Archives for October 2023

ERC Suspended

The IRS has recently announced that it will temporarily suspend the processing of new applications for the Employee Retention Credit through at least the end of the year. The reason the IRS provided for this decision was the increase in fraudulent claims for the ERC. Another reason stated for this decision was scam protection for the business owners.

Fraudulent Claims

In their announcement the IRS said that currently they are processing previously filed ERC claims that were received before their moratorium. Unfortunately, due to their increased concerns about fraud, the IRS warns that the processing times will be longer. IRS processing goal for the ERC claims will go from 90 days to 180 days. On July 26, the IRS announced that it was shifting its focus to review these claims for compliance issues. This includes intensifying audit work and criminal investigations on promoters and businesses that have filed dubious claims. The IRS may also seek additional documentation from the taxpayer to ensure it is a legitimate claim.

Moreover, the IRS is in the process of finalizing details for a special withdrawal option. The option will be available soon for those who have filed an ERC claim but have not yet had their claim processed. This option can be utilized by taxpayers whose claims have not yet been paid. As a result, it will allow businesses to avoid potential repayment issues and the need to pay contingency fees to promoters. This option will be available to the filers of more than 600,000 claims that are currently awaiting processing. However, the IRS warns that those who have knowingly filed fraudulent claims or conspired to do so will not be exempt from potential criminal investigation.

If You Did Not File A Claim Yet

If you did not file a claim yet, we advise you to consult with a CPA, instead of hiring a tax promoter or marketing firm looking to profit from generating applications that charge contingency fees. You can see some of the warning flags regarding these aggressive promoters by clicking here. A CPA or an enrolled IRS agent should not charge you a fee based on the amount of the refund. The IRS also has a helpful guide with questions and answers regarding ERC, that you can see by clicking here.

If You Currently Have A Pending Application

In the case you currently have a pending application with the IRS, but the IRS did not process or pay the claim, the IRS recommends that you carefully review the program guidelines with a trusted tax professional, like a CPA and check the new question and answer guide. If you believe you submitted the claim improperly, even if your case is already under audit or awaiting audit, the IRS will allow you to withdraw your claim.

If You Received The ERC

In the case that you have already received an ERC that you now believe you claimed in error, the IRS intends to provide a settlement program that will allow you to repay the ERC claim. Per the IRS this settlement program will enable businesses to avoid penalties and future compliance action.

If you need help with your business tax and accounting, we are here to help. We serve small businesses and real estate investors. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

Properly Claim an Art Deduction

If you are an art lover and you are interested in donating art to charity, you can claim a tax deduction for your donation. For tax purposes, you will need to keep track of the following details:

• the name and address of the charity that received the artwork,
• when (date) and where (location) you made the donation,
• a detailed description of the artwork you donated.

There are different requirements for substantiation depending on the value of the art donated. If your donation is worth:

• $250 or more, you need a written acknowledgement from the charity,
• more than $500 but not over $5,000, you also need to complete a Form 8283, Section A, and attach it to your tax return,
• more than $5,000, you need to complete Form 8283, Section B; this form requires signatures from a qualified appraiser and the charity; you also need to get a written appraisal of the donated art,
• 20,000 or more, you need to do all of the above and attach a copy of the appraisal to your return; you should also have a high-resolution photo or digital image of the art and be ready to provide it to the IRS, if asked.

You can legitimately claim art donations, but you should be aware of some dishonest promoters. They encourage people, especially high-income taxpayers, to buy pieces of art, donate it later, and then falsely deduct an inflated donation amount. The IRS is actively investigating such promoters and it is auditing taxpayers to prevent these kinds of art donation scams.

How These Scams Work?

Promoters encourage art loving people to buy different kinds of art, often at a lower price. This cost might also cover extra services from the promoter, like storing, shipping, and managing the art’s appraisal and donation. The promoters assure that the art’s actual value is a lot higher than what they’re selling it for.

These scams encourage buyers to donate artwork after owning it for at least a year and to claim a tax deduction based on a higher market value than what they originally paid for the art. The scammers may advise you to donate art every year and they may suggest you to buy a certain quantity of art in order to have a guaranteed tax deduction of a specific amount. They might even coordinate with certain charities to accept these art donations.

Red Flags

You should be careful when buying many pieces of art from the same artist, especially if these artworks don’t have much value outside of what the seller is advertising.

Also, be cautious if the sellers recommend specific appraisers for you to use. Appraisers supporting this art donation scheme often don’t provide enough details about the artwork. They might not consider important factors like rarity, age, quality, condition, the artist’s reputation, the price paid, and the number of artworks bought.

Conclusions

If you are approached by one of these scams promoters, you can report the scam on Form 14242, Report Suspected Abusive Tax Promotions or Preparers.

