Poole, Foster & Dul, an Accountancy Corporation

Taxpayers received about $659 million in refunds during fiscal year 2023, representing a 2.7 percent increase in the amount of refunded to taxpayers in the previous fiscal year.

The refunds were on nearly $4.7 trillion in gross revenues collected by the Internal Revenue Service, which represents about 96 percent of the funding that supports federal government operations, the agency reported in its annual Data Book for fiscal year 2023, which was released April 18, 2024. This is down from more than $4.9 trillion in gross tax revenues in FY 2022.

Business income taxes declined in 2023 to nearly $457 billion in FY 2023 from nearly $476 billion in the previous fiscal year. Individual and estate and trust income taxes declined to nearly $2.6 trillion from just over $2.9 trillion. Employment taxes, estate and trust taxes, and excise and gift taxes all grew fiscal year-over-year.

More than 271.4 million tax returns and other forms were processed during FY 2023, the IRS reported. Of those, 163.1 million were individual tax returns. The report describes the 2023 filing season as "successful".

Paid prepared filed more than 84 million individual tax returns electronically, and taxpayers file nearly 2.9 million returns using the IRS Free File program, the agency reported.

The Taxpayer Advocate Service reported it resolved 219,251 cases in FY 2023. The top five case types included:

Processing amended returns (36,171)
Pre-refund wage verification hold (26,052)
Decedent account refunds (12,695)
Identity theft (11,915)
Earned Income Tax Credit (10,507)

On the compliance side, the IRS reported that for all returns from tax years 2013 through 2021, it examined 0.44 percent of individual returns filed and 0.74 percent of corporate returns filed. Additionally, the agency examined 8.7 percent of taxpayers filing individual returns reporting total positive income of $10 million or more. Isolating tax year 2019 (the most recent year outside the statute of limitations period), the examination rate was 11.0 percent.

In FY 2023, the IRS said it "closed 582,944 tax return audits, resulting in $31.9 billion in recommended additional tax." Additionally, the agency “completed 2,584 criminal investigations” across three areas:

1,052 illegal-source financial crimes cases
979 legal-source tax crime cases
553 narcotics-related financial crimes cases

On the collections side, the IRS in FY 2024 collected more than $104.1 billion in unpaid assessments on returns filed with additional tax due, netting about $68.3 billion after credit transfers. It also assessed more than $25.6 billion in additional taxes for returns not filed timely and collected nearly $2.8 billion with delinquent returns.

By Gregory Twachtman, Washington News Editor

IR-2024-115

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The IRS announced that final regulations related to required minimum distributions (RMDs) under Code Sec. 401(a)(9) will apply no earlier than the 2025 distribution calendar year. In addition, the IRS has provided transition relief for 2024 for certain distributions made to designated beneficiaries under the 10-year rule. The transition relief extends similar relief granted in 2021, 2022, and 2023.

SECURE Act Changes

The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) (P.L. 116-94) changed the RMD rules for employees and IRA owners who died after December 31, 2019. Under Code Sec. 401(a)(9)(H)(i), if an employee in a defined contribution plan or IRA owner has a designated beneficiary, the 5-year distribution period has been lengthened to 10 years, and the 10-year rule applies regardless of whether the employee dies before the required beginning date. Proposed regulations would interpret the 10-year rule to require the beneficiary of an employee who died after his required beginning date to continue to take an annual RMD beginning in the first calendar year after the employee’s death. This aspect of the 10-year rule differs from the 5-year rule, which required no RMD until the end of the 5-year period. Thus, the IRS provided transition relief for 2021, 2022, and 2023.

Guidance for Specified RMDs for 2024

Under the transition guidance, a defined contribution plan will not be treated as having failed to satisfyCode Sec. 401(a)(9) for failing to make an RMD in 2024 that would have been required under the proposed regulations. The relief also applies to an individual who would have been liable for an excise tax under Code Sec. 4974. The guidance applies to any distribution that, under the interpretation included in the proposed regulations, would be required to be made under Code Sec. 401(a)(9) in 2024 under a defined contribution plan or IRA that is subject to the rules of Code Sec. 401(a)(9)(H) for the year in which the employee (or designated beneficiary) died if that payment would be required to be made to:

a designated beneficiary of an employee or IRA owner under the plan if the employee or IRA owner died in 2020, 2021, 2022 or 2023, and on or after the employee’s (or IRA owner’s) required beginning date and the designated beneficiary is not using the lifetime or life expectancy payments exception under Code Sec. 401(a)(9)(B)(iii); or
a beneficiary of an eligible designated beneficiary if the eligible designated beneficiary died in 2020, 2021, 2022, or 2023, and that eligible designated beneficiary was using the lifetime or life expectancy payments exception under Code Sec. 401(a)(9)(B)(iii).

