Federal Tax Updates | The Dirty Dozen Tax Scams of 2023

This week, Roger and Annie cover the latest news. First, they discuss the launch of the ERC audits, then move on to the impact the debt-ceiling agreement will have on the IRS. They also cover the annual IRS "Dirty Dozen" worst tax scams. To wrap things up, Roger recaps his latest trip to Washington, DC.

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Chapters

(00:00) - Federal Tax Updates Episode 11
(01:10) - Latest updates on the ERC
(26:29) - Updates on the June 3rd debt ceiling
(32:57) - Rogers recap on his trip to Washington D.C.
(41:08) - Upcoming deadlines and reminders

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Annie Schwab

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The full transcript for this episode is available by clicking on the Transcript tab at the top of this page

All content from this podcast by SmallBizPros, Inc. DBA PADGETT BUSINESS SERVICES is intended for informational purposes only.

Creators & Guests

Host

Annie Schwab, CPA

Franchisee Operations Manager at Padgett Business Services

Host

Roger Harris, EA

President at Padgett Business Services

What is Federal Tax Updates?

CPAs, Enrolled Agents, and Tax Preparers can keep up-to-date with the latest federal tax information while earning NASBA approved CPE credits and IRS approved CE credits by listening to the bi-weekly Federal Tax Updates podcast. The hosts Roger Harris and Annie Schwab have over 75 years of tax experience between them, which has been featured in various media outlets including Wall Street Journal, USA Today, The Morning Business Report, Bloomberg Business News, and Accounting Today.

Attention: This is a machine-generated transcript. As such, there may be spelling, grammar, and accuracy errors throughout. Thank you for your understanding!

Roger Harris: [00:00:07] Well, hello everybody. Welcome to another Federal Tax Update podcast. And I'm Roger Harris. And like always, I'm joined by Annie Schwab. Annie, how are you today?

Annie Schwab: [00:00:17] I'm good. Good afternoon, everyone.

Roger Harris: [00:00:19] So, Annie, what are we going to talk about today?

Annie Schwab: [00:00:22] Believe it or not, we are going to talk about some of the latest news. And if you've ever been on a podcast with Roger and I, you know, that means we're going to touch on IRC, the employer retention credit, employee retention credit.

Roger Harris: [00:00:34] It doesn't seem like it's ever going to go away, so we're never going to stop talking about it.

Annie Schwab: [00:00:39] The latest is that there are currently 750,000 claims in backlog with the IRS, even though they're processing 40,000 a week, which just sounds absurd. But for all of those tax preparers out there and tax payers, there's not a tracking tool that you can see. What's the status of mine? Where am I in line? When am I going to get my money kind of thing. But they seem to be going in first and first out for those accounting folks. That's Fifo, right? But now that audits have started with the IRC, they are starting to flag some claims as they process them. So we're starting to see not only the audit letters go out, but some claims that are being processed are starting to get flagged.

Roger Harris: [00:01:26] Which you know, when you think about it, you wonder what they're using to flag them because you really don't furnish any information other than numbers. I mean, you basically amend A 941 and you put a number on a line. So it's kind of hard to understand what they're how they're deciding which ones to flag other than the bigger the number, maybe, I don't know. But well, they say they're flagging them. But again, there's not much information there to.

Annie Schwab: [00:01:54] To identify one.

Roger Harris: [00:01:56] Decide who to.

Annie Schwab: [00:01:57] Flag. There was a rumor that they were only doing claims of over 100,000. But I was on a call last week with the IRS and that, you know, the lady flat out said that is not the case. So, no, I guess it's.

Roger Harris: [00:02:10] So while some are still waiting for money, some are already getting audited. So we're we're kind of at the beginning and the end at the same time.

Annie Schwab: [00:02:19] Yeah. And I will add real quick, if you're not familiar with the IRC, if you're if you haven't heard Roger and I speak before, we have we have literally talked about it nearly on every podcast. So you can certainly go back and review kind of what it is and what's happening and why it's such a big audit focus for the IRS.

Roger Harris: [00:02:39] Yeah. And what Annie talking about is, you know, the Office of Professional Responsibility has come out and said, look, if you're not comfortable or knowledgeable about IRC, number one, you shouldn't be involved in it. But even if you are and you see a claim that you are presented to amend the return and you're uncomfortable with the claim, you shouldn't amend the return because they've deemed that perpetuating the claim. Now the more we sit around and think about this, the more confused I get because obviously if I know the claim is completely false, I know what to do. I'm not supposed to do anything. But what if I think that there is just a that the basis for the claim itself was valid, but the calculation might have been wrong. Am I perpetuating the entire claim? If I correct that or do I not correct that? And then so for right now, we're just in a wait and see. You mentioned you were on a call with the IRS. I'm actually going to be in a meeting in a couple of days with the IRS. And we've asked for some clarification and some updates on this. And that doesn't mean we'll get it, but we've asked for it. We can try. So we'll see. But, you know, it's still a tough position for those of us who are trying to follow the rules, have tried to do it right to to have maybe your best client come to you and ask for advice and help and and you kind of have to throw up your hands and say, you know, I don't know. I don't know what I can do. I don't know what I'm supposed to do. And if I have to verify the calculation on every claim before I can amend a return to make sure I'm not perpetuating a claim, that's like doing the whole work from the first doing it over again. So I don't know what that's going to cost. So it's a mess. It's a.

