Even with tax season over, the Internal Revenue Service is keeping busy — exploring a free filing system, encouraging individuals to take advantage of the Earned Income Tax Credit, issuing $14 billion in refunds to taxpayers for overpayments on unemployment compensation, and changing the rules for the R&D credit are among the IRS developments accountants should note.
Exploring a new free filing system
One of the provisions of the Inflation Reduction Act required the IRS to conduct a study looking into the viability of providing a free tax filing solution directly to taxpayers, and the agency has begun reaching out to advocacy groups on the system that it aims to begin testing early next year.
By pilot-testing a free option to file taxes online directly with the agency, the Treasury and the IRS hope to be able to gather new information to improve and develop their customer service tools.
One of the key discoveries of the feasibility study, however, was that developing a direct file system would require the agency to develop new skills and processes to operate, maintain and improve complex technological products, and to provide customer support.
IRS guidance defines terms for clean vehicle credit
The clean vehicle credit in the Inflation Reduction Act of 2022 will provide a much-needed boost for drivers of qualifying electric vehicles.
In support of the initiative, the IRS will be publishing regulations that define a number of terms related to the credit that will help clarify the provisions in the legislation.
An IRS fact sheet (FS-2022-42) released in December 2022 offers additional information in the form of FAQs on new, previously-owned and qualified commercial clean vehicle credits.
New rules for R&D expensing
Organizations are now required to amortize research and development expenses over a five-year period instead of immediately deducting them, in line with the Tax Cuts and Jobs Act of 2017.
The provisions in the legislation came into effect at the beginning of 2022, but were deferred by lawmakers until the start of this year.
While an extension to the tax break was mooted in Congress, Republicans and Democrats could not find common ground on the issue. With the provisions now in effect, the IRS has issued new guidelines on the change.
Refunds for overpayment on unemployment comp
Millions of individuals who paid more tax than they should have on unemployment compensation in 2020 received an unexpected refund from the IRS in January this year.
Taxpayers became eligible for a refund after the American Rescue Plan Act of 2021 excluded $10,200 in unemployment compensation from their taxable income for the 2020 tax year.
Noting that an adjustment was required, the IRS identified the sizable number of individuals who had been impacted by overpaying their taxes and issued around 14 million refunds at an average of $1,232.
An EITC reminder
31 million taxpayers took advantage of the Earned Income Tax Credit last year to the tune of $64 billion, but numerous others failed to do so because they were unaware they could.
While exploring the opportunity to claim an EITC refund, taxpayers should carefully note any changes to the provisions of the tax credit as certain benefits may no longer be available.
These IRS developments will affect you (for better or for worse)
With all these new areas of focus by the IRS, as well as the massive increase in funding that they're receiving, if you get any kind of notice from the IRS – or find yourself on their radar in any way – please don't ignore it! Contact me or any member of my Tax Problem Solver team for help, and we'll start the ball rolling to solve whatever is going on.
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