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September 21 2020
NewsThe IRS has issued final regulations (T.D. 9913) that clarify the definition of a "qualifying relative" for purposes of various provisions of the Code for taxable years 2018 through 2025. These regulations generally affect taxpayers who claim Federal income tax benefits that require a taxpayer to have a qualifying relative.
The IRS has issued final regulations (T.D. 9912) under Sections 36B and 6011 of the Code that clarify that the reduction of the personal exemption deduction to zero> for taxable years beginning after December 31, 2017, and before January 1, 2026, does not affect an individual taxpayer's ability to claim the premium tax credit. These final regulations affect individuals who claim the premium tax credit.
The IRS has twice updated the parishes in Louisana where victims of Hurricane Laura that began on August 22 may qualify for tax relief. The additional parishes include Caddo, La Salle, Morehouse, St. Landry and Union. Now individuals and households who reside or have a business in Acadia, Allen, Beauregard, Caddo, Calcasieu, Cameron, Grant, Jackson, Jefferson Davis, La Salle, Lincoln, Morehouse, Natchitoches, Ouachita, Rapides, Sabine, St. Landry, Union, Vermillion, Vernon, and Winn parishes qualify for tax relief. For more details, go to IRS Announces Tax Relief for Hurricane Laura Victims.
Tip of the DayReceive too big a payment?. . . There's a very high probability it's a scam. One version, aimed at consumers, involves purchases in an on-line marketplace from an individual. The buyer quickly makes an offer for the item the individual is selling and sends him or her a check for more than the requested amount and provides an excuse for the excess amount such as "you've got to pay a large amount for the delivery charge". After paying for delivery, you'll find the check is bad. Certified or cashier's checks can be forged, so there's no guarantee. The safe approach is to look for another buyer. The scam is different for businesses. The payer tells the business there was a mistake and to cash the check and refund the excess. By the time the business discovers the check is bad, the excess amount has already been paid out.
September 18, 2020
NewsThe IRS announced that victims of the Oregon wildfires and straight-line winds that began on September 7 now have until January 15, 2021 to file various individual and business tax returns and make tax payments. The IRS is offering this relief to any area designated by FEMA as qualifying for individual assistance. Currently this includes Clackamas, Douglas, Jackson, Klamath, Lane, Lincoln, Linn and Marion counties in Oregon, but taxpayers in localities added later to the disaster area will automatically receive the same filing and payment relief. The tax relief postpones various tax filing and payment deadlines that occurred starting on September 7, 2020. As a result, affected individuals and businesses will have until January 15, 2021, to file returns and pay any taxes that were originally due during this period. This means individuals who had a valid extension to file their 2019 return due to run out on October 15, 2020, will now have until January 15, 2021, to file. The IRS noted, however, that because tax payments related to these 2019 returns were due on July 15, 2020, those payments are not eligible for this relief. For more information, go to IRS Provides Relief for Victims of Oregon Wildfires.
The IRS has issued final regulations (T.D. 9915) concerning the rehabilitation credit, including rules to coordinate the new 5-year period over which the credit may be claimed with other special rules for investment credit property.
Notice 2020-73 (IRB 2020-41) announces that the IRS intends to amend the regulations under Section 987 to defer the applicability date of the final regulations under Section 987, as well as certain related final regulations, by one additional year. The applicability date of these regulations has been deferred under prior notices to taxable years beginning after December 7, 2020. The Notice also states that taxpayers may rely on certain related proposed regulations that cross-reference temporary regulations which have expired.
Tip of the DayNot every solution need be high tech . . . There's no question that computers have made most work easier. But there are times when a low tech solution is easier and faster. If you're doing some computations only once and they're not that complicated, grab the calculator and a pencil rather than opening a spreadsheet. You can use a computer to schedule multiple processes in a small job, but you can almost assuredly do it quicker with paper and pencil or a whiteboard. Whiteboards can be particularly useful. You can skip the projector if you're working with an audience. There are other examples. Got a dozen nails to drive? You could use a nail gun, but by the time you move the compressor and drag the hose the job would be long done if you used a hammer.
September 17, 2020
NewsThe IRS has issued final regulations (T.D. 9914) providing guidance on the definition of an eligible terminated S corporation and rules relating to distributions of money by such a corporation after the post-termination transition period. This document also amends current regulations to extend the treatment of distributions of money during the post-termination transition period to all shareholders of the corporation and clarifies the allocation of current earnings and profits to distributions of money and other property. The final regulations affect C corporations that were formerly S corporations and the shareholders of such corporations.
It's no surprise that the IRS software that runs some of the systems is ancient. The Treasury Inspector General for Tax Administration (TIGTA) recently reviewed the upgrade project (from Assembly Language Code to Java) and issued a report. TIGTA found that the IRS is making progress but some of the Java best practices were not followed. TIGTA, however, made no recommendatinos. To see the report go to www.treasury.gov/tigta/auditreports/2020reports/202020062fr.pdf.
