WASHINGTON — The Internal Revenue Service, in response to disruptions to the supply of fuel for diesel powered highway vehicles resulting from wildfires, will not impose a penalty when dyed diesel fuel with a sulfur content that does not exceed 15 parts-per-million is sold for use or used by diesel-powered vehicles on the highway in certain counties in Texas.

This penalty relief begins on February 23, 2024, and will remain in effect through March 22, 2024, and applies to the following counties in the state of Texas; Archer, Armstrong, Bailey, Baylor, Briscoe, Carson, Castro, Childress, Cochran, Collingsworth, Cottle, Crosby, Dallam, Deaf Smith, Dickens, Donley, Fannin, Floyd, Foard, Garza, Gray, Gregg, Hale, Hall, Hansford, Hardeman, Harrison, Hartley, Haskell, Hemphill, Hockley, Hutchinson, Kent, King, Knox, Lamb, Lipscomb, Lubbock, Lynn, Moore, Motley, Nacogdoches, Newton, Ochiltree, Oldham, Parmer, Potter, Randall, Roberts, Sherman, Stonewall, Swisher, Terry, Throckmorton, Upshur, Wheeler, Wichita, Wilbarger, Yoakum and Young counties.

The penalty relief is available to any person that sells or uses dyed diesel fuel in vehicles suitable for highway use. In the case of the operator of the highway vehicle in which the dyed diesel fuel is used, the relief is available only if the operator or the person selling such fuel pays the tax of 24.4 cents per gallon that is normally applied to un-dyed diesel fuel for highway use.

The IRS will not impose penalties for failure to make semimonthly deposits of tax for dyed diesel fuel sold for use or used in diesel powered vehicles on the highway in the listed counties above in the state of Texas during the relief period. IRS Publication 510, Excise Taxes, has information on the proper method for reporting and paying the tax.

Ordinarily, dyed diesel fuel is not taxed, because it is sold for uses exempt from excise tax, such as to farmers for farming purposes, for home heating use and to local governments.

The IRS is closely monitoring the situation and will provide additional relief as needed.

WASHINGTON – Amid concerns about people being misled, the Internal Revenue Service today reminded taxpayers and heath spending plan administrators that personal expenses for general health and wellness are not considered medical expenses under the tax law.

This means personal expenses are not deductible or reimbursable under health flexible spending arrangements, health savings accounts, health reimbursement arrangements or medical savings accounts (FSAs, HSAs, HRAs and MSAs).

This reminder is important because some companies are misrepresenting the circumstances under which food and wellness expenses can be paid or reimbursed under FSAs and other health spending plans.

“Legitimate medical expenses have an important place in the tax law that allows for reimbursements,” said IRS Commissioner Danny Werfel. “But taxpayers should be careful to follow the rules amid some aggressive marketing that suggests personal expenditures on things like food for weight loss qualify for reimbursement when they don’t qualify as medical expenses.”

Some companies mistakenly claim that notes from doctors based merely on self-reported health information can convert non-medical food, wellness and exercise expenses into medical expenses, but this documentation actually doesn’t. Such a note would not establish that an otherwise personal expense satisfies the requirement that it be related to a targeted diagnosis-specific activity or treatment; these types of personal expenses do not qualify as medical expenses.

For example: A diabetic, in his attempts to control his blood sugar, decides to eat foods that are lower in carbohydrates. He sees an advertisement from a company stating that he can use pre-tax dollars from his FSA to purchase healthy food if he contacts that company. He contacts the company, who tells him that for a fee, the company will provide him with a ‘doctor’s note’ that he can submit to his FSA to be reimbursed for the cost of food purchased in his attempt to eat healthier. However, when he submits the expense with the 'doctor's note', the claim is denied because food is not a medical expense and plan administrators are wary of claims that could invalidate their plans.

FSAs and other health spending plans that pay for, or reimburse, non-medical expenses are not qualified plans. If the plan is not qualified, all payments made to taxpayers under the plan, even reimbursements for actual medical expenses, are includible in income.

The IRS encourages taxpayers with questions to review the frequently asked questions on medical expenses related to nutrition, wellness and general health to determine whether a food or wellness expense is a medical expense.

