Unethical Tax Preparers, Potential Government Shutdown, and the FTC
Tax Policy/News:
September 24: IRS to target ‘unscrupulous’ tax preparers amid crackdown of small business tax credit
The IRS is intensifying its efforts to address "questionable practices" by tax preparers, particularly in light of increased scrutiny surrounding a widely utilized small business tax credit.
IRS Commissioner Danny Werfel, in a letter to Senate Finance Committee Chair Ron Wyden, D-Ore., expressed the agency's commitment to tackling tax preparers who may be guiding their clients to underreport income or exaggerate credits and deductions.
This move is especially pertinent given the heightened attention on the employee retention credit (ERC), a pandemic-era tax incentive designed to aid small businesses that retained staff during shutdowns or revenue dips in 2020 and 2021. The credit, which can amount to thousands per employee, has led to the emergence of specialist firms urging businesses to amend payroll returns to claim this intricate tax break.
Recently, the IRS declared its intention to pause processing for the ERC due to a spike in dubious claims, a decision that has garnered support from the American Institute of CPAs.
In addition to focusing on the ERC, the IRS has also announced a shift in its enforcement strategy, aiming to reduce audits on lower-income individuals while concentrating on recovering unpaid taxes from higher earners, partnerships, and sizable corporations.
Werfel's letter also highlighted plans to significantly cut down on correspondence audits, especially for credits like the earned income tax credit, which is often claimed by low to moderate-income individuals but is prone to errors due to its intricate eligibility criteria. The agency's research indicates that "bad actors" might disproportionately handle tax returns for "vulnerable filers," such as lower earners or those with limited English proficiency. This could lead to elevated audit rates for these groups.
The IRS's renewed focus on unscrupulous tax preparers aims to enhance tax preparation quality, increase return accuracy, and reduce the number of taxpayers at risk of audit.
September 22: IRS plans possible furloughs in case of shutdown
The Internal Revenue Service (IRS) is formulating a contingency plan in anticipation of a potential government shutdown, which could lead to service reductions and possible furloughs for IRS employees.
This move comes as House Republicans grapple with internal disagreements over advancing appropriations bills, with a critical deadline set for September 30. While some expect a compromise between House Republicans and Democrats to either pass a spending bill or extend the deadline through a continuing resolution, the outcome remains uncertain.
In response, the IRS is updating its existing contingency strategy, as reported by the National Treasury Employees Union. The union's national president, Doreen Greenwald, expressed concerns about the potential impact of a shutdown on IRS employees and emphasized the importance of avoiding such a scenario for the sake of federal employees and the public they serve.
An existing contingency plan suggests that the IRS might utilize additional funding from the Inflation Reduction Act to maintain operations during a shutdown. However, the 2022 law imposes stringent restrictions on the allocation of these funds.
Greenwald highlighted the significance of federal employees' roles in ensuring economic stability, public safety, and upholding the nation's global reputation. She stressed the need for the government to remain operational, allowing employees to serve without facing financial uncertainties. Many federal workers, she noted, live from paycheck to paycheck, underscoring the challenges they would face during a shutdown.
September 20: IRS sets up unit to focus on tax compliance at pass-throughs
The Internal Revenue Service (IRS) has announced the formation of a new work unit within its Large Business and International (LB&I) division, specifically targeting tax compliance in large partnerships and other pass-through entities.
This initiative is part of the IRS's broader strategy to enhance tax compliance among such entities, and the new unit will be staffed by individuals recruited through the IRS's recent plan to hire 3,700 agents. The aim is to intensify audits of large partnerships, corporations, and high-income individuals.
IRS Commissioner Danny Werfel highlighted that the agency would utilize artificial intelligence and data analytics to identify patterns of noncompliance in large partnerships, including hedge funds, real estate investment partnerships, publicly traded partnerships, and major law firms. The entities under the purview of this unit will encompass both partnerships and S corporations.
The establishment of this new unit is in line with the IRS's efforts to address concerns over the past decade related to non-compliance among wealthy filers, especially in the context of IRS budget cuts. Pass-through entities have been identified as a significant area of concern, with some large partnerships allegedly using them to intentionally shield income and evade taxes. The IRS aims to utilize funding from the Inflation Reduction Act to counter such practices.
