Monday, October 31, 2022

Massachusetts Excess Tax Revenue Refunds Begins November 1, 2022

 


Distribution of Excess Tax Revenue Refunds Begins November 1, 2022

Tomorrow the Department of Revenue (DOR) will begin the distribution of $2.941 billion in tax refunds in accordance with Chapter 62F, a Massachusetts law that requires tax revenue collected in excess of an annual cap to be returned to taxpayers. Refunds will be provided in proportion to Massachusetts income tax liability incurred by taxpayers in the immediately preceding taxable year – Tax Year 2021. In the coming weeks, an estimated 3 million taxpayers will receive a refund equal to 14% of their 2021 Massachusetts income tax liability. This is higher than the previously shared preliminary estimate of 13%, which was based on projections made prior to the tax extension due date of October 17, 2022.
 
Refunds will be issued via direct deposit or mailed as a check. Refunds issued by direct deposit will be labeled “MASTTAXRFD”. Refunds mailed as a check will include several sentences on the check explaining Chapter 62F and why the recipient is receiving a refund. Approximately 500,000 refunds will be distributed during the first week. Approximately one million refunds will be distributed weekly thereafter until all currently eligible refunds have been distributed.
 
Taxpayers who have already filed their 2021 tax return and had a tax liability will automatically receive their refund by December 15, 2022 – no action is needed. Individuals who have not yet filed their 2021 tax return but file by September 15, 2023 will be eligible to receive a refund. Such individuals, if eligible, will receive their refund automatically approximately one month after filing.
 
Note that an individual’s credit may be reduced due to refund intercepts, including for unpaid taxes, unpaid child support, and certain other debts.
 
Additional information about Chapter 62F taxpayer refunds, including Frequently Asked Questions and a refund estimator, can be found at www.mass.gov/62Frefunds.
 
A call center is available to answer questions about 62F refunds at 877-677-9727 and is open Monday through Friday, 9am-4pm. The call center will not be able to provide exact refund amounts – however, the estimator on the FAQs page can help individuals calculate an estimate. 
 
About Chapter 62F
Chapter 62F is a Massachusetts law enacted by voters in 1986 via a ballot question that requires the Department of Revenue to issue a credit to taxpayers if total tax revenues in a given fiscal year exceed an annual cap tied to wage and salary growth in the Commonwealth.
 
The law requires that the Department of Revenue submit a report to the State Auditor on the net state tax revenues and the allowable state tax revenues for each fiscal year by September 1st. The State Auditor then makes the determination of whether net state tax revenues exceed allowable state tax revenues – and, if so, by what amount – on or before the third Tuesday of September.
 
See the State Auditor’s report for Fiscal Year 2022, which certified that net state tax revenues exceeded allowable revenues by $2.941 billion, here.
 
The Chapter 62F process has been triggered once before, in 1987.
 

Saturday, October 1, 2022

2022 Fall Educational Seminar and Annual Meeting

 Massachusetts / Rhode Island NATP Chapter Annual Meeting & Educational Seminar November 3rd 2022










Join the Massachusetts / Rhode Island NATP Chapter on Thursday, November 3rd 2022 for our Annual Meeting & Educational Seminar. This all day event will be held at the Southbridge Hotel & Conference Center. Registration details are below, and is handled online by National. Take a look at the details on our speaker and topics provided in this great Continuing Education  opportunity including continental breakfast, snacks, lunch and great networking opportunities (In-Person). This seminar is limited to the First 100 Registrants!


  • For online registration FOR IN PERSON MEETING, click here.

Welcome Desk 7:00 am to 8:00 am (Continental Breakfast Included)
Education 8:00 am to 5:00 pm (Webinar Log-in 7:55 am)
Annual Meeting Prior to Lunch (Lunch Included)

CE Credits -
8 Federal Tax Law Topics FOR IN-PERSON Attendees Only


Speaker - John Sheeley, EA


Topics:

  • 2022 Cryptocurrency Updates
  • Buying & Selling S Corp Business
  • Properly Preparing IRS Forms 2848 & 8821
  • Using the IRS Secure Access Portal to Upload 8821's
  • Tax Reporting Issues of the Sharing Economy

Chester, New York based John Sheeley, EA began his career in the tax industry in 1987, passing the IRS special enrollment exam in 1995. His career includes 13 years as a multi-unit franchisee of a national tax firm and 5 years as a tax manager at a regional CPA firm in New York. A National Tax Practice Institute fellow, John completed his undergraduate education at the State University of New York at Oswego.

John formed his current tax services firm in 2008, with a focus on the tax and representation needs of U.S. citizens living abroad, and non‐resident alien entrepreneurs and entertainers living and working in the United States. The Firm prepares the occasional cannabis industry and crypto currency tax return.

John is also the founder of Tax Practice Pro, Inc, a national continuing education provider. His current teaching focus centers on taxation of legal marijuana businesses, problems of S corps, and taxation of non-resident aliens and those living abroad. He can be reached at john@taxpracticepro.com


Thursday, August 25, 2022

Rhode Island Division of Taxation Child Tax Rebate




The Rhode Island Division of Taxation encourages families not to miss out on the Child Tax Rebate.


Please remember you need to file a RI Personal Income Tax return for 2021 to qualify. August 31st is the deadline for filing your original or amended return to qualify (unless you are on extension). 


For more information on the Child Tax Rebate visit the Division's Child Tax Rebate webpage.



Amanda Tirocchi

Internet Communications Specialist

(401) 574.8184 I Amanda.Tirocchi@tax.ri.gov


Rhode Island Department of Revenue

Division of Taxation

One Capitol Hill

Providence, Rhode Island 02908

Tuesday, May 10, 2022

So, You Think That You Are Entitled to Claim Itemized Deducitons?