Annie Schwab: [00:04:25] Mess. But I have laid my eyes on a sample audit letter. Finally, I have seen one. And just so everyone knows, let's go through sort of how these how these audit letters come. They come by mail. So don't get caught in some scam or cybersecurity issue here. But the notices come by mail and they ask you to confirm the appointment date that they've already set for you. So on the notice, it will say a time and give you a phone number and you're supposed to call and confirm that time or I guess reschedule. And on the top right hand corner, just like most notices, there's some information and that. Includes the tax period that they're auditing, the tax form that they're auditing. So in this case, for the Ircs, they're auditing the payroll return, the 941 or the 941 X, that particular form, they're not they're not so far they're not focusing on the S-Corp or the Schedule C that took the credit. It's more of the individual.

Roger Harris: [00:05:30] Return or business return itself is not part of.

Annie Schwab: [00:05:33] This. That's how it appears from what I've seen so far. And in their, you know, it's like a three and one half, four page letter. And and in there basically it's saying, you know, we're writing you because we're we've got two things. One, we want to confirm that you are eligible for the claim. And then the second part is that if you are eligible for the claim that the calculation of the credit is correct. So those are the two main points. And then it goes on and it tells you how to send the documents and where to send them. Very specific actually. You can only respond to this notice by mail or fax. So it's not like you can go to the website and upload all this stuff. It's not like you can call somebody on the phone and just kind of talk it through. No email. It's very specific that it wants the documentation in Word or Excel or PDF format and you're supposed to mail it or fax it. And then of course you flip the page over and there's 16 listed items, 16 items. Yeah.

Roger Harris: [00:06:36] And going back again, we don't know why business A gets selected and business B doesn't because again, very limited amount of detailed information is submitted with the actual claim now. And Annie, I'm sure you'll touch on some of the 16. Some of the 16 are things that we should have in our file, but we haven't furnished it or had no requirement to furnish it to the IRS. In terms of where we came up with the claim. So talk a little bit about some of the things that maybe aren't as obvious or are really important in that. 16 because there are 16 things listed. Yeah, I guess they all could potentially apply for all businesses, but well, some wouldn't because they're larger employees. But for the but a lot of them are going to apply to everybody.

Annie Schwab: [00:07:28] And you know the obvious one is a copy of the the Quarterly 941 for the for the period that you're claiming the credit supporting documentation and worksheets that come along with that. I mean, that's kind of obvious. But there's you know, they want to list of employees and the wages that were paid to that employee and whether or not that employee was a related party to another individual. You know, there's some special rules for related party and.

Roger Harris: [00:07:53] For 50% owner.

Annie Schwab: [00:07:55] 50% owners. So, you know, that might be something that you have, you know, just right here in your file if you were the one who calculated the claim. But if a client of yours went somewhere else and then came back to you, you probably don't have that detail. Maybe the client does. Let's hope the client. Why would you the cockpit, right? Yeah.

Roger Harris: [00:08:13] Unless the client has it right.

Annie Schwab: [00:08:15] And clearly they're going to ask, you know, documentation for when the business was eligible for what period of time, what dates was it fully or partial suspension, you know, all that kind of government order kind of detail stuff. The best place to go for that for information is probably on the state website. We've seen a lot of states posting stuff out there with regards to, you know, for this period of time it's partial or this is fully or, you know, obviously you'll need to show the significant decline in gross receipts from quarter to quarter. And a lot of that gets iffy if you're a new business or, you know, different ways of calculating and different methods. So again, if you did the claim yourself, that should probably be in the file. If not, you probably going to have to go digging with the client to get some some documentation.

Roger Harris: [00:09:09] Where it could get sticky. Is this whole supply chain interruption? Yeah. What documentation do they want and what could you have, particularly where some of these bills have been overly aggressive in trying to fall into that qualification? I mean, how do I prove I mean, do I get a letter from the vendor? Do I get them to call the vendor on the phone? I mean, how do I prove I couldn't get that product anywhere else but this one vendor and you know that they were under a government mandate. So if your basis for your claim was supply chain interruption, it's going to be hard. Know what you are supposed to have or what they'll accept. But it's again, the main one. If you've got a gross receipts decline, that's easy. You should be able to easier. Yeah. At least that's numeric. It's a calculation.

Annie Schwab: [00:10:01] Yeah. So I mean and it goes on if you've got the PCP loan also that's. Is going to add another little piece to it. You know, you can't double dip on the wages. So if you assigned wages to the PGP, you can't also assign those same wages to IRC. So they're going to want some sort of break out of what went where. They're probably going to even ask for that PGP letter of forgiveness or something from the bank when you got it. And you may not have that. The client probably doesn't even know where that is, Right? But they're.

