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IRS: Updates to question on digital assets; taxpayers should continue to report all digital asset income

IR-2023-12, January 24, 2023

WASHINGTON — The Internal Revenue Service today reminded taxpayers that they must again answer a digital asset question and report all digital asset-related income when they file their 2022 federal income tax return, as they did for fiscal year 2021. The term "digital assets" has replaced "virtual currencies," a term used in previous years.

The question, which appears at the top of Forms 1040, Individual Income Tax Return; 1040-SR, U.S. Tax Return for Seniors; and 1040-NR, U.S. Nonresident Alien Income Tax Return, was revised this year to update terminology.

In addition, the instructions for answering the question were expanded and clarified to help taxpayers answer it correctly. All taxpayers must answer the question regardless of whether they engaged in any transactions involving digital assets.

For the 2022 tax year it asks: "At any time during 2022, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, gift or otherwise dispose of a digital asset (or a financial interest in a digital asset)?"

What is a digital asset?

A digital asset is a digital representation of value which is recorded on a cryptographically secured, distributed ledger. Common digital assets include:

  • Convertible virtual currency and cryptocurrency

  • Stablecoins

  • Non-fungible tokens (NFTs)

 

Everyone must answer the question

Everyone who files Form 1040, Form 1040-SR or Form 1040-NR must check one box, answering either "Yes" or "No" to the digital asset question. The question must be answered by all taxpayers, not just those who engaged in a transaction involving digital assets in 2022.

To read more about IRS position on digital assets, click here.

 

IRS kicks off 2023 tax filing season with returns due April 18

IR-2023-11, January 23, 2023

WASHINGTON — The Internal Revenue Service kicked off the 2023 tax filing season with a focus on improving service and a reminder to taxpayers to file electronically with direct deposit to speed refunds and avoid delays. Following a successful opening of its systems today, the IRS is now accepting and processing 2022 tax returns. Most of the individual tax returns for the 2022 tax year are expected to be filed before the April 18 tax deadline. Taxpayers have until April 18 to file their taxes this year, but some taxpayers living overseas and disaster victims may have later filing deadlines. Alabama, California and Georgia storm victims now have until May 15 to file various federal individual and business tax returns and make tax payments.

"Following months of hard work, we successfully opened our processing systems today to start this year's tax season," said IRS Acting Commissioner Doug O'Donnell. "Getting to this point is a monumental effort not only for the IRS but also for the nation's tax community. The hard-working employees of the IRS look forward to serving taxpayers this filing season, and I personally want to thank them, and all of the tax and payroll community for their dedication to making tax time smoother for the nation."

O'Donnell also noted that taxpayers can count on IRS delivering improved service this filing season. As part of the August passage of the Inflation Reduction Act, the IRS has more than 5,000 new telephone assistors and added more in-person staff to help taxpayers.

"We continue to increase IRS staffing to help provide taxpayers with the information and assistance they need," said O'Donnell. "The IRS reminds taxpayers to take some important steps when filing their tax returns for a smoother process. They should gather their necessary tax records, file an accurate return electronically and choose direct deposit to get their refunds faster."

Taxpayers who electronically file a tax return with no issues and choose direct deposit should still receive their refund within 21 days of the date they file – similar to previous years. Due to tax law changes such as the elimination of the Advance Child Tax Credit and no Recovery Rebate Credit this year to claim pandemic-related stimulus payments, many taxpayers may find their refunds somewhat lower this year. To read more click here.

 

National Taxpayer Advocate delivers 2022 Annual Report to Congress; focuses on taxpayer impact of processing and refund delays

IR-2023-04, January 11, 2023

WASHINGTON — National Taxpayer Advocate Erin M. Collins today released her 2022 Annual Report to Congress, saying taxpayers and tax professionals "experienced more misery in 2022" due to paper processing delays and poor customer service. But the report also says the Internal Revenue Service made considerable progress in reducing the volume of unprocessed tax returns and correspondence and is poised to start the 2023 filing season in a stronger position.

The Advocate's report assesses taxpayer service during 2022, identifies the ten most serious problems taxpayers are experiencing in their dealings with the IRS, and makes administrative and legislative recommendations to address those problems. This year's report recommends specific initiatives that Collins is urging the IRS to include in its plan showing how the additional funding it received in the Inflation Reduction Act will be spent. It also contains two research studies – one on ways to restructure the Earned Income Tax Credit to increase participation among eligible taxpayers while reducing improper payments, and the other designed to help the IRS improve its online operations by studying the functionality of online operations offered by over 40 states and several foreign countries.

