R&D Tax Credit Reporting, Tax Benefit Letters, and Interest Rate Hikes
Tax Policy:
October 17: Looming Leadership Void at I.R.S. Raises Concerns Over $80 Billion Overhaul
A group of former Internal Revenue Service commissioners is raising concerns over the fact that the White House has yet to nominate a replacement for Charles P. Rettig, whose term as I.R.S. commissioner is scheduled to expire next month, warning that the looming vacancy could stall the Biden administration’s planned $80 billion overhaul of the agency.
The additional funds are expected to help the beleaguered I.R.S. crack down on tax cheats, improve customer service and update antiquated technology. The funds, which were included in a bill that Democrats passed, are a central part of the Biden administration’s plans to raise more than $120 billion in additional tax revenue over the next decade.
Overseeing that transition will be a significant undertaking, and several former I.R.S. leaders are warning that the lack of a new leader could hamper the transformation of the agency. The term of Mr. Rettig, who was appointed by President Donald J. Trump will end on Nov. 12.
The former commissioners, who served under Democratic and Republican presidents, are Fred Goldberg, Charles Rossotti, Mark Everson, and John Koskinen. They were joined in their statement by Nina Olson, a former national taxpayer advocate.
Treasury Secretary Janet L. Yellen sent Mr. Rettig a memo in August outlining her top priorities, including clearing a backlog of unprocessed tax returns, improving taxpayer services, revamping antiquated technology, and hiring thousands of new employees. She directed the agency to draft the plans within six months, and she tapped her deputy, Wally Adeyemo, to work with Mr. Rettig to develop the new initiatives and timelines.
Mr. Rossotti said in an interview that money alone would not modernize the I.R.S. and that the Biden administration should prioritize putting someone in place to put its imprint on the agency. “If you have a situation where you’ve created expectations, but there’s no progress because there’s not a leader, that’s not a good situation,” Mr. Rossotti said.
October 13: IRS extends transition period for enhanced R&D tax credit reporting requirements
The Internal Revenue Service recently set forth administrative guidance indicating it is extending the transition period during which taxpayers are required to adhere to the much more arduous and onerous R&D tax credit reporting requirements in connection with amending tax returns within open statute years for R&D tax credit claims for refund. The transition period has now been extended through Jan. 10, 2024, in which taxpayers are afforded a full 45 days to perfect an R&D tax credit claim for refund with reporting deficiencies prior to the Service's final determination on the claim.
From a best practice and risk mitigation perspective, in order to mitigate or avoid income tax return paid preparer penalties pursuant to Section 6694, a "More likely than not" standard should be satisfied.
The subsequent standards of the applicable levels of opinions should be assiduously analyzed when assessing a tax return filing position pursuant to Circular 230, the Internal Revenue Code, and the corresponding Treasury Regulations: "Will" standard: Generally, a 95% or greater probability of success if challenged by the IRS; a "Will" opinion generally represents the highest level of assurance that can be provided by an opinion.
Each of the standards above has a relevant meaning to both taxpayers and tax professionals when evaluating a tax position and the related disclosure requirements. The IRS continues to engage with stakeholders on R&D tax credit matters and comments should be directed to the IRS.
October 13: IRS sending millions of letters on claiming tax benefits
The IRS said Thursday it will sending out the letters to millions of families who haven't claimed the Earning Income Tax Credit, the Child Tax Credit, the Recovery Rebate Credit, or other benefits, and it will be leaving open its Free File program until Nov. 17 to enable families to file tax returns to claim those benefits, depending on their personal and family situation.
The letter will be printed in both English and Spanish and offer a brief overview of each of the three tax credits.
"The IRS wants to remind potentially eligible people, especially families, that they may qualify for these valuable tax credits," said IRS Commissioner Chuck Rettig in a statement Thursday. "We encourage people who haven't filed a tax return yet for 2021 to review these options. Even if they aren't required to file a tax return, they may still qualify for several important credits. We don't want people to overlook these tax credits, and the letters will remind people of their potential eligibility and steps they can take." Rettig-Charles-IRS-budget-hearing.
The tax benefits are among those that were expanded under the American Rescue Plan Act of 2021 and other recent legislation. The only way to claim the benefits is by filing a 2021 tax return, even if people have little or no income from a job, business, or other source and don't normally file a tax return every year.
Economic News/Policy:
October 16: Economy Week Ahead: U.S. Housing Market and Inflation Abroad in Focus
Monday: China’s National Bureau of Statistics releases third-quarter gross domestic product, along with September retail sales and fixed-asset investment, a measure of infrastructure and equipment investing. China’s economy expanded at a 0.4% annual rate in the second quarter, its weakest growth rate in more than two years.
Tuesday: The Federal Reserve releases September figures on industrial production, which measures the output of factories, mining, and utilities. Industrial output decreased by 0.2% in August from the prior month.
The National Association of Home Builders releases its October housing-market index, based on a survey of home builders on single-family housing market conditions. The index declined in September for the ninth consecutive month to its lowest level since May 2020 amid higher construction costs and rising interest rates.
Wednesday: The U.K.’s Office for National Statistics releases inflation data for September. The U.K.’s consumer-price index rose 9.9% in August from a year earlier, down from a 10.1% rise in July as gasoline prices dropped.
