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IRS to Update Schedule UTP to Require Additional Transparency

On October 11, 2022, the Internal Revenue Service (IRS) announced draft changes to Schedule UTP, Uncertain Tax Position Return Statement, and Form 1120, Instructions for Schedule UTP, for the 2022 tax year (processing year 2023). Since the 2010 tax year, Schedule UTP has been used by certain corporations to report uncertain tax positions. Corporations filing Forms 1120, 1120-F, 1120-L or 1120-PC are required to file Schedule UTP if their total assets equal or exceed the applicable asset threshold for the tax year and if the corporation records a liability for unrecognized tax benefits for a US federal income tax position in audited financial statements.

The changes to the form include a new field for the incremental dollar amount of the uncertain tax positions taken. Also, for tax positions reported on Schedule UTP, rather than filing Form 8275, Disclosure Statement, or Form 8275-R, Regulation Disclosure Statement, new columns will identify the rulings or regulation sections that are contrary to positions taken on the tax return. (Proper disclosure on Schedule UTP may allow taxpayers to avoid certain penalties). Finally, the instructions incorporate more relevant examples and provide enhanced guidance on what constitutes an adequate disclosure for the concise description. Comments can be submitted to the IRS regarding the draft changes.

Practice Point: The IRS is continuing its effort of having corporations self-identify uncertain tax positions (although there remain questions on how the IRS actually uses the information disclosed on a Schedule UTP). Requiring the identification of specific IRS guidance that is contrary to the taxpayer’s position is noteworthy given the IRS’s recent position that challenges to regulations will not be resolved at the examination or IRS Appeals levels. Corporations subject to the Schedule UTP reporting requirement will need to review their past practices and ensure that future Schedule UTP filings comply with the draft changes once finalized.




Weekly IRS Roundup September 26 – September 30, 2022

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of September 26, 2022 – September 30, 2022.

September 26, 2022: The IRS released Internal Revenue Bulletin 2022-39, which highlights the following:

  • REG-125693-19: These proposed regulations clarify issues that do not meet the definition of a federal tax controversy, exceptions to consideration by the IRS Office of Appeals (IRS Appeals), and procedural and timing requirements that must be met before IRS Appeals will consider an issue. The proposed regulations also provide the requirements a taxpayer must meet to receive the notice described in Internal Revenue Code (Code) Section 7803(e)(5) when the taxpayer requests consideration by IRS Appeals and the request is denied. More coverage of this issue can be found here.
  • Notice 2022-38: This notice publishes the inflation adjustment factor for the carbon oxide sequestration credit under § 45Q for calendar year 2022. This notice also informs taxpayers that 2022 will be the final calendar year for which they may claim a credit under Code Section 45Q(a)(1) and (2) for qualified carbon oxide that is captured by carbon capture equipment originally placed in service at a qualified facility before the date of enactment of the Bipartisan Budget Act of 2018.

September 26, 2022: The IRS issued Notice 2022-44, providing annual notice of the 2022 to 2023 special per diem rates for taxpayers to use when substantiating the amount of business expenses incurred while traveling away from home. Specifically, the notice addresses (1) the special transportation industry meal and incidental expenses rates, (2) the rate for the incidental expenses only deduction and (3) the rates and list of high-cost localities for purposes of the high-low substantiation method.

September 26, 2022: The IRS released Notice 2022-45, extending the deadline for amending an eligible retirement plan to reflect the Coronavirus Aid, Relief, and Economic Security Act and the Taxpayer Certainty and Disaster Tax Relief Act of 2020. Both allow for special tax treatment with respect to a coronavirus-related distribution or a qualified disaster distribution.

September 26, 2022: The IRS released Tax Tip 2022-147, highlighting five resources people can find on IRS.gov. These resources are:

  1. Taxpayer Bill of Rights
  2. How to apply for 501(c)3 status
  3. IRS tax volunteer opportunities
  4. Latest tax scams
  5. Interactive Tax Assistant

September 27, 2022: The IRS released Tax Tip 2022-148, providing the steps for becoming an IRS-authorized e-file provider.

