Freeze on Employee Retention Credit (ERC) Processing

Sep 18, 2023

What happened:
As of last Thursday, the IRS temporarily halted the processing of new Employee Retention Credit (ERC) claims, owing to a surge in ERC-related scams and fraudulent submissions. IRS Commissioner Danny Werfel expressed concern over genuine small businesses falling prey to deceptive schemes. “As we move further from the pandemic, it becomes evident how the noble intentions behind this program have been exploited,” stated Werfel.

Initially, the ERC was designed to offer relief to businesses and tax-exempt entities. Yet, the allure of a refundable tax credit has led to a rise in opportunistic consulting firms. Many of these firms, while promising substantial refunds, neglect to inform businesses about crucial wage deduction adjustments an other limitations contained within the ERC rules.

Key details:

  • The processing freeze will be in effect until at least Dec. 31, 2023, meaning no new ERC claims will be entertained.
  • The IRS will still review the 600,000 previously filed ERC submissions.
  • While payments on prior claims will persist, claimants might need to furnish extra documentation to confirm their claim’s authenticity.
  • The standard processing timeframe for ERC claims may exceed 180 days, especially if further scrutiny or an audit is required. The IRS notes that several claims are already earmarked for audits.
  • Due to the heightened examination of filings, expect processing delays and intensified ERC audit inquiries and criminal probes. The agency’s main focus is on potential fraudulent promoters and enterprises.
  • The IRS emphasizes that illegitimate ERC claimants will be liable to repay the credit, potentially with added penalties. Claiming incorrectly might leave businesses in a financially precarious position.

Next Steps:
Given the intricate nature of the credit calculation, it’s imperative to partner with a trustworthy firm. Businesses should remain wary of overtly enticing tax-saving pitches. William Vaughan Company, a trusted industry leader, is poised to offer guidance and insights to anyone with concerns about their ERC filing.

Finally, the IRS has provided resources, including updated FAQs, to ensure businesses aren’t swindled by scam promoters or pressured into fraudulent applications. A forthcoming settlement program will also be launched by the agency this fall to oversee the repayment of certain unjust ERC claims. For comprehensive details, refer to the IRS’s official ERC website.

Categories: Tax Compliance


Ohio House Bill 33 Explained

Jul 17, 2023

Ohioans can expect significant changes to state tax laws next year thanks to Ohio House Bill 33. The newly passed piece of legislature, signed by Governor Mike DeWine on July 3, 2023, establishes state operating appropriations for fiscal years 2024-2025. This comprehensive legislation also brings several tax advantages specifically designed to benefit Ohio business owners. Taxpayers can expect changes to personal income tax, Commercial Activity Tax, Pass-Through Entity Tax Credits, and Municipal tax.

Personal Income Tax Reductions

The first significant change introduced by House Bill 33 is a reduction in personal income tax rates. The new law establishes two tax brackets based on income levels. If you earn over $26,050, you’ll pay a marginal tax rate of 2.75%. For individuals with income over $100,000, the rate increases slightly to 3.5%. Those earning $26,050 or less will be exempt from paying any income taxes to the state of Ohio.

Commercial Activity Tax (CAT) Exemption

House Bill 33 also brings changes to the Commercial Activity Tax (CAT), affecting businesses in Ohio. CAT is determined based off a business’s taxable gross receipts. The new law significantly increases the annual exemption threshold for businesses. Previously, businesses with taxable gross receipts under $150,000 were exempt from paying CAT. However, under the new law, the exemption amount rises to $3 million for the 2024 tax year and further increases to $6 million starting in 2025. This means that a large amount of Ohio-based businesses will no longer have to pay CAT.

Pass-Through Entity (PTE) Tax Credit

Another important change under House Bill 33 is the introduction of a tax credit for Ohio residents subject to double taxation on pass-through entity (PTE) income. Pass-through entities include businesses like partnerships, S corporations, and limited liability companies (LLCs). Often, individuals earning income from such entities face double taxation, meaning they pay taxes at both the entity level and the individual level. The new law allows Ohio residents to claim a credit on their individual tax returns for PTE taxes paid to other states, helping alleviate the burden of double taxation.

