David N. McCullough CPA PC

IRS leveraging AI for audits amid layoffs (Accounting Today, 5/29/25 article)

David McCullough, CPA — Wed, 04 Jun 2025 15:03:11 +0000

IRS leveraging AI for audits amid layoffs

The Internal Revenue Service is expected to lean more
heavily on artificial intelligence technology as it carries out widespread
layoffs.

A report, released last week by the Treasury Inspector
General for Tax Administration, found the IRS could leverage its examination
results when using AI to select cases for further scrutiny and improve its
processes. TIGTA noted that the IRS’s current tax return selection models have
resulted in a high percentage of examinations that were completed with no
change to the tax liability. However, that means resources are wasted on
unproductive examinations and compliant taxpayers are unnecessarily burdened.
AI models can improve the process the IRS uses to select cases for
examination.

TIGTA assessed how effectively the IRS’s Large Business and
International Division and the IRS Small Business/Self-Employed Division employ
AI models to identify returns and issues for examinations.

The IRS started using AI several years ago and revamped how
it selects tax returns and identifies issues for examination by using AI models
that have been trained on current tax return data instead of relying on past
audit results.

The report noted that historical examination results are
informative and should be used by the IRS to monitor and improve AI models when
available. For instance, the IRS could utilize examination results to improve
return classification and return selection AI models that could potentially
identify new areas of noncompliance. The IRS should also consider evaluating
ensemble machine-learning for improving the accuracy of identifying
noncompliant taxpayers and narrowing the tax gap.

“Ensemble learning is an approach that combines
multiple machine-learning algorithms to potentially improve performance by
making more accurate predictions of which tax returns and/or issues to
examine,” said the report.

Good News! (and from the IRS even!)

David McCullough, CPA — Wed, 31 Jul 2024 21:31:36 +0000

The IRS has decided to forgive failure-to-pay penalties on most of the income tax returns for 2020 and 2021.

As an example: You filed an extension for your 2020 return April 15, 2021, then filed and paid the balance due August 15, 2021. The balance due should have been paid April 15, but since you paid it four months later, you were charged penalty and interest on the amount due. This relief provision will refund/forgive the penalty portion – which is one-half percent per month (or 2% of the tax amount paid 8/15/21 in this example). You are still charged interest, but hey- any forgiveness is a gift.

The news release is found at https://www.irs.gov/newsroom/irs-helps-taxpayers-by-providing-penalty-relief-on-nearly-5-million-2020-and-2021-tax-returns-restart-of-collection-notices-in-2024-marks-end-of-pandemic-related-pause or if you wish, a pdf copy is available here. The appropriate provisions are more clearly summarized in notice 2024-7 available here.

The 2023 Income Tax Brackets Are Here!

David McCullough, CPA — Sun, 07 Jan 2024 23:12:56 +0000

Here they are by filing status:

Single

Married Filing Joint

Married Filing Separately

Head of Household

The Corporate Transparency Act, aka The Next Big Compliance Nightmare

David McCullough, CPA — Sun, 07 Jan 2024 22:54:48 +0000

Stated purpose: to strip US shell companies of anonymity that can hide financial activity.

Procedure: Registering Limited liability companies, corporations, partnerships, and other closely held entities with a government database.

Process: Not yet defined, as the forms have not been finalized.

Generally, the idea is good. Until CTA is in effect, someone can form a limited liability company which can have a listed manager but not disclose the owners or potential owners, and as such, the government can determine that $X was sent to an LLC1, but the trail stops there. CTA will require that LLC1 file a report showing that the owner/beneficiary of LLC1 is Person1 or LLC2. Person1 will be identified by full name, actual address (no PO boxes, etc.) AND will also attach a copy of photo ID (driver’s license or passport). LLC2 will also be subject to CTA, so its owner/beneficiaries will be disclosed. Theoretically, and if the database is designed well, a wire transfer to an LLC can be traced to its eventual beneficiary in seconds. If you want a real-world example of how this can be used/abused, contact me for an example.

Danger area: Unlike most legislation, CTA aims at SMALL organizations. Entities that have at least $5 million in revenue AND 20 employees are exempt. Microsoft Corp will be exempt from reporting, but Bob’s Sandwich shop will have to comply. Civil penalties can be up to $500 per day; criminal penalties can be fines up to $10,000 and imprisonment of up to 2 years. If you fail to file, this basically gives the government the ability to find you guilty of something if they so choose. So – when in doubt, file, and if you would like a real-world example of how this can be used/abused, contact me.

