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Tag: IRS

  • Americans failed to pay record $688 billion in taxes in 2021, IRS says. Look for more audits.

    Americans failed to pay record $688 billion in taxes in 2021, IRS says. Look for more audits.

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    How to plan for both short- and long-term gains


    How to plan for both short- and long-term gains

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    Americans failed to pay $688 billion in taxes on their 2021 returns, a record level, according to a new estimate from the IRS. The agency said that it is taking “urgent” steps to increase compliance such as auditing more high-income taxpayers as well as businesses and partnerships. 

    The $688 billion estimate reflects the first time the IRS is providing information about the so-called tax gap on an annual basis, with the agency noting in a Thursday statement that it plans to continue providing the data on a yearly basis. The number reflects an increase of more than $138 billion from estimates for tax years 2017 to 2019, the agency said. 

    The IRS is ratcheting up audits on wealthy taxpayers, part of its directive after receiving billions in new funding through the Inflation Reduction Act (IRA). The agency has said it wants to go after higher earners who skirt their tax obligations in order to help close the tax gap and raise more money for federal coffers, which will be used for programs like the IRA’s $370 billion in green energy investments. 

    “This increase in the tax gap underscores the importance of increased IRS compliance efforts on key areas,” IRS Commissioner Danny Werfel said. 

    “These steps are urgent in many ways, including adding more fairness to the tax system, protecting those who pay their taxes and working to combat the tax gap,” he added.

    The IRS has said it won’t increase audits on households earning less than $400,000 annually.

    What is a tax gap?

    The tax gap is the difference between the estimated taxes that are owed and what is actually paid on time, the IRS said. 

    It includes three key shortfalls: Taxes that aren’t filed, taxes that are underreported and taxes that are underpaid.

    About 85% of taxes are paid voluntarily and on time, the IRS noted.

    Why are Americans underpaying their taxes?

    Nonfiling occurs when people don’t file their annual tax returns on time, and so taxes aren’t paid on time. This can happen for a number of reasons, according to accounting firm Simpson & Simpson Accounting.

    For instance, some people don’t file due to avoidance if they are worried about owing a big tax debt. Others fall behind due to crises in their lives, like a divorce or death in their family, some get overwhelmed with details, Simpson & Simpson said.

    In 2021, about $77 billion in taxes were unpaid due to nonfiling, the IRS said. 

    Underreporting is when people don’t report all their income, such as when people who are paid in cash fail to report that on their annual returns, which can result in lower taxes than they actually owe. Underreporting accounted for $542 billion of 2021’s tax gap, the IRS said.

    Underpayment indicates taxes were reported, but filers failed to pay what they owe on time. That can happen to freelancers or gig workers who pay quarterly estimated taxes if they don’t correctly estimate their taxes and underpay, or to people who owe the IRS but delay paying the IOU. Underpayment accounted for $68 billion of the 2021 tax gap, the IRS said.

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  • Accountants caution clients on IRS program paused over fraud fears | Long Island Business News

    Accountants caution clients on IRS program paused over fraud fears | Long Island Business News

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    After millions of businesses and nonprofits scored billions of dollars in tax credits from a federal employee retention initiative born out of the pandemic, the Internal Revenue Service has paused the program to sniff out suspected fraud.

    Now accounting firms are cautioning their Long Island clients to be wary of unscrupulous promoters of the program that have been promising windfalls but may be getting businesses into hot water.

    Known as the Employment Retention Credit (ERC), the IRS program was aimed at assisting businesses to pay employees if they lost revenue or had to suspend or partially curtail their operations during the 18-month height of the COVID-19 pandemic. Though the eligibility period ended on Oct. 1, 2021, businesses could still apply for the ERC refunds retroactively, with claims from 2020 set to expire at the end of April 2024 and claims from 2021 expiring in April 2025.

    However, the tax credit program has become a vehicle for promoters and scammers offering to assist businesses to apply for the refunds in exchange for a fee, without determining if those businesses actually qualify for the money. So, after receiving some 3.6 million applications and doling out billions of dollars, the IRS halted the ERC program last month until at least the beginning of next year to better scrutinize applicants and increase audits of those who received refunds.

    Here on Long Island, accounting firms have been reaching out to their business and nonprofit clients to warn them about the pitfalls of using promoters and to help them apply for the ERC program if they truly qualify.

    “The IRS has been very concerned about the prevalence of fraud within this area to the tune of billions of dollars,” says Greg Wozniak, a partner at Marcum LLP. “They are very concerned about what’s been happening in the marketplace with radio and TV ads from companies that charge contingency fees for claims, so that the more money you get, the more money they get as a percentage of the claim.”

    GREG WOZNIAK: ‘The IRS has been very concerned about the prevalence of fraud within this area…’

    Wozniak says the IRS is woefully backlogged on processing ERC claims and are estimated to be anywhere from 500,000 to 800,000 claims behind.

    “The concern from the IRS is that the claims are from these promoters and mills doing it too aggressively or fraudulently with companies that really don’t understand the laws or what they’re getting themselves into,” he said.

    The federal government suspects that as much as $200 billion or more has been stolen from similar programs instituted during the pandemic, including Payroll Protection Program loans from the Small Business Administration and COVID-19 Economic Injury Disaster loans, according to published reports.

    Ken Cerini, managing partner of Bohemia-based accounting firm Cerini & Associates, has been advising clients that the ERC presents a lot of opportunity to obtain money, but they have to be careful and do it the right way.

    “It’s under a lot of scrutiny at this point in time,” Cerini said. “The IRS is really looking at this program because there’s been a large amount of fraud that has taken place, where you have ERC mills that are out there advertising heavily and taking advantage of the general public in terms of telling them they’re entitled to credits when they’re not necessarily entitled to credits.”

    ROB GILMAN: ‘Just because they’re telling you that you’re getting this money does not mean that you qualify.’

    Rob Gilman, partner and leader of the Real Estate Services practice at Anchin in Uniondale, said businesses need to be wary when contacted by ERC promoters bearing promises.

    “Many of our clients had already filed for this prior, but a lot of them are getting these phone calls that you qualify and say you can get back $400,000 or whatever the number is,” Gilman said. “My first comment to them is always ‘just because they’re telling you that you’re getting this money does not mean that you qualify.’”

    He added that even though businesses kept their employees through the pandemic period, they won’t necessarily qualify for the ERC refunds; revenue reductions will still be required.

    “We’re meeting with our clients to see if they qualify, and it’s not just a five-minute conversation,” Gilman said. “We’re reviewing revenue figures from the past couple of years. We’re trying to determine if their business does qualify for some of these government shutdowns. Sometimes they’ll qualify for all the periods, and sometimes they’ll qualify for partial periods. It’s not all or nothing. So even if you qualify for one period, it’s still worth applying for these refunds.”

