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☆ IRS weighing 'audit selection algorithm' changes for low-income taxpayer credit
▼ + stars: | 2024-02-15 | by ( Kate Dore | Cfp | ) www.cnbc.com time to read: +2 min

Al Drago | Bloomberg | Getty ImagesAfter vowing to "substantially" reduce audits on a low-income tax credit in September, the IRS confirmed it's taking steps to address the inequity. "We also are testing changes in the audit selection algorithm," that could "remediate the disparate impact that has been occurring," he said. The report pointed to a faulty software algorithm used by the agency that selects who gets audited and noted the earned income tax credit contributed to this disparity. The credit has a high 'improper payments rate'In 2022, about 23 million filers received $57 billion from the earned income tax credit, and the tax break averaged $2,541. For tax year 2023, the credit is worth up to $7,430 for a household with three or more children, according to the IRS.

Persons: Danny Werfel, Al Drago, We've, Werfel, Erin Collins Organizations: Washington , D.C, Bloomberg, Getty, IRS, Stanford University, University of Michigan, U.S . Department of, Treasury, University of Chicago, Senate Finance Locations: Washington ,

☆ 4 red flags for an IRS tax audit — and how to avoid the 'audit lottery,' according to tax pros
▼ + stars: | 2024-02-13 | by ( Kate Dore | Cfp | ) www.cnbc.com time to read: +3 min

But everyday filers could still face an audit — and certain issues are more prone to IRS scrutiny, experts say. Audit rates of individual income tax returns decreased for all income levels from tax years 2010 to 2019, largely due to lower IRS funding, according to a report from the Government Accountability Office. Here are some of the biggest IRS audit red flags. Unreasonable tax breaksAnother red flag could be excessive deductions compared to what's considered normal for your income level, according to Losi. Earned income tax creditThe earned income tax credit, a tax break for low- to moderate-income workers, has historically been scrutinized "because the refundable part attracts certain bad actors," said Steber.

Persons: Ryan Losi, Mark Steber, Jackson Hewitt, Steber, what's, Losi, Erin Collins Organizations: Getty, IRS, Office, NEC, lotto, Center, filers Locations: Syracuse, U.S

☆ Nearly 1 in 5 eligible taxpayers don't claim this 'valuable credit,' IRS says
▼ + stars: | 2024-02-02 | by ( Kate Dore | Cfp | ) www.cnbc.com time to read: +3 min

Laylabird | E+ | Getty ImagesTens of millions of Americans file tax returns every year — and many are missing a "valuable credit," according to the IRS. In 2022, roughly 23 million filers received $57 billion from the earned income tax credit, or EITC, a tax break for low- to moderate-income workers. But nearly 1 in 5 eligible taxpayers don't claim the EITC, which averaged $2,541 in 2022, IRS Commissioner Danny Werfel told reporters during a press call last week. How the earned income tax credit works"The credit is reasonably complex," said Steven Hamilton, assistant professor of economics at The George Washington University. There's a 'high improper payments rate'"Millions of eligible taxpayers fail to claim the EITC, while other taxpayers claim amounts for which they are not eligible, leading to a high improper payments rate," National Taxpayer Advocate Erin Collins wrote in the 2023 Purple Book of legislative recommendations.

Persons: Danny Werfel, you've, Steven Hamilton, Hamilton, There's, Erin Collins Organizations: The George Washington University, IRS, Center, Black, Stanford University Locations: U.S

☆ Tax identity theft 'continues to be a huge problem,' expert says. Here's how to protect yourself
▼ + stars: | 2024-01-18 | by ( Kate Dore | Cfp | ) www.cnbc.com time to read: +1 min

