Income Tax News

4 min read Last Updated : Oct 02 2024 | 8:10 PM IST

The Ministry of Finance has released new guidelines for handling delayed tax refund claims and loss carry forward applications. The new guidelines issued on Tuesday increase the limit of tax refund claim amount in condonation of delay cases which will help taxpayers who missed filing any ITR though had a tax refund due to him/her.

“…the present circular is being issued to deal with the applications for condonation of delay in filing returns claiming refund and returns claiming carry forward of loss and set off thereof containing comprehensive guidelines on the conditions for condonation and the procedures to the followed for deciding such matters,” said Central Board of Direct Taxes (CBDT) under Ministry of Finance in a circular.
 

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“This enhancement in jurisdiction limits will significantly streamline the condonation of delay process for tax refunds, allowing taxpayers to receive their refunds faster and with reduced bureaucratic hurdles, especially for higher-value claims. It fosters trust and improves the ease of compliance for taxpayers,” said Amit Bansal, Partner, Singhania & Co.

 

Key points:

 

Tiered authority structure: The circular establishes a three-tier system for processing applications based on claim amounts:

 

Claim amount: Less than or equal to Rs 1 crore

 

– The Principal Commissioners of Income-tax/Commissioners of Income-tax (Pr. CsIT/CsIT) will have the authority to either accept or reject applications if the claimed amount is less than or equal to Rs 1 crore for an assessment year.

 

Claim amount: Between Rs 1- 3 crore

 

The Chief Commissioners of Income-tax (CCsIT) will have the authority to either accept or reject applications if the claimed amount is Rs 1 crore but is not more than Rs 3 crore.

 

Claim amount: Above Rs 3 crore

 

The Principal Chief Commissioners of Income-tax (Pr. CCsIT) will have the authority to either accept or reject applications if the claimed amount is above Rs 3 crore.

 

Time limit: A strict five-year limit from the end of the assessment year has been imposed for filing condonation applications. This rule applies to all applications filed on or after October 1, 2024.

 

Processing time: Authorities are directed to dispose of applications within six months of receipt.

 

Court-related claims: For refund claims arising from court orders, the period of court proceedings will be excluded from the five-year limit. Applications must be filed within six months of the court order or the end of the financial year, whichever is later.

 

Supplementary claims: A belated application for supplementary claim of refund (claim of additional amount of refund after completion of assessment for the same year) can be admitted for condonation provided other conditions as referred above are fulfilled. The powers of acceptance/rejection within the monetary limits delegated to the Pr.CCsIT/CCsIT/Pr.CsIT/CsIT in case of returns claiming refund and supplementary claim of refund would be subject to the following further conditions;

 

i. The income of the assessee is not accessible in the hands of any other person under any of the provisions of the Act.

 

ii. No interest will be admissible on a belated claim of refunds.

 

iii. The refund has arisen as a result of excess tax deducted/collected at source and/or excess advance tax payment and/or excess payment of self-assessment tax as per the provisions of the Act.

 

No interest on belated claims: The circular specifies that no interest will be admissible on belated refund claims.

 

Verification extension: It is also provided that the Commissioner of Income-tax, Central Processing Centre (CPC), Bengaluru can accept or reject the petitions under section 119(2)(b) of the Act seeking condonation of delay in verifying the return of income by sending the ITR-V to centralised processing cell (CPC), Bengaluru within the prescribed time limit.

 

The new guidelines aim to streamline the process of handling delayed tax refund claims and loss carry forward applications, providing clarity to both taxpayers and tax authorities.

First Published: Oct 02 2024 | 8:10 PM IST

Originally Appeared Here

$300 IRS CTC Payment In Oct 2024: The monthly payments related to the Child Tax Credit (CTC) are expected to be a major source of financial benefit to the targeted families. The children below the age of six years will be entitled to $300 per month or $3,600 per year. The children of six to seventeen years of age will be paid $250 per month or $3,000 per year. It is therefore very crucial to meet the $300 IRS CTC Payment Eligibility Criteria. 

According to reliable information, the expected payout date may be October 15, 2024, but this is not definite. For more details about the $300 IRS CTC Direct Deposit October 2024 and to know the chances of getting IRS CTC Payment, please read the full article. Also, refer to the $300 IRS CTC Payment In October 2024. Unfortunately, we are not able to verify this payment at the moment since our research did not produce any results related to it. 

$300 IRS CTC Payment 2024

Unlike the one-time tax rebate, the Child Tax Credit for 2024 is to be paid on a monthly basis, which will help families sustain their financial needs. It will be made on the fifteenth of each month. 

To know if you are qualified for the $300 IRS CTC Payment 2024 In October, please read the entire article and get to know more about the $300 CTC that is expected to be released in Oct, 2024. 

Further examination is encouraged. This payment will be examined and no relevant information has been provided to support it, therefore we cannot verify the accuracy of this payment. 

$300 IRS CTC Payment 2024 Dates

The timetable for the $300 IRS CTC Payment 2024 is mentioned below.

Month	$300 IRS CTC Payment 2024 Dates	Days
July	15th July 2024	Monday
August	13th August 2024	Tuesday
September	15th September 2024	Friday
October	15th October 2024	Tuesday
November	15th November 2024	Friday
December	15th December 2024	Sunday

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$300 IRS CTC Payment 2024 Eligibility

Families with the following criteria are eligible to receive the $300 IRS CTC Payment 2024 that will go out in Oct, 2024. The IRS has detailed the specifics:-

1. The child must be under 17 years of age at the end of 2024.
2. The child has to be a U.S. citizen, U.S. national, or U.S. resident alien
3. Income Requirements: In the case of joint fliers, $150,000 or less, Here to $112,500 for heads of households, Single filer earning $75,000 or less.
4. Families must have filed their 2023 tax returns to meet the new qualification.
5. The taxpayer had to live with the child for at least six months during 2024.
6. The IRS online portal will need to be updated for any important events like a new child or changes in income.

Claim IRS $300 CTC Payment In October 2024

Steps to Apply for $300 CTC Payment In October 2024 For claimants who fulfill the requirements see below.

• Firstly, go to the official website of the company at www.irs.gov to fill the online application form.

• Make sure that you type your details correctly as soon as you get a chance to access the form. 
• If necessary, upload scanned copies of the appropriate documents using the form provided at the link above. 
• Review the form in its entirety before you submit it. 
• After filling the form, please, send it and wait for the staff to go through your application. 

Some Facts about $300 IRS CTC Payment 2024

• The $300 IRS CTC Payment is part of monthly advance payments for the 2024 Child Tax Credit. 
• The income limit for joint filing is $150,000 and for single filing it is $75,000. 
• The majority of the families will get their CTC payments through direct deposit while others through paper checks. 
• The annual CTC amounts are $2,300 for children below the age of 6 years and $2,000 for children within the age of 6-17 years.

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Conclusion :-

The $300 IRS CTC Payment In October 2024 is a great help for families who are raising children. The Child Tax Credit is very important in alleviating child poverty and in assisting families to cope with inflationary effects through increased credit amounts and regular monthly payments. 

