Lost Taxpayer Records, IRS Interest Rates, and The AICPA
Tax Policy/News:
August 25: Lawmakers Push IRS To Account For Lost Taxpayer Records
15 pallets of backup records that should have been sent to the Federal Record Center five years ago instead have been sitting at an IRS distribution center.
As a result, according to the report, the IRS could not account for thousands of microfilm cartridges containing millions of sensitive business and individual tax account records that could be used for identity theft.
The lawmakers noted that more than 100 backup cartridges, each storing up to 2,000 photos of tax information, were allegedly sent for reformatting by an outside contractor in 2013, but the IRS doesn't know where the cartridges currently are, and the contractor went out of business in 2018.
IRS policy requires backup records be stored in controlled areas, but at some IRS processing centers, any employee can access them.
IRS managers told TIGTA they can't recall the last time a mandatory annual inventory of backup records was done.
"The information contained in these backup records can be used by nefarious actors to commit tax fraud and identity theft. The IRS's lackadaisical attitude towards the loss of millions of taxpayer records containing Social Security numbers, addresses and other sensitive tax return information is appalling,” Senate Finance Committee member Chuck Grassley, R-Iowa, and House Ways and Means Committee chairman Jason Smith, R-Missouri wrote in a letter to the IRS Commissioner.
The lawmakers asked Werfel what steps the IRS has taken to investigate the disappearance of millions of tax records on the backup cartridges and whether the agency has told individuals and businesses their sensitive data could be compromised, as well as how it's holding employees accountable for losing backup records.
August 25: IRS Interest Rates Jumping In Q4
The interest rates that the Internal Revenue Service uses will rise for the quarter beginning Oct. 1, the agency said.
For individuals, the rate for overpayments and underpayments will be 8% per year, compounded daily.
For taxpayers other than corporations, the overpayment and underpayment rates are the federal short-term rate plus 3 percentage points.
Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points.
The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points.
The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half a percentage point.
Revenue Ruling 2023-17, announcing the rates of interest, will appear in Internal Revenue Bulletin 2023-37, dated Sept. 11, 2023.
August 24: IRS May Have Skirted Rules On Directly Contacting Represented Taxpayers
Internal Revenue Service employees weren't always following the proper rules when it came to directly contacting taxpayers instead of their representatives like CPAs, enrolled agents, and attorneys.
The IRS is supposed to avoid directly contacting represented taxpayers under provisions of the law, but hasn't developed a system to identify IRS employee violations of those provisions, according to a report released Monday by the Treasury Inspector General for Tax Administration.
Sections of the Tax Code provide taxpayers the right to representation during interviews and protect taxpayers' rights by prohibiting IRS contact of a taxpayer if it knows they're represented.
TIGTA's effort to determine whether the IRS was complying with the law was complicated by the fact that the IRS doesn't have a system to identify IRS employee violations of the law.
Complaints about violations are rare and the report acknowledged that TIGTA's Office of Investigations did not receive any specific complaints alleging that an IRS employee bypassed taxpayer representatives and contacted taxpayers directly during the period covered by the annual report, from Oct. 1, 2021, to June 30, 2022.
It found that revenue officers potentially violated taxpayers' rights concerning directly contacting taxpayers who are represented before the IRS. TIGTA reviewed a sample of 132 taxpayers out of a population of 1,613 taxpayers who had collection actions documented in case history narratives by revenue officers between Oct. 1, 2021, and June 30, 2022.
"Nonetheless, we agree that further steps can be taken to continue improvement of taxpayer rights. As the IRS hires new employees, we will continue to focus on providing appropriate training to educate employees on protection of taxpayer's rights to representation. The findings in this audit reinforce the importance of such training,” said the report.
August 24: AICPA Asks IRS For Improvements On Foreign Trust Forms And Guidance On Tax Credits
The American Institute of CPAs sent comment letters to the Internal Revenue Service requesting changes in two forms used to report on foreign trusts, along with more guidance on energy tax credits and advanced manufacturing investment credits.
In one letter, dated Aug. 14, the AICPA asked for improvements on Form 3520, "Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts," and Form 3520-A, "Annual Information Return of Foreign Trust with a U.S. Owner," and instructions.
