In my 2020 Annual Report to Congress (ARC), I discussed the unnecessary delays and difficulties taxpayers encounter reaching an accountable and knowledgeable IRS employee for assistance with correspondence audits. More than 70 percent of the audits conducted by the IRS are correspondence audits, making this audit type one of the most significant tools the IRS employs to pursue compliance with tax laws. The taxpayer’s ability to interact and communicate with the IRS is crucial to the success of the correspondence audit process and the taxpayer’s IRS experience.

Electric vehicles, typically referred to as “EVs,” are all the rage these days, not just because of environmental friendliness but also because of the significant financial incentives available to buyers. The Inflation Reduction Act of 2022 amended IRC § 30D for new clean vehicles and added IRC § 25E for previously owned EVs to strengthen the financial incentives for taxpayers considering an EV purchase.

The IRS recently published new procedural rules in the Treasury Regulations that go into effect July 5, 2024, with revised credits that can save taxpayers up to $7,500 on certain new EVs and up to $4,000 on certain previously owned EVs. Still, the rules surrounding these credits can be confusing for both experienced tax professionals and average taxpayers. So as the saying goes, buyers beware.

To make this process less perplexing, this blog explores the nuances of the current EV tax credits, with a focus on how they work, who may qualify, and common pitfalls to avoid. This blog will focus on the new rules for EVs that went into effect after the Inflation Reduction Act.

The taxpayers filed an amended return showing that they actually lost money on the real estate sale and were due a refund. However, the IRS hadn’t processed the amended return.  

Taxpayers may use commercial tax preparation software to file and pay taxes electronically (for a fee). When you file your return, it will be securely transmitted through an IRS-approved secure electronic channel. The software generally uses a question and answer format that provides answers to tax law questions.

Installment agreements are one of your options if you can’t pay your taxes in full when they’re due. These agreements are payment plans that that allow you to pay your debt over a time you establish with the IRS. You must stay current with monthly payments, timely file your tax returns, and make estimated tax payments. Future refunds will be applied to unpaid taxes until the tax balance is paid in full.

Letter 4800C is mailed to taxpayers informing them that the IRS is proposing a deficiency or disallowing a claim for refund or a credit for a subsequent period’s estimated tax. Credits claimed, income tax withholding, or business expenses need verified before your refund will be released or applied to next year’s Estimated tax.

The American Rescue Plan Act of 2021 (ARPA) amended IRC § 32 to recognize two new categories of taxpayers, “qualified former foster youth” and “qualified homeless youth.” These taxpayers may be eligible to claim the Earned Income Tax Credit (EITC) if they are not claiming a qualifying child and are at least 18 years old (the minimum age for other taxpayers who are not claiming a qualifying child to claim the EITC is 19. There is no minimum age for taxpayers who are claiming a qualifying child). The amount of the credit depends on the amount of their earned income and whether or not they are filing a joint return: the maximum amount of the credit is $1,502, which corresponds to earned income between $9,800 and $17,599 for joint filers, and to earned income between $9,800 and $11,649 for other filers. As I explained in an earlier blog, qualified former foster youth and qualified homeless youth who meet the other requirements for EITC eligibility can claim the credit by checking the box on line 27 on their 2021 tax returns. Like other taxpayers who claim the EITC in tax year 2021, they may elect to use their tax year 2019 income instead of their 2021 income if their tax year 2021 income is lower than their 2019 income.

You received a notice or letter from the IRS and either choose to respond to the notice or letter and/or lien or levy by paying your tax balance in full.

Even though the 2021 filing season officially ended on May 17, 2021, as discussed in Part I, the IRS has reduced its tax year (TY) 2020 tax return inventory backlog down to about 10 million paper returns in need of processing, about 5.7 million returns in need of additional information from taxpayers before processing, and over 4 million are expected to be filed by the extended due date, October 15.

In my 2021 Annual Report to Congress, I reported on the IRS’s processing backlogs and recommended that the IRS suspend all automated collection notices until it is current on processing original and amended returns and unprocessed correspondence. I also described the IRS’s collection policies and recommended that the IRS postpone the issuance of Notices of Intent to Levy and the filing of Notices of Federal Tax Lien until it has eliminated its backlog of unprocessed mail and responded to taxpayers’ correspondence.

Many individuals may not know they can request, receive, and review their tax records via a tax transcript from the IRS at no charge.  Transcripts are often used to validate income and tax filing status for mortgage applications, student loans, social services, and small business loan applications and for responding to an IRS notice, filing an amended return, or obtaining a lien release.  Transcripts can also be useful to taxpayers when preparing and filing tax returns by verifying estimated tax payments, Advance Child Tax Credits, Economic Income Payments/stimulus payments, and/or an overpayment from a prior year return.