Around the Tax World- June 29, 2022 - Think Outside the Tax Box

Check out what’s happening all around the world of tax!

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World NEWS

New IRS voice bots can assist callers with setting up or changing payment plans as part of an initiative to reduce historically-lengthy caller wait times. In 2021, the average wait time was 23 minutes, and only 11% of all calls were answered due to significant staffing shortages. Taxpayers who have a tax balance of $25,000 or less qualify to use this automated service. More complex tax questions can still be escalated to a live agent.

Hollywood heads to Bangkok: Thailand is introducing new tax incentives focused on foreign filmmakers. The government recently approved a five-year tax exemption for all foreign actors working on movies or television shows filmed in Thailand. This comes alongside an existing cash rebate of 15-20% on production spending within the country. American citizens are still required to pay US taxes regardless of where they work.

U.S. NEWS

President Biden calls on Congress to establish a national gas tax holiday

In addition to recommending a suspension of federal gasoline and diesel taxes until the end of September, the president also urged states to suspend their taxes and asked oil refining companies to increase their capacity. White House administration officials estimate that these steps could reduce the cost per gallon of gas by $1. The current federal tax on gas is about 18 cents per gallon and about 24 cents per gallon on diesel.

However, not all lawmakers are convinced that a gas tax holiday is a viable solution. Many Republicans and some Democrats have expressed skepticism about lifting the gas tax and the potential impact on road construction and other infrastructure needs that the tax normally funds. The government would lose an estimated $10 billion from the three-month suspension, but the White House has responded that other revenue sources would be reallocated to cover highway repair and related costs.

Some economists have also warned that American consumers may not see significant savings from a gas tax suspension. Many oil refineries are running at almost 90% of their capacity, so they may simply raise the base price of gasoline if a tax suspension results in increased demand. In recent weeks, the average price of a gallon of gasoline has already risen above $5.

Proponents of the gas tax holiday argue that any step toward providing financial relief to Americans should be welcome. Advocates acknowledge that the tax suspension alone will not solve the problem, but some action needs to be taken soon to aid working families. President Biden has taken other steps toward decreasing energy-related costs including releasing more oil from national reserves and lifting taxes on imported solar panels. Additionally, White House officials have indicated that the president would put pressure on companies to pass the savings on to consumers, but details on the policy side of the plan are still forthcoming.

On a state level, Connecticut, Florida, Georgia, Maryland, and New York have already suspended their gas taxes, and more than a dozen other states are weighing similar measures.

STATE NEWS

Virginia finalizes a two-year budget with $4 billion in tax cuts… and billions more allocated toward education and law enforcement. Governor Glenn Youngkin signed off on the new plan just shy of the June 30th deadline, delayed in part by extended negotiations between the Republican-controlled state House and the Democrat-majority state Senate.

Though the final budget nixed about $1 billion in proposed tax cuts, the governor succeeded in getting approval for two key items—an increased standard income tax deduction and a decreased grocery tax. The state-level standard deduction rose from $4,500 to $8,000 for single taxpayers and from $9,000 to $16,000 for married couples filing jointly. The statewide grocery tax will be eliminated, but a local tax of 1% remains in place. Additionally, taxpayers will receive a one-time rebate of $250 for individuals and $500 for couples.

Notably, state lawmakers did not approve the governor’s proposal for a three-month gas tax holiday on the grounds that the savings might get distributed to wholesalers rather than consumers. The new budget also allocated a record-high $19 billion to public education, including increased pay for teachers and state employees and funding for “lab schools” that partner with colleges and universities.

A Washington court upholds Seattle’s JumpStart payroll tax… in response to a late 2020 lawsuit by the Seattle Metropolitan Chamber of Commerce that the tax was unlawful. The lawsuit had already been dismissed by a King County Superior Court in 2021, and the Division I Court of Appeals has now confirmed this ruling.

The JumpStart tax was approved by the Seattle City Council in 2020, introducing an annual payroll levy between 0.7% and 2.4% on salaries and wages for employees earning over $150,000 per year. The tax only applies to businesses whose total payroll amounts to $7 million or more. In 2021, Seattle collected $231 million in revenue from the new levy.