The Commerce Department releases September figures on new residential construction and building permits. Housing starts rose 12.2% in August from the month before while building permits decreased by 10% in the same period. Canada’s statistics agency releases inflation data for September. Canada’s annual inflation rate rose 7% in August from a year earlier, a slower pace than the 7.6% rise in July.
The Fed releases its periodic compilation of economic anecdotes collected from businesses around the country, known as the Beige Book. The report will include details from businesses on inflation, employment, and output growth.
Thursday: The Labor Department releases the number of worker filings for unemployment benefits in the week ended Oct. 15. Initial jobless claims, a proxy for layoffs, rose modestly the week before but remained near the 2019 weekly average of around 218,000.
The National Association of Realtors reports sales of previously owned homes in September. Existing-home sales fell for the seventh straight month in August to a seasonally adjusted annual rate of 4.8 million, the weakest rate since May 2020.
October 16: Darkening economic outlook spells trouble for 2022 Democrats
President Biden and Democrats are facing serious political headwinds driven by high inflation, an erratic stock market, and deepening recession fears as they attempt to defend their majorities in the House and Senate.
In late summer, after enduring the scourge of surging prices and a strained supply chain, the president and his party saw a string of economic and policy wins. Gas prices dropped and Democrats were able to come together and pass a sweeping climate and health care bill. The U.S. has also enjoyed the strongest run of hiring in decades, adding more than 10 million jobs since Biden took office and 3.8 million this year alone. But the U.S. economic outlook is once again darkening.
Republicans have blamed Biden and Democrats for the rapid inflation facing U.S. households since prices began rising last summer.
"Wages are down, prices are up, and Democrats have no one to blame but themselves. Americans know a Republican vote in November is a vote for lower prices and a strong economy," said Republican National Committee Chairwoman Ronna McDaniel in a Thursday statement.
Inflation has been high around the world and Democrats are eager to hold up the strength of the U.S. economy against its global counterparts. Democrats are also trying to rally support with the recently enacted Inflation Reduction Act, a bill intended to lower prescription, health care, and energy prices.
Seawright said it's essential for Democrats to highlight their attempts to bring prices down through the Inflation Reduction Act, Biden's efforts to normalize supply chains, and the administration's attempts to expand energy production.
October 13: Prices rose again in September, ensuring more interest rate hikes
Prices rose faster in September than they had the month before, underscoring inflation's remarkable grip on the U.S. economy despite the Federal Reserve's aggressive work to ease the burden on families and businesses - and guaranteeing more interest rate hikes to come.
Seven months after the central bank started raising rates, the economy has seen little reprieve. Costs for housing, utilities, groceries, and clothing strain the budgets of households nationwide. Policymakers face vexing choices about the path ahead: They must regain control of inflation before it embeds further into daily life.
They also run the risk of going too far, since their decisions won't fully slow down the economy for months - and the five rate hikes they've already made could soon send the economy into recession.
Energy and Environmental Policy/News:
October 12: Congress eyeing ‘NOPEC’ bill to take on Saudi Arabia
The White House has not explicitly backed the bill, but said following the production cut announcement that it would "Consult with Congress on additional tools and authorities to reduce OPEC's control over energy prices."
"Certainly, in light of recent developments and OPEC+'s decision about oil production, the president believes that we should review the bilateral relationship with Saudi Arabia and to take a look to see if that relationship is where it needs to be and that it is serving our national security interests," White House national security spokesperson John Kirby told reporters during a call.
A statement released by Sen. Chuck Grassley last week said that the senator would add the NOPEC bill, which he sponsored, as an amendment to the National Defense Authorization Act, which Congress is expected to take up when it returns in November.
The NOPEC bill was spearheaded by Grassley, as well as Sens. Mike Lee (R-Utah), Amy Klobuchar (D-Minn.), and Patrick Leahy (D-Vt). The bill advanced out of the Judiciary Committee in a bipartisan 17-4 vote, winning support from every committee Democrat as well as GOP Sens.
Analyst Claudio Galimberti told The Hill he did not think the NOPEC bill would actually solve the price problem. "The impact of this NOPEC bill on the market is minimal as it is self-defeating," he said in an email.
For Fun:
October 17: Bizarre Blue Blobs Hover In Earth's Atmosphere In Stunning Astronaut Photo. But What Are They?
An astronaut onboard the International Space Station has snapped a peculiar image of Earth from space that contains two bizarre blue blobs of light glimmering in our planet's atmosphere. The photo was released online on Oct. 9 by NASA's Earth Observatory. The second blue blob, which can be seen in the top right of the image, is the result of warped light from the moon.
The orientation of Earth's natural satellite in relation to the ISS means the light it reflects back from the sun passes straight through the planet's atmosphere, which transforms it into a bright blue blob with a fuzzy halo. This effect is caused by some of the moonlight scatterings off tiny particles in Earth's atmosphere, according to the Earth Observatory.
Blue light has the shortest wavelength and is therefore the most likely to scatter, which caused the moon to turn blue in this image. The orange halo parallel to the curvature of the Earth is the edge of the atmosphere, which is commonly known as "Earth's limb" when viewed from space, according to Earth Observatory.