Roger Harris: [00:10:33] Going to need it.

Annie Schwab: [00:10:33] But they're going to need.

Roger Harris: [00:10:34] It. That's going to be for people who tried to shortcut this and just depending on what year they were doing, just said, well, I need $5,000 for Annie. I need $5,000 for Roger. I need $5,000 for so and so. And we just made a list. They're going to expect a little bit more. They're going to expect, particularly if they got a PGP loan, to say, okay, what are the wages within the qualifying period? How many of those wages did you allocate for PGP loan forgiveness and how many of those are still left for IRC? And we didn't have to furnish that when we did it, but the expectation is we have it. So if you tried to shortcut this one and again I'll talk more to the mills that just said whatever the wage amount is, you're eligible for that amount. Well you're not going to get by with something that simple. So this may be one of the first things. Again, particularly if you didn't do the claim, this might be the first thing that you ask for, because my sense is if you can't produce that, the rest of us are not going to matter because they're going to throw it all out because you don't you can't even prove any of the wages or qualifying.

Annie Schwab: [00:11:38] Yeah. And like I said, I got my eyes on a copy of it, but I haven't had a client go through it. I haven't seen what the IRS agent is asking how picky they are, you know, Does it well, how.

Roger Harris: [00:11:50] Well trained are they.

Annie Schwab: [00:11:51] On all. Yeah, that's true.

Roger Harris: [00:11:53] This is new for them, too. This isn't like there was a 20 year veteran of the IRC. So we're also dealing with with potential agents who are maybe new hires or reassigned. And I would expect them in the beginning to be they're more qualified people. But over time, you know, it's conceivable that we're dealing with an I don't want to say untrained but inexperienced auditor, which can always frustrate us in any kind of audit.

Annie Schwab: [00:12:24] Well, and the rules change so many times somewhat retroactive. You know, different periods of time had different stipulations. I mean, it's going to be very time consuming for someone to get all of the records to respond. So we'll we'll have to see how aggressive they are. You know, I don't know.

Roger Harris: [00:12:44] But so to summarize, IRC for the 30th time, yes, you can still apply for the money. Yep. They're still processing claims. They're still behind in processing claims. There's still the advertisements on all the radios and televisions and you get phone calls, you get texts, you get all that, but they are now starting to audit.

Annie Schwab: [00:13:06] They are auditing and they're auditing. What we know so far is just the payroll payroll returns right now.

Roger Harris: [00:13:13] It's like anything. I mean, they may stumble into something that says, well, wait a minute, I need to look deeper. And the reality is the IRS can audit anything they want to. We can make them jump through some hoops, perhaps to slow the process down. But if they see something that is a great concern, they can they can go into it. So so again, this probably will talk about again on a future podcast. So this won't be the last one. But again, if you still got clients that are eligible, you can still get them some money while at the same time defending some that you've already seen with the money. And we still don't know what we can do in terms of one of the big things is if somebody wakes up in the middle of the night, one of your clients and says, you know what, I really probably didn't deserve this money. I want to give it back. They still haven't told us how to do that. Now we can assume you just recommend the 941 and send it back. But what if you just want to send part of it back? Because you did a determination that the calculation was wrong? Well, do I have to tell them I didn't have to tell them why I came up with the first number? Do I have to tell them? So there's a lot of guidance that's still needed and hopefully that'll be coming soon. And if it does, then we'll talk about IRC again on a future podcast and we'll try to tell you.

Annie Schwab: [00:14:27] What I do know for sure is the IRS will take your money back.

Roger Harris: [00:14:30] Yeah, they'll take it and then not worry about where it came from. Yeah, exactly. Which is really shocking as to why they said not to amend the returns, but there you go. Yeah, Yeah. And not surprisingly, they introduced or they didn't introduce. They announced their top dirty dozen schemes. And what's number one.

Annie Schwab: [00:14:49] Irc RC came out April 5th. It's the they do it annually and it's the list of tax schemes for 2023 IRC is number one. So and there's you know I can have the list right here so I could tell you a few others but you know you see all. These phishing scams lot posing as legitimate organizations. The IRS is one of them. We've seen that before for sure, especially ones that are, you know, oh, I can help you set up an IRS online account at IRS.gov. And then the next thing you know, they're logging in as you and stealing data. So you've got to be careful about that. I would say let's see. Fake charities have been on there probably numerous times as well, bogus tax avoidance strategies, type thing, social media, a lot of that social, social media media is.

Roger Harris: [00:15:40] Interesting because anybody can post. Yep. What you might think is good tax advice or a good planning opportunity. That's completely bogus. But it looks nice on social media.

Annie Schwab: [00:15:53] That's actually probably growing. That was number seven, spreading poor tax advice and misleading taxpayers into filing inaccurate tax returns. I bet that one moves up the chain in the next couple of years. But I mean.

Roger Harris: [00:16:07] We've got the one that used to be maybe the older version of the IRC, the offer and compromise mills where people came in promising you, you.

Annie Schwab: [00:16:15] Know, cents on the dollar.