Opponents of the tax cite the fact that Washington state law deems taxes on net income to be illegal property taxes. Thus far, the courts have countered that the tax is levied on the business entity and not the employee, since employees cannot make any deductions from their compensation to pay for the tax. Others have also objected to the increased taxes in light of Seattle’s projected revenue shortfall, which is expected to total around $117 million in 2023.

Champions of the payroll tax earmarked the revenue to go toward more affordable housing, initiatives to reduce homelessness, and increased stability for the local economy.

TAX PLANNING

The IRS announces that the end is in sight for backlogged 2021 tax returns. As of June 10th, the agency reported that they had processed 4.5 million of the 4.7 million individual paper tax returns received last year. The IRS now anticipates completing all 2021 returns by the end of June. Additionally, the majority of tax returns filed this year have reportedly been processed, resulting in about $298 in refunds. IRS Commissioner Chuck Rettig confirmed that the agency will finish its 2022 backlog by the end of this calendar year.

The IRS has struggled tremendously during the COVID-19 pandemic due to staffing shortages, numerous changes to the tax code, and a larger-than-expected number of paper tax returns. As a point of comparison, the agency currently has more than twice as many unprocessed returns as they would in an average year, but agents have also processed almost a million more returns than they normally would have by this time.

The House Appropriations Committee is advocating for a $1 billion increase to the IRS’ budget, enabling the agency to hire an additional 4,000 contact representatives to assist taxpayers and investment in new technologies. Recently-introduced technology has enabled tax examiners to correct 180 to 240 tax returns per hour, compared to an average of 70 returns last filing season.

The enhanced child tax credit finds ongoing support from racial justice organizations. A coalition of 40 groups—such as the Economic Security Project, the NAACP, and UnidosUS—have come together to petition for the reinstatement of the enhanced version of this credit. A letter sent to Senate Majority Leader Chuck Schumer emphasizes the impact these monthly payments had on reducing child poverty, an issue that has only been exacerbated by recent inflation.

The child tax credit was increased to $3,000 or $3,600 per child (depending on their age) as part of the American Rescue Plan. Eligible families received monthly payments for the latter half of 2021 and could also qualify for a tax refund this year. The credit also became fully refundable, which meant that families who did not have to file a tax return due to low income could still receive these checks. That aspect alone extended the benefit to 27 million children, including half of Black and Latino children who would have previously been ineligible for the full amount. When the enhancements were not renewed at the end of 2021, the credit reverted back to its original state as a $2,000 non-refundable payment.

Now at the midpoint of 2022, about half of low-income families are unable to afford enough food for their families, according to a recent survey. Advocates for the enhanced child tax credit are emphasizing the need to make the credit fully refundable and to preserve the monthly payment method to better meet the needs of struggling families.

Recent Highlights

Wondering what you missed in our last newsletter? Check out our latest exclusive articles here:

CURRENT EDITION

Staying Afloat in Tax Seas: Understanding the IRS’s Moratorium on ERC

Dominique Molina, CPA MST CTS

Question: Should I even bother assisting my clients with filing new ERC claims?

Answer: In light of the IRS’s recent moratorium on processing new Employee Retention Credit (ERC) claims and the introduction of a withdrawal option for certain employers, it’s understandable that you might be wondering whether to assist your clients with filing new claims. The answer, like a well-prepared tax return, is nuanced and deserves a detailed examination.

Time for Year-End Tax Planning

Jeff Stimpson

This year is far from over for tax planning – for some moves, you have even longer – but now’s the time to start looking and acting on your tax tactics given your circumstances and the 2023 you’ve had so far. What you do or don’t do now could save or cost you next April.

An Alphabet Soup of Confusion: LLCs, BOI, and UPL

Amber Gray-Fenner, EA NTPI Fellow USTCP

By now I hope that all tax professionals have heard of the FinCEN requirement for certain entities to report beneficial ownership information starting in 2024. The requirement is causing confusion because tax and accounting professionals feel that this could be an opportunity to either add value to an existing engagement, could be a new revenue stream, or could be a huge potential for liability. What follows is a brief review of the law and the requirements, an analysis of the main issues, and some recommendations for practitioners wondering how to help their clients while limiting their professional liability.