IRS Funding Increases, the R&D Tax Credit, and EV Credits

Tax Policy:

August 22: The IRS could be on the verge of changing the way Americans file their taxes

The Free File Alliance came to be because Congress originally mandated the IRS to do away with tax returns altogether in a law called the Internal Revenue Service Restructuring and Reform Act of 1998. After a major lobbying push by the tax preparation industry, the Free File Alliance was introduced as a way to let low-income Americans file their taxes for free without getting rid of tax returns.

With this system, the IRS would try to withhold fewer taxes from people's paychecks and skip the refunding process made necessary by a self-reported tax return.

"With withholding, the IRS already has that information. So it's kind of annoying that you have to go through and enter it in yourself. But in the U.S. we have joint filing. So if your employer knows what your income is, they don't necessarily know what your spouse's is. Employer withholding isn't reflective of various credits and tax programs," Alex Muresianu, a tax analyst at the Tax Foundation, a Washington think tank, said in an interview.

"If you as a taxpayer know things the IRS doesn't know that are to your advantage, then you might not want to share that with them," Robert Weinberger, a nonresident fellow at the Urban-Brookings Tax Policy Center, said in an interview.

"It's critical to make filing taxes as easy as possible," Frank Clemente, director of the left-leaning advocacy organization Americans for Tax Fairness, said in an interview.

In a Wednesday memo to IRS Commissioner Charles Rettig, Treasury Secretary Janet Yellen expressed concern about unfairness built into the tax system, which she described as "Two-tiered."

August 19: More Money for I.R.S. Spurs Conspiracy Theories of ‘Shadow Army’

"Stop Biden's shadow army of 87,000 I.R.S. agents," Senator Ted Cruz, the Texas Republican, blared on Twitter last week with an ominous ad recalling the agency's targeting of Tea Party groups set against the sound of soldiers marching. Senator Chuck Grassley of Iowa, a Republican on the Senate Finance Committee, warned Fox News viewers last week that the new I.R.S. agents, a small percentage of whom are allowed to carry firearms, might be coming with loaded "AK-15s" and "Ready to shoot some small business person in Iowa.".

The Biden administration expects that about 50,000 I.R.S. employees will retire within the next decade and the agency will hire 87,000 new employees, bringing the overall size of the agency to around 120,000.

Despite claims on social media that the I.R.S. hires will be heavily armed, a Treasury official said that just 1 percent of the new employees would be agents working in jobs that require carrying guns.

"The wording change on one web page followed continued misstatements and inaccuracies about I.R.S. employees carrying weapons," said Khaalid Walls, an I.R.S. spokesman.

Chatter around "Armed I.R.S." and "I.R.S. firearms" on social media, online forums, broadcast channels, and traditional media increased by 1,044 percent and 532 percent after the search. John Koskinen, who served as I.R.S. commissioner in the Obama and Trump administrations, said that he thought the attacks on the agency by Republican lawmakers were irresponsible and that he worried that they could lead to violence against members of the agency.

August 18: Inflation Reduction Act potentially doubles R&D tax credit

The Inflation Reduction Act would permit an additional credit of up to $250,000 to be applied against the Medicare payroll tax for tax years starting after Dec. 31, 2022. The expanded R&D tax credit probably won't show up on tax returns until 2024 since it can first be claimed in the tax year 2023, but it could boost small businesses, particularly the startups that it can incentivize.

"Just by virtue of having it in this historic bill shows just how significant this credit is viewed by both sides of the aisle," said Chris Winslow, CEO of Clarus R & D, a fintech software company that helps businesses claim R&D tax credits.

"Our research shows that only about half the people who are qualified to take the credit actually take the credit. I think the more opportunities to use the credit and the higher limits that people can claim will expand the overall market and create more opportunity to fund innovation for today's R&D customers." There will be some hurdles as the IRS has been increasing the requirements lately for documenting R&D activities, but Winslow noted that there have always been some requirements for documentation, which is what his software helps companies do.

