The backlog of returns that the IRS still had to process since last year’s tax filing season has been pretty staggering. The most surprising thing about it may be that there was never a time when it seemed like the agency was about to catch up.  Never was it able to say when it thought the returns would be finished and absolute dates remained ever elusive. Then last week, National Taxpayer Advocate Erin M. Collins released a report that at the end of May the IRS had a backlog of 21.3 million unprocessed tax returns, an increase of 1.3 million over the same point in 2021.

So yeah, things aren’t getting better.

Of course, the IRS itself is spinning the story a bit, not focusing on the number of returns it still must work on, instead making its headline that it expects to be done with returns filed in 2021 this week. That’s right, it only took them a full six months into 2022 to get to that point.

So, what does any of this actually mean?

First, if you are still one of the people waiting for taxes you filed last year to be taken care of, you will at least have that worry alleviated soon. At the same time, however, if you are someone waiting to have a tax return you filed this year taken care of, it seems impossible to say with any certainty when this will happen. The best bet appears to actually be that it might take another calendar year

It remains difficult for us to give any definite advice on how to deal with things if you still have paperwork in the pipeline. We know that it doesn’t sound good to just be told that you must wait, but there isn’t much more to be done. When the queue being worked through is in the range of 20 million returns, that just takes time. And the amount of time it may take can be high.

I will try to give some solace, though, for at least you are not alone, and it is known you are not alone.  The IRS is aware of its issues, so it is not like this waiting period is going to single out for some potential extra treatment or attention. Also, with the problems being from issues on their end, you are not racking up penalties or anything.

All right, I know it’s small solace, and quite possibly none at all, but it’s just where we are right now.

Warmly,

Josh Bousquet
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​Every year, the IRS releases a “Dirty Dozen” list of scams for people to watch for. Often, these are of the type with which we are all are familiar – scammers trying to get personal information that they can use to their benefit or bogus claims of outstanding bills that one must pay immediately to avoid serious punishment. Although these are not absent in the current world, I do think it is worth noting that they did not dominate this year’s list and the agency included a series of four items that are aimed toward high-income taxpayers, not the group we often envision as scam victims.

The overall theme of this group of scams is hiding assets, so of course this is only something that affects those high-net worth individuals. If the only money you receive is a paycheck that goes into your only bank account and then most of it is spent on household expenses, well, it is not difficult for the IRS to track that and see nothing shady is going on. It may then seem unfair that those who are more well-off have more options on how to handle their money when it comes to taxes, but that is simply the lay of the land.

And of course, there are legal ways to handle one’s assets in a way that lowers tax obligations. Utilizing these to the best of one’s ability is therefore a sound move. One can argue about the fairness of the system, but one should not be penalized for legally using that system to their full advantage.

In its press release, the IRS address these topics as ones being used by disreputable advisers selling their clients on higher savings through illegal means. I will not argue that some people do fall victim to such tactics and I can certainly appreciate how paying someone a percentage of a significant savings they promise seems like a good move. The fact that simply not filing a tax return is also on this list, though, speaks to how some people are actively looking to just not pay taxes.

It is much easier to understand someone not comprehending the minutiae of tax law and being misled into incorrectly using it than it is to appreciate someone making hundreds of thousands of dollars and then takes a roll of the dice to see if they can get away with not filing taxes (which also seems to tip off they know they have not paid as much as they’re supposed to).

I am not here to offer any solutions as to how to solve the disparity between these two situations but I did want to point it out in an ongoing battle to just say that the best way to handle any tax situation is the best way legally possible. 

Warmly,

Josh Bousquet
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I don’t know if you’ve heard (or noticed), but inflation is currently at a decades-high rate, reaching a level beyond what many of us can remember. I don’t know if you’ve heard (or noticed), but part of this are gas prices that have reached a level never before seen by anybody.

I am not going to pretend to be an economist here and give any sort of prediction of where things are going – and in fact, anything that claims to do so I read with a little bit of skepticism, because so many outcomes still feel plausible. What we can talk about, though, is the fact that things have progressed so far that the IRS has increased the mileage rate four cents to 62.5 cents per mile effective July 1, 2022 through the end of the year.

(Slight extra note, the rate for deductible medical or moving expenses also went up four cents, from 18 to 22.)

The IRS normally sets a mileage rate that stands for a complete calendar year. The fact that they have made another one in the middle of the year speaks to how unique the situation is. And sure, we all already knew that, but this shows how it can be beneficial to keep an eye out for things that are changing that could be advantageous to you in a time when those things feel few.