Applicability Date of Final Regulations

The IRS has announced that final regulations regarding RMDs under Code Sec. 401(a)(9) and related provisions are anticipated to apply for determining RMDs for calendar years beginning on or after January 1, 2025.

Notice 2024-35

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The IRS, in connection with other agencies, have issued final rules amending the definition of "short term, limited duration insurance" (STLDI), and adding a notice requirement to fixed indemnity excepted benefits coverage, in an effort to better distinguish the two from comprehensive coverage.

Comprehensive coverage is health insurance which is subject to certain federal consumer protections. Both STLDI and fixed indemnity excepted benefits coverage generally provide limited benefits at lower premiums than comprehensive coverage, and enrollment is typically available at any time rather than being restricted to open and special enrollment periods. However, the government is concerned about the financial and health risks that consumers face if they use either form of coverage as a substitute for comprehensive coverage, particularly as a long-term substitute. Consumers who do not understand key differences between STLDI, fixed indemnity excepted benefits coverage, and comprehensive coverage may unknowingly take on significant financial and health risks if they purchase STLDI or fixed indemnity excepted benefits coverage under the misunderstanding that such products provide comprehensive coverage.

The Definition of STLDI

STLDI is a type of health insurance coverage sold by health insurance issuers that is primarily designed to fill temporary gaps in coverage that may occur when an individual is transitioning from one plan or coverage to another (for example, due to application of a waiting period for employer coverage). Because STLDI falls outside of "individual health insurance coverage," it is generally exempt from the Federal individual market consumer protections and requirements for comprehensive coverage. This can be an issue because individuals who enroll in STLDI are often not aware that they will not be guaranteed these key consumer protections.

Under the definition in the final rules, STLDI is health insurance coverage provided pursuant to a policy, certificate, or contract of insurance that has an expiration date specified in the policy, certificate, or contract of insurance that is no more than three months after the original effective date of the policy, certificate, or contract of insurance, and taking into account any renewals or extensions, has a duration no longer than four months in total. For purposes of this definition, a renewal or extension includes the term of a new STLDI policy, certificate, or contract of insurance issued by the same issuer to the same policyholder within the 12-month period beginning on the original effective date of the initial policy, certificate, or contract of insurance.

STLDI issuers must display a notice on the first page (in either paper or electronic form, including on a website) of the policy, certificate, or contract of insurance, and in any marketing, application, and enrollment materials (including reenrollment materials) provided to individuals at or before the time an individual has the opportunity to enroll or reenroll in the coverage, in at least 14-point font. A sample notice has been provided by the agencies.

Fixed Indemnity Insurance

Federal consumer protections and requirements for comprehensive coverage do not apply to any individual coverage or any group health plan in relation to its provision of certain types of benefits, known as "excepted benefits." Like other forms of excepted benefits, fixed indemnity excepted benefits coverage does not provide comprehensive coverage. Rather, its primary purpose is to provide income replacement benefits. Benefits under this type of coverage are paid in a fixed cash amount following the occurrence of a health-related event, such as a period of hospitalization or illness. In addition, benefits are provided at a pre-determined level regardless of any health care costs incurred by a covered individual with respect to the health-related event. Although a benefit payment may equal all or a portion of the cost of care related to an event, it is not necessarily designed to do so, and the benefit payment is made without regard to the amount of health care costs incurred.

In an effort to give consumers an informed choice, the final rules adopt the requirement of a consumer notice that must be provided when offering fixed indemnity excepted benefits coverage in the group market and update the existing notice for such coverage offered in the individual market. The final rule does not address any other provision of the 2023 proposed rules (NPRM REG-120730-21) relating to fixed indemnity excepted benefits coverage.

Effective Date

The final rules apply to new STLDI policies sold or issued on or after September 1, 2024. For fixed indemnity coverage, plans and issuers will be required to comply with the notice provisions for plan years (in the individual market, coverage periods) beginning on or after January 1, 2025.

NPRM REG-120730-21 is modified.

T.D. 9990

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The Tax Court has ruled against the IRS's denial of a conservation easement deduction by declaring a Treasury regulation to be invalid under the enactment requirements of the Administrative Procedure Act (APA).

An LLC conveyed a conservation easement of land to a foundation that was properly registered with the county clerk. The deed conveyed the easement in perpetuity, allowing for extinguishment only in cases where the conservation purposes became impossible to accomplish or if the property were to be condemned by the local government through eminent domain. The LLC then timely filed Form 1065, U.S. Return of Partnership Income, claiming a $14.8 million deduction under Code Sec. 170(h) for conveyance of the easement, and included with the return Form 8283, Noncash Charitable Contributions.

