Clean vehicle sellers and dealers should register with Energy Credits Online; register by Dec. 1, 2023 to ensure Jan. 1 availability

WASHINGTON — The Internal Revenue Service reminded dealers and sellers of clean vehicles to register their organizations immediately on the Energy Credits Online tool. The IRS is strongly urging sellers of clean vehicles to register by Dec. 1, 2023, if they want to be in a position to receive advance payments starting Jan. 1, 2024.

Energy Credits Online or IRS ECO, is a free electronic service that is secure, accurate and requires no special software. Though available to any business of any size, IRS Energy Credit Online may be especially helpful to any small business that currently sells clean vehicles.

Clean vehicle sellers should begin the online enrollment process immediately. The IRS encourages any dealer or seller to register using Energy Credits Online by Dec. 1, 2023 to share in its benefits and ensure that by Jan. 1, 2024, dealers and sellers are ready to submit time-of-sale reports and receive advance payments. The tool will generate a time-of-sale report the taxpayer will use when filing their federal tax return to claim or report the credit.

Beginning in 2024, clean vehicle sellers and licensed dealers must use the tool for their customers to successfully claim or transfer the new or previously owned clean vehicle credit for vehicles placed in service Jan.1, 2024, or later.

To participate and take advantage of the new and used clean vehicle credits available to taxpayers, a dealer must register through the IRS Energy Credits Online tool.  

Initially, only one individual representative of the dealer or seller can complete the registration through IRS Energy Credits Online: That representative must be currently authorized to legally bind the dealer or seller. Future enhancements of the tool will allow dealers and sellers to authorize more than one employee to submit time-of-sale reports and advance payment requests. Authorizing additional employees is an easy update for registered dealers.

More information about clean vehicle credits and tax benefits from the Inflation Reduction Act is available on IRS.gov.

Issue Number:    IR-2023-207

WASHINGTON — The Internal Revenue Service Advisory Council (IRSAC) today issued its annual report for 2023, including recommendations to the IRS on new and continuing issues in tax administration. 

The 2023 Public Report includes recommendations on 23 issues covering a broad range of topics including: 

·         Section 302, Escrow and Certification Procedure

·         Timely Obtaining Employer ID Numbers (EINs) to Comply with the Corporate Transparency Act Requirements

·         Form 1099-K Reporting

·         Self-Correction Guidance for Employee Plans

·         Forms Modernization 

The IRSAC serves as a federal advisory committee to the IRS commissioner that provides an organized public forum for discussion of relevant tax administration issues between IRS officials and representatives of the public. IRSAC members offer constructive observations regarding current or proposed IRS policies, programs and procedures. 

The IRSAC is administered under the Federal Advisory Committee Act by the Office of National Public Liaison, part of IRS Communications and Liaison, and draws its members from the taxpaying public, the tax professional community, representatives of the low-income community, small and large businesses, tax-exempt and government entities, the payroll industry and academia. Five subgroups report to the parent council: 

·         Information Reporting

·         Large Business & International

·         Small Business/Self-Employed

·         Tax Exempt/Government Entities

·         Wage & Investment 

Commissioner Danny Werfel and IRS executives thanked 11 members of the council whose terms end this year: 

• Martin Armstrong – Armstrong served as Chair of IRSAC.
• Sharon Brown – Brown served on the Tax Exempt/Government Entities Subgroup.
• Jeremiah Coder – Coder served on the Large Business & International Subgroup.
• Steven Klitzner – Klitzner served as Chair of the Small Business/Self Employed Subgroup.
• Charles Parr – Parr served on the Large Business & International Subgroup.
• Luis Parra – Parra served on the Wage & Investment Subgroup.
• Phillip Poirier – Poirier served as Chair of the Wage & Investment Subgroup.
• Seth Poloner – Poloner served on the Information Reporting Subgroup.
• Nancy Ruoff – Ruoff served as Chair of the Tax Exempt/Government Entities Subgroup.
• Paul Sterbenz – Sterbenz served on the Information Reporting Subgroup.
• Kathryn Tracy – Tracy served on the Wage & Investment Subgroup. 

The full 2023 IRSAC Public Report is available at IRS.gov.

Relief for Taxpayers Affected by the Terroristic Action in the State of Israel

Notice 2023-71 postpones various time-sensitive deadlines for taxpayers affected by the October 7, 2023 terrorist attacks in the State of Israel. The notice defines the covered area, identifies categories of “affected taxpayers,” and provides a list of the acts postponed. The postponement period is October 7, 2023 to October 7, 2024.

Notice 2023-71 will be in IRB 2023-44, dated 10/30/2023.