    Wozniak says the amount of ERC refunds that some Marcum clients have already received ranges from $50,000 to more than $5 million for legitimate claims within IRS guidelines.

    “Our guidance is do it the right way,” he said. “ERC is still there. We’re telling our clients to still file the claim, but file it legitimately, and just be careful.”

    The two necessary criteria to qualify for the refunds include proving a significant reduction in revenue, or that business operations had to be suspended due to government-mandated shutdowns.

    KEN CERINI: ‘It’s under a lot of scrutiny at this point in time.’

    “You have to be super careful on these things, especially if you don’t meet either of the two criteria,” Cerini said. “If you haven’t seen a significant decline in your revenue that meets the criteria under the program, or you’re applying for the credit under the regulations that allow you to obtain the credit if you have a decline in business operations due to a government mandated shutdown, that’s when you have to be really careful and make sure you go through and document what that government shutdown is, what the timeframe is, and that you can link it back to your drop in operations.”

    Most importantly, the accountants advise not relying on fly-by-night firms promising to deliver ERC money.

    “Have a professional, not just a consultant, but an accountant that truly knows the rules and can walk you through if you actually do qualify,” Gilman says. “If you certify that you qualify and you don’t, that could be a problem.”

    Cerini agrees with that sentiment.

    “Everybody was saying ‘free money, free money,’” he said. “But it’s not free money. It’s there for organizations and companies that need it.”

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    David Winzelberg

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  • IRS whistleblower’s lawyer calls Hunter Biden lawsuit “frivolous”

    IRS whistleblower’s lawyer calls Hunter Biden lawsuit “frivolous”

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    IRS whistleblower’s lawyer calls Hunter Biden lawsuit “frivolous” – CBS News


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    Hunter Biden has filed a lawsuit against the IRS alleging privacy violations. The complaint cites an IRS whistleblower’s interview on CBS News as well as with other outlets. CBS News senior investigative correspondent Catherine Herridge reports.

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  • IRS Uses AI to Fight Tax Evasion, Millionaires Dodging Taxes | Entrepreneur

    IRS Uses AI to Fight Tax Evasion, Millionaires Dodging Taxes | Entrepreneur

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    The Internal Revenue Service (IRS) has a new partner in assisting the crackdown on illegal tax practices: artificial intelligence.

    The agency is now using AI to investigate tax evasion in large partnerships, including hedge funds, private equity groups, real estate investors, and major law firms, The New York Times reported. The initiative is part of the IRS’s efforts to enhance its ability to tackle and address nuanced cases that had previously overwhelmed the agency. The IRS plans to initiate examinations into 75 of the nation’s largest partnerships identified with AI assistance.

    “These are complex cases for I.R.S. teams to unpack,” Daniel Werfel, the I.R.S. commissioner, told the outlet. “The I.R.S. has simply not had enough resources or staffing to address partnerships; in a real sense, we’ve been overwhelmed in this area for years.”

    Fueled by $80 billion allocated through the Inflation Reduction Act, the agency aims to increase federal revenue by targeting tax evasion and sophisticated accounting practices used to avoid tax payments — cases that in the past the IRS didn’t have the resources to handle given limited resources.

    The focus on partnerships is part of a broader IRS effort to scrutinize wealthier taxpayers in 2024, focusing on pursuing millionaires with significant unpaid taxes. Additionally, the IRS intends to increase scrutiny of digital assets and investigate how high-income taxpayers use foreign bank accounts to avoid disclosing financial information, according to the report.

    This isn’t the first time AI has piqued the interest of government institutions. As the availability and use of AI have become mainstream, countless industries have adopted the technology to carry out everyday tasks or combat ones that were previously onerous.

    Last week, California Governor Gavin Newsom issued an executive order calling on the California Department of Technology and other agencies to study the use of generative AI by state workers, create training programs for its utilization, as well as recognize the potential risks and benefits of emerging AI technology for the state government, the San Francisco Chronicle reported.

    “This is a potentially transformative technology — comparable to the advent of the internet — and we’re only scratching the surface of understanding what GenAI is capable of,” Newsom said in a statement, per The Chronicle. “We recognize both the potential benefits and risks these tools enable.”

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    Madeline Garfinkle

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  • IRS ramping up crackdown on wealthy taxpayers, targeting 1,600 millionaires

    IRS ramping up crackdown on wealthy taxpayers, targeting 1,600 millionaires

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    The IRS said Friday it is ramping up a crackdown on wealthy taxpayers who owe back taxes, noting that the effort springs from billions in new funding through the Inflation Reduction Act partially designed to help it track down millionaire tax cheats. 

    The agency will begin by pursuing 1,600 millionaires who owe at least $250,000 each in overdue taxes, the IRS said in a statement. The agency announced it will have “dozens of revenue officers” focusing on high-end collections cases in fiscal-year 2024, which starts in October and ends in September 2024. 

    The 2022 Inflation Reduction Act directed $80 billion to the IRS, with more than half of that earmarked for more enforcement agents. The idea is to generate more tax revenue for the nation’s coffers by zeroing in on wealthy taxpayers who hide or underreport their income. Because of their legal complexity and costs, such tactics are far less common among people who are less well off because their income is reported to the IRS on W2s and other tax forms. 

    “If you pay your taxes on time it should be particularly frustrating when you see that wealthy filers are not,” IRS Commissioner Danny Werfel told reporters in a call previewing the announcement. 

    The IRS will also heighten its scrutiny of 75 large business partnerships that have assets of at least $10 billion on average. In addition the dedicated agents, the agency said it plans to use artificial intelligence to track tax cheats. 

    Audit rates and underfunding

    At the same time, the IRS reiterated that it doesn’t intend to increase audit rates for people earning less than $400,000 a year. Some Republican lawmakers and right-leaning policy experts have raised concerns that the new IRS funding would be used to go after middle-income workers.

    Audit rates have dropped precipitously in recent decades due to the IRS’ shrinking workforce. The agency employed 82,000 workers in fiscal-year 2021, down from 94,000 workers in 2010, even as the U.S. population and number of taxpayers has grown over the same period. 

    The number of people with incomes of $1 million has jumped 50% over the last decade, but the number of audits on million-dollar tax returns has fallen by two-thirds. 

    “The years of underfunding that predated the Inflation Reduction Act led to the lowest audit rate of wealthy filers in our history,” Werfel said Friday in a statement.

    A team of academic economists and IRS researchers in 2021 found that the top 1% of U.S. income earners fail to report more than 20% of their earnings to the IRS.

    —With reporting by the Associated Press.