Roger Harris: [00:16:17] $0.10 on the dollar or whatever, that probably was number one for a while. It's dropped down to number nine. So I imagine the IRC will stay on there for a while, it'll drop off number one. But again, the offer compromise has a lot of the same characteristics in terms of the problems is you got outside mills coming in, preying off of a unknowledgable if that's the right word, taxpayer and being promised something of huge value though you can't get the money from the mills like you can the IRC, but you can get ripped off a lot of fees to find out you're not eligible or you know, it's not everything you thought about, but it's still there.

Annie Schwab: [00:16:58] Yeah, very scary. Very scary. And we see it all the time. We get emails from our office owners saying, is this real? Is this is this scam? What do you think? Have you seen this? I think it's a scam. Does anybody else hand out.

Roger Harris: [00:17:12] Money the way the government does through the tax system? There are people out there trying to figure out how to take advantage of it because they understand even with the new money and we'll talk about that the IRS can't audit everybody. In fact, they can't audit anywhere near the majority of all the people that need to be. So if you're a gambler, there's you don't get many better odds anywhere than you do gambling that the IRS won't catch you. Now, again, that's not to advocate for doing that. That's not to say that's okay. There's nothing about that that you're supposed to to take advantage of. But if you're inclined to want to gamble to get some money, I'd say you got a better shot with the IRS than you do in a casino in Las Vegas.

Annie Schwab: [00:17:58] That's pretty sad, but true. It is.

Roger Harris: [00:18:01] You know, So they're also starting to do collection again, right?

Annie Schwab: [00:18:06] Yep. I was just about to say, not only are you I.R.S. notices and audits going out, but, you know, it is a signal that the IRS believes operations are returning to normal. But they had paused collection notices and now they are back and back by, you know, 5 to 8 million notices or planning to be sent to taxpayers. I mean, the bottom line is, if your client gets a notice, you shouldn't panic. You know, the notice generally says how to respond. If you agree, do this. If you disagree, do that. You know, it is time consuming to go back, especially since some of these notices could be, you know, very delayed because they were closed, I think three years. I think they were suspended. Is this it, three years or two and a half years or something?

Roger Harris: [00:18:51] Well, it was in the pandemic, started in March of 2020. So when notices were suspended not too long after that. Yeah. Now what we don't know because there's still backlog and and dealing with correspondence is in that time a lot of responses to notices were sitting at the IRS that would have explained it or questioned it or furnished more documentation during this delay in the notices. Where are they in processing that correspondence that was sent? And are these notices just going to go back as if nothing was ever sent? Will they reflect what was sent, Do you know if they've opened it? I mean, so there's still the possibility that you might get a notice that appears to have ignored what you sent. And and that is likely that it not that they ignored it, but they just haven't gotten it to it. Right. So, I mean, we don't know the status of all the work that was done. And so where were these notices picked back up? Will they go back as if nothing happened and we're just turning the clock back, or have they processed some of those? The sad thing is for us is they're all going to come out at the same time. Well, at the same time, meaning within about a 30 day period. So you went from.

Annie Schwab: [00:20:15] End of May.

Roger Harris: [00:20:16] All with notices now to may be overwhelmed with them.

Annie Schwab: [00:20:20] Right. And then you have to address them. You have to go back and see what was sent, what wasn't said. Is it a timing difference? Do you have the documentation for it? Now? I will say I believe we are up to nine different notices now that the IRS will accept your response via the portal. The IRS. I think they're nine. It's either 7 or 9, I can't remember. But. Right. So perhaps some of these can be handled quickly using that feature. I don't know how they said keep 14 notices, which is a very common notice. I mean, that's just a collection notice.

Roger Harris: [00:20:52] So and that would be the way I would suggest you reply, you know, don't send it back in by mail. No. If it appears they have an open the last time you mailed them something, you probably don't want to mail them something again. Go back and take advantage. Assuming that it's the notice that you can do this. But I wouldn't I wouldn't accept the notices at face value. If you think you've sent some correspondence in, hopefully you've kept copies of it and you can write can now submit it, you know the new way and and maybe get quicker resolution of it.

Annie Schwab: [00:21:26] But don't be shocked if a client calls you all in panic freaking out.

Roger Harris: [00:21:31] A lot of them call you because, again, they all went out are going out within a in a relatively short period of time. And again, that's not good for us, but it's probably not good for the service because despite getting this money, it's not like they went out and hired and trained all these people to answer the phone or to deal with these notices at the same time. So the ability for them to respond again, assuming all these went out in a relatively short. Period of time and all the practitioners are going to respond in that same short period of time. You know you're going to be back on back home again. Yeah. So hopefully you can respond, you know, through their new system where you don't have to talk to. But some of these things, you just have to talk to somebody which gets into processing power of attorneys quickly and all those other things. But it's going to it's going to create some potential hardships for us. I guess it's better they did it in May and June than if they did it in October. Yeah, probably trying to catch up for our extensions, but it may make for an interesting summer.

Annie Schwab: [00:22:38] There's definitely work to be had for tax preparers during the summer.