And I don’t know if there’s necessarily anything specific that is about to happen that will help ease some of the pain we are feeling. I wouldn’t even feel comfortable giving a general area where things could happen. What this did say to me, though, was that it was worth not just being tuned out.

Because at some point, after stories happen when gas prices hit $4 a gallon … and then $5 a gallon, it all starts to become noise. When you have months of checking out at the grocery store thinking, “Well, that was more than it used to cost,” you start to just accept. When you feel like there is nothing you can do, you feel like it is not worth paying that much attention to anything.

So maybe this little bit of news is still peeking through (not that I am any sort of news outlet, though) and maybe it can make things feel like it might not be that awful to pay attention. And maybe at some point there will even be other helpful and hopeful news.

​Warmly,

Josh Bousquet
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I have previously talked about a new IRS rule that is taking effect this year requiring a Form 1099-K being sent if someone receives $600 or more a year from a digital payment platform. This caused some conversation when it was first announced largely around issues where it seemed very likely that some people were going to be receive multiple forms reporting the same money – or receiving forms for money that is not be taxable This will be something that may cause issues for people who did nothing wrong. Recently, though, I saw another article (available here) concerning the new rule saying that it was affecting a specific group – the wealthy.

Then I started wondering, was there something going on here that we did not see when the rule was first announced? Upon reading the article, though, there is nothing that worrying going on here.  Instead, it just means that some people (and typically wealthy people) have been paying others in ways that should have been taxed and now it may get caught.

I don’t want to get too in-depth into too many laws here, but the key to a lot of this situation lies in this quote:

“If you pay cash wages of $2,400 or more to any household employee who is not your spouse, parent, offspring under age 21 or other child under age 18, both you and the recipient are each supposed to pay Social Security and Medicare taxes of taxes of 7.65%. If you pay total cash wages of $1,000 or more in any calendar quarter of 2022 to household employees, you also owe the 6% federal unemployment tax, known as FUTA. The IRS defines a household employee as someone whose work you control, regardless of how frequently it’s performed.”

Even if on first glance this sounds like a lot of money, it is really not difficult to pay someone that much money. In fact, give a babysitter $50 a week for a year and you are at $2,600 and should be paying those taxes.

So that means it can be easy to see how wealthy people may have a few different people they are paying this much money to for the upkeep of their lives. The new IRS form rules, though, will just make them pay taxes they have already supposed to have been paying. This is not some new unfair deal after the wealthy.

Let this serve a couple purposes then. The first is just a little more awareness of these new Form 1099-Ks. The second is that if that awareness helps you be aware that you need some help making sure you are doing things the right way, let us know.

Warmly,

Josh Bousquet
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I have written about IRS audits in this space many times over the years because, well, it is something that is easy to be fearful of and that means many people think about it. As such, what we mostly talk about in that area is what may possibly trigger an audit and/or how to avoid one. There also seems to be confusion, though, over just how long after filing a return the IRS can audit it.

The overarching rule is that the federal statute of limitations runs three years after filing your tax return. This is far from set in stone, however, as the IRS’s own verbiage lets you know:

“Generally, the IRS can include returns filed within the last three years in an audit. If we identify a substantial error, we may add additional years. We usually don’t go back more than the last six years.”

If you are looking for some sort of comfort then in knowing enough times has passed, modifiers like ‘generally’ and ‘usually’ are not the words you want to see. In the end, what this really says is that if the IRS finds someone was trying to get away with something big, they can always be audited.

​On a sidenote, it may be interesting to see how this plays out over the next couple of years. As has been well documented, the IRS built up a serious backlog of largely paper returns for tax year 2020 that still hasn’t seemed to be completely worked through yet. That would seem to decrease the time that a return would have to be audited once the agency finally looked at it, but the IRS verbiage gives it enough leeway that it can still return to those returns after the three-year deadline has passed.

And a final note about when that deadline clock starts ticking. If one tries to game the system by getting the countdown started by filing early, that helps not at all. If you file on time, for the sake of the three-year window, you are considered to have filed on April 15 (or whenever the deadline was that year). And if you file an extension, your clock then starts on that extension deadline date no matter when you actually file.

But with the deadline being so loose, that matters little anyway, which brings us full circle around to what I always say when discussing audits. The best way to avoid worrying about audits is to submit legitimate tax returns. That way, even if it happens, you have the confidence to know it will only be inconvenient and not have a dire end. 

Warmly,

Josh Bousquet
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