Municipal Tax Changes

Finally, House Bill 33 will enact several changes to municipal taxes in Ohio. Municipal taxes are taxes imposed by local governments, such as cities and towns. The new law reduces fees and penalties for late filing of municipal income tax returns, making it more affordable for taxpayers to comply with local tax obligations. Additionally, the bill extends the due date for filing municipal net profits tax returns from October 15th to November 15th, giving individuals and businesses more time to prepare their tax returns.

Furthermore, House Bill 33 exempts individuals under the age of 18 from Ohio municipal income tax. This means that high school students who have part-time jobs or earn income from other sources will not have to pay municipal income tax in Ohio.

Other Changes

The newly passed bill includes numerous other provisions aimed at providing tax relief for both business and individuals. From baby wipes and cribs, to traffic control services often used by construction contractors, taxpayers can expect additions to the state’s list of tax-exempt goods and services. Businesses with remote or hybrid employees in Ohio can also expect a new option for calculating their municipal net profits tax.

Conclusion

Ultimately, the passage of Ohio House Bill 33 introduces several significant changes to the state’s tax landscape. William Vaughan Company’s tax team will continue to monitor changes resulting from House Bill 33 along with other state and federal tax updates. For both businesses and individuals, understanding tax law is crucial when it comes to making informed financial decisions. Don’t leave your finances up to chance, connect with us today to understand how House Bill 33 may effect your specific situation.

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Categories: Tax Compliance, Tax Planning


Scam Alert: Distraint Warrant Scam

Jul 05, 2023

William Vaughan Company was recently made aware of a highly concerning scam surfacing in Lucas County. Many local businesses have received fraudulent “Distraint Warrants” in the mail, sent by a fictitious entity called the “Tax Resolution Unit.” While these letters seem to primarily target businesses, a handful of individuals have also received them. In the interest of our community and the individuals we serve, here are some important detail about this distraint warrant scam along with essential tips on safeguarding yourself against such fraudulent activities.

The Scam:
In this distrain warrant scam, individuals and businesses receive official-looking documents in the mail from the Lucas County “Tax Resolution Unit.” The document claims that a Distraint Warrant has been issued against the recipient due to unpaid tax debts. The scammers exploit fear and urgency, attempting to coerce victims into making immediate payments via telephone to a toll-free number. However, it’s crucial to note that Lucas County does not have a Tax Resolution Unit or an office of Public Judgment Records.

How to Protect Yourself:

Verify the source: Take a moment to verify the authenticity of any suspicious document you receive. Contact the relevant county offices or authorities to confirm the legitimacy of the warrant or notification. Don’t hesitate to reach out to our team if you need assistance in this regard.

Exercise caution: Be wary of unexpected or unsolicited communications regarding taxes or debts. Genuine organizations typically communicate through official channels and offer multiple opportunities to resolve any issues. Be skeptical of sudden demands for payment or urgent actions.

Guard your personal information: Under no circumstances should you share sensitive personal or financial information, such as social security numbers, bank account details, or credit card numbers, in response to such requests. Legitimate authorities, like the IRS, will not ask for this information via email or phone. Nor will the IRS take payment by cashier’s check, in the form of gift cards, or wire transfer.

Report the scam: If you receive a suspicious document or believe you have encountered a scam, promptly report it to the relevant authorities. You can report it to the IRS by either calling 1-800-366-4484 or visiting the US Treasury website. Consider calling your local police so it is aware of the scam as often times communities are targeted all at once. Finally, the Federal Trade Commission’s Report A Fraud site is shared with law enforcement across the country. Your report can help bring attention to the scam and prevent others from falling victim.

Spread awareness: Share this information with your friends, family, and colleagues to raise awareness about the scam. Utilize social media, local community groups, or any platform that can reach a wider audience. The more people are informed, the harder it becomes for scammers to succeed.

As trusted tax and business advisors, our clients’ financial well-being and security is our top priority. The “Distraint Warrant” scam targeting Lucas County residents and businesses is an unfortunate reminder of the dangers posed by fraudulent activities. However, by staying vigilant, verifying sources, and reporting suspicious incidents, we can collectively protect ourselves and our community from falling victim to these scams. If you have any concerns or require assistance, please don’t hesitate to contact us.

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Categories: Fraud & Forensics, Tax Compliance


Ohio’s TechCred Program

Mar 19, 2023

Ohio’s TechCred program is a state-backed initiative designed to fuel growth and innovation in the state’s technology industry. Launched in 2019, the program helps Ohioans earn industry-recognized credentials that align with the skills that businesses need. The program is designed to address the skills gap in Ohio’s workforce by upskilling employees and preparing them for the jobs of the future.