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  • IRS Lists Monetized Installment Sales As Abusive Transactions

    IRS Lists Monetized Installment Sales As Abusive Transactions

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    If you are a seller of appreciated property, it may be attractive to sell it on the installment method. That way, you pay tax over time as you get the installment payments, rather than paying the tax all at once. Subject to technical rules and limits, that is perfectly legal, section 453 of the tax code allows it. But what if you pay tax in installments, but arrange it so you get most or all of your cash up front? The IRS has issued proposed regulations identifying certain monetized installment sale transactions and substantially similar transactions as listed transactions.

    That means the IRS has called them abusive tax transactions that must be reported to the IRS. Material advisors and certain participants in these listed transactions are required to file disclosures with the IRS and are subject to penalties for failure to disclose these transactions. The IRS listed monetized installment sales this year as part of the agency’s Dirty Dozen list of common tax scams and schemes. Monetized installment sale transactions generally include the following elements:

    • A seller of appreciated property, or a person acting on the seller’s behalf, identifies a buyer who is willing to purchase the property in exchange for cash or other property.
    • The seller enters into an agreement to sell the property to an intermediary in exchange for an installment obligation, which provides for interest payments from the intermediary to the seller.
    • The seller then purportedly transfers the property to the intermediary, although the intermediary never actually takes title or takes title to the property only briefly before transferring title to the buyer in exchange for the buyer’s cash or other property.
    • The seller also obtains a loan with an agreement that provides for interest payments from the seller to the lender that equal the amount of interest that the intermediary pays the seller under the installment obligation.
    • Both the installment agreement and the loan provide for interest due over the same periods, with principal due in a balloon payment at or near the end of the term of the installment agreement and loan.
    • The sales proceeds received by the intermediary from the buyer, reduced by certain fees, are provided to the lender to fund the loan to the seller or transferred to an escrow account of which the lender is a beneficiary.
    • The lender agrees to repay these amounts to the intermediary over the course of the term of the installment obligation.
    • The seller then treats the sale as an installment sale under section 453 on a Federal income tax return for the year of the purported sale and defers recognition of gain until the year in which the seller receives the principal balloon payment.

    Written comments regarding the proposed regulations must be submitted by Sept. 3, 2023. A public hearing has been scheduled for October 12, 2023. As part of the Dirty Dozen awareness effort, the IRS encourages people to report individuals who promote improper and abusive tax schemes as well as tax return preparers who deliberately prepare improper returns. For more information, see Abusive Tax Schemes and Abusive Tax Return Preparers.

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    Robert W. Wood, Senior Contributor

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  • What’s next for Hunter Biden after plea deal unraveling

    What’s next for Hunter Biden after plea deal unraveling

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    What’s next for Hunter Biden after plea deal unraveling – CBS News


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    The federal judge overseeing the Hunter Biden case raised questions Wednesday about the terms of a plea agreement made in June between Biden’s lawyers and federal prosecutors. Without the judge’s stamp of approval on the deal, the president’s son pleaded not guilty to two misdemeanor tax charges. CBS News senior investigative correspondent Catherine Herridge joined with details from inside the Delaware courthouse.

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  • IRS says its agents will no longer make unannounced visits at taxpayers’ doors

    IRS says its agents will no longer make unannounced visits at taxpayers’ doors

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    The IRS on Monday said its agents will end most unannounced visits to taxpayers, in what the agency calls a “major policy change” geared toward reducing “public confusion” and improving safety for its employees. 

    The announcement comes after some Republican lawmakers warned last year that new funding for the IRS would result in thousands of new agency employees that would boost the number of audits of middle-class Americans, even though the Biden administration has said audit rates won’t change for people making less than $400,000. Some on social media also warned, without evidence, that the IRS planned to arm agents, stoking fear among some taxpayers. 

    The IRS noted that the new policy reverses a decades-long practice of IRS revenue officers — who are unarmed — visiting households and businesses to collect unpaid taxes and unfiled tax returns. But, effective immediately, unannounced visits will instead be replaced with mailed letters to schedule meetings, the agency said.

    “We are taking a fresh look at how the IRS operates to better serve taxpayers and the nation, and making this change is a common-sense step,” IRS Commissioner Danny Werfel said in a statement. “Changing this long-standing procedure will increase confidence in our tax administration work and improve overall safety for taxpayers and IRS employees.”

    The union representing Treasury workers, the National Treasury Employees Union, said on Monday that recent “false, inflammatory rhetoric about the agency and its workforce” had made their jobs less safe, and added that it supports the new policy. It noted that the union had flagged “dangerous situations” encountered by IRS Field Collection employees to the agency.

    “As long as elected officials continue to mislead the American people about the legal, legitimate role that IRS employees play in our democracy, NTEU will continue to insist on better security for the employees we represent,”  NTEU National President Tony Reardon said in a separate statement.

    He added, “It is outrageous that our nation’s civil servants have to live in fear just because they chose a career in public service.”

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  • H&R Block and other tax-prep firms shared consumer data with Meta, lawmakers say

    H&R Block and other tax-prep firms shared consumer data with Meta, lawmakers say

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    H&R Block and other tax prep companies shared sensitive personal and financial data from tens of millions of customers with Meta and Google, according to a new report from a group of U.S. lawmakers.

    The lawmakers, who include Senators Elizabeth Warren, D.-Massachusetts and Bernie Sanders, I.-Vermont, said they investigated H&R Block, TaxAct and TaxSlayer after a report in The Verge last year alleged that companies were using code that funneled data including users’ income and tax refund amount to Meta. 

    Tax-prep companies used the code, called Meta Pixel, to send personal data to both Meta and Google, and collected “far more information than was previously reported,” according to a letter sent by the lawmakers to the IRS, Federal Trade Commission, Treasury Department and the Justice Department that was viewed by CBS MoneyWatch. The code collected not only people’s names, but also taxpayers’ filing status, approximate adjusted gross income, refund amount, the names of dependents and the amount of federal tax owed, among other items, the investigation found.

    Sharing such taxpayer information without their consent is a “breach of taxpayer privacy by tax prep companies and by Big Tech firms that appeared to violate taxpayers’ rights and may have violated taxpayer privacy law,” the lawmakers added. 

    The lawmakers, who also include Senators Ron Wyden, D.-Oregon; Richard Blumenthal, D.-Connecticut; Tammy Duckworth, D-Illinois; Sheldon Whitehouse, D.-Rhode Island; and Representative Katie Porter, D.-California, asked the federal agencies to “fully investigate this matter and prosecute any company or individuals who violated the law.”

    In an email to CBS MoneyWatch, H&R Block said it “takes protecting our clients’ privacy very seriously, and we have taken steps to prevent the sharing of information via pixels.” 

