IRS Agents, Auto Factories, and Idalia Tax Relief

Tax Policy/News:

September 5: September is National Preparedness Month; IRS reminds taxpayers to prepare for natural disasters

In recognition of National Preparedness Month, and as the peak of hurricane season approaches, the Internal Revenue Service (IRS) is urging taxpayers to either create or update their emergency preparedness plans for 2023. 

To prepare for potential disasters, the IRS recommends that taxpayers secure and duplicate essential documents such as tax returns, birth certificates, and insurance policies, and also maintain a detailed inventory of their property and business assets. Having these updated documents readily available post-disaster can expedite the process of applying for relief from the IRS and other agencies, especially when the affected location is declared a major disaster area by the federal government.

Taxpayers are advised to store critical original documents in water and fireproof containers and consider having duplicates stored at a different location, possibly with a trusted individual outside the potential disaster zone. Digital copies of these documents can offer added security and ease of access. For documenting valuables, the IRS suggests taking photos or videos and maintaining detailed descriptions. The IRS provides disaster loss workbooks to assist individuals and businesses in compiling lists of belongings or equipment, which can be crucial for insurance or tax benefit claims after a disaster.

In the event of a disaster, the IRS stands ready to assist affected taxpayers. After a federal disaster declaration, the IRS may offer extensions for tax filing and payment deadlines. Taxpayers located in the designated disaster areas will automatically receive such relief. However, those outside the disaster area but affected in some way, such as those aiding in relief efforts or those whose records are in the disaster zone, can also qualify for relief by contacting the IRS disaster hotline. 

Additionally, a special provision allows taxpayers to deduct uninsured or unreimbursed disaster losses on their tax returns for the year of the disaster or the previous year. For more details on National Preparedness Month, the IRS directs individuals to the Ready.gov website.

August 29: IRS agents are getting paid by private accounting firms: watchdog

Nearly 500 IRS employees have received payments from major private firms either before, during, or after their tenure with the government, as revealed by the agency's internal watchdog. 

The Treasury Inspector General for Tax Administration (TIGTA) disclosed that out of the 496 IRS employees under scrutiny, 241 were compensated by a large accounting firm, while 255 received payments from a big corporation. These employees were primarily from the IRS's chief counsel’s office, the appeals office, and the large business and international division. 

This division is currently under focus as the IRS, with new funding, aims to increase tax collection from affluent individuals and large corporations. The investigation was initiated following a request by Sen. Elizabeth Warren (D-Mass.) and Rep. Pramila Jayapal (D-Wash.) to probe the "revolving door" phenomenon between the IRS and the accounting sector.

The term "revolving door" refers to the frequent transition of skilled government workers to the private sector and vice versa. However, recent reports suggest that this might not accurately depict the situation within the agency. 

The New York Times has highlighted a systematic approach where private-sector policy drafters are positioned within the Treasury to formulate government policies favorable to big businesses. This can lead to "regulatory capture," where industries essentially regulate themselves due to their close ties with the government. 

TIGTA, in its report, acknowledged such behavior but emphasized that mechanisms are in place to identify and address potential conflicts of interest. In response, the IRS stated that it requires the expertise of private-sector tax professionals to effectively execute its role, especially when dealing with complex audits of large corporations.

August 29: IRS Catch-Up Delay Comes With Clarifications

In a brief IRS notice issued at the end of last week, the agency gave older, high-income employees and their retirement plans more time to get up to speed on new catch-up rules.

The Aug. 25 notice also resolved the IRS and Treasury Department's side of a technical glitch the Congress wrote into the law by mistake, according to Jayne Fitzgerald, the director of government relations for the National Association of Insurance and Financial Advisors, which was one of the industry stakeholders calling for the delay and a fix to the error in the language.

The IRS pledged to release more details in the future about its interpretation of the catch-up rules in Secure 2.0.

The IRS notice effectively informed the industry and the public that, "We're going to read the law as if it were in there," she said.