Roger Harris: [00:22:43] And I'm going to take a gamble here. Knowing clients like I do, they're not going to remember that this is a three year old issue. They're going to go, why am I getting this? What is this? So there's going to have you're going to have to reeducate your taxpayer to go. Remember, this was something we were dealing with three years ago that got put on hold because of the pandemic. So it's not a new issue. It's not something you did in the last 60, 90 days or something that just this goes back three years. Well, most of our memories aren't as good as they were three years ago. We might have remembered in real time what the issue was and how to respond and what our strategy was. And now we've got to go back and kind of get ourselves back in play again.

Annie Schwab: [00:23:25] Yeah. And are they going to waive penalties and interest or are you, you know, all of that?

Roger Harris: [00:23:30] I think penalties. I think they put the penalties on hold for this three year period. They're not going to you're not going to get nailed at a half a percent a month when when when.

Annie Schwab: [00:23:40] They're not processing.

Roger Harris: [00:23:42] Interest. You know, I'm not sure they statutorily can waive the interest because assuming you owe the money, you did have the use of the money for money right now. Will they excuse some? I haven't seen anything where they've made a blanket statement on that. But everything is still coming out for something new given the pandemic. I mean, we just don't have anything like this to look back on. We have a new commissioner. We have a different commissioner now than paused them. So the thinking of the commissioner three years ago versus the thinking of the commissioner today in terms of where does where should things do we we have a different Treasury Department today than we had three years ago. So we have different people in important positions making decisions. I think they want to be fair and reasonable, but there's also some statutory restrictions that they have to follow. And I think that's why we can see some some potential breaks on penalties. But I don't know that the government has to lose the interest.

Annie Schwab: [00:24:48] Just because.

Roger Harris: [00:24:49] If the money was owed and the money was fortunately, interest rates during these three years weren't too high, but who knows? It's interesting times, interesting times.

Annie Schwab: [00:24:59] Want to talk about something else?

Roger Harris: [00:25:01] Many, many years of the the health part of the pandemic hopefully is behind us. But the remnants of the impact it's had on us are going to be around for a while. It certainly looks like.

Annie Schwab: [00:25:13] And just when you think things are like calming down, you know, June 3rd, you know, just a few weeks ago, June 3rd, here we are signing a bill that suspends the government's trillion debt ceiling, the 30 trillion debt ceiling, two days to spare.

Roger Harris: [00:25:30] Yeah, we had at least two extra days.

Annie Schwab: [00:25:32] We two days to spare. And then you see in those provisions, after the IRS had been given the $80 billion, they start pulling some of that back and it's like, okay, now what what is what is that going to mean? You know, we've got a billion coming back this year and I think 10 billion over the next two years or something like that. And there were Covid relief funds that were unused and now they're pulling those. You know, what.

Roger Harris: [00:25:56] Does that even mean?

Annie Schwab: [00:25:57] I have no idea what a clawback is.

Roger Harris: [00:26:00] They're a checking account somewhere with a bunch of COVID money sitting in it, and now they're just going to give it back. I mean, I don't even know what that means.

Annie Schwab: [00:26:06] I know. And and all the media, it's claw back or pares back the money and it's like, was it already earmarked for something or was it just sitting there? Like, where was it all?

Roger Harris: [00:26:18] Yeah, I don't think our government kind of works like you and I. If we got money for something and we were just sitting on it, you know, like we, we borrowed money to redo our house, but we haven't started yet. We. We still have the money. This is all paper stuff, you know, they. Yeah, we're going to allocate money, but we haven't given it to you yet, so there's not really any real money sitting there. But we clawed back. Now the the real thing and everybody I'm sure remembers because it was the news every day the government is going to shut down. Here's how all the horrible things are going to happen because we have to extend the debt limit or they can't pay the money. And so we got into a political negotiation over extending the debt ceiling versus. Is cutting back spending and that's where the IRS is. 80 billion got cut back. Yeah. Now they still have about A. I believe at the end of this. I think they lost about, what, $20? Billion of it. About 40. They lost.

Annie Schwab: [00:27:12] Yeah. So pares back. Let's see, 20 billion each. I'm sorry, 10 billion each year for 2024 and 2025. So that's 20 right there.

Roger Harris: [00:27:21] So 80s turned into I think a little under 6060 now. Yeah. So if you'd have given them 60 to begin with people the IRS would have been happy. But now they thought they had 80. Now they got a little under 60. They have said it's not going to change any of their short term plans, which we don't even know completely what those are. But they're not changing. And remember, this money was going to enforcement technology, customer service. Obviously, new hires are part of that training. So where will this take back of 20 billion? Trillion? There's too many zeros in these. There was trillions in the debt limit and billions billions. So $20 billion is pulled back. And so where will the IRS they've said in the short term they're not changing their short term plans.

Annie Schwab: [00:28:13] But an IRC is part of that short term plan. So this is going to help you out for the CRC. Yeah.