Tip of the DayCredit card scams . . . They're not just for customers. Merchants can fall for a scam just as easily as consumers--and for more money. When you process a credit card charge you receive authorization from the card company and you should be safe. But what if you take the order, ship the goods and only then process the charge? If you can't get authorization, you'll be stuck. There are other situations in which the bank may disclaim responsibility, or if it credits your account and authorization is canceled, you could be responsible for the amounts. Check with your bank on the rules. To avoid problems be suspicious of:
September 16, 2020
NewsThe IRS has added Butte County to the areas in California that qualify for tax relief as result of the wildfires that began on August 14. As a result individuals and households who reside or have a business in Butte, Lake, Monterey, Napa, San Mateo, Santa Cruz, Solano, Sonoma and Yolo counties qualify for relief. Taxpayers in localities added later to the disaster area will automatically receive the same filing and payment relief. Go to IRS Announces Tax Relief for California Wildfire Victims.
In the marijuana business? Legally that is. The IRS has a new webpage for those in the business. In addition to some brief discussions, the page has links to a number of other pages that can provide answers for taxpayers.
Tip of the DaySpecific bequests in a will . . . Estates have a nasty way of creating rifts among the closest relatives. And often it's not the size of the bequest, but one or more items. Fred may not care that he got the larger share of the inheritance, he's upset he didn't get the lake property where he spent summers and proposed to his wife. Because of the way the will was written the property had to be sold and the proceeds divided. Often the best approach is to talk to the heirs and find out what they want and either put that as a specific bequest in the will or gift the property before you pass.
September 15, 2020
NewsThe final regulations (T.D. 9905) for the business interest expense deduction limitation published in the Federal Register. The final regulations vary slightly from the document released on IRS.gov on July 28, 2020. The version of the final regulations published in the Federal Register contains minor editorial changes. In response to questions from taxpayers and practitioners, the final regulations published in the Federal Register clarify that taxpayers may rely on the final regulations for any taxable year beginning after Dec. 31, 2017, provided that certain conditions are met.
Tip of the DayTwo deadlines . . . There are two deadlines today, September 15. The first is for S corporation and partnership returns on a calendar year. That's for federal returns, but most state returns are also due. The second is the third quarter estimates for individual and fiduciary (trusts and estates) returns, also due the 15th and, again, the same deadline applies to most states.
September 14, 2020
NewsVictims of Tropical Storm Isaias that began July 29, now have until November 30, 2020, to file various individual and business tax returns and make tax payments. Following the recent disaster declaration for individual assistance issued by the FEMA, the IRS announced today that affected taxpayers in certain areas will receive tax relief. Individuals and households who reside or have a business in the municipalities of Aguada, Hormigueros, Mayaguez, and Rincon qualify for tax relief. Taxpayers in localities added later to the disaster area will automatically receive the same filing and payment relief. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after July 29, 2020, and before November 30, 2020, are postponed through November 30, 2020. This includes individual and business tax filers that had a valid extension to file their 2019 return due to run out on October 15, 2020. The IRS noted, however, that because tax payments related to these 2019 returns were due on July 15, 2020, those payments are not eligible for this relief. Go to IRS Announces Tax Relief for Tropical Storm Isaias Victims in Puerto Rico.
Notice 2020-71 (IRB 2020-40) announces the special per diem rates effective October 1, 2020, which taxpayers may use to substantiate the amount of expenses for lodging, meals, and incidental expenses when traveling away from home. This notice provides the special transportation industry rate, the rate for the incidental expenses only deduction, and the rates and list of high-cost localities for purposes of the high-low substantiation method.
Tip of the DayMore stimulus coming? . . . Congress can't agree on a plan and both sides appear to be far apart. The November election isn't making it easier. And the Federal Reserve is adding a new twist and appears to be suggesting that more stimulus will be needed. There's a good chance that there will be anothe round in the near future, but it may be too little and too late for some businesses. Because there are so many uncertainties involved, it's best not to factor relief into your plans.
September 11, 2020
NewsAnnouncement 2020-17 (IRB 2020-40) postpones, until January 15, 2021, the due dates for reporting and paying the excise taxes under Secs. 4971(a)(1) and 4971(f)(1) of the Code with respect to certain delayed minimum required contributions to a single employer defined benefit plan. This postponement applies with respect to a required contribution to which the extended due date under sec. 3608(a) of the Coronavirus Aid, Relief, and Economic Security Act, (CARES Act), applies.