    Meta said its policies are clear that advertisers “should not send sensitive information about people through our Business Tools,” according to a company spokesman. He added, “Doing so is against our policies, and we educate advertisers on properly setting up Business tools to prevent this from occurring. Our system is designed to filter out potentially sensitive data it is able to detect.”

    Google, TaxAct and TaxSlayer didn’t immediately respond to requests for comment.

    Competition from the IRS

    The investigation comes amid a push by the IRS to develop its own free electronic tax-filing system that could compete with tax-prep programs from the likes of Intuit’s TurboTax and H&R Block. The IRS plans to roll out its pilot program in early 2024. 

    Preparing and filing taxes is big business in the U.S., with Americans spending an average of $250 and 13 hours each filing their annual returns, the lawmakers noted. While free tax prep is offered for people who earn less than $73,000 annually, only about 4% of Americans actually use the free service, they added.

    H&R Block and other tax prep companies have spent millions since the 1990s to oppose free filing systems, the report noted.

    The investigation into data sharing by tax-prep companies “highlights the urgent need for the IRS to develop its own online tax filing system — to protect taxpayer privacy and provide a better alternative for taxpayers to file their returns,” the lawmakers added.

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  • Whose name goes first on a joint tax return? Here’s what the answer says about your marriage.

    Whose name goes first on a joint tax return? Here’s what the answer says about your marriage.

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    When you and your spouse do your taxes every year, whose name goes first? A couple’s answer to this question can say a great deal about their beliefs and attitudes, concludes a recent paper from researchers at the University of Michigan and the U.S. Treasury Department.

    While American gender roles have shifted a great deal in the last 30 years, the joint tax return remains a bulwark of traditionalism, according to the first-of-its kind study. On joint tax returns filed in 2020 by heterosexual couples, men are listed before women a whopping 88% of the time, found the paper, which examined a random sample of joint tax returns filed every year between 1996 and 2020.

    That’s a far stronger male showing than would be expected if couples simply listed the higher earner first, noted Joel Slemrod, an economics professor at the University of Michigan and one of the paper’s authors. 

    In fact, same-sex married couples listed the older and richer partner first much more consistently than straight couples did, indicating that traditional gender expectations may be outweighing the role of money in some cases, Slemrod said.

    “There’s a very, very high correlation between the fraction of returns when the man’s name goes first and self-professed political attitudes,” Slemrod said.

    Name order varied greatly among states, with the man’s name coming first 90% of the time in Iowa and 79% of the time in Washington, D.C. By cross-checking the filers’ addresses with political attitudes in their home states, the researchers determined that listing the man first on a return was a strong indication that a couple held fairly conservative social and political beliefs.

    They found that man-first filers had a 61% chance of calling themselves highly religious; a 65% chance of being politically conservative; a 70% chance of being Christian; and a 73% chance of opposing abortion.

    “In some couples, I guess they think the man should go first in everything, and putting the man’s name first is one example,” Slemrod said. 

    Listing the man first was also associated with riskier financial behavior, in line with a body of research that shows men are generally more likely to take risks than women. Man-first returns were more likely to hold stocks, rather than bonds or simple bank accounts, and they were also more likely to engage in tax evasion, which the researchers determined by matching returns with random IRS audits.

    To be sure, there is some indication that tax filers are slowly shifting their ways. Among married couples who started filing jointly in 2020, nearly 1 in 4 listed the woman’s name first. But longtime joint filers are unlikely to flip their names for the sake of equality — because the IRS discourages it. The agency warns, in its instructions for a joint tax return, that taxpayers who list names in a different order than the prior year could have their processing delayed.

    “That kind of cements the name order,” Slemrod said, “so any gender norms we had 20 years ago or 30 years ago are going to persist.”

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  • U.S. attorney defends Hunter Biden probe amid GOP accusations

    U.S. attorney defends Hunter Biden probe amid GOP accusations

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    Washington — David Weiss, the Trump-appointed U.S. attorney in Delaware who recently brought criminal charges against Hunter Biden, has spoken out for the first time since reaching a plea deal with the president’s son. In a letter sent Friday to House Judiciary Committee Chair Jim Jordan, Weiss pushed back against claims that the investigation was impeded. 

    Weiss’ letter was written in response to a June 22 correspondence from House Republicans in which they asked for material related to accusations made by IRS agents on the Hunter Biden case who alleged in Congressional testimony that there were irregularities in the investigation and certain retaliatory measures were taken against them. 

    “As the U.S. Attorney for the District of Delaware, my charging authority is geographically limited to my home district. If venue for a case lies elsewhere, common Departmental practice is to contact the United States Attorney’s Office for the district in question and determine whether it wants to partner on the case. If not, I may request Special Attorney status from the Attorney General,” Weiss wrote, “Here, I have been assured that, if necessary after the above process, I would be granted § 515 Authority in the District of Columbia, the Central District of California, or any other district where charges could be brought in this matter.” 

    Court filings unsealed earlier this month showed Weiss’ office charged Biden with two misdemeanor tax counts — to which the president’s son agreed to plead guilty — and a felony gun charge for which Biden agreed to enter into a diversion program. The deal with prosecutors will have to be approved by a judge at a hearing which is currently set for July 26. 

    An IRS Agent who worked on the case, Gary Shapely, told Congressional investigators and CBS News that the evidence he saw warranted more severe charges. He also alleged in testimony that Weiss told him that prosecutors in Delaware were prevented from bringing charges in other jurisdictions — including California and Washington, D.C. — and that Weiss was denied special counsel status by the Justice Department. 

    In his letter on Friday — his first since charging Hunter Biden — Weiss reiterated his defense of the investigation that he made weeks ago, in which he wrote at the time, “I have been granted ultimate authority over this matter, including responsibility for deciding where, when and whether to file charges and for making decisions necessary to preserve the integrity of the prosecution, consistent with federal law, the Principles of Federal Prosecution, and Departmental regulations.”

    “I stand by what I wrote,” Weiss told Jordan Friday. 

    Attorney General Merrick Garland — who kept the Trump-appointed Weiss on the job to complete the Biden probe —  previously said in response to the allegations that Weiss was “permitted to continue his investigation and to make a decision to prosecute any way in which he wanted to and in any district in which he wanted to.” 

     “The only person with authority to make somebody a special counsel or refuse to make somebody a special counsel is the attorney general. Mr. Weiss never made that request to me,” Garland said earlier this month, “He had and has complete authority … to bring a case anywhere he wants, in his discretion.” 

    “I documented what I saw, and ultimately that’s the evidence. If they want to explain how that’s wrong, they can,” Shapley told CBS News earlier this week defending his allegations. “All of the things that I’ve testified in front of the House Ways and Means Committee is from my perspective, but it’s based on the experience I’ve gained over 14 years.”