In this way, families will be able to know the eligibility criteria, payment dates as well as how to claim the IRS CTC Payment in October, 2024. 

FAQ’s: IRS $300 CTC Payment 2024

Which families will receive the IRS $300 CTC Payment In Oct, 2024? 

Households with children under 17 years and with an annual income of less than $150,000 for married people filing jointly or $75,000 for single filers are eligible. 

What am I going to get for the $300 CTC payment? 

In case you have provided the IRS with direct deposit information, the payment will be deposited in your account. If not, then you will receive a check in the mail. 

What is the payment date for CTC in October 2024? 

As for the exact dates, they still remain rather vague, but the payment is estimated to be made no later than October 15, 2024. 

What should I do if there is a change in my family income or number of dependents? 

In order to qualify for the CTC payment, you have to update your information through the IRS online portal. 

Where can applicants submit their application to work and earn IRS $300 CTC Payment? 

The official website of the company can be viewed at www.irs.gov, the candidates can apply for this payment plan and get the instructions. 

Originally Appeared Here

California budgeted $157 billion dollars this past fiscal year to provide health care for low-income residents. It provides that care through a program called Medi-Cal, which is funded by a combination of state and matching federal funds. The services covered serve about 15 million low-income Californians.

The program is an important safety net but as health-care costs balloon the state has sought to find other sources of funding besides general fund monies.

Since 2009, a Managed Care Organization Provider Tax has raised revenue off of the health-care management companies that provide the bulk of Medi-Cal services. The tax generates billions of dollars each year and increases the amount of federal matching funds that come to state coffers to pay for Medi-Cal. The tax has been approved by the state legislature repeatedly, and the current renewal expires in 2026.

Proposition 35 on the November ballot would make that tax permanent and create dedicated funding for some Medi-Cal services.

Official title on the ballot: Proposition 35: Provides Permanent Funding for Medi-Cal Health Care Services. Initiative Statute

You are being asked: Should California make permanent an existing tax on managed health care insurance plans and limit how that money is spent?

WHAT YOUR VOTE MEANS

• A “yes” vote means: A “yes” vote means you support making permanent a California tax on managed care organizations that would otherwise expire in 2026, and change some Medi-Cal funding allocations.

• A “no” vote means: A “no” vote would mean you oppose making the tax permanent and/or carrying out the funding changes.

Understanding Prop. 35

Medi-Cal is the name for California’s Medicaid program. It provides affordable health care for low-income people by reimbursing health care providers with a mix of state and federal funds.

Many hospitals serve indigent and low-income populations that can pay very little or nothing at all for the health care they receive. Hospitals must absorb those costs.

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The Managed Care Organization Provider tax exists to close that gap. Prop. 35 would continue the tax but also direct more money from that tax specifically into Medi-Cal, which means more money for providers and less money for the state’s general fund.

“You’re using that tax to draw down federal dollars that will increase the budget, allow you to pay the plans higher premiums to take care of the Medi-Cal population, and then those plans are supposed to take those premiums and pay better reimbursement, down to the providers and their network,” and that improves health care for low-income residents, said Dr. Dylan Roby, professor of health, society, and behavior at UC Irvine.

The history behind it

Prop. 35 supporters say care for the most vulnerable state residents, such as low-income children and seniors, is underfunded.

The costs of medical services are increasing while California has recently expanded who is eligible to use Medi-Cal. Higher unemployment has led to more people enrolling in Medi-Cal services. This kind of situation was seen during the 2020 COVID-19 pandemic.

There is no co-pay, premium, or out-of-pocket expense for people who qualify for and sign up for Medi-Cal.

Prop. 35 would increase funding for services like behavioral health facilities, outpatient facilities, and some hospital services.

How it would work

The tax is set to expire in 2026. Prop. 35 would make the tax permanent and dedicate more money from that tax to Medi-Cal. It would also include a four-year temporary increase to the state limit of health spending by the size of the health plan tax.

If Prop. 35 fails in the November election, California legislators and the Governor would have to go through the political process of seeking the tax’s renewal after it expires. People who spoke to LAist for this guide said they believe lawmakers would find a way to renew the tax.

What people who support it say

The measure’s supporters argue that the high cost of publicly funded health care reimbursement for low-income people leads the state to spend a lot of money to fill the gap not covered by federal funds.

“This is not a quick fix problem,” said Tony Sinay, professor of public health at California State University, Los Angeles.

Prop. 35 supporters say the measure’s changes would improve health care for low-income residents.

“Voters should know this is a generational opportunity to really invest in our Medicaid system in California that will ensure better access to patients across California,” said Jodi Hicks, president and CEO of Planned Parenthood Affiliates of California and co-chair of the Yes on 35 campaign.

Prop. 35 supporters say it’s also OK to create dedicated funding streams because health care should be a long-term public priority.

“This funding mechanism is always supposed to be put back into health care. So these are health-care dollars. That should be spent in health care,” said Prop. 35 supporter Hicks.

There’s a long list of supporters. The California Medical Association, California Hospital Association, California Academy of Family Physicians are among the measure’s backers.

What people who oppose it say

As of publication, there has been no spending in opposition to Prop. 35. But there are detractors.

“I certainly think our healthcare system has problems in California, and there are areas for improvement, but I don’t necessarily think that Prop. 35 addresses those problems,” UC Irvine’s Roby said.

Prop. 35 is another example of ballot box budgeting, he said — a term to describe a state measure that locks up spending and takes flexibility away from legislators during the budget cycle. That’s Governor Gavin Newsom’s objection to Prop. 35, as well.

Anti-tax activists are also against Prop. 35.

“Everyone likes health-care services,” said Carl DeMaio, the conservative activist and State Assembly candidate, via his YouTube platform.

“It’s a bait-and-switch type tax increase … you’re going to have to pay more in federal taxes,” he predicted.

Potential financial impact

A federal tax hike is not predicted by the Legislative Analyst’s office.

There are costs. The independent analysis by the Legislative Analyst’s Office expects Prop. 35 to raise about $4 billion more each year for Medi-Cal, about half of that coming from Prop. 35 and the other half from federal funds. The Legislative Analyst also says there are short-term costs to the state of $1 billion to $2 billion in each of the years 2025 and 2026.

Follow the money

Stay tuned. We will update this story with campaign finance information as we get closer to the election.

Listen in: AirTalk takes on Prop. 35

Here’s our recent AirTalk segment on Prop. 35. To advocate for the bill is Jodi Hicks, president and CEO of Planned Parenthood Affiliates of California, which is part of the “Yes on 35” coalition. To advocate against it is Kiran Savage-Sangwan, executive director of the California Pan-Ethnic Health Network, a statewide health advocacy organization that officially opposes Prop 35.

Prop 35: Should we make permanent a tax on managed care health insurance plans?

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Originally Appeared Here

17

The Internal Revenue Service is bigger and better than ever, with $80 billion in new funding and 80,000 new agents to scour through and scrutinize the tax returns of every day Americans.