As the start of tax season approaches, experts are warning filers about tax-related identity theft, an issue that often halts returns and delays refunds. Tax identity theft happens when criminals use your personal information to file a return in your name and claim your refund — and "it continues to be a huge problem," said Eva Velasquez, president and CEO of the Identity Theft Resource Center. The IRS' Identity Theft Victim Assistance program had 294,138 individual case receipts during fiscal 2023, up from 92,631 in 2019, according to the National Taxpayer Advocate's annual report to Congress released last week. More from Personal Finance:Government shutdown could disrupt upcoming tax season, IRS commissioner says'Fraud is at a crisis level,' says expert: 5 financial scams to watch out forHow to figure out your timeline to student loan forgivenessTax-related identity theft has diminished since the early days of electronic filing. There are signs of tax identity theft listed on the IRS website, including a letter from the agency about a "suspicious tax return," the inability to e-file, tax transcripts by mail you didn't request and more.

Persons: Eva Velasquez, Velasquez, Erin Collins Organizations: Theft Resource Center, IRS, National Taxpayer, Finance, Government

☆ 'Buyer beware.' Anyone can call themselves a tax preparer. Here’s how to find a qualified professional
▼ + stars: | 2023-10-05 | by ( Kate Dore | Cfp | ) www.cnbc.com time to read: +1 min

There's a staffing shortage in the accounting industry, and it's not too early to lock in a tax preparer for next season. "Buyer beware," said April Walker, lead manager for tax practice and ethics with the American Institute of CPAs. "Truly, anybody can call themselves a tax preparer." In her 2022 annual report to Congress, National Taxpayer Advocate Erin Collins highlighted the "absence of minimum competency standards for return preparers" as a top problem. When a preparer makes a mistake, the filer is ultimately responsible for their return and can face IRS enforcement action, she wrote.

Persons: it's, Walker, Roth, there's, Erin Collins Organizations: American Institute of CPAs, Finance, IRS, National

☆ IRS to target 'unscrupulous' tax preparers amid crackdown of small business tax credit
▼ + stars: | 2023-09-24 | by ( Kate Dore | Cfp | ) www.cnbc.com time to read: +2 min

Chip Somodevilla | Getty ImagesIRS scrutiny of the employee retention creditThe plan is part of the agency's elevated focus on employee retention credit claims, according to April Walker, lead manager for tax practice and ethics with the American Institute of CPAs. A pandemic-era tax break, the employee retention credit, or ERC, was designed to support small businesses that kept employees on payroll during shutdowns or revenue declines in 2020 and 2021. He included the earned income tax credit, a tax break claimed by low- to moderate-income filers, which has been prone to mistakes due to complex eligibility requirements. While IRS audit rates have dropped overall, the rates have declined more slowly for filers claiming the earned income tax credit than higher earners. "The IRS audits a higher percentage of taxpayers with the earned income tax credit than any other taxpayers, except those with at least $5 million of total positive income," National Taxpayer Advocate Erin Collins wrote in her 2022 report.

Persons: Daniel Werfel, Chip Somodevilla, April Walker, Werfel, Chuck Marr, Erin Collins Organizations: Senate, Getty, American Institute of CPAs, ERC, IRS, Budget, National Taxpayer, filers Locations: Worth

☆ The taxpayer experience this year 'vastly improved' compared with 2022, report finds
▼ + stars: | 2023-06-21 | by ( Kate Dore | Cfp | ) www.cnbc.com time to read: +1 min

The recent tax season was relatively smooth compared with last year's. But national taxpayer advocate Erin Collins still sees room for improvement as the IRS rolls out funding plan changes. "Overall, the difference between the 2022 filing season and the 2023 filing season was like night and day," Collins wrote in her midyear report to Congress. This year, taxpayer experience "vastly improved" compared with 2022, she said. The reduction of amended returns — which require manual processing — declined by only 6% from April 2022 to April 2023.

