Mid-year IRS Updates: Mileage Rates, Tax Return Backlog & the 2022 Dirty Dozen

Mid-year IRS Updates: Mileage Rates, Tax Return Backlog & the 2022 Dirty Dozen

July 11, 2022

Midway through 2022, the IRS is providing information related to mileage rate increases, addressing the backlog of tax returns to be processed, and released their 2022 “Dirty Dozen” list of scams.

The IRS Has Increased Mileage Rates

In response to the recent increases in the cost of gas, the IRS has increased mileage rates by 4¢ per mile, effective July 1, 2022. The business mileage rate was 58.5¢ per mile for January 1 – June 30, 2022, and is now 62.5¢ per mile from July 1 – December 31, 2022. The medical and moving mileage rates were 18¢ per mile for January 1 – June 30, 2022, and are now 22¢ per mile for the remainder of 2022.

Mileage is deductible as a moving expense for active-duty military members pursuant to military orders only.

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Backlog of Paper-Filed Tax Returns

The IRS also addressed the large backlog of paper-filed tax returns and provided an update on their plans to process those throughout the rest of the year. As of June 21st, they were close to processing all original, error-free individual tax returns that were filed in 2021. It is important to note that this does not include returns that had processing errors or that needed additional information.

As of June 10, 2022, they had processed about 4.5 million of the more than 4.7 million returns filed. The backlog is growing due to the filing of amended returns, increased correspondence, and the approaching October 17th deadline. For the remainder of the year, the IRS will continue to provide overtime to staff, hire new employees and contractors, and form teams of employees that will focus on the backlog.

Overall, the IRS is making strong progress towards having a healthy inventory of tax returns by the end of the year, and are in better shape than they were at this time last year.

The IRS’s “Dirty Dozen” – Scams for the 2022 Filing Season

Each year, the IRS compiles a “Dirty Dozen” list of common scams that taxpayers may encounter at any time, but especially during the filing season. The 2022 list includes:

  1. Use of Charitable Remainder Annuity Trust (CRAT) to Eliminate a Taxable Gain. This transaction involves moving appreciated property into a CRAT where it will receive a step-up in basis. When the property is sold, no gain is recognized due to the step-up and the proceeds are used to purchase a single premium immediate annuity (SPIA). Only a small portion of the annuity is reported as income by the beneficiary, which is a misapplication of the law relating to CRATs.
  2. Maltese (or Other Foreign) Pension Arrangements Misusing Treaty. A U.S. citizen or resident attempts to avoid paying U.S. tax by contributing to a foreign individual retirement arrangement. This incorrectly applies the relevant treaty to claim an exemption from U.S. income tax on earnings and distributions from the foreign arrangement.
  3. Puerto Rican and Other Foreign Captive Insurance. This involves an owner of a U.S. entity in a supposed insurance arrangement with a foreign corporation with assets that the U.S. owner has a financial interest in. The U.S. individual or entity deducts the cost of the insurance coverage that is provided by a fronting carrier. The fronting carrier reinsures the coverage with the foreign corporation.
  4. Monetized Installment Sales. This is the inappropriate use of the installment sale rules where a seller enters into a contract to sell property to a buyer for cash and then sells the same property to an intermediary for an installment note. The intermediary then sells the property to the buyer for cash, which results in the seller receiving the sales price in the form on a nonrecourse and unsecured loan.
  5. Pandemic-Related Scams – These scams can include:
    • Economic Impact Payment and tax refund scams, where identity thieves may text, call, or email you to ask for your bank account information, claiming you are eligible for more than you received.
    • Unemployment fraud leading to inaccurate taxpayer 1099-Gs. During the pandemic, there were many fraudulent unemployment claims using stolen personal information. If you received a 1099-G for unemployment compensation, make sure it is for income you actually received.
    • Fake employment offers posted on social media. These posts attract the newly unemployed as a means to entice them to provide their personal information.
    • Fake charities that steal your money. It is important to research the charity before giving to them. Often these fake charities will seem forceful or ask you to wire money to them.
  6. Offer in Compromise (OIC) Mills. These include anyone who claims they can settle taxes for pennies on the dollar. Watch out for ghost preparers, which are preparers who will not sign tax returns, and often find fraudulent ways to get you a bigger refund.
  7. Attempts to steal your identity, personal financial information, money, and more. These attempts are often made by text, email, or phone calls, and will reference COVID-19, stimulus payments or payments due to the IRS, and will request personal financial information. Please know, the IRS initiates most contact through regular mail.
  8. Spear Phishing Attacks. These attacks are an email scam in an attempt to steal computer system credentials.
  9. Concealing Assets in Offshore Accounts and Improper Reporting of Digital Assets. Many individuals have been found to be hiding income in foreign bank accounts, brokerage accounts, or nominee entities. U.S. persons are required to report foreign income and other assets. In addition, the IRS is able to identify transactions of digital assets, such as cryptocurrency, and enforce applicable filing requirements.
  10. High-income individuals who don’t file tax returns. Individuals who earn more than $100,000 a year and choose not to file a tax return will be a top priority for the IRS.
  11. Abusive Syndicated Conservation Easements. This involves using inflated appraisals of undeveloped land and partnership arrangements without business purpose to generate large tax deductions. This twists the rules allowing conservation easements.
  12. Abusive Micro-Captive Insurance Arrangements. In this structure, professionals persuade business owners to participate in schemes that lack typical attributes of insurance. These schemes may include excessive premiums used to avoid the tax law, they insure implausible risks, or they fail to match the business needs or commercial coverages.

If, while reading through any of these various updates from the IRS, you need any clarification or to speak to a tax professional, please contact Tax Supervisor Alison Furfie, or Principal Christina Roderick below. We welcome your questions.

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