Income Tax News

WASHINGTON, D.C. — The Internal Revenue Service (IRS) has released new guidance on the tax treatment of educational assistance programs, providing clarity for both employers and employees. These frequently asked questions (FAQs), detailed in FS-2024-22, outline how certain educational benefits can be excluded from an employee’s gross income.

Key Points of the Guidance

Under an educational assistance program, employers can offer benefits such as payments for tuition, fees, books, supplies, and equipment. These benefits also include principal or interest payments on qualified education loans made by the employer between March 27, 2020, and January 1, 2026, unless extended by future legislation.

Employees can exclude up to $5,250 of these educational benefits from their gross income each year. This means they do not have to pay taxes on this amount, and employers should not report it in box 1 of Form W-2, which lists wages, tips, and other compensation.

However, there are important caveats. Any tax-free educational expenses cannot be used as a basis for other tax deductions or credits, such as the lifetime learning credit. This rule prevents double-dipping, ensuring that taxpayers do not receive multiple tax benefits for the same educational expense.

Exceptions and Additional Requirements

If an educational assistance program does not meet IRS requirements, or if benefits exceed $5,250, some amounts may still be excluded from gross income if additional conditions are met. Employers generally can deduct these educational payments as a business expense, making these programs beneficial for both parties.

The Impact of Educational Assistance Programs

This guidance is significant for several reasons. For employees, educational assistance programs can reduce the financial burden of continuing education. They provide a way to advance careers without incurring additional debt. By excluding these benefits from taxable income, employees can effectively stretch their educational dollars further.

For employers, offering educational assistance can be a valuable tool for attracting and retaining talent. It demonstrates a commitment to employee development and can lead to a more skilled and knowledgeable workforce. Additionally, the ability to deduct these expenses as a business cost can make these programs financially attractive.

The Power of Tax-Free Educational Benefits

The exclusion of educational benefits from taxable income supports broader economic goals. By encouraging investments in education, these programs help build a more educated workforce. This, in turn, can enhance productivity and innovation, contributing to overall economic growth.

Moreover, the provision to include loan repayments extends the benefits to those who have already completed their education but are grappling with student debt. This helps alleviate one of the most pressing financial issues facing many Americans today.

Compliance and Future Considerations

Employers must ensure their educational assistance programs comply with IRS rules to benefit from these tax advantages. They need to stay informed about any changes in legislation that might extend or alter the current provisions.

The IRS’s FAQs provide much-needed clarity on these matters, helping both employers and employees navigate the complexities of tax law. As tax laws evolve, staying updated with IRS guidance is crucial for maximizing the benefits of educational assistance programs.

The IRS’s new guidance on educational assistance programs offers clear benefits for both employers and employees. By allowing certain educational expenses to be excluded from taxable income, the IRS is making it easier for individuals to pursue further education while providing businesses with a valuable tool for workforce development. This move not only helps individual taxpayers but also supports broader economic goals by fostering a more educated and skilled population.

For the latest news on everything happening in Chester County and the surrounding area, be sure to follow MyChesCo on Google News and Microsoft Start.

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This fact sheet provides answers to frequently asked questions (FAQs) related to educational assistance programs under section 127 of the Internal Revenue Code (Code) (a section 127 educational assistance program).

These FAQs are being issued to provide general information to taxpayers and tax professionals as expeditiously as possible

Accordingly, these FAQs may not address any particular taxpayer’s specific facts and circumstances, and they may be updated or modified upon further review. Because these FAQs have not been published in the Internal Revenue Bulletin, they will not be relied on or used by the IRS to resolve a case.

Similarly, if an FAQ turns out to be an inaccurate statement of the law as applied to a particular taxpayer’s case, the law will control the taxpayer’s tax liability. Nonetheless, a taxpayer who reasonably and in good faith relies on these FAQs will not be subject to a penalty that provides a reasonable cause standard for relief, including a negligence penalty or other accuracy-related penalty, to the extent that reliance results in an underpayment of tax.

Any later updates or modifications to these FAQs will be dated to enable taxpayers to confirm the date on which any changes to the FAQs were made. Additionally, prior versions of these FAQs will be maintained on IRS.gov to ensure that taxpayers, who may have relied on a prior version, can locate that version if they later need to do so.

More information about reliance is available. These FAQs were announced in IR-2024-167.

Background on educational assistance programs

You may exclude certain educational assistance benefits from your gross income if they are provided under a section 127 educational assistance program. That means that you won’t have to pay any tax on the amount of benefits up to $5,250 per calendar year and your employer should not include the benefits with your wages, tips and other compensation shown in box 1 of your Form W-2.

However, it also means that you can’t use any of the tax-free education expenses as the basis for any other deduction or credit, including the lifetime learning credit. If any benefits are received under a program that does not comply with section 127 or if the benefits are over $5,250, the amounts may be excluded under section 117 or deducted under section 162 or section 212 if the requirements of such section are satisfied.

Amounts paid under a section 127 educational assistance program are generally deductible by the employer as a business expense under section 162.

Questions and answers on educational assistance programs

Q1. What is an educational assistance program?

A1. An educational assistance program is a separate written plan of an employer for the exclusive benefit of its employees to provide employees with educational assistance.

To qualify as a section 127 educational assistance program, the plan must be written, and it must meet certain other requirements. Your employer can tell you whether there is a section 127 educational assistance program where you work.

A sample plan for employers is available. An employer may tailor its plan to include, for example, conditions for eligibility, when an employee’s participation in the plan begins and prorated benefits for part-time employees. However, a program cannot discriminate in favor of officers, shareholders, self-employed or highly compensated employees in requirements relating to eligibility for benefits.

Q2. What are educational assistance benefits?

A2. Tax-free educational assistance benefits under a section 127 educational assistance program include payments for tuition, fees and similar expenses, books, supplies and equipment. The payments may be for either undergraduate- or graduate-level courses. The payments do not have to be for work-related courses.

Tax-free educational assistance benefits also include principal or interest payments on qualified education loans (as defined in section 221(d)(1) of the Code). Section 127 requires that such loans be incurred by the employee for the education of the employee and not for the education of a family member such as a spouse or dependent. These payments must be made by the employer after March 27, 2020, and before January 1, 2026 (unless extended by future legislation).

The payments of any qualified education loan can be made directly to a third party such as an educational provider or loan servicer or directly to the employee, and it does not matter when the qualified education loan was incurred. A qualified education loan is generally the same as a qualified student loan. See Qualified Student Loan in Chapter 4 of Publication 970, Tax Benefits for Education.