Taxpayer service challenges

Return processing and refund delays. For most taxpayers, the most important function the IRS performs each year is issuing timely tax refunds. In 2022, about two-thirds of individual taxpayers were entitled to refunds, and the average refund amount was nearly $3,200. The report says the IRS failed to meet its responsibility to pay timely refunds to millions of taxpayers for the third year in a row. About 13 million individual taxpayers filed paper returns. Because of paper processing delays, refunds for these taxpayers were delayed, generally by six months or longer. Millions of e-filed individual returns were "suspended" because they tripped IRS processing filters and required manual review by IRS employees before refunds could be released. Hundreds of thousands of business returns claiming the Employee Retention Tax Credit were delayed.

 

However, the report says the IRS will be starting the 2023 filing season in much better shape than the last two years. The IRS began 2022 with an unprocessed paper backlog of 4.7 million original individual returns (Forms 1040), 3.2 million original business returns, and 3.6 million amended returns (individual and business combined). When the Advocate's report went to press in mid-December 2022, the IRS had reduced those backlogs to 1 million original individual returns, 1.5 million original business returns, and 1.5 million amended returns. By Dec. 23, the IRS had further reduced its unprocessed paper backlog of original individual returns to about 400,000 and original business returns to about 1 million. This significant reduction in the paper return inventory will enable the IRS to begin processing paper-filed tax year 2022 returns during the upcoming filing season. That contrasts with the previous two years, when the IRS was not able to process current-year returns until months after the filing season had ended.

The number of returns suspended during processing is the only significant return category in which inventories increased. The IRS entered 2022 with an inventory of 4.2 million suspended returns. The inventory grew to 5.9 million suspended returns by mid-December.

Cases involving suspected identity theft account for about half the inventory of suspended returns. In mid-December, the IRS reported 2.9 million identity theft cases in its inventory. While some will turn out to be fraudulent claims, the IRS website as of January 9 states: "[D]ue to extenuating circumstances caused by the pandemic, our identity theft inventories have increased and on average it is taking about 360 days to resolve identity theft cases." The report calls a year-long delay "unacceptable" and urges the IRS to assign additional employees to process these cases.

Delays in processing taxpayer correspondence and other cases in the Accounts Management function. The IRS sent millions of notices to taxpayers during 2022. These included 17 million math error notices, Automated Underreporter notices (where an amount reported on a tax return did not match the corresponding amount reported to the IRS on a Form 1099 or other information reporting document), notices requesting a taxpayer authenticate identity where IRS filters flagged a return as potentially fraudulent, correspondence examination notices, and some collection notices. Notices often require written taxpayer responses. If the IRS did not process a taxpayer response, it may have taken adverse action against the taxpayer or not released the refund claimed on the tax return. During fiscal year (FY) 2022, it took the IRS an average of 193 days to process taxpayer responses to proposed tax adjustments – about six months. That compares with 89 days in FY 2019, the most recent pre-pandemic year. The report also calls the delays in resolving these cases unacceptable.

 

Difficulty reaching the IRS on its toll-free telephone lines. The IRS received 173 million calls during FY 2022. Only 22 million (13%, or roughly one out of eight calls) got through to an IRS employee. As a result, most callers could not get answers to their tax-law questions, receive help with their account problems, or speak with an employee about compliance notices. Those who got through waited an average of 29 minutes on hold before the call began.

 

Telephone service for tax professionals was worse than the prior year and hit an all-time low. Because tax professionals prepare the majority of tax returns and often call with complex account-specific questions, the IRS has established a Practitioner Priority Service (PPS) telephone line to handle their calls. In FY 2022, IRS employees answered only 16% of PPS calls (fewer than one out of six), and the average hold time for those who got through was 25 minutes. Telephone delays place tax professionals in the difficult position of billing clients for the time spent trying to reach the IRS or writing off that time. "Tax professionals are key to a successful tax administration," Collins wrote. "The challenges of the past three filing seasons have pushed tax professionals to their limits, raising client doubts in their abilities and creating a loss of trust in the system."

