Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

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The Tax Season Bubble

Posted by taxguru on April 5, 2022

A perfect representation of how the two weeks leading up to Tax Day feel.

Posted in comix, TaxSeason | Comments Off on The Tax Season Bubble

Are IRS computer systems impossible to fix?

Posted by taxguru on March 9, 2022

Nobody should hold their breath expecting the wizards at IRS to get their act together with their computer systems any time this century.

A client just sent me this link to Americans For Tax Reform‘s handy list of just some of the IRS’s failed attempts to modernize their computer systems.

40 Years of Failure: IRS Unable to Fix Computer System

I remember 30 plus years ago, rather than hire outside tech experts to help them, they thought they could save money by drafting employees from various IRS departments, who had zero IT skills, to design more modern systems.  I don’t recall how many millions or billions of dollars they wasted on this project, but the whole thing had to be scrapped.

It may be amusing, but it’s definitely not funny when you consider how much money they have wasted and how much aggravation, expense and hassle their incompetence has cost all of us who are on the receiving end of their screw-ups.

Posted in computers, IRS | Comments Off on Are IRS computer systems impossible to fix?

Who knows when IRS will catch up with their backlog?

Posted by taxguru on March 5, 2022

This last item from the most recent issue of The Kiplinger Tax Letter is a bit depressing for all of us hoping that IRS will get back to normal in regard to processing returns and correspondence anytime soon.

“IRS will have trouble wiping out its backlog of 2020 returns and other filings,
despite its hopes of catching up amid the temporary personnel moves it made recently.
The agency shifted 1,200 personnel from other areas to assist with the backlog.
But there are over 20 million filings by individuals and corporations from last year
to sort through. IRS is begging Congress for more funding, but even if the agency
does get the money, any relief for taxpayers won’t be immediate. It will take months
or longer to hire new workers in this tight labor market and to onboard them.”

This will be the messiest Tax Season ever, to-date; something I have actually said each of the past two years.

Update 3/7/22
I’m much less optimistic about any timely resolution to the IRS backlog after reading the following in this morning’s newsletter from NCPE Fellowship.

“IRS to Hire 10,000 Workers to Help With Tax Return Backlog

The backlog includes at least 10 million individual tax returns and 4 million business tax returns going back to last year

The IRS is taking steps to relieve the backlog of tax returns.

The agency plans to hire 10,000 new full-time workers to play a direct role in that mission, according to Politico.

There are millions of unprocessed tax returns and other mail from individual and business taxpayers, according to the union that represents most of the IRS workforce.

The hiring process is scheduled to run through Dec. 31, 2023 and was first reported by the Washington Post.

In an effort to hire 5,000 new employees has fallen flat with less than 200 workers brought on board.

The new plan “sounds like an extension of that plan and its logic,” said Chad Hooper, president of the Professional Managers Association, a group that represents non-union personnel.

While he didn’t have the details of the plan, Hooper seemed skeptical about how easily it could be fulfilled.

“It’s unclear where the IRS believes these future employees are,” Hooper said.

There is a massive accumulation of paperwork going back to last year still awaiting processing, according to the report.

The mountain of paperwork includes at least 10 million individual tax returns and 4 million business tax returns, holding up refunds and credits going back to last year.

Starting this month, the IRS shifted 1,200 workers from their current jobs to deal with the backlog.

The IRS workforce currently sits at about 80,000, according to its website.”

Posted in IRS | Comments Off on Who knows when IRS will catch up with their backlog?

Funky Instrumental Version of “TaxMan”

Posted by taxguru on February 23, 2022

Although first released in 1966 by The Beatles, George Harrison’s song is still very timely and popular.

Thanks to the Ultimate Classic Rock website for this.

This has been added to my YouTube playlist of TaxMan covers.

Posted in Music, TaxMan, video | Comments Off on Funky Instrumental Version of “TaxMan”

Inflation Hits IRS

Posted by taxguru on February 23, 2022

Every three months, IRS looks at the current inflation rate and determines how much interest they will be charging taxpayers on late tax payments and paying out to taxpayers for delayed refunds. For the past seven quarters – since July 1, 2020 – it has been three percent (3.0%) APR. It’s not per day. It’s an annual rate.

As we all know, inflation is currently at its highest pace since Jimmy Carter’s reign. IRS has just announced in this press release that, as of April 1, their main interest rate will be a whopping four percent (4.0%) APR.

As I remind clients who are upset about the IRS’s lengthy delays in sending out refunds, their money will be earning a much higher return from IRS that it would in a bank, where they are still paying less than one percent on savings accounts. It’s the silver lining to a bad situation.

Three months from now, I expect to be writing a similar post about IRS raising their interest rate again, to five or six percent.

Posted in inflation, interest, IRS | Comments Off on Inflation Hits IRS

Millions of Tax Returns Unprocessed by IRS

Posted by taxguru on February 19, 2022

Since almost all of our clients file their returns on extended due dates – normally October 15 – many of them are currently among the 23.7 million return backlog that IRS has admitted to.