The institute also sent a separate but related letter the same day offering some recommendations for the IRS's Independent Office of Appeals on penalty abatements based on reasonable cause relating to Form 3520 and Form 3520-A. The AICPA asked the IRS to clarify Form 3520 and Form 3520-A instructions and allow electronic filing of both forms, to clarify the need for Employer Identification Numbers and to include an exemption from both forms for foreign taxpayers where deferral of tax on earnings is available under a tax treaty.
The AICPA wants the IRS's Independent Office of Appeals to provide appeals case memoranda in cases where they fully abate penalties relating to Form 3520 and Form 3520-A based on reasonable cause to IRS campus employees handling initial reasonable cause requests.
Separately the AICPA sent a comment letter on Aug. 14 to the Treasury Department and the IRS asking for guidance on the energy tax credit provisions of the Inflation Reduction Act of 2022 and the Section 48D advanced manufacturing investment credit provisions of the CHIPS Act of 2022.
The AICPA believes the proposed temporary regulations from the Treasury and the IRS offer some guidance on the pre-registration filing requirements and the applicable entities, but create unnecessary negative tax implications, making the purchaser of the credit subject to passive activity and Section 469 rules, even if a purchaser doesn't hold ownership interest in the entity.
Among the recommendations, the institute also asked for the IRS and Treasury to consider allowing partnerships with all tax-exempt partners to be considered "Applicable entities," provide further guidance on the definition of "Restricted tax-exempt amount," omit the five-step computation rule and provide guidance that allows taxpayers to elect to treat the advanced manufacturing investment and energy tax credits as a payment against tax "Equal to the amount of such credit" under the direct payment final regulations.
Economic News/Policy:
August 28: GOP Tensions Between Senate, House Raise Shutdown Odds
Senate Republicans are signaling that they're in no mood to back conservative members of the House Freedom Caucus who are demanding major concessions from Democrats in the annual spending bills, raising the odds of a government shutdown this fall.
With the battle for future control of the Senate heating up, Senate sources say House Republicans shouldn't expect the same support for their efforts to lower the top-line annual discretionary spending number from the level agreed to by McCarthy and President Biden in late May. Nor will House conservatives get much help from Senate Republican leaders on insisting that ambitious conservative priorities, such as the House-passed Secure the Border Act, be attached to spending legislation.
David Cleary, a former senior Senate GOP aide, said Senate Republicans "Are going to want to avoid a shutdown."
He noted recent talk that the Senate may move first on passing a stopgap spending measure to avoid a government shutdown given the difficulty of even passing a bill with the Freedom Caucus's demands through the House.
Senate Republicans are worried that adding policy riders that are nonstarters with Democrats to the spending bills will only delay them, leading to a backlog of legislation in December.
James Wallner, a former senior Senate Republican aide, said that "If history is any indicator," Senate Republicans will want to avoid brinkmanship that could lead to a shutdown. "Most Republicans - especially in the Senate - don't like shutdowns," he said.
August 25: Powell Hammers Home Inflation Fight In Jackson Hole Speech
Federal Reserve Chairman Jerome Powell hammered home the Fed's 2-percent inflation target on Friday amid speculation that the bank could tolerate a higher annual inflation rate in the post-pandemic economy.
"It is the Fed's job to bring inflation down to our 2 percent goal and we will do so," he said at a gathering of central bankers in Jackson Hole, Wyo., a luxurious resort destination near Yellowstone National Park.
Some economists have suggested the Fed should settle with inflation slightly above 2 percent to avoid derailing the economy.
After spiking throughout the recovery from the coronavirus pandemic, inflation lies mostly now in housing, the sector of the economy most sensitive to rate hikes.
Powell said Wednesday to expect an easing in housing prices over the coming year, but stopped short of saying that prices would actually come down rather than simply decelerating.
"The market rent slowdown has only recently begun to show through to that measure," Powell said, likely in reference to the owners' equivalent rent subsection of the CPI, which only started coming down in May. "The slowing growth in rents for new leases over roughly the past year can be thought of as in- -the-pipeline and will affect measured housing services inflation of the coming year," he said.
The blame for inflation - a complex international phenomenon - has fallen somewhat along party lines in the U.S. Most economists agree that a combination of "Supply-side" disruptions and "Demand side" stimulus payments made to households by both the Trump and Biden administrations are behind rising prices.