Educational assistance benefits do not include payments for the following items:

• Meals, lodging or transportation.
• Tools or supplies (other than textbooks) that you can keep after completing the course of instruction (for example, educational assistance does not include payments for a computer or laptop that you keep).
• Courses involving sports, games or hobbies unless they:
  • Have a reasonable relationship to the business of your employer, or
  • Are required as part of a degree program.

An employer may choose to provide some or all of the educational assistance described above. The terms of the plan may limit the types of assistance provided to employees.

Q3. What is the total amount that an employee can exclude from gross income under section 127 of the Code per year?

A3. Under section 127, the total amount that an employee can exclude from gross income for payments of principal or interest on qualified education loans and other educational assistance combined is $5,250 per calendar year. For example, if an employer pays $2,000 of principal or interest on any qualified education loan incurred by the employee for the education of the employee, only $3,250 is available for other educational assistance.

The annual limit applies to amounts paid and expenses incurred by the employer during a calendar year. If an employee seeks reimbursement for expenses incurred, the expenses must be paid by the employee in the same calendar year for which reimbursement is made by the employer, and the expenses must not have been incurred prior to employment (however, qualified education loans may be incurred by the employee in prior calendar years and prior to employment, and payments of principal and interest may be made by the employer in a subsequent year).

“Unused” amounts of the $5,250 annual limit cannot be carried forward to subsequent years.

Q4. What is a qualified education loan?

A4. A qualified education loan (as defined in section 221(d)(1)) is a loan for education at an eligible educational institution. Eligible educational institutions include any college, university, vocational school or other postsecondary educational institution as defined in sections 221(d)(2) and 25A(f)(2).

The Department of Education determines whether an organization is an eligible education institution. A loan does not have to be issued or guaranteed under a Federal postsecondary education loan program to be a qualified education loan.

Q5. How can payments of qualified education loans be made?

A5. In the case of payments made after March 27, 2020, and before January 1, 2026 (unless extended by future legislation), depending on how a particular employer has designed its section 127 educational assistance program, an employer may provide payments of principal or interest on an employee’s qualified education loans (as defined in section 221(d)(1) of the Code) for the employee’s own education directly to a third party such as an educational provider or loan servicer, or make payments directly to the employee.

Generally, the payment by an employer of principal or interest on any qualified education loan incurred by the employee for the education of the employee under section 127(c)(1)(B) is only available if an employer amends the terms of its plan to include the benefit. If the plan is currently written to provide generally for all benefits provided under section 127, then it is possible that the plan would not need to be amended to provide for the qualified education loan benefit under section 127(c)(1)(B).

Q6. Are employer payments of qualified education loans for spouses and dependents excluded from gross income under section 127 of the Code?

A6. Under section 127 of the Code, an educational assistance program must be provided for the exclusive benefit of employees. A program that provides benefits to the spouse or dependents (as defined in section 152) of an employee is not a section 127 educational assistance program.

Spouses and dependents of employees who are also employees, or spouses and dependents of owners who are also employees, may receive benefits under the program, but they are subject to a rule that prohibits discrimination in favor of these employees in requirements relating to eligibility for benefits, and to a rule that limits the benefits that may be provided to them under the program to 5 percent of the benefits under the program.

Section 127 provides an exclusion from gross income for loan payments made by an employer after March 27, 2020, and before January 1, 2026 (unless extended by future legislation), on a qualified education loan incurred by the employee for the employee’s own education. Thus, a payment of principal or interest by the employer on a loan incurred by an employee for the education of the employee’s spouse or dependent may not be excluded from the employee’s gross income.

In addition, a payment by the employer on a loan incurred by the parent of an employee for the education of the employee may not be excluded from the parent’s or the employee’s gross income.

Q7. Can student debt be reimbursed under a section 127 educational assistance program?

A7. Student debt may consist of a variety of expenses. If the debt was incurred as a result of expenses that are permissible benefits under section 127 of the Code (such as tuition, books, equipment, qualified education loans (in the case of payments made before January 1, 2026 (unless extended by future legislation)), etc.), the employer may reimburse the employee for these expenses as educational assistance benefits, and the employee could then use those funds to help satisfy his or her debt. To be excluded from the employee’s gross income, the employee must be prepared to substantiate the expenses to the employer.

Q8. Can self-employed individuals, shareholders and owners receive educational assistance under a section 127 educational assistance program?

A8. While there are no specific income limits for receiving educational assistance benefits, an educational assistance program must satisfy certain requirements under section 127 of the Code and Treasury Regulation § 1.127-2, including not being discriminatory in favor of employees who are highly compensated employees.

An individual who is self-employed within the meaning of section 401(c)(1) may receive educational assistance. While shareholders and owners may receive educational assistance, not more than 5 percent of the amounts paid or incurred by the employer for educational assistance during the year may be provided for the class of individuals who are shareholders or owners (or their spouses or dependents), each of whom (on any day of the year) owns more than 5 percent of the stock or of the capital or profits interest in the employer.

As a practical matter, if the owners are the only employees, they cannot receive educational assistance under section 127 because of the 5 percent benefit limitation described above. The following formula can be used to determine the amount of educational assistance that an owner/employee can receive: [total amount of educational assistance provided to employees other than the owner/employee] x .05263158 = [amount of educational assistance that the owner/employee can receive (rounded down to two decimal places but not greater than $5,250)].

Q9. Are there other exclusions from gross income for educational assistance?

A9. Working condition fringe benefit: If the benefits qualify as a working condition fringe benefit, regardless of amount, they are excluded from your gross income and your employer does not have to include them in your wages. A working condition fringe benefit is a benefit which, had you paid for it, you could deduct as an employee business expense. For more information on working condition fringe benefits, see Working Condition Benefits in section 2 of Publication 15-B, Employer’s Tax Guide to Fringe Benefits.

Educator expense deduction: In 2023, educators can deduct up to $300 ($600 if married filing jointly and both spouses are eligible educators, but not more than $300 each) of unreimbursed business expenses.

The educator expense deduction, claimed on Form 1040 Line 11, is available even if an educator doesn’t itemize their deductions. To do so, the taxpayer must be a kindergarten through grade 12 teacher, instructor, counselor, principal or aide for at least 900 hours a school year in a school that provides elementary or secondary education as determined under state law.

Those who qualify can deduct costs like books, supplies, computer equipment and software, classroom equipment and supplementary materials used in the classroom. Expenses for participation in professional development courses are also deductible. Athletic supplies qualify if used for courses in health or physical education.

For additional IRS resources see our tax topic on Educator Expense Deduction.