Ohio’s TechCred Program gives employers the chance to upskill current and future employees. Employers who submit successful applications will be reimbursed up to $2,000 per credential earned and allows for up to $30,000 per employer, per funding round. Reimbursable costs include those related to tuition, lab fees, manuals, textbooks, and certification fees.

How does the program work?
After determining which new credentials will be most beneficial to the business, the employer must partner with an eligible provider, such as a university or tech school, that offers the appropriate training. Once a provider is selected, the employer is ready to apply for the TechCred program at the Ohio.gov website. Employers must file reimbursement applications within six weeks of each employee completing a credential. For a full list of qualifying credentials and providers, click here.

Who is eligible?
Any Ohio registered employer that employs Ohio resident W-2 employees is eligible to apply. Employers of all sizes and in all industries are encouraged to apply. Only one application will be accepted per employer per application period.

To learn more about Ohio’s TechCred program, visit techcred.ohio.gov or download their program guidelines here.

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Categories: Tax Compliance


Proposed Regulations Address Foreign Tax Credit Rules

Dec 27, 2022

The IRS has recently issued proposed regulations relating to the foreign tax credit covering:

  • Guidance on the reattribution asset rule for purposes of allocating and apportioning foreign taxes
  • The cost recovery requirement
  • The attribution rule for withholding tax on royalty payments

Reattribution Asset Rule

The 2022 foreign tax credit final regulations provide rules for allocating and apportioning foreign income tax arising from a disregarded payment. Foreign gross income included by reason of the receipt of a disregarded payment has no corresponding U.S. item because Federal income tax law does not give effect to the payment as a receipt of gross income. The new proposed rules therefore characterize the disregarded payment under Federal income tax law for purposes of assigning this foreign gross income to the statutory and residual groupings.

These rules treat the portion of a disregarded payment, if any, that causes U.S. gross income of the payor taxable unit to be reattributed as a “reattribution payment” under either the rules for gross income attributable to a foreign branch in the case of a taxpayer that is an individual or domestic corporation; or the rules for gross income attributable to a tested unit in the case of a taxpayer that is a foreign corporation. The excess of a disregarded payment over the portion that is a reattribution payment is treated either as a contribution from one taxable unit to another taxable unit owned by the first taxable unit, or as a remittance of a taxable unit’s current and accumulated earnings.

Cost Recovery Requirement

Under the cost recovery requirement, the base of a foreign tax permits the recovery of significant costs and expenses attributable, under reasonable principles, to the gross receipts included in the tax base. The proposed regulations provide additional guidance with respect to whether the test is met in certain cases where foreign tax law contains a disallowance or other limitation on the recovery of a particular cost or expense that may not reflect a specific principle underlying a particular disallowance in the Code. The proposed regulations also provide that the relevant foreign tax law need only permit recovery of substantially all significant cost or expense, based on the terms of the foreign law. A safe harbor is provided for applying the requirement.

Attribution Requirement for Royalty Payments

The attribution requirement allows a credit for foreign tax only if the country imposing the tax has a sufficient nexus to the taxpayer’s activities or investment in capital. Under the source-based attribution requirement, a foreign tax imposed on the nonresident’s income on the basis of source meets the attribution requirement only if the foreign tax sourcing rules are reasonably similar to the U.S. sourcing rules. With respect to royalties, foreign tax law must source royalties based on the place of use of, or the right to use, the intangible property, consistent with how the Code sources royalty income.

The proposed regulations provide an exception (the single-country exception) to the source-based attribution requirement if a taxpayer can substantiate that the payment on which the royalty withholding tax is imposed was made pursuant to an agreement that limits the right to use intangible property to the jurisdiction imposing the tested foreign tax. The exception applies only when the taxpayer has a written license agreement that meets certain requirements.

The proposed regulations also modify the separate levy rule to provide that a withholding tax that is imposed on a royalty payment made to a nonresident pursuant to a single-country license is treated as a separate levy from a withholding tax that is imposed on other royalty payments made to such nonresident and from any other withholding taxes imposed on other nonresidents.

William Vaughan Company will continue to monitor proposed changes on foreign reporting. For immediate questions or concerns, please contact our team of experienced tax professionals.

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Categories: Tax Compliance