Roger Harris: [00:28:19] No, don't count on this being a savior that all of a sudden they're not going the easy way out. But will they get to opening, you know, will they get caught up? You mentioned earlier, what, 750,000 of still unopened and 40,000 a week coming in? You know, will this slow down their ability to catch up, their response to these notices? We don't know that yet. Again, the service is indicated that this is going to be more in the out years, even though it came out of this year in terms of their strategy. But they did lose about 20% or yeah, 20 to 25% of the original allocation. What it also means is since this was a ten year allocation to begin with, that this could happen again. I mean, politicians can give and they can take away. So, you know, the IRS is hard pressed to go out there and and make concrete plans for this money because if the House and the Senate were to both go Republican with a Republican president, you because they wanted it all taken back, Republicans wanted every dime of it taken back, which is silly because none of us in our business can can say that the IRS doesn't need better technology and it doesn't it definitely needs better customer support. So that takes resources. Right. But politics are well, we all know they can cause crazy things. So we'll see. There are some other things besides clawing back money. We don't know where it came from and the IRS money. Was there anything else that they did to. There was a freeze on government spending.

Annie Schwab: [00:30:00] So we'll see that for now. And then there's the the student loan interest. So the student loans had also been placed on hold and, I don't know, extended so many times, I don't even remember. But as of September 1st, I believe as of September 1st, they're going to start student loan interest will resume and payments are going to start being due in October. So if you have if you have clients with student loan debt, it is coming the the halt on making payments is coming to an end and the students are going to have to start paying that.

Roger Harris: [00:30:37] And President Biden is still trying to have some of those loans forgiven. And it looks like the Supreme Court's going to ultimately make that call. Whether he had the authority to unilaterally remove certain I think it was 10,020 thousand for a Pell Grant or something.

Annie Schwab: [00:30:56] Something like that.

Roger Harris: [00:30:57] But it was an executive order. And there's a constitutional issue as to whether or not the president can do that without Congress. And there's a strong belief that in this session of the Supreme Court, they'll make a ruling. And most people are assuming because of the makeup of the court, that they'll rule against the president. And so they'll have to start paying it back and they'll still owe what they owe. And we'll be back to where we were. But we don't know yet. Right. You know, but that's that's out there.

Annie Schwab: [00:31:29] So we'll keep an eye on.

Roger Harris: [00:31:32] That one as well. The tax system, who would have ever thought?

Annie Schwab: [00:31:34] Speaking of politics, you had an interesting trip to DC last week or was it the week before? I can't remember now.

Roger Harris: [00:31:41] Yes. You got a book going to DC and being in the middle of of the system. Sometimes you go believing. You'll learn one thing and you come back with something completely different. But I was invited to the Senate. Small business. Committee and the Senate Finance Committee held a joint. I'll call it a hearing. I think they called it a roundtable. Because hearing, again, has a certain connotation about both the complexity in the tax code as it relates to small business as well as what type of literacy exists in small business with regard to the tax code and how much should they have, how much are think groups like the IRS and the SBA, how are they doing in terms of helping educate small businesses and the small business care? So I was invited to testify on behalf of the practitioner community, the tax professional community. And in addition, we're for small business owners from everywhere, from Oregon to Maryland, and one was from Idaho, and the final one was from Indiana. And they each came in with their own tales. If you will, of being a small business owner and trying to comply with the tax code. Interestingly, the first witness talked about the IRC. They are still waiting for their money, you know, so they were late to the game. All of them talked about different parts of the tax code. It's interesting when you hear a business owner in one kind of business, the important part of their tax code to them may be completely different to somebody else.

Roger Harris: [00:33:24] But what was really interesting was listening to because you have Republicans and Democrats, senators, and you can begin to see, I think we did a podcast on the Tax Cut and Jobs Act exploration. We did. And so that crept into it had nothing to do with the purpose of this hearing, but it crept into it in terms of beginning to see where the battle lines are going to be drawn when it comes to what the Republicans are looking to do, what the Democrats are looking to do, what these witnesses said was important to them. The one and I think we're we're going to actually spend a podcast on this in the future. One of the witnesses was particularly focused on the 199 A deduction, the qualified business deduction that came from the Tax Cut and Jobs Act, that 20% that was there to kind of equate the reduction in the corporate tax rate to the individual tax rates. And she went through all of the things that she would no longer be able to do in her business in terms of hiring retirement contributions, paid time off, all the things that, you know, politicians want you to do. If that deduction went away.

Annie Schwab: [00:34:37] Which it's scheduled to go away.

Roger Harris: [00:34:39] And it will it will go away on its own. It will expire If they don't do something about it. Well, then once she speaks, then the two senators on each side of the aisle began to view 199 from their perspective. And again, we'll focus on it, but you begin to see how sets of numbers on our table. When we got there was a book that listed a lot of the tax provisions and how much they were worth and what income distribution benefited the most from it. And the numbers weren't in dispute, but how people viewed the numbers fell along party lines. So just for an example, 199 A to the Democrats favor the rich. The more you make in business, the more you benefit. Well, of course, because 20%, a percentage is more than 20% of a thousand to the Republicans. It was a critical part of it. So you can begin to see the battle lines drawn. But it's interesting. So the hearing really didn't spend a lot of time talking about what we were invited to talk about. It was more of a learning experience about where the battle lines are going to be drawn as these Tax Cuts and Jobs Act things come up. The value of certain deductions to different people in different industries. So we thought and we're not going to get into it anymore. This is kind of teeing up a future podcast with you is that we're going to take this book and we're going to go through and kind of revisit that whole tax Chairman Tax Cuts and Jobs Act expiration. Talk a little bit about where the money is and you know what we can expect to hear when it's time to start debating that, which will be right after the presidential election. And so it may be very well something they talk about in the election and we need to pay attention to.