On Aug. 28, the IRS announced that it would temporarily allow the use of digital signatures on certain forms that cannot be filed electronically. On September 10 the agency added several more forms to that list. The IRS added the following forms to the list of those being accepted digitally:
The forms are available at IRS.gov and through tax professional's software products. These forms cannot be e-filed and generally are printed and mailed. The below list was announced Aug. 28, and all of these forms can be submitted with digital signatures if mailed by or on Dec. 31, 2020:
Tip of the DayLife after the pandemic . . . What's it going to be like once the pandemic is over? People going back to shopping in stores or will online sales remain at their current level? While no one can answer the question with certainty, more than likely we'll have a mix. A higher level (than pre-pandemic) of online sales are here to stay. Weak retailers are likely to he hurt enough that they won't survive, at least not without a major effort. There are likely to be less restaurants, but dining out will never be replaced by someone pulling up to your door with a bag. You may be back commuting to work, but a significant percentage of employees prefer working from home and employers see a cost saving and, in many cases, a productivity boost. Travel to visit customers is almost assuredly going to decrease. But we have also learned some positive lessons. We've got to be better prepared and we've got to be able to rely better on ourselves. That could mean some manufacturing coming back to the U.S. and it could mean a bigger safety net for inventories. Some economists predict it will be a number of years before we've fully recovered. Watch the trends, get good advice, and, most importantly, stay flexible and be ready to take action.
September 10, 2020
NewsWhat's in the Senate "skinny" bill? First, the bill is unlikely to even make it out of the Senate, much less pass the House. The bill would provide a $300 unemployment boost (instead of the earlier $600). It would provide small business who have already received a Paycheck Protection Program loan to seek a second one (but with new qualifications) but would allow more flexibility on the use of the funds. Employers would have some liability protection from workers suing for COVID-19 infections. Some of the provisions in the bill have been included in an earlier GOP bill and some are included in a House bill, but the funds provided in the "skinny" bill are much less than in either of those bills.
Notice 2020-66 provides guidance addressing whether certain Medicaid coverage of COVID-19 testing and diagnostic services is minimum essential coverage for purposes of the premium tax credit under Section 36B of the Code. This notice also announces that the Treasury Department and the IRS intend to amend Sec. 1.5000A-2 of the Regulations to add Medicaid coverage of COVID-19 testing and diagnostic services to the list of health care coverage that is not minimum essential coverage under a government-sponsored program.
The IRS has announced (IRS-2020-204) is taking a number of aggressive steps to expand information and assistance available to taxpayers in additional languages, including providing the Form 1040 in Spanish for the first time. In addition to being available in English and Spanish, the 2020 Form 1040 will also give taxpayers the opportunity to indicate whether they wish to be contacted in a language other than English. This is a new feature available for the first time this coming filing season. Other changes include Publication 1, Your Rights as a Taxpayer, is now available in 20 languages. The 2020 version of Publication 17, Your Federal Income Tax, will be available early next year in seven languages--English, Spanish, Vietnamese, Russian, Korean and Chinese (Simplified and Traditional). As part of this expansion, many of the pages on the IRS.gov site are now available in seven languages and basic tax information is newly available in 20 languages on IRS.gov. It also means that taxpayers who interact with an IRS representative now have access to over the phone interpreter services in more than 350 languages.
Tip of the DayThird quarter estimates due . . . Estimated taxes for individuals are due for the third quarter on September 15. If you missed the first two quarters (the first and second quarter estimate were due July 15 this year), you have a chance to stop further interest penalties. But if the pandemic has impacted your income, you might want to talk to your tax advisor and see if you can't compute your estimate based on your income. It's more complicated, but it can preserve cash.
September 9, 2020
NewsRevenue Procedure 2020-40 modifies section 15.05 of Rev. Proc. 2016-37, and section 12.02 of Rev. Proc. 2019-39, to expand the situations in which the plan amendment deadline for discretionary amendments made to qualified pre-approved plans and Sec. 403(b) pre-approved plans may be extended. These modifications are consistent with the extensions of the plan amendment deadlines for discretionary amendments set forth in section 8.02 of Rev. Proc. 2016-37 with respect to qualified individually designed plans and section 6.02 of Rev. Proc. 2019-39 with respect to Sec. 403(b) individually designed plans.
Notice 2020-68 provides guidance in the form of questions and answers with respect to certain provisions of Division O of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), and with respect to Sec. 104 of Division M of the Bipartisan American Miners Act of 2019 (Miners Act). Specifically, this notice addresses issues under the following sections of the SECURE Act: sec. 105 (small employer automatic enrollment credit), Sec. 107 (repeal of maximum age for traditional IRA contributions), sec. 112 (participation of long-term, part-time employees in Sec. 401(k) plans), sec. 113 (qualified birth or adoption distributions), and sec. 116 (permitting excluded difficulty of care payments to be taken into account as compensation for purposes of determining certain retirement contribution limitations). This notice also addresses issues under sec. 104 of the Miners Act (reduction in minimum age for in-service distributions) and provides guidance on deadlines for plan amendments.
The IRS will soon start mailing letters to roughly 9 million Americans who typically don't file federal income tax returns who may be eligible for, but have not registered to claim, an Economic Impact Payment. The letters will urge recipients to register at IRS.gov by Oct. 15 in order to receive their payment by the end of the year. Individuals can receive up to $1,200, and married couples can receive up to $2,400. People with qualifying children under age 17 at the end of 2019 can get up to an additional $500 for each qualifying child. The letters are being sent to people who haven't filed a return for either 2018 or 2019.