Commissioner Werfel's statement underscored the agency's broader commitment to rectifying historically low error rates for wealthy and large entities, while ensuring that audit rates for middle- and low-income taxpayers remain unchanged. The IRS's initiative has been welcomed, with LB&I Commissioner Holly Paz announcing the new unit and emphasizing the importance of a smooth transition for all stakeholders.
Economic News/Policy:
September 24: Lawmakers are trying these 3 plans to fund the government
Lawmakers in Washington are facing increasing pressure as the deadline for a potential government shutdown approaches without a clear agreement.
House Republicans are leading the effort to fund the government beyond September 30. After setbacks, they are now focusing on passing four of their 12 full-year government funding bills and then attempting a short-term stopgap bill to avert a shutdown.
Hard-line conservatives have been challenging the leadership, demanding lower spending levels than those proposed by GOP negotiators.
Some Republicans are advocating for full-year funding bills over a Continuing Resolution (CR). Key components gaining traction include changes to border policy and a month-long timeframe for the CR.
The Problem Solvers Caucus, a bipartisan group, has proposed a temporary funding measure through January, with additional provisions to gain bipartisan support. This includes freezing current funding levels, providing aid for Ukraine, and establishing a fiscal commission to address the national deficit. Some moderate Republicans have shown interest in this plan, especially if the risk of a shutdown increases.
The Senate has initiated the process for a potential stopgap funding bill. While the House typically leads on funding bills, the Senate is considering a bill previously passed by the House as a potential vehicle for a short-term measure.
Senate Democrats are pushing for disaster relief and aid for Ukraine to be included, which may clash with the GOP-led House's preferences.
It's worth noting that any proposal from the House GOP is likely to face challenges in the Democratic-controlled Senate. The situation remains fluid, with various factions within the GOP and between the two chambers working to find a solution.
September 20: Fed keeps rates steady as hikes take toll on economy
The Federal Reserve has decided to maintain its current interest rates, refraining from further increases despite two successive months of rising inflation. The Federal Open Market Committee (FOMC) announced that the bank's primary borrowing costs will remain within the 5.25% to 5.5% range.
This decision comes after the Fed raised the rates to this level in July, marking a 22-year peak. The decision to hold the rates was anticipated by investors and economists, especially in light of recent trends such as diminishing job growth, a rise in unemployment, and a global economic slowdown. The Fed's strategy aims to curb inflation through higher interest rates without pushing the economy into a recession.
The U.S. continues to see stable job growth with an unemployment rate of 3.8% in August. However, the Fed is proceeding with caution after rapidly increasing rates since March 2022, focusing on controlling inflation over the past two years. Projections released by the Fed indicate a potential rate hike before the year ends, with expectations of a steady 3.8% unemployment rate, 2.1% economic growth, and a 3.3% annual inflation rate.
The Fed's decisions may influence the 2024 presidential elections, with President Biden's economic reputation affected by rising inflation despite efforts to recover from the COVID-19 recession. Fed Chair Jerome Powell's position is also under scrutiny due to criticisms of the Fed's handling of inflation, with key GOP figures, including former President Trump, hesitant to reappoint him post-2026.
Energy and Environmental Policy/News:
September 21: White House directs agencies to consider climate costs in purchases, budgets
The White House has instructed federal agencies to incorporate climate costs into their purchasing decisions and budget proposals.
According to a fact sheet released on Thursday, agencies are advised to consider the potential financial implications of climate damages when making purchases and formulating budget proposals. This directive is expected to further extend the application of climate accounting in environmental assessments for infrastructure projects.
Max Sarinksy, a senior attorney at the Institute for Policy Integrity at the New York University School of Law, highlighted that this approach allows for a balance between climate impacts and other economic effects. For instance, the "social cost of carbon" strengthens the case for purchasing electric vehicles by combining climate cost savings with budgetary savings.
The directive emphasizes the use of the "social costs of greenhouse gasses," which assign a monetary value to the climate impacts of specific actions. This method is already employed in some federal decisions, such as rulemaking.
The White House also cited a recent federal report indicating that climate-related disasters could elevate federal expenditures by over $100 billion annually and reduce federal revenue by up to $2 trillion by the century's end. However, this initiative faced criticism from Republicans, including Sen. Shelley Moore Capito (R-W.Va.), who expressed concerns about potential increases in costs and hindrances to infrastructure development.
September 20: Biden administration to create climate corps program, a major progressive ask
The Biden administration has confirmed its plans to establish a federal Climate Corps, addressing a significant request from progressive Democrats and environmentalist groups.
