Monday, January 10, 2022

2022 tax filing season begins Jan. 24; IRS outlines refund timing and what to expect in advance of April 18 tax deadline


WASHINGTON − The Internal Revenue Service announced that the nation's tax season will start on Monday, Jan. 24, 2022, when the tax agency will begin accepting and processing 2021 tax year returns.

The January 24 start date for individual tax return filers allows the IRS time to perform programming and testing that is critical to ensuring IRS systems run smoothly. Updated programming helps ensure that eligible people can claim the proper amount of the Child Tax Credit after comparing their 2021 advance credits and claim any remaining stimulus money as a Recovery Rebate Credit when they file their 2021 tax return. 
 
"Planning for the nation's filing season process is a massive undertaking, and IRS teams have been working non-stop these past several months to prepare," said IRS Commissioner Chuck Rettig. "The pandemic continues to create challenges, but the IRS reminds people there are important steps they can take to help ensure their tax return and refund don’t face processing delays. Filing electronically with direct deposit and avoiding a paper tax return is more important than ever this year. And we urge extra attention to those who received an Economic Impact Payment or an advance Child Tax Credit last year. People should make sure they report the correct amount on their tax return to avoid delays.”
 
The IRS encourages everyone to have all the information they need in hand to make sure they file a complete and accurate return. Having an accurate tax return can avoid processing delays, refund delays and later IRS notices. This is especially important for people who received advance Child Tax Credit payments or Economic Impact Payments (American Rescue Plan stimulus payments) in 2021; they will need the amounts of these payments when preparing their tax return. The IRS is mailing special letters to recipients, and they can also check amounts received on IRS.gov.
 
Like last year, there will be individuals filing tax returns who, even though they are not required to file, need to file a 2021 return to claim a Recovery Rebate Credit to receive the tax credit from the 2021 stimulus payments or reconcile advance payments of the Child Tax Credit. People who don’t normally file also could receive other credits.

April 18 tax filing deadline for most
The filing deadline to submit 2021 tax returns or an extension to file and pay tax owed is Monday, April 18, 2022, for most taxpayers. By law, Washington, D.C., holidays impact tax deadlines for everyone in the same way federal holidays do. The due date is April 18, instead of April 15, because of the Emancipation Day holiday in the District of Columbia for everyone except taxpayers who live in Maine or Massachusetts. Taxpayers in Maine or Massachusetts have until April 19, 2022, to file their returns due to the Patriots’ Day holiday in those states. Taxpayers requesting an extension will have until Monday, Oct. 17, 2022, to file.
 
Awaiting processing of previous tax returns? People can still file 2021 returns
Rettig noted that IRS employees continue to work hard on critical areas affected by the pandemic, including processing of tax returns from last year and record levels of phone calls coming in.
 
“In many areas, we are unable to deliver the amount of service and enforcement that our taxpayers and tax system deserves and needs. This is frustrating for taxpayers, for IRS employees and for me,” Rettig said. “IRS employees want to do more, and we will continue in 2022 to do everything possible with the resources available to us. And we will continue to look for ways to improve. We want to deliver as much as possible while also protecting the health and safety of our employees and taxpayers. Additional resources are essential to helping our employees do more in 2022 – and beyond.”
 
The IRS continues to reduce the inventory of prior-year individual tax returns that have not been fully processed. As of Dec. 3, 2021, the IRS has processed nearly 169 million tax returns.  All paper and electronic individual 2020 refund returns received prior to April 2021 have been processed if the return had no errors or did not require further review.

Taxpayers generally will not need to wait for their 2020 return to be fully processed to file their 2021 tax returns and can file when they are ready.
 
Key information to help taxpayers
The IRS encourages people to use online resources before calling. Last filing season, as a result of COVID-era tax changes and broader pandemic challenges, the IRS phone systems received more than 145 million calls from January 1 – May 17, more than four times more calls than in an average year. In addition to IRS.gov, the IRS has a variety of other free options available to help taxpayers, ranging from free assistance at Volunteer Income Tax Assistance and Tax Counseling for the Elderly locations across the country to the availability of the IRS Free File program.
 
“Our phone volumes continue to remain at record-setting levels,” Rettig said. “We urge people to check IRS.gov and establish an online account to help them access information more quickly. We have invested in developing new online capacities to make this a quick and easy way for taxpayers to get the information they need.”
 
Last year's average tax refund was more than $2,800. More than 160 million individual tax returns for the 2021 tax year are expected to be filed, with the vast majority of those coming before the traditional April tax deadline.
 
Overall, the IRS anticipates most taxpayers will receive their refund within 21 days of when they file electronically if they choose direct deposit and there are no issues with their tax return. The IRS urges taxpayers and tax professionals to file electronically. To avoid delays in processing, people should avoid filing paper returns wherever possible.