Scope: FINCEN estimates 32 million existing entities face filing obligations, and more will be added when they are formed. Entities created after December 31, 2023 have a filing deadline of 90 days from formation; existing entities as of December 31, 2023 have until January 1, 2025 to file.

Responsibility for filing: At present, we know the reports must be filed but establishing the responsibility is unclear. Filing services such as LegalZoom may offer this service (at least at startup), CPAs can provide assistance, but the filing deadlines are much more stringent than an annual filing. Changes to your name (thru marriage or divorce) or address must be reported within 30 days, and indications are that the entire form must be refiled, not just the changed information. It appears that renewing your driver’s license or passport will also require filing.

Compliance rules: At present there is a 50-page “Small Entity Compliance Guide” along with 33 pages of FAQs available at https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_guide.v1.14-FINAL.pdf

What do I do now? Just be aware. As soon as additional information is available, I’ll provide an update.

All Texas Employers Please Note

David McCullough, CPA — Sun, 07 Jan 2024 22:50:43 +0000

Beginning January 8, 2024, Texas employers are required to post a notice that employees can anonymously report workplace violence or suspicious activities to the Department of Public Safety in accordance with House Bill 915, 88th Texas Legislature, Regular Session (2023), and 40 Texas Administrative Code § 800.600. The notice must be posted in English and Spanish, as appropriate, in a conspicuous place that is convenient to all employees. An electronic copy of a Reporting Workplace Violence Poster is available to download and print from TWC’s website at
https://www.twc.texas.gov/programs/unemployment-tax/posters-workplace

Tax deadline for Texas residents: June 15, 2021

David McCullough, CPA — Mon, 10 May 2021 15:16:07 +0000

I’ve had several (panicked) calls/emails asking about the upcoming May 17th deadline. Please note: May 17, 2021 is the filing date for individuals who do not reside in Texas, Oklahoma, and Louisiana. The IRS moved the date from the usual April 15th due to COVID-19. Texas, Oklahoma, and Louisiana individuals and businesses were extended to June 15, 2021 due to the severe weather disaster in February. The disaster declaration overrides the COVID extension. Please read the last portion of the IRS release found here: https://www.irs.gov/newsroom/tax-day-for-individuals-extended-to-may-17-treasury-irs-extend-filing-and-payment-deadline

The Mid-Tax Season Update

David McCullough, CPA — Fri, 12 Mar 2021 16:31:54 +0000

This has already been a complex year, and it’s only March. Here are some of the major changes.

FILING DEADLINES:

For individuals and businesses in Texas, income tax returns which are normally due on March 15^th and April 15^th are automatically extended until June 15^th this year as a result of the Presidentially-declared natural disaster (the freeze of February 2021). Please note: Automatic, and all of Texas. Groups are pushing Congress to extend the individual deadline to July 15^th for all filers, but that has not yet passed.

INDIVIDUALS:

Economic Impact Payment Number 3 is now authorized. As a reminder, EIP1 was the $1200/$2400 last summer (plus $500 per eligible child), EIP2 was the $600 per person in January/February 2021, and an additional $1400 per person will be issued “soon”. Note that payments were issued based on the best information the IRS had at the time -if you were married and had adjusted gross income over $150,000 in 2019, you probably did not get EIP1 even if your 2020 income dropped and you should have been eligible. If you got married/divorced or added or lost dependents in 2020, the IRS doesn’t know about it until a return is filed. The 2020 return (i.e. “this year’s” return, will adjust for EIP1 and EIP2 payments that you “should have received but didn’t” or “shouldn’t have received but did” so I will be asking you how much you actually received for PPP1 and PPP2. If the IRS thinks they sent you a debit card, but you didn’t receive it, there will be more complications.

PPP LOANS:

PPP loans are not taxable proceeds, and the forgiveness of the loan is not taxable. Expenses paid with the proceeds remain deductible expenses. Loans are assumed to be forgiven as of December 31, 2020 even though you may not have applied for forgiveness yet. If you will not be applying for forgiveness, please advise your CPA.

PPP2 loans are available if you had at least one quarter in 2020 which showed a reduction in gross receipts of more than 25% compared to the same quarter of 2019.

If you are a self-employed person, and did not apply for PPP1, the SBA is allowing you to apply now for a PPP1 loan and is much more generous in the loan amount. If you had applied before, you were entitled to 2.5 times average monthly profits; if you did not apply then but do now, you are entitled to 2.5 times average monthly receipts. The SBA has acknowledged that life is not fair – if you got PPP1 with 2.5x net, you cannot apply for more money. If you snoozed then, this time you win.