IRS.gov provides more information regarding details and requirements for deductibility of medical expenses; taxpayers can also review Can I Deduct My Medical and Dental Expenses? and Publication 502, Medical and Dental Expenses.

Dear IVES Participants,

 
Thank you for your input and sharing your concern on a critical area of tax administration. We acknowledge the concerns raised and are assessing our ability to provide return information when necessary while keeping taxpayer information confidential and protected from disclosure. Although IRS announced the policy change on January 2, 2024, we are suspending that change as we seek input from you and other stakeholders on possible changes and impacts to the program.

WASHINGTON — The Internal Revenue Service reminds taxpayers they’re generally required to report all earned income on their tax return, including income earned from digital asset transactions, the gig economy and service industry as well as income from foreign sources.

Reporting requirements for these sources of income and others are outlined in the Instructions for Form 1040 and Form 1040-SR. The information is also available on IRS.gov.

This release is the third in a four-part series called the Tax Time Guide, a resource to help taxpayers file an accurate tax return. Additional guidance is available in Publication 17, Your Federal Income Tax (For Individuals).

Digital assets, including cryptocurrency
A digital asset is a digital representation of value that is recorded on a cryptographically secured, distributed ledger. Common digital assets include:

• Convertible virtual currency and cryptocurrency.
• Stablecoins.
• Non-fungible tokens (NFTs).

Everyone must answer the question
Everyone who files Forms 1040, 1040-SR, 1040-NR, 1041, 1065, 1120 and 1120S must check one box answering either "Yes" or "No" to the digital asset question. The question must be answered by all taxpayers, not just by those who engaged in a transaction involving digital assets in 2023.

Checking “Yes”: Normally, a taxpayer must check the "Yes" box if they:

• Received digital assets as payment for property or services provided;
• Transferred digital assets for free (without receiving any consideration) as a bona fide gift;
• Received digital assets resulting from a reward or award;
• Received new digital assets resulting from mining, staking and similar activities;
• Received digital assets resulting from a hard fork (a branching of a cryptocurrency's blockchain that splits a single cryptocurrency into two);
• Disposed of digital assets in exchange for property or services;
• Disposed of a digital asset in exchange or trade for another digital asset;
• Sold a digital asset; or
• Otherwise disposed of any other financial interest in a digital asset.

In addition to checking the "Yes" box, taxpayers must report all income related to their digital asset transactions. For example, an investor who held a digital asset as a capital asset and sold, exchanged or transferred it during 2023 must use Form 8949, Sales and other Dispositions of Capital Assets, to figure their capital gain or loss on the transaction and then report it on Schedule D (Form 1040), Capital Gains and Losses. A taxpayer who disposed of any digital asset by gift may be required to file Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.

If an employee was paid with digital assets, they must report the value of the digital assets received as wages. Similarly, if they worked as an independent contractor and were paid with digital assets, they must report that income on Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship). Schedule C is also used by anyone who sold, exchanged or transferred digital assets to customers in connection with a trade or business and who did not operate the business through an entity other than a sole proprietorship.

Checking “No”: Normally, a taxpayer who merely owned digital assets during 2022 can check the "No" box as long as they did not engage in any transactions involving digital assets during the year. They can also check the "No" box if their activities were limited to one or more of the following:

• Holding digital assets in a wallet or account;
• Transferring digital assets from one wallet or account they own or control to another wallet or account they own or control; or
• Purchasing digital assets using U.S. or other real currency, including through electronic platforms such as PayPal and Venmo.

For more information, see the list of frequently asked questions (FAQs) and other details, visit the Digital Assets page on IRS.gov.

Gig economy earnings
Typically, income earned from the gig economy is taxable and must be reported to the IRS on tax returns. Examples of gig work include providing on-demand labor, services or goods, or selling goods online. Transactions often occur through digital platforms such as an app or website.

Taxpayers are required to report all income earned from the gig economy on a tax return, even if the income is:

• From temporary, part-time or side work.
• Paid through digital assets like cryptocurrency, as well as cash, goods or property.
• Not reported on an information return form like a Form 1099-K, 1099-MISC, W-2 or other income statement.

Taxpayers can visit the gig economy tax center for more information on the gig economy.

Service industry tips
Individuals who work in service industries such as restaurants, hotels and salons often receive tips from customers for their services. Generally, tips like cash or non-cash payments are taxable and should be reported.