    Weiss’ letter on Friday also pushed back on claims of retaliation, writing, “the Department of Justice did not retaliate against ‘an Internal Revenue Service (“IRS”) Criminal Supervisory Special Agent and whistleblower, as well as his entire investigative team… for making protected disclosures to Congress’.” 

    The letter comes after Jordan and his counterparts on the House Oversight and Ways and Means Committees asked the Justice Department to make Weiss and other investigators available for closed-door interviews with Congress. Weiss made no immediate commitment prior to the July 26 hearing where a judge has final review and approval of the plea agreement. 

    “At the appropriate time, I welcome the opportunity to discuss these topics with the Committee in more detail, and answer questions related to the whistleblowers’ allegations consistent with the law and Department policy,” Weiss said Friday, “It is my understanding that the Office of Legislative Affairs will work with the Committee to discuss appropriate timeline and scope.” 

    Garland had previously said he supported Weiss speaking out at an appropriate time. 

    Weiss, however, said Friday he was unable to provide certain documents and materials requests by House Republicans, citing the ongoing investigation.

    “At this juncture, I am required to protect confidential law enforcement information and deliberative communications related to the case. Thus, I will not provide specific information related to the Hunter Biden investigation at this time,” Weiss wrote. 

    On Friday, one of Hunter Biden’s attorneys accused House Republicans of attempting to derail Biden’s plea deal with Weiss by pushing forward what he characterized as “false allegations” from IRS whistleblowers.

    “To any objective eye your actions were intended to improperly undermine the judicial proceedings that have been scheduled in the case,” attorney Abbe Lowell wrote to House Ways and Means Chairman Jason Smith. “Your release of this selective set of false allegations was an attempt to score a headline in a news cycle—full facts be damned. We all know the adage: an allegation gets page one attention, while the explanation or exoneration never gets coverage at all or is buried on page 10. This letter is an attempt to make sure the response is found.”

    The IRS whistleblowers began the process of coming forward months before their closed-door testimony to the GOP-controlled House Ways and Means Committee. 

    When asked about Shapley’s testimony on June 23, the White House referred to a previously-released statement. 

    “President Biden has made clear that this matter would be handled independently by the Justice Department, under the leadership of a U.S. attorney appointed by former President Trump, free from any political interference by the White House,” the statement said. “He has upheld that commitment.”

    Catherine Herridge


    Catherine Herridge

    Catherine Herridge is a senior investigative correspondent for CBS News covering national security and intelligence based in Washington, D.C.

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  • IRS whistleblower says he was told not to pursue leads involving President Biden

    IRS whistleblower says he was told not to pursue leads involving President Biden

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    IRS whistleblower says he was told not to pursue leads involving President Biden – CBS News


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    Gary Shapley, the IRS whistleblower in the Hunter Biden tax investigation, said he feels Biden was given preferential treatment. In an exclusive interview with Jim Axelrod, he also said that he was told not to pursue leads that could involve investigating President Biden.

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  • Tenants Settling Legal Disputes With Landlords Face Surprising Taxes

    Tenants Settling Legal Disputes With Landlords Face Surprising Taxes

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    Suppose that you sue (or threaten to sue) your landlord and are about to collect a settlement. But someone mentions taxes, so you want to confirm, you won’t pay taxes on this, right? Wrong. In fact, if you use a contingent fee lawyer like most tenants do, you might end up paying taxes not only on your net recovery after legal fees, but also on the lawyer’s money too. This is so even though your lawyer will most likely receive 100% of the settlement proceeds, deduct their legal fees, and just send you the balance, say 60% or so.

    How could you be taxed on a legal settlement, especially on the whole 100%, when your lawyer takes 40% off the top? It that sounds impossible, welcome to the arcane tax world of settlements and judgments. The IRS taxes most lawsuit settlements, and exact wording matters, particularly if you are trying to avoid that grim result, or even to lessen the tax impact. Landlord tenant legal disputes are nothing new, there have always been many of them. But COVID seems to have increased that tendency, both for commercial and residential tenants.

    Commercial disputes are less likely to involve tax surprises. After all, commercial tenants and their landlords are both likely to have tax lawyers or accountants looking after them. Besides, commercial tenants and commercial landlords are used to profits being taxed, and to business expenses being deductible. Some expenses need to be capitalized (basically written off over time), but even with those rules, there are few tax surprises.

    But how about residential disputes? There are plenty of tax issues there. If your apartment has defects or is uninhabitable, you might stop paying rent, and even sue to get rent money back. If you are forced out of your apartment, you might claim wrongful eviction. And some cases involve tenant claims that they were injured or became sick from mold, water damage, or other uninhabitable conditions.

    Eventually, at settlement time, a settlement agreement will need to be hammered out. All too often, tenants focus only on the dollar amount of the settlement, not the tax issues. And if they are not careful, the tax result can be bad indeed. They may not even realize it until early the following year when an IRS Form 1099 arrives, usually for 100% of the money, even though they only got 60% of their settlement.

    They might go to their accountant and say, gee, at least I can deduct the 40% legal fees, right? Most accountants are likely to answer no. In 2018, the tax law was changed to disallow most legal fee deductions, except by businesses. Put differently, in many cases, there is a tax on lawsuit settlements, with legal fees that can’t be deducted. That can mean paying tax on 100%, even if 40% off the top goes to your lawyer. For ideas how some can get around the tax treatment of attorney fees, check out 12 ways to deduct legal fees under new tax law.

    But putting the tax treatment of the attorney fees aside, what kind of overall tax result can a settling tenant expect? It depends a lot on the facts. In some tenant cases, it is possible to see some or all of the settlement as a reimbursement of rent that is not taxable. In others, it is possible to view some or all of the settlement as a lease buyout that is taxable as capital gain rather than ordinary income.

    Fortunately, it is sometimes possible to treat the settlement as a lease buyout and therefore as capital gain (on general principles and/or under section 1234A of the tax code). In that event, one may be able to capitalize the legal fees, so they are an addition to basis or a selling expense For more, she how IRS taxes legal settlements, but some are capital gain. It’s one of the IRS rules about legal settlements and legal fees.

    Ordinary income is taxed at 37%. Capital gain (depending on income level and the size of the gain) can be taxed as low as 0% and as high as 23.8%. Even if you are in the highest tax bracket, paying 23.8% is better than paying 37%. But it isn’t entirely about tax rates, because capital gain reporting can involve recouping basis too. And that is where legal fees come in.

    If you are able to treat your settlement as capital gain rather than income, you should also be able to offset your legal fees on your taxes. In effect, if you spent 40% of your settlement in legal fees to collect the other 60%, you can offset the 40%, treating it as your basis. It’s important to establish that your settlement is capital gain, but settlement agreement wording can help on that point.