Energy and Environmental Policy/News:
August 23: US seeks focused, efficient fund for climate disasters
The U.S. is seeking to shape a new global fund for climate disaster losses and damages to efficiently limit its use and target the most vulnerable countries not already covered by development banks or emergency relief funds.
Wealthy nations have been slow to deliver $100 billion annually to help countries reduce emissions and adapt to a warmer world, leading poorer nations to demand separate funding for loss and damage at the COP27 climate summit.
The U.S. proposed focusing the fund on slow-onset events like sea level rise and desertification and post-disaster reconstruction beyond eligible development bank grants.
Additionally, the U.S. and EU approved new funding arrangements under the condition that the fund is not about liability for rich countries and compensation. They suggest the fund should be filled from various sources, including industry taxes, philanthropic donations, and other schemes.
There is disagreement over which countries should benefit from the fund, with some arguing it should be limited to the neediest nations, while others worry that this would leave out some of the worst-hit middle-income countries like Pakistan or the Philippines.
Technology:
August 28: Musk, Tech CEOs To Attend Schumer's AI Senate Forum
The top executives at tech companies, including the world's richest man, Elon Musk, are among the confirmed guests at Senate Majority Leader Chuck Schumer's first scheduled "Insight Forum" about artificial intelligence, the senator's office said Monday.
In addition to the executives, others from "Worker, advocacy, civil rights, and creative groups," will join as guests, according to Schumer's office.
The news about the scheduled guests was first reported by Axios.
The forum is part of Schumer's plan to weigh regulation of the booming AI industry, which lawmakers have been racing to better understand since OpenAI's ChatGPT tool burst into popularity after its November release.
Schumer announced plans for the forum in June, along with a framework for AI regulation.
The forum also comes as Congress has been holding hearings about the benefits and challenges posed by AI. Altman, the CEO of OpenAI, appeared at a hearing with the Senate Judiciary Committee in May. Schumer said in June that the plan for the forum will supplement the work already underway regarding AI regulation.
In addition to the forum, Schumer has convened AI briefings with senators as part of the plan to regulate the risks and understand the potential of the technology.
ICYMI:
August 28: FEMA Announces $2.5B For Enhanced Resiliency Against Climate Change-Fueled Extreme Weather
The Biden administration announced Monday an additional $2.5 billion in climate resilience funds for the Federal Emergency Management Agency.
The funds include $1.8 billion through the Building Resilient Infrastructure and Communities competitive grant program and another $642 million through the Flood Mitigation Assistance program.
"From Hawaii to Maine, communities across the country are experiencing more frequent and intense severe weather events, resulting in devastating impacts to their homes, businesses, and families. Though FEMA will always help communities respond and recover to these disasters, it is also paramount to build resilience before disasters strike," FEMA Administrator Deanne Criswell said in a statement.
The agency has announced just more than $2 billion in BRIC grants this year.
The announcement comes late in a summer that has repeatedly smashed global heat records and seen a number of extreme climate and weather events in the U.S., including Hurricane Hilary in California and the forthcoming Tropical Storm Idalia.
This June, the Commerce Department also announced $2.6 billion in climate resilience funding for the coastal U.S. in particular through the Inflation Reduction Act.
This included $349 million toward climate resilience in U.S. fisheries and $400 million for tribal habitat and fish hatchery restoration.
For Fun:
August 22: A Rare Giraffe Without Spots Is Born At A Zoo In Tennessee
A female reticulated giraffe was born at Brights Zoo in northeastern Tennessee late last month - but unlike her mother she was born without any spots, a rarity.
Brights Zoo in Limestone, Tenn., announced that it welcomed the birth of a reticulated giraffe without any spots on July 31, WJHL 11 News reported.
"Giraffe experts believe she is the only solid-colored reticulated giraffe living anywhere on the planet," the zoo told WJHL. The zoo's director, David Bright, said zoo staff have been reaching out to zoo professionals across the country inquiring about how rare the giraffe could be.
Zoo officials say the only record of a reticulated giraffe being born without spots was in Japan in the 1970s.
Pictures of the calf can be seen on the Brights Zoo Facebook page, standing next to her mother in stark contrast without her spots.
The zoo is asking the public to help name the newborn by voting on one of four names available on the zoo's Facebook page by Labor Day.
According to the Giraffe Conservation Foundation, there are only an estimated 16,000 reticulated giraffes left in the wild - a more than 50% drop from approximately 36,000 giraffes 35 years ago.