The IRS disallowed the deduction stating the conservation purpose of the easement was not "protected in perpetuity" as required by Code Sec. 170(h)(5)(A) and, specifically, by operation of Reg. § 1.170A-14(g)(6)(ii). The LLC contended that Reg. § 1.170A-14(g)(6)(ii) is procedurally invalid under the APA and that the deed therefore need not comply with its requirements.

The Tax Court decided to reverse its prior position regarding the validity of this regulation in Oakbrook Land Holdings, LLC, (154 TC 180, Dec. 61,663; aff’d, CA-6, 2022-1 USTC ¶50,128). Despite the fact the Sixth Circuit affirmed this earlier opinion, the Eleventh Circuit had reversed the Tax Court on the same issue. This case is situated in the Tenth Circuit, which had not ruled on this issue.

The Tax Court agreed with the LLC’s argument that Reg. § 1.170A14(g)(6)(ii) is invalid because the concerns expressed in significant comments filed during the rulemaking process were inadequately responded to by the Treasury Department in the final regulation’s "basis and purpose" statement, in violation of the APA’s procedural requirements.

Four judges dissented, arguing there is no substantial basis for reversing their opinion of only four years prior, and that invalidating a regulation for failing to include a statement of basis and purpose should not occur when the basis and purpose are "obvious."

Valley Park Ranch, LLC, 162 TC —, No. 6, Dec. 62,442

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For purposes of the energy investment credit, the IRS released 2024 application and allocation procedures for the environmental justice solar and wind capacity limitation under the low-income communities bonus credit program. Many of the procedures reiterate the rules in Reg. §1.48(e)-1 and Rev. Proc. 2023-27, but some special rules are also provided.

The guidance superseded Rev. Proc. 2023-27 for the 2024 program year only.

Submitting an Application

The IRS will publicly announce the opening and closing dates for the 2024 Program year application period on the Department of Energy (DOE) landing page for the Program (Program Homepage) at https://www.energy.gov/justice/low-income-communities-bonus-credit-program. DOE will not accept new application submissions for the 2024 Program year after 11:59 PM ET on the date the application period closes. The owner of the solar or wind facility is the person who must apply for an allocation and is the recipient of any awarded allocation.

An applicant must apply for an allocation of Capacity Limitation through DOE online Program portal system (Portal) at https://eco.energy.gov/ejbonus/s/. Applicants must register in the Portal before they can begin the application process; and they must create a login.gov account before accessing the Portal. The Program Homepage includes an Applicant User Guide.

Identifying Category and Sub-Reservation

In addition to the other information detailed below, the application must identify the relevant facility category:

-- Category 1: Project Located in a Low-Income Community (and the application must also specify whether the facility is a behind the meter (BTM) or front of the meter (FTM) facility),
-- Category 2: Project Located on Indian Land,
-- Category 3: Qualified Low-Income Residential Building Project, or
-- Category 4: Qualified Low-Income Economic Benefit Project.

An applicant may submit only one application for the 2024 program year. Thus, if an applicant wishes to change its chosen category (or its Category 1 sub-reservation), it must withdraw its first application and submit a second one. Otherwise, any application submitted after the first application is treated as a duplicate application.

Application Contents

The application must contain all required information, documentation, and attestations submitted under penalties of perjury by a person who has personal knowledge of the relevant facts. That person must also be legally authorized to bind the applicant entity for federal income tax purposes, to communicate with DOE about the application, and to receive notifications, letters, and other communications from DOE and the IRS.

The guidance details the required information regarding the applicant and the facility, as well as the required documentation. The guidance also describes the information that must be submitted if an applicant wants to be considered under the additional ownership criteria or the additional geographic criteria. The DOE may require additional information in its publicly available written procedures.

DOE Review and Selection

DOE will review applications and provide a recommendation to the IRS. If the DOE identifies an error in the application, such as missing or incorrect information or documentation, it will notify the applicant through the Portal. The applicant will have 12 business days to correct the information; otherwise, DOE will treat the application as withdrawn.

Once the application period opens for the 2024 Program year, all applications submitted during the first 30 days are treated as submitted at the same time. DOE will publicly announce on the Program Homepage the opening and closing dates of this 30-day period. If applications during this period exhaust the available allocation for a category, DOE will conduct an allocation lottery. After the 30-day period, DOE will review applications in the order they are submitted until the available capacity in the identified category is allocated.

Receiving an Allocation and Claiming the Bonus Credit

After the IRS receives the DOE recommendation, it will award an allocation or reject the application. The IRS will send final decision letters through the Portal, which will identify the amount of any allocation awarded. However, an allocation is not a final determination that the facility is eligible for the bonus credit.

The owner of a facility that receives an allocation must use the Portal to report the date the facility is placed in service. The guidance details the additional information the owner must provide with the notification. After the facility is placed in service, and the owner submits the additional documentation and attestations, the owner is notified that it may claim the bonus credit.

