In one of those stories that seems to never end, the Employee Retention Credit continues to grab headlines. The latest one began last week when the IRS announced that it is giving a way for employers to rescind inaccurate claims for the ERC if they fell victim to a scam that resulted in filing it.

Of course, one could interpret this as the IRS asking for others to help do their work for them. On the other hand, this is a way for businesses that have realized they were taken in by unsavory characters to avoid having to pay interest and penalties on any monies they could potentially receive.

This comes after the IRS paused processing any new claims after an influx of hundreds of thousands recent ones. So If someone were to rescind their claim filing, it is not as if this was money that could be counted on being received anytime soon anyway.

To that end, this seems a clear good reason for those who know their claim is illegitimate to pull it back. The result will be like it never even happened in the first place. This could also be a good time for those who are unsure of their claim to take some time to see if it was legitimate. After all, this is an actual credit that many received and helped many businesses through the pandemic. And it certainly is true that everyone who is eligible for it has not yet filed and received payment of a claim.

But as with most scams, they begin with these seeds of truth and veer from there.

What then should make you possibly question your claim? If you did not seek the filing yourself and it was marketed to you from an outside source, that should be the first potential warning sign. And this sign should become a blaring alarm if it came to you from someone you have not worked with before.

This potential withdrawing of a claim can now give you the chance to instead consult someone you seek out, and ideally already trust and have a previous relationship with. After that, hopefully you will have an answer in which you can feel more confident.

I understand that this may not be an easy thing to do when the money you could be receiving may be in the many thousands of dollars.  But remember that amount and think about having to pay it back … with penalties and interest.

Warmly,

Josh Bousquet
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When one thinks of the IRS, the first response typically is a mixture of fear and anger, largely because their job is seen as taking away our money. This reaction may be an oversimplification of what the agency does but has enough grains of truth to be understandable. But when one looks deeper into it, it seems fair to question just how good the IRS is at getting that money.

This can be seen in recent tax gap projections released by the agency for tax years 2020 and 2021. If we were just doing some classroom grading, the agency may not be doing terrible as it achieved an 86.2% net compliance rate for 2020 and 86.3% for 2021 (this is essentially the percent of expected taxes owed that have been collected). If we go beyond that B-level grade mark, though, that still is a significant amount of money that the IRS expected and did not receive.

For things feel worse when going beyond percentages to actual dollar amounts. For 2020, the IRS has a net tax gap of $539 billion not collected and for 2021 that number stands at $625 billion. Yep, for two years, that adds up to over a trillion dollars. It really feels like a government could do something good with that amount of money.

And oh yeah, add to this that the IRS also offered new estimates of tax gaps for the periods of 2014-16 and 2017-19 that combined add up to more than another $300 billion. And to think us peons run around wildly for lottery jackpots once they start to approach only one billion.

Now just what should be taxed and at what rate is going to be a political debate that never comes to a final answer. But it should be easier to agree that there’s a problem when a government expects to receive a certain amount of money and then 15% of it gets lopped off and is just wandering around elsewhere in the universe.

Of course, discussing how to get this money back also turned into a political battle as recent increased funding to the IRS showed. And yes, there is definite debate to be had over just how the agency should go about fixing the gap.

I did, however, think that it was worth mentioning this just to give appreciation for the size of the gap. For hopefully if it can be acknowledged that there is a problem, it gives a base of agreement to begin upon. 

Warmly,

Josh Bousquet
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Scams come in various shapes and sizes, as do those that are affected by it. This became extra apparent to me last week when I saw headlines from the IRS concerning art donation scams.

Immediately this catches some attention because who even has art to donate in the first place? Obviously, we quickly assume that we are dealing with a small subset of the population, and one that is rather wealthy. And the IRS has promised that it is shifting some of its attention to high-income taxpayers, so maybe this is an indicator that it is true.

Essentially what this scheme comes down to is that scammers encourage the taxpayer to buy some art (generally not worth much but portrayed as coming at a discounted price). This may also come with various fees, such as storage, shipping, and arranging appraisals and the eventual donation. After waiting at least a year from the purchase date, the purchasers are then encouraged to donate the art and claim a tax deduction for an inflated fair market value.

This scam fits amongst those that are based on truth. A taxpayer can definitely claim a charitable deduction for an art donation, and this could be rather valuable if you made a purchase that then turned out to be worth much more than you paid for it. Like everything else when it comes to your tax return, though, this needs to all be properly documented, and if it is not, there could be rather significant consequences.

This scam also fits among many that say just enough about its potential truth without giving you everything you should know to make an informed decision. The IRS notice lists things such as rarity, age, quality, condition, stature of the artist, price paid, and the quantity purchased as things that one would need to know to determine value and that the scammers don’t provide.

The notice also notes that IRS has a team of professional appraisers that provides assistance to it when valuing these pieces. Call that another attention-grabber, for those are not amongst the people we imagine when the IRS comes to look deeper into a return.

I know that this article is not going to reach many (and quite likely no one at all) who has been involved in significant art donations as charitable deductions. I do think, however, that it serves as a good warning/example of how things that are too good to be true often are. So when that happens, that little extra bit of discovery time serves us well – no matter who we are.

Warmly,

Josh Bousquet
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We have briefly mentioned it along the way – and you knew it was coming when you set things up like this – but if you put your tax return on an extension, you now have less than two weeks to file.  Yes, even if it feels hard to believe, your six extra months are just about up.

And as we have also said before, there are many legitimate reasons why someone could have needed a tax extension. That time runs out, though, so this is a final warning to get things done no matter why you ended up in this spot.

As we have gone through those six months, though, of course a lot of other things have been going on. And high on that list of things are weather emergencies. If these feel like they have been occurring all across the country, that’s because they have. And that also means that many people have been granted some extra time to file various taxes without needing an extension.

This latest bit of relief came out last week for parts of Louisiana impacted by seawater intrusion. Were you even aware that happened? Were you even aware that seawater intrusion was a thing? So yes, be it hurricanes, fire, or seawater intrusion, be it in Maine, Alaska, Indiana, Hawaii, Vermont, or California, those are just some of the reasons and some of the places that have received some relief from the IRS this year. And if you want to look up if you are in any of these affected areas, you can find the list of guidance measures issued by the IRS at www.irs.gov/newsroom/tax-relief-in-disaster-situations

Like so many things in life, all of this comes down to timing. And when it comes to timing, of course, procrastination comes into play. So I will close with another plea to avoid this when possible.

For again, there are legitimates reasons that a taxpayer may need an extension, but more often than that, they happen because someone didn’t get things done in time. And as we have seen with the wild weather across the country, unexpected things happen that may prevent you from getting things done on time. But could you really not have got things done yet or had you just not done it? For sure, it is great if the IRS can offer time to help people take care of things more important than a tax return, but wouldn’t it feel even better if you didn’t have any returns left hanging? 

Warmly,

Josh Bousquet
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