joseph castellano

When a taxpayer can’t pay their full tax debt or if paying would cause financial hardship, they should consider applying for an Offer in Compromise. For assistance filing for an OIC from a legitimate representative, taxpayers are encouraged to check for a licensed enrolled agent or a reputable accountant in their area.

How an Offer in Compromise works
This is an agreement between a taxpayer and the IRS that settles a tax debt for less than the full amount owed.

The goal is a compromise that’s in the best interest of both the taxpayer and the agency. The Offer in Compromise application includes a fee of $205 and an initial payment. Low-income taxpayers don’t have to pay either the fee or the initial payment. Taxpayers should review the instructions for Form 656-B, Offer in Compromise, to see if they meet the qualifications to have these initial costs waved.

Who’s eligible
Taxpayers can check their eligibility and prepare a preliminary proposal with the Offer in Compromise Pre-Qualifier Tool.

Review the Offer in Compromise booklet
Eligible taxpayers should download and review the latest version of the OIC booklet., to avoid processing delays. This booklet covers everything a taxpayer needs to know about submitting an Offer in Compromise including:

  • Eligibility.
  • Costs to apply.
  • Application process.
  • Forms.

Application evaluation
When reviewing applications, the IRS considers the taxpayer’s unique set of facts and special circumstances affecting their ability to pay, including their:

  • Income.
  • Expenses.
  • Asset equity.

Beware of Offer in Compromise mills
Offer in Compromise mills aggressively promote Offers in Compromise in misleading ways to people who clearly don’t meet the qualifications, often costing taxpayers thousands of dollars.

An Offer in Compromise mill usually makes outlandish claims about how they can settle a person’s tax debt for cheap. The promoter fees are often excessive, and eligible taxpayers pay the OIC mill to get the same deal they could have received on their own by working directly with the IRS. This takes unnecessary money out of the taxpayer’s wallet.

In addition, not every taxpayer will qualify for an OIC. Some promoters knowingly advise indebted taxpayers to file an OIC application even though the promoters know the person will not qualify, costing honest taxpayers money and time.

WASHINGTON – In day seven of the Dirty Dozen tax scam series, the Internal Revenue Service and Security Summit partners today alerted taxpayers to be on the lookout for unscrupulous tax preparers who could encourage people to file false tax returns and steal valuable personal information.

A common problem seen annually during tax season, “ghost preparers” pop up to encourage taxpayers to take advantage of tax credits and benefits for which they don’t qualify. These preparers can charge a large percentage fee of the refund or even steal the entire tax refund. After the tax return is prepared, these “ghost preparers” can simply disappear, leaving well-meaning taxpayers to deal with the consequences.

While most tax professionals offer quality service, these ghost preparers and other unscrupulous preparers try to take advantage of people and should be avoided at all costs. The IRS encourages people to use a trusted tax professional, and has important information to help people choose a reputable, accredited practitioner.

“Ghost preparers and other shady return preparers form a real threat every tax season to well-meaning taxpayers,” said IRS Commissioner Danny Werfel. “By trying to make a fast buck, these scammers prey on seniors and underserved communities, enticing them with bigger refunds by including bogus tax credit claims or making up income or deductions. But after the tax return is filed, these ghost preparers disappear, leaving the taxpayer to deal with consequences ranging from a stolen refund to follow-up action from the IRS. We urge people to choose a trusted tax professional that will be around if questions arise later.”

Unethical tax preparers serve as day seven of the annual IRS Dirty Dozencampaign – a list of 12 scams and schemes to help taxpayers and the tax professional community protect their personal and financial information. Compiled annually since 2002, the Dirty Dozen lists a variety of common scams that taxpayers may encounter anytime, but many of these schemes peak during filing season as people prepare their returns or hire someone to help with their taxes.

Bogus tax preparers have been a recurring theme in the Dirty Dozen for years. Anyone can file a tax return because preparing tax returns is unregulated, which adds risks for vulnerable taxpayers during filing season. To protect taxpayers, the IRS and the Treasury Department have again proposed regulating tax practitioners as part of the proposed Fiscal Year 2025 budget.

Shady tax practitioners can also be involved in stealing taxpayer identities. As a member of the Security Summit, the IRS has worked with state tax agencies and the nation’s tax industry for nine years to cooperatively implement a variety of internal security measures to protect taxpayers. The collaborative effort by the Summit partners also has focused on educating taxpayers about scams and fraudulent schemes throughout the year, which can lead to tax-related identity theft. Through initiatives like the Dirty Dozen and the Security Summit program, the IRS strives to protect taxpayers, businesses and the tax system from cyber criminals and deceptive activities that seek to extract information and money, including ghost preparers.

