ERC Updates, the Radiation Exposure Compensation Act, and DOJ’s AI Officer
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Special Report: ERC Updates:
The IRS is intensifying its scrutiny of Employee Retention Credit (ERC) claims through audits and investigations, as evidenced by the issuance of Letter 6612 to businesses.
This letter, along with Form 4564, demands detailed documentation to substantiate the ERC claims within about a month, focusing on identifying ineligible or exaggerated claims efficiently. The initiative spans various industries and sizes, with a particular focus on smaller claims. This step is part of the IRS's broader strategy to address improper ERC claims.
Amidst this tightened oversight, the IRS has slowed the processing of claims to 1,000 to 2,000 per week and is offering options for businesses to withdraw their claims penalty-free or participate in a voluntary disclosure program, retaining 20% of the claimed ERC under certain conditions.
The IRS Criminal Investigation (CI) unit is actively addressing fraudulent claims related to the Employee Retention Credit (ERC), having launched 374 investigations into claims amounting to over $2.95 billion across tax years 2020 to 2023.
These measures, along with proposed legislation to extend the statute of limitations for claims and enforce a final filing deadline, underscore the complexities and challenges taxpayers face in navigating ERC claims.
For taxpayers looking to adjust their ERC claims, the IRS offers a withdrawal option for returning checks penalty-free and a voluntary disclosure program (VDP) that allows keeping 20% of the claimed ERC under certain conditions.
Non-response or insufficient documentation will lead to the denial of refunds, while businesses realizing their ineligibility post-letter have the option to withdraw their claims.
Taxpayers are advised to consult with a tax professional, review the ERC eligibility criteria and calculation guidelines available on the IRS website, and familiarize themselves with frequently asked questions about the ERC.
For further assistance, taxpayers can contact the IRS through a toll-free telephone number provided in the letter. Additionally, if taxpayers realize they are not entitled to the ERC as claimed, they are encouraged to contact the IRS to withdraw their claim, for which specific instructions will be provided.
Tax Policy/News:
February 22: IRS free tax system moves into public test phase
The IRS has expanded its Direct File pilot program, initially tested internally with IRS employees, to include taxpayers in 12 states.
This move marks a significant step towards offering a free tax preparation system directly to the public. The states participating in the pilot include Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington, and Wyoming.
During this phase, Direct File will be accessible for brief, unannounced periods to evaluate its performance under increased user volume.
Taxpayers in these states will have the opportunity to start their returns during these open windows, and those who begin can continue even when new user access is paused.
The IRS aims to ensure the system's reliability before a broader rollout, advising potential users to register with ID.me for verification purposes to prepare for upcoming testing windows.
The IRS will continue to update the public as the pilot progresses, emphasizing the importance of this initiative in providing a cost-free tax filing option.
Economic News/Policy:
February 25: Johnson and Schumer spar over elusive solution to Friday’s shutdown cliff
Government funding discussions have deteriorated, leading to a blame game between Senate Majority Leader Chuck Schumer and House Speaker Mike Johnson.
Schumer has called on Johnson to overcome the divisions within his party and address "new Democrat demands" that are complicating negotiations.
The failure to agree on a spending package or a short-term funding extension threatens a shutdown that could affect various departments, with deadlines looming on March 1 and March 8.
A meeting is scheduled for Tuesday with President Joe Biden to discuss not only government funding but also stalled emergency funding for Ukraine, Israel, and other issues.
Schumer urges flexibility among Senators to prevent a funding lapse, while Johnson criticizes Schumer's approach and insists on negotiating in good faith despite disagreements over spending priorities and policy provisions, including contentious issues like abortion and food aid restrictions.
The tight timeline and ongoing disputes underscore the challenges of reaching a consensus, with the potential for a partial government shutdown increasing as the week progresses.
February 22: Could the Federal Reserve rule out rate cuts in 2024?
Investor optimism that the Federal Reserve would aggressively cut interest rates in early 2024 has waned, replaced by speculation that rates may not be reduced at all this year.
This shift in sentiment follows recent data indicating persistent consumer and wholesale inflation, suggesting the Fed might maintain higher interest rates longer than initially anticipated.
As a result, stock markets have retreated from record highs, aligning more closely with the Fed's projection of four or five rate cuts, rather than the six anticipated in early January.
Despite this, some investors, like Tom Graff, chief investment officer at Facet, believe rate cuts could still occur, expecting two to four adjustments this year based on the Fed's December meeting projections and the overall downward trend in annual inflation. The Fed, having kept rates steady since January, seeks more evidence of disinflation before considering rate reductions.
However, scenarios outlined by Deutsche Bank economists highlight conditions under which rates might remain unchanged, including if core inflation remains high, if the neutral interest rate is adjusted upwards, or if the economy continues to show robust growth with low unemployment.
Technology:
February 22: Justice Department names first artificial intelligence officer
The Department of Justice (DOJ) has appointed Jonathan Mayer, an assistant professor from Princeton University with expertise in national security, consumer privacy, and criminal procedures, as its first artificial intelligence (AI) officer.
