Dear tax professional:

Happy Friday!  The 2023 NESTOA Annual Conference was a huge success with more than 250 tax administrators, practitioners, and agency service providers gathering this week to collaborate and share ideas and best practices.

IRS Orders Immediate Stop to New ERC Processing

Moratorium comes amid surge of questionable claims, tax pro concerns

Amid rising concerns about a flood of improper Employee Retention Credit claims, the IRS on Thursday announced an immediate moratorium through at least the end of the year on processing new claims for the pandemic-era relief program to small business owners from scams.

IRS Commissioner Daniel Werfel ordered the immediate moratorium, beginning September 14, 2023, to run through at least Dec. 31 following growing concerns inside the tax agency, from tax professionals as well as media reports that a substantial share of new claims from the aging program are ineligible and increasingly putting businesses at financial risk by being pressured and scammed by aggressive promoters and marketing.

The IRS continues to work previously filed Employee Retention Credit (ERC) claims received prior to the moratorium but renewed a reminder that increased fraud concerns means processing times will be longer. On July 26, the agency announced it was increasingly shifting its focus to review these claims for compliance concerns, including intensifying audit work and criminal investigations on promoters and businesses filing dubious claims. The IRS announced on Thursday that hundreds of criminal cases are being worked, and thousands of ERC claims have been referred for audit.

The IRS emphasizes payouts for these claims will continue during the moratorium period but at a slower pace due to the detailed compliance reviews. With the stricter compliance reviews in place during this period, existing ERC claims will go from a standard processing goal of 90 days to 180 days – and much longer if the claim faces further review or audit. The IRS may also seek additional documentation from the taxpayer to ensure it is a legitimate claim.

Taxpayers are encouraged to review IRS guidance and tools for helping determine ERC eligibility, including frequently asked questions and a new question and answer guide to help businesses understand if they are actually eligible for the credit.

The IRS is developing new initiatives to help businesses who found themselves victims of aggressive promoters. This includes a settlement program for repayments for those who received an improper ERC payment. More details will be available this fall.

In addition, the IRS is finalizing details that will be available soon for a special withdrawal option for those who have filed an ERC claim but the claim has not been processed. This option – which can be used by taxpayers whose claim hasn't yet been paid will allow the taxpayers, many of them small businesses who were misled by promoters, to avoid possible repayment issues and paying promoters contingency fees. Filers of these more than 600,000 claims awaiting processing will have this option available. Those who have willfully filed fraudulent claims or conspired to do so should be aware, however, that withdrawing a fraudulent claim will not exempt them from potential criminal investigation and prosecution.

When properly claimed, the ERC – also referred to as the Employee Retention Tax Credit or ERTC – is a refundable tax credit designed for businesses that continued paying employees during the pandemic while their business operations were fully or partially suspended due to a government order or they had a significant decline in gross receipts during the eligibility periods. The credit is not available to individuals.

The IRS has received approximately 3.6 million ERC claims over the course of the program.

Although promoters advertise that ERC submissions are "risk free," there are significant risks facing businesses as the IRS increases its audit and criminal investigation work. The IRS reminds anyone who improperly claims the ERC that they must pay it back, possibly with penalties and interest. A business or tax-exempt group could find itself in a much worse financial position if it has to pay back the credit than if the credit was never claimed in the first place.

This underscores the importance of taxpayers taking precautionary steps to independently verify their eligibility to receive the credit before applying through a promoter. Taxpayers should take particular precautions because a promoter can collect a contingency fee of up to 25% of the ERC refund.

NESTOA Brings Together Tax Professionals for Idea Sharing, Connection

More than 250 attendees at 2023 annual conference in Wilmington, Delaware

Philadelphia DOR Commissioner Frank Breslin was recognized during the 2023 NESTOA Annual Conference for his more than 39 years of service to the city of Philadelphia. Pictured From left: Rhode Island DOR Taxation Division Administrator and FTA Board of Trustees Immediate Past President Neena Savage, Commissioner Breslin, and FTA Executive Director Sharonne Bonardi.  