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The U.S. Department of the Treasury and the Internal Revenue Service (IRS) released final rules today on prevailing wage and registered apprenticeship (PWA) requirements in the Inflation Reduction Act. As part of the Biden-Harris Administration’s Investing in America agenda, the final rules will help build a strong pipeline of highly skilled workers to support the growth of the clean energy economy and ensure clean energy jobs are good-paying jobs.

Since the passage of the Inflation Reduction Act in 2022, announced investments in clean energy projects have projected the creation of more than 270,000 jobs, and studies project that more than 1.5 million additional jobs will be created because of the law over the next decade.

“This rule will ensure these tax breaks are providing real, tangible benefits to workers in communities across the country,” said Acting Secretary of Labor Julie Su. “From fair wages to training opportunities for workers, this administration is doing everything we can to make sure working people share in the prosperity of a clean energy future.”

Today’s final rules from Treasury — which were developed in close partnership with the Department of Labor (DOL) — provide clarity and certainty on the PWA requirements to ensure the clean energy transition is centered around workers. In general, if taxpayers pay prevailing wages to laborers and mechanics and hire registered apprentices for projects supported by most of the Inflation Reduction Act’s clean energy tax incentives, then taxpayers can claim an increased credit equal to five times the base incentive. This includes projects utilizing the investment and production tax credits that help finance utility-scale wind, solar and battery storage projects, as well as for credits for carbon capture, utilization, and storage and clean hydrogen projects.

“Meeting strong labor standards and building partnerships with unions will now be the norm for clean energy projects,” said John Podesta, Senior Advisor to the President for International Climate Policy. “Today’s final rules give clarity and certainty to developers and the workers they employ that clean energy jobs will be good jobs.”

To help workers, unions and the public learn more about the jobs being created nationwide by more than 1,000 planned clean energy projects, DOL recently launched an interactive map that estimates the number of workers at each project who stand to benefit if taxpayers satisfy the prevailing wage and apprenticeship requirements. Biden-Harris Administration officials and staff will be conducting webinars, briefings and other engagements over the coming months to help educate workers about these rules and their associated tools and resources.

Ensuring that taxpayers that claim Clean Energy credits have met their obligations — particularly enforcing the PWA requirements for increased credits — is a top priority for the IRS. Today, the IRS is announcing that in the months ahead, the IRS will dedicate significant resources to promoting and enforcing compliance with the final clean energy rules. The IRS has released an overview of the new rules, frequently asked questions, and a fact sheet that includes information for how to alert the IRS of suspected tax violations related to the PWA increase. The IRS takes referrals of alleged tax violations seriously and may use the information received about potential violations in connection with any applicable audit.

To support the IRS’s efforts in ensuring taxpayer compliance with the prevailing wage and apprenticeship requirements under the Inflation Reduction Act, DOL and the IRS are working on a Memorandum of Understanding (MOU) to be signed by the end of the year. Harnessing DOL’s extensive prevailing wage and registered apprenticeship expertise, the MOU will facilitate joint and cooperative education and public outreach and development of training content for IRS examination personnel. The MOU will also facilitate DOL’s review and comment as part of the development of PWA tax forms. Finally, the MOU will formalize a process for DOL to share with IRS any credible tips or information DOL receives as to potential noncompliance with the PWA requirements.

Treasury and DOL also encourage developers to consider project labor agreements as a strategy to help ensure compliance with the PWA requirements. The final rules include special provisions for project labor agreements, which can help taxpayers comply with the PWA requirements.

The prevailing wage and apprenticeship requirements took effect in January 2023. Today’s final rules follow consideration of more than 300 public comments in response to the proposed ruled and will help streamline compliance. Details of the final rules include:

• Requiring that determinations of prevailing wage rates be made by DOL, consistent with the Davis-Bacon Act;
• Incentivizing practices that will encourage contemporaneous compliance;
• Implementing strong record-keeping requirements;
• Guaranteeing that taxpayers with projects covered by qualifying project labor agreements do not need to pay penalties; and
• Clarifying apprenticeship requirements such as clearly defining what constitutes as a request for qualified apprentices, what constitutes as a response and when the good faith effort exception applies.

Originally Appeared Here

Back in 2021, the Legislature was debating income-tax cuts when then-Sen. Vince Leach decried the Democrats’ doom-saying about the proposal.

The Republican from SaddleBrooke argued Democrats were performing a choreographed routine as they catastrophized about a “financial cliff” the bill would push the state off in three years.

During a Senate Appropriations Committee hearing, he mocked their claims that, as he put it, “the world is going to end in Arizona in three years because we’re giving taxpayers’ money back.”

Well, it’s three years later now. The world hasn’t ended — Leach was right about that — but the state’s budget situation is dramatically worse than it was. In fact, you could argue we have gone over a cliff.

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In just two years, Arizona went from a luxurious surplus over $4 billion in 2022 to a deficit of around $1.5 billion.

The world isn’t ending, but the Legislature and governor have had to negotiate painful cuts that would probably not be necessary if the Legislature hadn’t agreed with Leach that “We are collecting too much money.”

Arizona Daily Star columnist Tim Steller

What that means, in practical terms, this year, is that:

— The University of Arizona, already in a budget crisis, will face about $28 million more in total state cuts.

— Arizona prisoners will continue to swelter in swamp-cooled cells instead of getting air conditioning.

— Additional money for schools with high levels of poverty will be eliminated.

— The approved expansion of I-10 west of Phoenix will be delayed three years.

— $75 million from the state’s settlement with opioid manufacturers and sellers will go to prisons instead of substance-abuse treatment on the outside (unless Attorney General Kris Mayes has her way and blocks that).

The list goes on and, by necessity, adds up to that billion-and-a-half figure.

Always exhausting all available resources

We can blame the Legislature’s spending, which has soared alongside revenues, from $9.3 billion in fiscal year 2015 to $17.8 this fiscal year. Glenn Farley, director of policy and research at the center-right Common Sense Institute, does just that.

Republican former Gov. Doug Ducey.

Ross D. Franklin, Associated Press 2022

When revenues rose sharply over recent years, Farley noted, “The Legislature didn’t spend till some target level, then stop. It spent till it exhausted the resources.”

“The underlying question is why policymakers feel the need to exhaust all available resources in each consecutive session.”

It’s a valid point, but one that runs into the state’s reality of overdue roadwork, underpaid teachers and other unfulfilled needs that remain, despite our increased spending.

One of the big-ticket items, which often gets the blame for our deficit, is the massive expansion of the school vouchers, known as Empowerent Scholarship Accounts, that took place in 2022. Indeed, the total estimated cost of the program that pays $7,000-$8,000 for home-schooled children or private-school costs, is expected to total about $724 million this year.