After the IRS awards all the Capacity Limitation within each facility category, or the 2024 Program year is closed, DOE will stop reviewing applications. At the end of the 2024 Program year, no further action will be taken on applications that were not awarded an allocation. DOE will publicly announce on the Program Homepage when the 2024 Program year closes.

Effect on Other Documents

Rev. Proc. 2023-27, I.R.B. 2023-35, 655, is superseded solely with respect to the 2024 program year.

IR-2024-86

Rev. Proc. 2024-19

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The IRS has provided a limited waiver of the addition to tax under Code Sec. 6655 for underpayments of estimated income tax related to application of the corporate alternative minimum tax (CAMT), as amended by the Inflation Reduction Act (P.L. 117-169).

The Inflation Reduction Act added a new corporate AMT under Code Sec. 55, beginning after December 31, 2022, based on a corporation's adjusted financial statement income. Code Sec. 6655 generally requires corporations to pay estimated income taxes quarterly, with an addition to tax for failure to make sufficient and timely payments. The quarterly estimated tax payments must add up to 100 percent of the income tax due.

Estimated Taxes

The IRS waived the addition to tax under Code Sec. 6655 that is attributable to a corporation’s CAMT liability for the installment of estimated tax that is due on or before April 15, 2024, or May 15, 2024 (in the case of a fiscal year taxpayer with a taxable year beginning in February 2024). Accordingly, a corporate taxpayer’s required installment of estimated tax that is due on or before April 15, 2024, or on or before May 15, 2024 (in the case of a fiscal year taxpayer with a taxable year beginning in February 2024), need not include amounts attributable to its CAMT liability under Code Sec. 55 to prevent the imposition of an addition to tax under Code Sec. 6655. However, if a corporation fails to pay its CAMT liability, other Code sections may apply. For instance, additions to tax under Code Sec. 6651 could be imposed.

Instructions to Form 2220

The instructions to Form 2220, Underpayment of Estimated Tax by Corporations, will be modified to clarify that no addition to tax will be imposed under Code Sec. 6655 based on a corporation’s failure to make estimated tax payments of its CAMT liability for any covered CAMT year. Taxpayers may exclude such amounts when calculating the amount of its required annual payment on Form 2220. Affected taxpayers must still file Form 2220 with their income tax return, even if they owe no estimated tax penalty.

Applicability Date

The waiver of the addition to tax imposed by Code Sec. 6655 applies to the installment of estimated tax that is due on or before April 15, 2024, or on or before May 15, 2024 (in the case of a fiscal year taxpayer with a taxable year beginning in February 2024).

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The IRS has issued proposed regulations that would provide guidance on the application of the new excise tax on repurchases of corporate stock made after December 31, 2022 (NPRM REG-115710-22). Another set of proposed rules would provide guidance on the procedure and administration for the excise tax (NPRM REG-118499-23).

Code Sec. 4501 and IRS Guidance

Beginning in 2023, Code Sec. 4501 subjects a covered corporation to an excise tax equal to one percent of the fair market value of its stock that is repurchased by the corporation during the tax year. A covered corporation for this purpose is any domestic corporation the stock of which is traded on an established securities market.

Repurchase includes stock redemptions and economically similar transactions as determined by the IRS. The amount of repurchase subject to the tax is reduced by the value of new stock issued to the public or employees during the year. Repurchase of the covered corporation’s stock by its specified affiliate (a more-than-50-percent owned domestic subsidiary or partnership) also subjects the covered corporation to the excise tax.

The excise tax does not apply if the total amount of stock repurchases during the year is less than $1 million and in certain other situations.

Notice 2023-2, 2023-3 I.R.B. 374, provides initial guidance regarding the application of the excise tax. It describes rules expected to be provided in forthcoming proposed regulations for determining the amount of stock repurchase excise tax owed, along with anticipated rules for reporting and paying any liability for the tax.

Proposed Operative Rules under Code Sec. 4501 (NPRM REG-115710-22)

The proposed regulations would provide general rules regarding the application and computation of the stock repurchase excise tax, the statutory exceptions, and the application of Code Sec. 4501(d). Specifically, the proposed regulations would provide guidance addressing the following:

