Tax Season Challenges, R&D Tax Credit Claims, and The Recovery Rebate Credit
Tax Policy:
January 10: Treasury warns of ‘enormous challenges’ this tax filing season that could delay refunds
Treasury Department officials on Monday said that the Internal Revenue Service will face "Enormous challenges" during this year's tax filing season, warning of delays to refunds and other taxpayer services.
In a phone call with reporters, Treasury officials predicted a "Frustrating season" for taxpayers and tax preparers as a result of delays caused by the pandemic, years of budget cuts to the IRS, and the federal stimulus measures that have added to the tax agency's workload. Typically, IRS officials enter filing season with an unaddressed backlog of roughly 1 million returns.
Only 9 percent of calls were answered by an IRS customer service representative, while only 3 percent were answered for the 1040 support line for individual income tax returns, according to the National Taxpayer Advocate, a watchdog group.
These challenges were exacerbated by the federal response to covid-19, which required the IRS to implement big new programs - from stimulus payments to the expanded Child Tax Credit - for tens of millions of families.
The IRS budget has been significantly cut by roughly 20 percent over the last decade across its major areas of operation - including tax enforcement, taxpayer services, and agency expenses for information technology, among other operational needs.
As a result, the IRS heads into its busiest time of year with a workforce that is now the same size as it was in 1970 - even though the U.S. population has grown by 60 percent since that time, according to Treasury officials.
Mark Everson, who served as the IRS commissioner during the George W. Bush administration, said "Practitioners across the country are very concerned" about the IRS's ability to handle the upcoming tax season.
January 7: IRS updates info on Recovery Rebate Credit and pandemic response
The frequently asked questions document on the 2020 Recovery Rebate Credit explains how taxpayers who didn't receive their Economic Impact Payments or didn't receive the full amount to which they were entitled, can still receive the stimulus payments.
Tax professionals and taxpayers can generally rely on FAQ documents from the IRS, even though the guidance hasn't gone through the full process of proposed regulations, a comment period, and final regulations.
The IRS is trying to be more transparent about the process now, and more information about reliance on FAQs and the Internal Revenue Bulletin is available here.
Separately on Friday, the IRS issued a progress update on how it responded to taxpayers during the pandemic this past year in terms of providing taxpayer service at a time when the IRS's resources were stretched especially thin.
The report explains how the IRS has been trying to respond to the increasing demands of providing its traditional services, along with new demands like monthly advance Child Tax Credit payments, multiple rounds of Economic Impact Payments, and guidance on ever-changing tax laws.
IRS employees had to keep making adjustments to deliver the filing season despite office closures, social distancing mandates, and an extended tax filing deadline.
"This has been an unprecedented period facing the IRS and the nation," said IRS Commissioner Chuck Rettig in a statement.
January 5: IRS extends deadline to ‘perfect’ R&D tax credit claims
The IRS updated on Wednesday an announcement it made back in October about the information it will now require for a valid research credit refund claim.
To make sure the claims are valid, the IRS wants taxpayers to identify all the business components to which the research credit claim relates for that year, and for each business component, they have to identify all research activities performed, name the individuals who performed each research activity, along with the information each individual tried to discover, as well as provide the total qualified employee wage expenses, total qualified supply expenses, and total qualified contract research expenses for the claim year.
Once the grace period is over, there will be a one-year transition period during which taxpayers will now have 45 days to "Perfect" a research credit claim for a refund prior to the IRS' final determination on the claim.
"The term 'perfecting' means taxpayers are given an opportunity to provide missing information that is required to process the Research Credit refund claim," the IRS explained in a newly updated FAQ page.
"During the transition period, taxpayers will be notified of a deficient claim and provided 45 days to perfect. This date by which a taxpayer must provide the missing information will be on the letter sent to taxpayers." The IRS also issued interim guidance Monday to its tax examiners on the procedures they should follow for determining whether a claim is valid.
The IRS has sometimes listed improper claims for the R&D tax credit among its Dirty Dozen tax scams, and the guidance appears to be an effort to crack down on bogus claims.
The new requirements have also provoked an outcry among many tax professionals and taxpayers who have legitimate tax credits and tax refunds to claim for research their companies have performed.