    Tax reporting is also worth addressing in your settlement agreement. If you receive an IRS Form 1099 saying you received “other income,” it is usually ordinary income. But a tax adviser may opine it is capital, and your tax return might sail through fine. Even in audit, you might convince the IRS it is capital. If you don’t qualify for capital gain treatment, there still is often a way to deduct your legal fees, so at least you are only paying tax on 60%, not 100%. A little known provision of the law regarding civil rights can cuts taxes on landlord tenant, privacy and other legal settlements.

    Finally, if you suffered physical injuries or physical sickness, you might be able to treat a portion of your settlement as excludable from income (tax-free) under section 104 of the tax code (for mold, or other tenant sickness issues, PTSD, etc.). Section 104 of the tax code excludes from income damages for physical injuries and physical sickness. But if you make claims for emotional distress, your damages are taxable.

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    Robert W. Wood, Senior Contributor

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  • IRS says $1.5 billion in tax refunds remain unclaimed. Here’s what to know.

    IRS says $1.5 billion in tax refunds remain unclaimed. Here’s what to know.

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    The IRS is eager to track down 1.5 million Americans who are owed a combined $1.5 billion in tax refunds, and the clock is ticking — they only have until July 17 to claim their money. 

    The unclaimed refunds stem from taxpayers who didn’t file a federal return for tax year 2019. Taxes for that year were due to be filed in 2020 — the first year of the pandemic, when the IRS extended the tax filing deadline to July 15, 2020, because of the health emergency. 

    While most Americans file annual tax returns, some people — mostly low-income households — aren’t required to do so. For instance, people who earn less than the standard deduction generally don’t have to file a return with the IRS. But some people may have simply missed the deadline in 2020 due to the pandemic, IRS Commissioner Danny Werfel said in a statement on Thursday.

    “We don’t want people to miss their window to receive their refund,” he said. “We encourage people to check their records and act quickly before the deadline.”

    The standard deduction in 2019 was  $12,200 for individuals, $18,350 for heads of household and $24,400 for married couples filing jointly

    How much could I get?

    The average median refund for tax year 2019 was $893, according to the IRS.

    But some taxpayers could get far more, especially those who qualify for the Earned Income Tax Credit, the agency noted. That credit was worth as much as $6,557 in 2019.

    By when do I have to file a tax return?

    Taxpayers must properly address and get the tax return postmarked by July 17, 2023.

    What happens to the money if I miss the deadline?

    Under the law, taxpayers usually have three years to file and claim their tax refunds. If they don’t file within that time, the money goes to the U.S. Treasury Department.

    Because of the delayed filing date in 2020, Americans have until July 17 to file their 2019 tax return and claim any money that is owed to them, rather than the typical mid-April deadline.

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  • IRS sends bills to taxpayers with the wrong due date for some

    IRS sends bills to taxpayers with the wrong due date for some

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    The IRS said it sent bills to taxpayers with the wrong due date, erroneously telling some California residents that their payments were due in 21 days when, in fact, they have until later this year to pay up. 

    The tax agency on Wednesday apologized for the error in a statement. The bills were sent out to taxpayers who have a balance due to the IRS for the 2022 tax year, with the agency noting it is legally required to send the notices, called IRS Notice CP14.

    The IRS didn’t disclose how many taxpayers received an erroneous letter, but Jackson Hewitt, the tax prep company, said on Wednesday that the agency is sending out “millions” of the notices this month.

    The error stems from a decision earlier this year to provide more time to most taxpayers in California to file their taxes due to natural disasters such as winter storms, flooding, landslides and mudslides. This year, most Americans had until April 18 to file their annual tax returns without an extension, but the IRS pushed back the deadline to October 16 for residents of many California counties, including Los Angeles and San Francisco.


    How California’s weather impacted the debt ceiling

    04:00

    “While the notice received by taxpayers says they need to pay in 21 days, most California taxpayers have until later this year to pay under the disaster declaration,” the IRS said in its statement. 

    It added that the letters included “a special insert” that informed the recipients that the payment date on the letter doesn’t apply to people who are covered by a disaster declaration. 

    Some accountants and tax preparers posted alerts on social media to their clients about the erroneous letters, seeking to inform them that they don’t need to send money to the IRS until October. 

    “We are told that the IRS’s computers will stop the interest and penalties, but they cannot stop the letter from being generated and sent out,” wrote Kilgore & Co. Accountancy on Facebook. “So, if you are a resident of one of the counties covered by the disaster declaration, you should simply ignore the demand and disregard the due date shown on it.”

    “Just be sure to pay what is due by 10/16/2023. No penalties or interest will be charged in the meantime,” the firm added.

    In general, people who receive a CP14 letter should pay close attention to the notice, Jackson Hewitt advised. That’s because taxpayers who owe money to the IRS can face interest and penalties. If the balance isn’t paid, the tax agency can eventually file a notice of federal lien, which alerts other creditors that the IRS has a secured claim against your assets.

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  • How You Structure Your Business to the IRS Matters. Here’s Why. | Entrepreneur

    How You Structure Your Business to the IRS Matters. Here’s Why. | Entrepreneur

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    Opinions expressed by Entrepreneur contributors are their own.

    The business formation structure you chose at startup may no longer be the best one for your business. As you grow, your company’s legal entity can affect your tax bill, personal assets and ability to attract investors, raise money and expand your business.

    Those are many variables, so let’s explore your options.

    Related: Which Business Structure Is Right for You?

    Sole proprietorships

    Most startups in the U.S. start — and stay — as sole proprietorships. Of 33 million U.S. small businesses, the Internal Revenue Service (IRS) says 28.3 million are nonfarm sole proprietorships.

    Sole proprietorships are the simplest form of legal business entity. The setup process is easy. While sole proprietorships without employees don’t need an Employer Identification Number (EIN), it’s recommended since many banks won’t let you open a business account without one.

    There is a downside, however. There is no legal separation between a sole proprietor and the business. So, you are personally liable for any debts, obligations and lawsuits against your company. If your company is sued, your personal assets (property, bank accounts, etc.) can be at risk.

    For tax purposes, sole proprietors report their profits and losses on their individual tax returns (IRS Forms 1040) and attach a Schedule C Profit or Loss From Business, showing income, expenses and allowable tax deductions. In addition to income taxes, sole proprietors pay self-employment taxes of 12.4% for social security and 2.9% for Medicare. Taxes are due April 15.

    Partnerships

    Many entrepreneurs start businesses with family or friends or look for partners when their businesses grow. Like sole proprietorships, there is no legal separation between the partners and the company, so the partners’ personal assets are at risk if something goes wrong.

    Unless specified differently in the partnership agreement, all partners are equally responsible for paying taxes. Partnerships use IRS Form 1065, Schedule K, to list partners and the business’s revenues and expenses. Plus, all partners must pay self-employment and estimated taxes. Partnership tax returns are due March 15.