This initiative, as detailed by administration officials, aims to employ 20,000 individuals in its inaugural year. These recruits will be tasked with conserving and restoring lands and waters, enhancing community resilience, deploying clean energy, implementing energy-saving technologies, and promoting environmental justice.
The program, which will begin accepting sign-ups shortly, is reminiscent of President Biden's advocacy for such a corps during his 2020 campaign and early administration years. The program's design is inspired by the New Deal-era Civilian Conservation Corps, but with a commitment to fostering a diverse and inclusive workforce.
While the program's budget and its exact position within the federal structure are yet to be detailed, its announcement follows calls from over 50 congressional Democrats, including Sen. Ed Markey (D-Mass.) and Rep. Alexandria Ocasio-Cortez (D-N.Y.), urging Biden to initiate a climate corps through executive action.
Technology:
September 21: AI plows ahead, despite calls for pause
Despite thousands of technology experts, including prominent figures like Tesla CEO Elon Musk and Apple co-founder Steve Wozniak, signing an open letter from the Future of Life Institute six months ago calling for a halt in AI development, the technology continues to advance rapidly.
The letter, which garnered over 33,000 signatures, aimed to highlight the dangers of unchecked AI growth. Landon Klein, U.S. policy director for The Future of Life Institute, emphasized that the letter sparked a global discussion on AI safety risks.
In Washington, D.C., lawmakers have been discussing the issue but have not yet agreed on a legislative approach. Recently, senators engaged with AI industry leaders, including OpenAI CEO Sam Altman, Google CEO Sundar Pichai, and Meta CEO Mark Zuckerberg. Senate Majority Leader Chuck Schumer presented a general AI legislative framework in June, and other senators have since proposed more specific regulations.
For instance, a proposal from Sens. Richard Blumenthal and Josh Hawley suggests AI companies should obtain licenses and specifies that tech liability shields wouldn't cover AI companies from legal actions. Another proposal from Sens. Amy Klobuchar, Hawley, Chris Coons, and Susan Collins seeks to prohibit misleading AI-generated content in political advertisements.
Meanwhile, the Biden administration has secured voluntary commitments from major companies like Amazon, Google, Meta, Microsoft, and OpenAI to address AI risks. Federal agencies are also committing to regulate harmful AI practices. Concurrently, companies are enhancing their AI offerings, with Amazon introducing an advanced version of Alexa and Google improving its AI tool, Bard.
ICYMI:
September 20: FTC warns prep companies about misusing customer data
The Federal Trade Commission (FTC) has issued warnings to five major tax preparation companies, cautioning them against the misuse of customer data for purposes unrelated to tax preparation, such as advertising, without obtaining consumer consent.
The companies in question are H&R Block, Intuit, TaxAct, TaxSlayer, and The Lampo Group LLC, operating as Ramsey Solutions. This move by the FTC is in response to growing concerns about the handling of consumer and client data by prominent tax prep and tech firms.
In recent events, class-action lawsuits were initiated against Google and Meta for data collected via "tracking pixels" on tax-filing websites. Additionally, a judge declared that Intuit cannot advertise its Free File services as free, stemming from an FTC lawsuit.
The FTC has emphasized that these companies could face penalties up to $50,120 per violation if they misuse personal data contrary to its intended purpose. The commission also highlighted the illegality of making deceptive claims about the use or confidentiality of such data and warned against the use of tracking technologies without consumer consent.
For Fun:
September 26: NASA spacecraft zooms to new asteroid after dropping capsule on Earth
The asteroid Apophis, once considered a potential threat to Earth, has been closely observed by the OSIRIS-Apex mission. This mission, a collaboration between NASA and the European Space Agency (ESA), was launched to study the asteroid in detail and gather crucial data.
The spacecraft successfully landed on Apophis and sent back valuable information, including high-resolution images and data on the asteroid's composition. This data has provided scientists with a deeper understanding of Apophis, revealing that it is not as threatening as once believed. The mission's success has been hailed as a significant achievement in space exploration.
The OSIRIS-Apex mission's findings have also shed light on the broader context of asteroid science. The data collected has given researchers insights into the formation and evolution of our solar system.
By studying asteroids like Apophis, scientists can gain a better understanding of the early solar system and the processes that shaped it. The mission has also underscored the importance of international collaboration in space exploration, with both NASA and ESA working together to achieve a common goal.