Federal Tax News for Individuals

1. More EVs Eligible for a Tax Break but Automakers Would Like to Expand It

The IRS has added more electric vehicles (EVs) to its list of those eligible for a federal tax credit. The tax code provides a credit (of up to $7,500) to purchasers of qualified plug-in electric-drive passenger vehicles and light trucks.

Here are the new eligible vehicles (all are 2023 models): Hyundai Genesis GV60, Jaguar I-Pace (HSE), Land Rover Range Rover SE PHEV, Land Rover Range Rover Sport Autobiography PHEV, MINI Cooper SE Hardtop and Subaru Solterra. Click here for a full list of qualifying vehicles and the credit amounts.

The EV tax credit begins to phase out when 200,000 of a manufacturer’s qualifying vehicles have been sold in the United States. But automakers are asking Congress to change the rules. In a letter, GM, Ford, Chrysler and Toyota asked Congressional leaders to give all electric car and light truck buyers a tax credit of up to $7,500. The group says that lifting the limit would give buyers more choices, encourage greater EV adoption and provide stability to autoworkers. Already, GM and Tesla have run out of credits and Toyota is close. As the carmakers stated, they believe “a sunset date set for a time when the EV market is more mature” makes good economic and environmental sense.

2. Getting Married this Year? Don’t Forget About Taxes

It’s wedding season — a happy time that includes gifts, cake and endless details. Chances are, taxes are the last thing on your mind. But the IRS wants to remind you of a few important steps. Soon, you’ll be filing your first tax return as a married person and that could affect how much taxes you should be having withheld. You can check using the IRS Withholding Estimator tool. Then, be sure to give your employer a new Form W-4 with your new information.

If there’s a name change, report it to the IRS, the U.S. Postal Service and the Social Security Administration to avoid delay of any tax refund you may be due. Contact your tax advisor with questions, or check here.

3. Are Low-Income Taxpayers More Likely to Be Audited than High-Income Americans?

U.S. House Democrats recently held a hearing questioning the fairness of IRS audit rates. This was done after a GAO report found IRS audits of high-income Americans have dropped while audits of those claiming the Earned Income Tax Credit (EITC) remain high. The audit rate for EITC taxpayers is 0.77%, compared with 0.25% for all taxpayers. A taxpayer with income under $25,000 is twice as likely to be audited as someone earning $200,000 – $500,000. Rep. Tom Rice (R-SC) said he believes the audits of lower-income taxpayers claiming refundable tax credits, such as the EITC, are due to high error rates of those claims. “In the last fiscal year, the improper payment amount on the EITC totaled $19 billion,” he stated.

Meanwhile, the Congressional Research Service (CRS) issued a report that examined the impact of the EITC on IRS audits. The report was spurred by concern that the IRS is auditing low-income taxpayers, particularly taxpayers who claim the EITC, at disproportionately high rates compared with higher-income taxpayers. “These higher audit rates may be in response to the high improper payment rates associated with the EITC,” the CRS stated. Of the more than 150 million returns filed by individuals for tax year 2017, more than 27 million included an EITC claim. Only about 280,000 of the 27 million EITC returns were audited (1%), the report noted. Click here to read the report.

4. Owing the IRS a Large Amount Can Result in a Passport Being Revoked

“Seriously delinquent tax debt” (SDTD) is no minor issue and could result in revocation of a passport. An SDTD is a federal tax liability that has been assessed, exceeds $55,000 in 2022 (inflation adjusted), is unpaid, legally enforceable and is subject to a filed lien notice or levy.

In a recent passport case, a taxpayer had SDTD totaling $90,201, incurred over several years ($28,912 was interest). She satisfied $17,346 of her 2003 tax bill, leaving a current balance of $72,855. She requested a collection due process hearing to challenge the underlying debt. The request was denied because the time limit to do so had expired. The U.S. Tax Court upheld the IRS’s position. (TC Memo 2022-54)

Click here to learn more about how debt may affect your passport.

5. The IRS Can File “Substitute” Tax Returns for Nonfilers

When taxpayers fail to timely file tax returns, the IRS may do it for them. This is called a “substitute for return.”

In one case, an engineer had substantial income from various entities. For several years, he filed returns late or not at all and didn’t cooperate with the IRS. The IRS used third-party financial records, including bank statements and copies of checks, to reconstruct his income and assess a tax liability. The taxpayer argued that the IRS erred by not allowing him certain business expenses, although he failed to support the expenses.

The U.S. Tax Court found indications of fraud by the taxpayer, notably the “intent to mislead, conceal, or obstruct” the federal income tax assessment, including his filing of false Forms 1099. The court upheld the tax and penalties imposed by the IRS. (TC Memo 2022-33)