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TaxBuzz Top 5 - $1 Billion in Unclaimed Tax Refunds Expiring, IRS to Increase Audits on Wealthy & More

TaxBuzz Top 5 - $1 Billion in Unclaimed Tax Refunds Expiring, IRS to Increase Audits on Wealthy & More

Each Friday, TaxBuzz brings you the top five tax and accounting headlines you need to know from the workweek. We know life can get busy and you don't always have time to scroll through your news feed to stay informed.

We weed through all of the week's stories to showcase the most important updates in the tax and accounting world.

1. $1 Billion in IRS Tax Refunds Are Set to Expire

Credit: Chip Somodevilla/Getty Images

The Internal Revenue Service (IRS) reports that over $1 billion in unclaimed tax refunds from the 2020 tax year remain unclaimed. Around 940,000 individuals nationwide have until May 17, 2024 to file their 2020 tax returns and claim their share of these funds, with a median refund estimated at $932. Per CNBC, IRS Commissioner Danny Werfel said, “We want taxpayers to claim these refunds, but time is running out for people who may have overlooked or forgotten about these refunds.”

The deadline extension to May 17, which was initially due to the COVID-19 pandemic, does give taxpayers extra time to file. However, the IRS cautions that refunds may be withheld if 2021 and 2022 tax returns are outstanding. In addition, refunds may be applied to unpaid taxes, child support, or other overdue federal debts. Taxpayers seeking to claim potential refunds should file their 2020 tax returns promptly and gather necessary documents like Form W-2, Form 1099, and Form 5498.

After May 17, unclaimed funds revert to the U.S. Treasury.

2. Western United States Faces "Tax Rebellion" 

Across the Mountain West, a surge in out-of-state residents is fueling soaring property taxes, prompting a political upheaval. Politico referred to the ongoing situation as a "tax rebellion."

In counties across Montana, Colorado, and Wyoming, tax bills have spiked by up to 46% in 2023 alone, driven largely by remote work opportunities post-pandemic. Montana gubernatorial candidate Ryan Busse recently noted that lawmakers must slash property taxes, reflecting the sentiment of most residents.

Wyoming Representative John Bear concurs, stating, "This is the top issue in the state... The pressure is not going to end." Despite some relief efforts, such as targeted exemptions and refunds, discontent persists among homeowners. Politico's report shared that Michael Fields of Advance Colorado predicts substantial policy shifts, akin to the property tax revolts of the 1970s and 80s.

Adam Langley from the Lincoln Institute of Land Policy, however, warns against hasty measures like California's Proposition 13, saying these protocols could have "major, unintended consequences" on government functions well into the future. Colorado Governor Jared Polis and Idaho legislators are grappling with reform proposals, recognizing the imperative for swift action amid mounting public pressure. As property values surge and residents seek relief, the region braces for significant political and policy shifts.

“During these time periods where property taxes are rising rapidly, state and local policymakers need to respond, but need to do so in a way that they don’t put in place policy that is really hard to unwind in future years,” concluded Langley.

3. IRS to More Than Double Audits on Wealthy Taxpayers

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The IRS has provided an update on its strategic operating plan, highlighting its achievements in taxpayer service, technology, and enforcement since receiving additional funding less than two years ago as part of the Inflation Reduction Act. IRS Commissioner Danny Werfel stressed the importance of sustained funding, including a $104 billion proposal to extend funding through fiscal 2034.

Per a CNBC report, the agency aims to more than double audits on wealthy taxpayers, large corporations, and complex partnerships, focusing compliance resources where needed. Werfel mentioned plans to more than double the audit rate for individuals with income over $10 million by 2026, nearly triple audit rates on large corporations, and increase audit rates by ten times for complex partnerships. However, Werfel assured that audit rates for small businesses and taxpayers earning under $400,000 would remain historically low.

In fiscal 2023, the IRS closed nearly 583,000 tax return audits, resulting in $31.9 billion in recommended additional tax.

4. UK "Non-Dom" Tax Changes Trigger Exodus of Wealthy Residents

The impending demise of the “non-domicile” tax regime in the UK has triggered significant reactions, including an exodus of wealthy individuals like Bassim Haidar. This historic tax loophole, allowing individuals like Haidar to sidestep UK tax on foreign income for centuries is being scrapped.

Entrepreneur Haidar told The Guardian that he has decided to relocate to Monaco and Dubai, lured by their tax-free status. He, among others, anticipates substantial financial repercussions if he remains in London, estimating millions in additional taxes annually.

This looming change has prompted a collective departure of non-doms, with Haidar spearheading a group of 29 individuals planning to exit the UK before September, primarily to secure schooling arrangements abroad.

Haidar told Guardian reporters, “We love London, we love the lifestyle. We love everything about it, and we’re gutted that we have to go, but we have to think of our future, and the future of our children. With such a punitive tax system [now in the UK], for the protection of their future wealth it makes a lot of sense for them to leave and for us to leave.”

5. U.S. Government Adjusts EV Tax Credit Regulations

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Via ABC News, the U.S. government has adjusted the electric vehicle tax credit regulations outlined the 2022 Inflation Reduction Act, potentially broadening eligibility for credits up to $7,500. The Treasury Department's final regulations extend deadlines for automakers to comply with mineral-sourcing provisions, aimed at bolstering domestic EV manufacturing.

John Bozzella, CEO of the Alliance for Automotive Innovation, noted the challenges of transitioning the U.S. industrial base for EVs, “That’s a monumental task that won’t – and can’t – happen overnight.” The rule change, he argued, aligns with investment, job creation, and EV adoption.

Currently, only 13 out of 114 EV models in the U.S. qualify for the full $7,500 credit. Despite incentives, EV sales rose by only 3.3% in the first quarter of this year, trailing last year's record sales growth. This is why automakers have expressed concerns about the pace of EV adoption.

Treasury Secretary Janet Yellin recently emphasized the benefits of clean vehicle credits, including consumer savings and energy security. The regulatory adjustments reflect ongoing efforts to navigate the complexities of EV adoption and domestic manufacturing enhancement in Detroit and around the United States.

Which headline this week most interests you?

Feature Image Credit: Zach Gibson/Getty Images

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Rebekah Barton

Rebekah Barton

Rebekah's search engine optimization career began completely by accident as a college student. Over the course of her career so far, she has "grown up" with the SEO industry, from writing content while juggling classes to managing her own teams of writers and overseeing SEO strategy in subsequent roles. She is excited to bring her passion for high-quality content to CountingWorks, Inc.

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