It is out of control — but not as out of control as widely believed. A June 6 analysis by the Grand Canyon Institute, a center-left think tank, put the additional cost of universal vouchers at $332 million this year. Next year, the institute projects a $429 million additional cost.

These figures are smaller than the total cost of the program because, among other reasons, some of the total spending goes toward disabled students and others who were eligible before the 2022 expansion. Plus, there is some cost savings for students who go from charter schools to ESAs.

So, $332 million is no small chunk, but it doesn’t explain the deficit. To do that, you have to go back to the battle between advocates of supply-side economics and those who wanted to tax the rich, which played out in 2021, in part in that hearing of the Senate Appropriations Committee.

“Wasn’t a conservative act at all”

Republicans were fighting back that session, because the year before, Arizona voters narrowly passed Prop. 208.

That initiative was being challenged in court, but at the time it still existed and was scheduled to impose a 3.5% surcharge on incomes above $250,000 for single people or above $500,000 for married couples. This tax increase for education was just the sort of thing then-Gov. Doug Ducey lived to fight.

Republicans such as Sen. J.D. Mesnard responded by trying to blunt the effects of the proposition. The bill he got passed wasn’t all about a flat tax — it intended to cap wealthy taxpayers’ income-tax rate at 4.5%, undermining the intent of Prop. 208.

In an appropriations committee hearing, Democrats said nobody of note even supported the bill, but Sen. David Gowan, the Sierra Vista-area Republican, said that wasn’t the case. He named off a who’s-who of traditional supply-side tax-cut supporters.

“We have (Arthur) Laffer, we have Grover Norquist, we have the Goldwater Institute and we also have the AFP,” Americans for Prosperity, Gowan said.

There wasn’t much demand for a flat-tax rate on the part of Arizona’s public, but there was urgency to block Prop. 208. And then a judge found Prop. 208 unconstitutional. What was left was a flat income-tax rate of 2.5%.

“Nobody stood in front of the Legislature and said, ‘Would you like everybody to have a 2.5 percent income tax rate?’ “ recalled Dennis Hoffman, the economist who is director of the L. William Seidman Research Institute at ASU. “When (Prop.) 208 got ruled unconstitutional, they peeled the 208 provision off, and the result was everybody got 2.5 percent.”

As the new tax rate was implemented, individual income tax collections plummeted. Those collections went from $7.5 billion in fiscal year 2022 to $5.2 billion in 2023. This year individual income tax revenue is on pace to total around $4.7 billion.

The savings went largely to the wealthy, who pay the bulk of income tax. The Grand Canyon Institute estimated that 70% of the value of the reduced tax went to those with incomes of $200,000 or more.

“To give away $2 billion with the flat tax was incredibly poor fiscal management,” said Dave Wells, research director at the institute. “This wasn’t a conservative act at all. It was a radical irresponsible act in my mind.”

And it’s the top reason that legislators are nickel-and-diming state services at the state Capitol now. It didn’t have to be this way.

Get your morning recap of today’s local news and read the full stories here: tucne.ws/morning

Tim Steller is an opinion columnist. A 25-year veteran of reporting and editing, he digs into issues and stories that matter in the Tucson area, reports the results and his conclusions. Contact him at tsteller@tucson.com or 520-807-7789. On Twitter: @timothysteller

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Nebraska’s county assessors hear the complaints every June: “You just socked me with higher property taxes by raising my valuation.”

But that’s not the end of each year’s annual property tax story. It’s just the beginning.

Taxable values for 2024 indeed went up as June began for three Scottsbluff-Gering area homes and three Scotts Bluff County agricultural operations that the Star-Herald began tracking last year.

But total preliminary real estate valuations countywide rose an average of just 1.8%, from $3.34 billion to just over $3.4 billion. That doesn’t yet include the values of taxable personal property and “centrally assessed” property, which won’t be known until late August.

Taxable values for 2024 increased by 12.9% for a home near Gering’s Legion Park and 7.3% for a home of similar age, features and valuation in Scottsbluff’s Westmoor neighborhood. But another similar home in west Terrytown gained just 1.3%.

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In the county’s rural areas, combined taxable values jumped 12.4% for a seven-parcel farming operation southwest and southeast of Melbeta and 10.6% for a nine-parcel operation northwest of Mitchell. But a seven-parcel ranch southeast of Lyman saw its total valuation rise only 0.3% for 2024.

The newspaper’s analysis of these six property owners’ 2023 property tax situations — reflected in this story’s accompanying charts — found that none of them paid anywhere near the tax bill that last year’s taxable values might have indicated last June.

• Most or all of their “tax increase” vanished when the County Assessor’s Office finalized local governments’ total 2023 taxable values last August.
• Though all six ended up by October with gross tax increases, their size depended on whether those governments sought more property tax money in their 2023-24 budgets. Some did; others didn’t.
• All property owners automatically received a modest cut to their gross tax bills on their final December tax statements. That’s due to a direct discount paid to counties by the state through the 17-year-old Property Tax Credit Fund.
• All also could have recovered sizable parts of their tax payments to K-12 schools and community colleges by claiming two available credits on their state income taxes last winter. But thousands of eligible Nebraskans have not done so.
• Finally, homeowners who are 65 and older, disabled or surviving spouses of totally disabled veterans could have cut their tax bills even more — or wiped them out altogether — if they sought state homestead exemptions. One of the Star-Herald’s sample homeowners has done just that for five years.

Those same conditions are found year after year in North Platte and Lincoln County in similar analyses by the North Platte Telegraph.

Protests and exemptions

What can property owners do?

Now’s the time to apply or reapply for homestead exemptions or protest your valuation if you believe it’s inaccurate, said Robert Simpson, who became Scotts Bluff County assessor in March after a career in financial services. Both must be sought for 2024 by June 30.

“It’s very plausible that if there are (building) condition issues or things (on the property) have changed, I could agree the valuation should be lowered,” Simpson said.

For example, buildings that no longer exist might still be showing up on Assessor’s Office records. State law requires every property to be physically reviewed once every six years.

So if someone removes a garage, “it’s incumbent on that taxpayer to let us know that because we may not catch up to it for six years,” Simpson said.

Protests must be filed with County Clerk Kelly Sides for decisions by county commissioners, who have until July 25 to rule on them. Their decisions may be appealed to the state’s Tax Equalization and Review Commission.

Simpson said his staff also is reminding past homestead exemption recipients to refile for 2024.

They don’t want eligible people on fixed incomes to miss out on cutting their tax bills, he said.

“It’s one of the things we do that helps the community and especially the most vulnerable people.”

‘Tax tracker’ explained

The Star-Herald debuted its step-by-step “tax tracker” approach for the 2023-24 “budget season” to illustrate how each local budget and taxing decision generally affects the final shape of property tax bills.