In the 10-page notice, the IRS specifically cited such stress removal for stakeholders among retirement savers and the industry.

Through its requests for public comment, the IRS further revealed plans for guidance relating to particular questions about the tweak to catch-up rules for multiemployer plans, participant errors and self-employed participants or government employees.

The Roth requirement "Would not apply" to plan participants who received no "Wages for purposes of the Federal Insurance Contributions Act" in the previous year, according to the IRS notice.

Economic News/Policy:

September 5: Federal Reserve official agrees the central bank can 'proceed carefully' on interest rates

Federal Reserve Governor Christopher Waller indicated that the recent strong economic data will provide the central bank with more time to determine if further interest rate hikes are necessary to manage inflation. 

Waller commented on the impressive economic data from the previous week, stating that it will allow the Federal Reserve to "proceed carefully" and wait for additional data before making decisions. 

Key data included the nonfarm payrolls report, which revealed a growth of 187,000 jobs in August, and average hourly earnings that increased by only 0.2% for the month, which was lower than anticipated. Additionally, other reports showed that the Fed's preferred inflation measure increased by just 0.2% in July, and job openings, a significant indicator of labor market tightness, dropped to their lowest since March 2021.

Waller, who is often seen as one of the more hawkish members of the rate-setting Federal Open Market Committee, emphasized the importance of monitoring inflation. He noted that while there have been two consecutive positive reports on inflation, it's crucial to determine if this trend is consistent or merely an anomaly. 

Waller also mentioned that the market is almost certain that the Fed will not increase the rate in its upcoming Sept. 19-20 meeting. However, there's still some uncertainty about a potential rate hike in the Oct. 31-Nov. 1 session. Waller's comments come shortly after Fed Chair Jerome Powell stated that while inflation remains high, the central bank will "proceed carefully" with any future rate adjustments.

September 4: Goldman Cuts US Recession Chances to 15% on Improved Inflation

Goldman Sachs Group Inc. has revised its prediction regarding the likelihood of the US entering a recession. The bank now believes there's a 15% chance the US will experience a recession, a decrease from their previous estimate of 20%.

 The updated forecast is based on several factors, including cooling inflation and a resilient labor market. 

Jan Hatzius, the chief economist at Goldman Sachs, provided further insights, explaining that he expects real disposable income to increase in 2024, driven by solid job growth and rising real wages. Hatzius also strongly disagrees with the idea that the effects of monetary policy will lead the economy into a recession. He believes that the impact of policy tightening will continue to decrease and will disappear entirely by early 2024.

 Goldman Sachs is also optimistic about the future growth of the US economy. The bank predicts an average growth rate of 2% through the end of 2024. Furthermore, Hatzius believes that the Federal Reserve will not raise interest rates in September and considers the possibility of a rate hike in November to be low.

 Hatzius also shared that their confidence in the Federal Reserve's decision to stop raising rates has grown over the past month, citing higher unemployment, slowing wage growth, and lower core prices as factors that should encourage the Federal Reserve to maintain the current interest rates. However, he also mentioned that the Federal Reserve is unlikely to adopt an easier policy unless the growth slows down more than they are currently forecasting. He expects only very gradual cuts of 25 basis points per quarter starting in the second quarter of 2024.

August 30: The US economy grew more slowly in the second quarter than previously estimated

The US economy experienced slower growth in the second quarter than initially projected, which aligns with the Federal Reserve's efforts to temper demand and mitigate rising prices. 

The Commerce Department's second estimate revealed that the Gross Domestic Product (GDP) increased at an annualized rate of 2.1% in the second quarter, a slight decrease from the initially estimated 2.4%. This revised estimate took into account increased consumer spending, government expenditures, and exports. 

However, business investments and inventories were adjusted downwards. Notably, nonresidential fixed investment growth was revised to 6.1%, down from the 7.7% in the first estimate. Meanwhile, residential fixed investment, indicative of the US housing market's state, had a lesser negative impact on growth than initially thought.