Certain issues related to the effective date and transition relief, including:
- repurchases before January 1, 2023, are not taken into account for purposes of applying the de minimis exception;
- in the case of a covered corporation that has a tax year that both begins before January 1, 2023, and ends after December 31, 2022, that covered corporation may apply the netting rule to reduce the fair market value of the covered corporation’s repurchases during that tax year by the fair market value of all issuances of its stock during the entirety of that tax year;
- contributions to an employer-sponsored retirement plan during the 2022 portion of a tax year beginning before January 1, 2023, and ending after December 31, 2022, should be taken into account for purposes of Code Sec. 4501(e)(2);
- the date of repurchase for a regular-way sale of stock on an established securities market is the trade date.
Definition of stock and the application of the excise tax to various types of stock, options, and financial instruments. The proposed regulations generally would maintain the definition of "stock" from Notice 2023-2, but would exclude "additional tier 1 preferred stock"; therefore, unless the limited-scope exception regarding additional tier 1 preferred stock applies, the stock repurchase excise tax would apply to preferred stock in the same manner as to common stock.
Rules for valuation of stock. Generally, the proposed regulations would adopt the valuation approach of Notice 2023-2 that the fair market value of stock repurchased or issued is the market price of the stock on the date the stock is repurchased or issued, respectively.
Rules for timing of issuances and repurchases. The approach that stock generally should be treated as repurchased when tax ownership of the stock transfers to the covered corporation or to the specified affiliate (as appropriate) would generally be retained.
Rules regarding becoming or ceasing to be a covered corporation and determining specified affiliate status.
Rules regarding Code Sec. 301 distributions, and complete and partial liquidations.
Treatment of taxable transactions, including LBOs and other taxable "take private" transactions.
Treatment of Code Sec. 304 transactions, reorganizations, and Code Sec. 355 transactions.
Application of the statutory exceptions, including repurchase as part of a reorganization, contributions to employer-sponsored retirement plans, the de minimis exception, repurchases by dealers in securities, repurchases by RICs and REITs, and the dividend exception.
Application of the netting rule (the adjustment for stock issued by a covered corporation, including stock issued or provided to employees of a covered corporation or its specified affiliate).
Considerations for mergers and acquisitions with post-closing price adjustments and troubled companies.
Application of Code Sec. 4501(d).

Applicability Dates of Proposed Operative Rules

The proposed regulations, other than the proposed regulations under Code Sec. 4501(d), would generally apply to repurchases of stock of a covered corporation occurring after December 31, 2022, and during tax years ending after December 31, 2022, and to issuances and provisions of stock of a covered corporation occurring during tax years ending after December 31, 2022. However, certain rules that were not described in Notice 2023-2 would apply to repurchases, issuances, or provisions of stock of a covered corporation occurring after April 12, 2024, and during tax years ending after April 12, 2024.

Except as described below, so long as a covered corporation consistently follows the provisions of the proposed regulations, the covered corporation may rely on these proposed regulations with respect to (1) repurchases of stock of the covered corporation occurring after December 31, 2022, and on or before the date of publication of final regulations in the Federal Register, and (2) issuances and provisions of stock of the covered corporation occurring during tax years ending after December 31, 2022, and on or before the date of publication of final regulations in the Federal Register.

In addition, so long as a covered corporation consistently follows the provisions of Notice 2023-2 corresponding to the rules in the proposed regulations, the covered corporation may choose to rely on Notice 2023-2 with respect to (1) repurchases of stock of a covered corporation occurring after December 31, 2022, and on or before April 12, 2024, and (2) issuances and provisions of stock of a covered corporation occurring during taxable years ending after December 31, 2022, and on or before April 12, 2024.

A covered corporation that relies on the provisions of Notice 2023-2 corresponding to the proposed rules with respect to (1) repurchases occurring after December 31, 2022, and on or before April 12, 2024, and (2) issuances and provisions of stock of a covered corporation occurring during tax years ending after December 31, 2022, and on or before April 12, 2024, may also choose to rely on the provisions of the proposed regulations with respect to (1) repurchases occurring after April 12, 2024, and on or before the date of publication of final regulations in the Federal Register, and (2) issuances and provisions of stock of a covered corporation occurring after April 12, 2024, and on or before the date of publication of final regulations in the Federal Register.

Special applicability dates are provided for the proposed rules under Code Sec. 4501(d).

Rules Regarding Procedure and Administration (NPRM REG-118499-23)

The IRS has also proposed regulations with guidance on the manner and method of reporting and paying the stock repurchase excise tax. These proposed regulations provide requirements for return and recordkeeping, the time and place for filing the return and paying the tax, and tax return preparers.

Consistent with Notice 2023-2, the proposed regulations add rules on procedure and administration in proposed subpart B of the proposed Stock Repurchase Excise Tax Regulations (26 CFR part 58) under Code Secs. 6001, 6011, 6060, 6061, 6065, 6071, 6091, 6107, 6109, 6151, 6694, 6695, and 6696.

In addition to requiring the excise tax to be reported on IRS Form 720, Quarterly Federal Excise Tax Return, the proposed regulations include items relevant to tax forms other than Form 720 (such as Form 1120, U.S. Corporation Income Tax Return, and Form 1065, U.S. Return of Partnership Income) to assist in identifying transactions subject to the tax.

