Today's Tax Talk with Attorney Steven Leahy

Monday February 20, 2023 – This space has been pointing out that the Internal Revenue Service (IRS) is planning to devote its increased budget to machine learning and data analytics, rather than hiring thousands of new revenue agents. 

This shift towards the use of artificial intelligence (AI) in making IRS decisions less transparent, as AI algorithms can be difficult or impossible to understand and their decisions are often cloaked in bureaucratic secrecy. 

To protect American taxpayers Congress must insist on IRS algorithmic accountability. This includes publicizing pre-existing data sets used to train the algorithm, making available a detailed explanation of the algorithm’s rules and how it makes decisions, and providing a mechanism for taxpayers to challenge algorithms that appear to be arbitrary or unfair. Further, any AI decision made by the IRS should include some form of human review and oversight.

The use of artificial intelligence in government is unavoidable. However, it is essential that taxpayer rights remain paramount and that any AI decision has sufficient safeguards to protect them from being harmed by rogue algorithms. By increasing transparency and oversight of the IRS’s use of AI, Congress can ensure that taxpayers are not unfairly targeted or harmed by misguided algorithms. 

Attorney Steven A. Leahy looks at AI algorithms and IRS decision-making on Today’s Tax Talk.

https://thehill.com/opinion/finance/3864905-rise-of-the-tax-machines-irs-algorithms-are-coming-for-you/

https://www.forbes.com/sites/nicksibilla/2023/02/20/supreme-court-to-decide-if-irs-can-secretly-access-bank-records/?sh=5d31a288486c

Thursday February 16, 3033 - National Review's Travis Nix asks the question "Who is in charge of tax legislation, the IRS and the Department of the Treasury or Congress.  The question is raised because of a recent Tax Court decision of 3M Company vs Commissioner of the IRS.

In the 3M case, the IRS claimed 3M should pay 6% tax royalties on net sales from its Brazilian subsidiary, even though Brazilian Law caps payment at 1%.  Thereby double taxing the 5% difference. 

The decision allows the IRS to ignore foreign laws which limit inter-company transactions and disregards the keystone of U.S. transfer-pricing regulations that allocate income as if both companies were negotiating with a non-related company, resulting in tax avoidance and evasion.

The decision may have severe economic consequences, such as lost market access for U.S. companies and less economic growth in both countries.  Should Congress enact legislation overturning this regulation by mandating the IRS to respect foreign law in transfer-pricing cases?

Attorney Steven A. Leahy reviews this important Tax Court case on Today’s Tax Talk.

https://www.nationalreview.com/2023/02/congress-should-stop-the-irs-from-taxing-phantom-income/

https://aboutbtax.com/6Hi

Wednesday February 15, 2023 - The confirmation hearing for the nomination of Daniel Werfel as Commissioner of the Internal Revenue Service (IRS) is underway, with a variety of topics to be discussed. The Senate Finance Committee will question Mr. Werfel on matters such as the $80 billion increase in IRS budget for enforcement and collection activities, recent leaks of taxpayer information, and audit rates that will not increase for households earning less than $400,000. 

This hearing could determine whether or not he is confirmed as Commissioner of the IRS by President Biden's administration.  He will be confirmed.  Mr. Werfel is exactly the Washington insider who gets these jobs.  Remember, Mr. Werfel was an acting commissioner for a time May 22, 2013 to December 23, 2013.

With so much at stake during this hearing, it remains to be seen what answers has Mr. Werfel prepared and how it will influence the outcome of his nomination process. It is only a matter of time before the Senate confirms Mr. Werfel as IRS Commissioner.

Attorney Steven A. Leahy reviews the confirmation hearing on Today’s Tax Talk.

https://www.nytimes.com/2023/02/15/business/irs-daniel-werfel-hearing.html

https://www.cnn.com/2023/02/15/politics/daniel-werfel-irs-commissioner-confirmation-hearing/index.html

See the testimony at C-Span:

https://www.c-span.org/video/?525971-1/irs-commissioner-nominee-daniel-werfel-testifies-confirmation-hearing

Crypto-Tuesday February 14, 2023 –  The crypto world has been rocked by several major regulatory actions. New York regulators shut down new issuance of the world’s third-largest stablecoin, BUSD, while the SEC fined the parent of another big crypto exchange and forced it to stop offering a popular type of crypto-yield product to U.S. investors. 

Banking regulators are also quietly pushing for more oversight into crypto exchanges and other digital currency businesses. These moves could have a profound impact on the future of cryptocurrency. 

For those already involved in cryptocurrency, it means greater scrutiny from government agencies and more stringent regulations that must be followed. 

Being aware of these changes can help you identify potential areas of growth in the industry that might have otherwise gone unnoticed. For example, if one crypto exchange is no longer allowed to offer certain products or services due to regulatory pressure, another company may be able to step in and fill that void—allowing some to capitalize on an untapped market opportunity.  