The economic growth in the second quarter was predominantly broad-based, with some indications of reduced demand for goods and imports. Consumer spending, which constitutes approximately 70% of the economic output, was slightly adjusted upwards in the revised estimate. 

Bill Adams, Comerica Bank's chief economist, stated that the economy's deceleration would help align demand with the US's productive capacity and control inflation. The GDP revisions were perceived positively as they indicated sustained growth and reduced the risk of the economy overheating, which could intensify inflation. The Federal Reserve, closely monitoring the GDP, raised interest rates by a quarter point, marking the highest level in 22 years. Fed Chair Jerome Powell hinted at potential future rate hikes if the economy doesn't decelerate.

Energy and Environmental Policy/News:

August 31: Biden administration offers $12B to convert auto factories into EV plants

The Biden administration has announced an investment of up to $12 billion to transform traditional auto manufacturing facilities into plants dedicated to hybrid and electric vehicles. 

Automakers can apply for loans or grants to modify their factories to produce plug-in electric, hybrid, or hydrogen fuel cell vehicles, as stated by Energy Secretary Jennifer Granholm. The funding comprises $10 billion from the Energy Department’s Loan Program Office and an additional $2 billion from Inflation Reduction Act grants, with the loan program further strengthened by the Democrats' climate, tax, and health care bill. Additionally, the Department will allocate $3.5 billion for domestic battery manufacturing, a move facilitated by the Bipartisan Infrastructure Law.

The Biden administration's overarching goal is to promote fuel-efficient vehicles and transition towards electric vehicles to address climate change, utilizing funding opportunities, tax credits, and regulations. A proposed rule by the Environmental Protection Agency suggests that by 2032, two-thirds of new vehicle sales could be electric. 

The Energy Department emphasized that the funding would prioritize good working conditions, including high wages and the maintenance or expansion of collective bargaining agreements. This announcement is timely, given the rising labor concerns in the shift to clean energy, with the United Auto Workers union previously accusing the industry of wage reduction during this transition. The union lauded the administration's decision, highlighting the importance of merging green jobs with good jobs.

August 30: Climate change raising risks of financial disaster for homeowners, insurers and bankers

The escalating weather-related threats posed by climate change, ranging from coastal hurricanes to wildfires, are putting significant financial pressure on insurance companies. As a result, many insurers are increasing their rates and retreating from high-risk areas to remain operational. 

For instance, during the summer, two major insurance firms, Farmers Insurance and United Property and Casualty, withdrew from Florida. The latter went bankrupt, leaving 22,000 Floridians without coverage and the state's residents to cover the financial fallout. 

Dennis Kelleher of the public interest nonprofit Better Markets warned that the banking sector might be the next to feel the strain. He emphasized that as insurance companies raise concerns, banks should be alarmed since they will bear the financial burden.

The frequency of billion-dollar disasters in the U.S. has surged, with 15 such climate catastrophes recorded by early August, even before the inclusion of significant events like the fires in Hawaii and hurricanes Hilary and Idalia. The insurance industry, which acts as a financial buffer against these losses, has seen its expenses skyrocket. 

In 2021, the sector paid out nearly $4 billion more than its earnings. This deficit grew to almost $27 billion in 2022 after Hurricane Ian. As insurance providers exit high-risk regions, an increasing number of Americans are left uninsured. This poses a significant risk to banks since a majority of U.S. homeowners have mortgages with these financial institutions. If properties aren't insured, banks could face substantial losses, especially in the event of a disaster. Kelleher predicts an impending wave of defaults, particularly impacting smaller community and regional banks.

Technology:

September 1: The Guardian says it’s blocking OpenAI from building off its content

The Guardian has declared its decision to prevent the AI text generation program, ChatGPT, from accessing and utilizing its content. 