September 27, 2022: The IRS announced that victims of storms and flooding in Alaska, which started on September 15, now have until February 15, 2023, to file various federal individual and business tax returns and make tax payments. The relief is available to anyone in an area designated by the Federal Emergency Management Agency [...]

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IRS Hints at Revenue Procedure 94-69 Update

At a recent Tax Executives Institute conference in New York, an Internal Revenue Service (IRS) spokesperson stated that guidance and a new final form will be issued when the IRS and the US Department of the Treasury replace the disclosure procedures laid out in Revenue Procedure 94-69 1994-2 C.B. 804. The updated guidance will define the scope of the required disclosures and detail how to create them.

As we previously discussed, the IRS published a new draft form (Form 15307, Post-Filing Disclosure for Specified Large Business Taxpayers) in February 2022 and requested comments on the new form. A significant amount of useful comments was received from taxpayers and tax professionals on Form 15307 and the IRS is in the process of finalizing the form based upon said comments, which will be released to aid in the implementation of the new guidance replacing Revenue Procedure 94-69. No timing was provided on when the new form and guidance will be issued.

Practice Point: We are happy to hear that the disclosure procedures in Revenue Procedure 94-69 is here to stay, albeit in some form or fashion. Numerous large business taxpayers rely on this mechanism to clean up errors made on the return without having to file a formal amended return.




Weekly IRS Roundup September 19 – September 23, 2022

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of September 19, 2022 – September 23, 2022.

September 19, 2022: The IRS updated information on the Work Opportunity Tax Credit (WOTC), including information on the pre-screening and certification process. The WOTC is available to employers who hire designated categories of workers facing significant barriers to employment. Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, must be completed by the job applicant and the employer on or before the day of the job offer to satisfy the pre-screen requirement.

September 19, 2022: The IRS released Tax Tip 2022-143, reminding people that every taxpayer has the right to retain representation when they work with the IRS, including the right to seek assistance from the Low Income Taxpayer Clinic.

September 20, 2022: The IRS announced that it has selected eight new members for the Electronic Tax Administration Advisory Committee. The committee’s main goal is to promote paperless filing of tax and information returns. The following individuals have been appointed for three-year terms on the committee, starting in September:

  • Austin Emeagwai, CPA, Ph.D.; Collierville, Tennessee
  • Jerry Gaddis, EA, MBA; Winter Haven, Florida
  • Nikia Gainey; Orlando, Florida
  • Robert Gettemy;Marion, Iowa
  • Argi O’Leary; Voorheesville, New York
  • Hallie Parchman; Austin, Texas
  • RaeAnn Pilarski; Tucson, Arizona
  • Keith Richardson; Philadelphia, Pennsylvania

September 20, 2022: The IRS announced that Hurricane Fiona victims in Puerto Rico now have until February 15, 2023, to file various federal individual and business tax returns and make tax payments. The relief is available in all 78 Puerto Rican municipalities, which are designated by the Federal Emergency Management Agency.

September 20, 2022: The IRS released Notice 2022-40, which provides updates on the corporate bond monthly yield curve and corresponding spot segment rates and the 24-month average segment rates for September 2022. The notice also provides guidance as to interest rates on 30-year Treasury securities and the 30-year Treasury weighted average rates.

September 20, 2022: The IRS released Tax Tip 2022-144, recommending that people use caution when choosing a tax preparer since tax preparers have different levels of skill, education and expertise.

September 21, 2022: The IRS released Tax Tip 2022-145, describing the different types of authorizations for third-party representatives. The options include:

  • Power of Attorney: This allows someone to represent a taxpayer in tax matters before the IRS. The representative must be an individual authorized to practice before the IRS.
  • Tax Information Authorization: This allows a taxpayer to appoint anyone to review or receive a taxpayer’s confidential tax information for a specified type of tax for a specified period.
  • Third-Party Designee: This designates a person on a taxpayer’s tax form to discuss that specific tax return and year with the IRS.
  • Oral Disclosure: This authorizes the [...]