The IRS has a group of experts in Art Appraisal Services who can help you obtain a proper valuation of your donated art, if your item has a value of $50,000 or more. You will be charged a user fee for each request. You can find more information about how to make this request by clicking here.

In the meantime, if you encounter any issues or have any questions, we are here to help you with your accounting, QuickBooks, and tax needs. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

The IRS has issued the 2023-2024 special per diem rates for taxpayers to use in substantiating the amount of ordinary and necessary business expenses incurred while traveling away from home. These rates are effective from October 1, 2023, to September 30, 2024.

Rates

The special per diem rates include:

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

In this blog we focus on the high-low substantiation method.

High-Low Substantiation Method

The high-low substantiation method is a way for employers to give their employees a daily travel allowance. This covers things like hotels, meals, and other expenses. Instead of using different rates for different locations, this method uses just two rates for the entire Continental United States. This method is only for employers reimbursing their employees’ travel costs. It’s not for employees or self-employed taxpayers to calculate their own business expense deductions. If an employer reimburses its employees’ travel expenses within these limits, then these reimbursements are considered substantiated, or proven. Employees must still prove the time, date, place, and business purposes of the expenses within a reasonable period of time.

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

• $309 for travel to any high-cost locality, of which $74 is considered for meals,
• $214 for travel to any other locality within CONUS, of which $64 is considered for meals.

Example

In the meantime, if you need tax and accounting services, we are here to help. We serve small businesses and real estate investors. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

Proposed Regulations

The U.S. Department of the Treasury and the IRS have recently issued proposed regulations. These regulations would require brokers who facilitate transactions involving digital assets to report information to the IRS by customers.

Besides collecting information about digital assets transactions, the IRS also intends with these proposed regulations to:

• provide clarity,
• provide guidance for taxpayers who engage in sales or exchanges of digital assets,
• the IRS is also looking to improve compliance among high-income taxpayers who may have underreported or evaded taxes on their digital asset transactions.

Form 1099-S

Starting from January 1, 2025, the real estate professionals who are considered brokers for digital asset dispositions, will be required to report any digital assets used by buyers to purchase real estate. Furthermore, real estate professionals can be:

• title companies,
• closing attorneys,
• mortgage lenders,
• real estate brokers.

These professionals will need to report the fair market value of any digital assets given to sellers in real estate transactions on Form 1099-S for deals closed on or after this date.

Form 1099-DA

Brokers will need to report the gross proceeds from the sales or exchanges of digital assets starting on or after January 1^st, 2025 on a new form called Form 1099-DA. In addition, the brokers would provide payee statements to their customers.

In some circumstances, the brokers would be required to include on these forms 1099-DA and statements the gain or loss and also the basis information for sales that occur on or after January 1^st, 2026 and provide them to the customers, so they can have the information in order to prepare their tax returns.

Conclusions

If you have digital assets transactions, in addition to making sure you do the proper reporting on your tax return, you also need to be on the look out for these forms that you should receive starting with 2025.

In the meantime, if you need tax and accounting services, we are here to help. We serve small businesses and real estate investors. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.

New Report Regarding IRS Performance

The TIGTA has released a new report on the IRS’ performance in storing business and individual tax account information. The report covers the fiscal year 2022 and highlights major challenges faced by the IRS.

Why TIGTA Did This Report?

The IRS is required to keep records of both individuals and businesses’ tax returns. The IRS uses microfilm cartridges to store photographic records of this sensitive tax documents. In addition, the IRS need to ensure that these records:

• are protecting the rights of the Federal Government and the taxpayers,
• are available to conduct business,
• document IRS activities in a proper manner.

What TIGTA Found Out?

TIGTA findings:

• according to the report, the TIGTA found that the IRS does not account, safeguard or controls in a proper manner the microfilm cartridges,
• the IRS has not been conducting the required annual inventories,
• the IRS did not adequately safeguard the sensitive taxpayer information stored on microfilm cartridges,
• requests for tax account information stored on microfilm cartridges made by IRS employees working in various operating division functional areas were fulfilled inconsistently and incompletely,
• the IRS did not adhere to the requirements for record retention and destruction; IRS does not have established procedures to identify and destroy microfilm cartridges within the required time frames for destruction.

Conclusions

The report concludes that the IRS needs to prioritize its resources and activities to address the most significant risks and opportunities for improving tax administration and taxpayer service. The report provides 13 recommendations for the IRS, among which some recommendations were to:

• properly maintain request logs,
• properly secure microfilm cartridges,
• conduct a detailed inventory of the microfilm cartridges,
• properly destroy microfilm cartridges with a processing year beyond 30 years.

The IRS faces many challenges and you can avoid a lot of IRS hassle if you have your books and tax records in order. If you need tax and accounting help with your business, we are here to help. We serve small businesses and real estate investors. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.