The new complexities of the Child Tax Credit, large corporation compliance audits, passport revocation, and the marijuana industry were the primary topics at a recent meeting of government officials with stakeholders.
1. Large Corporate Compliance audits. These are the largest audits performed by the IRS, observed National Conference of CPA Practitioners tax chair Stephen Mankowski, who attended the meeting. “The Large Business & International Division annually selects which businesses it will examine based on a risk profile. To determine the LCC population, the program applies an automated application to consider large-case-pointing criteria, such as gross assets and gross receipts. Once the population is determined, the LCC program uses data analytics to identify the returns with the highest compliance risk. The technology also allows LB&I to discover anomalies, patterns, and correlations.”
LB&I also does audits for specific reasons, including syndicated conservation easements and micro-captive insurance; virtual currency; research credits; Tax Cuts and Jobs Act-related issues (Section 965 transition tax, Section 199 domestic production, and life insurance reserves); compliance assurance process; global high wealth; and high income.
“Currently, LB&I has approximately 4,700 employees — down from nearly 12,000 in 2012,” Mankowski said. “Similar to other areas of the IRS, there are a significant number of employees eligible to retire, and they are actively hiring. There are also a number of efforts to increase coverage within partnerships; the IRS has hired 50 individuals with partnership experience, and they are gearing up for very large partnership compliance campaigns later this year. The division is also working on form improvements, including Form 1065 and Schedules K-2and K-3.”
2. Advance Child Tax Credit.“A large part of the education effort is letting taxpayers know they are eligible to receive the credit,” said Mankowski. “This year, families that receive the Child Tax Credit will receive up to $3,000 per qualifying child between 6 and 17 years old at the end of 2021. They will receive $3,600 per qualifying child under age 6 at the end of 2021. In addition, important changes to the credit will help many families get advance payments of the credit starting this summer. The IRS will pay half the total credit amount in advance monthly payments beginning July 15. Taxpayers will claim the other half when they file their 2021 income tax return.”
The IRS has prepared various communications for taxpayers:
- Letter 6417 will be sent before someone receives their first advance Child Tax Credit payment. It includes the website and toll-free number to unenroll or make an appointment at an assistance center.
- Letter 6418 is a change confirmation letter to confirm a taxpayer’s updates to their account and the impact on the payment amounts. It is still under development.
- Letter 6419 is a reconciliation letter that provides 2021 payment history to reconcile advance payments on a taxpayer’s return. It is required by law.
“The whole area seems ripe for fraud,” observed Mankowski. “Moreover, people getting refunds because of the Child Tax Credit may be in the position that they end up owing money at the end of the year because of the advance payments. They can go to the portal and opt out, but a lot of taxpayers don’t realize that they might owe money at the end of the year.”
“There are divorced or separated couples that swap children every year as to who gets to claim them on their return,” Mankowski noted. “Now, whoever claimed the child in 2019 will be getting the advance payments. So there are issues regarding who is entitled to the credits and making sure that the appropriate person gets it, with the result being potentially unexpected liability on the part of the taxpayer.”
3. Passport initiative update. Under the Fixing America’s Surface Transportation, or FAST, Act of 2015, the IRS notifies the State Department of taxpayers certified as owing a seriously delinquent tax debt, which is currently $54,000 or more as of January 2021. The law then requires the State Department to deny such a taxpayer’s application for or renewal of a passport.
“Letter 6152 is sent to taxpayers who have not settled their tax debt,” said Mankowski. “It is a warning that a taxpayer’s passport will be revoked. Before the IRS issues this letter, they must first certify the seriously delinquent tax debt to the State Department. The taxpayer will receive Notice CP 508C once the debt is certified, and the IRS will send the written notice to the taxpayer’s last known address.”
“If a taxpayer currently has a valid passport, the State Department may revoke the passport or limit a taxpayer’s ability to travel outside the United States,” Mankowski said. “Often, taxpayers wait until the last minute to check on their passport status. The expedited decertification process requires specific documentation to support the request. If the taxpayer is overseas, they may get a provisional passport to get home but will still need a new passport after the taxpayer gets decertified.”
4. Marijuana growth. The marijuana industry continues to grow as more states legalize its usage, Mankowski observed, noting that, to date, 16 states plus Washington, D.C., have legalized marijuana use for adults over 21 and 37 states have legalized medical marijuanal regardless — though it is still illegal at the federal level.
“Despite the fact that marijuana is illegal, those engaged in the business are required to pay tax,” he said. “Good recordkeeping needs to be maintained and should be updated daily. Often, these businesses fall under the rules of cash payments over $10,000. Key enforcement issues will be addressed at the Nationwide Tax Forums during their August session.”