Tip of the DayStopping a business? . . . It's usually not as simple as turning off the lights and locking the door for the last time. There are final income tax return, possible sales tax returns, etc. There's a good chance there are steps you need to take specific to your business such as relinquishing a liquor license. If you're doing business as a corporation, you have to legally dissolve with the state. There are other requirements for an LLC. Often not a big deal, but an important one. And there could be expenses after you close. Talk to your accountant and/or attorney about closing bank accounts, notices to vendors, etc.
September 8, 2020
NewsThe IRS has announced the release of the fourth quarter update to the 2019-2020 Priority Guidance Plan. The 2019-2020 Priority Guidance Plan contains guidance projects that we hoped to complete during the twelve-month period from July 1, 2019, through June 30, 2020 (the plan year). The fourth quarter update to the 2019-2020 plan reflects 53 additional projects which have been published (or released) during the period from April 1, 2020 through June 30, 2020. This update also includes one additional project which was released on March 31, 2020.
Revenue Ruling 2020-17 (IRB 2020-37) contains a list of the average annual effective interest rates on new loans under the Farm Credit System. This revenue ruling also contains a list of the states within each Farm Credit System Bank Territory. Under Sec. 2032A(e)(7)(A)(ii) of the Code, rates on new Farm Credit System Bank loans are used in computing the special use value of real property used as a farm for which an election is made under Sec. 2032A. The rates in Table 1 of this revenue ruling may be used by estates that value farmland under Sec. 2032A as of a date in 2020.
Tip of the DayDriving less? . . . Not on just a temporary basis. You may be able to get a break on your auto insurance. Some companies put the breakpoint at 7,500 miles per year. Check with your carrier. The savings will depend on several factors, but generally worth the effort. While you're at it, talk to your agent about other potential savings. If you've kept your vehicle longer than in the past, it may be time to drop collision insurance. In extreme cases it might make sense to take the car off the road or sell it. For example, you're no longer commuting to that job in the city. You may not need that second or third car. Review your options.
September 4, 2020
NewsThe IRS announced that interest rates on over- and underpayments will remain the same for the calendar quarter beginning Oct. 1, 2020. The rates will be:
The IRS has updated the list of countie in Iowa where individuals and businesses may qualify for tax relief as a result the August 10 derecho. The counties that now qualify include Benton, Boone, Cedar, Jasper, Linn, Marshall, Polk, Poweshiek, Scott, Story, and Tama. For additional details go to Tax Relief for Iowa Derecho Victims.
Any cancellation of indebtedness generally gives rise to ordinary income. There are a number of exceptions to the general rule, one of them being debt secured by a principal residence. That was one of the issues in Mark Weiderman and Jennifer Weiderman (T.C. Memo. 2020-109). The Court noted that qualified principal residence indebtedness is debt used to acquire or improve the qualified residence and is secured by that residence. In this case the taxpayer's company loaned them the funds to purchase the residence but the loan was not secured by the property. The Court went on to note that secured debt is any debt that is on the security of any instrument (such as a mortgage, deed of trust, or land contract) that makes the debtor's interest in the qualified residence specific security for the payment of the debt (1) under which, in the event of default, the residence could be subjected to the same priority as a mortgage or deed of trust in the jurisdiction in which the property is situated and (2) is recorded or otherwise perfected in accordance with the applicable State law. That wasn't the case here and the taxpayers could not avoid cancellation of indebtedness income on the forgiveness of the loan.
Tip of the DayFiling an amended return? . . . As we've reported, you can now file Form 1040-X (to amend your individual Federal income tax return) electronically. A number of states also allow electronic filing. The IRS advises if you're expecting a refund, don't file an amended return for 2019 until you receive the refund. Taxpayers can track the status of their amended tax return in English and Spanish using Where's My Amended Return? Amended returns take up to 16 weeks to process and up to three weeks from the date of mailing to show up in the system. And keep in mind that if you filed a paper return, processing is delayed because of COVID-19>
September 3, 2020
NewsThe IRS has again updated the list of parishes in Louisiana that qualify for tax relief as a result of Hurricane Laura. The added parishes are Grant, Jackson, Lincoln, Natchitoches, Rapides, Sabine, and Winn. Go to IRS Announces Tax Relief for Hurrican Laura Victims.
The IRS announced (IR-2020-199) the launch of the Bi-Partisan Budget Act (BBA) Centralized Partnership Audit Regime webpage. The Centralized Partnership Audit Regime replaces the Tax Equity and Fiscal Responsibility Act (TEFRA) and the electing large partnership rules. The centralized partnership audit regime, or BBA, is generally effective for tax years beginning January 2018. Under the BBA, the IRS generally assesses and collects any understatement of tax (called an imputed underpayment) at the partnership level. A partnership is subject to BBA unless it is an eligible partnership and makes an annual election out of BBA on a timely filed Form 1065. An eligible partnership is one with 100 or fewer partners, all of whom are either individuals, C corporations, foreign entities that would be treated as a C corporation if it were domestic, S corporations or estates of deceased partners. The new webpage is intended to be a one-stop location for anything BBA-related.
