The IRS has announced several new efforts aimed at recouping improper COVID-19 relief funds claimed by businesses while also providing penalty relief to millions of individual taxpayers.
New Voluntary Disclosure Program Seeks Repayment of Erroneous Employee Retention Credits
In response to questionable pandemic relief claims, the IRS launched a new Voluntary Disclosure Program specifically targeting employers that filed inaccurate or fraudulent Employee Retention Tax Credits (ERC). This comes amid IRS crackdowns on deceptive marketing practices that misguided companies into claiming credits they didn’t qualify for.
The new program gives employers until March 22, 2024 to self-report improper ERC claims. Those accepted will only need to repay 80% of the credits received, avoiding further penalties or interest. The IRS continues urging employers with pending ERC claims to withdraw them if concerned about eligibility. Over 20,000 letters have already gone out denying outright fraudulent claims.
IRS Grants Automatic Penalty Relief to Millions With Unpaid 2020-2021 Tax Bills
In a major policy shift providing assistance to financially struggling taxpayers, the IRS announced automatic penalty relief for around 4.7 million individuals and businesses that owed tax money for 2020 or 2021 but did not receive an automated collection notice during the pandemic.
This relief totals approximately $1 billion in waived failure-to-pay penalties. Most receiving the reprieve make under $400,000 in annual income. Taxpayers don’t need to request anything to qualify for the penalty waiver.
Relief comes as the IRS prepares to restart more aggressive collection actions this year, including liens, levies, and asset seizure in extreme cases. Those benefiting should still strive to pay back taxes or work out alternative payment plans to avoid further enforcement.
IRS Delays New Reporting Threshold for Third-Party Payments
Following taxpayer feedback, the IRS postponed a new law requiring third-party settlement organizations like PayPal to issue 1099-K forms for business sellers once they hit $600 in transactions (down from $20,000). The change led to confusion and pushback from smaller businesses facing an increased filing burden.
Now the IRS designated 2023 as a transition year, maintaining the old $20,000 reporting threshold with 200+ transactions. This gives the agency more time to clarify guidance and allows businesses to prepare for the lower 1099-K threshold taking effect in 2024.
Unannounced Home Visits by IRS Agents Now Prohibited
The IRS eliminated a long-standing practice of revenue officers making unannounced in-person visits to households or businesses with overdue taxes. While meant to collect unpaid balances, the surprise visits often caught taxpayers off-guard, creating anxiety or safety issues. Officers will now provide advance notice unless a dire situation calls for immediate, on-site contact.
IRS Pilots Free “Direct File” Program to Improve Access and Technology
This tax season the IRS kicks off a pilot allowing taxpayers in 12 states to prepare and e-file simple federal returns for free directly on IRS.gov. Dubbed “Direct File,” this new option looks to boost participation among lower-income filers while letting the IRS enhance its technology and services with direct taxpayer input.
If successful, the goal is expanding nationally to open free direct filing access to millions more Americans beyond this initial test phase.
IRS Outlines Ambitious 10-Year Plan for Historic Overhaul
Funded by last year’s Inflation Reduction Act, the IRS published a sweeping Strategic Operating Plan detailing massive proposed improvements in operations, technology, taxpayer service and more over the next decade. With boosted budgets, the agency aims to fundamentally transform itself after years of being under-resourced and overwhelmed.
Goals include clearing backlogs, modernizing 1960s-era IT systems, boosting audit and collection staff, providing more digital options for taxpayers, and generally restoring public trust in the agency. Full transformation will take significant time and coordination across IRS divisions to achieve.
Standard Mileage Rates and Other Key Tax Items Indexed for Inflation
Finally, individual filers should be aware 2023 tax brackets, standard deductions, and various credits have been updated based on latest inflation figures. The standard business mileage deduction rose 3 cents to 65.5 cents per mile. And clean vehicle credits significantly expanded under last year’s Inflation Reduction Act, including new breaks for buying used EVs.
Key Takeaways:
The IRS aims to recover improper pandemic funds from businesses while granting penalty relief to millions of individual taxpayers. Tighter reporting rules and free filing options signal efforts to improve taxpayer compliance amid major looming upgrades to modernize outdated systems and restore public faith after years of dysfunction. With tax rates and credits now indexed higher for inflation, filers should understand how credits as well policy shifts around digital assets, audits, and collections could impact returns this season.