 

Outlook for 2023

 

IRS Experiencing Severe Delays in the Processing of Tax Returns and Refunds

IRS.gov Updated: 28-Dec-2021

Due to the lingering effects of COVID-19, the IRS continues to experience inventory backlogs resulting in significantly long wait times. 

The IRS is opening mail within normal timeframes and all paper and electronic individual refund returns received prior to April 2021 have been processed if the return had no errors or did not require further review. As of December 18, 2021, we had 6.3 million unprocessed individual returns. Unprocessed individual returns include tax year 2020 returns with errors and those returns requiring special handling such as those that require correction to the Recovery Rebate Credit amount or validation of 2019 income used to figure the Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC). This work does not require us to correspond with taxpayers but does require special handling by an IRS employee so, in these instances, it is taking the IRS more than 21 days to issue any related refund and in some cases this work could take 90 to 120 days. The IRS is having to correct significantly more errors on tax returns than in previous years. The IRS has reduced the number of returns requiring special handling from an historical high of 9.8 million on May 1, 2021 to the current level of 42,000 individual returns as of December 18. If a correction is made to any RRC, EITC or ACTC claimed on the return, the IRS will send taxpayers an explanation. Taxpayers are encouraged to continue to check Where’s My Refund? for their personalized refund status and can review Tax Season Refund Frequently Asked Questions.

As of December 18, 2021, we had 2.3 million unprocessed Forms 1040-X (Amended Returns). We are processing these returns in the order received and working hard to get through the inventory. The current timeframe can be more than 20 weeks instead of up to 16. Please don't file a second tax return or contact the IRS about the status of your amended return. Taxpayers should continue to check Where's My Amended Return? for the most up to date processing status available. For further information please

click the link below:

​​The Recovery Rebate Credit

IRS.gov Updated: 30-Jul-2021

 

The first two rounds of Economic Impact Payments were advance payments of the 2020 Recovery Rebate Credit. Most eligible people already received the payments and won't include this information on their 2020 tax return.

 

Who May Be Eligible to Claim the 2020 Recovery Rebate Credit?

If you didn't get a first and second Economic Impact Payment or got less than the full amounts, you may be eligible to claim the 2020 Recovery Rebate Credit and must file a 2020 tax return even if you don't usually file a tax return.

Claiming the Credit

To claim the 2020 Recovery Rebate Credit, you must file a 2020 tax return, even if you aren't required to file. You must also know the amount of any first and second Economic Impact Payment you received. For further information click here.

Third Economic Impact Payment

Washington, March 31, 2021

 

The third round of Economic Impact Payments was authorized by the American Rescue Plan Act of 2021 as an advance payment of the tax year 2021 Recovery Rebate Credit.

The IRS started issuing the third Economic Impact Payments to eligible individuals on March 12, 2021, with more payments sent by direct deposit and through the mail as a check or debit card in the weeks that follow. The IRS will continue to issue payments throughout the year as tax returns are processed.

 

Most eligible people won’t need to take additional action to get a third payment. Due to new income limitations, some individuals won't be eligible for the third payment even if they received a first or second Economic Impact Payment or claimed a 2020 Recovery Rebate Credit.

Generally, someone is eligible for the full amount of the third Economic Impact Payment if they:

  • are a U.S. citizen or U.S. resident alien (and their spouse if filing a joint return), and

  • are not a dependent of another taxpayer and

  • their adjusted gross income (AGI) is not more than:​

    • $112,500 if filing as head of household or

    • $75,000 for eligible individuals using any other filing status

    • $150,000 if married and filing a joint return or if filing as a qualifying widow or widower

 

Payments will be phased out – or reduced -- above those AGI amounts. This means people will not receive a payment if their AGI exceeds the above amounts. To read more on the 3rd EIP, click here.

Nonfilers - IRS launches campaign aimed at bringing into compliance high-income individuals who have not filed their tax returns.

July 2019

U.S. citizens and resident aliens are subject to tax in the United States on their worldwide income, no matter what form that income takes. Taxpayers are often under the misconception that they are taxed in the United States only on income generated or earned in the United States. Using examinations, the LB&I department will concentrate in this campaign on bringing into compliance high-income taxpayers who have not filed tax returns. To read more on this, click here.

