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IRS Statement about State Special Tax Payments/Refunds


Lee B

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8 hours ago, Slippery Pencil said:

It's been known almost from day one that the irs was going to issue guidance on these refunds.  Why would you file returns which include uncertainties when you know the uncertainty would be resolved in a week or two?  Then when the uncertainty is resolved in the manner opposite of the way you gambled, you complain about it. 

Fair point, except the TAX LAW does not support the IRS position.  Any educated analysis of the tax law will show that there is no basis in tax law for the IRS to exempt these payments from taxation. 

And I have bills to pay.   I need to prepare returns.   I can't wait for an inept government entity to get off their @ss and do their job.

Tom
Longview, TX

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15 hours ago, BulldogTom said:

Congress makes tax law, and Congress said all income is taxable unless Congress says it isn't. 

Has it ever been that a state tax refund was taxable unless a federal benefit was received from over-paying?  Less than 9.5% of returns itemize deductions after the higher standard amount.  I'm guessing a good chuck of the 9.5% was limited by 10K total.  So, the only ones that it would be taxable to are the middle class that itemize but don't have 10K in state taxes. 

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I'm a little surprised that they didn't even address Minnesota.  Yes, we were assuming from the beginning that the payments would be fed taxable.  But since the IRS specifically mentions pandemic relief, and since our program was for Frontline Workers who had to continue working with the public while the rest of us were able to safely work from home, I had hoped perhaps they'd see it as the Covid relief it was and call it non-taxable.
Either way, I wish they'd thrown us a bone and declared it one way or the other, because now it's just going to confuse clients further.

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Tom, your posts are very on point!

"As promised a week earlier, IRS announced late Friday afternoon, February 10, in Information Release 2023-23, its views on whether various “special payments made by 21 states in 2022″ are taxable. 

The announcement is a landmark “Action on Decision.”  Rather than expressing its views on a court ruling, IRS simply admitted that it will go along with what TurboTax and H&R Block have been doing for weeks. 

Of course, that’s not what IRS said in the Notice.  But it’s the only conclusion that can be drawn from the failure to cite any precedent or establish any new framework for analysis. Instead, we are told that “IRS will not challenge the taxability of payments related to general welfare and disaster relief."

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@cbslee  Thanks.   I am over it now.   I only have 4 returns to amend and it will be pretty simple, just waiting for confirmation of receipt of their refunds before I file them.   I caught 3 others that were completed but waiting for signatures and was able to change them before they efiled.   

Tom
Longview, TX  

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Tom, congress often writes laws that give the secretary of whatever agency the responsibility of determining the operational rules and regs.  In the case of tax, most in congress don't understand the whole thing so often defer the practicalities to the Sec of the Treasury.  That's why IRS issues so many regs, just making whatever congress passed workable.  "Sound tax administration" is probably something left to the Secretary and thus the IRS.  I think the agency did the right thing; I just don't know why they took so long to notice this could cause taxpayers problems.  Sure, some states didn't give out the money until late in the year, but the others paid out earlier and IRS could have studied the matter then and applied whatever decisions they made to the late comers.

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On 2/11/2023 at 12:40 AM, Slippery Pencil said:

It's been known almost from day one that the irs was going to issue guidance on these refunds.  Why would you file returns which include uncertainties when you know the uncertainty would be resolved in a week or two?  Then when the uncertainty is resolved in the manner opposite of the way you gambled, you complain about it. 

Exactly!!!

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On 2/11/2023 at 8:18 AM, BulldogTom said:

Fair point, except the TAX LAW does not support the IRS position.  Any educated analysis of the tax law will show that there is no basis in tax law for the IRS to exempt these payments from taxation. 

The statement is very careful to say that they have NOT determined whether the payments are taxable under the law.  They don't want to set a precedent.  They are just saying they won't challenge the taxability.  Seems similar to "prosecutorial discretion".

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