded the trusts with personal property and real estate—as well as income used to pay personal expenses. Eventually, the IRS found out about the scheme. Convictions and jail sentences followed—but that wasn’t all. The IRS also issued notices of deficiencies, which the Aldridges challenged in Tax Court. The IRS argued, among other things, the trusts lacked economic substance. The Tax Court agreed, finding the couple responsible for back taxes and penalties.
Syndicated conservation easements were in the news again—this time, the result of a Tax Court opinion. The facts of the case are complicated but largely focus on the 2015 donation of an easement on 355 acres of raw land in Georgia. When the land didn’t sell, it was donated at a value far higher than initially marketed. Ultimately, the Tax Court found the charitable contribution deduction to be zero: the taxpayers had failed to attach a “qualified appraisal” to the return and the deduction would be limited to the property’s basis, which taxpayers failed to prove exceeded zero. In addition to denying the deduction, the Court found the taxpayer liable for significant penalties.
IMPORTANT DATES
📅 March 12, 2024. How the Tax Code Can Help Renters. Free American Bar Association webinar, 1 p.m. Registration required.
📅 March 15, 2024. S-corp and partnership tax returns are due (or file for an extension).*
📅 March 16, 2024.Special Saturday openings at Taxpayer Assistance Centers (TACs), from 9 a.m. to 4 p.m. Click over to the IRS website for participating TAC locations.
📅 March 22, 2024. Last day to apply for the Employee Retention Credit Voluntary Disclosure Program—the program lets employers who received ERCs but are ineligible pay back the credits at a discounted rate.
📅 March 26, 2024. Forbes webinar focused on investing income and tax featuring Kelly Phillips Erb and Amber Gray-Fenner, 2 p.m. ET. (Watch this space for more details.)
📅 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.
* The IRS has announced tax relief for individuals and businesses in parts of California affected by severe storms and flooding that began on January 21. They now have until June 17, 2024, to file various federal individual and business tax returns and make tax payments.
NOTEWORTHY
The U.S. Senate voted (56-41) to confirm Marjorie Rollinson to be IRS Chief Counsel, the first woman to serve in the role. Rollinson began her career at Ernst & Young in 1987 (known then as Ernst & Whinney), becoming a partner in 1997. In 2013, she left the firm to join the IRS Office of Chief Counsel as Technical Deputy Associate Chief Counsel in the Office of the Associate Chief Counsel International. Rollinson received her B.A. from Wellesley College in 1984 and her J.D. from the University of Maryland School of Law in 1987. She is a member of the Maryland Bar Association.
The IRS announced the addition of Sulolit “Raj” Mukherjee and Seth Wilks, CPA, as executive advisors in the cryptocurrency and digital assets arena. Mukherjee has been a tax executive for more than ten years in tax compliance and tax information reporting for financial institutions and has extensive experience in the crypto industry; he joins the IRS from a private blockchain software technology company where he served as Global Head of Tax. Wilks has worked in the digital asset tax policy space for the past six years and has worked extensively with tax compliance and planning issues related to multinational corporations and manufacturing, focusing on complex supply chains, transfer pricing, and cross-border transactions.
Alvaro Santos Pereira has been appointed the next Chief Economist of the Organisation for Economic Cooperation and Development (OECD) as of June 1, 2024. Alvaro served as Portugal’s Minister for Economy and Employment from 2011-2013. Alvaro has acted twice as the OECD’s Chief Economist, most recently from July 2022 to May 2023. Alvaro holds a Doctorate in Economics from Simon Fraser University, Burnaby, a Master’s degree in Economics from the University of Exeter, and a Bachelor’s in Economics from the University of Coimbra.
KPMG LLP, an audit, tax and advisory firm, recently secured a new transfer pricing patent, “System and Method for Identifying Comparables.” The patent leverages A.I. to automate and mine data, including reviewing hundreds of business descriptions and financial statements, to compile a list of companies with comparable data sets. The company says the patent will also help companies with tax planning purposes related to Pillar Two, allowing them to identify areas where changes can be made to optimize their tax strategy accordingly.
If you have career or industry news, submit it for consideration here.
TRIVIA
Which President saw a record eight government shutdowns during his time in office?
A. Jimmy Carter
B. Ronald Reagan
C. Bill Clinton
D. Donald Trump
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’re talking about the shutdown this week, I asked: If you had to personally give up one “luxury” to save on costs, what would it be?
Kelly Phillips Erb (Senior Writer, Tax): Cheese. Every Friday night is cheese night in our house. It would be really difficult to give it up.
Mitchell Martin (Editor, Digital Assets): Already done: I vastly reduced my restaurant costs. Grocery bill may have gone up 50% as a result but that still brings hundreds of dollars of savings…mostly it’s just become too expensive to eat out in New York.
Amber Fenner-Gray (Contributor, Tax): I would give up beauty treatment type appointments.
Nic Thibodeau (Senior SEO Strategist, Investing): One luxury I would give up is cancelling my my once-a-month home cleaning service. While it is definitely a highlight, I could cancel that to save on money and just do the deep clean myself.
Emily Mason (Writer, Money Team): The manicures, unfortunately, have had to go.
Janet Novack (Assistant Managing Editor, Money Team): I’d get rid of my second car, a 2010 Prius that I keep around to lend to my adult children. It runs fine, but every six months, when I pay the insurance bill, I wonder why I still have it.
Rosemarie Miller (Host, ForbesTV’s New Money): My twice a month hair appointments.…at least I think I’d give that up. I don’t know, maybe I’d eat ramen and have nice hair instead.
KEY FIGURES
That’s the percentage of government departments, including agencies that oversee transportation and veterans affairs, that would have shut down over the weekend if Congress had not voted to extend short-term funding.
TRIVIA ANSWER
The answer is (B) Ronald Reagan.
Reagan and Congress clashed many times over funding for welfare, crime, defense, and famously, the Contras in Nicaragua.
FEEDBACK
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