Build Back Better Act/Spending Bill:
January 10: Manchin’s Choice on Build Back Better: Mine Workers or Mine Owners
For years, burly men in camouflage hunting jackets have been a constant presence in the Capitol Hill office of Senator Joe Manchin III, their United Mine Workers logos giving away their mission: to lobby not only for the interests of coal but also on more personal matters such as pensions, health care and funding to address black lung disease.
With the miners now officially on the opposite side of the mine owners, it signaled the escalation of a behind-the-scenes struggle centered in Mr. Manchin's home state to sway the balking senator, whose skepticism about his party's marquee domestic policy measure has emerged as a potentially fatal impediment to its enactment.
"We urge Senator Manchin to revisit his opposition to this legislation and work with his colleagues to pass something that will help keep coal miners working and have a meaningful impact on our members, their families, and their communities," Cecil E. Roberts, the president of the United Mine Workers of America, or U.M.W.A., said in a statement just before Christmas.
"Joe Manchin grew up with coal miners," said Jonathan Kott, a former aide to the senator who still advises him.
For much of last year, miners and mine owners were in sync on their skepticism of the Democrats' far-reaching social policy and climate change plan, fearing measures to hasten the economic transition from fossil fuels like coal and natural gas to renewable sources like wind and solar.
The manufacturing provisions, in particular, have driven a wedge between coal miners and coal mine owners, who have been working hard to shore up Mr. Manchin's opposition.
Union officials, speaking on the condition of anonymity to avoid angering mine owners, said Mr. Manchin should not be listening to the West Virginia Coal Association, which includes some of Mr. Trump's staunchest supporters and switched allegiances in 2018 to back Mr. Manchin's Republican challenger in that year's election, Patrick Morrisey.
Global Trade:
January 11: Powell: Supply-side constraints aren't seeing 'a lot of progress,' fueling inflation
Federal Reserve Chair on Tuesday said supply-side constraints in the U.S. are not seeing "a lot of progress," which he said is one factor driving the high rate of inflation.
Powell, during his confirmation hearing before the Senate Banking Committee, said the central bank had first said inflation in the U.S. would be transitory because officials believed supply-side bottlenecks and shortages would be alleviated at a quicker pace, which has not been the case.
"We haven't had this kind of a labor force shock before so we and essentially all other mainstream forecasters forecasted that by now we'd be seeing much lower inflation, and that's not what happened," Powell said.
He added later in the hearing that officials thought that there would have been a "Much more significant return to the workforce" at the end of last year than there was, which could pose more issues for inflation down the road. "We also thought, you know, by the end of last year, we also thought that there would be a much more significant return to the workforce than has turned out to be the case. And while that's not what's causing current inflation, it is more the demand, kind of demand-side issue that - labor supply can be an issue going forward for inflation, probably more than these supply-side issues, these supply chain issues that we're seeing," he said.
Powell's comments come as many Americans remain concerned about rising inflation in the U.S. The consumer price index, a key gauge of inflation, grew 6.8 percent in the year leading into November, which was the highest rate the U.S. has seen since 1982.
Powell on Tuesday said inflation poses a "severe threat" to achieving maximum employment in the U.S. and said the central bank will raise interest rates if inflation stays elevated for a longer period than expected.
"If we see inflation persisting at high levels longer than expected, then we will, you know, then we'll if we have to raise interest rates more over time we will," Powell said.
January 5: Supply Chain Woes Prompt a New Push to Revive U.S. Factories
Companies like America Knits will test whether the United States can regain some of the manufacturing output it ceded in recent decades to China and other countries.
Since the pandemic began efforts to relocate manufacturing have accelerated, said Claudio Knizek, global leader for advanced manufacturing and mobility at EY-Parthenon, a strategy consulting firm.
As the moves by auto and tech companies show, the United States can attract more sophisticated manufacturing.
With fewer goods being made and fewer people with paychecks to spend at the start of the pandemic, manufacturers and shipping companies assumed that demand would drop sharply.
In the aftermath of the coronavirus and restrictions on exports of goods like masks, moving manufacturing closer to home is also being viewed as a national security priority, said Rick Burke, a managing director with the consulting firm Deloitte.
A quarter of a century ago, U.S. factories employed more than 17 million people, but that number dropped to 11.5 million by 2010. Since then, the gains have been modest, with the total manufacturing workforce now at 12.5 million.
