IRS Says Hold Off on Filing Returns from Illinois

[Frustrated-in-IL]

https://www.nbcchicago.com/news/local/irs-asks-millions-taxpayers-in-illinois-other-states-to-hold-o...

It is not just Illinois but also other states which gave out rebates in 2022.  Obviously, I mostly deal with Illinois taxpayers who want their taxes filed.  My question is this: if your taxpayer is from one of these states, are you not filing the returns?  If yes, how are you explaining it your clients?

I see nothing about when IRS will have an answer to this and I see nothing about adding additional days to the filing deadline past April 18th.  Yet time marches on toward that date with no resolution.to the issue.

I have noticed that IL Dept of Revenue has added the rebate amounts (both the individual rebate plus the property tax rebate) to Form 1099G.  So the amount the program is bringing forward will not match the 1099G so you may want to go to the IL website and download the correct amount and change it within the program.  Of course, that does nothing for those who do not have a 1099G or address the underlying issue of taxability.

My initial thought was that the rebates were not taxable if the taxpayer did not itemize, and if they did itemize, taxable only if they received a tax benefit after taking into account the $10000 limitation, and that is what I have reported on the returns I have completed so far.  However, once I saw this IRS statement, I started to think about the taxpayers who don't itemize and who paid no Illinois tax.  In my office, that would mostly be seniors with only retirement income, a good percentage of my business.  So even though they paid no Illinois tax, they still received the rebates.  Now I am thinking IRS will want to tax those payments.  Of course, I have already filed a number of returns like that, as well as several more where the taxpayer did have IL tax but did not itemize so I omitted the rebates.

Any guidance on how others are handling this, and also if you are delaying filing, would be appreciated.

I apologize in advance if this has already been asked.  As we all know, the search function here stinks.  I went back through the last several days and did not see a discussion on the IRS announcement.

[garman22]

@Frustrated-in-IL I noticed this as well. Here are my 2 cents on the subject. 

I am assuming that these rebates may be taxable if someone itemizes. Due to prior President Trump's changes, most people no longer itemize. For those that do and have filed already, IRS states not to amend. Will they issue notices to these people? Will it even make a difference? I honestly dont know. As of today, I have not mentioned anything to my people. I may start with tomorrows appointments. 

Here is MY problem with this, when exactly will the IRS issue guidance? How long must we the people wait to file? Will this affect PS software. If so, who knows HOW LONG they will take to update their software??? That is my BIGGEST issue here. PS programmers tend to take their time getting out updates. 

I am leaning towards filing and taking the wait and see approach with the IRS. I will update my clients and let them make the final call. 

I find this ludicrous that we must wait over a few hundred dollars. Sheeeeeesh!!!  

[garman22]

I remember the days of state refunds being taxable when one itemized. I also remembered seeing new clients tax returns that they filed and more often than not these clients DID NOT claim those refunds from the prior year.

                                               AND...............................

They NVR received a notice from IRS stating they missed that refund. Oh, if they missed something BIG the IRS would include that refund BUT they never sent a notice for the refund only. 

Im thinking same thing here. But thats just my opinion. What are your thoughts?

[Skylane]

I heard the blurb this morning on national news... they were focused on Cali but mentioned a dozen other states or so...........   

Sure, EITC & Retirees will take the worst hit (especially those in the SS window where every $ causes an extra $ of SS to become taxable)

The IRS works for the Administration.... Ya think they'll do the right thing???

If I were in an affected state I would certainly prepare the returns now, but not print or file. Just explain that the IRS has its head up it's bottom (again). It's wiser to wait than get a letter from IRS adding P&I.

Certainly beats filing a bunch of amendments. 

EDIT:  <<I am assuming that these rebates may be taxable if someone itemizes>>

I don't think that statement is correct.  it's not a refund, but a distribution by the States of extra Pandemic monies it got from the Feds to the lower income population.   

The Whole thing sounds kinda stupid.

[BobKamman]

It's not a rebate if you never paid anything in the first place. In Illinois, you got money even if you paid no income tax.  So how can they call it a refund?  And why did they put it on the 1099-G?  They should have called California, the FTB would have told them to use the 1099-MISC.  

Actually, they both should have called IRS, but IRS figured tax season wouldn't be the same without a little chaos.  

I don't see anything in the Illinois law that links the payments to income tax liability.  If I filed a return showing a balance due of $500 but didn't send a check, I still got my $50, right?  And I still owe $500? 

IRS has promised as many answers as they can determine by the end of this week. See their February 3 announcement here:

https://www.irs.gov/newsroom/important-tax-alerts-and-news#taxabilitystatepay

My view is that this is excluded under the "general welfare" rules. I also doubt that the major tax preparation companies have been holding up returns while waiting for an answer.  In California, they have been adding the payments to income, then subtracting them as an adjustment.  In Illinois, it may be easier to bury the amounts under the "tax benefit" rules for actual refunds.  

If Paul Powell were alive today, he'd have the answer in one of his shoeboxes.  

[michele]

Indiana  We are holding them. A real mess Indiana. Indiana reported the rebates on a 1099-G

to those that had a state tax refund last year. The rebate was included in their 1099 G. If they  did not get a state refund  even though they got the state taxpayer rebate they did not get a 1099-G. Try squaring that up with no 1099-G. and they have no plan in place as to coding so they do not pay tax on that rebate in Indiana tax. I am assuming ours could be taxable because it was not a disaster payment. Indiana had excess revenue so they rebated to taxpayers 

UGH isn't it wonderful the day in the life of a tax professional.

Michele

[Skylane]

..................  Here's to hoping the IRS reads its own tax code and figures out it's as taxable as the Trump Dollars & Biden Bucks......... And to the idiot states issuing millions of amended 1099-Gs

DRINK UP!!  Only 67 days left

[garman22]

Hear Hear on the drinks!! 🥃🍻 🍺