Annie Schwab: [00:36:33] Well, there are so many provisions of the Tax Cuts and Jobs Act. I mean, some that you sort of just got used to. As you know, that's what it's always been. That's what it's always going to be. And that's not the case. I mean, they're set to expire. So unless something happens, we're going back to the way it was.

Roger Harris: [00:36:49] You know, the interesting thing is I was surprised. Again, they were for small business owners there that. They all complained about a change in the research and development deduction that went from fully deductible to amortized over five years. So people were able to spend 100,000 in R&D. You used to write off the entire 100. Now you can only write off, let's say 20 though its amortization. So it's not necessarily an even one fifth. And it really bothered a lot of these people because as as I actually had mentioned in our testimony, that what small business likes is simplicity and consistency. And when you venture away from their checkbook, they get confused and don't like it. So when they spend 100,000 and you have to explain to them, well, I know you spent 100, but you can only deduct 20 this year so that 80 that you spent you have to wait to deduct. So your taxes are going up. They don't like that. And it became a huge, huge discussion point. And surprisingly, it is an area where both Republicans and Democrats agreed.

Annie Schwab: [00:38:05] Oh, shocking.

Roger Harris: [00:38:06] You're the guys that changed it. So now you're both backing away saying we shouldn't have. But the question then becomes, and this is where you sit there and listen, the Democrats want to change it. The Republicans want to change it. The Republicans want to change it without anything else. The Democrats want to change it in exchange for something. So what's the how's it going to change for something? So interesting system and we'll have to go through that. So we'll do that in a future podcast. We'll talk about the numbers, we'll talk about the deductions, we'll try to put the politics around it so that you can get a sense because unfortunately, tax policy has to consider the political likelihood that it can pass in our divided government right now. And as clients are making plans or decisions or looking into the future as much as I would like to think we should just be able to consider the tax code we have to consider, The politics.

Annie Schwab: [00:39:01] Definitely plays a role. History.

Roger Harris: [00:39:04] It was an interesting, interesting hearing. You leave impressed with certain senators more than others. Some came in just to be politicians. Some came in wanting to really know how to make it better for. I think there is a genuine belief that the small businesses in this country need to be helped and they need to have tax laws that incentivize them to hire and to grow. And to do that, they just have completely different ideas as to how to do it.

Annie Schwab: [00:39:32] Well, let's hope they can come to some agreement instead of just arguing it all away. Yeah. So all.

Roger Harris: [00:39:38] Right. So that was my experience. I'm going back to D.C. this week, but it'll be with the IRS. So hopefully we'll get some answers to the previous questions. We'll never get answers to the political questions until the.

Annie Schwab: [00:39:50] Some some answers on IRC would be welcomed. Yeah. All right. All right. Before we wrap up, we always try to do a few little reminders. And the big one I have for today is the E file mandate. We've mentioned this before, but as many of you know, at the beginning of the year we will have an E file threshold of instead of 250 returns, it's all the way down to ten. So if you you have to electronically file, if you use if you prepare ten or more returns and that's aggregate across all the information returns. So that's like 1099, 1098 W-2 ET cetera. It's not each category at ten when when you get ten, you need to e file. So that's something that you need to start thinking about in your process, talking to your clients about that.

Roger Harris: [00:40:44] And one one thing to be particularly careful of, I know a lot of you probably don't do payroll. You probably have clients using ADP or Paychex or one of those payroll companies, and maybe you do some 1090 nines for them if they're using ADP or Paychex or any of the big payroll providers, Those W-2s are being filed electronically. So that automatically means you have to file the 1099 electronically. So even though you may only do for 1090 nine seconds and you think, well, I'm under ten, remember that if ADP is filing W-2s electronically, you're going to have to file those 1099 electronically as well, because the penalty is $60 per statement if you don't meet.

Annie Schwab: [00:41:38] Them starting at the 11th form. But yeah, but yeah, you're right, Roger. It's all based on that. Ein So if you file some and somebody else files some and then a third person file some, it doesn't really matter if it was, you know, eight, eight and eight, you're still over and it needs to all be done electronically.

Roger Harris: [00:41:55] And you really need to look at your technology to see how you can do that. The IRS has what's it called? Iris? Iris that used to replace fire or something like that. So.

Annie Schwab: [00:42:04] Well, fires used for tax preparers to do it in bulk. And then Iris is used for business owners or.

Roger Harris: [00:42:11] Tax preparers if.