Here is what I have had to send to a number of clients who are wondering why they haven’t received their refunds after more than four months.

“IRS is currently dealing with a backlog of almost 24 million 2020 and earlier year tax returns that need to be processed.  There has been a lot of press about this, such as this article.

Is the Massive IRS Backlog Impacting This Tax Season?

The latest news is that they have not processed any returns received after April 2021 and they are asking people not to send in extra copies because that will just make matters worse for them.

It’s a mess on several levels.  Many of us tax pros are hoping IRS delays this year’s Tax Day from April 18 until at least a few months later in order to give themselves time to get caught up with the prior year returns before they receive millions more 2021 returns.

I hope this helps you understand what’s going on.”

Posted in IRS | Comments Off on Millions of Tax Returns Unprocessed by IRS

Tax Day is April 18 for 2021 1040s

Posted by taxguru on January 10, 2022

It’s been a few years since the official tax return deadline has been the classic April 15 we have all grown up with and associated with income taxes in this country. Due to holiday and weekend issues, we aren’t returning to the 15th this year either.

As explained in this IRS news release, the filing deadline is Monday, April 18 for taxpayers in every state except Maine and Massachusetts. Because of their Patriots’ Day holiday, they have an extra day, until April 19.

Not that IRS needs any more help complicating the tax system, but what would the deadlines look like if every State were to come up with their own special holidays around the time of April 15? It would be craaazy.

As we have learned over the past few years, the April 18 date is not cast in stone. It is subject to change if we have more disruptive events happen between now and then.

Posted in IRS, TaxDay | Comments Off on Tax Day is April 18 for 2021 1040s

Looting the Looters

Posted by taxguru on January 5, 2022

There has been a lot of media coverage of the IRS’s Publication 17 tax guide mention of the fact that illegal income is required to be reported on income tax returns. This isn’t anything new – remember Al Capone? – but is getting a lot of attention due to the widespread smash and grab gangs hitting stores all around the country.

It didn’t take long for self identified Rogue Cartoonist Ben Garrison of Grrr Graphics to come up with a great illustration of this.

Posted in Crooks, IRS | Comments Off on Looting the Looters

D-I-Y Tax Audits

Posted by taxguru on December 31, 2021

Here’s something we will be seeing more of in the near future: Do It Yourself tax return audits.

I was reading the January 2022 Tax News from the California Franchise Tax Board and saw this announcement of a new tactic they are starting to use.

“Select taxpayers who reported large Schedule C expenses will receive self-correct letters

Beginning the week of January 10, 2022, Franchise Tax Board (FTB) will begin an outreach effort by sending self-correct letters to selected taxpayers who reported large Schedule C expenses on their 2019 tax returns that are “significantly higher than expected.”

The purpose of the self-correct letters is to encourage these taxpayers to review their 2019 tax return, and current tax years, for any discrepancies. The letter informs the taxpayers to file an amended tax return to correct any discrepancies.

This self-correct letter does not constitute an audit. The tax returns remain subject to audit until the expiration of the statute of limitations. The taxpayer should maintain documentation to substantiate their deductions are in line with their business activity.

We will start the outreach effort by sending a small volume of self-correct letters in January, and increase the volume over the next several months. Our goal is to expand future outreach efforts to include other issues and tax years.”

What this sounds like is that there will be a cursory review by FTB of tax returns with large Schedule C expenses, with letters going out to those taxpayers threatening full blown audits if they don’t “voluntarily” file amended returns to reduce those expenses. Obviously the threat will be implied, but it will be real.

While this may be starting in California, that State and its FTB have a long running reputation as a test-bed for tax administration and enforcement tactics by other States, as well as by the IRS. We can be sure that the head honchos at IRS and other State tax agencies will be monitoring the results of this FTB experiment very closely. With the current huge shortage of IRS auditors, this approach has to be very tempting as a means to cover many more tax returns than is possible with their limited resources.

Posted in audits, Calif | Comments Off on D-I-Y Tax Audits

2022 IRS Inflation Adjustments

Posted by taxguru on November 10, 2021

IRS has officially calculated the various increases for 2022 that are required to be adjusted annually.

IRS News Release with some of the “most popular” changes

Revenue Procedure 2021-45 with all of the details (29 Page PDF)

Not mentioned in either of the above referenced documents is the fact that there should be a huge asterisk with the disclaimer that all of these figures are subject to changes at the whim of the rulers currently in power.  With all of the threats to retroactively increase all tax rates coming from DC, we can only hope that the IRS assumptions of 2022 rates will actually survive.

One noteworthy change for 2022 is the annual Gift Tax exclusion, which can only be increased in $1,000 increments after multiple years of inflation.  For 2022, it will be raised from the current $15,000 per donor (giver) per donee (recipient) to $16,000.  Many people design their long-term gifting strategies based on these annual exclusion amounts.

[Update 11-30-2021]: The good folks at TheTaxBook have produced this handy one page summary of the most popular inflation adjustment amounts for 2020, 2021 and 2022.

Posted in inflation, IRS | Comments Off on 2022 IRS Inflation Adjustments