IR-2023-189, For California Storm Victims, IRS postpones tax filing and tax payment deadlines

Issue Number: IR-2023-189

Inside This Issue

For California storm victims, IRS postpones tax-filing and tax-payment deadline to

Nov. 16

IR-2023-189, Oct. 16, 2023

WASHINGTON — The Internal Revenue Service today further postponed tax deadlines for most California taxpayers to Nov. 16, 2023. In the wake of last winter’s natural disasters, the normal spring due dates had previously been postponed to Oct. 16.

As a result, most individuals and businesses in California will now have until Nov. 16 to file their 2022 returns and pay any tax due. Fifty-five of California’s 58 counties—all except Lassen, Modoc and Shasta counties—qualify. IRS relief is based on three different FEMA disaster declarations covering severe winter storms, flooding, landslides, and mudslides over a period of several months.

The IRS normally provides relief, including postponing various tax filing and payment deadlines, for any area designated by the Federal Emergency Management Agency (FEMA). As long as their address of record is in a disaster-area locality, individual and business taxpayers automatically get the extra time, without having to ask for it. The current list of eligible localities is always available on the disaster relief page on IRS.gov.

What returns and payments qualify for the Nov. 16 deadline?

Eligible returns and payments include:

2022 individual income tax returns and payments normally due on April 18.
For eligible taxpayers, 2022 contributions to IRAs and health savings accounts.
Quarterly estimated tax payments normally due on April 18, June 15 and Sept. 15.
Calendar-year 2022 partnership and S corporation returns normally due on March 15.
Calendar-year 2022 corporate and fiduciary income tax returns and payments normally due on April 18.
Quarterly payroll and excise tax returns normally due on May 1, July 31 and Oct. 31.
Calendar-year 2022 returns filed by tax-exempt organizations normally due on May 15.

Other returns, payments and time-sensitive tax-related actions also qualify for the extra time. See the IRS disaster relief page for details.

Do taxpayers need to do anything to benefit from this relief?

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Therefore, taxpayers do not need to contact the agency to get this relief.

It is possible an affected taxpayer may not have an IRS address of record located in the disaster area, for example, because they moved to the disaster area after filing their return. In these kinds of unique circumstances, the affected taxpayer could receive a late filing or late payment penalty notice from the IRS for the postponement period. The taxpayer should call the number on the notice to have the penalty abated.

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.

Additional tax relief

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2023 return normally filed next year), or the return for the prior year (2022). Taxpayers have extra time – up to six months after the due date of the taxpayer’s federal income tax return for the disaster year (without regard to any extension of time to file) – to make the election. See Publication 547, Casualties, Disasters, and Thefts, for details.

Qualified disaster relief payments are generally excluded from gross income. In general, this means that affected taxpayers can exclude from their gross income amounts received from a government agency for reasonable and necessary personal, family, living or funeral expenses, as well as for the repair or rehabilitation of their home, or for the repair or replacement of its contents. See Publication 525, Taxable and Nontaxable Income, for details.

Additional relief may be available to affected taxpayers who participate in a retirement plan or individual retirement arrangement (IRA). For example, a taxpayer may be eligible to take a special disaster distribution that would not be subject to the additional 10% early distribution tax and allows the taxpayer to spread the income over three years.

Taxpayers may also be eligible to make a hardship withdrawal. Each plan or IRA has specific rules and guidance for their participants to follow.

The tax relief is part of a coordinated federal response to the damage caused by these disasters and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov.

N-2023-71: Relief for Taxpayers Affected by the Terroristic Action in the State of Israel

Issue Number: N-2023-71

Inside This Issue

Notice 2023-71 postpones various time-sensitive deadlines for taxpayers affected by the October 7, 2023 terrorist attacks in the State of Israel. The notice defines the covered area, identifies categories of “affected taxpayers,” and provides a list of the acts postponed. The postponement period is October 7, 2023 to October 7, 2024.

Notice 2023-71 will be in IRB 2023-44, dated 10/30/2023.

IR-2023-188: IRS: Taxpayers impacted by the terrorist attacks in Israel qualify for tax relief; Oct. 16 filing deadline, other dates postponed to Oct. 7, 2024

Issue Number: IR-2023-188

Inside This Issue

IRS: Taxpayers impacted by the terrorist attacks in Israel qualify for tax relief; Oct. 16 filing deadline, other dates postponed to Oct. 7, 2024

WASHINGTON — The Internal Revenue Service today announced tax relief for individuals and businesses affected by the terrorist attacks in the State of Israel. These taxpayers now have until Oct. 7, 2024, to file various federal returns, make tax payments and perform other time-sensitive tax-related actions.