We began last fall by choosing one home apiece of similar ages, features and taxable values in Scottsbluff, Gering and Terrytown to track as local officials set their budgets each year.

In December, the Star-Herald reported on the property tax experiences of three multiple-parcel agricultural operations in different parts of Scotts Bluff County. The assembly of their 2024-25 tax bills will be presented alongside those of the sample homes from now on.

Our annual process begins at left on the line graph with the previous year’s gross property tax bills — not counting state tax credits — for each of our sample homes and ag operations.

As each taxable value, tax request and tax rate is finalized, we’ll replace its previous year’s figure with the new one in a spreadsheet.

Doing so yields a series of “interim” tax totals that we compare to show whether a given decision tends to push our sample properties’ tax bills up or down. None are real, of course, until all decisions are made.

Our line graph depicts how the 2023-24 budget season went for our six property owners, along with the relative impacts of 2024-25’s first decisions.

Moving further from left to right:

• Last June brought sharply higher individual 2023 taxable values in Scotts Bluff County. They showed our sample properties’ first “interim” gross tax-bill figures rising 8% to 14% from 2022 for the Star-Herald’s three sample homes and 10% to 35% for the sample ag operations.
• But that alarming trend didn’t last once assessors finalized local governments’ 2023 valuations in late August. Projected tax boosts fell to 3.4% and 1.9%, respectively, for the Scottsbluff and Gering homes and flipped to a 2.7% cut for the Terrytown home. (Similar figures for the sample ag operations aren’t available because we hadn’t yet chosen them in August.)
• Why did June’s suggested huge 2023 “tax increases” shrink or disappear? Because larger total taxable values — the “tax base” — spread the tax burden and hold down ultimate tax-bill growth for any single property.
• However, actual property tax requests in August and September pushed final local tax bills about 3% to 12% higher than 2022 for the Scottsbluff-Gering homes and 2% to 32% higher for the ag properties. Even then, none of the six property owners saw their taxes go up as much as their June valuations hinted.
• Then state tax credits kicked in: the automatic Property Tax Credit Fund discount for all in December, followed by income tax credits — if our sample owners claimed them — for 30% of the tax bills they paid for K-12 schools and 55% for community colleges.
• They probably did claim them, based on Unicameral figures saying that 93% of Scotts Bluff County property owners claimed K-12 tax credits in 2022. But in most Panhandle counties, 40% or more of property owners didn’t.
• All told, five of the Star-Herald’s six sample property owners received property tax breaks of 24% to 30% if they received all three credits available to all Nebraskans.
• But the combination of the west Terrytown home’s homestead exemption and the statewide credits canceled out its gross 2023 tax bill of $3,122.79. Its owners have received a homestead exemption since 2019.

More sales, higher values

Home or land buyers affect taxes, too.

Simpson echoed a mantra uttered by his statewide peers: State law requires annual assessed valuations to be 92% to 100% of market value for most property types and 69% to 75% for ag land.

If sales prices keep rising for homes, businesses and the most coveted pieces of farm or ranch land, assessors have no choice but to raise valuations, he said.

New and used homes for sale in the county remain scarce, Simpson added. “There may be fewer sales, but sales prices continue to be strong and the market value just keeps going up.”

But “if we see in Scottsbluff that we’re 7% outside the (legal valuation) range, we don’t use a broad brush and just raise everybody by 7%,” he said. “We look at neighborhoods. Some may have just a 3% increase. Some may have 10%.”

Irrigated farmland continues to command higher sale prices, Simpson said. Panhandle assessors tell him “the majority of counties with irrigated (land) are seeing the same thing.”

But as our chart moves to the Star-Herald’s first “interim” 2024 tax-bill figures, it includes a one-time situation as well as the year’s new taxable values.

A 2023 state law has handed over almost all funding of Nebraska’s community colleges to the state, which had called on regional property owners to share some of their day-to-day costs.

Starting with this fall’s budget season, community colleges may charge no more than the 2 cents per $100 of taxable value they’ve been allowed for capital construction.

The Star-Herald’s first 2024 tax-bill projection thus accounts both for the new valuations and a reduction in the Western Community College Area’s tax rate to 2 cents per $100 from 2023-24’s nearly 9.9 cents per $100. The actual 2024-25 rate still will be set this fall.

That one-off change has shaved down the upward angle for the Scottsbluff and Gering homes and the ag properties near Mitchell and Melbeta, even before final local tax bases are totaled in August.

The Terrytown home’s tax-bill arrow now points down 2.2%, rather than up 1.3%, ahead of final local tax bases being totaled in August. Similarly, the ranch near Lyman is currently in line for a 4.3% cut rather than a 0.3% boost.

We’ll find out on or about Aug. 20 just how much lower our tax projections will go before local officials’ tax requests play their typically decisive role.

Analysis tests theory: Do ag valuations, taxes rise without end?

Yes, Scottsbluff-area property tax bills are higher – but don’t forget your state credits

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WASHINGTON, D.C. — In a recent announcement, the Internal Revenue Service (IRS) clarified that many payments received by individuals affected by the 2023 train derailment in East Palestine, Ohio, are not taxable.

The IRS determined that the February 3, 2023, derailment qualifies as “an event of a catastrophic nature.” Consequently, several payments made to affected individuals by the common carrier operating the train are considered “qualified disaster relief payments.” By law, these payments are excluded from gross income, provided they cover expenses not paid for by insurance or other reimbursements.

According to the IRS, the common carrier issued Forms 1099-MISC to recipients, indicating which payments are taxable and which are exempt due to their status as qualified disaster relief payments.

Tax-free qualified disaster relief payments include:

• One-time $1,000 “inconvenience” payments to affected individuals.
• Relocation expenses and costs for replacing clothing and personal items.
• Costs associated with repairing or rehabilitating homes and surrounding environments.
• Compensation to homeowners who sold their homes after the derailment.
• Medical expenses.

However, certain payments remain taxable:

• Lost wages.
• Access payments to property owners for remediation and cleaning efforts near creeks and streams.
• Payments to businesses.

Taxpayers do not need to report qualified disaster relief payments on their 2023 tax returns, even if they received a Form 1099-MISC. However, taxable payments must be reported.

For those filing electronically, the IRS instructs taxpayers to attach a PDF titled “EPTDR-East Palestine Train Derailment Relief” to their Form 1040. This attachment should clearly state “East Palestine Train Derailment Relief.”

If filing a paper return, write “East Palestine Train Derailment Relief” at the top of Form 1040 and mail it according to the form’s instructions.