IRS updates tax gap projections for 2020, 2021; projected annual gap rises to $688 billion

WASHINGTON — The Internal Revenue Service today released new tax gap projections for tax years 2020 and 2021 showing the projected gross tax gap increased to $688 billion in tax year 2021, a significant jump from previous estimates.

The new estimate reflects a rise of more than $192 billion from the prior estimates for tax years 2014-2016 and a rise of $138 billion from the revised projections for tax years 2017-2019. This marks the first year tax gap projections have been provided for single tax years and also marks the beginning of tax gap updates on an annual basis.

“This increase in the tax gap underscores the importance of increased IRS compliance efforts on key areas,” said IRS Commissioner Danny Werfel. “With the help of Inflation Reduction Act funding, we are adding focus and resources to areas of compliance concern, including high-income and high-wealth individuals, partnerships and corporations. “These steps are urgent in many ways, including adding more fairness to the tax system, protecting those who pay their taxes and working to combat the tax gap.”

Tax gap details: late payments and IRS enforcement generated $63 billion in 2021

The $688 gross tax gap is the difference between estimated ‘true’ tax liability for a given period and the amount of tax that is paid on time. The gross tax gap covers three key areas – nonfiling of taxes, underreporting of taxes and underpayment of taxes.

The IRS notes that the tax gap estimates and projections cannot fully account for all types of noncompliance. In addition, the projections released today are based largely upon the compliance behavior estimated from the most recent set of completed audits (from tax years 2014-2016). That estimated compliance behavior is projected forward to taxpayers in tax years 2020 and 2021.

Late payments and IRS enforcement efforts are projected to generate an additional $63 billion on tax year 2021 returns, resulting in a projected net tax gap of $625 billion. Between tax years 2014-2016 and tax year 2021, the estimated tax liability increased by about 38 percent, roughly the same increase as the gross and net tax gaps. Much of these increases in tax liability and the tax gap can be attributed to economic growth.

Voluntary compliance rate remains relatively steady

The tax year 2020 and 2021 tax gap projections translate to about 85% of taxes paid voluntarily and on time, which is in line with recent levels. After IRS compliance efforts are factored in, the projected share of taxes eventually paid is 86.3% for tax year 2021, down slightly from the 87.0% for tax years 2014-2016. This drop in compliance does not factor in any changes in compliance behavior; instead, it is due to changes in the types of income and how that income is reported to the IRS.

The gross tax gap comprises three components:

• Nonfiling, which means tax not paid on time by those who do not file on time:

o $77 billion in tax year 2021, up from $41 billion in tax years 2017-2019.

• Underreporting, which reflects tax understated on timely filed returns.

o $542 billion in tax year 2021, up from $445 billion in tax years 2017-2019.

• Underpayment, or tax that was reported on time, but not paid on time).

o $68 billion in tax year 2021, up from $64 billion in tax years 2017-2019.

With the help of Inflation Reduction Act resources, the IRS will be taking a variety of steps to help improve voluntary compliance by improving taxpayer services and offering new technology tools to work in concert with additional compliance work. In 2022, the latest year for which data is available, the IRS collected more than $4.9 trillion in taxes, penalties, interest and user fees.

Tax gap studies through the years have consistently demonstrated that third-party reporting of income significantly raises voluntary compliance with the tax laws. And voluntary compliance rises even higher when income payments are also subject to withholding. The IRS also has an array of other taxpayer service programs aimed at supporting accurate tax filing and helping address the tax gap. These range from working with businesses and partner groups to a variety of education and outreach efforts.

The voluntary compliance rate of the U.S. tax system is vitally important for the nation. A one-percentage-point increase in voluntary compliance would bring in about $46 billion in additional tax receipts.

The tax gap estimates provide insight into the historical scale of tax compliance and to the persisting sources of low compliance.

Projecting the tax gap; offshore, digital assets, pandemic credits not fully represented

Given the complexity of the tax system and available data, no single approach can be used for estimating each component of the tax gap. Each approach is subject to measurement or nonsampling error; the component estimates that are based on samples are also subject to sampling error. For the individual income tax underreporting tax gap, Detection Controlled Estimation is used to adjust for measurement errors that result when some existing noncompliance is not detected during an audit. Other statistical techniques are used to control for bias in estimates based on operational audit data. Because multiple methods are used to estimate different subcomponents of the tax gap and then are projected into future tax years, no standard errors are reported. Those reviewing these projections should be mindful of these limitations.