Tips for taxpayers: Warning signs to look out for

Most tax return preparers provide honest, high-quality service. But some may cause harm through fraud, identity theft and other scams. Paid preparers must sign and include a valid Preparer Tax Identification Number (PTIN) on every tax return. A ghost preparer is someone who doesn’t sign tax returns they prepare. These unethical tax return preparers should be avoided, especially if they refuse to sign a complete paper tax return or digital form when filing electronically.

Taxpayers are also encouraged to check the tax preparer’s credentials and qualifications to make sure they are capable of assisting with the taxpayer’s needs. The IRS offers resources for taxpayers to educate themselves on types of preparers, representation rights, as well as a Directory of Federal Tax Return Preparers with Credentials and Select Qualifications to help choose which tax preparer is the best fit.

Some of the warning signs of a bad preparer include:

  • Shady fees. Taxpayers should always ask about service fees. Shady tax preparers can ask for a cash-only payment without providing a receipt. They are also known to base their fees on a percentage of the taxpayer’s refund.
  • False income. Untrustworthy tax preparers may also invent false income to try to get their clients more tax credits or claim fake deductions to boost the size of the refund.
  • Wrong bank account. Taxpayers should also be wary of a tax preparer attempting to convince them to deposit the taxpayer’s refund in their bank account rather than the taxpayer’s account.

Good preparers ask to see all relevant documents like receipts, records and tax forms. They also ask questions to determine the client’s total income, deductions, tax credits and other items. Taxpayers should never hire a preparer who e-files a tax return using a pay stub instead of a Form W-2. This is also against IRS e-file rules.

File accurately and check eligibility for credits and deductions

Taxpayers are ultimately responsible for all the information on their income tax return, regardless of who prepares it. Taxpayers can visit to find answers to tax-related questions and access tools like the Interactive Tax Assistant, which provides answers to several tax law questions specific to individual circumstances.

Filing electronically reduces tax return errors, and people can take advantage of free online and in-person tax preparation options if they qualify through programs like IRS Free File and the Volunteer Income Tax Assistance and Tax Counseling for the Elderly.

Taxpayers should also make sure that they are taking advantage of available credits and deductions, like the Earned Income Tax Credit (EITC), which is refundable and can help low-to-moderate income workers receive up to $7,340 based on their qualifications. People need to make sure they understand which credits and deductions they are eligible to claim and keep records to show their eligibility.

Report fraudulent activity and scams

The IRS highly encourages people to report tax return preparers who deliberately prepare improper returns and any activity that promotes improper and abusive tax schemes.

To report an abusive tax scheme or a tax return preparer, people should use the online Form 14242, Report Suspected Abusive Tax Promotions or Preparers, or mail or fax a completed paper Form 14242, Report Suspected Abusive Tax Promotions or Preparers, and any supporting material to the IRS Lead Development Center in the Office of Promoter Investigations.


Internal Revenue Service Lead Development Center
Stop MS5040
24000 Avila Road
Laguna Niguel, CA 92677-3405
Fax: 877-477-9135

Taxpayers can also report preparer misconduct using Form 14157, Complaint: Tax Return Preparer. If a taxpayer suspects a preparer filed or changed their tax return without their consent, they should file Form 14157-A, Tax Return Preparer Fraud or Misconduct Affidavit.

Alternatively, taxpayers and tax practitioners may send the information to the IRS Whistleblower Office for possible monetary award.

Taxpayers can check the status of their refund easily and conveniently with the IRS Where’s My Refund tool at

Refund status is available within 24 hours after the taxpayer e-filed their current year return. The tool also gives the taxpayer a personalized refund date after the IRS processes the return and approves the refund.

Where’s My Refund tool updates
Recent updates to the tool mean fewer taxpayers will need to call the IRS. These include:

  • Messages with detailed refund status in plain language.
  • Notifications that tell taxpayers whether the IRS needs additional information.

How to get started with Where’s My Refund
To use the tool, taxpayers need their:

  • Social Security number or Individual Taxpayer Identification number.
  • Filing status.
  • Exact amount of the refund claimed on their tax return.

Status of refunds
The tool shows three statuses:

  • Return received.
  • Refund approved.
  • Refund sent.

When the status changes to “refund approved,” the IRS is preparing to send the refund, either as a direct deposit to the taxpayer’s bank account or directly to the taxpayer by a check in the mail to the address on their tax return.

When to check for status changes
Taxpayers don’t need to check their refund status more than once a day. The IRS updates Where’s My Refund overnight in most cases. Calling the IRS won’t speed up a tax refund. The information available on Where’s My Refund is the same information available to IRS telephone assistors. Taxpayers should allow time for their bank or credit union to post the refund to their account or for it to arrive in the mail.

Timing of refunds
The IRS issues most refunds in fewer than 21 days. Some tax returns require more time to review, and this can delay a refund. It takes longer to process a return if:

The IRS will contact taxpayers by mail if more information is needed to process a return.