"Because of the amount of credits, there is an opportunity going forward for additional requirements by the government to demonstrate the research and development activities that qualify for this credit in addition to the calculation of the credit amount," he said.

Refund claims for the research and development credit will also need to detail the total qualified employee wage expenses, total qualified supply expenses, and total qualified contract research expenses for the claim year, using Form 6765. The expansion of the R&D credit under the Inflation Reduction Act should spur more interest in claiming the credits among companies, especially tech startups.

August 18: Lawmaker wants to know what IRS will do with its new funding

Rep. Bill Pascrell, D-New Jersey, sent a letter to Internal Revenue Service Commissioner Charles Rettig requesting details on how the agency will use the funding provided by the new Inflation Reduction Act to enforce national tax laws. Last week, Pascrell and Democrats in Congress approved new funding for the IRS to fight against tax loopholes and improve taxpayer services.

As chairman of the Ways and Means Oversight Subcommittee, it is one of Pascrell's responsibilities to ensure that the laws within his committee's jurisdiction are being implemented and to offer oversight to federal agencies like the IRS. Rep. Bill Pascrell, D-N.J. Rep. Bill Pascrell, D-N.J.Christopher Goodney/Bloomberg 3 Steps to Improving Your Accounting Data Analytics Results Information overload can be a problem when conducting accounting data analytics.

"The IRA will provide much-needed and well-overdue funding for the Internal Revenue Service to improve operations and crack down on rich tax cheats," wrote Pascrell.

"The failure to fund and prioritize robust tax enforcement has allowed wealthy individuals and large corporations to avoid paying their fair share. Inadequate resources and decades of neglect have badly harmed public confidence in the IRS." Pascrell said the inflammatory comments and misinformation spread by some congressional Republicans greatly affected the IRS staff, especially for law enforcement personnel.

National Republican Congressional Committee Chairman Tom Emmer told Fox News that President Biden was "Building an army of IRS agents to harass and bully the middle class," adding that the IRS already targeted conservatives in the past.

"With 87,000 additional employees, you can imagine what that harassment is going to be to middle-class Americans and our small-business people." Pascrell asked the IRS to share what it is planning to do with the additional funding before August 30 to assure Congress that the new resources would be used toward "Restoring fairness, equity and taxpayer services."

August 18: IRS becomes GOP boogeyman ahead of midterms

As Republicans rail against the FBI in the wake of last week's search at Mar-a-Lago, they are also hyping the danger to voters from another three-letter federal agency: the IRS. The GOP is warning that the $80 billion funding boost to the IRS included in Democrats' tax, climate, and health care package, which President Biden signed into law on Tuesday, will target middle-class Americans with an "Army" of new enforcement agents.

Treasury Secretary Janet Yellen said in a letter to IRS Commissioner Charles Rettig that audit rates should not "Rise relative to recent years for households making under $400,000 annually" and that new resources should not be directed to audits of families or businesses that fall below those levels.

Sen. Rick Scott, the head of Senate Republicans' campaign arm, wrote an open letter to the "American Job Seeker" on Tuesday, urging them to not take a new position with the IRS since a Republican majority would immediately attempt to reverse the funding increase.

With 87K new IRS agents, they're coming for YOU too," Sen. Ted Cruz tweeted last week.

Elissa Slotkin in Michigan, Sean Patrick Maloney in New York, and Henry Cuellar in Texas - found that half or more of likely voters were less likely to vote for the member after learning that the Inflation Reduction Act "Doubles the size of the IRS by hiring 80,000 more agents, without hiring a single new border patrol agent."

Gallup surveys found that the percentage of Americans who said that the IRS was doing an excellent or good job fell from 53 percent in 2019 to 30 percent in 2021. Many Republicans have argued that instead of increased enforcement actions, the IRS tax code should be simplified so that much enforcement is not necessary.