Applicability Date of Proposed Procedural Rules

Proposed Reg. §58.6001-1 would be applicable to repurchases, adjustments, or exceptions required to be shown in any stock repurchase excise tax return required to be filed after the date of publication of final regulations in the Federal Register.

The rest of the proposed regulations would be applicable to stock repurchase excise tax returns and claims for refund required to be filed after the date of publication of final regulations in the Federal Register.

Effect on Other Documents

Notice 2023-2, 2023-3 I.R.B. 374, is obsoleted for repurchases, issuances, and provisions of stock of a covered corporation occurring after April 12, 2024.

Requests for Comments

Written or electronic comments and requests for a public hearing with respect to the proposed operative rules must be received by the date that is 60 days after April 12, 2024, the date of publication in the Federal Register. Comments and requests for a public hearing on the proposed procedural rules must be received by the date that is 30 days after publication in the Federal Register.

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The IRS has released the annual inflation adjustments for 2023 for the income tax rate tables, plus more than 60 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation.

2023 Income Tax Brackets

For 2023, the highest income tax bracket of 37 percent applies when taxable income hits:

$693,750 for married individuals filing jointly and surviving spouses,
$578,125 for single individuals,
$578,100 for heads of households,
$346,875 for married individuals filing separately, and
$14,450 for estates and trusts.

2023 Standard Deduction

The standard deduction for 2023 is:

$27,700 for married individuals filing jointly and surviving spouses,
$20,800 for heads of households, and
$13,850 for single individuals and married individuals filing separately.

The standard deduction for a dependent is limited to the greater of:

$1,250 or
the sum of $400, plus the dependent’s earned income.

Individuals who are blind or at least 65 years old get an additional standard deduction of:

$1,500 for married taxpayers and surviving spouses, or
$1,850 for other taxpayers.

Alternative Minimum Tax (AMT) Exemption for 2023

The AMT exemption for 2023 is:

$126,500 for married individuals filing jointly and surviving spouses,
$81,300 for single individuals and heads of households,
$63,250 for married individuals filing separately, and
$28,400 for estates and trusts.

The exemption amounts phase out in 2023 when AMT exceeds:

$1,156,300 for married individuals filing jointly and surviving spouses,
$578,150 for single individuals, heads of households, and married individuals filing separately, and
$94,600 for estates and trusts.

Expensing Code Sec. 179 Property in 2023

For tax years beginning in 2023, taxpayers can expense up to $1,160,000 in Code Sec. 179 property. However, this dollar limit is reduced when the cost of Code Sec. 179 property placed in service during the year exceeds $2,890,000.

Estate and Gift Tax Adjustments for 2023

The following inflation adjustments apply to federal estate and gift taxes in 2023:

the gift tax exclusion is $17,000 per donee, or $175,000 for gifts to spouses who are not U.S. citizens;
the federal estate tax exclusion is $12,920,000; and
the maximum reduction for real property under the special valuation method is $1,310,000.

2023 Inflation Adjustments for Other Tax Items

The maximum foreign earned income exclusion amount in 2023 is $120,000.

The IRS also provided inflation-adjusted amounts for the:

adoption credit,
earned income credit,
excludable interest on U.S. savings bonds used for education,
various penalties, and
many other provisions.

Effective Date of 2023 Adjustments

These inflation adjustments generally apply to tax years beginning in 2023, so they affect most returns that will be filed in 2024. However, some specified figures apply to transactions or events in calendar year 2023.

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The 2023 cost-of-living adjustments (COLAs) that affect pension plan dollar limitations and other retirement-related provisions have been released by the IRS. In general, many of the pension plan limitations will change for 2022 because the increase in the cost-of-living index due to inflation met the statutory thresholds that trigger their adjustment.

The 2023 cost-of-living adjustments (COLAs) that affect pension plan dollar limitations and other retirement-related provisions have been released by the IRS. In general, many of the pension plan limitations will change for 2022 because the increase in the cost-of-living index due to inflation met the statutory thresholds that trigger their adjustment. However, other limitations will remain unchanged.

The 2023 cost-of-living adjustments (COLAs) were released for:

pension plan dollar limitations, and
other retirement-related provisions.

Highlights of Changes for 2023

The contribution limit has increased from $20,500 to $22,500 for employees who take part in:

401(k),
403(b),
most 457 plans, and
the federal government’s Thrift Savings Plan

The annual limit on contributions to an IRA increased from $6,000 to $6,500.

The catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

The income ranges increased for determining eligibility to make deductible contributions to:

IRAs,
ROTH IRAs, and
to claim the Saver's Credit.

Phase-Out Ranges

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. The deduction phases out if the taxpayer or their spouse takes part in a retirement plan at work. The phase out depends on the taxpayer's filing status and income.