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IRS Official Provides Update on Large Partnership Compliance Audits

Almost 11 months ago, the Internal Revenue Service (IRS) released a memorandum regarding the implementation of the Large Partnership Compliance (LPC) Pilot Program, including the identification, selecting and delivery of large partnership tax returns, exam procedures and feedback. The goal of the LPC program is to identify the largest partnership cases and develop improved methods for identifying and assessing the compliance risks presented by these taxpayers. Large partnerships include those with more than $10 million in assets, and such partnerships are subject to data analytics and classification processes. Audits of these large partnerships are conducted by the Large Business & International (LB&I) division.

The LPC program was discussed at the recent Tax Executives Institute conference in New York. IRS officials noted that 50 large partnerships have been selected for the first round of audits, focusing on the 2019 tax year. The IRS currently is undecided as to whether LB&I plans to audit subsequent year returns for the selected partnerships, but likely will not subject such partnerships to a continuous audit process that is used for many large corporate taxpayers.

An interesting discussion took place at the conference related to whether IRS revenue agents will share with the selected partnerships the risk level assigned to their partnership return and which issues will be examined. (Risk assessment and identification of issues are generally included in audit plans for corporate taxpayers, although the level of risk may not necessarily be disclosed.) Currently, some agents are providing such information to selected partnerships but there is no consensus or standard practice at the audit level.

Practice Point: The IRS has made it well known that large partnerships are on their radar and there is a need to focus on these audits to ensure taxpayer compliance. In our experience, revenue agents tend to be more transparent in audits of large taxpayers when it comes to the issues under examination, but it would be a welcome development if the IRS announced at the outset of the audit more standard procedures for informing taxpayers of the risk levels assigned. As the LPC program continues, we are hopeful that the IRS will decide to share more data with the public. We expect an increase in audit activity as a result of additional funding received by the IRS, and it appears that the IRS will focus those efforts on large partnerships.




Weekly IRS Roundup September 12 – September 16, 2022

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of September 12, 2022 – September 16, 2022.

September 12, 2022: The IRS released Internal Revenue Bulletin 2022-37, which highlights the following:

  • Treasury Decision 9965: These regulations establish certain requirements regarding the implementation of protections against balance billing provided under the No Surprise Act.
  • Notice 2022-37: This guidance assists taxpayers in complying with the final regulations under Section 871(m). The US Department of the Treasury (Treasury) and the IRS intend to amend Section 871(m) regulations, which will delay the effective date of certain rules in the final regulations and extend the phase-in period provided in Notice 2020-2 for two years.

September 12, 2022: The IRS released COVID Tax Tip 2022-139, reminding taxpayers of recently issued Notice 2022-36, which provides penalty relief from certain failure to file penalties in taxable years 2019 and 2020. The relevant penalties will be waived, abated, refunded or credited. The relief is designed to help struggling taxpayers affected by the COVID-19 pandemic and to allow the IRS to focus resources on processing backlogged tax returns and taxpayer correspondence.

September 12, 2022: The Treasury Inspector General for Tax Administration (TIGTA) released the Fiscal Year 2022 Statutory Review of Compliance With Notice of Federal Tax Lien Filing Due Process Procedures. TIGTA is required to determine annually whether lien notices issued by the IRS comply with the legal requirements set forth in the Internal Revenue Code. TIGTA recommended that the Director of Collection Policy for the Small Business/Self-Employed Division (1) reinforce Internal Revenue Manual (IRM) guidance to ensure that taxpayers’ representatives are notified of Notice of Federal Tax Lien filings and (2) correct an IRM reference on Written Communication to a Taxpayer’s Authorized Representative. The IRS agreed.

September 12, 2022: TIGTA released its report entitled, Reliance on Self-Certifications Resulted in Federal Agencies Awarding Contracts and Grants to Entities With Delinquent Federal Taxes; However, the IRS Is Making Progress on Establishing the Federal Contractor Tax Check System. TIGTA performed this audit because in Calendar Years 2015 and 2016, federal contracts were awarded to thousands of contractors with unpaid taxes that were most likely delinquent. Between October 2018 and December 2019, the federal government awarded 2.1 million federal contracts to more than 83,000 awardees. More than 3,000 contractors that received contracts owned $621.8 million in delinquent federal taxes, and 938 grantees received $22.7 billion in federal grants while owning $269.2 million in delinquent federal taxes.