Taxpayers who have already filed their 2023 tax returns and reported qualified disaster relief payments as taxable can amend their returns to claim any refunds owed. They should file Form 1040-X and indicate “East Palestine Train Derailment Relief” both in the attachment (if e-filing) and at the beginning of Part III, Explanation of Changes (if filing on paper).

IRS Decision Provides Financial Relief for East Palestine Train Derailment Victims

This clarification has significant implications. Firstly, it ensures that victims of the East Palestine train derailment are not burdened with additional taxes on relief payments meant to aid their recovery. This decision aligns with the IRS’s broader mission to provide relief and clarity in times of disaster.

For the residents affected by the derailment, this news brings some financial relief. After enduring the physical and emotional toll of the catastrophe, they now face fewer tax liabilities on the assistance they received. This can help alleviate some of the stress and uncertainty surrounding their financial situations.

From a broader perspective, the IRS’s decision highlights the importance of clear and compassionate tax policies in the wake of disasters. By distinguishing between taxable and non-taxable disaster relief payments, the IRS ensures that aid reaches those who need it most without unnecessary complications.

Furthermore, this move underscores the necessity for efficient communication between federal agencies and the public. Clear instructions on how to report and amend tax filings help taxpayers comply with regulations while benefiting from available relief measures.

In summary, the IRS’s clarification regarding the tax status of payments related to the East Palestine train derailment provides vital relief to affected individuals. It reflects a commitment to supporting disaster victims and simplifying the tax reporting process during challenging times. As the IRS continues to refine its disaster response strategies, taxpayers can expect more streamlined and empathetic approaches to handling the financial aftermath of catastrophic events.

For the latest news on everything happening in Chester County and the surrounding area, be sure to follow MyChesCo on Google News and Microsoft Start.

Originally Appeared Here

CHICAGO — Governor JB Pritzker signed the 2025 state budget on Wednesday.

Legislators passed the $53 billion spending plan late last week after a near-derailment.

ABC7 Chicago is now streaming 24/7. Click here to watch

Last week, the House approved the $1.1 billion in revenue increases, including a tax hike on sportsbooks and businesses, to balance the $53.1 billion spending plan for fiscal year 2025.

The spending plan passed 65-45, with seven Democrats joining Republicans in opposition.

The revenue plan that capped the voting on the budget-related bills was more of a challenge. House Bill 4951 fell one vote short of passage twice after 4 a.m. due to attendance issues. On the third try – after about an hour of procedural maneuvering by Republicans that left Democrats reeling – the bill passed at 4:43 a.m. with the minimum 60 votes necessary.

“This budget builds on years of economic momentum that is revitalizing communities up and down the state of Illinois,” Pritzker said. “We are on a trajectory of sustainable long term growth.”

READ ALSO | Illinois House sends $53B budget to Gov. Pritzker after near-derailment, pulling all-nighter

Gov. JB Pritzker said last week he’ll sign the plan for the fiscal year that begins July 1, which spends about $400 million more than what he requested in his February budget address. In a statement after its passage, the governor claimed investments made in the budget will grow Illinois’ economy and continue a “track record of fiscal responsibility” while prioritizing working families.

Governor JB Pritzker spoke after he signed the 2025 state budget on Wednesday.

“From expectant mothers and their newborn babies to people with disabilities to veterans to seniors who need our care, we’re keeping our promises to all Illinoisans and the most vulnerable among us,” Pritzker said.

The budget cleared the General Assembly five days after lawmakers had scheduled their spring session’s adjournment, although the May 24 “deadline” was a largely arbitrary date that left a week on the calendar as a contingency plan. Negotiations were complicated by inflation and other spending pressures driving up the expected cost of government, while economists predict the state’s economy will slow in the upcoming fiscal year.

“And there are real dollars in this budget for young people, be it summer jobs, youth employment and violence prevention programs,” said Illinois State Senator Don Harmon, Senate President. “This is a budget that is built on making a difference.”

Still, Democrats approved the spending plan with several votes to spare but no Republican support – as they’ve done every year in Pritzker’s tenure except the first in 2019.

Republicans argued the pace of spending growth – and the fact that some of the revenues raised to pay for it are temporary – set the state on pace for an even tighter fiscal year 2026.

“It’s another bloated budget,” House Republican Leader State Rep. Tony McCombie said. “Every year I say the same thing. This is the biggest budget we’ve ever passed in Illinois $53.1 billion this year, that has close to a billion dollars in tax increases.”

The budget includes $182 million to provide shelter, health care and other services for recently arrived migrants, many of whom have been bused to the state from Texas. And it includes $440 million from the GRF for two programs providing state-funded Medicaid-like benefits to noncitizens, with $189 million from other state funds as well.

The budget does not include money to help the Bears build a new stadium, on the Chicago lakefront.

New revenues

More than $1.1 billion in added revenue was needed to balance the books, so lawmakers extended an expiring cap on corporate net operating losses to ensure that $526 million in tax dollars wouldn’t disappear in FY25. Another $25 million will be raised by subjecting “re-renters” of hotel rooms to an existing state hotel tax.

Sportsbooks will see their current 15 percent tax rate on profits increase via a new graduated structure that will tax between 20 and 40 percent, based on profits. The change is projected to bring in about $200 million to the state’s General Revenue Fund. A 1 percentage point increase to the tax on the state’s video gambling industry would generate an additional $35 million for infrastructure projects next year.

The industry suggested the tax hikes could lead to some companies leaving Illinois. Pritzker called their bluff, pointing to the 51% tax rate in New York.

“They’re not leaving New York, and they’re not leaving the other states,” Pritzker said. “You see we’re the third largest sports betting market for sports betting companies, and we had a much lower tax rate than many of the largest of those markets.”

The Governor noting that while the budget has increased, it only went up at about half the rate of inflation. Republicans concerned that tax hikes on businesses will get passed along to consumers, costing Illinoisans more.

The revenue plan also caps a tax discount claimed by retailers at $1,000 monthly, generating $101 million for state coffers and about $85 million for municipalities.

To appease retailers, lawmakers included a prohibition on financial institutions and credit card companies charging fees on the sales tax and gratuity portion of electronic transactions beginning July 1, 2025.

The Illinois Retail Merchants Association was also given a $5 million line item for workforce grants.

The budget package also freed up about $200 million in revenue by redirecting $150 million from the Road Fund and $50 million from the Leaking Underground Storage Fund to public transit. The move was opposed by organized labor because it diverts Road Fund money to the state’s discretionary spending fund, but Democrats promised it would only happen in the upcoming fiscal year.

