Tax Season, Artificial Intelligence Working Group, and Electric Vehicle Chargers
Probity Tax Recovery is a tax consulting firm specializing in tax credits and incentives for small to mid-sized businesses. We work with business owners and their CPAs to identify tax credits and incentives while saving you time and money. Schedule a free consultation with a member of our team here.
Tax Policy/News:
January 12: Better service ahead — and a better tax season, promises IRS
The Internal Revenue Service (IRS) is emphasizing its efforts to enhance taxpayer service and technology as it prepares for the 2024 tax-filing season, set to begin on January 29.
IRS Commissioner Danny Werfel highlighted the improvements made in both in-person and online resources for taxpayers and tax professionals.
The IRS is utilizing additional funding provided under the Inflation Reduction Act to support these enhancements.
The agency has opened or reopened 54 in-person Taxpayer Assistance Centers since the passage of the act, aiming to collectively offer 8,000 more hours of in-person assistance during the upcoming filing season.
Technological improvements include updates to Individual Online Accounts, Business Tax Accounts, and Tax Pro Accounts. The IRS has also enhanced its Document Upload Tool, Where's My Refund?, and Where's My Amended Return? tools.
Werfel stated that the IRS is making progress toward its five-year goal of providing taxpayers with secure online access for filing documents, responding to notices, and accessing account data.
The agency is also investing in new scanning and mail-sorting equipment to modernize its operations.
Despite potential budget cuts, the IRS aims to maintain its progress and continue transforming its services with adequate resources.
January 12: IRS says it collected $360 million more from rich tax cheats as its funding is threatened yet again
The Internal Revenue Service (IRS) has announced that it collected an additional $360 million in overdue taxes from delinquent millionaires, bringing the total to nearly half a billion dollars in back taxes recouped from wealthy tax cheats.
The update was provided during a call with reporters as part of the IRS's efforts to showcase the impact of the Inflation Reduction Act funding allocated to the agency.
The IRS leadership emphasized the positive results achieved through the additional funding, despite the agency facing the prospect of more severe funding cuts.
IRS Commissioner Daniel Werfel stated that the impact of potential budget cuts would be felt in later years, and the agency intends to spend its allocated $60 billion over the next decade to maximize its impact in assisting taxpayers.
Werfel expressed hope that policymakers would recognize the positive impact of the funding and consider restoring IRS funding to maintain the momentum.
The IRS has opened examinations into the largest partnerships, including hedge funds, real estate investment partnerships, and large law firms. The 2024 tax season is set to begin on January 29.
January 10: IRS move narrowing access to tax data sparks lender outrage
Small-business lenders are expressing frustration over a recent decision by the Internal Revenue Service (IRS) to limit their access to borrowers' tax information.
The IRS issued a policy update, effective from June 30, stating that only lenders involved in residential and commercial real estate loans would have access to the Income Verification Express Service (IVES), a platform used to transmit tax returns to lenders.
This decision is expected to increase the time, complexity, and expense involved in the loan application process, particularly for small-business lenders participating in the Small Business Administration (SBA) lending program.
The ability to obtain tax returns directly from the IRS is seen as a crucial tool in underwriting and preventing fraud, and the new restrictions will require borrowers to obtain and provide their tax returns separately, adding a burden to applicants.
Lenders argue that the decision hampers innovation and modernization in the lending market and may make it tougher for small businesses to access credit, especially when combined with other challenges in the financial landscape.
Economic News/Policy:
January 16: House, Senate tax chiefs announce deal on business deductions, low-income credits
Top tax writers in Congress have reached a bipartisan deal to enhance the child tax credit (CTC) and reinstate business deductions that were previously eliminated to fund the reduction of the corporate tax rate in the 2017 Tax Cuts and Jobs Act.
The deal includes significant provisions related to research and development (R&D) expensing. The proposal aims to boost innovation and economic competitiveness, particularly in response to efforts to reshore segments of the high-end semiconductor industry. The plan revives immediate R&D expensing, allowing businesses to deduct research and development costs immediately. This provision is seen as a way to incentivize R&D, promote innovation, and enhance the United States' competitiveness, particularly in comparison to China. The reinstatement of R&D expensing is part of broader efforts to stimulate domestic investment, support U.S. innovation, and create jobs, as acknowledged by Business Roundtable chief lobbyist Joshua Bolten in a statement.
The CTC expansion raises the maximum credit per child to $2,000 from $1,600 until 2025, alongside reinstating deductions for interest payments and capital investments.
The deal also addresses low-income housing tax credits, safeguards Taiwanese companies from double taxation, and increases write-offs for small businesses.
The $80 billion plan will be funded by canceling the employee retention tax credit.
Lawmakers aim to pass the bill before tax season starts on Jan. 29, navigating potential hurdles amid government funding battles and an approaching election.
The proposal, which includes both temporary and permanent changes to the tax code, signifies a rare bipartisan moment in a divided Congress.
January 14: War and climate change are the main obstacles to aggressive Fed rate cuts in 2024, strategists say
Geopolitical tensions and climate-related disruptions in global trade are emerging as factors that could prompt the Federal Reserve to exercise caution on rate cuts, according to strategists at Macquarie.