Now, the union which represents the IRS employees is thanking Vice President Kamala Harris for her service and contribution in the form of an official endorsement.

In September 2024, the National Treasury Employees Union (NTEU) threw its support behind Vice President Kamala Harris for President of the United States. This endorsement, announced by NTEU President Doreen Greenwald, highlighted Harris’s consistent advocacy for federal employees and her commitment to workers’ rights throughout her career.

As the largest union representing IRS and other federal employees, the NTEU’s endorsement was largely driven by Harris’s role in advancing pro-labor policies during her time as Vice President, including spearheading the White House Task Force on Worker Organizing and Empowerment. This task force improved organizing efforts and expanded workers’ rights, especially within federal agencies like the IRS.

Greenwald praised Harris for her strong support of fair pay, family leave, and funding for federal agencies, specifically citing her role in rebuilding the IRS under the Inflation Reduction Act. She also noted Harris’s commitment to passing the 2024 bipartisan border bill and securing staffing for key agencies like Customs and Border Protection.

The NTEU’s endorsement was also extended to Harris’s running mate, Tim Walz, the Governor of Minnesota and a long-time labor advocate. Both Harris and Walz have strong records of supporting unions and advancing policies that aim to empower workers.

For the union, electing Harris and Walz represents a continuation of policies that ensure federal employees are respected and given the resources they need to effectively serve the public. This endorsement is a significant boost for Harris as she continues her campaign for the presidency.

• Ukrainian President Tours American War Complex Factory Making Artillery Shells in Pennsylvania

  SCRANTON, PA – This weekend, during a tour of the Scranton Army Ammunition Plant in Pennsylvania, Ukrainian President Volodymyr Zelenskyy expressed his gratitude for the artillery shells and other munitions being produced for Ukraine’s defense.

  The plant, which manufactures components for 155mm artillery and mortar shells, is playing a key role in supplying Ukraine with vital resources for its ongoing war against Russian aggression.

  

  Zelenskyy praised the dedication of the factory workers, stating that their hard work is helping Ukraine “stand strong” in its fight for freedom. In a message shared on social media, he thanked the people of Scranton and Americans across the country who are contributing billions of dollars to Ukraine’s defense efforts, calling the munitions they produce the ammunition being used on the battlefield overseas.

  This visit underscores the deepening military collaboration between the U.S. and Ukraine, as American taxpayer funding continues to support the production of critical weaponry aimed at reinforcing Ukraine’s fight for democracy and sovereignty.

• Teen Wounded in Overnight Shooting on Price Street

  PHILADELPHIA — A 19-year-old male was shot Monday night in the city’s 14th District, police said. The shooting occurred at 10:24 p.m. on the 1300 block of E Price Street.

  The victim was struck once in the right thigh and was taken to Albert Einstein Medical Center by private vehicle. He is currently listed in stable condition, according to authorities.

  No weapons were recovered at the scene, and no arrests have been made. Investigators are continuing to gather evidence as the scene remains held for further investigation.

  Police have not yet provided additional details regarding the incident.

• The IRS Endorses Kamala Harris for President, Thanks V.P. for All She Has Done

  The Internal Revenue Service is bigger and better than ever, with $80 billion in new funding and 80,000 new agents to scour through and scrutinize the tax returns of every day Americans.

  Now, the union which represents the IRS employees is thanking Vice President Kamala Harris for her service and contribution in the form of an official endorsement.

  In September 2024, the National Treasury Employees Union (NTEU) threw its support behind Vice President Kamala Harris for President of the United States. This endorsement, announced by NTEU President Doreen Greenwald, highlighted Harris’s consistent advocacy for federal employees and her commitment to workers’ rights throughout her career.

  This is funny 😂
  pic.twitter.com/FyEATwmprJ

  — Elon Musk (@elonmusk) September 22, 2024

  As the largest union representing IRS and other federal employees, the NTEU’s endorsement was largely driven by Harris’s role in advancing pro-labor policies during her time as Vice President, including spearheading the White House Task Force on Worker Organizing and Empowerment. This task force improved organizing efforts and expanded workers’ rights, especially within federal agencies like the IRS.

  Greenwald praised Harris for her strong support of fair pay, family leave, and funding for federal agencies, specifically citing her role in rebuilding the IRS under the Inflation Reduction Act. She also noted Harris’s commitment to passing the 2024 bipartisan border bill and securing staffing for key agencies like Customs and Border Protection.

  The NTEU’s endorsement was also extended to Harris’s running mate, Tim Walz, the Governor of Minnesota and a long-time labor advocate. Both Harris and Walz have strong records of supporting unions and advancing policies that aim to empower workers.

  For the union, electing Harris and Walz represents a continuation of policies that ensure federal employees are respected and given the resources they need to effectively serve the public. This endorsement is a significant boost for Harris as she continues her campaign for the presidency.

Originally Appeared Here

The recommendations were within the groups’ submissions to the Department of Finance’s 2025 pre-budget consultation, which closed last month.

“As a small business owner today, it’s hard to do anything without bringing in a tax lawyer and an accountant to confirm that what you’re doing will not create tax issues [down the line],” said Kevin Wark, tax advisor with CALU, in an interview.

For example, he said the benefits of the new family business transfer rules can be lost if the owner implements the complicated rules incorrectly.

The proposed hike in the CGIR to two-thirds from half became effective on June 25, but the change has yet to be passed into law, said John Oakey, vice-president of taxation for CPA Canada, in an interview.

“How do we plan for what we’re doing when we have no idea what’s actually going to happen?” Oakey said.

The proposed change also presents administrative challenges, Oakey said. For example, a corporation with a June 30 year end that realized a capital gain or loss on June 27, 2024, would have difficulty filing a tax return ahead of its six-month filing deadline if it chose to do so.

“The [tax fililng] software is not ready for it because the CRA is waiting for legislation [to update its forms],” Oakey said.

In July, the CRA told Investment Executive the 2024 version of Schedule 3: Capital Gains (and Losses), the form for individuals, is “still under development as we wait for final legislative details.” The form will be uploaded to the CRA website “by end of January 2025,” the agency said.

CPA Canada’s submission said a “number of significant and complex tax changes” were “adding to an already excessive regulatory and compliance burden on individuals, businesses and tax professionals.”

Said CPA’s Oakey: “The pace is the biggest issue we have — there is so much coming through so fast that the system can’t keep up.”

CALU called on the government to commission an expert panel to review the tax rules governing small businesses. The group argued that tax changes affecting small businesses introduced since 2018, including the expansion of the rules concerning the tax on split income and the introduction of passive investment rules to limit access to the small business deduction, have created “a disincentive to establishing and growing a small business in Canada.”

“There has been a layering effect, over the years, that has now created a [tax] system that we think is somewhat unworkable,” Wark said.

The IIAC also called for “an independent and comprehensive examination of the federal tax system,” arguing for a “simpler tax system that is easier to administer, is fair and efficient, and reduces the potential for revenue shortfalls as economic circumstances change.”