    Related: 5 Tips for Structuring Your New Business Like a Pro

    LLCs offer liability protection

    As their businesses grow, many entrepreneurs become uncomfortable with their personal assets being at risk and explore incorporating their companies.

    There are two ways to incorporate: forming a Limited Liability Company (LLC) or a C Corporation. Both structures are considered separate legal entities and protect business owners from the company’s liabilities, shielding their personal assets.

    Owners of LLCs are called members. Single-member LLCs are taxed like sole proprietorships using tax form 1040 and Schedule C. Multi-member LLCs are taxed like partnerships and use partnership forms 1065 and Schedule K and K-1. LLC members must still pay self-employment taxes. You can also opt for an S Corp election (see below).

    You must file Articles of Organization with your state to form an LLC. And while not required, it’s recommended that you create an operating agreement. An operating agreement defines the roles and responsibilities of a multi-member LLC.

    LLCs are becoming increasingly popular due to their relatively simple management structure, fewer compliance requirements and flexible tax treatment. They’re essentially a “have your cake and eat it too” option. For instance, multi-member LLCs can allocate percentages of the company’s profits and losses to the members as they see fit.

    LLCs have fewer and less complex compliance responsibilities than C Corps. They don’t have to elect officers or a board of directors. There are some ongoing compliance requirements — check with your state to learn more.

    The biggest disadvantage of owning an LLC is that you can’t issue company stock, making it more challenging to raise money.

    C Corps offer robust liability protection

    As your business grows, you may want stronger liability protection and opt to form a C Corporation. While C Corps are more complex to form and operate, they provide the most robust liability protection for the company’s shareholders. C Corps must file Articles of Incorporation in the state where you operate.

    A C Corp is a separate business entity and files a tax return on its profits and losses using IRS Form 1120. But the owners/shareholders are considered corporation employees, receive W-2s and are taxed as individual taxpayers, often called “double taxation.”

    However, C Corps can deduct employee-related costs, like wages, health care, retirement plans, operational expenses and fringe benefits like company cars. Ultimately, the current C Corp flat tax rate of 21% may be lower than what sole proprietorships and partnerships pay,

    In C Corps, the company and its employees each contribute 6.2% of the employee’s wages to Social Security and 1.45% to Medicare. Plus, employers contribute to their state-run unemployment insurance funds (SUI).

    It’s easier to raise money and attract investors since C Corps can offer unlimited numbers of shares and multiple classes of stock.

    C Corps typically have higher registration costs and more compliance requirements, including adopting bylaws, submitting annual reports, holding shareholder and board of director meetings and more.

    Related: The 5 Biggest Tax Differences Between an LLC and Corporation

    The S Corp tax election

    LLCs and C Corps can elect to be taxed as S Corporations, allowing them to divide profits into wages and dividends. While dividend distributions aren’t subject to employment taxes, shareholders must be paid reasonable compensation as defined by the IRS. Electing to be taxed as an S Corp can lower your overall tax bill while maintaining liability protection. S Corps use IRS Form 1120-S, and tax returns are due on March 15. To elect S Corp status, you must file IRS Form 2553 no later than March 15 of the tax year the election is to take effect.

    However, only American citizens and residents can be S Corp shareholders, and only 100 shares can be issued, so check with your accountant before choosing this path.

    Get advice

    It’s crucial to weigh the advantages and disadvantages of the different business structures. For many entrepreneurs, the liability protection and possible tax savings outweigh the added costs and complexity of incorporation.

    With so much at stake, it’s recommended that you consult with your accountant or attorney to help determine which structure is best for your business today and for future growth.

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    Nellie Akalp

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  • Agent tied to Hunter Biden tax probe alleges

    Agent tied to Hunter Biden tax probe alleges

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    Agent tied to Hunter Biden tax probe alleges “irregularities” – CBS News


    Watch CBS News



    In an exclusive interview with CBS News, IRS whistleblower Gary Shapley discussed what he called “irregularities” in the Justice Department’s handling of a federal investigation connected to President Biden’s son, Hunter Biden. Jim Axelrod reports.

    Be the first to know

    Get browser notifications for breaking news, live events, and exclusive reporting.


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  • Most Americans aren’t happy with how much income tax they paid this year

    Most Americans aren’t happy with how much income tax they paid this year

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    Americans’ discontent with the size of their federal income-tax bill is at a two-decade high, according to a new poll — even though Congress hasn’t passed any direct income-tax increases in recent years.

    One month after the 2023 tax season’s conclusion, 51% of respondents in a newly released Gallup poll said their income taxes were not fair. That’s up from 44% last year and marks a record high since 1997, when Gallup’s pollsters started asking how people felt about their income-tax bills.

    Meanwhile, 46% of people said they were paying a fair amount of income tax. That basically matched the dim mood over two decades ago, in in 1999, when 45% said that they were paying a fair amount.

    Six in 10 poll participants said their federal income taxes were “too high,” pollsters said. 2001 was the last time that share of people felt the same way, Gallup said.

    Feeling the squeeze: Grocery prices are rising more slowly, but food insecurity is surging among low-income Americans

    Gallup pollsters spoke with more than 1,000 people, doing their field work through most of April.

    The poll comes during a fierce debate about whether the wealthiest taxpayers, as well as corporations, are paying enough in taxes. The Biden administration has been pressing for higher tax rates on high earners. A Democratic-controlled Congress last year passed a law with an $80 billion funding infusion for the IRS over a 10-year span in part to launch more audits of rich individuals and corporations.

    Many Americans walked away from tax season with income-tax refunds that were smaller than a year ago. That’s due, at least in part, to the end of pandemic-era boosts to certain credits, tax experts have previously told MarketWatch.

    Both backdrops might be at play in the public mood on taxes, observers noted, and political affiliation could have something to do with these changes, Gallup said. Only one-third of Republicans said their income taxes this year were fair, for example — that’s down from 63% in 2020, the last full year of the Trump administration.

    The change in Republican sentiment could be why there was a heavy swing since 2020, when 59% said their taxes represented a fair number. In 2020, 56% of political independents said their taxes were fair, and that percentage fell to 45% a few years later. Among Democrats, meanwhile, the 63% saying their taxes were fair was virtually unchanged over that span.

    Republicans “are certainly more frustrated now with Biden in office,” said Jeff Jones, senior editor of the Gallup poll. “But they are even more frustrated than they were when Obama was in office.”

    Democrat Joe Biden campaigned in 2020 on pledges to raise taxes on corporations and households earning over $400,000 a year and not on those making less than that. So far, the president has not been able to turn proposals like a billionaire’s minimum tax or a higher top tax rate into law.

