Tuesday August 16, 2022
Increased Gas Prices Lead to Higher IRS Mileage Rate
With the dramatic increase in the price per gallon for gas, members of Congress have called on the IRS to increase the business travel rate. Senators Catherine Cortez Masto (D-NV) and Michael Bennet (D-CO) stated the increase will "offer some relief to Americans who use a personal vehicle for everyday needs like work, travel or medical transport."
IRS Commissioner Chuck Rettig stated, "The IRS is adjusting the standard mileage rates to better reflect the recent increase in fuel prices. We are aware a number of unusual factors have come into play involving fuel costs, and we are taking this special step to help taxpayers, businesses and others who use this rate."
The mileage rate increase reflects substantially higher prices on gasoline. The average USA rate in early June was $4.87 per gallon. Over 10 states now have gasoline with average prices over $5 per gallon. Approximately 1/5 of all gas stations are charging more than $5 per gallon.
An increased number of driving miles during the summer season may lead to even higher gas prices. While the OPEC nations have pledged to increase oil production, the United States is now pumping less oil than it was prior to the COVID-19 pandemic. The price for U.S. crude oil has recently reached $120 per barrel.
Mark Zandi, Chief Economist at Moody's Analytics, indicated that oil prices are expected to increase this summer. If the increase is moderate, it could still permit the economy to grow. However, Zandi stated, "If oil prices go to $150, we are going into recession."
The state with the highest gas price is California. According to an American Automobile Association (AAA) report, the average California price is $6.06 per gallon as of the time of going to press. Other states with high gas prices include Hawaii, Nevada, and Washington.
IRS Warns "Dirty Dozen" Scams Continue
The IRS has announced the second set scams, number five through eight, on its 2022 "Dirty Dozen" list. The four new items on the list are COVID-19 scams, Offer in Compromise mills, bogus calls and texts and spearphishing for professional advisors.
IRS Commissioner Chuck Rettig warned about COVID-19 scams. He noted, "Scammers continue using the pandemic as a device to scare or confuse potential victims into handing over their hard-earned money or personal information."
Identity thieves continue to promise new Economic Impact Payments (EIPs) through bogus phone calls, emails and texts. They also are encouraging unemployment fraud, offer fake employment opportunities on social media or create fake charities to steal your money.
Taxpayers who owe payments to the IRS may qualify for an "Offer in Compromise (OIC)". The OIC is a plan for the taxpayer to pay off a tax debt with a reduced amount. However, many scammers are promising they can produce extraordinary reductions in exchange for a fee.
IRS Commissioner Chuck Rettig stated, "No one can get a better deal for taxpayers than they can usually get for themselves by working directly with the IRS to resolve their tax issues. Taxpayers can check online for their best deal, as well as calling a specialized collection line where they can get fast service by using voice and chat bots or opting to speak with a live phone assistor."
The IRS cautions that OIC mills are frequently scams. Taxpayers should go to www.IRS.gov and use the Offer in Compromise Pre-Qualifier Tool to see if they are eligible for this plan.
The seventh "Dirty Dozen" strategy involves bogus emails, text messages or calls. Commissioner Rettig notes, "If you are surprised or scared by a call or text, it is likely a scam so proceed with extreme caution. I urge everyone to verify a suspicious email or other communication independently of the message in question."
Text message scams frequently promise an additional "stimulus payment." They claim to be linked to the IRS. If you receive a text message promising another stimulus payment, take a screen shot of that message and send it in an email to email@example.com. Include the date, time, time zone and your phone number. Do not click on any links in the text message or any email from the scammer.
The eighth item on the "Dirty Dozen" list is primarily focused on tax preparers. Commissioner Rettig stated, "Tax professionals generally relax a little after filing season and many take a well-deserved vacation, but don't let your IT defenses down. Spearphishing remains one of the biggest threats to the tax industry."
The goal of the scammer is to use the spearphishing email to gain access to the computer network of the tax preparer. The scammer may then steal client data and file fraudulent tax returns to claim refunds.
The most recent spearphishing email includes the IRS logo and often a subject line that states "Action Required: Your account has now been put on hold." If the tax professional clicks on the link, the scammer will download malware to his or her computer network and use that software to obtain client information.
Both consumers and tax professionals should continue to be on the lookout for these attempts by scammers to capture personal information and file fraudulent tax returns.
Landmark Cryptocurrency Bill Proposed
Senator Kirsten Gillibrand (D-NY) and Senator Cynthia Lummis (R-WY) have introduced the Responsible Financial Innovation Act (RFIA). This bill is intended to provide regulation for cryptocurrency and other digital assets.
Sen. Lummis stated, "The United States is the global financial leader and to ensure the next generation of Americans enjoys greater opportunity, it is critical to integrate digital assets into existing law and to harness the efficiency and transparency of this asset class while addressing risk. My home state of Wyoming has gone to great lengths to lead the nation in digital asset regulation and I want to bring that success to the federal level."
Sen. Gillibrand continued, "Digital assets, blockchain technology and cryptocurrencies have experienced tremendous growth in the past few years and offer substantial potential benefits if harnessed correctly. It is critical that the United States play a leading role in developing policy to regulate new financial products, while also encouraging innovation and protecting consumers."
RFIA intends to clarify whether digital assets are commodities or securities. The regulator for the digital asset spot market will be the Commodities Future Trading Commission (CFTC). The CFTC will be able to regulate the rapidly-growing exchanges for cryptocurrency.
The RFIA also establishes requirements for stablecoins. A cryptocurrency stablecoin is designed to have a reserve that allows it to be equivalent to a dollar value. The RFIA requires specific reserve levels, types and disclosure. It also enables banks and credit unions to issue stablecoins.
There would be increased disclosure requirements for digital asset service providers and the CFTC and the Securities and the Exchange Commission (SEC) are required to report on the development of a self - regulatory organization (SRO).
RFIA also creates provisions for taxation of digital assets. There is a $200 de minimus exemption that will exclude small cryptocurrency purchases from reporting requirements. However, virtual currency transactions now must be reported on IRS Form 1040. The bill creates a provision that states that cryptocurrency miners and stakers who acquire digital currency through those methods will not have recognition of gain until the currency is sold.
Editor's Note: There is urgency in Washington to develop policies for regulation of cryptocurrency. The Central Bank of China has issued a digital yuan and is promoting the use of this currency. Over 260 million Chinese individuals have created digital yuan wallets. If China is able to create a worldwide digital currency, it could change the position of the U.S. dollar as the world reserve currency. With over $1 trillion in world digital currency value and 19,000 cryptocurrencies, there is a pressing need for regulation. While the RFIA will undoubtedly require substantial time and debate in Washington, there is a sense of urgency to move forward with government regulation of cryptocurrency.
Applicable Federal Rate of 3.6% for June -- Rev. Rul. 2022-10; 2022-23 IRB 1 (16 May 2022)
The IRS has announced the Applicable Federal Rate (AFR) for June of 2022. The AFR under Section 7520 for the month of June is 3.6%. The rates for May of 3.0% or April of 2.2% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2022, pooled income funds in existence less than three tax years must use a 1.6% deemed rate of return.