You can't deduct a loss on the sale of your principal residence. But you can deduct a loss on the sale of a rental property. The rules get more complicated if you convert a residence into a rental property. That's exactly what the taxpayers did in Edward J. Duffy and Shannon L. Duffy (T.C. Memo. 2020-108). In this case the property hadn't been used as a principal residence, but a vacation property. The property was sold and a bank that held debt secured by the property agreed to accept an amount of the sale proceeds less than the balance in full satisfaction of the debt. The Court first held that because the taxpayers' debt to the bank was nonrecourse, the discharge of the indebtedness was included in their amount realized on the sale of the property and did not give rise to cancellation of indebtedness income. The taxpayers claimed a loss on the sale of the vacation home. The general rule is that the allowable loss is the amount of the property's adjusted basis over the amount realized from the sale. But because the property was converted from personal use the property's adjusted basis upon conversion can't exceed its fair market value. (For example, if the home was purchased for $500,000 and the fair market value on conversion was $450,000, the loss calculation would be based on $450,000.) The Tax Court disallowed any loss on the sale because the taxpayers failed to show their basis in the property at the time of conversion. (In this case they should have not only their cost basis in the property, but also proof of the fair market value at the time of conversion.)
Tip of the DaySales tax on promotional items . . . It's not unusual for a company to purchase promotional items that are given away to customers or prospective customers. Some companies have considered these items as purchases for resale and therefore excluded from sales tax. In most states that's not true. Even though they may be given away, they are, in fact, purchased for use by the company and subject to sales tax.
September 2, 2020
NewsThe IRS has already updated the list of parishes in Louisiana that qualify for tax relief as a result of Hurricane Laura. Now individuals and households who reside or have a business in Acadia, Allen, Beauregard, Calcasieu, Cameron, Jefferson Davis, Ouachita, Vermillion and Vernon parishes qualify for relief. Go to IRS Announces Tax Relief for Hurrican Laura Victims.
Notice 2020-69 (IRB 2020-39) announces that the IRS intends to issue regulations addressing the application of Secs. 951 and 951A of the Code to certain S corporations with accumulated earnings and profits. For those S corporations electing this treatment, global intangible low-taxed income (GILTI) inclusions would create AAA. This notice also announces that the IRS intends to issue regulations addressing the treatment of qualified improvement property (QIP) under the alternative depreciation system (ADS) of Sec. 168(g) for purposes of calculating qualified business asset investment (QBAI) for purposes of the foreign-derived intangible income (FDII) and GILTI provisions. These rules when issued would implement recent clarifications enacted as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). All of these provisions were originally part of the 2017 Tax Cuts and Jobs Act (TCJA).
As part of a continuing effort to combat abusive transactions, the IRS announced IR-2020-196 the completion of the first settlement under its initiative to resolve certain docketed cases involving syndicated conservation easement transactions. On June 25, 2020, the IRS Office of Chief Counsel announced that it would offer to settle certain cases involving abusive syndicated conservation easement transactions. Since then, Chief Counsel has sent letters to dozens of partnerships involved in these transactions whose cases are pending before the U.S. Tax Court. The settlement requires a concession of the tax benefits claimed by the taxpayers and imposes penalties:
Tip of the DayPresident Trump extends moratorium on evictions . . . If you're a landlord with a residential rental property that may not be good news. You could be looking at an occupied property while getting no rent. But the problem could be even bigger if you own commercial property. In that case the decisions are even harder. Kick out a tenant who's not paying or not paying full rent? That could leave you with an unoccupied space. And some rent is better than no rent. Plus, a building with high vacancy is unlikely to prove attractive to prospective tenants. You've got to determine if the tenant will survive and generate enough revenue to pay the full rent and make up for past shortfalls. You may need some professional guidance here. The first step might be financial information from your tenants along with a frank discussion.
September 1, 2020
NewsVictims of Hurricane Laura that began August 22 now have until December 31, 2020, to file various individual and business tax returns and make tax payments, the IRS announced. The relief applies to any area designated by the FEMA as qualifying for individual assistance. Currently this includes Allen, Beauregard, Calcasieu, Cameron, Jefferson Davis and Vernon parishes in Louisiana, but taxpayers in localities added later to the disaster area will automatically receive the same filing and payment relief. The current list of eligible localities is always available on the disaster relief page on IRS.gov. The tax relief postpones various tax filing and payment deadlines that occurred starting on August 22, 2020. As a result, affected individuals and businesses will have until December 31, 2020, to file returns and pay any taxes that were originally due during this period. This means individuals who had a valid extension to file their 2019 return due to run out on Oct. 15, 2020, will now have until December 31, 2020, to file. The IRS noted, however, that because tax payments related to these 2019 returns were due on July 15, 2020, those payments are not eligible for this relief. The Dec. 31, 2020 deadline also applies to quarterly estimated income tax payments due on September 15, 2020, and the quarterly payroll and excise tax returns normally due on November 2, 2020. It also applies to tax-exempt organizations, operating on a calendar-year basis, that had a valid extension due to run out on November 16, 2020. Businesses with extensions also have the additional time including, among others, calendar-year corporations whose 2019 extensions run out on October 15, 2020. For more information go to IRS Provides Tax Relief for Victims of Hurrican Laura.