EMPLOYEE RETENTION CREDIT FOR EMPLOYERS:

On the original CARES Act (one year ago), if you got a PPP loan then you were not eligible for ERC. In late December, Congress changed the law so that now you CAN do both- if you qualify for ERC, you can take the credit even if you received PPP funds. But- this is very important – you cannot use the same wages that you used for PPP forgiveness to calculate the ERC. It would be much better to use rent, utilities, etc. for up to 40% of the PPP forgiveness so you can use the remaining payroll for ERC. Again, consult your CPA before sending the forms to the bank.

ERC credits are obtained on the quarterly payroll tax returns (Form 941), so some of you will be amending payroll tax forms as well due to the retroactive rule change. My guess (and it is a guess, not a fact) is that Q1 2021 941s that are usually due by April 30 will be extended. We will see.

COMMERCIAL REAL ESTATE:

In the December 27^th law, Congress pushed through a retroactive change to the depreciable life of non-residential real estate. Depreciation used to be over 39.5 years, the act changes it to 30 years for property placed into service in 2018 or afterwards.

MORE WILL FOLLOW:

There will be more legislation, rule changes, etc. this year. I’m not sure what will change yet, but I’m sure change will happen. Please follow the blog as it’s the most efficient way to get information out.

Extended Due Dates for Texas!

David McCullough, CPA — Tue, 23 Feb 2021 17:11:31 +0000

Today the IRS announced that due dates and payments for returns normally due March 15th or April 15th (basically all returns) are extended until June 15th this year. The press release did specifically reference March 15th deadlines, and indicated that no extension form is required for this due date. You can read the full notice on the IRS website at https://www.irs.gov/newsroom/victims-of-texas-winter-storms-get-deadline-extensions-and-other-tax-relief.

While this gives us more time, please provide your CPA with necessary tax information as soon as possible. If you are due a refund, get it now. We also want to be able to enjoy some summer days too.

Busted Pipes? Water Damage? Other? SBA can help Businesses AND Individuals

David McCullough, CPA — Tue, 23 Feb 2021 00:30:42 +0000

Last week’s cold front/power outage resulted in significant damage for our community. If you have incurred damage, first contact your insurance company and file a claim. If the damage is not covered under your insurance policy, the SBA can provide you with low-interest loans to allow repairs. You’ll need to contact FEMA to register, which you can do at www.disasterassistance.gov . The Virtual Disaster Loan Outreach Center opens Tuesday, February 23, 2021 from 8 am to 8 pm EST at 800 659-2955 or FOCWAssistance@sba.gov. See the attached notice for the full press release.

First Train Wreck of 2021 Individual Filing Season (and it’s a big one!)

David McCullough, CPA — Mon, 01 Feb 2021 18:09:39 +0000

The First Train Wreck of 2021 Filing Season (A Big One)

Tucked away on line 30 (page 2) of your 2020 return (due April 15, 2021) is the reconciliation of the advance payments you may have received last year. It’s going to generate a lot of headaches this year.

Remember the $1200 per adult and $500 per child payment you got last summer? Or didn’t receive? This has to be reconciled on line 30’s worksheet. This will be known as the Economic Impact Payment 1 (EIP1).

How about the $600 per person payment you received (or not) at the beginning of January 2021? EIP2 also has to be reconciled on line 30 by the time your return is filed (again, April 15, 2021 unless an extension is filed).

If it’s not reconciled, there are unpleasant things that can happen:

IRS can hold the processing of your return, and request the information from you, resulting in long delays before the return is processed and/or refund issued.
IRS can process the return as filed, and send you a letter later (sometimes two years later) indicating there’s a problem with the return.
Regardless of 1 or 2, you’ll be upset with your CPA. No one likes letters from the IRS, delays in refunds, or not being able to show your lender that your return was processed when you’re trying to refinance or purchase.

So:

Even if the information is not requested from your CPA, provide information about the amounts received and identify them as EIP1 and/or EIP2.
I will be pulling IRS transcripts to see what the IRS thinks they have issued to you. I have Power of Attorney for many of my clients already, and will be requesting them for the remainder. Generally I cover the open statute years (2017 for most) until a date in the future (generally I have them run until 2025 to cut down on paperwork). POAs allow the IRS to talk to me and provide information about your return – I do not request authorization to sign returns or obtain refunds for you.
Expect delays. I prefer to file returns one time (correctly). Amended returns are processed manually and the IRS is months behind already. A new POA requires me calling the IRS , then waiting on hold, then 10-30 minutes of processing time for the IRS to send transcripts. If I already have POA on file for you, I can retrieve the transcripts within 10 minutes, but the IRS unit that grants online access is also running behind – as of today (February 1) they have not processed a request I sent on January 7.