By law, the IRS cannot issue a refund involving the Earned Income Tax Credit or Additional Child Tax Credit before mid-February, though eligible people may file their returns beginning on January 24. The law provides this additional time to help the IRS stop fraudulent refunds from being issued.
 
Some returns, filed electronically or on paper, may need manual review, which delays the processing, if our systems detect a possible error or missing information, or there is suspected identity theft or fraud. Some of these situations require us to correspond with taxpayers, but some do not. This work does require special handling by an IRS employee so, in these instances, it may take the IRS more than the normal 21 days to issue any related refund. In those cases where IRS is able to correct the return without corresponding, the IRS will send an explanation to the taxpayer.

File electronically and choose direct deposit
To speed refunds, the IRS urges taxpayers to file electronically with direct deposit information as soon as they have everything they need to file an accurate return. If the return includes errors or is incomplete, it may require further review that may slow the tax refund. Having all information available when preparing the 2021 tax return can reduce errors and avoid delays in processing.
 
Most individual taxpayers file IRS Form 1040 or Form 1040-SR once they receive Forms W-2 and other earnings information from their employers, issuers like state agencies and payers. The IRS has incorporated recent changes to the tax laws into the forms and instructions and shared the updates with its partners who develop the software used by individuals and tax professionals to prepare and file their returns. Forms 1040 and 1040-SR and the associated instructions are available now on IRS.gov. For the latest IRS forms and instructions, visit the IRS website at IRS.gov/forms.

Free File available January 14
IRS Free File will open January 14 when participating providers will accept completed returns and hold them until they can be filed electronically with the IRS. Many commercial tax preparation software companies and tax professionals will also be accepting and preparing tax returns before January 24 to submit the returns when the IRS systems open.

The IRS strongly encourages people to file their tax returns electronically to minimize errors and for faster refunds – as well having all the information they need to file an accurate return to avoid delays. The IRS’s Free File program allows taxpayers who made $73,000 or less in 2021 to file their taxes electronically for free using software provided by commercial tax filing companies. More information will be available on Free File later this week.
 
In addition to IRS Free File, the IRS's Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs free basic tax return preparation to qualified individuals. See this page on IRS.gov for more information.
 
Watch for IRS letters about advance Child Tax Credit payments and third Economic Impact Payments
The IRS started sending Letter 6419, 2021 advance Child Tax Credit, in late December 2021 and continues to do so into January. The letter contains important information that can help ensure the return is accurate. People who received the advance CTC payments can also check the amount of the payments they received by using the CTC Update Portal available on IRS.gov.

Eligible taxpayers who received advanced Child Tax Credit payments should file a 2021 tax return to receive the second half of the credit. Eligible taxpayers who did not receive advanced Child Tax Credit payments can claim the full credit by filing a tax return.

The IRS will begin issuing Letter 6475, Your Third Economic Impact Payment, to individuals who received a third payment in 2021 in late January. While most eligible people already received their stimulus payments, this letter will help individuals determine if they are eligible to claim the Recovery Rebate Credit for missing stimulus payments. If so, they must file a 2021 tax return to claim their remaining stimulus amount. People can also use IRS online account to view their Economic Impact Payment amounts.
 
Both letters include important information that can help people file an accurate 2021 tax return. If the return includes errors or is incomplete, it may require further review while the IRS corrects the error, which may slow the tax refund. Using this information when preparing a tax return electronically can reduce errors and avoid delays in processing.
 
The fastest way for eligible individuals to get their 2021 tax refund that will include their allowable Child Tax Credit and Recovery Rebate Credit is by filing electronically and choosing direct deposit

Tips to make filing easier
To avoid processing delays and speed refunds, the IRS urges people to follow these steps:
Organize and gather 2021 tax records including Social Security numbers, Individual Taxpayer Identification Numbers, Adoption Taxpayer Identification Numbers, and this year’s Identity Protection Personal Identification Numbers valid for calendar year 2022.

Check IRS.gov for the latest tax information, including the latest on reconciling advance payments of the Child Tax Credit or claiming a Recovery Rebate Credit for missing stimulus payments. There is no need to call.

Set up or log in securely at IRS.gov/account to access personal tax account information including balance, payments, and tax records including adjusted gross income.

Make final estimated tax payments for 2021 by Tuesday, Jan.18, 2022, to help avoid a tax-time bill and possible penalties.

Individuals can use a bank account, prepaid debit card or mobile app to use direct deposit and will need to provide routing and account numbers. Learn how to open an account  at an FDIC-Insured bank or through the National Credit Union Locator Tool.

File a complete and accurate return electronically when ready and choose direct deposit for the quickest refund.

