Luck can only take you so far.
It was a short week for many Americans last week—Monday was Labor Day, considered the unofficial end to summer and the beginning of fall. If you took the day off, good for you! If you didn’t get your tax fix, here’s a quick look back (☆) at a little Labor Day history mixed with some tax trivia.
I wasn’t the only tax geek writing about history this week. Examples of wartime tax resistance can be found throughout U.S. history, and perhaps the most famous occurred during World War II, when President Roosevelt vetoed the Revenue Act of 1943, insisting that it was riddled with indefensible giveaways. “In this respect,” FDR declared in his veto message, “it is not a tax bill but a tax relief bill providing relief not for the needy but for the greedy.” Tax Notes’ Joseph Thorndike has more.
Flashing ahead to more modern times, the IRS has announced that it has made significant strides in improving taxpayer services through the Digital First Initiative—which leverages resources from the Inflation Reduction Act to modernize and streamline taxpayer services. The new system, which requires a porting of COBOL and Assembly code into Java, is intended to be more modern and sustainable moving forward. In the long run, it should reduce operational costs, but in the short term, it is an expensive and labor-intensive undertaking.
Speaking of days gone by, the IRS has historically offered a program called the Voluntary Disclosure Practice (VDP), where taxpayers can disclose their willful conduct, submit accurate original or amended returns, and pay any outstanding taxes and interest. In exchange, the IRS usually agrees not to refer the matter for criminal prosecution. To enter the VDP, taxpayers must meet certain requirements, such as timeliness, cooperation, and full and adequate disclosure. In June 2024, the IRS quietly revised its VDP program, and some of the changes represent significant departures from the prior version.
Voluntary disclosures only work when you come forward first. You won’t qualify if you’re under criminal investigation. One of the most talked-about criminal tax cases in recent years reached a surprising conclusion this week when Hunter Biden, the son of President Joe Biden, pleaded guilty (☆) to all nine charges in his federal tax case. Potential jurors had been waiting for jury selection to begin Thursday morning when Biden's attorney proposed an Alford plea. With an Alford plea—sometimes called a "best interests plea"—a defendant pleads guilty while maintaining innocence. Prosecutors were taken aback by the offer, issuing objections and U.S. District Court Judge Mark C. Scarsi indicated that he would consider the matter. However, before Scarsi announced his decision, Biden's legal team made the surprising announcement that he would plead guilty to all charges.
When taxpayers ask for an easy way to avoid tax trouble, outside of the obvious—file and pay on time—I almost always say, "Keep great records." That advice would have made a difference in a recent U.S. Tax Court case, Kalk v. Commissioner, which focused on a lack of substantiation (☆). In Kalk, the taxpayer claimed to operate two businesses: a consulting business and a business developing a casino app. The IRS disallowed all of her business expenses because she failed to produce records substantiating the costs. The Tax Court largely agreed with the IRS except in the case of the casino app. The court determined the app wasn’t really a viable business, and the related expenses weren’t business expenses—they were gambling losses. Fortunately, for the taxpayer, those are deductible. Luck wasn’t exactly on her side, but she didn’t lose the house either.
A bit of luck helped stop a massive Covid fraud scheme earlier this year when a homicide investigation of a suspected gang member in San Diego resulted in seventeen indictments. How did it happen? A detective scrolling through a gang member’s phone discovered a notice from the IRS alerting him to a pending six-figure tax refund. This ultimately led to the discovery that four street gangs had conspired to defraud the IRS out of $1.75 million in pandemic relief funds. The fraudsters had some luck of their own, initially—they found and exploited a sloppy drafting error on Form 7202. As a result, payments from the IRS, ranging from $97,645 to $229,153, landed in their bank accounts.
The IRS is seeking opinions from taxpayers and tax professionals about a plan to legitimately direct money to bank accounts (☆). As a result of SECURE 2.0, beginning in 2027, qualifying individuals making annual contributions of up to $2,000 to certain retirement plans will be eligible to receive up to $1,000 in a saver's match contribution from........