August 17: IRS pledges not to use the extra funding to audit lower-income taxpayers

Internal Revenue Service Commissioner Chuck Rettig is promising not to use the nearly $80 billion his agency will be receiving over the next 10 years to increase audits of small businesses or taxpayers who earn less than $400,000. "These funds will help us in many areas, including adding important resources for our tax enforcement, taxpayer service, and technology," he said.

"The act also includes a wide range of tax law changes that we will have to implement very quickly. This proposal creates opportunities for the nation's tax system in areas where we are challenged, helping us with needed resources to address large corporate and global high-net-worth taxpayers as well as pass-through entities and multinational taxpayers with international tax issues. To ensure fairness in the system, we need sophisticated, specialized teams in place that are able to analyze complex structures and identify noncompliance."

He insisted the money would not be used to audit lower-income taxpayers. He noted that other resources would be invested in hiring, training, and IT systems that will allow the agency to better serve all taxpayers, including small businesses and those seeking help with their taxes, and it will help the agency to continue its efforts to help people who are more comfortable using a language other than English understand and meet their tax obligations.

On Wednesday, the IRS made available the instructions for Form 8821, the tax information authorization form, in traditional Chinese. There are many other priorities for the IRS right now besides increasing tax audits.

August 17: Yellen eyes $80B boost as ‘monumental opportunity to ‘transform’ IRS

Treasury Secretary Janet Yellen is preparing the IRS for an overhaul of the U.S. tax collection system made possible by an $80 billion funding boost for the agency included in the Democrats' Inflation Reduction Act. In a Wednesday memo from Yellen to IRS Commissioner Charles Rettig obtained by The Hill, Yellen said she's giving the IRS six months to deliver an in-depth operational plan to figure out exactly how that $80 billion should be spent.

"Ahead of us is a monumental opportunity to transform tax administration in this country," Yellen wrote.

Many Democrats have long viewed the IRS as chronically underfunded, but the $80 billion allocated to the agency has Republicans fuming. GOP lawmakers argue that the funding will be used to hire tens of thousands more IRS agents and will result in increased tax audits on those making $400,000 or less.

In her memo, Yellen said it was a priority "To replace the attrition that is on the horizon from the expected retirement of at least 50,000 IRS employees over the next five years."

"I would like the IRS to work closely with the Deputy Secretary to identify specific operational initiatives and associated timelines that will improve taxpayer service, modernize technology, and increase equity in our system of tax administration by pursuing tax evasion by those at the top who today do not pay their tax bill," Yellen wrote.

Inflation Reduction Act of 2022:

August 17: Biden signs inflation act, hands pen to Manchin

President Joe Biden on Tuesday signed into law a $430 billion bill that is seen as the biggest climate package in U.S. history, designed to cut domestic greenhouse gas emissions as well as lower prescription drug prices. At a White House event, Biden was joined by Democratic leaders including Senator Joe Manchin of West Virginia, whose support was crucial to the passage of the Inflation Reduction Act along party lines after he had initially opposed a similar measure.

"Joe, we never had a doubt," Biden said of Manchin.

Biden used the event to criticize Republicans as he sought to use a string of Democratic-led legislative victories to help boost Democrats in congressional midterm elections in November.

"In this historic moment, Democrats sided with the American people, and every single Republican sided with the special interests," said Biden.

The legislation to fight climate change and lower prescription drug prices aims to cut domestic greenhouse gas emissions.

Republicans criticized the legislation for doing little to lower prices. Senate Republican leader Mitch McConnell said the new law will have the opposite impact. "Democrats robbed Americans last year by spending our economy into record inflation. This year, their solution is to do it a second time. The partisan bill President Biden signed into law today means higher taxes, higher energy bills, and aggressive IRS audits," he said, referring to the Internal Revenue Service.

Economic News/Policy: 

August 21: Economy Week Ahead: Household Spending and Federal Reserve in Focus

Tuesday: Economists surveyed by The Wall Street Journal expect surveys of purchasing managers released by S&P Global to point to a steadying of the U.S. services sector in August after it contracted in July while pointing to a deeper decline in private-sector activity across the eurozone as rising prices eat into household spending power.