The CCOC said Canada’s tax system had “become a complicated web of carve-outs and caveats, which is undermining growth by chasing away innovation.”

The federal government has not engaged in a comprehensive formal review of the tax system since the Carter Commission of the 1960s.

“The government of Canada is continually reviewing the tax system to ensure that it is fair, efficient and as simple as possible,” said Department of Finance spokesperson Caroline Feggans in an emailed response to questions regarding the complexity of Canada’s tax regime. Feggans did not directly address the question of whether the government would launch a formal review.

The call for tax reform is not coming only from investment industry associations.

In a July 3 episode of the Hub Dialogues podcast, University of Calgary economist Trevor Tombe said he believed “we’re at that moment now where the tax system, both federally and for many provincial governments as well, could use some dramatic improvement.”

“This isn’t just about lowering taxes — think of it as distinct from that,” Tombe said. “[It’s] really addressing the underlying structure to ensure that [the tax system] doesn’t distort economic activity and that whatever amount of revenue that a government wants to raise, it does so in the most economically efficient way possible to really maximize our potential for innovation and investment.”

At the Scotiabank Financials Summit on Sept. 4, Dave McKay, president and CEO of Royal Bank of Canada, said his biggest fear was that “we’re discouraging risk taking” and suggested Canada’s tax system was the issue.

“We need a tax structure that encourages risk taking by everybody — not just entrepreneurs and start-up companies and tech firms, but everybody needs to take risk, and the tax structure needs to do that,” McKay said.

Oakey said he believed a review of Canada’s tax system would occur in stages, given the complexity of the Income Tax Act. Simpler issues might be handled first, while deeper policy questions would need more time for consideration.

“I think the biggest thing we need is commitment,” Oakey said. “We need whatever government is in power to say, ‘We need to have some level of review, we need to do it, and actually make it a priority.’ Until then, we can talk about it all we want.”

Originally Appeared Here

The IRS is dealing with a couple of big issues involving TikTok. It turns out some IRS employees aren’t complying with the government-wide ban on the Chinese-owned app on federal devices. But there could be a good reason why some in the tax agency skirted the rule.

Earlier this year, the IRS warned taxpayers about scams and inaccurate social media advice. The agency said to be on guard against fake refund claims for several tax credits including the Fuel Tax credit, Sick and Family Leave credit and the Household Employment Tax.

Chief among these scammers were TikTok users. So it might not be surprising that the site has attracted the attention of the IRS and garnered the public eye again as a major TikTok court hearing was held early this week. (More on that below).

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We’ll cover how and why the tax agency has tried to work around the TikTok on government devices ban, the tax credits behind the scams, and what you can do if you filed an inaccurate return due to scam or fraud. 

We’ll also talk a little about whether TikTok will be banned from mobile app stores in the United States as soon as January 2025. Read on. 

Is TikTok banned in the US?  

Congress enacted a government-wide ban on TikTok on federal devices almost two years ago due to security concerns regarding the social media platform’s Chinese ownership. The ban disallows the app’s use on all federal government devices, with some exceptions. 

Yet a report released late last year by the Treasury Inspector General for Tax Administration (TIGTA) found that the IRS continued to allow the app on some devices despite not having an exception.

While the TIGTA audit found that the IRS mostly complied with the TikTok government agency ban, the agency: 

• Had 23 unmanaged (personal) devices that still had  access to the app (though corrective action was taken)
• Gave more than 2,800 Criminal Investigation unit devices the ability to access TikTok

The IRS agreed to update its policy regarding unmanaged devices. However, the tax agency disagreed with completely preventing its Criminal Investigation (CI) Unit from accessing the app. 

The justification for this seems to be tied to investigative activities. The IRS CI division investigates federal crimes, including tax-related scams and fraud. The argument is that monitoring TikTok can help root out illegal activity as well as tax scams and misinformation campaigns.

After the federal restriction was passed, 34 states enacted similar bans, potentially inhibiting progress on the scammer investigation. 

For example, the IRS recently formed a group, the ‘Coalition Against Scam and Scheme Threats’ (CASST) to “combat the growth of scams and schemes threatening taxpayers and tax systems.” State tax agency members who helped form the group may similarly face difficulty skirting the TikTok prohibition.

So, what are the details of common TikTok tax scams to look out for? 

While scammers may falsely advertise other tax credits, like clean energy tax credits, or run other scams mentioned in the IRS’ Dirty Dozen campaign, the following are prominent scams used earlier this year.

The Fuel Tax Credit. This credit is designed for off-road business vehicles and farming equipment. Taxpayers needed a business purpose and a qualifying business activity (such as farming or purchasing aviation gasoline) to qualify.

The Sick Leave and Family Leave Credit. Intended for self-employed individuals during the pandemic, this credit was not available for original 2023 returns, but some people still filed. Taxpayers could not use it for income earned as an employee or a non-self-employed individual. 

Household Employment Taxes. Household Employment Taxes allowed a refund based on sick and family medical leave wages. Some taxpayers “invented” fictional household employees for wages they never paid.

Most taxpayers don’t qualify for the above tax breaks; however, scammers on social media websites, including TikTok, overemphasize the significance and availability of the tax credits.

“Scam artists constantly prey on people’s hope and try to use the complexity of the tax system to convince people there are secret ways to get a big refund,” IRS Commissioner, Danny Werfel said in a release. 

How to file an amended tax return

So, what can you do if you fell for one of these scams? The IRS asks taxpayers who improperly claimed these credits to file an amended return. 

You can confirm whether you need to amend your federal income tax return using an IRS.gov tool. Then you can file a Form 1040-X. to amend your return. 

Note: You must file the original return first before amending it.

However, you may have already received an IRS notification regarding tax credits improperly claimed on your prior return. If that is the case, the letter will generally require a response within 30 days, or you can contact the IRS to request an extension. You may need to first authenticate your identity before amending a return. 

Consult with a tax professional for further guidance.

TikTok court case

How far should the TikTok USA ban go? Who should be exempt? Could TikTok could be banned for all U.S. devices? 

Legislation passed by Congress earlier this year provides that, unless TikTok’s owner divests from the company, TikTok may be banned from U.S. mobile app stores in January 2025. 

However, the app’s owner, ByteDance has said it doesn’t intend to sell.

Instead, TikTok sued the U.S. government. In the case, TikTok vs. Garland, the company is arguing, in part, that without a proven national security threat, the law forcing TikTok to sell violates the First Amendment right to free speech. 

During opening arguments in a September 16 court hearing, Andrew Pincus, an attorney representing TikTok creators argued, “For the first time in history, Congress has expressly targeted a specific U.S. speaker, banning its speech and the speech of 170 million Americans.”

The hearing before a three-judge panel was held in the Federal Court of Appeals for the District of Columbia. If the case isn’t resolved there, it could eventually end up in the U.S. Supreme Court. 

Once more, the government has yet to define the scope of TikTok’s national security threat. Those documents are sealed and even ByteDance reportedly doesn’t know their contents.