The recent flurry of regulatory activity shows that cryptocurrency regulation is here to stay.  That's why it's essential for business owners to stay up-to-date on these  developments in this space so they can make informed decisions when it comes to their own operations and investments in cryptocurrencies. 

Attorney Steven A. Leahy summarizes the latest Cryptocurrency news on Today’s Tax Talk.

https://www.cnbc.com/2023/02/14/cryptocurrency-markets-on-edge-as-us-regulatory-crackdown-intensifies.html

https://www.wsj.com/articles/crypto-investors-brace-for-more-crackdowns-from-regulators-c1507134?mod=djemalertNEWS

https://coinflip.tech/markets

Thursday February 9, 2023 - As tax season begins, the IRS has yet to decide an important question: are state payments or refunds received in 2022 taxable? So, The IRS is asking people to hold off filing their Tax Returns. 

The Internal Revenue Service (IRS) tells us they have been working for months with state tax officials about these special payments and refunds that were made available by some states in 2022. 

“The IRS is aware of the complexity surrounding these payments and is doing its best to provide additional information that will help taxpayers make an informed decision.”  In the meantime – Hurry up and Wait.

The Sixteenth Amendment to the Constitution proclaims, “Congress shall have power to lay and collect taxes on incomes, from whatever source derived.”  There are, however, some statutory exceptions.  Do these state rebate checks fit into the exceptions?  The IRS doesn’t know yet. 

The IRS tells taxpayers “the rules surrounding them are complex.”  In the meantime “the IRS recommends [taxpayers] wait until additional guidance is available.”  “[T}he best course of action is to wait for additional clarification on state payments rather than calling the IRS.” 

Attorney Steven A. Leahy looks at the IRS February 3, 2023 Statement on Today’s Tax Talk.

https://www.irs.gov/newsroom/irs-statement-taxability-of-state-payments

https://www.nationalreview.com/corner/the-irs-fails-at-the-basics/

https://www.marketplace.org/2023/02/09/were-last-years-state-payments-taxable-taxpayers-in-24-states-wait-while-the-irs-decides/

https://www.fatherly.com/news/wait-to-file-your-tax-return-irs-warns

Wednesday February 8, 2023 - The Treasury Department and Internal Revenue Service have announced the proposed Service Industry Tip Compliance Agreement (SITCA) program.  A program designed to improve compliance with tip reporting regulations. 

The SITCA program would monitor employers' compliance by using their point-of-sale systems and allowing them to adjust tipping practices from year to year. Participating employers would demonstrate compliance by submitting an annual report after the close of the calendar year and receive protection from liability under applicable tax law. 

This is part of the Administration’s plan to make sure no one making under $400,000.00 per year pays even $1 more in taxes.  This rule focusing on waitresses will make sure the rich pay their fair share. 

Attorney Steven A. Leahy reviews the State of The Union and the IRS focus on TIPS on Today's Tax Talk.

https://www.foxnews.com/politics/bidens-irs-plans-crack-down-waiters-tips

https://www.irs.gov/newsroom/irs-introduces-new-service-industry-tip-reporting-program

https://www.denver7.com/news/national/irs-considering-changing-how-tipped-employees-report-tips

Crypto-Tuesday February 7, 2023 - Tokenizing assets like stocks, bonds and real estate has been an idea bandied about within the financial services industry for years. Blockchain-based platforms such as Ethereum are now leading the way to do just that.

Tokenized blockchains are used to expedite financial transactions and create new opportunities for smart contracts, asset tokenization and decentralized financing.

It’s now up to big banks and financial institutions to show consumers that tokenization is secure, cost-efficient, and compliant with existing regulations. With their deep pockets and government-mandated external oversight, they’re the ones best positioned to do it. 

As Ronald Reagan said, “Trust, but verify.” It’s time for big banks to put their money where their mouth is—literally—and prove that tokenization is the way of the future. Through this process, they have an opportunity to gain back the trust of consumers and investors who are skeptical about digital assets in general. With tokenization, America’s biggest banks can lead a revolution that not only changes how we transact with each other, but also rebuilds confidence in our financial system—one block at a time. When done correctly, it can open up new opportunities for all of us. 

Attorney Steven A. Leahy examines tokenizing assets and blockchain technology on Today’s Tax Talk. 

https://www.forbes.com/sites/ninabambysheva/2023/02/07/how-mastercard-goldman-sachs-and-other-tradfi-titans-are-using-blockchain-to-rewire-global-finance/?sh=621332f8339f

https://decrypt.co/120639/institutional-trader-survey-jp-morgan-crypto-artificial-intelligence

Monday February 6, 2023 - The IRS collects taxes from every paycheck issued. This is called withholding and it's how most Americans pay their taxes. America is a “Pay as you go” system. 

The idea is for employers to withhold an estimated amount of money from each paycheck that reflects what you owe in taxes; when you file your return, the difference between what was withheld and what you actually owe is either refunded to you or requested from you.

The problem is that the amount withheld is based on your income estimates for the year, and with wages increasing, many people are facing a surprise—instead of getting a refund, they owe money come April 18. 