Sales of new single-family homes are estimated to have declined in July, amid other signs that the broader housing market is losing steam under the weight of rising interest rates and high inflation. House construction dropped sharply last month, and sales of previously owned homes fell in July for the sixth consecutive month.

Wednesday: U.S. orders for goods designed to last at least three years are expected to have increased more slowly in July, reflecting cooling demand as economic growth slows. Contract signings for homes are estimated to have declined more slowly in July than in June.

Thursday: New applications for U.S. unemployment benefits are estimated to have edged higher in the week ended Aug. 20., hovering near the highest point of the year, which was reached in mid-July. The Commerce Department releases its second estimate of second-quarter gross domestic product. Economists expect to see that the U.S. economy shrank more slowly than first estimated.

Friday: Federal Reserve Chairman Jerome Powell speaks on the economic outlook at the Kansas City Fed’s annual symposium in Jackson Hole, Wyo. U.S. household spending is estimated to have grown more slowly in July than in June as consumers faced high inflation and rising interest rates. The University of Michigan’s final reading of consumer sentiment for August is expected to have slightly improved from its reading earlier in the month.

August 17: Stocks dip as Wall Street rally loses steam, investors assess fresh retail data

Stocks fell on Wednesday as the rally on Wall Street that has propelled equity prices higher since mid-June appeared to lose steam amid a fresh batch of retail earnings. Traders continued to comb through corporate earnings from the retail sector that kicked off with Walmart and Home Depot on Tuesday.

Target shares slipped after the retailer posted earnings that widely missed expectations as it grappled with excess inventory, while Lowe's traded higher despite a mixed quarter.

Data released by the Census Bureau on Wednesday showed retail sales remained unchanged in July amid declines in auto sales and gasoline prices, although consumers did increase spending online.

Wall Street also looked ahead to the release of minutes from the Fed's most recent meeting, which could offer further insight into what could come at the central bank's next meeting in September.

"We would caution investors against chasing this rally," said Mark Haefele, chief investment officer at UBS Global Wealth Management in a note to clients Wednesday. "We expect renewed market volatility ahead, and we continue to recommend positioning portfolios for resilience under various scenarios." Wednesday's moves came after the Dow notched its fifth straight day of gains Tuesday and the S&P 500 was on track for its fifth positive week.

August 17: Fed Officials See Need for Continued Interest-Rate Increases, but Less Certainty Over Destination

Federal Reserve officials agreed at their monetary-policy meeting last month they needed to keep raising interest rates enough to lower inflation, but signaled greater caution with the pace of coming increases.

The central bank has raised rates this year at its fastest pace since the 1980s.

Minutes from the Fed's July 26-27 policy meeting, released Wednesday, showed officials were sensitive to two opposing risks as they weighed how and when to slow those increases.

Energy and Environmental Policy/News:

August 19: Voices IRS issues immediate guidance for EV credits under the Inflation Reduction Act

In an effort to expand the affordability of energy-efficient vehicles for U.S. consumers, the Inflation Reduction Act made changes to the tax credit for all-electric cars and hybrid plug-ins. New vehicles Hybrid plug-ins and all-electric cars of all sizes have a manufacturer's suggested retail price threshold to qualify for the credit under the Inflation Reduction Act: Sedans must have a manufacturer's suggested retail price below $55,000; and, SUVs, trucks, and vans must be priced under $80,000.

EV credit limitations for used vehicles The most important restriction for qualification for a new EV tax credit for used vehicles is that they must be at least two model years old. Credit limits based on assembly or manufacturing location Other key requirements for full or partial credit availability include the requirement that the vehicle's final assembly and manufacture or assembly of certain battery components must be in North America.

IRS guidance on final assembly requirement Vehicles purchased after Aug. 16, 2022: The IRS indicates that taxpayers purchasing after Aug. 16, 2022, may claim the EV credit only for qualifying electric vehicles for which final assembly occurred in North America.