Three key operational systems, Modernized eFile (MEF), eServices, and Filing Information Returns Electronically (FIRE), will be temporarily unavailable over the Labor Day weekend while the IRS conducts routine maintenance. Specifically:
The IRS has updated Publication 1345, Handbook for Authorized IRS e-file Providers of Individual Income Tax Returns. Publication 1345 provides important information for Tax Professionals and Authorized IRS e-file Providers regarding applying and participating in IRS e-file.
Tip of the DayFailure rate for start-up businesses . . . There's no question that it's much higher than for established entities, but there are often good reasons for that. For one, companies that have been in business for some time have ironed out the kinks and know the pitfalls. A second reason is that most start-ups tend to be undercapitalized and run through their start-up money before reaching profitability. Many startups underestimate the capital needed and the time to achieve positive cash flow. The failure rate varies among types of businesses. Restaurants and other food service establishments require sufficient capital and take more management skills that many other small businesses. It doesn't help that they can be very sensitive to location, quality of product and service, etc. Whatever business you go into, get good advice up front. A CPA who's familiar with the industry can be a big help.
August 31, 2020
NewsThe IRS has sent letters to Enrolled Agents (EAs) whose enrollment status was terminated or inactivated because of failure to renew. Due to the COVID-19 pandemic, mailing of the Termination and Inactive letters was delayed; however, the EA’s enrollment status was changed in late July. EAs with SSNs ending in 4, 5, or 6, who have not renewed for the 2017 and 2020 cycles will have their enrollment placed in terminated status. Anyone in terminated status must re-take the SEE to apply for re-enrollment. EAs with SSNs ending in 4, 5, or 6, who did not renew for the 2020 cycle will have their enrollment placed in inactive status. Anyone in inactive status can still submit a late renewal for approval; with proof of continuing education. EAs with questions about their enrollment status should contact the Office of Enrollment.
To protect the health of taxpayers and tax professionals, the IRS announced (IR-2020-194) it will temporarily allow the use of digital signatures on certain forms that cannot be filed electronically.
The change will help to reduce in-person contact and lessen the risk to taxpayers and tax professionals during the COVID-19 pandemic, allowing both groups to work remotely to timely file forms. The list of forms below is available at IRS.gov and through tax professional's software products. These forms cannot be e-filed and generally are printed and mailed. The IRS will not specify which digital signature product tax professionals must use. There are several commercial products available. The following forms can be submitted with digital signatures if mailed by or on Dec. 31, 2020:
The IRS will closely monitor this temporary option for e-signatures and determine if additional steps are needed.
Tip of the DayHobby profits . . . If an activity is a hobby rather than a business you can't deduct the losses. In prior years you could deduct some losses as a miscellaneous itemized expense subject to the two-percent floor, but for the years 2018 through 2025. But you still have to report any income from the activity.
August 28, 2020
NewsThe IRS has issued final regulations (T.D. 9909) under Sections 245A and 954 of the Code that limit the deduction for certain dividends received by United States persons from foreign corporations under Section 245A and the exception to subpart F income under Section 954(c)(6) for certain dividends received by controlled foreign corporations. This document also contains final regulations under Section 6038 of the Code regarding information reporting to facilitate administration of the final regulations. The guidance relates to changes made to the applicable law by the Tax Cuts and Jobs Act. This document finalizes proposed regulations published on June 18, 2019, and removes temporary regulations published on the same date. See also proposed regulations REG-124737-19.
You may be able to deal with an outstanding tax liability by getting an offer-in-compromise or installment agreement. But a settlement officer (SO) will review your financial information to see what you can pay. Just because you have no cash in the bank doesn't mean you're a candidate for relief. In Norris A. Dodson and Helen M. Dodson (T.C. Memo. 2020-106) the taxpayers requested an installment agreement to pay in excess of $150,000 in outstanding taxes. The SO reviewed the taxpayers' financials and denied the installment agreement request, finding they had enough equity in their home to borrow against it and pay the liability in full. The Court held the SO did not abuse her discretion.
