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VideoThe Tax Navigator – IRS Penalty Relief, Kwong Refund Claims, Tariff Changes and Micro-Captive Tax Developments
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In this episode of The Tax Navigator, Sean Muller discusses recent tax developments affecting taxpayers and businesses, including the IRS plans to streamline first-time abatement penalty relief, the upcoming deadline for certain Kwong refund claims, proposed tariffs tied to digital services taxes and recent court decisions involving micro-captive reporting requirements and IRS penalty procedures. Listen as he breaks down what these developments mean for taxpayers, key deadlines to watch and potential considerations for taxpayers and their advisers.
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Detailed Description of The Tax Navigator – IRS Penalty Relief, Kwong Refund Claims, Tariff Changes and Micro-Captive Tax Developments
00:00:00
Sean: Last week was a busy week. Some taxpayer-friendly, some not taxpayer-friendly. First thing is on first-time abatement.
00:00:07
Sean: While it’s called first-time abatement, taxpayers are allowed to get relief from penalties being charged for late payment of payroll taxes, income taxes, etc., and they’re able to do that once every three years.
00:00:19
Sean: When you actually have a penalty or interest, if you haven’t had any sort of penalty or interest charged in the prior three years, you can qualify for first-time abatement. So yes, it just keeps recycling.
00:00:31
Sean: Normally, you have to apply for that, and you have to call the IRS or write a letter to the IRS and request first-time abatement, and it’s become more prevalent in the last five or six years because they’ve really tightened up reasonable-cause relief.
00:00:43
Sean: The IRS is coming out now and saying they want a way to streamline the first-time abatement process. You get offered first-time abatement automatically within the system. You don’t have to apply for it.
00:00:55
Sean: That’s great news for the IRS because they don’t have to get a bunch of letters. It’s great for taxpayers because they don’t have to write the letters or call their CPAs to write the letters.
00:01:05
Sean: The downside to it is, do you use your first-time abatement on a small tax item versus a bigger tax item? You lose that flexibility by being automatic.
00:01:15
Sean: This is a reminder that the Kwong ruling that we’ve talked about over the last couple of weeks doing a refund claim during the COVID period of Jan. 10, 2020, through July 10, 2023.
You have until July 10 to file those 845 claims for refunds. Just a reminder to get those done in the next 11 or 12 days.
00:01:40
Sean: The IRS did come out and say they’re looking to set up a portal for these claims to more easily process the claims, but they’re only going to set up the portal if they lose the Kwong case.
00:01:53
Sean: It’s very interesting that they’ve appealed the Kwong case and said that they were right and they shouldn’t be giving penalty and interest relief, but they’re now talking about how if they do lose, they’re going to set up a portal to help taxpayers out. It’s just interesting they’re preparing for the downside of that.
00:02:07
Sean: On the tariff update, we haven’t talked about those in a while, but President Trump did come out last week and said any country that charges the digital services tax — so France, Spain, and Italy currently charge a digital services tax of 3% — any countries that don’t get rid of that, they’re going to get a 100% tariff on all their goods coming in.
00:02:27
Sean: So, he’s waging another tariff battle there.
00:02:30
Sean: Another piece on micro-captives. A micro-captive, when you pay premiums of over or less than $1 million — I believe it is, somewhere around $1 million to $1.3 million — that is a reportable transaction.
If you participate in a micro-captive, you have to report that to the IRS because there was lots of abuse in the micro-captive world.
00:02:50
Sean: A micro-captive insurance consulting company took it to the courts and said, “This is not fair. You can’t force these regulations to be enforced.”
00:03:01
Sean: The courts overturned that and said, “You definitely have to disclose all that.” So the micro-captives still have to be disclosed.
00:03:08
Sean: There was another case where the Second Circuit Court came out, and the Tax Court charged $384 million of penalties to these six taxpayers based on some tax positions they took.
00:03:24
Sean: They did not get proper approval within the IRS to do that, and the court said they should have on appeals. They actually overturned the penalties.
00:03:33
Sean: This is just a hierarchy within the IRS that they had to get approval for the penalties. They didn’t do that, but the IRS is obviously going to fight that case.
00:03:41
Sean: So that was pretty much it for the week.
00:03:01
This episode of The Tax Navigator was recorded prior to publication. Some references or updates discussed may reflect information current as of the recording date.