More than 250 tax administrators, practitioners, and agency service providers met this week in the beautiful city of Wilmington, Delaware for FTA’s Northeastern States Tax Officials Association (NESTOA) Annual Conference. The week was brimming with new ideas and stories of projects happening in so many northeastern state tax agencies.

Commissioners reported out on projects, goals, and accomplishments of their agencies, sharing valuable information for attendees to take home and share. Two dozen breakout sessions covered everything from fraud detection and prevention to customer experience, project development, audit, collections, legal cases, digital assets, and the future of the physical office space.

Thank you to all who presented and attended the 2023 NESTOA Conference. Safe travels home and see you all again next year.

IRS Accepting Applicants for the 2024 Compliance Assurance Process

Applicants, if accepted, will be informed in February 2024 

The IRS recently opened the application period for the 2024 Compliance Assurance Process (CAP) program, running from Sept. 6 to Oct. 31, 2023.

The IRS will inform applicants if they’re accepted into the program in February 2024.

Launched in 2005, CAP employs real-time issue resolution through transparent and cooperative interaction between taxpayers and the IRS to improve federal tax compliance by resolving issues prior to the filing of a tax return.

To be eligible to apply for CAP, new applicants must meet the following qualifications:

See highlights and updates for detailed information on revisions to the CAP program for 2024, including updates on Bridge Plus and a draft of a new form for international issues.

General program information and the 2024 application details are available on the CAP webpage.

Tennessee DOR Comms Team Taps Local Media to Promote Tax Holidays

Thirteen news stations, multiple news publications statewide help spread word

A story brief in Tennessee DOR’s latest Revenue Review newsletter showcased the fine work the agency’s communications team did to get 13 different stations across Tennessee and in multiple different news publications to promote traditional and grocery tax holidays throughout July and August.

The article expressed appreciation for the news coverage and the opportunity to help spread the word about the tax savings available to Tennesseans!

IRS Clarifies Rules for New Corporate Alternative Minimum Tax

Guidance also provides general rules for determining a taxpayer's financial statement income, AFSI

The U.S. Department of Treasury and IRS this week issued Notice 2023-64 to provide additional interim guidance to help corporations determine whether the new corporate alternative minimum tax (CAMT) applies to them and how to compute the tax.

Notice 2023-64, clarifies and supplements Notice 2023-07 and Notice 2023-20, issued earlier this year. Treasury and IRS anticipate forthcoming proposed regulations will be consistent with this interim guidance.

The Inflation Reduction Act created the CAMT, which imposes a 15% minimum tax on the adjusted financial statement income (AFSI) of large corporations for taxable years beginning after Dec. 31, 2022. The CAMT generally applies to large corporations with average annual financial statement income exceeding $1 billion.

Considering the challenges of determining CAMT liability, Notice 2023-42 provides that the IRS will waive the penalty for a corporation’s estimated income tax with respect to its CAMT for a taxable year that begins after Dec. 31, 2022, and before Jan. 1, 2024.

Among other things, Notice 2023-64 provides a list of financial statements that meet the definition of an applicable financial statement (AFS) as well as priority rules for identifying a taxpayer’s AFSI.

The guidance also provides general rules for determining a taxpayer’s financial statement income and AFSI, including when the taxpayer’s financial results are reported on a consolidated financial statement.

The notice includes guidance on when corporations are subject to:

FTA Leaderboard Video Series

Rhode Island DOR Taxation Administrator Neena Savage

Savage is an attorney with more than 30 years of legal experience in the nonprofit, public and private sectors. She has been with the Rhode Island Division of Taxation since 2015 and has more than 25 years of experience handling financial sector issues for the state of Rhode Island. She holds a Bachelor of Science degree from Texas A&M University and a Juris Doctorate from the Washington College of Law of the American University.