Refund less than expected
If a taxpayer refund isn’t what they expected, it may be due to changes made by the IRS. These changes could include corrections to Child Tax Credit or EITC amounts or an offset from all or part of the refund amount to pay past-due tax or debts. More information about reduced refunds is available on

WASHINGTON – The Internal Revenue Service announced today that compliance efforts around erroneous Employee Retention Credit (ERC) claims have topped more than $1 billion so far since last fall as work continues on a number of efforts to counter questionable claims pushed by aggressive marketing, including an aggressive push on claims made for 2021.

“The IRS has made important progress in our compliance efforts protecting more than $1 billion in revenue in just six months, but we remain deeply concerned about widespread abuse involving these claims that have harmed small businesses,” said IRS Commissioner Danny Werfel. “We are encouraged by the results so far of our initiatives designed to help misled businesses, and the IRS will continue our broader compliance work given the aggressive marketing we’ve seen with this credit.”

Three IRS ERC initiatives have protected more than $1 billion just since the IRS instituted a processing moratorium on new claims beginning Sept. 14, 2023. An additional $3 billion in claims is being reviewed by IRS Criminal Investigation. Key figures from the three programs show:

  • The special ERC Voluntary Disclosure Program (VDP), has yielded more than $225 million from over 500 taxpayers with another 800 submissions still being processed and more being filed at the last minute before the deadline.
  • The ongoing claim withdrawal process for those with unprocessed ERC claims has led to 1,800 entities withdrawing $251 million.
  • The IRS has determined that more than 12,000 entities filed over 22,000 claims that were improper and resulted in $572 million in assessments. The IRS is continuing this work, and more activity is planned in this – and other areas in the months ahead.

The amount protected by these IRS ERC initiatives will continue to grow as additional voluntary disclosures are processed, additional claims are withdrawn and additional compliance work is completed. The statistics above are through March 15.

These ERC initiatives are working to protect businesses from ERC promoters that shared misleading information or misrepresented eligibility rules and lured businesses to apply for the ERC when they didn’t qualify. The ERC program began as a critical effort to help businesses during the pandemic, but the program later became the target of aggressive marketing well after the pandemic ended. Some promoter groups may have called the credit by another name, such as a grant, business stimulus payment, government relief or other names besides ERC or Employee Retention Tax Credit (ERTC).

ERC VDP suspended after March 22; could potentially reopen at a future date

The IRS announced today it will suspend the VDP after March 22. The IRS may reopen the VDP at a future date depending on whether Congress extends the statute of limitations for ERC claims. The Treasury Department has proposed extending the statute of limitations to give the IRS additional time to address unscrupulous ERC claims.

Currently, the statute of limitations for claims processed for Tax Year 2020 will expire on April 15. Assessments on Tax Year 2020 claims will cease after this date. However, compliance activities regarding Tax Year 2021 ERC claims will continue since that statute does not expire until later.

“The IRS continues to closely monitor discussions in Congress regarding ERC and the need to extend by statute critical tools to protect against improper claims,” Werfel said. “In any scenario, the IRS will continue working on a wide range of ERC issues, including the larger dollar 2021 erroneous claims.”

If the VDP is reopened at a future date, the terms will be no better than the current program, which offers a special 20% discount.

The ERC Voluntary Disclosure Program, available through March 22, 2024, is for employers who need to repay ERCs they received through Dec. 21, 2023, either as a refund or as a credit on a tax return. This option lets a taxpayer repay the incorrect ERC, minus 20%, for any tax period they weren’t eligible for the ERC. Generally, businesses who enter this program don’t have to amend other returns affected by the incorrect ERC and don’t have to repay interest they received from the IRS on an ERC refund.

The IRS anticipates more participants will enter the disclosure program into the final hours, so the more than $225 million in disclosed ERCs will increase.

Special withdrawal program remains open beyond March 22 for those with unprocessed ERC claims

As the IRS continues its moratorium on processing ERC claims submitted after Sept. 14, 2023, businesses will continue to have an option to pull back on any unprocessed claims.

Businesses should quickly pursue the claim withdrawal process if they need to ask the IRS not to process an ERC claim for any tax period that hasn’t been paid yet. Taxpayers who received an ERC check but haven’t cashed or deposited it can also use this process to withdraw the claim and return the check. The IRS will treat the claim as though the taxpayer never filed it. No interest or penalties will apply.

The IRS currently has more than 1 million unprocessed ERC claims, so the claim withdrawal process remains an important option for businesses who may have submitted an improper claim.

“We continue to see instances where businesses were misled into filing dubious claims, and we urge people to review the guidelines and take steps to withdraw their claims to avoid future compliance action by the IRS,” Werfel said.

ERC claim recapture will expand; audits, investigations intensify

The IRS has already sent more than 12,000 letters to entities recapturing the ERC claim that was previously paid. This puts businesses in a position where they owe 100% of the ERC paid to them, plus penalties and interest dating back to the date the ERC was paid.