The good news is that you can adjust your withholding so it more closely matches what you owe when tax time rolls around. Talk to your payroll department or consult with a tax professional to figure out how to make sure you’re not giving away money in the form of a refund that you would have been better off using in your regular budget. That way, when Tax Day comes around, you’ll be prepared. 

Pay attention to the amount withheld from each paycheck and make the necessary adjustments throughout the year to ensure that come tax time, you won't be in for a shock. When it comes to taxes, knowledge is power. Take the time to understand your individual tax situation and make sure you're withholding the right amount from each paycheck—so you can keep more of what's rightfully yours.

After all, there's no better way to celebrate Tax Day than with a little extra money in your pocket. Happy filing

https://www.thestreet.com/dictionary/w/withholding

https://www.mississippivalleypublishing.com/the_hawk_eye/the-irs-tightens-the-screws-on-the-gig-econimy/article_8d822b3a-a3d9-11ed-836a-9368abad0b67.html

https://www.fightbacknow.com

Thursday February 2, 2023 - As Ronald Reagan once said: “Freedom is never more than one generation away from extinction.”  Americans, rely on the government to keep us safe and secure, but we also expect our Constitutional rights to remain intact. The Internal Revenue Service’s (IRS) ability to gather taxpayer financial records without a warrant is unconstitutional and a blatant violation of our Fourth Amendment rights and an affront to the freedoms we hold dear.

Our Constitution recognizes our privacy for good reason—to protect us from government interference in our personal lives. Yet, when it comes to tax investigations, courts essentially give carte blanche authority to the IRS allowing them to seize and search through private financial information without regard for constitutional limits.

Digitization has only made this problem worse; with the IRS able to access digital records with relative ease, it has become increasingly difficult for taxpayers to protect their own financial information from unwarranted invasion. Yet Congress continues to pass legislation that grants the IRS even greater powers when it comes to collecting taxes, including bills requiring reporting on payments as low as $600 and providing chauffeurs for the IRS commissioner.

To deny Americans their right to privacy undermines centuries-long victories safeguarding liberty and diminishes our national character altogether; something every American should be fighting against before it's too late!

Attorney Steven A. Leahy examines the IRS invasion of taxpayer privacy on Today’s Talk Talk.

https://www.nationalreview.com/2023/01/an-irs-that-is-above-the-law-threatens-taxpayers-security/

https://www.nationalreview.com/2023/01/will-the-irs-lose-its-80-billion-appropriation/?utm_source=recirc-desktop&utm_medium=article&utm_campaign=river&utm_content=next-article&utm_term=first

https://www.jpost.com/business-and-innovation/banking-and-finance/article-730308

https://www.fightbacknow.com/

Wednesday February 1, 2023 - As artificial intelligence (AI) continues to improve, the federal government is making great strides towards keeping up with the ever-increasing speed of change. This includes the Internal Revenue Service (IRS). The IRS is undergoing a computing revolution in which artificial intelligence and other software advancements will be implemented. These advances will drastically change how the IRS operates, allowing them to monitor income transactions more closely than ever before, bringing with it an increased chance of audits or penalties if you fail to follow their regulations.

Business owners need to stay ahead of these changes, familiarizing themselves with current regulations and preparing for any future updates that may come their way. Even if you follow all the rules now, it’s possible that you could get caught off guard by new technology-driven policies that you were unaware of before. It pays to be prepared!

How to Protect Yourself

The best way to protect yourself from being audited or penalized by the IRS is education and due diligence. Familiarize yourself with all aspects of tax law so that when changes occur (and they will!) you know exactly what’s expected of you as a business owner. Make sure that your records are accurate and up-to-date; double check your math and keep records organized so they can easily be accessed if needed. Additionally, consider investing in an audit protection plan or consulting with Opem Tax Advocates, Inc.—this could save time, money, and headaches down the line!

It’s no surprise that technology has drastically changed our lives over the past decade; everything from communication to travel has been transformed by advances in computing power and artificial intelligence capabilities. Now, these same technologies are also transforming how governments operate—including how we manage taxes here in America. As a business owner, understanding how this revolution affects your bottom line is essential for staying on top of your taxes—and avoiding any unpleasant run-ins with Uncle Sam! With knowledge comes power; educate yourself on current tax laws so that when changes come around (and they will!) you’re ready for whatever new regulations may exist. With preparation comes peace of mind!  

If you are already fighting a tax problem, consider attending a FREE Tax Workshop hosted by Attorney Steven A. Leahy of Opem Tax Advocates, Inc.  Go right now to FightBackNow.com to secure your seat at the FREE Tax Workshop.  Seats are limited and fill up fast.  There’s no time to waste FightBackNow.com

https://thehill.com/opinion/finance/3832574-coming-soon-irs-on-big-tech-steroids/

https://www.fightbacknow.com/

https://law.stanford.edu/press/irs-disproportionately-audits-black-taxpayers/