In Notice 2023-71, posted today on IRS.gov, the IRS provided relief to certain taxpayers who, due to the terrorist attacks, may be unable to meet a tax-filing or tax-payment obligation, or may be unable to perform other time-sensitive tax-related actions. The IRS will continue to monitor events and may provide additional relief.

Filing and Payment Relief

Today’s notice postpones various tax filing and payment deadlines that occurred or will occur during the period from Oct. 7, 2023, through Oct. 7, 2024 (postponement period). As a result, affected individuals and businesses will have until Oct. 7, 2024, to file returns and pay any taxes that were originally due during this period. Among other things, this includes:

Individuals who had a valid extension to file their 2022 return due to run out on Oct. 16, 2023. The IRS noted, however, that because tax payments related to these 2022 returns were due on April 18, 2023, those payments are not eligible for this relief. So, these individuals filing on extension have more time to file, but not to pay.

Calendar-year corporations whose 2022 extensions run out on Oct. 16, 2023. Similarly, these corporations have more time to file, but not to pay.

2023 individual and business returns and payments normally due on March 15 and April 15, 2024. So, these individuals and businesses have both more time to file and more time to pay.

Quarterly estimated income tax payments normally due on Jan. 16, April 15, June 17 and Sept. 16, 2024.

Quarterly payroll and excise tax returns normally due on Oct. 31, 2023, and Jan. 31, April 30 and July 31, 2024.

Calendar-year tax-exempt organizations whose extensions run out on Nov. 15, 2023.

Retirement plan contributions and rollovers.

Other tax-related deadlines are postponed as well. See Notice 2023-71 and Rev. Proc. 2018-58 for details.

In addition, the penalty for failure to make payroll and excise tax deposits due on or after Oct. 7, 2023 and before Nov. 6, 2023, will be abated as long as the deposits are made by Nov. 6, 2023.

Who Qualifies for Relief?

Any individual whose principal residence or business entity or sole proprietor whose principal place of business is in Israel, the West Bank or Gaza (the covered area).

Any individual, business or sole proprietor, or estate or trust whose books, records or tax preparer is located in the covered area.

Anyone killed, injured, or taken hostage due to the terrorist attacks.

Any individual affiliated with a recognized government or philanthropic organization and who is assisting in the covered area, such as a relief worker.

The IRS automatically identifies taxpayers whose principal residence or principal place of business is located in the covered area based on previously filed returns and applies relief. Other eligible taxpayers can obtain this relief by calling the IRS disaster hotline at 866-562-5227. Alternatively, international callers may call 267-941-1000.

If an affected taxpayer receives a late filing or late payment penalty notice from the IRS for the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

The IRS Updates FAQ on the QI/WP/WT’s FAQs Page

Issue Number: 2023-15

The IRS Updates FAQ on the QI/WP/WT’s FAQs Page

The IRS updates FAQ Q20 to provide guidance on WP/WT agreement renewals. This FAQ is under the section New Applications/2017 Renewals of the QI/WP/WT’s FAQs page.

IRS video tax tip: Six Reasons Why You Should File Your Taxes Electronically

Issue Number: Six Reasons Why You Should File Your Taxes Electronically

Here is a video tax tip from the IRS:

Subscribe today: The IRS YouTube channels provide short, informative videos on various tax related topics.

www.youtube.com/@irsvideos
www.youtube.com/@irsmultilingual
www.youtube.com/@irsvideosASL

Scheduled Maintenance for the Affordable Care Act Information Returns (AIR) System

Subject: Scheduled Maintenance for the Affordable Care Act Information Returns (AIR) System

The AIR Production and ACA Assurance Testing System (AATS) systems will be unavailable due to scheduled maintenance from Saturday, October 14, 2023, from 12:00 a.m. Eastern time until 2:00 p.m. Eastern time.

Please do not attempt to access the Application to Application (A2A) and User Interface (UI) Channels during the maintenance period.

Please monitor the AIR System Operational Status page for any updates.

We apologize for any inconvenience this may cause.

Technical New Modernized e-File (MeF) Business Returns Schema and Business Rules are Available.

Subject: New Modernized e-File (MeF) Business Returns Schema and Business Rules are Available.

Attention: Software Developers, Return Transmitters and Authorized IRS e-file Providers/EROs.

Tax Years 2023 and 2024 / Processing Year 2024 Schemas and Business Rules are available.