This initial round of letters covers Tax Year 2020. More letters are planned in coming months to address Tax Year 2021, which involved larger claims. Congress increased the maximum ERC from $5,000 per employee per year in 2020, to $7,000 per employee for each quarter of the year in 2021.

Among the other IRS compliance actions underway:

  • Audits: The IRS has thousands of ERC claims currently under audit.
  • Promoter investigations: The IRS is gathering information about suspected abusive tax promoters and preparers improperly promoting the ability to claim the ERC. The IRS’s Office of Promoter Investigations has received hundreds of referrals from internal and external sources. The IRS will continue civil and criminal enforcement efforts of these unscrupulous promoters and preparers.
  • Criminal investigations: As of Feb. 29, 2024, IRS Criminal Investigation has initiated more than 386 criminal cases, with claims worth almost $3 billion. Twenty-five investigations have resulted in federal charges, with 12 convictions and six sentencings with an average sentence of 24 months.

Processing moratorium on new claims continues into the late spring

On Sept. 14, 2023, amid concerns about aggressive ERC marketing, the IRS announced a moratorium on processing new claims. A specific resumption date hasn’t been determined but, at this point, the IRS anticipates it will be sometime in the late spring.

This pause will help the IRS review the ERC inventory with strong, new measures of scrutiny in place. During the upcoming months, the IRS plans to complete the transcription of amended paper returns with the help of digitalization and deploy new risk analysis strategies to identify additional compliance work.

Deploying these new risk analysis strategies is necessary before the IRS will resume processing of claims submitted after the September 14 moratorium.

In the meantime, the IRS continues to process ERC claims submitted before the moratorium, but with more scrutiny and at a much slower rate than before the agency’s approach changed last year.

Help for businesses that may have been misled on ERC

Some promoters told taxpayers every employer qualifies for ERC. The IRS and the tax professional community emphasize that this is not true. Eligibility depends on specific facts and circumstances. The IRS has dozens of resources to help people learn about and check ERC eligibility and businesses can also consult their trusted tax professional. Key IRS materials include:

WASHINGTON – As the April 15 filing deadline approaches, the Internal Revenue Service issued a reminder to taxpayers on ways to prevent typical errors on their federal tax returns to help speed potential refunds.

Collect all tax-related paperwork
Taxpayers should collect all key documents, including Forms W-2 and 1099, as well as any supporting paperwork for tax deductions or credits such as educational credits or mortgage interest payments. Additionally, having the previous year’s tax return accessible is advisable as it may be required.

Use electronic filing
The IRS advises taxpayers and their tax advisors use electronic filing methods such as IRS Free File or alternative e-file service providers. The Direct File pilot is available for some taxpayers in 12 states. Electronic filing minimizes mathematical errors and identifies potential tax credits or deductions for which the taxpayer qualifies.

It’s essential for taxpayers to carefully review their tax returns to ensure accuracy. Opting for electronic filing and selecting direct deposit is the fastest and safest way to receive a refund.

Ensure filing status is correct
Tax software serves to prevent errors in selecting a tax return filing status. For taxpayers unsure of their filing status, the Interactive Tax Assistant on can assist in choosing the correct status, particularly when multiple statuses might apply.

Make sure names, birthdates and Social Security numbers are correct
Taxpayers must accurately provide the name, date of birth and Social Security number for each dependent listed on their individual income tax return. The SSN and individual’s name should be entered precisely as indicated on the Social Security card.

In cases where a dependent or spouse lacks a SSN and is ineligible to obtain one, an assigned Individual Tax Identification Number (ITIN) should be listed instead of a SSN.

Answer the digital assets question
Everyone who files Forms 1040, 1040-SR, 1040-NR, 1041, 1065, 1120 and 1120S must check one box answering either “Yes” or “No” to the digital asset question. The question must be answered by all taxpayers, not just by those who engaged in a transaction involving digital assets in 2023. Taxpayers must report all income related to digital asset transactions.

See Digital Assets | Internal Revenue Service for details on when to check “yes” and how to report the income.

Report all taxable income
Keep in mind that most income is subject to taxation. Failing to accurately report income may result in accrued interest and penalties. This includes various sources of income such as interest earnings, unemployment benefits and income derived from the service industry, gig economyand digital assets. For further details, consult Publication 525, Taxable and Nontaxable Income.

Make sure banking routing and account numbers are correct
Taxpayers have the option to request direct deposit of a federal refund into one, two or even three accounts. Provide correct banking information: If expecting a refund, ensure the routing and account numbers provided for direct deposit are accurate to avoid delays or misdirected refunds.

Additionally, taxpayers can use their refund to buy U.S. Savings Bonds.

Remember to sign and date the return
When submitting a joint return, it is required for both spouses to sign and date the return. If taxpayers are preparing their taxes independently and filing electronically, they need to sign and authenticate their electronic tax return by inputting their adjusted gross income (AGI) from the prior year. Taxpayers can refer to “Validating Your Electronically Filed Tax Return” for guidance if they have any inquiries.