At America Knits, a private-label manufacturer that sells to retailers including J. Crew and Buck Mason, workers earn $12 to $15 an hour, compared with $7.50 to $11 in service jobs.
Small Businesses:
January 8: The U.S. to Spend $10 Billion to Boost Small Businesses
The State Small Business Credit Initiative will direct money to states, territories, and tribal governments for programs that provide venture capital or encourage private lenders to issue loans to small firms.
Some Republicans have countered that the $10 billion program was unnecessary, given that more than $1 trillion in federal funding has already been directed toward small businesses over the course of the pandemic.
Rep. Blaine Luetkemeyer, the ranking member on the House Small Business Committee, said existing federal programs should be used to target small businesses that may have difficulty accessing capital.
A Treasury Department official said the funds under the State Small Business Credit Initiative aren't meant to fill revenue holes caused by the pandemic, but rather to help small businesses find sources of capital to support their long-term recovery and growth.
Such businesses expressed concerns about struggles accessing the Paycheck Protection Program, or PPP, which provided pandemic aid to small businesses in the form of forgivable loans.
More broadly, survey data from the Federal Reserve has found that minority-owned small businesses are less likely than white-owned businesses to receive all the financing they seek.
The State Small Business Credit Initiative initially will set aside $1.5 billion for businesses owned by socially and economically disadvantaged people.
Economy:
January 9: Economy Week Ahead: the Fed, Inflation, Consumers
Federal Reserve Chairman Jerome Powell's confirmation hearing and the latest readings on inflation highlight this week's economic calendar.
Inflation pressures in China are thought to have eased at the end of 2021.
The producer-price index, a measure of factory-gate inflation, is expected to show a rise of 11.2% in December, down from 12.9% in November and a 26-year high reached in October.
The U.S. consumer-price index is forecast to top 7% for the first time since 1982, underscoring the broad inflation pressures affecting the economy during the pandemic.
The Fed appears poised to lift interest rates as soon as March amid increasing concern over tight labor markets and rising inflation.
China's December exports are expected to show an increase of 19% from a year earlier, slowing from November's 22% pace.
U.S. retail sales rose only modestly in November as consumers adjusted to supply shortages and rising inflation.
Federal Reserve:
January 10: Fed Vice Chair Clarida to resign over pandemic stock trades
Federal Reserve Vice Chair announced on Monday that he would be resigning from his position early following months of media reports scrutinizing stock trades he made toward the beginning of the COVID-19 pandemic.
In a letter to, Clarida said, "It has been a distinct honor and immense privilege to serve as Vice-Chair of the Federal Reserve's Board of Governors since September 17, 2018. With my statutory term as Governor due to expire on January 31, 2022, I am writing to inform you that it is my intention to resign from the Board on January 14, 2022.".
As The Washington Post noted, it was reported in October that Clarida bought shares in an investment fund that held stocks in February 2020, shortly before the Fed announced that it would provide economic assistance in light of the pandemic.
Last week, Clarida corrected his public disclosure of stock trades after a report from the Post found that he had failed to disclose the full extent of his trades in December.
The Post reported that Clarida moved money out of a stock fund as markets responded to the worsening pandemic.
Clarida's resignation comes months after two other Fed officials - Robert Kaplan and Eric Rosengren - also resigned following scrutiny of their trades during the pandemic.
The two Fed officials maintained that they followed the Fed's rules on financial trades.
For Fun:
Please do lookup: Here's what to look forward to in space for 2022
A return to the moon: Humans last set foot on the moon almost 50 years ago, in December 1972. But NASA has plans to head back, with international support from the Canadian Space Agency and the European Space Agency, to name but two organizations. And the first phase is scheduled to take place in 2022.
Another visit to Mars: Russia and the European Space Agency are also planning a mission to the red planet with ExoMars 2022.
Scheduled to launch in September, the spacecraft will join its counterpart — the Trace Gas Orbiter, which launched in 2016 — in trying to answer the question of whether Mars ever harbored life
Lunar and Solar Eclipses: 2022 will be a good year for eclipses. On the night of May 15–16, there will be a total lunar eclipse that will be visible across the country, though not necessarily in its entirety. The entire eclipse will be visible east of Manitoba, while west of the province will see it already underway during moonrise.