Key filing season dates
There are several important dates taxpayers should keep in mind for this year's filing season:

January 14: IRS Free File opens. Taxpayers can begin filing returns through IRS Free File partners; tax returns will be transmitted to the IRS starting January 24. Tax software companies also are accepting tax filings in advance.
January 18: Due date for tax year 2021 fourth quarter estimated tax payment. 
January 24: IRS begins 2022 tax season. Individual 2021 tax returns begin being accepted and processing begins
January 28: Earned Income Tax Credit Awareness Day to raise awareness of valuable tax credits available to many people – including the option to use prior-year income to qualify.
April 18: Due date to file 2021 tax return or request extension and pay tax owed due to Emancipation Day holiday in Washington, D.C., even for those who live outside the area.
April 19: Due date to file 2021 tax return or request extension and pay tax owed for those who live in MA or ME due to Patriots’ Day holiday
October 17: Due date to file for those requesting an extension on their 2021 tax returns

Planning ahead
It’s never too early to get ready for the tax-filing season ahead. For more tips and resources, check out the Get Ready page on IRS.gov.

Thursday, January 6, 2022

January Update Seminar (Updated with Link)

COVID Can't Keep Us Down...at least not all of us. Today, we held our Annual State Update Seminar in Southbridge, MA. Although we had last minute cancellations by speakers from Massachusetts DOR and Connecticut DOR, we still delivered updates from Rhode Island and New York in addition to our Federal update by Kathryn Keane. She led us in a jam packed session updating us on the latest issues relating to the Corporate Transparency Act, changes in the Earned Income Credit, PPP Forgiveness and in depth conversations on the Advanced Child Tax Credit and Recover Rebate Credit reconciliations (and much more!!)

Instructor Kathryn Keane Back in Person

With the last minute speaker cancellations, our Education Chair, Sharon Cummings, led a roundtable discussion on COVID-19 Office Procudres for the upcoming tax season. There was great discussion on topics revolving around the virtual office using video conferring and document uploading to secure online portals. Many attendees will not be visiting with clients in person and will either be video chatting with clients or requiring documents to be mailed in or dropped off in secure lock boxes.

All of the handouts for this seminar can be found online here.

Thank you to all who attended and PLEASE STAY SAFE this filing season!!



New Rules For Third Party Settlement Organizations (TPSO)

William Delaney, EA
Westwood, MA

Think form 1099-K issued by credit card companies and banks, but only to report 

more than $20,000 and/or if there are more than 200 transactions. Now comes the 

American Rescue Plan Act of 2021 which throws this out the window as of 

January 1, 2022. As of 2022, we have a simple reporting requirement…receipts of 

more than $600 per year.

This matches the current reporting requirement for form 1099-NEC.

This closes the so-called PayPay loophole; TPSOs are now playing by the same 

rules as everyone else. Remember, also, that the definition of a TPSO includes not just

PayPal but also Uber, Lyft, eBay, Grubhub and Etsy, to name a few.

This time next year, expect to see forms 1099-K from clients who never thought that

their income source would be discovered and reported!

Finally, MA already has in place a more than $600 filing requirement for TPSOs, along

with AK, IL, MD, MI, MS, NJ and VT which have enacted various (i.e. lower than

$20,000) filing requirements.

Wednesday, January 5, 2022

Words Have Meaning and Specific Words Have Specific Meaning

William Delaney, EA
Westwood, MA

Now comes Mass. Gen. Laws Ch. 63D, Sec. 7 which directs that “The commissioner shall promulgate regulations or other guidance to carry out the purposes of this chapter.” 

 

“(ii) provide rules on the application of this chapter to eligible trusts and estates,…”

 

This has to do with the new MA Elective Pass-Through Entity Excise Tax -                (MGL Ch 63D).  The law, under §1, defines an eligible pass thru entity (PTE) as an S corporation, a partnership, or an LLC taxed as a C corporation or partnership.  There, the law has stopped.  Nothing “additional” has been included in the statutory definition of a PTE.  However, in §7, the legislature refers to eligible trusts and estates, and appears to have left it up to the MA Commissioner of Revenue to write rules and/or other guidance which would move certain trusts and estates (as defined by the commissioner) under the statutory umbrella wherein a PTE resides.  We didn’t place them there said the legislature when it wrote the statute---we told the commissioner that he could exercise his discretion and do so. 

 

Now we have (in proposed form) a TIR which does exactly that.  It makes certain trusts (as explained in the TIR) eligible to make the election.  And, the result is wonderful!  The trust pays the tax; there is a K-1 which passes credit for the tax payment to the trust beneficiary, and the beneficiary (on his/her Form 1) may claim credit of up to 90% of this amount against the income tax imposed on the pass-through income.  Again, wonderful!  The state has just increased your tax rate by 10% on the pass-through income!