Given available data, these projections of the tax gap components presented do not represent the full extent of potential non-compliance. There are several factors to keep in mind:

• The projections cannot fully represent noncompliance in some components of the tax system including offshore activities, issues involving digital assets and cryptocurrency as well as corporate income tax, income from flow-through entities and illegal activities because data are lacking.

• Projections rely upon estimates of compliance behavior. No such estimates are available for pandemic credits, so there is no reliable method of representing noncompliance for pandemic credits.

• The tax gap associated with illegal activities has been outside the scope of tax gap estimation because the objective of government is to eliminate those activities, which would eliminate any associated tax.

• For noncompliance associated with digital assets and other emerging issues, it takes time to develop the expertise to uncover associated noncompliance and for examinations to be completed that can be used to measure the extent of that noncompliance.

The IRS continues to actively work on new methods for estimating and projecting the tax gap to better reflect changes in taxpayer behavior as they emerge.

Additional information:

• Federal Tax Compliance Research: Tax Gap Projections for Tax Years 2020 and 2021, Pub. 5869

• Tax Gap Map, Projections for Tax Year 2020 and 2021, Publication 5870

IRS: Taxpayers impacted by the terrorist attacks in Israel qualify for tax relief; Oct. 16 filing deadline, other dates postponed to Oct. 7, 2024

Oct. 13, 2023

WASHINGTON — The Internal Revenue Service today announced tax relief for individuals and businesses affected by the terrorist attacks in the State of Israel. These taxpayers now have until Oct. 7, 2024, to file various federal returns, make tax payments and perform other time-sensitive tax-related actions.

In Notice 2023-71PDF, posted today on IRS.gov, the IRS provided relief to certain taxpayers who, due to the terrorist attacks, may be unable to meet a tax-filing or tax-payment obligation, or may be unable to perform other time-sensitive tax-related actions. The IRS will continue to monitor events and may provide additional relief.

Filing and Payment Relief

Today's notice postpones various tax filing and payment deadlines that occurred or will occur during the period from Oct. 7, 2023, through Oct. 7, 2024 (postponement period). As a result, affected individuals and businesses will have until Oct. 7, 2024, to file returns and pay any taxes that were originally due during this period. Among other things, this includes:

• Individuals who had a valid extension to file their 2022 return due to run out on Oct. 16, 2023. The IRS noted, however, that because tax payments related to these 2022 returns were due on April 18, 2023, those payments are not eligible for this relief. So, these individuals filing on extension have more time to file, but not to pay.
• Calendar-year corporations whose 2022 extensions run out on Oct. 16, 2023. Similarly, these corporations have more time to file, but not to pay.
• 2023 individual and business returns and payments normally due on March 15 and April 15, 2024. So, these individuals and businesses have both more time to file and more time to pay.
• Quarterly estimated income tax payments normally due on Jan. 16, April 15, June 17 and Sept. 16, 2024.
• Quarterly payroll and excise tax returns normally due on Oct. 31, 2023, and Jan. 31, April 30 and July 31, 2024.
• Calendar-year tax-exempt organizations whose extensions run out on Nov. 15, 2023.
• Retirement plan contributions and rollovers.

Other tax-related deadlines are postponed as well. See Notice 2023-71 and Rev. Proc. 2018-58 for details.

In addition, the penalty for failure to make payroll and excise tax deposits due on or after Oct. 7, 2023 and before Nov. 6, 2023, will be abated as long as the deposits are made by Nov. 6, 2023.

Who Qualifies for Relief?

• Any individual whose principal residence or business entity or sole proprietor whose principal place of business is in Israel, the West Bank or Gaza (the covered area).
• Any individual, business or sole proprietor, or estate or trust whose books, records or tax preparer is located in the covered area.
• Anyone killed, injured, or taken hostage due to the terrorist attacks.
• Any individual affiliated with a recognized government or philanthropic organization and who is assisting in the covered area, such as a relief worker.

The IRS automatically identifies taxpayers whose principal residence or principal place of business is located in the covered area based on previously filed returns and applies relief. Other eligible taxpayers can obtain this relief by calling the IRS disaster hotline at 866-562-5227. Alternatively, international callers may call 267-941-1000.

If an affected taxpayer receives a late filing or late payment penalty notice from the IRS for the postponement period, the taxpayer should call the number on the notice to have the penalty abated

WASHINGTON — The Internal Revenue Service today reminded taxpayers about the upcoming tax filing extension deadline. To avoid a possible late filing penalty, those who requested an extension to file their 2022 tax return should file their Form 1040 on or before Monday, Oct. 16.

Disaster-area taxpayers in most of California and in parts of Alabama and Georgia also have until Oct. 16, 2023, to file various federal individual and business tax returns and make tax payments.