• All cash tips should be reported to the employer, who must include them on the employee’s Form W-2, Wage and Tax Statement. This includes direct cash tips from customer to employee, tips from one employee to another employee, electronically paid tips and other tip-sharing arrangements.
• Noncash tips include value received in any medium other than cash, such as: passes, tickets, or other goods or commodities a customer gives the employee. Noncash tips aren't reported to the employer but must be reported on a tax return.
• Any tips the employee didn't report to the employer must be reported separately on Form 4137, Social Security and Medicare Tax on Unreported Tip Income, to include as additional income with their tax return. The employee must also pay the employee share of Social Security and Medicare tax owed on those tips.

Service industry employees don't have to report tip amounts of less than $20 per month per employer. For larger amounts, employees must report tips to the employer by the 10th of the month following the month the tips were received.

See Tip Recordkeeping and Reporting for more information on how to report tips.

Foreign source income
Generally, A U.S. citizen or resident alien’s worldwide income is subject to U.S. income tax, regardless of their residence. They're also subject to the same income tax filing requirements that apply to U.S. citizens or resident aliens living in the United States.

U.S. citizens and resident aliens must report unearned income, such as interest, dividends and pensions, from sources outside the United States unless exempt by law or a tax treaty. They must also report earned income, such as wages and tips, from sources outside the United States.

An income tax filing requirement generally applies even if a taxpayer qualifies for tax benefits, such as the Foreign Earned Income Exclusion or the Foreign Tax Credit, which substantially reduce or eliminate U.S. tax liability. These tax benefits are available only if an eligible taxpayer files a U.S. income tax return.

A taxpayer is allowed an automatic two-month extension to file a tax return to June 15 if both their tax home and abode are outside the United States and Puerto Rico. Even if allowed an extension, a taxpayer will have to pay interest on any tax not paid by the regular due date of April 15, 2024.

Those serving in the military outside the U.S. and Puerto Rico on the regular due date of their tax return also qualify for the extension to June 15. The IRS recommends attaching a statement if one of these two situations applies. More information can be found in the Instructions for Form 1040 and Form 1040-SR, Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad and Publication 519, U.S. Tax Guide for Aliens.

Foreign accounts and assets
Federal law requires U.S. citizens and resident aliens to report their worldwide income, including income from foreign trusts and foreign bank and other financial accounts. In most cases, affected taxpayers need to complete and attach Schedule B (Form 1040), Interest and Ordinary Dividends, to their tax return. Part III of Schedule B asks about the existence of foreign accounts such as bank and securities accounts and usually requires U.S. citizens to report the country in which each account is located.

In addition, certain taxpayers may also have to complete and attach to their return Form 8938, Statement of Foreign Financial Assets. Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. See the instructions for this form for details.

In addition, U.S. persons with an interest in or signature or other authority over foreign financial accounts where the aggregate value exceeded $10,000 at any time during 2023 must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). Because of this threshold, the IRS encourages U.S. persons with foreign assets, even relatively small ones, to check if this filing requirement applies to them. The form is available only through the BSA E-filing System website.

The deadline for filing the annual Report of Foreign Bank and Financial Accounts (FBAR) is April 15, 2024. FinCEN grants U.S. persons who miss the original deadline an automatic extension until Oct. 15, 2024, to file the FBAR. There is no need to request this extension. See FinCEN’s website for further information.

WASHINGTON – Margie Rollinson took the oath of office today to become the 49th IRS Chief Counsel and the first woman to permanently hold the top legal position at the nation’s tax agency.

Rollinson was sworn in and began work today at the IRS.

“Margie brings a wide range of experience from inside and outside government to this important role,” said IRS Commissioner Danny Werfel. “She will provide leadership and guidance on tax issues during a critical time in the history of the IRS. Her background and insights will be a great addition to the IRS leadership team and the Chief Counsel organization.”

With her new role, Rollinson marks a historic milestone for the IRS and nation’s tax system. She is the first woman to ever formally serve as IRS Chief Counsel, a position that dates back to 1866. While the Chief Counsel position has had several women serve temporarily in an acting capacity, there had never been a woman formally confirmed by the Senate until she was confirmed Feb. 29 to lead the Chief Counsel organization.