    The real tax-policy fight brewing in the background is the 2025 expiration of Trump-era tax cuts, experts have said.

    In the sweeping 2017 tax-code overhaul, Congress reduced five of seven income-tax brackets and boosted commonly used features of the tax code, including payouts for the child tax credit and the standard deduction. But some of those tax cuts were scheduled to sunset, while others were permanent.

    Another potential shaping the mood on taxes is the broader economy and recent tax season, Jones said. One possibility, he noted, is that some people are getting pushed to higher tax brackets with pay raises meant to keep up with inflation. (Tax brackets are adjusted annually to account for inflation.)

    While inflation is still pinching wallets, tax refunds are lower than they were a year ago.

    Refunds averaged just over $2,800, and that’s down more than 7% from a year earlier, according to IRS data through May 12.

    So you know: What happens if you can’t pay your taxes? IRS has a payment plan — but read this before you sign up.

    For his part, Lawrence Zelenak, who teaches tax law at Duke University, thinks the current darkening public mood “is largely a response to the disappearance of all the temporary pandemic-related tax relief,” he said.

    In 2020 an estimated 60% of households ended up with no federal income-tax liability because they were making less and bringing in more through direct cash assistance from the federal government, according to Tax Policy Center estimates.

    By 2022, an estimated 40% of households wouldn’t face any federal income tax, according to the nonpartisan think tank — which is more in line with levels seen before the pandemic.

    Keep in mind: IRS will launch free tax-filing pilot in 2024. TurboTax, H&R Block and Republicans are opposed.

    Refunds during 2022 got a kick from extragenerous payouts including the child tax credit, the child- and dependent-care credit and the earned-income tax credit.

    Most taxpayers also got a chance to shave their tax bill with a temporary change that let them take the standard deduction and also write off a portion of their charitable donations. But the credits reverted to their prepandemic size, and the deduction on cash donations subsequently went away.

    “With the end of the pandemic tax relief, many people have seen their income-tax liabilities go up, and it’s not surprising they see that as unfair,” Zelenak said. “So it may be the change more than the absolute level of tax.”

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  • IRS is testing a free

    IRS is testing a free

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    The IRS is working on its own version of a free electronic tax-filing system that could compete with tax-prep programs from the likes of Intuit’s TurboTax and H&R Block. The agency is rolling out a pilot program in early 2024, when it will invite some taxpayers to test out the program, the IRS and Treasury officials said on Tuesday.

    The pilot program will assess the complexity of taxes that could be handled through such a program, noted IRS Commissioner Daniel Werfel on a press call to discuss the plan. The development of a direct-file program stems from last year’s Inflation Reduction Act, which included $80 billion in funding for the agency and directed the IRS to look at the feasibility of such a system.

    Americans spend a lot of time and money every year on preparing their taxes, paying more than $11 billion to tax prep companies, accountants and others to get their annual filings ready to send to the IRS. The development of a free, direct e-file system is aimed at easing the financial and time burdens placed on taxpayers, officials said.

    “A potential future free tax file could save taxpayers billions a year annually,” Laurel Blatchford, chief implementation officer for the Inflation Reduction Act at the Treasury Department, said on the call Tuesday. 

    Right now, she added, taxpayers pay about $40 for simple electronic filing options. Meanwhile, taxpayers with more complicated taxes can pay hundreds of dollars for accountants or other experts to prepare their annual returns. 

    Shares of tax-prep companies slid on Tuesday, with TurboTax owner Intuit slipping $4.80, or more than 1%, to $422.69. H&R Block shares dipped $1, or 3%, to $30.10.

    Currently, the IRS offers a free-file program through partnerships with tax-prep companies, but it’s only available to low- and some middle-income taxpayers. To qualify, a taxpayer must have adjusted gross income of less than $73,000.

    The IRS has extended its partnership with tax-prep companies in the Free File Alliance through 2025, Werfel noted on the call. He also stressed that the agency remains “strongly committed to make sure lower-income taxpayers can file their federal returns through the Free File Alliance or other methods.”

    But only a sliver of taxpayers take advantage of the Free File program, with the U.S. Government Accountability Office finding that just 4% of taxpayers used the program in the 2021 tax year. 

    “Instead, many used a commercial website outside of the program, which may have charged taxpayers,” its report noted.

    The reason for its low rate of use could be due to “confusion” since many tax-prep companies advertise their paid services while omitting mention of the Free File program, the GAO said.

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  • IRS admits Black taxpayers are more likely to get audited

    IRS admits Black taxpayers are more likely to get audited

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    The IRS on Monday said an internal investigation has found that Black taxpayers are audited at higher rates than would be expected given their share of the U.S. population. 

    The findings come after researchers earlier this year found that Black Americans are up to five times more likely to have their federal tax returns audited than taxpayers of other races.

    The tax agency’s acknowledgement comes after lawmakers and policy experts called on the IRS to review its auditing processes following the findings about about Black taxpayers. An earlier analysis also found that low-income Americans are five times as likely to get audited than any other filer, primarily because of the Earned Income Tax Credit (EITC), a benefit aimed at low-wage workers that has a high rate of erroneous claims.

    “[O]ur initial findings support the conclusion that Black taxpayers may be audited at higher rates than would be expected given their share of the population,” IRS Commissioner Daniel Werfel wrote Monday in a letter to the U.S. Senate.

    The IRS, which received $80 billion in funding through the Inflation Reduction Act, plans to use some of that money to “understand any potential systemic bias in compliance strategies and treatments,” Werfel noted.

    Some lawmakers called for change following Werfel’s admission that Black Americans are more likely to be audited by the IRS. 

    “Back in March my colleagues and I raised alarms to the new IRS boss about Black taxpayers being over-audited and today he confirmed our suspicions,” wrote Rep. Bill Pascrell, Jr., a Democrat from New Jersey, on Twitter. “The IRS is making strides but extra audits of Black Americans is disgraceful and must end.”

    AI to blame?

    The agency said it will evaluate its processes to determine the source of racial disparities, with Werfel noting that it is considering changing how it chooses which tax returns to audit. The IRS doesn’t track the race of filers, but the study from earlier this year claimed the higher audit rate for Black taxpayers is due to a flawed artificial intelligence algorithm relied on by the IRS to decide who gets audited.

    The IRS may change its process to focus on “broader tax issues” instead of the EITC, Werfel wrote. As many as half of tax returns claiming the EITC mistakenly claimed too much, while others sometimes incorrectly claim the credit when they aren’t eligible, according to the conservative Heritage Foundation. 

    “We will work to identify any disparities across dimensions including age, gender, geography, race, and ethnicity as well as continually refining our approaches to compliance and enforcement to improve fairness in tax administration and maintain accountability to taxpayers as informed by our research,” Werfel noted in the letter.

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