Those with an IRS address of record in other areas covered by Federal Emergency Management Agency disaster declarations and those returning from a combat zone may have additional time to file. They include:

• Taxpayers affected by flooding in Illinois and Alaska. They have until Oct. 31, 2023, to file.
• Those affected by flooding in Vermont. They have until Nov. 15, 2023, to file.
• Taxpayers affected by recent natural disasters including those impacted by the recent Maui fires and hurricane Idalia in parts of Florida, South Carolina and Georgia. Those in the counties of Maui, Hawaii, and many counties in Florida, South Carolina and Georgia have until Feb. 24, 2024, to file various individual and business tax returns. This list continues to be updated regularly. Taxpayers potentially affected by recent storms should visit the disaster relief page on IRS.gov for the latest information.
• Members of the military and others serving in a combat zone. They typically have 180 days after they leave the combat zone to file returns and pay any taxes due.

IRS Free File and other online resources
IRS Free File is available through Oct. 16 and lets qualified taxpayers prepare and file federal income tax returns online using guided tax preparation software. It’s available to any person or family with an adjusted gross income (AGI) of $73,000 or less in 2022. Taxpayers can use IRS Free File to claim the Child Tax Credit, the Earned Income Tax Credit, and other important credits. IRS Free File Fillable Forms is available for taxpayers whose 2022 AGI was greater than $73,000 and are comfortable preparing their own tax return.

Taxpayers can get answers to many tax law questions by using the IRS's Interactive Tax Assistant tool. Additionally, taxpayers can view tax information in several languages by clicking on the "English" tab located on the IRS.gov home page.

The IRS Online Account feature provides information to help taxpayers file an accurate return including AGI amounts from last year’s return, estimated tax payment amounts and refunds applied as a credit.

Schedule and pay electronically
Taxpayers can file anytime and schedule their federal tax payments up to the Oct. 16 due date. They can pay online, by phone or with their mobile device and the IRS2Go app. Some other key points to keep in mind when filing and paying federal taxes electronically include:

• Convenience. Electronic payment options are easy and flexible. Taxpayers can pay when they file electronically using online tax software. Those who use a tax preparer should ask the preparer to make the tax payment through an electronic funds withdrawal from a bank account.
• IRS Direct Pay. This feature allows taxpayers to pay online directly from a checking or savings account for free and schedule payments up to 365 days in advance. An IRS Online Account is needed, however, to use IRS Direct Pay.
• Pay by card. Payments can be made with a credit card, debit card or a digital wallet option. These are available through a payment processor. The payment processor, not the IRS, charges a fee for this service.
• IRS2Go. The IRS2Go mobile app provides access to mobile-friendly payment options, including Direct Pay and debit or credit card payments.
• Electronic Federal Tax Payment System (EFTPS). Convenient, safe and easy, EFTPS allows for payments online or by phone using the EFTPS Voice Response System. EFTPS payments must be scheduled by 8 p.m. ET at least one calendar day before the tax due date.

Notice 2023-65 provides guidance on the new energy efficient home credit under section 45L of the Internal Revenue Code (§ 45L credit), as amended by the Inflation Reduction Act of 2022. The § 45L credit is allowed to an eligible contractor that constructs a qualified new energy efficient home (qualified home) that is acquired by a person from the eligible contractor for use as a residence during the taxable year. A qualified home is a dwelling unit located in the United States, the construction of which is substantially completed after August 8, 2005, that meets the energy saving requirements of § 45L(c). The applicable amount of the credit is contingent on which set of energy saving requirements the dwelling unit meets, and is $500, $1,000, $2,500, or $5,000. For certain dwelling units that meet the prevailing wage requirements of § 45L(g), the $500 amount is increased to $2,500 and the $1,000 amount is increased to $5,000. The energy saving requirements of § 45L(c) incorporate certain Energy Star program requirements (available on an Environmental Protection Agency (EPA) webpage) and certain zero energy ready home program requirements (available on a Department of Energy (DOE) webpage).

WASHINGTON − The Internal Revenue Service today reminded eligible farmers and ranchers forced to sell livestock due to drought may have an extended period of time in which to replace the livestock and defer tax on any gains from the forced sales.

The IRS posted Notice 2023-67 listing the applicable areas, a county or other jurisdiction, designated as eligible for federal assistance on IRS.gov. This includes 49 states, the District of Columbia, two U.S. Territories and two independent nations in a Compact of Free Association with the United States.