With the increased collection of data by the IRS and the Department of Justice, and the prioritization of data analytics, taxpayers should expect an increase in the number of high-income individuals who are flagged for examination. It is also important to note that the US Senate recently ratified a number of long-stalled international tax treaties, including treaties with Switzerland and Luxembourg, which allow the IRS to obtain even more information from these other countries on high income, non-compliant US taxpayers.

Last round of ITINs will expire in 2020; IRS encourages early renewal to prevent refund delays

R-2020-181, August 17, 2020

 

WASHINGTON — More than 1 million Individual Taxpayer Identification Numbers are set to expire at the end of 2020 as the Internal Revenue Service completes the expiration of ITINs assigned prior to 2013. The IRS continues to urge affected taxpayers to submit their renewal applications early to avoid refund delays next year.

Under the Protecting Americans from Tax Hikes (PATH) Act, ITINs that have not been used on a federal tax return at least once in the last three consecutive years and those issued before 2013 will expire. This year ITINs with middle digits 88 will expire Dec. 31, 2020. Additionally, ITINs with middle digits 90, 91, 92, 94, 95, 96, 97, 98 or 99, that were assigned before 2013 and have not already been renewed, will also expire at the end of the year. To read more about renewing your ITIN, click here.

Compliance Options for Non-Filers

 

Options Available For U.S. Taxpayers with Undisclosed Foreign Financial Assets

The implementation of FATCA and the ongoing efforts of the IRS and the Department of Justice to ensure compliance by those with U.S. tax obligations have raised awareness of U.S. tax and information reporting obligations with respect to non-U.S. investments.  Because the circumstances of taxpayers with non-U.S. investments vary widely, the IRS offers the following options for addressing previous failures to comply with U.S. tax and information return obligations with respect to those investments:

  1. Streamlined Filing Compliance Procedures;

  2. Delinquent FBAR submission procedures; and

  3. Delinquent international information return submission procedures.

 

Each of these options is explained on the linked pages. The IRS encourages taxpayers to consult with professional tax or legal advisers in determining which option is the most appropriate for them.

 

Non-Filers: IRS increases visits to high-income taxpayers who haven’t filed tax returns

IR-2020-34, February 19, 2020

 

WASHINGTON — As part of a larger effort to ensure compliance and fairness, the Internal Revenue Service today announced that it will step up efforts to visit high-income taxpayers who in prior years have failed to timely file one or more of their tax returns.

Following the recent and ongoing hiring of additional enforcement personnel, IRS revenue officers across the country will increase face-to-face visits with high-income taxpayers who haven't filed tax returns in 2018 or previous years. These visits are primarily aimed at informing these taxpayers of their tax filing and paying obligations and bringing these taxpayers into compliance. To read more on this, click here.

 

The IRS steps up efforts to increase compliance for Virtual Currency reporting. 

Updated December 2019

The IRS has indicated that it will be paying more attention to the tax treatment of transactions involving virtual currencies, highlighting the need for taxpayers to ensure that they report any virtual currency transactions appropriately. U.S. persons are subject to tax on worldwide income from all sources including transactions involving virtual currency. IRS Notice 2014-21 states that virtual currency is property for federal tax purposes and provides information on the U.S. federal tax implications of convertible virtual currency transactions. The Virtual Currency Compliance campaign will address noncompliance related to the use of virtual currency through multiple treatment streams including outreach and examinations. The compliance activities will follow the general tax principles applicable to all transactions in property, as outlined in Notice 2014-21. Click here to read FAQs published by the IRS on this.

Relief Procedures for Expatriating or Former U.S. Citizens

Updated November 22, 2019

The IRS announced procedures for certain persons who have relinquished, or intend to relinquish, their United States (U.S.) citizenship and who wish to come into compliance with their U.S. income tax and reporting obligations and avoid being taxed as a “covered expatriate” under section 877A of the U.S. Internal Revenue Code (IRC). Please read all information for these procedures including the Frequently Asked Questions and Answers (FAQs) to determine eligibility. Relinquishing U.S. citizenship and the tax impacts of relinquishing U.S. citizenship are serious matters that involve irrevocable decisions. Consider consulting legal counsel before making any decisions about relinquishing U.S. citizenship.

The Department of the Treasury, the Department of State, the Internal Revenue Service, and the Social Security Administration have prepared a brief “frequently asked questions” document on obtaining social security numbers, expatriation, and tax implications of expatriation. For further information, click here...

