Unclaimed Tax Refund Scams, Federal Budget Deal, and Clean Energy Tax Credits
Tax Policy/News:
July 3: IRS Warns Of New Scam Involving Unclaimed Refunds
The Internal Revenue Service and its Security Summit partners are cautioning taxpayers and tax professionals to beware of a new scam in which fraudsters are sending out cardboard envelopes from a delivery service asking people to send photos and bank account information so they can receive an unclaimed tax refund.
The envelope has a letter bearing the IRS masthead and claiming that the notice is "In relation to your unclaimed refund."
The letter includes contact information and a phone number that doesn't belong to the IRS, but it asks for sensitive personal information from taxpayers - including detailed pictures of driver's licenses - that can be used by identity thieves to try to get a tax refund and other sensitive financial information.
"This is just the latest in the long string of attempts by identity thieves posing as the IRS in hopes of tricking people into providing valuable personal information to steal identities and money, including tax refunds," said IRS Commissioner Danny Werfel in a statement Monday.
An unusual feature of the scam is that it tries to fool people into emailing or phoning detailed personal information in an effort to steal valuable information.
The letter says the deadline for filing tax refunds is Oct. 17, even though the deadline for people on extension for their 2022 tax returns is actually Oct. 16, and those owed refunds from last year have time beyond that.
June 28: After The Budget Deal, What's Next For The IRS?
The federal budget deal, cemented earlier this month with a handshake, has fostered speculation as to the exact places where money will be cut - particularly with the Internal Revenue Service - and what might replace the proposed programs.
They negotiated a deal where, among other things, the Defense Department agreed to an increase of only 7% a year, and the IRS took a "Haircut" of 10% a year over the next few years, according to John Sheeley, a continuing education provider through Tax Practice Pro Inc. "That amounts to $1.4 billion for the 2023 fiscal year, and $10 billion over the next two coming off the $80 billion the Inflation Reduction Act gave them," he said.
"We finally got the IRS to a level where they were getting real money," said Sheeley.
"They were answering the phones again - but now that that's happened, they're starting to take away the money again. When you look at the COVID operations page, it's interesting to see week to week how many returns are moving or not. Now that they're making progress, they're taking away some of that money that enabled them to make the progress."
The budget agreement illustrates how fleeting money is, according to Roger Harris, president of Padgett Business Services: "With the initial $87 billion now already cut to $58 or $60 million, you wonder how much of that money is something you can count on depending on how the next election turns out."
"What the IRS will do is try to make as many noticeable improvements as taxpayers can see to make it harder to continue to take money away from them," he declared.
Harris continued: "It's too early to judge. Everybody agrees that last tax season was better, but some of that was due to improvements already in the books. But it will be harder to take money away from the service if everyone sees things getting better."
Economic News/Policy:
July 4: Fed Minutes to Offer Hints on ‘Awkward’ Pause-and-Hike Message
The Federal Open Market Committee paused its interest-rate hikes after 10 consecutive moves spanning 15 months, even with inflation cooling more slowly than projected.
At the same time, policymakers forecast two additional increases this year, more than expected, a confusing result that left investors seeking answers.
The central bank and Chair Jerome Powell "Have delivered a muddled message, and I assume it reflects an uncomfortable compromise between the hawks and doves on the committee," said Kathy Bostjancic, chief economist at Nationwide Life Insurance Co. "The minutes might provide insight on that, but it might simply repeat the awkward explanation Powell has offered." Powell has said Fed officials wanted more time to assess economic data in light of aggressive prior increases as well as credit tightening following bank failures in March.
The minutes could reinforce market expectations for a July hike, said Derek Tang, economist with LH Meyer/Monetary Policy Analytics.
"A July hike is not a given but pretty close, since it gets harder for them to claim the hiking cycle is still alive if they don't hike two meetings in a row," he said.
The personal consumption expenditures price index, which is the Fed's official target, rose in May at the slowest annual pace in more than two years, Commerce Department figures showed Friday.
Policymakers have been more focused on core prices, which exclude food and energy.
July 3: Kraken ordered to turn over its users' information to the IRS
Cryptocurrency exchange Kraken was ordered by a judge to provide a wide swath of information about its users to the Internal Revenue Service for the agency's investigation of underreported tax liability.