The analysts, led by Thierry Wizman, highlighted the impact of mounting attacks in the Red Sea by Houthi rebels and droughts affecting key trade routes, such as the Panama Canal.
These disruptions, reminiscent of pandemic-era supply shocks, are contributing to increased shipping costs and potential delays in global shipments.
As a result, inflation could remain above 2%, influencing the Fed to avoid aggressive rate cuts. The risks associated with conflicts and climate change are identified as key considerations shaping the Fed's stance.
The Red Sea and the Suez Canal, which carries about 12% of global trade, play a crucial role in international shipping, and disturbances in these regions can have widespread economic implications.
Additionally, climate-related challenges, such as droughts, floods, and storms, pose threats to maritime infrastructure, as highlighted by the International Monetary Fund in a November report.
January 10: Republicans win faster IRS cuts in funding deal
The recently announced $1.66 trillion top-line spending agreement by congressional leaders includes an accelerated $10 billion cut to the Internal Revenue Service (IRS) in fiscal 2024, a year earlier than previously agreed upon by Democrats and Republicans.
Spearheaded by Republicans, particularly Speaker Mike Johnson (R-La.), the deal signifies a broader reduction in IRS funding originally designated in the Inflation Reduction Act.
While Democrats argue that the agreement preserves critical investments, tax experts caution that the likely outcome would be fewer auditors, impacting the IRS's new enforcement initiatives.
Critics express concerns that the cuts may contribute to a rise in the national deficit and hinder efforts to improve tax compliance.
Advocacy organizations emphasize the potential negative impact on holding wealthy tax evaders accountable.
The IRS has not provided comments on the accelerated budget cuts and their implications for agency operations and planning.
Technology:
January 10: AI threats loom over cautious Congress
As Congress enters a pivotal election year, concerns over the risks posed by artificial intelligence (AI) are growing, and experts argue that it's time for legislative action.
Despite a year filled with discussions on the benefits and risks of AI, lawmakers have yet to move on any proposals for AI regulations. Senate Majority Leader Chuck Schumer, who leads the bipartisan working group on AI, has refrained from setting a timeline for AI legislation.
The tech industry is advancing rapidly in AI, and analysts predict 2024 to be the "year of AI." Critics argue that Congress is lagging in AI regulation, with AI being deployed in various sectors, impacting decision-making.
While some praise Congress's attention to the issue, others emphasize the need for swift action, especially considering the looming 2024 election.
Concerns are raised about the possibility of a "light touch" bill focusing on research and innovation without addressing substantive issues like privacy, security, and transparency.
The EU has taken a lead by proposing the EU AI Act, setting a framework for AI rules. Congress is urged to learn from past mistakes in the privacy space and act promptly on comprehensive AI regulation.
January 11: House Financial Services Committee forms AI working group
The House Financial Services Committee has established a bipartisan working group focused on examining the impact of artificial intelligence (AI) on the financial services and housing industries, as announced by the committee's top lawmakers.
This AI working group aims to delve into the potential of AI technology and its adoption in the financial system to foster inclusivity, while also positioning the United States as a global leader in AI.
Chairman Patrick McHenry emphasizes both the transformative promise and associated risks of AI technology.
Led by Reps. French Hill (R-Ark.) and Stephen Lynch (D-Mass.), the bipartisan group, a continuation of previous AI task forces, will explore AI's potential in the financial system and work towards responsible AI innovation with a focus on consumer safety, security, data privacy, financial equity, and the stability of the financial system.
Energy and Environmental Policy/News:
January 11: Renewable energy grows at fastest rate in decades: IEA
Renewable energy experienced significant growth last year, surpassing 50% expansion compared to 2022, with global capacity reaching nearly 510 gigawatts, driven predominantly by increased solar capacity, particularly in China.
The International Energy Agency (IEA) anticipates solar and onshore wind to more than double in the U.S., European Union, India, and Brazil, while projecting global renewable capacity to reach 7,300 gigawatts by 2028.
Despite this progress, the IEA highlights the need for substantial financing in developing nations to achieve the goal of tripling renewables by 2030, emphasizing the importance of addressing policy uncertainty in developed economies.
The report does not specifically mention the U.S., but it notes that GOP presidential candidates express varying levels of skepticism about climate change and renewable energy, with commitments to expand fossil fuel development.
January 11: Biden administration announces $623M for EV chargers, alternative fueling stations
The Biden administration has announced the issuance of $623 million in grants to support 47 electric vehicle (EV) charging and alternative vehicle fueling infrastructure projects.
These projects, funded as part of a $2.5 billion grant program under the Bipartisan Infrastructure Law, aim to establish approximately 7,500 new EV chargers in 22 states and Puerto Rico.
The funds are allocated to 36 "community" projects focusing on charging and hydrogen fueling infrastructure in urban and rural areas, as well as 11 "corridor" projects located on roads.
The goal is to enhance accessibility, reliability, and convenience for American drivers while creating job opportunities in charger manufacturing, installation, and maintenance.