September 12, 2022: The IRS issued minor corrections to Treasury Decision 9964, originally published August 16, 2022. The regulations define guidance for states regarding the process by which they may obtain or inspect certain returns and return information for the purpose of administering state laws governing certain tax-exempt organizations and their activities.

September [...]

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Weekly IRS Roundup August 29 – September 2, 2022

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of August 29, 2022 – September 2, 2022.

August 29, 2022: The IRS released Internal Revenue Bulletin 2022-35, which highlights the following:

  • Revenue Ruling 2022-15: This revenue ruling provides interest rates for tax overpayments and underpayments for the fourth quarter, starting October 1, 2022. The new rates are as follows:
    • Individuals: 6% per year, compounded daily, for both overpayments and underpayments
    • Corporations: 5% for overpayments; 6% for underpayments
    • Corporate overpayments for the portion exceeding $10,000:5%
    • Large corporate underpayments: 8%
  • Revenue Ruling 2022-16: This revenue ruling provides the average annual effective interest rates on new loans under the Farm Credit System and also contains a list of the states within each Farm Credit System Bank territory.
  • Treasury Decision 9964: The IRS released final regulations, providing guidance to states wanting to inspect certain return information for the purpose of administering state laws related to tax-exempt organizations. The final regulations reflect changes to the Internal Revenue Code made by the Pension Protection Act of 2006.

August 29, 2022: The IRS announced that September is National Preparedness Month and urges everyone to develop or update their emergency plans, especially with hurricane season approaching and the ongoing threat of wildfires.

August 29, 2022: The IRS released Tax Tip 2022-132, highlighting the Security Summit’s summer series, Protect Your Client; Protect Yourself. Professionals from the IRS, state tax agencies and others in the tax industry joined forces for a five-week series focused on the fundamentals of data and information security.

August 30, 2022: The IRS released Tax Tip 2022-133, clarifying taxpayer obligations during a Chapter 13 bankruptcy.

August 31, 2022: The IRS announced that Edward Killen will become division commissioner of its Tax-Exempt and Government Entities (TE/GE) division, effective September 30, 2022. The current TE/GE Commissioner, Sunita Lough, is retiring. Chief Privacy Officer Robert Choi will replace Killen as deputy commissioner of TE/GE.

August 31, 2022: The IRS released COVID Tax Tip-134, reminding parents of refunds and tax credits they may be missing if they do not normally file a tax return.

August 31, 2022: The IRS asked for comments on Form 7205, which is used to claim deductions for energy-efficient commercial buildings. The IRS wants to standardize the procedures for claiming the deduction and invites comments by October 31, 2022.

September 1, 2022: The IRS released Tax Tip 2022-135, providing suggestions to tax professionals on ways to protect clients from identity theft.

September 2, 2022: The IRS issued a statement acknowledging that it released confidential information from Form 990-Ts, which should not have been made public. Form 990-T is a business tax return used by tax-exempt entities to report and pay income [...]

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IRS Announces Progress on Processing Tax Returns

The phrase “it’s in the mail” is sometimes an excuse for one’s delinquency in filing tax returns. However, that is not necessarily the case for taxpayers who have submitted their individual tax returns during the COVID-19 pandemic. The impact of the pandemic on the Internal Revenue Service’s (IRS) ability to open mail and process returns has been well-documented. In March 2022, the IRS announced that it was hiring more than 5,000 positions in its service processing centers in three states.

On August 29, 2022, the IRS provided an update on the status of its return processing efforts. The update provides, in part:

The IRS is opening mail within normal timeframes and all paper and electronic individual returns received prior to January 2022 have been processed if the return had no errors or did not require further review.