Ensure address is correct if mailing paper returns
Taxpayers and tax professionals are urged to choose electronic filing whenever possible. However, for those who must submit a paper tax return, it’s essential to verify the accurate mailing address either on or in the instructions provided with Form 1040 to prevent processing delays.

Keep a copy of the tax return
Upon readiness to file, taxpayers should create duplicates of their signed return and any accompanying schedules for their personal records. Maintaining copies can help them prepare future tax returns and figure mathematical computations in the event of filing an amended return. Typically, taxpayers should retain records supporting income, deductions or credits claimed on their tax return until the period of limitations for that specific tax return expires.

Request an extension, if needed
Taxpayers requiring more time to file their taxes can easily request a six-month extension until October 15, thereby avoiding late filing penalties. This extension can be requested either through IRS Free File or by submitting Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, by April 15. It’s important to note that while an extension provides extra time for filing, tax payments are still due on April 15 for most taxpayers.

Alternatively, taxpayers can seek an extension by making a full or partial payment of their estimated income tax and indicating that the payment is for an extension. This can be done using Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or a debit/credit card or digital wallet. By doing so, taxpayers avoid the necessity of filing a separate extension form and receive a confirmation number for their records.

Inside This Issue

  1. Businesses: Review Employee Retention Credit claims by key March 22 deadline for incorrect credits; take action to avoid future issues
  2. Know the facts about receiving Form 1099-K in 2024
  3. IRS improves Where’s My Refund? tool for 2024
  4. What to know before completing a tax return
  5. Interest rates remain the same for the second quarter of 2024
  6. Electronically filed returns rejected for missing Form 8962
  7. Taxpayers impacted by severe storms qualify for tax relief
  8. Taxpayer Advocacy Panel seeks civic-minded volunteers to apply for the 2025-member year
  9. IRS launches new effort aimed at high-income non-filers
  10. Other tax news

1.  Businesses: Review Employee Retention Credit claims by key March 22 deadline for incorrect credits; take action to avoid future issues

The IRS urges businesses to review eligibility for the ERC before an approaching March deadline to voluntarily resolve incorrect claims and avoid future issues, such as penalties and interest.

Businesses that received the credit but don’t meet the ERC rules can apply for the ERC Voluntary Disclosure Program before the March 22 deadline to get a 20% discount on their repayment, among other benefits. The IRS also offers a special ERC Withdrawal Program for those whose claims haven’t been processed yet. View the IRS’s Voluntary Disclosure Program webinar for more information.

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2.  Know the facts about receiving Form 1099-K in 2024

To help taxpayers with filing, the IRS debunked some common myths and scenarios to help small businesses and taxpayers understand responsibilities about Forms 1099-K received in 2024.

The IRS continues to see misinformation circulating about why taxpayers may or may not have received a Form 1099-K.

More information is available at see what to do with Form 1099-K and frequently asked questions.

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3.  IRS improves Where’s My Refund? tool for 2024

The IRS reminds taxpayers of recent improvements to Where’s My Refund? on The tool now provides more information and remains the best way to check the status of a refund.

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4.  What to know before completing a tax return 

The IRS kicked off its 2024 Tax Time Guide series to help remind taxpayers of key items they’ll need to file a 2023 tax return.

As part of its four-part, weekly Tax Time Guide series, the IRS continues to provide new and updated resources to help taxpayers file an accurate tax return.

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5.  Interest rates remain the same for the second quarter of 2024

The IRS announced interest rates will remain the same for the calendar quarter beginning April 1, 2024.

In the case of a corporation, the underpayment rate is the federal short-term rate plus three percentage points and the overpayment rate is the federal short-term rate plus two percentage points.

These interest rates are computed from the federal short-term rate determined during January 2024. For further details review Revenue Ruling 2024-6.

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6.  Electronically filed returns rejected for missing Form 8962

The IRS reminds taxpayers that an electronically filed tax return will be rejected if the taxpayer is required to reconcile advance payments of the premium tax credit on Form 8962, Premium Tax Credit (PTC) but doesn’t do so.

They must file Form 8962 if any family member was enrolled in Marketplace health insurance and IRS records show that APTC was paid to their Marketplace insurance company.

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7.  Taxpayers impacted by severe storms qualify for tax relief

The IRS announced tax relief for individuals and businesses in parts of California affected by severe storms and flooding that began on Jan. 21, 2024, and parts of Washington state affected by wildfires that began on Aug. 18, 2023.

These taxpayers now have until June 17, 2024, to file various federal individual and business tax returns and make tax payments.

The IRS advises farmers and fishers who chose to forgo making estimated tax payments by January that they must generally file their 2023 federal income tax return and pay all taxes due by Friday, March 1, 2024. In such instances, taxpayers can avoid estimated tax penalties.