At the IRS, Rollinson will lead one of the largest legal teams in the nation. The Chief Counsel organization has approximately 2,600 employees.

As a traditional part of her role as Chief Counsel, Rollinson will also serve as assistant general counsel at the Treasury Department. The Chief Counsel and the Commissioner are the only two Senate-confirmed positions at the IRS.

She rejoins the IRS following a variety of roles in the tax world. Rollinson retired from the firm Ernst & Young, where she served as the Deputy Director of the National Tax Department since the start of 2019. She began her career at Ernst & Young in 1987 (known then as Ernst & Whinney), becoming a partner in 1997. In 2003, she became the Director of the International Tax Services National Tax Group, where she served clients directly and also led the International Tax Technical Committee.

Her work at the IRS began in 2013 when she became Technical Deputy Associate Chief Counsel in the Office of the Associate Chief Counsel International, and she was named Associate Chief Counsel International in 2016. In this role, Rollinson oversaw an office of 100 tax lawyers who were responsible for issuing published guidance and providing technical expertise on international tax rules.

Rollinson received her B.A. from Wellesley College in 1984, and her J.D. from the University of Maryland School of Law in 1987. She is a member of the Maryland Bar Association.

WASHINGTON – The Internal Revenue Service (IRS) today issued final regulations that provide guidance for the entities choosing the elective payment for the advanced manufacturing investment credit, established by the CHIPS Act of 2022.

The final regulations include special rules for partnerships and S corporations making the election. In addition, the final regulations provide rules related to the mandatory pre-filing registration requirement that were previously issued as temporary regulations.

This credit will incentivize the manufacturing of semiconductors and semiconductor manufacturing equipment within the United States. The credit is available to taxpayers that meet certain eligibility requirements, and there is the ability for taxpayers to make an elective payment election to be treated as making a refundable payment against the tax equal to the amount of the credit. A partnership or S corporation can make an elective payment election to receive a payment, instead of claiming the credit.

The final regulations provide guidance related to the mandatory IRS pre-filing registration process, which is available through pre-filing registration tool. The pre-filing registration process must be completed, and a registration number received, prior to making an elective payment election.

For more information, see Publication 5884, Inflation Reduction Act (IRA) and CHIPS Act of 2022 (CHIPS) Pre-Filing Registration Tool -- User Guide and Instructions

Treasury, IRS finalize rules on elective payments of certain clean energy credits under the Inflation Reduction Act

WASHINGTON — The Department of the Treasury and Internal Revenue Service issued final regulations today for applicable entities that earn certain clean energy credits and choose to make an elective payment election.

For tax years beginning after Dec. 31, 2022, applicable entities can choose to make an elective payment election, which will treat certain clean energy credits as a payment against their federal income tax liabilities rather than as a nonrefundable credit. This payment will first offset any income tax liability of the applicable entity and any excess is refunded to the applicable entity.

Applicable entities generally include tax-exempt organizations, state and local governments, Indian tribal governments, Alaska Native Corporations, the Tennessee Valley Authority and rural electric cooperatives. Electing taxpayers, which includes other taxpayers, may elect to be treated as an applicable entity for a limited number of credits.

Previously, the IRS issued proposed regulations for the elective payment of applicable credits and temporary regulations that provide rules for the mandatory IRS pre-filing registration process through the Inflation Reduction Act (IRA) and CHIPS Act of 2022 (CHIPS) pre-filing registration tool.

For detailed instructions on how to use the tool, refer to Publication 5884, Inflation Reduction Act (IRA) and CHIPS Act of 2022 (CHIPS) Pre-Filing Registration Tool -- User Guide and Instructions.

The IRS also updated the elective payment frequently asked questions based on the final regulations.

The pre-filing registration process must be completed, and a registration number received, prior to making an elective payment election.

Proposed regulations were also issued today regarding elections by certain unincorporated organizations that are owned by one or more applicable entities to be excluded from the application of the partnership tax rules. These proposed regulations would provide certain exceptions to the existing regulations for certain unincorporated organizations with one or more applicable entities and would allow such entities to make an elective payment election.

Finally, the IRS issued Notice 2024-27 that requests additional comments on any situations in which an elective payment election could be made for a clean energy credit that was purchased in a transfer, which is referred to as chaining.