This move comes amidst increasing concerns about AI's impact on the criminal justice system. Mayer will lead the DOJ's Office of Legal Policy as the chief AI officer, a role that includes heading the newly established Emerging Technology Board.
This board will guide the DOJ on ethical considerations related to AI and other emerging technologies. Attorney General Merrick Garland emphasized the importance of keeping pace with scientific and technological advancements to uphold the law, ensure safety, and protect civil rights.
The DOJ has already been utilizing AI in various investigations, including tracking illegal drug sources and probing the January 6, 2021, Capitol attack.
Mayer's responsibilities will also involve recruiting more technology experts to the DOJ, leveraging his background in law and computer science to navigate the challenges and opportunities presented by new technologies.
Energy and Environmental Policy/News:
February 26: Hawley vows to attach Radiation Exposure Compensation Act to anything moving on Senate floor
Senator Josh Hawley (R-Mo.) is taking a determined stand to ensure the reauthorization and expansion of the Radiation Exposure Compensation Act (RECA), which provides compensation to Americans exposed to radiation due to federal government actions.
Hawley plans to attach an amendment to all items moving on the Senate floor, aiming to extend RECA's coverage to include New Mexico, Missouri, Idaho, Montana, Guam, Colorado, Tennessee, Kentucky, and Alaska.
This move underscores the bipartisan support the bill received last summer and highlights the urgency of passing the legislation as the current law is set to expire this year.
Initially enacted in 1990, RECA currently compensates individuals in Utah, Colorado, New Mexico, and Arizona affected by nuclear testing and uranium ore mining but excludes significant affected areas like New Mexico and Missouri.
The push for reauthorization and expansion comes at a critical time, with a government shutdown looming, emphasizing the need for immediate action to support RECA claimants nationwide.
February 21: Supreme Court seems willing to block EPA 'good neighbor' air pollution rule
During a Supreme Court session, conservative justices appeared inclined to halt a Biden administration policy designed to mitigate interstate air pollution contributing to smog.
The policy, challenged by Indiana, Ohio, and West Virginia, along with industry groups, aims to reduce nitrogen oxide emissions from industrial sources in 23 "upwind" states affecting "downwind" states' air quality.
Critics argue the Environmental Protection Agency (EPA) overstepped its bounds, failing to justify the rule's application inconsistencies and not allowing adequate state feedback.
The court's liberal justices, however, questioned the urgency of Supreme Court intervention before lower courts have ruled.
This case continues the trend of the Supreme Court scrutinizing EPA's regulatory scope, following significant rulings that curbed the agency's powers under the Clean Air and Clean Water Acts.
Critics of the EPA's approach argue it represents federal overreach and imposes undue costs on states and industries.
ICYMI:
February 21: Switching to EVs and clean power would save infant lives, help millions of kids breathe easier: Report
The American Lung Association's recent report highlights the significant health benefits for children that could result from the transition to electric vehicles (EVs) and clean power in the United States.
By shifting to zero-emission vehicles by 2035 for passenger cars and by 2040 for trucks, and powering the electric grid entirely with clean energy by 2035, the report estimates a substantial reduction in pediatric health issues.
This includes preventing up to 2.79 million pediatric asthma attacks, over 4 million respiratory symptoms, 147,000 cases of acute bronchitis in children, and more than 500 infant deaths from 2020 to 2050.
The report emphasizes the detrimental impact of air pollution from the transportation sector, a major source of both air pollution and carbon emissions driving climate change.
With states like California leading the way in banning gas-powered car sales by 2035 and others following suit, there's a push towards reducing pollution levels and mitigating climate change impacts.
However, challenges such as political opposition and current EV sales not meeting projections indicate hurdles in achieving these health and environmental goals.
For Fun:
February 24: Odysseus moon lander tipped over onto its side during touchdown, company says
Intuitive Machines' Odysseus moon lander, part of NASA's Commercial Lunar Services Payloads program, experienced a mishap during its lunar touchdown on February 24, 2024, when it tipped over onto its side due to coming down faster and with unexpected lateral movement.
Despite the setback, the lander, which was launched by a SpaceX Falcon 9 rocket on February 15, is still operational, able to draw solar power and send back data, including engineering and science information.
The incident occurred after a sensor package issue was resolved using a NASA payload, the Navigation Doppler Lidar (NDL), which helped correct the lander's trajectory.
Although the lander's orientation means some instruments are not optimally positioned, NASA and Intuitive Machines are hopeful that most of the mission's objectives can still be achieved.
The situation underscores the challenges of lunar landings on unpredictable terrain, highlighted by a similar recent incident with a Japanese moon probe.
The Odysseus mission, which carried six payloads to the moon, represents a significant step for the United States in lunar exploration, being the first successful soft landing since 1972 and the closest to the moon's south pole by any U.S. mission.