AI tools like ChatGPT generate content by scraping existing online data and processing it through intricate algorithms. This has raised concerns regarding the legal permissions these programs have to use published content, including text, audio, and images, for training their algorithms. 

OpenAI, the owner of ChatGPT, had previously announced that website proprietors could choose to exclude their content from being used by its algorithms. The Guardian's publisher emphasized that scraping their intellectual property for commercial objectives has always been against their terms of service.

The Biden administration has prioritized AI safety in its interactions with the technology sector. In May, President Biden and Vice President Harris convened with top industry figures to advocate for transparency in their technology and to prevent biases. In July, Biden revealed that seven industry leaders had committed to a "responsible development" pledge, encompassing thorough testing and labeling of AI-generated content.

Legal disputes over the copyright fair use of content by AI are anticipated, with some experts predicting that legislative action from Congress will follow these initial litigations. However, certain Congressional members, such as Senate Majority Leader Chuck Schumer (D-N.Y.), are advocating for earlier AI regulations. The House also introduced a bipartisan proposal for an AI regulation commission in June.

ICYMI:

August 30: Those impacted by Idalia qualify for tax relief; Oct. 16 deadline, other dates postponed to Feb. 15

The Internal Revenue Service today announced tax relief for individuals and businesses affected by Idalia in parts of Florida. The IRS is granting tax relief based on designations for 46 out of Florida's 67 counties through FEMA.  The IRS has a dedicated disaster relief page on its website where the current list of eligible localities is available.

Taxpayers in the affected areas have their tax filing and payment deadlines postponed from August 27, 2023, to February 15, 2024. This means that individuals who had an extension to file their 2022 tax return by October 16, 2023, will now have until February 15, 2024. However, tax payments related to these 2022 returns, which were due on April 18, 2023, are not eligible for this relief.

Penalties for failing to make payroll and excise tax deposits due between August 27, 2023, and September 11, 2023, will be waived if the deposits are made by September 11, 2023.

The IRS will automatically provide this relief to any taxpayer with an address on record located in the disaster area. Those who may have moved to the disaster area after filing their return or have their records in the affected area but reside outside can also qualify for relief. If they receive a late filing or payment penalty notice, they should contact the IRS to have the penalty abated.

Additionally, taxpayers can claim uninsured or unreimbursed disaster-related losses on their 2022 or 2023 tax returns. Qualified disaster relief payments are generally excluded from gross income. There are specific provisions for those who participate in retirement plans or individual retirement arrangements (IRA), such as special disaster distributions and hardship withdrawals.

  The IRS has indicated that they might provide additional disaster relief in the future based on ongoing assessments.

For Fun:

September 3: Mission accomplished, India puts moon rover to 'sleep'

India's space agency, the Indian Space Research Organisation (ISRO), has successfully concluded its moon mission by switching off its moon rover, the first of its kind to reach the lunar south pole. 

The Pragyan rover, part of the Chandrayaan-3 spacecraft, completed its two-week assignment of conducting experiments on the moon. After its tasks were finished, the rover was set into "Sleep mode" with its batteries charged and receiver on. 

The rover's achievements include traveling over 100 meters on the moon's surface and confirming the presence of elements such as sulfur, iron, and oxygen. ISRO expressed hope for the rover's potential reactivation for future assignments, but if not, it will remain on the moon as India's lunar ambassador. 

This mission marked a significant accomplishment for India, making it the fourth country to land on the moon after the United States, China, and the former Soviet Union. Notably, India's rover reached the challenging terrain of the lunar south pole, a feat that even surpassed Russia's Luna-25, which crashed during a similar attempt. The successful landing of Chandrayaan-3, especially after a failed attempt in 2019, was celebrated as India's most significant scientific achievement.

In addition to the moon mission, ISRO has launched a probe to study the sun, aiming to observe solar winds that can lead to disturbances on Earth, manifesting as auroras. The satellite associated with this mission is currently in Earth's orbit and is preparing for its extensive journey of 1.5 million kilometers.