But as the TIGTA report suggests, enforcing a ban on downloading or updating a social media app, a move that could impact hundreds of millions of U.S. users, is easier said than done. 

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Originally Appeared Here

EDWARD M PIO RODA / EPA-EFE / Shutterstock.com

On the face of it, a proposal to get rid of income taxes sounds like the kind of political promise designed to win massive support from the voting public. Ex-President Donald Trump floated that idea in a recent meeting with Republican lawmakers, suggesting that federal income taxes could be eliminated altogether and replaced with an “all-tariff” policy designed to fund the government with high tariffs on imported goods.

Check Out: I’m an Economist: Here’s My Prediction for Social Security If Trump Wins the 2024 Election

Read Next: 9 Easy Ways To Build Wealth That Will Last Through Retirement

The idea got a lot of media attention, but so far there hasn’t been much in the way of concrete policies from the Trump campaign team. The proposal’s feasibility is open for debate because of its potential impact on the economy and federal deficit — not to mention its likelihood of ever being approved by Congress. But it would likely be embraced with open arms by millions of cash-strapped taxpayers.

Trump also has suggested eliminating federal income taxes on Social Security benefits – an idea that at least has bipartisan support. In January 2024, U.S. Rep. Angie Craig, a Minnesota Democrat, introduced the “You Earned It, You Keep It Act,” which would eliminate all federal taxes on Social Security benefits beginning in 2025.

But there are problems with eliminating federal taxes on Social Security benefits, or getting rid of them on any type of income. While many Americans– including retirees — might see a short-term boost to their finances, the longer-term consequences could be dire.

Here are four reasons retirees and others might not want Trump to eliminate income taxes.

Earning passive income doesn’t need to be difficult. You can start this week.

Social Security Could Be Threatened

Eliminating taxes on Social Security benefits — or doing away with them altogether – would put an already stressed program under even greater stress. Social Security’s Old Age and Survivors (OASI) Trust Fund is due to run out of money within the next decade, leaving the program solely dependent on payroll taxes for funding. Payroll taxes currently fund about 77% of benefits, but the Social Security Administration also gets funds from income taxes.

Learn More: 8 States To Move to If You Don’t Want To Pay Taxes on Social Security

Exempting Social Security benefits from income tax would increase the U.S. budget deficit by about $1.6 trillion over 10 years, according to a blog from the Tax Foundation. It also would accelerate the insolvency of the Social Security and Medicare trust funds.

Story continues

The Committee for a Responsible Federal Budget estimated that the move would push the insolvency date of Social Security’s retirement trust fund up by more than a year. When the fund becomes insolvent, some lawmakers have suggested cutting retirement benefits to deal with the shortfall.

Trump’s income tax idea might be one reason most Americans (and seniors) favor Vice President Kamala Harris over Trump when it comes to managing Social Security, according to a GOBankingRates survey of more than 1,000 U.S. adults. Here are some highlights:

Not Everyone Would Benefit Equally

Chris Orestis, founder of Retirement Genius and an expert in retirement planning and financial health, told GOBankingRates in a recent interview that not everyone would benefit from Trump’s proposal to eliminate taxes on Social Security benefits.

“This would benefit only higher-income seniors, cost workers and the middle class higher taxes, and have no impact on lower-income seniors that need the relief the most,” Orestis said. “In the short term, this tax break penalizes workers not yet on the programs and does nothing for lower-income beneficiaries. In the long run, it hurts future beneficiaries of all stripes, but particularly lower income, as both Social Security and Medicare are undermined.”

More Americans Could Become Uninsured

If Trump were to eliminate income taxes, he would not only have to come up with alternative ways to fund the government — he’d also need to cut government spending to help make up the shortfall. One target for cuts could be the Affordable Care Act (ACA), aka Obamacare.

According to a recent analysis conducted by Capital & Main and Thomas Data Consulting, during the first three years of Donald Trump’s presidency the U.S. saw an increase of 2.3 million uninsured people. The primary reason was Trump’s “repeated undermining” of the ACA, which “made it harder for Americans to get health insurance,” according to Jeremy Lindenfeld, who wrote the Capital & Main report.

“Trump cut the enrollment period in half, canceled outreach programs, slashed the ACA’s $100 million advertising budget by 90%, and removed the penalty for not having insurance,” Lindenfeld said in comments shared with GOBankingRates.

Trump has since softened his stance on the ACA, saying his plan now is to make it “much better, stronger and far less expensive.”

An All-Tariff Policy Could Hurt the U.S. Economy

Trump’s idea to replace income taxes with an all-tariff policy has gotten considerable pushback from economists and financial analysts because of its potential impact on everything from trade and inflation to economic growth.

Analysts at Goldman Sachs said in a recent note that such a policy would shrink the economy, CNN reported. Another fear is that consumer prices will skyrocket again because Americans will have less access to cheaper imported goods.

“It’s one of those magical economic proposals that can actually cause inflation and put you into a recession – at the same time,” David Kelly, chief global strategist at JPMorgan Asset Management, told CNN, adding that tariffs are a “perfect stagflation machine.”

Editor’s note on election coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.

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This article originally appeared on GOBankingRates.com: I’m a Retiree: 4 Reasons I Don’t Want Trump To Eliminate Income Taxes

Originally Appeared Here

The IRS identified another wave of warning signs related to incorrect Employee Retention Tax Credit (ERC) claims.

The latest handful of red flags come from common issues IRS compliance teams have spotted while reviewing and processing claims from the pandemic-era tax credit. (These are in addition to seven indicators the IRS underscored earlier this year.)

The red flag alert comes as the agency doubles down on ERC compliance and claims scrutiny after recently restarting processing,  reopening its Voluntary Disclosure Program, and delivering up to 30,000 letters to capture over $1 billion worth of fraudulent or incorrectly claimed credits.

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Here’s what you need to know.

Five IRS ERC red flags 

When filed correctly, the ERC is a refundable tax credit designed to help businesses who continued to pay employees during COVID-related business shutdowns. As previously reported by Kiplinger, numerous abusive promoters advertised the ability to claim the ERC to unsuspecting employers which led to countless errors and massive ERC fraud. 

For business owners, the consequences of ERC fraud could lead to fines and penalties, and at worst — to criminal charges or imprisonment.

Here are five new trends that suggest your ERC is incorrect.

1. Claiming family members wages as qualified wages

When it comes to family-owned businesses, the ERC has certain limits for majority owners and their related employees. For one, the ERC guidelines don’t consider wages paid to individuals who own more than 50% (majority owner) of the business as eligible for the credit. 

Additionally, wages paid to family members of the majority owner don’t qualify for the ERC. Some examples of “related individuals” include:

• A child or a descendent of a child
• Your sibling or stepbrother, or stepsister
• Your father, mother, or ancestor, or either
• Stepfather or stepmother

The IRS also counts nieces and nephews, aunts or uncles, and any in-laws as related members that wouldn’t qualify for the ERC. Household members or an individual who lives in your principal household for the tax year wouldn’t be eligible either. Your spouse would also be considered a relative for purposes of this IRS scrutiny. 