District-specific projects have been used time and again to incentivize members to vote for the budget, with the Chicago Tribune tracking at least $150 million in infrastructure spending for lawmaker-led initiatives in the current-year budget. No spokespeople would confirm or deny the amount allocated for lawmaker initiatives.

The final roughly 80 pages of the budget bill contain a long list of projects, most of them ranging from $50,000 to $1 million sums to various specifically named businesses, local governments and other entities.

Infrastructure and more

Despite the diversion of money from the Road Fund, the budget includes $3.5 billion for infrastructure – about $500 million more than what Pritzker had outlined in his February budget proposal.

That includes $500 million to support the development of a regional quantum information science and technology campus, allocated from a specific economic-development focused bond fund known as Build Illinois.

The state’s municipalities, meanwhile, will get another $400 million for local road projects, a measure that helped neutralize their opposition to a part of the budget plan that eliminates one of their sources of revenue – the statewide 1 percent grocery tax.

But the grocery tax repeal won’t happen until 2026, and local governments will be given authority to enact their own grocery tax up to 1 percent without a referendum. Home rule jurisdictions will be able to increase their sales tax by up to 1 percent without a referendum as well.

Other spending items include:

– Funding for a 5 percent pay hike for lawmakers’ base salary to $93,712. State law sets lawmakers’ pay to increase annually with inflation, and lawmakers took no action to stop it from occurring in FY25.

– The annual $350 million increase in K-12 education funding, called for by a 2017 law that overhauled Illinois’ school funding formula.

– A 2 percent – or $30 million – increase for community colleges and public universities.

– A $10 million increase to Monetary Award Program grants for lower-income college students.

– Full funding for Pritzker’s “Smart Start” plan aimed at adding 5,000 preschool seats across the state and providing workforce grants.

– $14 million to launch the newly created Department of Early Childhood, which Pritzker has promised would streamline services currently provided by three different state agencies.

– $45 million for a teacher vacancy pilot program to help underserved districts with teacher retention.

– A $1 hourly increase for direct service professionals who serve individuals with intellectual and developmental disabilities in community-based settings.

– An increase totaling $70 million for Community Care Program workers serving older adults who can’t live independently.

– $5 million for a tax credit program for news outlets beginning in 2025 and claimable the following year.

– $10 million for the governor’s plan to erase $100 million in total medical debt for Illinoisans through a partnership with the nonprofit Undue Medical Debt. House Bill 5290 laid out that applicants must earn 400 percent of the federal poverty level or less.

– $900 million for renovation at state prisons, including a possible tear down and rebuild of Stateville and Logan Correctional Centers.

– $4 million to create a statewide maternal health plan and distribute grants to community-based reproductive health care providers.

– $155 million for safety net hospitals.

– A $90 million increase for Home Illinois, a program created last year to address homelessness, bringing total funding to $290 million.

Hannah Meisel and ABC7 Chicago’s Jessica D’Onofrio and Craig Wall contributed to this report.

Capitol News Illinois is a nonprofit, nonpartisan news service covering state government. It is distributed to hundreds of print and broadcast outlets statewide. It is funded primarily by the Illinois Press Foundation and the Robert R. McCormick Foundation, along with major contributions from the Illinois Broadcasters Foundation and Southern Illinois Editorial Association.

Originally Appeared Here

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Originally Appeared Here

A few months ago[1] Bob Labes and I wrote a blog post about the $78 Billion Tax Bill that includes affordable housing help by reducing the tax-exempt financing requirement for a developer to receive the 4% low income housing tax credit (4% LIHTC) by 40% for a limited time only. This got us thinking about how scarce the state allocation of volume cap is in some states and what if a developer still cannot obtain an allocation of volume cap for its project. Is the developer out of luck? Are there any other options?

If the developer is only looking at the 4% LIHTC, the answer is probably yes. But don’t leave now – there’s more! There are alternatives, which can be better than the 4% LIHTC for a developer.

While the 4% LIHTC program has been extraordinarily successful, it offers too little for the “missing middle.” The 4% LIHTC program has benefited households making 60% or less of the median income for their metropolitan area (“AMI”) for decades now. However, 4% LIHTC financing does not help those who earn too much to qualify for subsidized low-income housing but cannot afford market rents or homeownership (“Mid-Income Earners”). So, the inability to obtain an allocation of volume cap for financing for a 4% LIHTC program housing development could benefit a developer. As, a developer could target housing for Mid-Income Earners (“Mid-Income Housing”).

Targeting Mid-Income Earners could result in higher rents being charged for such units. Where the 4% LIHTC financings may not be available, other forms of tax-exempt bond financing can support housing for Mid-Income Earners (“Mid-Income Housing”), by combining the benefits[2] of: tax-exempt interest rates, favorable underwriting terms, and property tax abatement or exemptions.

Tax-Exempt Interest Rates

The most compelling benefit of tax-exempt bond financing is that tax-exempt interest rates are typically lower than conventional borrowing rates. Because investors do not have to pay federal (and sometimes state) income tax on interest income derived from such bonds, investors require less interest to generate the same after-tax return. This lowers overall interest rate that the investors are willing to accept for such obligations and this interest rate is passed onto the issuer/borrower. 

These types of financings are generally true “project financings.” The bonds issued to finance these projects include amounts borrowed for coverage, debt service reserves, capitalized interest, upfront professional fees, and bond issuance costs. Most, if not all, of the transactions borrow the full amount needed to complete the property, plus another 15% on average. So, a lower tax-exempt interest rate is a major benefit and is particularly valuable in financings for Mid-Income Housing financings, because deal sizes are relatively large and the amount of long-term tax-exempt debt is high as a percentage of total project funding.

Favorable Underwriting Terms

Mid-Income Housing transactions are typically executed as public bond offerings and not in the form of private placements or bank loans. Retail and institutional bond investors derive more value from tax-exempt interest than commercial banks that typically buy bonds in private placements. As a result, there are more investors willing to give much more favorable underwriting terms. Most bonds issued for Mid-Income Housing are unrated and are sold and traded in the high-yield municipal bond market. This market and the mortgage lending market are predominantly mutually exclusive. The mortgage lending market typically imposes much more onerous underwriting standards, including a maximum loan-to-value (LTV) ratio (often 80–90%), a minimum debt service coverage ratio (often 1.15-to-1 or 1.20-to-1), scheduled amortization with limited or no “balloon payments” or refinancing risk, completion and repayment guaranties from the developer/sponsor and loan-to-cost limits for construction debt.