Current Year Schemas and Business Rules:

Form 720 TY 2024Q1v2.1
Form 720 TY 2024Q2v2.1
Form 720 TY 2024Q3v2.1
Form 720 TY 2024Q4v2.1
Form 990x TY 2023v3.1
Form 990-T TY 2023v4.0
Form 1041 TY 2023v4.0
Form 1065 TY 2023v4.0
Form 1120x TY 2023v4.0
Form 1120-POL TY 2023v4.0
Form 5227 TY 2023v2.0

Prior Year Business Rules Change Pages Only:

Form 1065 TY 2022v4.2

Note: If only minor changes occur, Software Developers are not required to use the new version. If the major number changes, all software must reflect the new version.

Please visit the Modernized e-file (MeF) Schemas and Business Rulespage on IRS.gov for more information about Schemas and Business Rules.

Software Developers and State organizations may download Schemas and Business Rules from their e-Services mailbox. To access these files, the following is needed:

Active e-Services account
Listed on an e-File application with the provider option of Software Developer or State
Software Developer must have an associated tax type of 720, 990, 1041, 1065, 1120, 5227.

You may have several messages in your account. Please open all of them to find the set you would like to download. After 60 days the messages are purged. If you have the appropriate role and do not have these files available for download within 48 hours, please contact the MeF Mailbox with the Company Name, ETIN and Schema Package(s) with Tax Year needed.

IR-2023-187: IRS updates tax gap projections for 2020, 2021; projected annual gap rises to $688 billion

Issue Number: IR-2023-187

Inside This Issue

IRS updates tax gap projections for 2020, 2021; projected annual gap rises to $688 billion

WASHINGTON — The Internal Revenue Service today released new tax gap projections for tax years 2020 and 2021 showing the projected gross tax gap increased to $688 billion in tax year 2021, a significant jump from previous estimates.

The new estimate reflects a rise of more than $192 billion from the prior estimates for tax years 2014-2016 and a rise of $138 billion from the revised projections for tax years 2017-2019. This marks the first year tax gap projections have been provided for single tax years and also marks the beginning of tax gap updates on an annual basis.

“This increase in the tax gap underscores the importance of increased IRS compliance efforts on key areas,” said IRS Commissioner Danny Werfel. “With the help of Inflation Reduction Act funding, we are adding focus and resources to areas of compliance concern, including high-income and high-wealth individuals, partnerships and corporations. “These steps are urgent in many ways, including adding more fairness to the tax system, protecting those who pay their taxes and working to combat the tax gap.”

Tax gap details: late payments and IRS enforcement generated $63 billion in 2021

The $688 gross tax gap is the difference between estimated ‘true’ tax liability for a given period and the amount of tax that is paid on time. The gross tax gap covers three key areas – nonfiling of taxes, underreporting of taxes and underpayment of taxes.

The IRS notes that the tax gap estimates and projections cannot fully account for all types of noncompliance. In addition, the projections released today are based largely upon the compliance behavior estimated from the most recent set of completed audits (from tax years 2014-2016). That estimated compliance behavior is projected forward to taxpayers in tax years 2020 and 2021.

Late payments and IRS enforcement efforts are projected to generate an additional $63 billion on tax year 2021 returns, resulting in a projected net tax gap of $625 billion. Between tax years 2014-2016 and tax year 2021, the estimated tax liability increased by about 38 percent, roughly the same increase as the gross and net tax gaps. Much of these increases in tax liability and the tax gap can be attributed to economic growth.

Voluntary compliance rate remains relatively steady

The tax year 2020 and 2021 tax gap projections translate to about 85% of taxes paid voluntarily and on time, which is in line with recent levels. After IRS compliance efforts are factored in, the projected share of taxes eventually paid is 86.3% for tax year 2021, down slightly from the 87.0% for tax years 2014-2016. This drop in compliance does not factor in any changes in compliance behavior; instead, it is due to changes in the types of income and how that income is reported to the IRS.

The gross tax gap comprises three components:

Nonfiling, which means tax not paid on time by those who do not file on time:
- $77 billion in tax year 2021, up from $41 billion in tax years 2017-2019.
Underreporting, which reflects tax understated on timely filed returns.
- $542 billion in tax year 2021, up from $445 billion in tax years 2017-2019.
Underpayment, or tax that was reported on time, but not paid on time).
- $68 billion in tax year 2021, up from $64 billion in tax years 2017-2019.