The current list of eligible localities is always available on the disaster relief page on

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8.  Taxpayer Advocacy Panel seeks civic-minded volunteers to apply for the 2025-member year

The IRS announced vacancies in 29 states and territories for the volunteer-led Taxpayer Advocacy Panel (TAP).

TAP members are selected to achieve demographic and geographic diversity, providing representation from all 50 states, the District of Columbia, Puerto Rico and an additional member representing the interests of taxpayers working, living or doing business abroad.

For additional information about TAP, visit or call 888-912-1227 and select prompt number five.

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9.  IRS launches new effort aimed at high-income non-filers

The IRS announced a new effort focused on high-income taxpayers who have failed to file federal income tax returns. Using Inflation Reduction Act funding, the IRS will issue compliance letters to more than 125,000 cases where tax returns haven’t been filed since 2017.

This week, the IRS will begin mailing compliance alerts for failure to file a tax return, formally known as the CP59 notice. About 20,000 to 40,000 letters will go out each week, beginning with filers in the highest-income categories.

The new non-filer initiative is part of a larger effort underway with the IRS working to ensure large corporate, large partnership and high-income individual filers pay the taxes they owe.

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10.  Other tax news

The following information may be of interest to individuals and groups in or related to small businesses:

Some unscrupulous promoters have marketed misleading information about Employee Retention Credit eligibility rules to well-intentioned businesses. The IRS is highlighting seven suspicious signs and urging business to seek a trusted tax professional to resolve an incorrect claim while they still can without penalties or interest.

There’s a deadline of March 22, 2024, for the ERC Voluntary Disclosure Program, which lets businesses who filed a claim in error and received a payment repay just 80% of the claim. Taxpayers who filed an incorrect claim that hasn’t been processed, or who have an ERC check they haven’t cashed or deposited, should quickly pursue the claim withdrawal process.

Seven suspicious signs an ERC claim could be incorrect

  • Too many quarters being claimed. Some promoters urged employers to claim the ERC for all quarters that the credit was available. Qualifying for all quarters is uncommon. Employers should carefully review their eligibility for each quarter.
  • Government orders that don’t qualify. Some promoters told employers they can claim the ERC if any government order was in place in their area, even if their operations weren’t affected or if they chose to suspend their business operations voluntarily. This is false. Some promoters also suggested that an employer qualifies based on communications from the Occupational Safety and Health Administration. This is generally not true. Employers should review the frequently asked questions about ERC – Qualifying Government Orders for more information and helpful examples for these topics.
  • Too many employees and wrong calculations. Employers should be cautious about claiming the ERC for all wages paid to every employee on their payroll. Employers need to meet certain rules for wages to be considered qualified wages, depending on the tax period. Employers should review all calculations to avoid overclaiming the credit. They should not use the same credit amount across multiple tax periods for each employee. For details on credit amounts, see the ERC 2020 vs 2021 Comparison Chart.
  • Business citing supply chain issues. A supply chain disruption by itself doesn’t qualify an employer for ERC. An employer needs to ensure that their supplier’s government order meets the requirements. Employers should carefully review the rules on supply chain issues and examples in the 2023 legal memo on supply chain disruptions.
  • Business claiming ERC for too much of a tax period. It’s possible, but uncommon, for an employer to qualify for ERC for the entire calendar quarter if their business operations were fully or partially suspended due to a government order during a portion of a calendar quarter. A business in this situation can claim ERC only for wages paid during the suspension period, not the whole quarter. Businesses should check their claim for overstated qualifying wages and should keep payroll records that support their claim.
  • Business didn’t pay wages or didn’t exist during eligibility period. Employers can only claim ERC for tax periods when they paid wages to employees. Records available to the IRS show some businesses that claimed ERC didn’t have any employees or they claimed ERC for tax periods before the business existed.
  • Promoter says there’s nothing to lose. Businesses should be on high alert with any ERC promoter who urged them to claim ERC because they “have nothing to lose.” Businesses that incorrectly claim the ERC risk repayment, penalties, interest, audit and other expenses.

The IRS has an interactive ERC Eligibility Checklist that tax professionals and taxpayers can use to check potential eligibility for ERC. It’s also available as a printable guide.

The IRS Direct File pilot gives people an option they’ve asked for – a way to file their taxes quickly, easily, and for free directly with the IRS. It’s now available for eligible taxpayers in in Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington, and Wyoming.  

The Direct File pilot is easy to use and helps eligible taxpayers:

  • File a 2023 federal tax return in as little as 30 minutes using a mobile device.  
  • Add tax information with step-by-step guidance
  • Connect with real-time online support from IRS customer service representatives
  • Access it from smartphones, laptops, tablets and desktop computers
  • Get a federal tax refund in less than 21 days

Taxpayers who join the pilot can claim the Earned Income Tax Credit, Child Tax Credit and Credit for Other Dependents.