Tip of the DaySEC easing definition of accredit investor . . . Only accredited investors can invest in certain holding and the SEC is looking to loosen that definition. But just because you can, should you? Yes, you often can get a higher return than on more conventional investments, but you do so by taking higher risks. And the risks are often much more than just investing in a long-shot or volatile stock. Moreover, it may be hard to get your money out if you need it quickly. Do your research carefully before investing.
August 27, 2020
NewsThe IRS has updated the announcements related to the disaster relief for victims of California wildfires and for the August 10 derecho that impacted residents and businesses in Iowa.
The IRS has announced it will conduct its annual Labor Day power outage beginning Saturday, September 5, 2020, starting at 7:00 p.m. Eastern and ending Tuesday, September 8, 2020, at 7:00 a.m. Eastern. The MeF Production and Assurance Testing System (ATS) environments will be unavailable during this timeframe.
Distributions from an IRA or qualified plan before age 59-1/2 are subject to a 10 percent penalty unless the distributions qualifies for an exception. One of those exceptions is use of the funds for qualified higher education expenses. In Tamecca Seril, a.k.a. Tamecca Tillard (T.C. Memo. 2020-101) the taxpayer withdrew a significant amount from an IRA for her son's tuition and living expenses. She reported the entire distribution on the tax return but showed only a portion of it as being taxable. She reported a portion of the taxable amount as being subject to the 10 percent penalty tax. The Court found that she was able a portion of the distribution qualified for the higher education expense exception from the penalty because that amount was paid directly to the college. She could not show that the remaining amount of the distribution claimed for education was used for that purpose. The Court found her not liable for the accuracy-related penalty because she attempted to correctly report her tax liability and she was going through a divorce and involved in litigation at the time.
Tip of the DayToo generous exit agreements . . . In volatile industries it's not unusual for a valued job candidate to ask for a large severance package should he be let go. But it's also not unusual for the employer to provide a generous payout in its desire to secure the candidate and envision the company will never have to make good on the agreement. But a loosely drafted agreement can result in payouts even if the employee is fired for cause. It's happened more often than you'd think. Make sure the company is protected against an employee who works to get fired to collect. And make sure the payout isn't excessive compared to the employee's value to the business.
August 26, 2020
NewsNotice 2020-54 provides guidance to employers on the requirement to report the amount of qualified sick leave wages and qualified family leave wages paid to employees under the Families First Coronavirus Response. Employers are required to report these amounts either on Form W-2, Box 14, or on a separate statement. This required reporting provides employees who are also self-employed with information necessary for properly claiming qualified sick leave equivalent or qualified family leave equivalent credits under the Families First Act.
The IRS announced (IR-2020-192) will soon send catch-up Economic Impact Payment checks to about 50,000 individuals whose portion of the EIP was diverted to pay their spouse's past-due child support. These catch-up payments are due to be issued in early-to-mid-September. They will be mailed as checks to any eligible spouse who submitted Form 8379, Injured Spouse Allocation, along with their 2019 federal income tax return, or in some cases, their 2018 return. These spouses do not need to take any action to get their money. The IRS will automatically issue the portion of the EIP that was applied to the other spouse's debt.
The IRS and its partners continue their efforts against identity theft. The Form 14039-B, an identity theft affidavit for businesses and other entities, will make it easier for businesses, estates, trusts and tax-exempt organizations to report identity theft to the IRS. Submitting this form will allow the IRS to more quickly assist entities who are victims of identity theft. The form is publicly available on Identity Theft Central under the "Business" tab. This form is for entities whose names or Employer Identification Numbers (EIN) have been used to facilitate refund theft by submitting fraudulent tax returns or fraudulent Forms W-2.
Tip of the DayToo many brands? . . . Often having a number of brands or varieties for your customer to select from increases your total sales. But you can get carried away. And each version requires some expense--package design, formulation, marketing, etc. In some cases you could be spending more to differentiate a product than you're making in gross profit. That's when deleting some of those choices can increase profits. The first step is a profit analysis. Are you making money on the option or is it just taking shelf space? The second is to do a test to see if customers will switch to one of your other options or go to a competitor. Sometimes marketing an offbrand can cannibalize sales from more profitable items.
August 25, 2020
NewsThe IRS is reminding IRA owners, beneficiaries or workplace retirement plan participants who received a Required Minimum Distribution (RMD) this year that they have until Aug. 31 to rollover or repay the distribution to avoid paying taxes. The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, waives RMDs during 2020 for IRAs and retirement plans, including for beneficiaries with inherited accounts. This waiver includes RMDs for individuals who turned age 70-1/2 in 2019 and took their first RMD in 2020. Roth IRAs don't require withdrawals until after the death of the owner. Individuals who took RMDs in 2020, including those who turned 70-1/2 during 2019, have the option of returning the distribution to their account or other qualified plan. Since the RMD rule is suspended, RMDs taken in 2020 are considered eligible for rollover. Therefore, RMDs can be rolled over to another IRA, another qualified retirement plan, or returned to the original plan by Aug. 31, to avoid paying taxes on that distribution. For more information, see IR-2020-187.