The projects cover a range of locations, including California, Maryland, and Arizona, with Texas receiving a $70 million investment in a fueling station for medium- and heavy-duty trucks powered by hydrogen.
Transportation Secretary Pete Buttigieg emphasized the positive impact on job creation and the advancement of sustainable transportation.
January 10: Senate Republican: ‘Grand bargain’ needed for energy permitting reform
Senator Bill Cassidy (R-La.) emphasized the need for a bipartisan "grand bargain" for energy permitting reform during a panel discussion at the American Petroleum Institute's State of American Energy event.
Cassidy suggested that permitting reform could only happen as part of a comprehensive agreement. He outlined a proposal, including a "foreign polluters' fee" on carbon-intensive imports from countries like China, aiming to address the externality of pollution not reflected in the product's price.
Cassidy expressed the belief that acknowledging such externalities might pave the way for bipartisan cooperation, potentially involving concessions like judicial review for permitting.
While skeptical of breakthroughs in the upcoming year due to election-related dynamics, he stressed the importance of socializing these concepts now for future collaboration.
Senator John Hickenlooper (D-Colo.) supported the idea of a "grand bargain" and highlighted the importance of improved measurements for pollutants, including unintentional emissions during industrial activities.
Senator Joe Manchin (D-W.Va.), a supporter of permitting reform, previously secured a promise from Majority Leader Chuck Schumer for introducing legislation in exchange for backing the Inflation Reduction Act in 2022, demonstrating the ongoing efforts toward reform.
ICYMI:
January 11: IRS to begin accepting business tax returns next week
The Internal Revenue Service (IRS) has announced that while the official start date of tax season for individual taxpayers is Jan. 29, it will begin accepting business tax returns as early as Jan. 16.
In an email to tax professionals, the IRS stated that it will commence accepting all business tax returns at 9:00 a.m. Eastern time on Tuesday, Jan. 16, 2024.
However, certain forms for tax year 2023, including Investment Credit (Form 3468), General Business Credit (Form 3800), and others related to clean energy credits, will not be accepted until Monday, Jan. 29, 2024, coinciding with the start of tax season for individuals.
The IRS emphasized that if these forms are submitted with a tax return before the specified date, the return will be rejected.
Once available, the forms need to be submitted in XML format, not as binary attachments, to claim tax credits for clean energy.
Tax professionals are advised to monitor the IRS's Modernized e-File (MeF) Status page for updates.
January 10: Paper processing still a major problem for IRS: NTA
The 2023 Annual Report to Congress from National Taxpayer Advocate Erin Collins highlights substantial improvements in taxpayer services by the Internal Revenue Service (IRS).
While successes outweigh weaknesses, persistent challenges include difficulties in handling paper filings, delays in resolving identity theft cases, backlogs in processing amended returns, resource allocation prioritizing phone calls over correspondence processing, below-average service for tax professionals, and delays in processing Employee Retention Credit claims.
Despite virtually eliminating the backlog of unprocessed original 1040s and enhancing telephone service, the IRS faces ongoing issues with paper processing and service efficiency.
Notably, the report emphasizes that at the end of FY23, nearly half a million taxpayers with cases pending in the IRS Identity Theft Victims Assistance unit were waiting an average of almost 19 months for resolution.
The report recommends prioritizing online account enhancements, addressing hiring challenges, automating correspondence processing, enabling all taxpayers to e-file, and focusing on significant problem areas for improvement.
For Fun:
January 12: Everything you think you know about spiders is wrong
Despite centuries of baseless myths contributing to arachnophobia, spiders are not insects but belong to the class "Arachnida."
Contrary to popular misconceptions, they play a vital role as ecosystem engineers, keeping insect populations in check. Spiders rarely bite humans, and most skin bumps are not caused by spider bites.
The claim that people swallow spiders in their sleep is debunked, with no verified evidence supporting this notion. Spiders do not lay eggs inside fruits or under human skin, dispelling common urban legends.
In cold climates, spiders found indoors likely belong to species adapted to human-made structures, and they don't crawl up drains seeking refuge in homes.
Understanding these facts is crucial to appreciating the positive ecological impact of spiders and dispelling unfounded fears.
Additionally, there is a prudent need to correct unflattering rumors surrounding spiders, highlighting their essential role in maintaining ecological balance by controlling insect populations.
January 11: AI models frequently ‘hallucinate’ on legal queries, study finds
A recent study from Stanford University’s Institute for Human-Centered AI and Regulation, Evaluation, and Governance Lab reveals that generative artificial intelligence (AI) models, such as ChatGPT, often produce false legal information, with "hallucinations" occurring between 69% to 88% of the time.
The study assessed models like GPT-3.5, PaLM 2, and Llama 2, finding a high rate of incorrect answers, especially with more complex legal questions.
The authors express significant concerns about the reliability of using large language models (LLMs) in the legal field, emphasizing the risk of deepening existing legal inequalities rather than alleviating them.
Instances of such hallucinations have already resulted in sanctions for lawyers using AI-generated case citations.
The study highlights the need for caution and humility in using AI, as emphasized by Chief Justice John Roberts in his year-end report.