The IRS has said it wants information on Kraken accounts that did at least $20,000 of cryptocurrency trading in any single year, from 2016 to 2020.
The IRS didn't win everything it was seeking from Payward Inc., the San Francisco-based company established in 2011 to operate Kraken, but U.S. Magistrate Judge Joseph Spero directed the company to turn over users' names, birth dates, taxpayer identification numbers, addresses, phone numbers, email addresses, some documents and transactional ledgers.
Kraken is a top crypto exchange with daily trading volume of roughly $650 million globally, according to CoinMarketCap.
The judge agreed with the IRS's evidence that under-reporting of income is "Substantially higher where there is no third-party information reporting, as is the case with Kraken."
Spero said that while both the U.S. and Kraken made arguments that bordered on mischaracterizing the Coinbase ruling, it is "Clearly not the case," as Kraken argued, that the earlier decision established a limit on the number of cryptocurrency accounts that can be targeted by the IRS. The judge rejected IRS demands for information in due diligence Kraken questionnaires, including users' employment, net worth and source of wealth.
He also declined to order Kraken to turn over information from anti-money laundering investigations.
Energy and Environmental Policy/News:
June 30: IRS Offers Guidance On Tax Credits For Clean Energy Projects
The Internal Revenue Service posted a fact sheet Friday on tax credits for renewable energy projects under the Inflation Reduction Act as part of the Biden administration's push to incentivize green energy.
The additional guidance released Friday includes some examples of eligible projects for which applicants can apply for an award of an investment tax credit.
The Inflation Reduction Act requires at least $4 billion to be reserved for projects that are in Section 48C(e) Energy Communities Census Tracts where no pre-IRA qualified advanced energy projects were located and have certain closed coal mines, retired coal-fired power plants or are census tracts adjacent to those census tracts.
The tax incentives in the Inflation Reduction Act have been attracting interest from companies developing renewable energy projects, as well as their tax advisors, who have been watching the guidance roll out in recent months from the IRS and the Treasury in Notice 2024-44.
Tax pros are also watching for final regulations to be issued on the various renewable energy tax credits.
"We're constantly receiving notices from the Department of Treasury and the IRS and proposed regs," said Michelle Abel, a principal and firm leader of credits and incentives within Baker Tilly's specialty tax practice.
It would provide owners of solar and wind facilities in low-income areas with a 20% bonus to investment tax credits for up to 1.8 gigawatts annually of solar and wind energy projects.
Technology:
June 29: Generative AI to play potentially ‘transformative’ role in tax
The rapid advance of generative AI technology is seeing chatbots become increasingly competent at formulating complex tax advice and research, accounting market participants have said.
Jeff Saviano, global tax innovation leader at EY, argues that while generative AI technology is frequently seen as little more than an administrative instrument, it actually bears the potential to offer bespoke advice and make nuanced judgements.
"We're seeing these tools already being used in a multitude of ways," he says, specifically citing TaxGPT, the self-professed world's first AI-powered tax assistant, which launched in May. "I wouldn't cut and paste and send it to a client, but it's so powerful that it's a great place to start." Saviano explains that he has experimented with TaxGPT, challenging it by presenting mock scenarios and asking it to cross-reference client information with the relevant tax law and produce a judgment.
While its emergence has been slower in tax than other areas, AI could have a "Transformative impact on the role of a tax professional", he says.
"Although the adoption of AI in a tax environment has been slower than in other business areas, we're seeing it in increasing use, particularly given the extremely rapid speed at which large volumes of data can be processed." Like Saviano, Hackney endorses AI's proficiency in a wide range of tax concerns, including identifying misanalysis, contentious items, disallowable costs or expenditure qualifying for specific tax reliefs.
"While earlier applications may focus on compliance-based or numerical tasks, AI has clear potential to assist in an advisory context. And inevitably, more complex businesses will experience a wider range of specific areas in which AI can be applied in a tax context, especially in multinational enterprises." But while Hackney hails the potential benefits of AI for tax accountants, arguing that it will enable advisers to dedicate their time to higher-value work, he is also quick to warn of the potential dangers.
"These generative AI tools are so powerful that there's both an art and a science to asking it questions. There's a whole world of knowing how to prompt it for research." Saviano has also been actively participating in the drive towards deepening education and regulation around AI technology, having launched the EY Advanced Technology Tax Lab network in collaboration with MIT in 2018.
