Federal Tax News for Individuals
1. Energy Efficient Home Tax Credit FAQs
The IRS recently updated its FAQs regarding the Energy Efficient Home Improvement (EEHI) Tax Credit.
As amended by the Inflation Reduction Act, the EEHI Credit amount increases to 30% of a taxpayer’s cost for certain qualified expenditures made during a calendar year. This includes qualified energy efficiency improvements (such as exterior doors, windows, skylights, and some insulation), residential energy property expenditures, such as natural gas, propane or oil water heaters and central air conditioners and home energy audits (30% of costs up to $150). There are limits on the allowable annual credit (generally $1,200) and on the credit amount for certain types of qualified expenditures.
The EEHI Credit is allowed for qualifying property placed into service on or after Jan. 1, 2023, and before Jan. 1, 2033. Read the FAQs here.
2. Two Innocent Spouse Relief Outcomes in Court
Spouses who file joint federal tax returns are both generally liable for the tax owed. But joint filers may seek “innocent spouse” relief.
In one case, the U.S. Tax Court ruled that a man was eligible for innocent spouse relief regarding taxable proceeds that his ex-wife received in the settlement of an employment discrimination lawsuit. Although he had knowledge of the settlement proceeds, he credibly testified that he made a good faith effort to comply with the law but erroneously believed a portion of the settlement wasn’t taxable. Plus, he was in poor health and showed he would suffer economic hardship if he was held liable because his only income was Social Security disability payments. (TC Memo 2022-110)
However, in another case, the Tax Court ruled that a wife wasn’t entitled to relief from tax liability with her husband. She didn’t prove that she was unaware of tax understatements from an embezzlement scheme her husband was involved in when she signed several tax returns. She reviewed the returns and had access to accounts in which the embezzlement proceeds were deposited. Although she was primarily a homemaker, she was an attorney, and the court noted her legal training would have “alerted her to a likely understatement.” (TC Memo 2022-115)
3. Whistleblower Qualifies for IRS Award
Taxpayers who give the IRS Whistleblower Office (WBO) information about unpaid federal taxes may qualify for cash awards. To be eligible, tips must be credible and specific, relate to tax underpayments or violations of tax laws, and be used to collect proceeds.
In one case, the manager-shareholder of a family business provided the WBO details about unreported payroll and underreported income. The information led to collection of proceeds and a WBO award for the tipster of 15%. The tipster contested the amount which he believed was arbitrary. But the U.S. Tax Court considered certain negative factors, such as that he failed to promptly notify the IRS of the issues, and, as a company employee and shareholder, his actions may have contributed to the underpaid taxes. (TC Memo 2022-126)
4. Didn’t File a Tax Return? The IRS May File for You
If a person has taxable income but doesn’t file a tax return, the IRS can prepare one under its “Substitute for Return” program.
In one case, the operator of a real estate consulting firm received gross income of nearly $368,000 in one year but didn’t file a tax return or pay estimated tax. The IRS prepared a return for him and sent him a bill, which included substantial penalties. The man claimed that the IRS’s analysis was erroneous because it failed to exclude nontaxable real estate proceeds. The U.S. Tax Court disagreed. The IRS showed with sale records and closing documents that it properly subtracted nontaxable amounts. (TC Memo 2022-114)
5. Clean Vehicle Tax Credit List Expands
Are you hoping to qualify for a clean vehicle tax credit? If so, there’s a new list of potentially eligible plug-in electric or fuel cell vehicles purchased after 2022.
Manufacturers include Audi, Ford, Nissan, Rivian, Stellantis (Chrysler and Jeep), Tesla, Volkswagen and Volvo. Vehicles on the list don’t automatically qualify for the credit. They must meet certain conditions, including that final assembly is done in North America. Also, the manufacturer’s suggested retail price (MSRP) must not exceed $80,000 for vans, sport utility vehicles or trucks, or $55,000 for other vehicles, though exceptions exist. For example, the Tesla Model Y Long Range (5 seat variant; 2 rows) is on the list, showing it’s subject to the $55,000 limit, but the 2023 model’s MSRP is expected to start at $60,000.
You can find out if a vehicle meets the assembly requirements by checking its vehicle identification number. And its MSRP can be found online.
This list is not yet complete, so interested taxpayers should continue to check the website by clicking here.