Motor Fuels Section Annual Conference Registration Open

Join us in Orlando, Florida September 17–20

The 2023 FTA Motor Fuels Annual Conference of the FTA Motor Fuels Section will be held at Rosen Plaza in Orlando, Florida on September 17–20, 2023. The meeting consists of general session topics of interest to state motor fuel tax administrators and industry. 

This is a forum for states to share their best practices and to hear about the latest and greatest in improved processes, compliance innovations, ideas, and networking.  

Revenue Estimation and Tax Research Conference

Join us September 30–October 4 in Salt Lake City, Utah

If you are a revenue estimator, forecaster, tax analysis, or just interested to tax policy topics, register now for the Annual FTA Revenue Estimation and Tax Research Conference in Salt Lake City at the Sheraton Hotel - Downtown from September 30 through October 4.  Full details, including registration, are available on the Revenue Estimation and Tax Research Conference page.    

Tobacco Basic Training Class

Join us October 22–26 in Clemmons, North Carolina

Registration is open to both the government and industry for the 2023 FTA Tobacco Training Basic Class registration is open now.

Instructors will be state employees with expertise in tobacco tax audits and investigations. 

Representatives of the tobacco industry will also make a presentation to help the participants understand how the distribution system operates.  Government and Industry attendees are afforded the opportunity to tour a cigarette manufacturer facility.

Ohio Supreme Court Affirms Use Tax Assessment Against IT Company

Ruling denies argument calling for tax credit for purchase related to construction

The Ohio Supreme Court upheld, in PMC Inc. v. Harris, a use tax assessment with interest and penalties against an IT company related to the construction of a data center they hired a contractor to build. The company had argued it should be credited with the use tax its contractor paid on items used in building the company's data center.

The taxpayer is based in California and offers technology products and services marketed directly to businesses and governmental bodies. The facts show that in 2013 it contracted with the Daimler Group to build a data center in New Albany, Ohio. The state tax commissioner (Commissioner) audited the company for January 2013 to December 2015 and found that it, instead of Daimler, should be liable for tax on some items related to the construction of the data center because the items were business fixtures/tangible personal property rather than real property. The Commissioner issued an assessment of $555,512 in use tax, plus $59,793 in interest and $83,327 in penalties.

In 2018 the taxpayer submitted a petition for reassessment filed by its tax director, who is not an attorney. The company checked the box on the petition form that allowed the matter to be settled based on the record and waived a hearing with the tax commissioner. The taxpayer argued that all the relevant taxes were included in the billings for the center and paid by Daimler and included a letter from Daimler to support its claim.

The tax commissioner issued a final determination in 2020 denying the claim, finding that the taxpayer failed to identify the objected-to transactions and explain why the assessed items were not business fixtures, and noting that the company failed to provide evidence to support that Daimler paid the tax. The commissioner cited Meijer Inc. v. Tracy, in which the Board of Tax Appeals found that Ohio’s tax statutes "provided no provision for crediting taxes paid from one consumer to the account for another."

The taxpayer filed an appeal to the BTA but did not ask for a hearing. The BTA found that to be an indication that a hearing was unnecessary and directed the parties to submit written arguments. The company’s tax director subsequently filed a request for a hearing and a motion to remand the case to the tax commissioner, which the BTA denied because it was a late request filed by a “nonlawyer on behalf of a corporation” and affirmed the commissioner's final determination. The taxpayer filed this appeal, arguing that the BTA erred in denying its hearing request. It also contended that it was not liable for taxes on some of the at-issue items and that the tax commissioner erred in imposing a penalty.

The court held that the taxpayer failed to cite any authority to prove that Daimler's use tax payments have any legal significance that would affect the company’s use tax liability. Noting that the company also did not acknowledge the Meijer decision and did not cite any authority that called the decision into question, the court concluded that the tax commissioner did not err in her final determination. The court also found that the taxpayer forfeited the opportunity to challenge the taxability of the items and the penalty because it failed to object in the petition phase.