June 28: C-Suite Executives Plan Major Investments To Apply AI To Taxes
Finance leaders are planning major investments in artificial intelligence over the next 12 months to bolster their tax function.
The KPMG survey, which polled 500 C-suite executives at U.S. companies with an annual revenue of $1 billion or more, found that most tax departments - 59% - are already using some form of AI, and many do not intend to stop there.
The poll asked how much leaders are planning to spend on AI capabilities for their tax function over the next year, and found that the highest sum was also the most commonly cited: 40% of executives said they intend to spend $10 million or more.
"Leaders also recognize these applications are only the first step in the AI revolution. Almost all agree that AI is the next frontier for corporate tax departments and are eager to move forward. And they're willing to bet big," said the report.
"While accountants and tax attorneys will always remain the backbone of the tax profession, C-suite leaders are realizing data is the key to unlocking further value from their tax departments. Executives are beginning to modify their thinking around recruiting to seek out technologists and data scientists for certain parts of their organization," said the report.
To make tax more attractive to tax specialists, more organizations are trying to tout their high-tech credentials to possible talent; in fact, nearly half of respondents say revamping the perception of a tax career is their primary focus to attract and retain new tax talent.
"As corporate tax departments embrace more sophisticated AI applications, tax will continue to become firmly cemented within the technology-driven frontier of the future. C-suite leaders are dedicated to significant investments that can enhance or facilitate implementation of automation; and once organizations finesse their hiring to match these investments, technology will transform the tax profession," said the report's conclusion.
ICYMI:
July 4: US Climate Data Pinpoints Monday As Hottest Recorded Day On Earth
Monday was the hottest day recorded on Earth, according to data from the National Oceanic and Atmospheric Administration.
On July 3, the average global air temperature 2 meters above the planet's surface reached 62.62 degrees Fahrenheit or 17.01 degrees Celsius, according to the data analyzed by the University of Maine.
Robert Rohde, of the University of California, Berkeley, said the extreme heat was the result of both climate change, as well as the El Niño weather pattern, which can cause parts of the northern U.S. and Canada to become warmer and dryer than usual.
The effect can make the Gulf Coast and the Southeastern U.S. wetter, according to NOAA.
Rhode also warned that humanity should expect more scorching temperatures over the next month and a half.
"NCEP has placed Earth's average temperature yesterday as the hottest single day thus far measured by humans," Rohde, lead scientist at Berkeley Earth, tweeted Tuesday.
Monday's temperatures beat the previous record set in July 2022 and August 2016 of 62.46 degrees Fahrenheit or 16.92 degrees Celsius.
For Fun:
July 4: Geologists Track The Mysterious Origin Of Giant 'Gravity Hole' In The Indian Ocean
A massive, mysterious "Gravity hole" deep beneath the Indian Ocean has perplexed scientists for decades. Of course, this isn't an actual "Hole" as one might assume after hearing the term.
Instead, it is a huge anomaly in the Earth's crust with significantly lower gravity than the average. This depression is scientifically known as the Indian Ocean geoid low, and it covers over two million square miles and sits around 600 miles beneath the Earth's crust.
The researchers investigated the gravity dip using multiple computer models that were fed information on how the region altered over the last 140 million years due to the movement of Earth's tectonic plates.
They also employed several factors to simulate molten material convection within the mantle.
The findings indicated that IOGL exists due to a different mantle structure combined with another mantle anomaly, the African blob or large low-shear velocity province.
They discovered that certain tectonic plate portions had plunged into the mantle beneath Africa, triggering plumes under the Indian Ocean.
"What we're seeing is that hot, low-density material coming from this LLSVP underneath Africa is sitting underneath the Indian Ocean and creating this geoid low," Attreyee Ghosh, one of the authors of this study, told Scientific American.
The team believes the geoid gained its current form some 20 million years ago and will likely continue as long as mantle material flows.
Geologists believe that this mantle structure beneath the Indian Ocean was probably produced by the leftovers of a long-lost Tethys Ocean's seabed.
About 200 million years ago, this ancient ocean divided two supercontinents, Laurasia and Gondwana.
Africa and India were formerly part of Gondwana, but around 120 million years ago, what is now India drifted north into the Tethys Ocean, establishing the Indian Ocean behind it.