2. Claiming wages already used for the Paycheck Protection Program

Generally, you can claim both the ERC and Paycheck Protection Program loan forgiveness, as long as you don’t report the same wage. In other words, if you’ve already reported certain wages for the PPP, they will no longer count as qualifying wages for the ERC. 

3. Lack of evidence to support a government-ordered business shutdown

Some employers have been deemed ineligible for the ERC because they haven’t been able to offer sufficient proof that a government order caused a full or partial shutdown of business operations due to COVID. 

To be eligible, government orders must be official and not a suggestion by a local official. Additionally, the qualifying government orders must be at the local, state, or federal level. Some examples include: 

•  An order was made from the city’s mayor stating that all non-essential businesses must close for a specific period.
• Your state issued an emergency proclamation ordering a shelter-in-place period, many times this excluded essential workers.
• A local official imposed curfews on residents that impacted business operating hours.
• Your local health department issued an order mandating business shutdowns.

That being said, any communications from the Occupational Safety and Health Administration (OSHA) generally aren’t considered government orders and aren’t eligible for the ERC.  

4. Employers claiming wages for employees who provided services

Another recurring error was that some large employers falsely claimed wages for employees who were providing services during these ‘business shutdown’ periods. 

For instance, if your employees worked remotely during the pandemic and your business continued to operate, the IRS would determine that your business or trade wasn’t suspended.

5. Essential businesses that could fully operate during the pandemic and didn’t have a decline in gross receipts

As previously reported by Kiplinger, promotors convinced many essential businesses that they could claim the ERC, when they weren’t eligible. In many cases, these employers didn’t partially or fully suspend business operations because employees continued to work as usual.

That doesn’t mean that essential businesses can’t claim the ERC. In fact, if your business experienced a significant decline in gross receipts during 2020 or the first three quarters of 2021 you can still make a claim. Employers can determine if there was a decline in gross receipts by comparing fiscal year 2020 or 2021 with the corresponding quarter in 2019.

• For 2020, you begin qualifying in the quarter when your gross receipts are less than 50% of those in the same quarter in 2019. You no longer qualify once gross receipts are more than 80%.
• For 2021, the gross receipts must be under 80% compared to the same quarter in 2019.

Improper ERC denials in the mix

As part of its ongoing compliance measures, the IRS delivered several waves of disallowance letters to taxpayers and businesses that showed a high risk of incorrect ERC claims. The agency sent 28,000 letters early last month, which would have prevented up to $5 billion in improper payments. 

However, 10% of tax professionals and businesses who received letters disagreed with the IRS decision, IRS Commissioner Danny Werfel first told Tax Notes (paywall). What’s more, those taxpayers were eligible for the ERC. 

Werfel told Tax Notes that the IRS would be working on lowering the error rate below in future waves of denials. 

If you’ve received a disallowance letter from the IRS and suspect the agency got it wrong, act quickly. Here’s what you can do to appeal your ERC claim:

• Request an administrative review of the decision with the IRS Independent Office of Appeals
• Under IRS administrative rules, you’ll have 30 days to submit your appeal from the date of the notice of claim of disallowance

You can also ask your trusted certified tax professional to send a response to Appeals or see if you are eligible for Appeals Fast Track. Just make sure to collect all relevant documentation that supports your claim.

Keep in mind, this will likely be a lengthy process. According to the Taxpayer Advocate (TAS) once your protest goes to Appeals it can take up to five months or longer to hold an initial Appeals conference on your claim.

What can happen if my ERC is incorrect? 

The IRS is making headway as it ramps up ERC claims processing. In March, the agency released seven signs of incorrect ERC claims including, but not limited to: 

• Too many quarters claimed
• Too many employees and wrong calculations
• Citing supply chain issues

If you suspect your ERC claim could have an error, the IRS recommends you use its ERC Eligibility Checklist tool. It could also be helpful to consult with a qualified and trusted tax advisor to help spot incorrect claims.

Remember, the IRS temporarily reopened its Voluntary Disclosure Program, which offers businesses a 15% discount when repaying credits for certain tax periods. The program will run through Nov. 22 and can be an opportunity to self-report ERC errors at a discounted rate. 

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Originally Appeared Here

LINCOLN — Nebraska’s refundable income tax credit program for K-12 school property taxes is officially off the books, and new revisions will close the door for most taxpayers to get such relief on taxes paid in 2024.

Legislative Bill 34, passed 40-3 at the end of the Legislature’s summer special session on property taxes last month, revised the existing tax credit program first established in 2020 by LB 1107. The earlier process required taxpayers to apply for an income tax deduction the year after paying their property taxes. Tax statements are sent to taxpayers each December and are typically paid in two installments over the following year.

State Sen. Steve Erdman of Bayard, center. To his right, State Sen. Mike McDonnell of Omaha reaches out to State Sen. Tom Brewer of north-central Nebraska. July 30, 2024. (Zach Wendling/Nebraska Examiner)

Now, the LB 34 credit will appear first on that property tax statement. While the changes make the process of returning funds to taxpayers upfront and automatic, some officials have discovered what they say will hurt some taxpayers because of the legislation.

​​“It is a retroactive property tax increase for ‘23 [assessed taxes],” State Sen. Steve Erdman of Bayard told the Nebraska Examiner.

Erdman, one of three senators to oppose LB 34, said his opposition was vindicated when he discovered that the expedited process skips over providing a credit for taxes paid in 2024, moving straight to the 2025 cycle.

“You can go on forever and never make up that loss,” Erdman said. “The question I have is, ‘Whose money is it?’ It’s the people’s money.”

LB 34 increased the funds allocated for the tax credit program to $750 million, an increase of $185 million over the amount previously budgeted for the income tax credit. That leaves at least $565 million that could have gone to taxpayers on their 2025 tax returns but now won’t, Erdman said. The difference will be paid when taxpayers file their returns in April 2025.

‘No net difference’

Elkhorn State Sens. Lou Ann Linehan and Brad von Gillern, the chair and vice chair of the Legislature’s Revenue Committee, defended LB 34 as getting needed relief to more taxpayers through more advantageous timing. They said the state didn’t have enough funds for what would have been duplicate tax credits.

State Sens. Lou Ann Linehan of Elkhorn and Tom Brandt of Plymouth meet at the front of the legislative chamber near Clerk of the Legislature Brandon Metzler. Aug. 17, 2024. (Zach Wendling/Nebraska Examiner)

About 45% of Nebraskans hadn’t been claiming the LB 1107 refundable credits, according to the Nebraska Department of Revenue.

“LB 34 provides equitable property tax relief to all Nebraskans,” the department said in a statement. “It is critical that Nebraskans automatically receive this credit rather than loaning government funds for a full year.”

Linehan and von Gillern said the cash flow to taxpayers will be the same because relief still comes in 2025 just at the direct point that taxpayers are paying; von Gillern said there will be “no net difference.”