For single taxpayers covered by a workplace retirement plan, the phase-out range is $73,000 to $83,000, up from between $68,000 and $78,000.
For joint filers, when the spouse making the contribution takes part in a workplace retirement plan, the phase-out range is $116,000 to $136,000, up from between $109,000 and $129,000.
For an IRA contributor, who is not covered by a workplace retirement plan but their spouse is, the phase out is between $218,000 and $228,000, up from between $204,000 and $214,000.
For a married individual covered by a workplace plan filing a separate return, the phase-out range remains between $0 and $10,000.

The phase-out ranges for Roth IRA contributions are:

$138,000 and $153,000, for singles and heads of household,
$218,000 and $228,000, for joint filers, and
$0 to $10,000 for married separate filers.

The income limit for the Saver' Credit is:

$73,000 for joint filers,
$54,750 for heads of household, and
$36,500 for singles and married separate filers.

Lastly, the amount individuals can contribute to their SIMPLE retirement accounts is increased to $15,500, up from $14,000.

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For 2023, the Social Security wage cap will be $160,200, and social security and Supplemental Security Income (SSI) benefits will increase by 8.7 percent. These changes reflect cost-of-living adjustments to account for inflation.

Wage Cap for Social Security Tax

The Federal Insurance Contributions Act (FICA) tax on wages is 7.65 percent each for the employee and the employer. FICA tax has two components:

a 6.2 percent social security tax, also known as old age, survivors, and disability insurance (OASDI); and
a 1.45 percent Medicare tax, also known as hospital insurance (HI).

For self-employed workers, the Self-Employment tax is 15.3 percent, consisting of:

a 12.4 percent OASDI tax; and
a 2.9 percent Medicare tax.

OASDI tax applies only up to a wage base, which includes most wages and self-employment income up to the annual wage cap.

For 2023, the wage base is $160,200. Thus, OASDI tax applies only to the taxpayer’s first $160,200 in wages or net earnings from self-employment. Taxpayers do not pay any OASDI tax on earnings that exceed $160,200.

There is no wage cap for Medicare tax.

Maximum Social Security Tax for 2023

For workers who earn $160,200 or more in 2023:

an employee will pay a total of $9,932.40 in social security tax ($160,200 x 6.2 percent);
the employer will pay the same amount; and
a self-employed worker will pay a total of $19,864.80 in social security tax ($160,200 x 12.4 percent).

Additional Medicare Tax

Higher-income workers may have to pay an Additional Medicare tax of 0.9 percent. This tax applies to wages and self-employment income that exceed:

$250,000 for married taxpayers who file a joint return;
$125,000 for married taxpayers who file separate returns; and
$200,000 for other taxpayers.

The annual wage cap does not affect the Additional Medicare tax.

Benefit Increase for 2023

A cost-of-living adjustment (COLA) will increase social security and SSI benefits for 2023 by 8.7 percent. The COLA is intended to ensure that inflation does not erode the purchasing power of these benefits.

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The IRS announced broad-based penalty relief for taxpayers affected by the COVID-19 pandemic. The relief applies to failure to file penalties and certain international information return (IIR) penalties with respect to tax returns for tax years (TY) 2019 and TY 2020, filed on or before September 30, 2022.

The IRS announced broad-based penalty relief for taxpayers affected by the COVID-19 pandemic. The relief applies to failure to file penalties and certain international information return (IIR) penalties with respect to tax returns for tax years (TY) 2019 and TY 2020, filed on or before September 30, 2022. Relief is also provided to banks, employers and other businesses from certain information return penalties with respect to TY 2019 returns filed on or before August 1, 2020, and with respect to TY 2020 returns that were filed on or before August 1, 2021.

The relief will also help the IRS focus resources on processing backlogged tax returns and tax correspondence.

In response to the COVID-19 pandemic, the IRS issued a series of notices and other guidance to provide relief to affected taxpayers, including:

postponing the due date for certain Federal income tax payments ( Notice 2020-17, I.R.B. 2020-15, 590);
expanded relief postponing the due date for filing Federal income tax returns originally due April 15, 2020, to July 15, 2020, among other things ( Notice 2020-18, I.R.B. 2020-15, 590); and
postponing the due date for filing Federal income tax returns in the Form 1040 series and making certain Federal income tax payments that were originally due on April 15, 2021, due on May 17, 2021 ( Notice 2021-21, I.R.B. 2021-15, 986.

Waiver and Abatement of Certain Penalties

The IRS will not impose penalties with respect to specifically identified tax returns for TY 2019 and TY 2020, filed on or before September 30, 2022. The relief will be automatically applied-taxpayers do not have to request relief.