Annie Schwab: [00:42:12] They or I guess or tax preparers. But both of them require you to get a new TC, which means you've got to have an IBM account. So, I mean, it's just step after step to get yourself in line. So, you know, if if you're if you're in the business of preparing payroll returns, definitely keep an eye out for the new mandate changes the new free systems through the IRS. You know consider third party payroll providers that ADP track 1099, something like that. Just to simplify it.

Roger Harris: [00:42:41] Yeah, you need to start looking at it now because, you know, we're going to get caught back up and our CPA season and then our extension season and before you know it, you're going to be sitting around close to the end of the year and you need to make plans because ten look, it's almost better now just to do them all electronically. That's what I was just about to carve out. Oh, I got this little small client over here that's got three employees and one 1099, so I can still do it on paper. Just change your systems to go ahead and do them all electronically. It'll be a whole lot better for you in the long run. And just don't worry about it. You know, you mentioned Track 1099. That's a great I.

Annie Schwab: [00:43:25] Love 1099.

Roger Harris: [00:43:26] Technology out there. If you haven't looked at it, you ought to go take a look at it. And there's others. But that's just one that we at Paget have really endorsed and our people just love it. And it integrates with different other softwares too. Oh yeah. To affordable and to do things. But it's you need to go ahead and make you know I was guilty like a lot of people when electronic filing first came in even for income tax returns everybody you know my clients don't want it. They don't like we'd never go back to paper.

Annie Schwab: [00:44:02] Filing and this.

Roger Harris: [00:44:03] Is the same. Just don't fight it. Just come on. Let's just if you're still using paper to pay or file 1099 W-2 just get over it. Just like you did with tax returns. Move on. Let's. Let's do it. Because 60 bucks starting in January.

Annie Schwab: [00:44:20] That's right. Perform penalty.

Roger Harris: [00:44:22] Perform. And there is an extension. There is.

Annie Schwab: [00:44:27] It's an automatic 30 day extension. Oh, you're going to pick my brain. It's like 8909 maybe. I don't know. I have.

Roger Harris: [00:44:36] No idea.

Annie Schwab: [00:44:37] Anyway, there is an automatic 30 day extension, so that buys you a little bit of time, but not enough time to get all that updated and id.me account and all of that to get in there to do it. So don't don't rely on that. 30 days, 30 days goes fast when you're trying to get, you know, accounts set up on the IRS website and waiting for confirmation emails and they combine the old TCC with the new TCC And and you mentioned Id.me.

Roger Harris: [00:45:03] If you haven't done that yet, just go do it. Do it because it's everything that you're going to log into at the federal government is going to require you to have ID me. If you have Social Security right now, you're doing it. All these taxpayer accounts, your.

Annie Schwab: [00:45:22] Transcripts.

Roger Harris: [00:45:23] Transcripts, if you haven't done it yet, because if you haven't been into your e-services account recently, you may already be locked out and you're going to have to start over with the ID me because I think the deadline was sometime in May.

Annie Schwab: [00:45:38] It was May 31st.

Roger Harris: [00:45:40] Yeah. So, so that's another thing. If you haven't set up id.me it, it's not hard. It can be tricky. Like if you don't have a cell phone in your name, you might have a problem. If you know they're going to ask you questions like which of these loan loans have you ever had? I mean, they're trying to make sure you hear you say you are so and you don't want to again, be called at the last minute at the end of the year trying to do something. And between Id.me and all these other things that you're scrambling. So jumping through hoops, take advantage of now and go ahead and get this stuff done. It's just just stop fighting it. They're really focused on their online accounts. They're focusing now on business accounts. They're going to focus on tax pro accounts so that we can log in and get access to client information. You're going to have to have id.me to take advantage of that. And already the online accounts have some valuable information in there.

Annie Schwab: [00:46:43] Oh, absolutely. Like we were just saying about responding to notices. I mean, you can do it like that online. Why get in line under a stack of papers just, you.

Roger Harris: [00:46:51] Know, and write letters and send it in. So go ahead. Deal with the E file mandate if you haven't dealt with it. Go deal with that and you'll you'll be thanking us later for having gone ahead and done this because you're not going to beat it.

Annie Schwab: [00:47:07] All right, Roger. Well, we've come to the end of another podcast and we will be talking about kinds of things that happen in the middle of the year that offer opportunities for services, as well as some really good reminders so that you don't miss deadlines. So that's kind of where we're headed next.

Roger Harris: [00:47:27] So we got a couple more. Like I said, we're going to do that one. We'll do that one we talked about earlier on, you know, taking this this government information and trying to make it relevant to you. And if you have any ideas of what you would like us to talk about on these podcasts, please, please let us know. Tell your friends about this podcast if you like it. We're we're pleased with the feedback we've gotten so far, but we want to continue to make it relevant and meaningful to you. So send us your ideas, send us your suggestions, send us your criticisms. We get a few of those. We're tough. We can handle.

Annie Schwab: [00:48:02] It. All right.

Roger Harris: [00:48:03] Thanks, Roger. Thanks, Annie. Thanks for listening. And we will be back soon with another federal Tax Update podcast.