 

Of course, there must be a benefit to this stuff and nonsense, so let’s look to the federal return.  On the federal 1041 there is allowed a deduction for taxes paid (which, one would presume, includes this excise tax), so the amount of pass-through income (DNI) is net after deductions.  Voila, there it is, the federal pass-through income has been reduced, so the additional state tax is more than offset by the federal 1040 tax saved*.  Ingenious!  Except, this doesn’t work, for reasons not addressed in either MGL or the TIR.

 

First, §1 defines Qualified Member as a shareholder of an S corporation, a partner in a partnership, or a member of an eligible LLC.  The TIR did not change or alter this MA statutory definition to include beneficiaries of a trust.  Therefore, while the trust may pay the excise tax, the beneficiary may not claim a credit for this payment, so he/she pays again.  A 100% jump in state tax for the ineligible beneficiary!

 

Second, IRS Notice 2020-75, which claims to be the precursor of federal regulations to be issued on this excise tax concept, limits eligible entities to S corporations and partnerships.  The IRS is telling us, in advance, that the regulations do not contemplate any such deduction by a trust or estate on the federal 1041.  If the trust, when filing its federal form 1041, cannot claim a tax deduction for this MA excise tax, the pass-through federal income will match the pass-through MA income, so there is no federal income tax savings which would at least offset the additional state tax paid!  Checkmate!

 

 

*If the federal distributive net income (pass-through income) is $10,000 and a MA 5% excise tax is imposed, the DNI is reduced to $9,500 for purposes of reporting on form 1040.  Since MA does NOT allow deductions for state tax paid, the MA income remains at $10,000.

Monday, December 20, 2021

It's Official - The IRS Is Broken, And We Are Deserting A Sinking Ship

William Delaney, EA
Westwood, MA
As of October 30, 2021, the IRS had a backlog of over 2.7 million unprocessed amended returns (National Taxpayer Advocate Blog 11/10/2021).  Apparently, the IRS has said that the processing time for these returns is 20 weeks from the time when they reach the surface.  The taxpayer advocate’s office estimates that the actual processing time is “considerably longer than 20 weeks.”  This considerably longer time period mirrors your editor’s personal experience with client amended returns.

 

Help is not on the way.  The National Taxpayer Advocate announced, in its’ Nov. 10, 2021 Blog, that it will no longer accept cases “…where the sole issue involves the processing of amended returns until the IRS is able to work through its backlog.”  We are, however, referred to the Where’s My Amended Return tool available on the IRS website.  This will, we are assured, “…provide the status of amended returns…”

 

The Practitioner Priority Service (866-860-4259) is available for questions such as: “providing general procedural guidance and timeframes.”  Your editor recently called the PPS (phoned very late in the day and got through in 4 minutes) to ask about a long-delayed amended return (large refund claim).  The very nice Service representative was able to tell me that the return had been received (already knew that from the IRS tool); the return had not been processed (already knew that from the IRS tool); her only advice was to wait until it had been processed, although she did not know when that would be.  So, I knew nothing more than I knew before making the call.

 

In a recent appearance before a congressional committee, IRS Commissioner Charles Rettig commented that PPS and other IRS representatives should not be contacted and asked the status of refund returns because they can only see what the taxpayer can see; they cannot provide any additional information.  This dovetails with your editor’s personal experience (as described above).

 

Another “tool” experience is also worth noting.  The message on the tool was that the taxpayer should call a specified number because the IRS needed information of some kind.  Repeated calls were unsuccessful (why are you not surprised) and your editor was treated to “courtesy disconnects.”  So, thought I, call PPS, which I did.  The PPS representative could see what I could see, but there was nothing else to tell her anything about the issue, and the employee who posted the message was not there, so this was all she could do for me.  Actually, she did do more.  She posted a note asking the IRS employee to phone me directly (have not heard from him---again, why are you not surprised).  Later, it occurred to me that of course the employee was not there---I had called PPS after the normal work day.  Had I called PPS during the normal work day I would not have been able to get through (which I already knew as a result of the courtesy disconnects), so your ever humble editor was caught between the devil and the deep blue sea.  No way to respond to the IRS or solve the problem for the taxpayer!

 

If the National Taxpayer Advocate has backed off, and the Practitioner Priority Service can only do what we have already done prior to calling, where does one go; to whom does one turn?  Our advice is to read and retain our recently published blog article on amended returns, so that you will be informed if an amended return eventually surfaces and is rejected or returned for late filing or similar nonsensical reason. 

 

Members of Congress recently wrote a CYA letter to the IRS Commissioner demanding answers as to why the IRS is so far behind and unable to provide good taxpayer service.  NATP recently published commentary and a link to the letter.  This is coming from the same Congress which has repeatedly cut the annual IRS budget, thereby directing the IRS to do more with less.  Be careful (Members of Congress) what you wish for; you may just get it!