“There’s no panic about people not getting their credit, that’s all I can say really,” von Gillern said Friday. “I’ve looked at this thing forwards and backwards trying to find a problem, and the problem that Senator Erdman is talking about is not a problem.”

Linehan added the state had “only one $750 million,” which was paid for in part through state budget cuts and cash transfers.

“People are calling it ‘a skipped year.’ You can’t get a credit and pay less, too,” Linehan said. “You could, but that would cost $1.5 billion.”

‘Retroactive property tax increase’

Erdman was joined by State Sen. Justin Wayne of Omaha and organizations representing county officials and certified public accountants in arguing that the “missing year” will never be made up.

Taxpayers who had been claiming the credit “would have been far better off if we didn’t have a special session,” Erdman said.

“This is backwards. To say that over time we’re going to make up the loss of your credit for ‘23 is not telling the truth,” Erdman said. “It’s an increase in property tax for ‘23. Plain and simple retroactive property tax increase.”

Linehan had tried to usher through greater relief on behalf of Gov. Jim Pillen. She initially introduced LB 1 during the special session. It was projected to increase total property tax relief up to 50%, largely through imposing new sales taxes on more than 100 currently exempt goods and services.

Erdman also reintroduced his “EPIC Option” proposals, which would eliminate property, income and corporate taxes in favor of a consumption and excise tax base.

But both approaches were quickly swatted down during the session.

‘We were actually hurting people’

Wayne, Erdman, Linehan and 12 other senators wanted to pause the session until after the November election, contending that more options needed to be considered to provide more relief. But 29 of their colleagues disagreed, voting to end the session after 17 days.

Erdman said that had senators listened to the appeal, the Legislature could have provided “meaningful” relief and “we wouldn’t be in this position.”

“We jammed it through, and now we have the result that we have,” Erdman said.

Wayne has said the session “could have been an email” based on how it ended. He said there were other revenue options, such as legalizing and taxing online sports betting or recreational marijuana. Both proposals were offered during the session but were not debated.

Erdman said the unused credits from years past should have been used to pay for both the “front-loaded” credit and one more year of the income tax credits.

Wayne directed criticism over the session’s “failure” at many people, including state senators of all political stripes who are running this year for the Legislature or Congress and who supported LB 34. Wayne said they “voted for a property tax increase, and there’s no way around it.”

“They either didn’t read the bill or they knew what they were doing, and I think that’s a huge problem,” Wayne said. “It was a rush to get something done and do something mediocre, and we were actually hurting people in the process.”

Counties, accountants brace for impact

Jon Cannon, executive director of the Nebraska Association of County Officials. (Courtesy of NACO)

Jon Cannon, executive director of the Nebraska Association of County Officials, said county officials are particularly sensitive to property tax concerns, since they oversee property valuations, budget requests and tax statements.

“We are the whole process, and we get all the complaints,” Cannon said. “We have a vested interest in property tax relief or reform being delivered to our taxpayers. If there’s a missing year or if there’s something that’s going to affect our taxpayers, we’re going to hear about it.”

Asked whether local governments could make up the funds through cuts, Cannon said there isn’t $600 million sitting around that officials “could just go ahead and set on fire.”

“That’s $600 million of roads and bridges for our part of the property tax ask,” Cannon said. “That $600 million is paying for something that we think is a public good.”

Brian Klintworth, chair-elect of the Nebraska Society of Certified Public Accountants. (Courtesy of Brian Klintworth)

Bryan Klintworth, chair-elect of the Nebraska Society of Certified Public Accountants, said some taxpayers will see a tax credit for the taxes assessed in 2023 if they paid their taxes by Dec. 31, 2023. If so, they could have claimed the credit when filing their tax returns in 2024.

“That’s where there’s this kind of weird dichotomy,” Klintworth said.

Erdman said people will notice when they file their income taxes next year and will ask why the credit isn’t available. He says that is when it will “hit the fan.”

Cannon and Klintworth said the issue might be argued by some as “semantics” but that the end result is a lost year or “missing year” of tax relief.

“Even though you come out the same in the calendar year, it does affect the timing of it, too, in those installment payments,” Klintworth said, such as in monthly mortgage escrow accounts.

A ‘sleight of hand’

Erdman said he is disappointed that state leaders won’t own up to “confiscating” taxpayer dollars. He said he first thought it was an unintentional result but now sees it as an intentional “sleight of hand.” 

State Sen. Justin Wayne of Omaha talks with State Sen. Lou Ann Linehan of Elkhorn on the floor of the Legislature. Aug. 16, 2024. (Zach Wendling/Nebraska Examiner)

He pointed to a “comparative analysis” from the Revenue Department that outlines the credit timing under LB 1107 as “property taxes paid” and LB 34 as “property taxes assessed.”

The explainer leaves out “2023 property taxes assessed” in December 2023 statements.

“Don’t look at what I’m doing here, look over here at this,” Erdman said.

Wayne said middle class and working class taxpayers, as well as anyone who has a mortgage and pays in installments, will be the ones sorting through an immediate tax increase in exchange for a potential decrease in future years. 

“We can say none of it matters, but it does matter to those who are struggling right now with increased property taxes to pay to stay in their home,” Wayne said.

Erdman and Wayne said the $185 million in new tax relief, which amounts to about 3.5% of the $5.3 billion in property taxes paid in 2023, will also be eaten away by inflation or general increases in property taxes before tangible benefits of LB 34 are realized.

‘You take what you can get’

Gov. Jim Pillen, left, hands State Treasurer Tom Briese one of three property-tax related proposals that the Legislature passed earlier in the day on Aug. 20, 2024. Briese was a state senator from Albion from 2017 to 2023. (Zach Wendling/Nebraska Examiner)

State Treasurer Tom Briese, a former state senator from Albion, joined Pillen, Linehan and von Gillern in celebrating LB 34 and for amending LB 1107, which Briese and Linehan championed in 2020. Briese said “one of the biggest stumbling blocks” in property tax relief consistently is finding new revenue streams to replace the local tax burdens.

“You have many folks on the left unwilling to do that, and you have a slice of folks on the far right unwilling to do that,” Briese said. “But those of us that are serious about property tax relief, serious about solving the property tax issue, are willing to do that.”

Briese said he is still optimistic lawmakers can find a long-term solution to property tax relief.

“I guess in this business you take what you can get, and that’s what the Legislature did,” Briese said. “I commend the Legislature for that.”

‘Bring it in January’

Erdman said he’s not sure the Legislature will have the “intestinal fortitude” to bring an amendment in January to correct the issues he has raised. He sees two fixes: Let Nebraskans collect the credit when they file their tax returns in 2025 or double the credit for one year.

State Sen. Brad von Gillern of Elkhorn. Aug. 13, 2024. (Zach Wendling/Nebraska Examiner)

“The Legislature and the governor had planned for this to be a decrease in property tax when in reality it’s actually an increase,” Erdman said. “We have to have an increase so we can give you a decrease. Think about that. We have to increase your taxes so we can give you a decrease for next year. How strange is that? Yeah, that’s crazy.”