Who’s eligible

IRS Direct File pilot is available for taxpayers who file simple federal tax returns in 12 participating states and who report the following types of income:

  • W-2 wage income
  • SSA-1099 Social Security income
  • 1099-G unemployment compensation
  • 1099-INT interest income of $1,500 or less

IRS Direct File pilot participants must take the standard deduction and can claim deductions only for student loan interest and educator expenses.

If Direct File isn’t an option, there are many other filing options available.

State tax returns

The Direct File pilot doesn’t prepare state returns. However, if taxpayers live in Arizona, California, Massachusetts or New York, the Direct File pilot guides taxpayers to a state-supported tool they can use to prepare and file a state tax return.

Find out more about the IRS Direct File pilot

Taxpayers can check their eligibility for the IRS Direct File pilot.

Get the latest news about the pilot at Direct File pilot news, subscribe to the Direct File pilot newsletter or visit Direct File on to learn more.

The IRS urges businesses to review their eligibility for the Employee Retention Credit because there’s limited time for them to voluntarily resolve incorrect claims and avoid future issues, such as penalties and interest.

Some honest businesses were misled into filing claims for the Employee Retention Credit by promoters who often misrepresented or oversimplified eligibility rules. Businesses that received the credit but don’t meet the ERC rules should consider applying for the ERC Voluntary Disclosure Program before the March 22 deadline. The IRS also offers a withdrawal program for those whose claims haven’t yet been paid.

The ERC, sometimes called ERTC, is a refundable tax credit for certain eligible businesses and tax-exempt organizations that had employees and were affected during the COVID-19 pandemic. The requirements vary depending on the time of claim, and it is not available to individuals.

ERC Voluntary Disclosure Program open until March 22, 2024
Businesses that filed a claim in error and received a payment may be able to apply to the IRS Voluntary Disclosure Program. The special program runs through March 22, 2024, and lets taxpayers repay just 80% of the claim received.

Withdrawal program still available for pending ERC claims
The IRS continues to accept and process requests to withdraw a full ERC claim. Employers that claimed an ERC that hasn’t been paid can withdraw their claim so they don’t get a refund for which they’re ineligible and can avoid penalties and interest. They can also withdraw their claim if they’ve received a check but haven’t deposited or cashed it.

ERC information for businesses with questions
IRS offers resources online to answer questions and help employers check whether they’re eligible for the credit. They can review the ERC frequently asked questions and the ERC Eligibility Checklist, which is available as an interactive tool or as a printable guide. The IRS also has free recorded webinars for the withdrawal process and the VDP.

Moratorium status
Following concerns from tax professionals and others about aggressive ERC marketing, the IRS announced on Sept. 14 a moratorium on processing new ERC claims. In the coming months, the IRS plans to continue steps on fraud protection measures, which are necessary before the IRS anticipates resuming processing of claims submitted after the Sept. 14 moratorium. A date hasn’t been determined.

The IRS continues to process ERC claims submitted before the moratorium, but with higher scrutiny and at a much slower rate.

WASHINGTON – The Internal Revenue Service renewed calls today for businesses to review their eligibility for the Employee Retention Credit as the agency’s law enforcement arm, Criminal Investigation (CI), begins a series of educational sessions for tax professionals.

As part of ongoing IRS efforts around the pandemic-era credit, the agency continues to increase compliance activity to protect against fraud. The IRS also renewed calls for businesses and employers to review their qualifications for the Employee Retention Credit, or ERC. If businesses do not meet the criteria, but claimed the credit, they should consider applying for the Voluntary Disclosure Program before the March 22 deadline. The IRS has also created a special withdrawal program for those with pending claims about which they have eligibility concerns. Both programs can help affected employers avoid penalties and interest on incorrect claims.

“Our compliance activities involving these payments continue to accelerate, and the IRS urges businesses with concerns about their claims to talk to a reputable tax professional and consider joining one of our special disclosure or withdrawal programs,” said IRS Commissioner Danny Werfel. “We saw aggressive marketing around this credit, and well-intentioned businesses were misled into filing claims. There’s a limited time window available for these businesses to voluntarily come in and avoid future issues.”
In the latest effort, CI special agents will host a series of educational sessions geared specifically to tax professionals about ERC at its field offices across the country. The sessions will take place in February and are part of a nationwide initiative to ensure that tax professionals have the latest information about ERC claims and understand ERC eligibility criteria.

The IRS has been working closely with the tax community following concerns that ERC promoters were aggressively marketing and encouraging businesses to ignore the advice of tax professionals and apply for the credit anyway.

“During the COVID-19 pandemic, tax credits and loans were extended to struggling businesses. We’ve seen many of these COVID-relief programs and credits misappropriated – sometimes knowingly and in other instances not,” said IRS CI Chief Jim Lee. “These educational sessions will help tax preparers navigate the complexities of ERC claims to ensure they’re in compliance with U.S. tax laws.”