Vehicles purchased before Aug. 16, 2022: If a taxpayer entered into a written binding contract to purchase a new qualifying EV before Aug. 16, 2022, but does not take possession of the vehicle until on or after August 16, 2022, the EV credit rules in effect before Aug. 16 apply. Credit phase-out eliminated Legislation in 2008 and 2009 creating the $7,500 credit imposed a phase-out of the tax credit once a manufacturer reached 200,000 vehicles sold.

 August 19: After Signing Climate Bill, Biden Prepares More Actions to Cut Emissions

Mr. Biden is on track to deploy a series of measures, including new regulations on emissions from vehicle tailpipes, power plants, and oil, and gas wells, the officials said. Gina McCarthy, the White House climate adviser, said that regulatory moves, combined with the new legislation and action from states, could help Mr. Biden meet his promise to cut greenhouse gas emissions by 50 percent, compared to 2005 levels, by the end of the decade.

E.P.A. officials have said they are working to develop a new rule for coal-fired power plants as well as gas plants that will conform with the Supreme Court's mandate but have released no details about how the new policies would work.

The Biden administration is coming under pressure to take executive action by environmental groups, including those that criticized the new law as insufficient for the scope of the climate challenge and rebuked Democrats for agreeing to concessions on fossil fuel projects. Officials expect the new law will help companies comply with new regulations at low or no cost, by giving them tax incentives to reduce emissions.

Beyond issuing new rules, she said activists also still hope to see Mr. Biden declare a national climate emergency, a move that would give the president the power to unlock federal funding for clean energy, among other potential actions. As part of the agreement with Mr. Manchin, the new law mandates oil and gas lease sales on federal lands and waters, and it requires the Interior Department to continue to hold auctions for fossil fuel leases if it plans to approve new wind or solar projects on federal lands.

ICYMI: 

August 18: White House Speeds Monkeypox Vaccines, But Not Everyone Likes The Pace

White House officials on Thursday touted steps to expand access to monkeypox vaccines, including a deal to finish 2.5 million vials in the United States.

"We propose a mixed-dosing strategy," where all recipients will receive one shot as originally intended, and a second shot via the new approach, researchers from the Rapid Epidemiologic Study of Prevalence, Networks, and Demographics of Monkeypox Infection wrote in a letter to New York and federal officials that was shared with The Washington Post. The debate over vaccination strategy comes as health officials are racing to vaccinate more than 1.6 million high-risk Americans against a virus that has sickened more than 14,100 people and often resulted in severe pain and other complications but no confirmed fatalities in this country.

Officials such as Jennifer Avegno, New Orleans' top public health official, also questioned the White House's announcement that 1.8 million doses would become available next week without acknowledging that they had drastically cut the number of vials.

Patrick Ashley, a D.C. health official leading the monkeypox response, voiced similar complaints, saying the city has had difficulty planning vaccine rollouts since the federal government keeps changing its distribution strategy. Louisiana health officials welcomed the arrival of more vaccines in time for its Southern Decadence celebration early next month expected to draw thousands of gay men. They said they've been raising alarms to federal officials since the early weeks of the outbreak and would have been better protected had they been able to administer more vaccines in mid-July.

"We're still not able to offer the pre-exposure vaccine to everyone who is at risk," Joe Kanter, Louisiana's top public health official, told The Washington Post earlier this month.

August 18: Biden officials accelerating monkeypox vaccine effort, including 1.8 million additional doses

The Biden administration is planning to accelerate the delivery of its remaining supply of monkeypox vaccines and will make an additional 1.8 million doses available for ordering starting Monday, officials said Thursday.

Jurisdictions will only be able to access the additional doses if they adopt the intradermal administration of vaccine and have used 90 percent of their current supply of vaccine, officials said. White House: Updated boosters for adults, and teens expected in a few weeks Google employees demand tech giant protect users, and workers after abortion ruling.