 

Understand how to report foreign bank and financial accounts (FBAR)

FS-2019-7, April 2019

In a global economy, many people in the United States have foreign financial accounts. The law requires U.S. persons with foreign financial accounts to report their accounts to the U.S. Treasury Department, even if the accounts don’t generate any taxable income. They need to report by April 15 of the following calendar year.

The U.S. government requires reporting of foreign financial accounts because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions. To read more about this click here...

Individuals who need passports for imminent travel should contact IRS promptly to resolve tax debt

IR-2019-23, February 27, 2019

 

WASHINGTON ― The Internal Revenue Service today reiterated its warning that taxpayers may not be able to renew a current passport or obtain a new passport if they owe federal taxes. To avoid delays in travel plans, taxpayers need to take prompt action to resolve their tax issues. To read further, click here...

The filing obligations of U.S. Citizens and Long-term Residents living and working outside the United States.

Updated December 13, 2019

If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad. Your worldwide income is subject to U.S. income tax, regardless of where you reside. To read further, click here...

Most People Abroad Need to File...

A filing requirement generally applies even if the taxpayer qualifies for tax benefits, such as the foreign earned income exclusion or the foreign tax credit, that substantially reduce or eliminate their U.S. tax liability. These tax benefits are not automatic and are only available if an eligible taxpayer files a U.S. income tax return. Click to read the rest of this article.

IRS to end offshore voluntary disclosure program; Taxpayers with undisclosed foreign assets urged to come forward now

IR-2018-52, March 13, 2018

WASHINGTON – The Internal Revenue Service today announced it will begin to ramp down the 2014 Offshore Voluntary Disclosure Program (OVDP) and close the program on Sept. 28, 2018. By alerting taxpayers now, the IRS intends that any U.S. taxpayers with undisclosed foreign financial assets have time to use the OVDP before the program closes. “Taxpayers have had several years to come into compliance with U.S. tax laws under this program,” said Acting IRS Commissioner David Kautter. “All along, we have been clear that we would close the program at the appropriate time, and we have reached that point. Those who still wish to come forward have time to do so.”

Click to read the rest of this article

Compliance Options for Non-Filers

Options Available For U.S. Taxpayers with Undisclosed Foreign Financial Assets

The implementation of FATCA and the ongoing efforts of the IRS and the Department of Justice to ensure compliance by those with U.S. tax obligations have raised awareness of U.S. tax and information reporting obligations with respect to non-U.S. investments.  Because the circumstances of taxpayers with non-U.S. investments vary widely, the IRS offers the following options for addressing previous failures to comply with U.S. tax and information return obligations with respect to those investments:

  1. Streamlined Filing Compliance Procedures;

  2. Delinquent FBAR submission procedures; and

  3. Delinquent international information return submission procedures.
     

Each of these options is explained on the linked pages. The IRS encourages taxpayers to consult with professional tax or legal advisers in determining which option is the most appropriate for them.

Stay informed on all the latest tax news and helpful hints!

IRS Upgrades, Enhances FATCA Registration System

WASHINGTON — The Internal Revenue Service has upgraded the Foreign Account Tax Compliance Act (FATCA) Online Registration System, enabling sponsoring entities to register their sponsored entities to obtain a global intermediary identification number. The upgraded system also will allow users to update their information, download registration tables and change their financial institution type. The upgrade also includes an updated jurisdiction list.
The Foreign Account Tax Compliance Act Online Registration System is a secure, web-based system that financial institutions and other entities can use to register for FATCA purposes. Launched in 2013, the system allows the IRS to identify foreign financial institutions and certain other entities with FATCA obligations. These entities generally report on foreign financial accounts held by U.S. taxpayers under the terms of FATCA or pursuant to the provisions of specific intergovernmental agreements (IGAs).


“The registration system is the backbone of FATCA,” said IRS Commissioner John Koskinen. “These upgrades improve the FATCA process, enabling the registration of sponsored entities and making it easier for registrants to use. Working with financial institutions and through intergovernmental agreements, our progress against undisclosed foreign accounts continues.”


More than 170,000 financial institutions worldwide have registered with the IRS. These financial institutions are located in more than 200 jurisdictions. In most cases, those foreign financial institutions that do not comply with FATCA or participate through an IGA are subject to 30 percent withholding on certain U.S. source payments.

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