Persons: Erin Collins, Collins Organizations: Finance

☆ IRS weighs guidance for small business tax credit. ‘People were duped,’ taxpayer advocate says
▼ + stars: | 2023-06-20 | by ( Kate Dore | Cfp | ) www.cnbc.com time to read: +1 min

After a flood of business returns with a pandemic-era tax credit, the IRS is weighing guidance for those who wrongly claimed the tax break. The employee retention credit, or ERC, was created to support small businesses during the Covid-19 pandemic. There's still time to amend returns and claim the credit — worth up to $5,000 per employee for 2020 or $28,000 per employee in 2021. Experts say the opportunity has sparked a wave of specialist firms falsely promising business owners they qualify for the complicated tax break. As of March 3, just over 866,000 companies claimed and received employee retention credits totaling over $152.6 billion, according to the latest IRS Data Book.

Persons: Erin Collins Organizations: ERC, American Institute of Certified Public Accountants, Finance, Firms, IRS

☆ IRS still has a sizable backlog of returns despite improvements, taxpayer advocate says
▼ + stars: | 2023-06-08 | by ( Kate Dore | Cfp | ) www.cnbc.com time to read: +2 min

But there's still work to do, according to National Taxpayer Advocate Erin Collins. However, despite customer service boosts, the agency is still working through a sizable backlog — including amended returns, filings in suspense and other correspondence, she said. Collins said the IRS is currently juggling 3.7 million amended returns, 6.8 million "in suspense" with missing information and 5.3 million pieces of correspondence. This season, the agency has prioritized phone service and answered more than 85% of calls from key phone lines in less than five minutes. "The problem is, we are now back to a backlog of paper correspondence and amended returns, similar to where we were a year ago," she said.

Persons: there's, Erin Collins, Collins Organizations: VEGAS, IRS, American Institute of Certified Public Accountants, Finance, Advocate Service Locations: Las Vegas

☆ The IRS has issued nearly 8 million tax refunds. Here’s the average payment
▼ + stars: | 2023-02-14 | by ( Kate Dore | Cfp | ) www.cnbc.com time to read: +2 min

Bill Oxford | E+ | Getty ImagesThe tax season is underway, and the IRS has issued nearly 8 million refunds worth about $15.7 billion as of Feb. 3, the agency reported. The average refund amount was $1,963, down from last year's payment of $2,201 at the same point in the filing season. Of course, the average may change as the IRS processes millions more returns before the April 18 deadline. As of Feb. 3, the IRS processed more than 16.7 million returns, over 29% more than the previous year, according to the report released last Friday. The nearly 8 million refunds compare to around 4.3 million the previous year.

☆ Roughly 70% of taxpayers are eligible for IRS Free File, but only 2% used it in 2022
▼ + stars: | 2023-02-02 | by ( Kate Dore | Cfp | ) www.cnbc.com time to read: +2 min

Roughly 70% of taxpayers qualify to use IRS Free File, but only 2% used it during the 2022 filing season, according to the National Taxpayer Advocate's annual report to Congress. A public-private partnership between the IRS and the Free File Alliance, the service offers free online guided tax preparation from partner companies for federal returns (and some state filings). You may qualify if your 2022 adjusted gross income was $73,000 or less. How Free File worksTo get started with Free File, you'll need last year's adjusted gross income for verification, your Social Security number and the necessary tax forms. Free File may not work for all taxpayersWhile Free File isn't widely used, some experts say it won't work for more complicated returns.

☆ After 'misery' for tax filers in 2022, IRS to start 2023 tax season stronger, taxpayer advocate says
▼ + stars: | 2023-01-12 | by ( Kate Dore | Cfp | ) www.cnbc.com time to read: +1 min

After another challenging year for the IRS in 2022, the agency may be primed for a better 2023 tax season — but improvements may take time. "The bad news is that taxpayers and tax professionals experienced more misery in 2022," wrote National Taxpayer Advocate Erin Collins. Based on this progress, the report finds the IRS is "poised to start the 2023 filing season in a stronger position." During the past two seasons, the IRS couldn't tackle current-year paper-filed returns until after the filing season ended. But the "significant reduction" of inventory in 2022 will allow the agency to process paper returns during the filing season, the report said.

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