This article first appeared in FTA’s State Tax Highlights newsletter. Email: newsletter@taxadmin.org to subscribe.  

Montana DOR Warns of Fee-Based Property Tax Rebate Scam

Agency informs taxpayers there is no fee to apply for this rebate

Last month, Montana DOR warned the public to be on the lookout for suspicious or fraudulent activity related to a property tax scam.

This scam comes in the form of an online offer to provide information needed to file a property tax rebate claim for a fee.

Staff at DOR received reports of websites charging taxpayers for the geocode of their principal residence. Montana DOR reminded the public that property taxpayers do not have to pay for any information required to apply for the property tax rebate.

To claim their property tax rebate, Montana taxpayers must report their residence’s geocode, a unique 17-digit number that identifies a property and that can be found free of charge from the state at cadastral.mt.gov. The department strongly discourages taxpayers from clicking on any website or link that charges a fee to access public information, advising them to visit GetMyRebate.mt.gov for detailed information on how to locate a geocode.

Montana DOR advised taxpayers to avoid scams by applying for the property tax rebate online at GetMyRebate.mt.gov as soon as possible. The application period is open and ends on October 1, 2023. By applying early, taxpayers can reduce the risk that criminals will use their information to claim the rebate. Anyone who suspects someone has filed a fraudulent claim on their behalf is advised to contact DOR.

The Montana Property Tax Rebate provides qualifying Montanans up to $675 of property tax relief on a primary residence in both 2023 and 2024. The qualifications to claim the rebate are at GetMyRebate.mt.gov.

Georgia Taxpayers Impacted by Idalia Qualify for Tax Relief

October 16 deadline, other dates postponed until February 15

The IRS this week announced tax relief for individuals and businesses affected by Idalia in 28 of the state’s 159 counties in Georgia. These taxpayers now have until Feb. 15, 2024, to file various federal individual and business tax returns and make tax payments. This is similar to relief already being provided in Florida and South Carolina. 

The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA). Currently, 28 counties within Georgia qualify: 

Individuals and households that reside or have a business in these counties qualify for tax relief. The current list of eligible localities is always available on the disaster relief page on IRS.gov. 

Filing and Payment Relief

The tax relief postpones various tax filing and payment deadlines that occurred from Aug. 30, 2023, through Feb. 15, 2024 (postponement period). As a result, affected individuals and businesses will have until Feb. 15, 2024, to file returns and pay taxes originally due during this period. 

This means, for example, the Feb. 15, 2024, deadline will now apply to:

In addition, penalties for the failure to make payroll and excise tax deposits due on or after Aug. 30, 2023, and before Sept. 14, 2023, will be abated as long as the deposits are made by Sept. 14, 2023.

The IRS disaster relief page has details on other returns, payments and tax-related actions qualifying for relief during the postponement period. 

Director of Economic Research and Tax Policy

Federation of Tax Administrators

Open until September 15, 2023

Director of Excise and Miscellaneous Tax Programs

Federation of Tax Administrators

Open until September 15, 2023

Public Affairs Specialist

Washington DC Office of Chief Financial Officer

Tax Policy Specialist

Washington State DOR

Tax Operations Bureau Director

Wisconsin DOR

FTA has announced a number of dates for its 2023 conferences and symposia.  Be sure to mark your calendars!  Registration information is available for many of the conferences.  Please visit the FTA website for the full calendar.

Revenue Estimation and Tax Research Conference
September 30–October 4
Salt Lake City, UT

Compliance Conference
December 3–6
Tucson, AZ

Motor Fuel September Uniformity
September 15 and 16
Orlando, FL

Motor Fuel Annual Meeting
September 17–20
Orlando, FL

WSATA Annual Meeting
October 8–11
Reno, NV