With the help of Inflation Reduction Act resources, the IRS will be taking a variety of steps to help improve voluntary compliance by improving taxpayer services and offering new technology tools to work in concert with additional compliance work. In 2022, the latest year for which data is available, the IRS collected more than $4.9 trillion in taxes, penalties, interest and user fees.

Tax gap studies through the years have consistently demonstrated that third-party reporting of income significantly raises voluntary compliance with the tax laws. And voluntary compliance rises even higher when income payments are also subject to withholding. The IRS also has an array of other taxpayer service programs aimed at supporting accurate tax filing and helping address the tax gap. These range from working with businesses and partner groups to a variety of education and outreach efforts.

The voluntary compliance rate of the U.S. tax system is vitally important for the nation. A one-percentage-point increase in voluntary compliance would bring in about $46 billion in additional tax receipts.

The tax gap estimates provide insight into the historical scale of tax compliance and to the persisting sources of low compliance.

Projecting the tax gap; offshore, digital assets, pandemic credits not fully represented

Given the complexity of the tax system and available data, no single approach can be used for estimating each component of the tax gap. Each approach is subject to measurement or nonsampling error; the component estimates that are based on samples are also subject to sampling error. For the individual income tax underreporting tax gap, Detection Controlled Estimation is used to adjust for measurement errors that result when some existing noncompliance is not detected during an audit. Other statistical techniques are used to control for bias in estimates based on operational audit data. Because multiple methods are used to estimate different subcomponents of the tax gap and then are projected into future tax years, no standard errors are reported. Those reviewing these projections should be mindful of these limitations.

Given available data, these projections of the tax gap components presented do not represent the full extent of potential non-compliance. There are several factors to keep in mind:

The projections cannot fully represent noncompliance in some components of the tax system including offshore activities, issues involving digital assets and cryptocurrency as well as corporate income tax, income from flow-through entities and illegal activities because data are lacking.
Projections rely upon estimates of compliance behavior. No such estimates are available for pandemic credits, so there is no reliable method of representing noncompliance for pandemic credits.
The tax gap associated with illegal activities has been outside the scope of tax gap estimation because the objective of government is to eliminate those activities, which would eliminate any associated tax.
For noncompliance associated with digital assets and other emerging issues, it takes time to develop the expertise to uncover associated noncompliance and for examinations to be completed that can be used to measure the extent of that noncompliance.

The IRS continues to actively work on new methods for estimating and projecting the tax gap to better reflect changes in taxpayer behavior as they emerge.

Additional information:

QuickAlerts – Technical – Form 1040 Series Business Rules and Schema are Available.

Subject: Form 1040 Series Business Rules and Schema are Available.

Attention: Software Developers, Return Transmitters and Authorized IRS e-File Providers/EROs

Tax Year 2023 / Processing Year 2024 Business Rules and Schema

Form 1040 Series 2023v4.0
Form 2350 2023v1.1
Form 4868 2023v1.1
Form 56 CUv23.1
Form 9465 CUv25.1

Tax Year 2022 / Processing Year 2024 Schema Only

Form 1040 Series 2022v5.5 (Revised)

Software Developers and State organizations may download Modernized e-File (MeF) schemas and business rules from their e-Services mailbox. To access these files, you must have:

An active e-Services account
An e-File application with the Software Developer or State provider option with the associated tax type of 1040, 2350, 4868, 56 or 9465

Please visit the Modernized e-File (MeF) Schemas and Business Rules page on IRS.gov for more information about MeF Schemas and Business Rules.

FINAL REMINDER ALERT: QI (including QDD), WP, WT Application Deadline for 2023

This Alert provides the deadline for all Qualified Intermediary (QI) (including Qualified Derivatives Dealer), Withholding Foreign Partnership (WP) and Withholding Foreign Trust (WT) applications for the 2023 year.

All applicants that want to have an agreement in effect for 2023 must submit their applications through the Qualified Intermediary, Withholding Foreign Partnership, Withholding Foreign Trust Application & Account Management System (QAAMS) no later than October 27, 2023 to allow sufficient time for processing by year end. If required for chapter 4 purposes, applicants must have obtained a GIIN prior to submitting their applications. See section 2.22 of the QI Agreement in Rev. Proc. 2022-43, or section 12.01(a) of the WP or WT Agreement in Rev. Proc. 2017-21 for the effective date of an agreement for a new applicant.

Please note that applications submitted after October 27, 2023 will not be processed. Prospective applicants, unable to submit an application before the October 27, 2023 deadline, should wait until January 1, 2024 to submit the application for the 2024 year.