State Sen. Julie Slama of Dunbar said the first bill introduced in 2025 should come at Pillen’s request and distribute the relief for 2024 taxes paid. She said funding should be through existing state resources, not other increased taxes.

“This is either malicious incompetence from the Pillen administration at best, or straight-up malicious at worst,” Slama said in a text message.

Erdman, Wayne and State Sen. Steve Halloran of Hastings, the third lawmaker to oppose LB 34, won’t return next year due to term limits, and neither will Linehan.

Von Gillern, who is in his second year as a lawmaker, will return and confirmed there is nothing to prevent senators from introducing legislation in January if they see any issues with LB 34, but they’ll need to find the funding.

“Bring it in January if you want to do it,” von Gillern said, “along with the fiscal note.”

LB 1107 credits claimed over time

• For taxes paid in 2020 — $82 million in tax credits claimed out of $125 million appropriated for school taxes (66%).
• For taxes paid in 2021 — $422 million in tax credits claimed out of $548 million appropriated for school taxes (77%).
• For taxes paid in 2022 — $562 million tax credits claimed out of $763 million possible for school and community college taxes (74%); $598 million appropriated.
• For taxes paid in 2023 (through July 2024) — $477 million tax credits claimed out of $809 million possible credits for school and community college taxes (60%); $660 million appropriated.

Taxpayers in Douglas, Lancaster and Sarpy Counties pay half of their property taxes by April 1 and the rest by Aug. 1; all other taxpayers pay by May 1 and Sept. 1. Some taxpayers choose to pay by Dec. 31 as soon as they receive their statements, changing when the credit is available. Tax returns are usually due by April 15.

More tax credits were available for taxes paid in 2022 and 2023 than legislatively appropriated. That’s because the Nebraska Department of Revenue increased the credit percentage in an attempt to repurpose previously unused credits.

Source: Patrick Roy, legislative and media coordinator, Nebraska Department of Revenue

Originally Appeared Here

The following article first appeared in the Insights section of CliftonLarsonAllen’s website. It is reposted here with permission.

Many employers unknowingly made false employee retention credit claims after falling prey to companies engaging in aggressive schemes.

Now, for the second time, the IRS is offering a way to repay improper credits.

The IRS has been closely monitoring ERC activities and cracking down on fraudulent practices.

To address this issue, the IRS has again opened a voluntary disclosure program as a way for employers to repay ERC funds that were improperly claimed. 

Explore what the VDP could mean for employers who received the credit but were not entitled to it.

Evolution of ERC claims

The IRS issued multiple warnings, generic legal advice memorandums, and the “dirty dozen” article warning taxpayers against aggressive schemes for claiming COVID-related relief with the employee retention credit program. 

September 2023: The IRS announced a moratorium on processing new refund claims through the end of the year to get a better handle on fraudulent claims and to slow the process to identify claims that may be less than reputable. 

October 2023: It issued instructions on how to withdraw improper ERC claims. 

November 2023: The IRS clarified an area of grey many promoters used to seduce employers into believing they were eligible for the credit. It issued a general legal advice memorandum discussing in depth why OSHA guidelines alone are not sufficient to support an ERC claim.  

While a GLAM does not officially bind the IRS, taxpayers, or the judiciary, it provides a clear perspective on how IRS agents will treat claims based on OSHA directives.

December 2023: The IRS initiated a voluntary disclosure program for employers who received their funds and wanted to return them. 

August 2024: The IRS opened the VDP for a second time with slightly less generous terms for employers. This program is available until Nov. 22, 2024.

The IRS also lifted its moratorium and is in the process of issuing close to 50,000 payments to employers awaiting refunds—and simultaneously is issuing 30,000 rejection letters for “high-risk” claims.  

VDP Helps Employers Who Paid Exorbitant Fees

The IRS is sympathetic to the fact that many employers are unable to repay the credit because of their agreement with the vendor who assisted in the preparation of the refund claim.  

In many instances, the fees aren’t refundable unless the IRS audits and disallows the credit. IR-2024-213 requires the employer to repay only 85% of the refund as part of the agreement. 

Employers unable to repay the required percentage may be considered for an installment agreement.

If the IRS paid interest on the employer’s ERC refund claim, the employer doesn’t need to repay that interest.

Employers unable to repay the required percentage may be considered for an installment agreement on a case-by-case basis.

Interested employers must apply to the VDP by Nov. 22, 2024. 

Who Is Eligible?

Any employer who already received the ERC for a 2021 period but isn’t entitled to it can apply if the following are also true:

• The employer is not under criminal investigation and has not been notified they are under criminal investigation.
• The employer is not under an IRS employment tax examination for the tax period for which they’re applying to the VDP.
• The employer has not received an IRS notice and demand for repayment of part or all of the ERC.
• The IRS has not received information from a third party that the taxpayer is not in compliance or has not acquired information directly related to the noncompliance from an enforcement action.

What Do Employers Need to Apply?

To apply, the employer must first file Form 15434, Application for Employee Retention Credit Voluntary Disclosure Program, available on IRS.gov. Submit the form using the IRS Document Upload Tool. 

Employers will be expected to repay their full ERC, minus the 15% reduction allowed through the VDP.

Employers will be expected to repay their full ERC, minus the allowed 15% reduction.

Employers not able to pay the amount in full will have the option to set up an installment agreement under certain conditions.  

If the employer outsources their payroll to a third party, the third party is required to file the form on behalf of the employer.

Should You File a Protective Claim?

Many employers have filed income tax returns reflecting lower wage expenses due to their ERC claims—without having received their ERC refunds.

With the three-year statute of limitations for 2020 income tax returns either closing soon or having closed already, taxpayers and practitioners are concerned they’ll run out of time to potentially reclaim those lost wage deductions if the ERC claims are denied. 

Claiming the ERC causes the employees’ wages generating the ERC to be not deductible for income tax purposes.

Consequently, employers who claim the ERC on amended payroll tax returns after they have filed their original income tax return are generally required to file amended income tax returns or administrative adjustment requests to reflect the ERC claims.

Filing the amended income tax returns has been complicated by the IRS’s delays in processing ERC claims and general rhetoric about the high percentage of improper or high-risk claims (estimated by the IRS to be as high as 90% of total claims). 

The taxpayer could pay additional income tax only to have their ERC claims ultimately denied by the IRS.

The extended five-year statute of limitations for assessment of Q3 2021 ERC claims further increases the risk of employers facing contradictory outcomes.

The taxpayer could pay additional income tax only to have their ERC claims ultimately denied by the IRS after the three-year statute of limitation has closed on the 2021 income tax return.

Generally, if your right to a refund is contingent on future events and may not be determinable until after the time period for filing an amended return expires, you can file a protective claim for refund.

However, it’s uncertain whether the agency will recognize a protective claim for refund related to ERC refunds and related wage expenses as effective.

Consult a qualified tax professional to determine a specific course of action.

Originally Appeared Here