The Department of Health and Human Services is also launching a pilot program to provide additional vaccine allocations to state and local health departments in jurisdictions that are hosting large events that attract members of the LGBTQ community. The latest federal data show more than 13,500 monkeypox cases have been reported so far in the United States.

For Fun: 

August 23: Stunning Jupiter Images Shown By NASA's James Webb Telescope

Stunning images taken by NASA's James Webb Space Telescope show Jupiter in new glory. If Earth were the size of a grape, Jupiter would be the size of a basketball, NASA says. The two photos released of Jupiter this week, composites from several Webb images, were taken by the telescope's Near-Infrared Camera, which has infrared filters that showcase details of the planet.

Because infrared light is invisible to the human eye, the images were artificially colored to translate them into the visible spectrum and make Jupiter's features stand out, NASA said.

Unlike Earth, Jupiter has no solid surface and instead is a gas giant, made mostly of hydrogen and helium. In a wide-field view, the new images show Jupiter with its faint rings and two tiny moons, called Amalthea and Adrastea.

"This one image sums up the science of our Jupiter system program, which studies the dynamics and chemistry of Jupiter itself, its rings, and its satellite system," astronomer Fouchet said.

August 18: 'House Of The Dragon' Is 'Game Of Thrones' With More Wigs, Less Grandeur

"Game of Thrones" trumpeted its continental scope at the start of every episode with its roving opening credits. Like the series that took over "Game of Thrones's" perch as HBO's buzziest show, "House of the Dragon" is a succession drama. The question every prequel should answer in the affirmative is: Is there a reason to watch beyond the connections to the franchise starter? "House of the Dragon" gets to a yes, but not immediately.

Despite some battle scenes, frequent dragon sightings, and occasional forays into the brothels of King's Landing, the series is essentially a sometimes claustrophobic royal court drama, rather than an epic saga a la "Game of Thrones." There's an effort to widen the sweep of the narrative with regular time jumps forward, with a decade separating two episodes midway through the 10-part season.

The scenes where "House of the Dragon" strives to outdo its predecessor in those regards seldom succeed; it's where the prequel feels most like a cheap knockoff. It's too bad "House of the Dragon" takes such a long time to define and shade the Targaryens and those in their orbit. House of the Dragon premieres Sunday at 9 p.m. on HBO and HBO Max.

August 17: Aurora Borealis Could Dazzle Skies In Northern United States This Week

A strong G3 storm "Does bring the northern lights down into the United States," said Bill Murtagh, the program coordinator at the National Oceanic and Atmospheric Administration's Space Weather Prediction Center. On Thursday, when the geomagnetic storm is expected to be at its strongest, scattered cloud cover still looks likely across parts of the northern tier of the country, although much of Montana, Michigan, New York, Massachusetts, Connecticut, and Rhode Island are all forecast to have mostly clear skies.

AURORA FORECAST: Tonight's aurora forecast for the potentially impending moderate/strong geomagnetic storm shows generally cloudy conditions over the Northeast and better than average conditions for parts of Michigan, the Rocky Mountain West, and the Pacific Northwest.

More solar storms are expected as the sun continues to progress through its 11-year solar activity cycle, which is ramping up toward its maximum, which Murtagh expects it to reach between 2024 and 2025."Since we started ramping up from the solar minimum, we've had some G3-type level storms, but we haven't had greater than that yet. We've not had a G4 or higher geomagnetic storm yet in this stage of the cycle," Murtaugh said.

Geomagnetic storms are categorized via NOAA's G-Scale, a tool that runs from G1, a minor solar disturbance, to G5, an extreme storm capable of causing widespread blackouts, knocking out satellites for days, and making the aurora borealis visible as far south as Texas and Florida.

"One of the most vulnerable areas, essentially, in the world is the northeast corridor of the United States," Murtagh said, adding that parts of Canada also are quite vulnerable to solar storms.

The storm impaired satellite systems knocked out power to parts of Sweden for an hour, and sent the aurora borealis as far south as Florida, according to NASA.