Notice 2024-27 requests additional comments on any situations in which an election under § 6417(a) could be made for a credit that was purchased in a transfer for which an election under § 6418(a) is made. Such sequence of events is referred to as “chaining” in this notice.

Notice 2024-27 will be in IRB: 2024-12, dated March 18, 2024.

WASHINGTON – The Internal Revenue Service today reminded those who may be entitled to the COVID-era Recovery Rebate Credit in 2020 that time is running out to file a tax return and claim their money.

Most taxpayers eligible for Economic Impact Payments linked to the Coronavirus tax relief have already received or claimed their payments via the Recovery Rebate Credit. But for those who haven’t yet filed a tax return for 2020, the legal deadline is May 17, 2024.

The Recovery Rebate Credit is a refundable credit for individuals who did not receive one or more Economic Impact Payments, also known as stimulus payments, distributed in 2020 and 2021. Eligible taxpayers must file a tax return first to claim a Recovery Rebate Credit, even if their income from a job, business or other source was minimal or non-existent.

For individuals wanting to claim the 2021 Recovery Rebate Credit, they have until April 15, 2025, to file the required tax return.

Taxpayers owed a refund have three years after the filing due date to file and claim any money entitled to them. For 2020 tax returns, this year’s May 17 due date is three years after the original May 17, 2021, tax deadline.

The IRS also reminds other people who haven’t filed a tax return for 2020 to check their records; it’s possible they may be overlooking a potential tax refund that will no longer be available after May 17. The IRS plans to provide more detailed state-by-state information later this month for taxpayers who may have overlooked filing and getting a refund for 2020. These taxpayers will also face a May 17 deadline to file.

Who’s eligible?
Eligibility for the 2020 and 2021 Recovery Rebate Credit generally requires being a U.S. citizen or U.S. resident alien in the respective year, not being a dependent of another taxpayer and having a Social Security number issued before the tax return's due date.

Additionally, the 2020 Recovery Rebate Credit can be claimed for someone who passed away in 2020 or later.

Free help is available
Qualified taxpayers can also access free tax preparation assistance through the Volunteer Income Tax Assistance and the Tax Counseling for the Elderly programs. This is an ongoing effort by the IRS to encourage individuals who are not typically required to file tax returns to explore the potential benefits under the tax law. Use the VITA Locator Tool or call 800-906-9887 to locate the nearest VITA site.

The IRS also reassures taxpayers there is no penalty for claiming a refund on a late-filed tax return. Direct deposit is recommended as the quickest and simplest way to receive a tax refund.

Individuals with an IRS Online Account can check to see if they received any Economic Impact Payments, along with the total amounts.

Any Recovery Rebate Credit received does not count as income when determining eligibility for federal benefits such as Supplemental Security Income (SSI), Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF) and the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC). Claiming the credit does not affect an individual's immigration status or their ability to secure a green card or immigration benefits.

High-income non-filers: IRS compliance letters coming

The IRS also announced Feb. 29 a new effort focused on high-income taxpayers who have failed to file federal income tax returns in more than 125,000 instances since 2017.

The new initiative, made possible by Inflation Reduction Act funding, began with IRS compliance letters going out last week on more than 125,000 cases where tax returns haven’t been filed since 2017. The mailings include more than 25,000 to those with more than $1 million in income, and over 100,000 to people with incomes between $400,000 and $1 million between tax years 2017 and 2021.

On Friday March 1, 2024, the U.S. District Court for the District of Alabama declared the Corporate Transparency Act (CTA) unconstitutional. In the case of National Small Business Association v. Yellen (Case No. 5:22-cv-01448) [1], initiated by the National Small Business United, the challenge was against the CTA's mandate for small businesses to disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN).
 
The ruling has the effect of suspending all BOI filing requirements for now, all enforcement actions, and all compliance concerns including questions of "practicing law without a license." Experts believe the ruling will be appealed, probably to the Supreme Court, so this is a temporary filing requirement suspension until a final appeal is exhausted. Voluntary filing appears to still be allowed if for some reason a client desires to file. For those that followed Taxspeaker's advice to "wait until late October" this should make you feel better!
 
Now back to tax returns!