By contrast, in “risk on” environments, when bond investors are seeking yield and willing to take risk, it is not uncommon to see non-recourse project financings in the high-yield bond market featuring:

• 100% debt financing;
• Lower projected debt service coverage (as low as 1.10-to-1);
• Long-term (30+ years[3]) fixed rate, callable debt;
• Sequential pay or “turbo” amortization as opposed to fixed/scheduled principal payments;
• “Balloon” payments or planned refinancings;[4]
• Relatively light guaranties; and
• Acceptance of construction risk as part of long-term debt financing (i.e., no separate construction loan).

Public and private sector actors have executed Mid-Income Housing transactions in the high-yield bond market with terms that could not be achieved in the conventional multifamily mortgage or 4% LIHTC markets. But, all of this flexibility comes at a cost – accepting a higher risk and seeking yield usually means the investor wants more in return. Interest rates and risk tolerances can also move dramatically in a short time based on outside factors[5] — and investors who provide favorable terms one day can feel differently for the next financing. Those highly leveraged unrated workforce housing bonds that were popular when interest rates were near zero during the COVID-19 Pandemic are a thing of the past.[6] The types of projects have become a lot less feasible when other contractual or state law limitations are in place. For example, state law in California requires moderate income housing to include:

• 10% of the units rented to residents earning at or below 50% AMI,
• 10% of the units rented to residents earning at or below 80% AMI, and
• The remaining 80% of the units rented to residents earning between 90% and 120% of AMI. 

With the rise in interest rates outpacing the rise in AMI, Mid-Income Housing transactions aren’t cash-flowing like they used to. Underwriters have been forced to get more creative with structures, like capital appreciation bonds,[7] being used for these types of financings. But, even with the increase in interest rates, this benefit combined with lower tax-exempt financing rates and property tax abatements or exemptions can help a Mid-Income Housing project cash flow. 

Property Tax Abatements or Exemptions

Property tax is often a major expense for multifamily rental housing projects. Because taxes are paid prior to debt service, every dollar of property tax owed is a zero-sum game for net operating income available to pay debt service. So, a reduction or all out removal of the obligation to pay property tax increases NOI and thus project feasibility. Some jurisdictions provide property tax exemptions and abatements that can help finance Mid-Income Housing.

Obtaining a property tax abatement or exemption often involves engaging with the local taxing units where the Mid-Income Housing facility is located to obtain the property tax abatement or exemption. This can sometimes present challenges when a property is already subject to property taxes. Convincing a local government to forego income can feel challenging at best, event when these projects are aimed to help residents. 

While the issuance of tax-exempt bonds does not automatically result in a real property tax exemption, the forms of ownership required for tax-exempt financing of Mid-Income Housing (ownership of all bond-financed facilities by a 501(c)(3) organization or a governmental unit) frequently results in exemption of a bond-financed project from real property taxation. Governmental ownership typically results in a clearer and more complete exemption from property tax than programs based on 501(c)(3) ownership. However, other considerations, such as leases to private parties, which may have “possessory” interests may negate that exemption. So, this really valuable tax exemption can be the determining factor in the structuring of your tax-exempt financing or borrower entity for the development of a Mid-Income Housing Project with governmental bonds or 501(c)(3) bonds. More on those considerations and structures to come. 

[1] Time flies when you are having fun!

[2] It should be noted that some of these benefits are also available for Affordable Housing Projects that do not receive the 4% LIHTC as well.

[3] Subject to State law and federal tax law limitations

[4] Also subject to State law and federal tax law limitations

[5] Think of the Fed’s decision to keep raising interest rates since 2022.

[6] We are all longing for those interest rates now.

[7] Capital appreciation bonds (CABs) are bonds that compound interest until maturity instead of paying interest annually. CABs are sold at a discount, called the par amount, and the interest and principal are paid in a single lump sum at maturity.

Originally Appeared Here

The Internal Revenue Service is concerned that not enough taxpayers are taking advantage of its alternative dispute resolution process for resolving disputes.

Finding ways to boost use of the ADR process was one of several topics discussed at the IRS’s National Public Liaison May meeting in Washington, D.C. Among them were promoter investigations at the Office of Fraud & Enforcement, filing season processing, and stakeholder liaison.

Alternate dispute resolution

The ADR process was lauded for its ability to resolve disputes much more quickly than the standard appeals process. It is a fundamentally different path that shows promise to both taxpayers and the IRS. Moreover, studies have shown that the process ends with both parties being more compliant. The fact that it reaches a shared resolution changes the perspective on both sides, according to officials. Both parties need to be willing to compromise in order to reach an agreed outcome. 

However, ADR usage has been lower than expected and continues to decrease, according to officials. The IRS has convened a cross-functional team to study and provide changes going forward, according to Stephen Mankowski, tax chair at the National Conference of CPA Practitioners, who was at the meeting. 

The Internal Revenue Service building in Washington, D.C.

Stefani Reynolds/Bloomberg

“Some were procedural tweaks, while others were more sweeping recommendations that can improve the system,” he said. An example is when the taxpayer is denied without explanation. “Now, all denials are required to have details on the results. Also, tentative denial gets reviewed prior to submission to the taxpayer. Public education and internal training will need to occur to encourage taxpayer usage.”

The Office of Fraud Enforcement

A goal of the Office of Fraud Enforcement is to work with the practitioner community, as well as alternate channels, to make referrals. It has partnered with Small Business/Self-Employed Division research to get information at Tax Forums. Nearly all practitioners surveyed were familiar with the term “abusive transactions.” 

“It can be a fine line between fraud and tax planning, and clarification is needed on the website to illustrate this better, according to respondents in a poll,” Mankowski explained. “Practitioners felt that simple online submission was important, as well as the IRS releasing statistics. Both help to hold people accountable.”

The Earned Income Tax Credit was top on the list of problems, along with underreporting income and overreporting expenses, he added. Most are familiar with the “Dirty Dozen” tax scams. Overall, practitioners want more and better means for reporting. A common view was the desire to see a “perp walk” upon arrest. 

Tax season wrap-up

Filing season was a success, according to the IRS. There were no huge system issues; although there were some slow transmissions, they were quickly cleared up. Program completion dates for refunds are normal. More extensions were filed this season than last year, and returns are continuing to arrive. The IRS just began digitizing Form 709 from prior years, and will continue to digitize old returns and ultimately current-year returns. The service continues to struggle with hiring, with Kansas City being hit the hardest. 

The Direct File Pilot was available in 12 states this year. Its goal was to give the IRS the ability to provide simple tax preparation and filing for free. It became generally available to the public in those states in mid-March. 

Stakeholder Liaison

The goal of Stakeholder Liaison is to help practitioners navigate the IRS. It is planning on involvement in more events in 2024 than at any time in the past. It presents 50-60 webinars annually, with subject matter experts addressing the majority of topics. 

Originally Appeared Here