The relief generally applies to capital gains realized by eligible farmers and ranchers on sales of livestock held for draft, dairy or breeding purposes. Sales of other livestock, such as those raised for slaughter or held for sporting purposes, or poultry, are not eligible.

The sales must be solely due to drought, causing an area to be designated as eligible for federal assistance. Livestock generally must be replaced within a four-year period, instead of the usual two-year period. The IRS is authorized to further extend this replacement period if the drought continues.

The one-year extension, announced in the notice, gives eligible farmers and ranchers until the end of their first tax year after the first drought-free year to replace the sold livestock. Details, including an example of how this provision works, can be found in Notice 2006-82, available on IRS.gov.

The IRS provides this extension to eligible farmers and ranchers that qualified for the four-year replacement period, if the applicable region is listed as suffering exceptional, extreme or severe drought conditions during any week between Sept. 1, 2022, and Aug. 31, 2023. This determination is made by the National Drought Mitigation Center.

As a result, eligible farmers and ranchers whose drought-sale replacement period was scheduled to expire on Dec. 31, 2023, in most cases, now have until the end of their next tax year to replace the sold livestock. Because the normal drought-sale replacement period is four years, this extension impacts drought sales that occurred during 2019. The replacement periods for some drought sales before 2019 are also affected due to previous drought-related extensions affecting some of these localities.

More information on reporting drought sales and other farm-related tax issues can be found in Publication 225, Farmer’s Tax Guide, available on IRS.gov.

WASHINGTON — The Internal Revenue Service today announced the availability of expanded chatbot technology to help quickly answer basic questions for people receiving notices about possibly underreporting their taxes.

The new chatbot feature will assist taxpayers who receive notices CP2000, CP2501 and CP3219A. These mailings inform taxpayers if the tax information the IRS received from third parties doesn’t match the information they provided themselves to the IRS.

This technology expansion is supported through the Inflation Reduction Act funding to transform the IRS and improve services to help taxpayers.

“Through our transformation efforts, we are working to expand technologies to help taxpayers and tax professionals interact with us in the ways they prefer, including expanded digital, phone and in-person assistance options,” said IRS Commissioner Danny Werfel. “We understand receiving a notice from the IRS can be concerning, and people frequently have questions. The use of chatbots in call centers has emerged as an effective practice in both the private and public sectors, making it easier for people to quickly get basic information to resolve their issues and avoid wait times on the phone. Deploying chatbots at the IRS call center helps taxpayers get their issues resolved quicker, and it helps free up valuable phone resources for other taxpayers with questions on more complex issues.”

Rollout of this chatbot builds on prior IRS successes using the technology to help improve taxpayer service. Since January 2022, IRS voice and chatbots, both in English and Spanish, helped more than 13 million taxpayers avoid wait times by resolving their tax issues, including setting up roughly $151 million in payment agreements.

The chatbot simulates human interaction with taxpayers through a web or mobile app on a computer or mobile screen by responding to questions or requests in a chat feature. Also, at the end of the conversation, taxpayers can press the “representative” button to speak to a live assistor.
The new IRS chatbot is available to help taxpayers with questions such as:

• What to do if they received a notice.
• What to do if they need more time to respond to a notice.
• How to find out if the IRS received their response.

The IRS plans to continue additional bot technology features in the future to assist taxpayers with more complex issues.

The IRS transformation efforts provided by Inflation Reduction Act Funding are outlined in the Strategic Operating Plan released in April.

Additional self-service resources

• Individual Tax Tools
• Get your tax records
• Payment options
• More info about CP2000 notices

Notice 2023-68 announces the special per diem rates effective October 1, 2023, which taxpayers may use to substantiate the amount of expenses for lodging, meals, and incidental expenses when traveling away from home.  This notice provides the special transportation industry rate, the rate for the incidental expenses only deduction, and the rates and list of high-cost localities for purposes of the high-low substantiation method. 

Rev. Proc. 2019-48 provides the rules for using per diem rates, rather than actual expenses, to substantiate the amount of expenses for lodging, meals, and incidental expenses for travel away from home.  Taxpayers who use per diem rates to substantiate the amount of travel expenses under Rev. Proc. 2019-48 may use the federal per diem rates published annually by the General Services Administration.  Rev. Proc. 2019-48 allows certain taxpayers to use a special transportation industry rate or to use rates under a high-low substantiation method for certain high-cost localities.  The IRS announces these rates and the rate for the incidental expenses only deduction in an annual notice.

Use of a per diem substantiation method is not mandatory.  A taxpayer may substantiate actual allowable expenses if the taxpayer maintains adequate records or other sufficient evidence for proper substantiation.