The IRS will not impose additions to tax under Code Sec. 6651(a)(1) for failure to file the following income tax returns:

Form 1040, U.S. Individual Income Tax Return, and others in the series;
Form 1041, U.S. Income Tax Return for Estates and Trusts, and others in the series;
Form 1120, U.S. Corporation Income Tax Return, and others in the series;
Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return; and
Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation and Form 990-T, Exempt Organization Business income Tax Return (and Proxy Tax under Code Sec. 6033(e)).

Further, certain penalties will not be imposed under Code Secs. 6038, 6038A, 6038C, 6038F [ 6039F] and 6677 for failure to timely file several IIRs, such as Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations.

Comment. Note that the Notice refers to Code Sec. 6038F, which does not exist. The context indicates that the reference should be to Code Sec. 6039F. The IRS may issue a correction.

Certain penalties will not be imposed under Code Sec. 6698(a)(1) and (2) for failure to timely file and show the required information on a Form 1065, U.S. Return of Partnership Income.

Certain penalties will not be imposed under Code Sec. 6699(a)(1) and (2) for failure to timely file and show the required information on a Form 1120-S, U.S. Income Tax Return for an S corporation.

In addition, the IRS will not impose the penalties under Code Sec. 6721(a)(2)(A) for failure to timely file any information return as defined under Code Sec. 6724(d)(1) that includes (1) 2019 returns that were filed on or before August 1, 2020, with an original due date of January 31, 2020, February 28, 2020 (if filed on paper) or March 31, 2020 (if filed electronically) or March 15, 2020; and (2) 2020 returns that were filed on or before August 1, 2021, with an original due date of January 31, 2021, February 28, 2021 (if filed on paper) or March 31, 2021 (if filed electronically) or March 15, 2021.

Exceptions

The penalty relief does not apply to any penalties not listed. Additionally the penalty relief does not apply to returns for which the penalty for fraudulent failure to file under Code Sec. 6651(f) or the penalty for fraud under Code Sec. 6663 apply. The penalty relief also does not apply to penalties in an accepted offer in compromise under Code Sec. 7122 or any penalty settled in a closing agreement under Code Sec. 7121 or finally determined in a judicial proceeding.

NTA Applauds IRS Move To Provide Late Filing Penalty Relief

National Taxpayer Advocate Erin Collins applauded the Internal Revenue Service’s decision to provide late-filing penalty relief to taxpayers who filed late tax returns for tax years 2019 and 2020.

"The IRS has taken a major step in providing broad, taxpayer-favorable relief from late-filing penalties for 2019 and 2020 tax years," Collins said in an August 24, 2022 blog post, adding that the agency " deserves substantial credit for its willingness to listen to Congress, stakeholders, and TAS [Taxpayer Advocate Service], and undertake a bold step requiring significant administrative effort and resources to benefit all taxpayers affected by the pandemic".

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Businesses are still waiting for pandemic relief made available to them during the COVID-19 outbreak amid ongoing processing delays at the Internal Revenue Service, according to the Treasury Inspector General for Tax Administration.

According to an August 31, 2022, report posted to the TIGTA web site, the IRS "did not begin processing claims for qualified Sick and Family Leave Credits and the Employee Retention Credit for 12 months and claims for the Social Security Tax Deferral for 16 months after the pandemic relief legislation was enacted."

TIGTA attributed this delay to a "lack of updated programming and procedural guidance," as well as a "lack of training, erroneously suspended claims, and a lack of prioritization of claims" that contributed to the delays in processing claims.

Employers filing claims for these pandemic benefits would have filed a Form 941-X, which would have amended a previously filed Form 941 if they did not make the initial claim for these benefits on the Form 941 or if they needed to amend the amount of original claim on the already-filed Form 941.

"As of February 1, 2022, there were 447,435 Forms 941-X waiting to be processed," the report states. "Over 90 percent (402,814) of these Forms 941-X were over-aged, i.e. have not been processed within 45 calendar days. In addition, 60,885 (13.6 percent of the Forms 941-X were not processed within 180 calendar days."

TIGTA described the over-aged inventory as "an ongoing challenge for the IRS."

Additionally, the IRS watchdog found claims that should have been reviewed but were not resulted "in $45 million in potentially erroneous nonrefundable employer tax credits being allowed" when they otherwise might not have had proper reviews been conducted.

TIGTA recommends that IRS develop a plan to prioritize processing backlogged claims, update the examination referral process, and update training for IRS employees regarding referrals. IRS did not agree with the latter recommendations, but did all others stated in the report.

"Management stated they completed subsequent review of completed Form 941-X claims and determined no additional training was needed," the report states. "However, the IRS’s subsequent reviews do not address the concerns identified in our report. Accounts Management employees cited unclear guidance and training as to why 73 percent of claims were not referred when required."

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