CI special agents will walk attendees through ERC eligibility criteria, documentation requirements to receive ERC claims, and best practices for compliance and accurate reporting. These events will take place in at least 23 U.S. states and the District of Columbia and are specifically designed for tax professionals who have claimed ERCs for their clients on previous years’ tax returns. Invitations to attend will arrive by mail through the U.S. Postal Service.

The ERC is a refundable tax credit for certain eligible businesses and tax-exempt organizations that had employees and were affected during the COVID-19 pandemic. The requirements vary depending on the time of claim, and it is not available to individuals.

With the end of the pandemic, the IRS announced in July it was shifting its focus to review ERC claims for compliance concerns, including intensifying audit work and criminal investigations on promoters and businesses filing dubious claims.

Following concerns about aggressive ERC marketing from tax professionals and others, the IRS announced Sept. 14 a moratorium on processing new ERC claims. During the next four months, the IRS plans to continue steps on fraud protection measures, which are necessary before the IRS anticipates resuming processing of claims submitted after the Sept. 14 moratorium. A specific resumption date has not been determined.

The IRS continues to process ERC claims submitted before the moratorium, but with additional scrutiny and at a much slower rate than before the agency’s approach changed in the summer and fall. Since the IRS announced the moratorium in September, the IRS has more than $1 billion in ERC claims in process. Enhanced compliance reviews of the claims submitted before the moratorium is critical to combat fraud and protect businesses and organizations from facing penalties or interest payments stemming from bad claims pushed by promoters. Werfel has noted the IRS continues to make progress on a variety of ERC issues.

To help businesses lured into making inappropriate claims, the IRS has several special initiatives underway to assist.

ERC Voluntary Disclosure Program open until March 22, 2024

Businesses that filed a claim in error and received a payment may be able to participate in the IRS Voluntary Disclosure Program. The special program runs through March 22, 2024, and the IRS has added provisions allowing repayment of just 80% of the claim received. This reflects the share that ERC promoters took of a business’ ERC payment – frequently around 20%.

Withdrawal program still available for pending ERC claims

The IRS continues to accept and process requests to withdraw an employer’s full ERC claimunder the special withdrawal process.

This withdrawal option allows certain employers that filed an ERC claim, but have not yet received a refund, to withdraw their submission and avoid future repayment, interest and penalties. Employers that submitted an ERC claim that has not yet been paid can withdraw their claim and avoid the possibility of getting a refund for which they’re ineligible. They can also withdraw their claim if they’ve received a check but have not yet deposited or cashed it.

The IRS continues to see a large number of employers interested in the withdrawal program, with more than $167 million from pending applicants withdrawn through mid-January.

ERC eligibility information for businesses with questions

For more information on ERC eligibility, the IRS has prepared special information to help businesses understand the complex guidelines about the credit, sometimes referred to as the Employee Retention Tax Credit or ERTC. The special information includes ERC frequently asked questions and the ERC Eligibility Checklist, which is available as an interactive tool or as a printable guide. The interactive tool provides an easy, interactive way for businesses to check their eligibility.

Increased IRS compliance activity: Audits, criminal investigations, special letters

Last month, the IRS started sending thousands of letters to taxpayers notifying them of disallowed ERC claims. These disallowed claims involved entities that did not exist or did not actually have employees on the payroll during the period of eligibility – meaning the businesses failed to meet basic criteria for the ERC program.

In addition, the IRS plans to send a different set of letters to thousands of ERC recipients related to claiming an erroneous or excessive credit. These notices inform recipients that the IRS will recapture the erroneously claimed ERC payment through normal tax assessment and collection procedures.

These letters are for tax year 2020 where the statute of limitations is nearing in April. As we continue to ramp up our compliance work, the IRS will send more recapture letters for tax year 2021 this spring.

These efforts are in addition to other IRS compliance work:

  • Audits. The IRS has thousands of audits in the pipeline.
  • Civil investigations. Promoters are not off the hook. Promoter investigations are ongoing. The IRS has nine open investigations and another 123 under review. Plus, participants in the Voluntary Disclosure Program must share the promoter names with the IRS to assist the agency in its ongoing compliance work.
  • Criminal Investigation. As of Dec. 31, CI has initiated 352 investigations involving more than $2.9 billion in potentially fraudulent ERCs in tax years 2020-2023. Eighteen of the 352 investigations have resulted in federal charges, with 11 convictions and four sentencings with an average sentence of 21 months.

CI is the law enforcement arm of the IRS, responsible for conducting financial crime investigations, including tax fraud, narcotics trafficking, money-laundering, public corruption, healthcare fraud, identity theft and more. CI is the only federal law enforcement agency with investigative jurisdiction over violations of the Internal Revenue Code, obtaining a nearly 90% federal conviction rate. The agency has 20 field offices located across the U.S. and 12 attaché posts abroad.

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