William Delaney, EA
Westwood, MA

Just want you need to see walking into your office right after a tough tax season. A taxpayer who is a few years behind in filing his income tax returns, and he is here because he has been caught by the IRS. Consider the plight of Shawn Stephen Salter, who had not filed for tax year 2013 and, of course, ignored IRS notices/correspondence from a time (pre-COVID) when the IRS was still able to function properly.

Eventually, the IRS prepared a substitute return and they had a lot of gross income information available (W-2 wages; unemployment compensation; dividends; taxable state refund; capital gains; taxable retirement income. Did I leave anything out---oh, yes, there was also some “other” income). The IRS “generously” allowed a personal exemption and the standard deduction. The tax, interest, and various penalties were calculated and billed. That got the attention of the taxpayer, who decided to be a bit creative…

“After receiving the notice of deficiency, petitioner (taxpayer) informed the IRS of his belief that he had filed a return for 2013 using H&R Block software. But, IRS records showed that no return had been submitted, and the petitioner was unable to produce, from H&R Block or his own files, a copy of a return or evidence of it filing.” Shawn Stephen Salter v. Comm., TC Memo 2022-29 (4/5/2022). Oh, did I forget to mention that this purported to be a refund return, yet the IRS had no record of a refund nor could the taxpayer show that he had received and deposited same.

When that didn’t work, the taxpayer then prepared a form 1040 and reported all of the income shown on the substitute return. He also claimed itemized deductions. Your Editor, and I assume this to be true of others, has been successful in convincing the IRS to accept an original 1040 in place of a substitute return and assess accordingly, but this isn’t always the case…

The IRS received the return and decided to audit the itemized deductions. They could match state and local taxes, home mortgage interest, and mortgage insurance premiums. So far, so good. However, “Petitioner supplied no documentation, during IRS examination or at trial, to substantiate the other deductions he claimed, and he admitted that he had estimated these amounts.” Ibid., page 3.

As a result of the failed audit, the IRS refused to accept the form 1040 for filing. And, they may do just that, since §6020(a) allows them to prepare “a return required by this title” and (b)((2) states that such a return “…shall be prima facie good and sufficient for all legal purposes.” So, they already had a legally filed return and were not obliged to accept the taxpayer’s much later and very flawed submission. Now, for the really fun part. It turns out that the IRS didn’t need an audit; they could have denied all of the itemized deductions because the taxpayer had not made a timely election to itemize.

Your Editor had always assumed that itemized deductions is an available option when filing an original (not an amended) income tax return. Well, according to the Tax Court, this isn’t so…

“Section 63(e)(1) provides that ‘…unless an individual makes an election under this subsection for the taxable year, no itemized deduction shall be allowed for the taxable year’.” But, didn’t the taxpayer file a return (although it was late) and elect itemized deductions? The Tax Court cited (among several authorities) George v. Comm., TC Memo 2019-128 – “Thus, if an individual fails to file a return, he has made no election to itemize his deductions.” If no return is filed and “…as a result, the Commissioner prepares a substitute return, then the individual has made no election and may not claim itemized deductions.”

What is our taxpayer to do? He decided to continue to do it himself and filed a pro se petition with the Tax Court. This means, he decided to represent himself without the need for counsel. He then proceeded to prove the validity of the adage (slightly amended by your Editor) – a taxpayer who represents himself has a fool for a client (attributed to Abraham Lincoln).

The Court (not surprisingly) determined (page 5) “…petitioner did not file a return for 2013, that he made no election to itemize deductions as required by section 63(e), and that he accordingly is not allowed any itemized deductions. He remains entitled to the standard deduction as calculated on the notice of deficiency.”

A one-page summary of this case in TheTaxBook News states that the taxpayer “filed an amended return claiming itemized deductions.” This appears to be an incorrect reading of the fact pattern; the rejected 1040 was an original filing, and the decision of the Court centers on an attempt by the taxpayer to override a substitute return by filing an original return (which probably would have been accepted had it not failed the audit examination).

It turns out that Abraham Lincoln was spot on!

Friday, February 18, 2022

MA Paid Family & Medical Leave Taxation Issues


Now that a few months have passed and this new tax has been deducted and/or

employer only paid, have we handled it correctly? What’s to handle, you might ask?

I haven’t seen anyone draw down on this fund (with good reason---it’s too soon for

benefits to kick-in). Yes, but is it taxable when it does suddenly appear in a subsequent

year – or currently for a RI resident (more on this later).


What about the employee payroll deductions? If you are like me, at least half of the

W-2 forms which should have shown something in box #14 did not have an entry. If

there is an entry, did you do anything with it? It qualifies as a SALT (state and local

[income] tax) so it should be posted to Schedule A---subject to the $10,000 annual

limitation. For authority, see CCA 200630017 (7/28/2006).

Is it taxable income when received. YES, according to the Chief Counsel’s Advice cited

above. If you received an itemized deduction for the employee payment, the entire

benefit is taxable when received. If you were unable to itemize, the amount of the

payroll deduction becomes your tax basis and it is excluded from taxable benefit

income.


While this is the federal rule for the Massachusetts and Rhode Island State plans, other

state plans may be treated differently.


And, if you have not forgotten, the RI “tax” qualifies as a state tax when computing the

maximum amount of credit on the MA resident return for taxes paid to another state.

See MA Revised Directive 12-1 (3/15/12). Does RI reciprocate? Not at this time. The

regulation in effect since 1/1/1998 is PIT 98-12 and it specifies (see part IV) that the

allowable state income tax must be similar to what is allowed on the RI personal income

tax return. The RI personal return only allows (Schedule W) a credit for withholding tax

shown on form W-2, box #17). RI does not follow the MA “rule.”