 

As of August 19, 2022, we had 8.7 million unprocessed individual returns received in calendar year 2022. These include tax year 2021 returns and late filed tax year 2020 and prior returns. Of these, 1.7 million returns require error correction or other special handling, and 7 million are paper returns waiting to be reviewed and processed. This work does not typically 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 more than 120 days. If a correction is made to any Recovery Rebate Credit, Child Tax Credit, Earned Income Tax Credit or Additional Child Tax Credit claimed on the return, the IRS will send taxpayers an explanation. Taxpayers are encouraged to continue to check Tax Season Refund Frequently Asked Questions.

Further information is provided, including how long taxpayers may have to wait and what actions they can take (i.e., checking Where’s My Refund? or viewing their account).

Practice Point: The IRS is making headway in processing returns and, with increased funding on the horizon, it appears that things may be getting back to normal—at least back to pre-pandemic levels of productivity. However, taxpayers should always take the appropriate steps to ensure that their returns are timely filed and that they have proof of when and what was filed with the IRS. This includes making copies of paper filed returns, using IRS-approved mail delivery services such as the US Postal Service and certain private delivery services and retaining electronic receipts for electronically filed returns. Because processing times for mailed returns are still slow, taxpayers should consider the potential advantages to filing timely but in paper through the mail for purposes of the period of limitations on assessment of additional tax in Internal Revenue Code Section 6501.




Weekly IRS Roundup August 22 – August 26, 2022

Presented below is our summary of significant Internal Revenue Service (IRS) guidance and relevant tax matters for the week of August 22, 2022 – August 26, 2022.

August 22, 2022: The IRS released Internal Revenue Bulletin 2022-34, which highlights the following:

  • Notice 2022-33. This guidance extends the deadlines for amending a retirement plan or individual retirement arrangement to reflect certain provisions of Division O of the Further Consolidated Appropriations Act, known as the Setting Every Community Up for Retirement Enhancement Act of 2019, and section 104 of Division M of the Further Consolidated Appropriations Act, 2020, known as the Bipartisan American Miners Act of 2019.
  • Notice 2022-34. This guidance delays the effective date of Foreign Currency Guidance again. The Department of Treasury and IRS intend to amend the regulations under section 987 to defer the applicability date of the 2016 final regulations and related 2019 final regulations by one additional year. The amendments would apply to the taxable year beginning on January 1, 2024.

August 22, 2022: The IRS issued Notice 2022-35 providing updates on the corporate bond monthly yield curve, the corresponding segment rates, the 24-month average corporate bond segment rates, the 25-year average segment rates, and the 30-year Treasury securities interest rates.

August 22, 2022: The IRS issued Tax Tip 2022-128 highlighting available resources to aspiring entrepreneurs about the basics of setting up a business.

August 23, 2022: The IRS issued Notice 2022-37 announcing that Treasury and the IRS intend to amend the section 871(m) regulations. This will delay the effective/applicability date of certain rules in those final regulations and extend the phase-in period provided in Notice 2020-2.

August 23, 2022: The IRS issued Tax Tip 2022-129 encouraging taxpayers who file federal excise taxes to file and pay electronically.

August 23, 2022: The IRS released the late-May filing season statistics for all Forms 1040 processed by the IRS for tax year 2021.

August 24, 2022: The IRS released Tax Tip 2022-130 announcing the addition of instructions for Form 8821, Tax Information Authorization in traditional Chinese.

August 24, 2022: The IRS announced it is refunding $1.2 billion in penalties for 1.6 million taxpayers related to certain 2019 and 2020 tax returns filed late. Notice 2022-36 provides penalty relief from certain failure to file penalties and certain international information return penalties. The relevant penalties will be waived, abated, refunded or credited. The relief is designed to help struggling taxpayers affected by the COVID-19 pandemic, and to allow the IRS to focus resources on processing backlogged tax returns and taxpayer correspondence. We provided a more detailed analysis of the Notice 2022-36 here.

August 25, 2022: The IRS released Covid Tax Tip 2022-131 reminding taxpayers that the deadline to file tax returns for those that requested an extension is October 17, 2022.

August 26, 2022: The IRS released its weekly list of written determinations (e.g., Private Letter Rulings, Technical Advice Memorandums and [...]

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