Victims of the California wildfires that began Aug. 14 now have until Dec. 15, 2020 to file various individual and business tax returns and make tax payments, the Internal Revenue Service announced today. The IRS is offering this relief to any area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual assistance. Currently this includes Lake, Monterey, Napa, San Mateo, Santa Cruz, Solano, Sonoma and Yolo counties in California, but taxpayers in localities added later to the disaster area will automatically receive the same filing and payment relief. The current list of eligible localities is always available on the disaster relief page on IRS.gov. The tax relief postpones various tax filing and payment deadlines that occurred starting on Aug. 14, 2020. As a result, affected individuals and businesses will have until Dec. 15, 2020, to file returns and pay any taxes that were originally due during this period. This means individuals who had a valid extension to file their 2019 return due to run out on Oct. 15, 2020, will now have until Dec. 15, 2020, to file. The IRS noted, however, that because tax payments related to these 2019 returns were due on July 15, 2020, those payments are not eligible for this relief. The Dec. 15, 2020 deadline also applies to quarterly estimated income tax payments due on Sept. 15, 2020, and the quarterly payroll and excise tax returns normally due on Oct. 31, 2020.
The IRS has announced victims of the Aug. 10 derecho storm that affected parts of Iowa now have until Dec. 15, 2020, to file various individual and business tax returns and make tax payments. The IRS is offering this relief to any area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual assistance. Currently this includes Linn County in Iowa, but taxpayers in localities added later to the disaster area will automatically receive the same filing and payment relief. The current list of eligible localities is always available on the disaster relief page on IRS.gov. The tax relief postpones various tax filing and payment deadlines that occurred starting on Aug. 10, 2020. As a result, affected individuals and businesses will have until Dec. 15, 2020, to file returns and pay any taxes that were originally due during this period. This means individuals who had a valid extension to file their 2019 return due to run out on Oct. 15, 2020, will now have until Dec. 15, 2020, to file. The IRS noted, however, that because tax payments related to these 2019 returns were due on July 15, 2020, those payments are not eligible for this relief.
Tip of the DayHave employees working from home? . . . That doesn't mean the overtime rules don't apply. Nonexempt employees are still entitled to overtime and that can be hard to measure if they're not punching a time clock. The simpliest approach may be to not allow overtime. If you must, you should make sure it's preapproved and you have some way of monitoring it.
August 24, 2020
NewsThe IRS has updated its page on Coronavirus Tax Relief. The page discusses processing delays for paper tax returns, CAF backlog, and correspondence backlogs. The IRS noted that processing is being delayed by social distancing requirements and reduced staffing but is working through the correspondence backlog. To provide fair and equitable treatment, the IRS is providing relief from bad check penalties for dishonored checks the agency received between March 1 and July 15 due to delays in this IRS processing. However, interest and penalties may still apply. The IRS has suspended the mailing of three notices--the CP501, the CP503 and the CP504--that go to taxpayers who have a balance due on their taxes. The page contains other information relative to IRS operations.
The IRS has released draft copies of Form 1040 and Schedules 1, 2 and 3. The IRS has also released other draft forms for the individuals and almost 200 draft forms in the last two months. Go to Draft Tax Forms.
Tip of the DayCheck your withholding . . . You or your spouse (or both) may be collecting unemployment insurance or be working a gig job. If it's a gig job, you're probably paid as an independent contractor so there is no withholding. If it's unemployment insurance, more often than not withholding may be too low to cover what you'll owe. The same is true if you've taken money out of an IRA, 401(k) or similiar plan. If you've done it already, it's too late for withholding. But it all these cases you can use estimated tax payments to make up a shortfall and avoid any estimated tax penalties. If you do your return on your computer, most programs have a section where you can estimate this year's tax liability. If you have your return professionally prepared, your tax advisor can help.
August 21, 2020
NewsThe IRS is cautiously resuming compliance activity. The Service provided guidance to auditors on procedures in contacting taxpayers, limiting face-to-face contacts by using alternative methods such as phone interviews, mailing and emailing documents and records, and conducting in-person contact on a voluntary, as needed basis. The auditor is supposed to consider the taxpayer's situation with respect to the pandemic.
As an employee you can no longer deduct unreimbursed business expenses, but only if your employer has a policy of not reimbursing. But in a case involving the law before the Tax Cuts and Jobs Act of 2017 (Michael K. Simpson and Cynthia R. Simpson; T.C. Memo. 2020-100) the Court sided with the IRS in denying and allowing the taxpayers unreimbursed employee business expenses. The Court found that the husband could have sought reimbursement from his employer, but failed to do so. In the case of the wife the IRS was unable to show she could have requested reimbursement. The Court did deny some expenses for inadequate substantiation.
Tip of the DayConsidering a private mortgage? . . . Some homeowners don't go through a bank or conventional lender, but borrow from a relative or friend. The law allows that but puts requirements on the mortgage for the loan to be qualified principal residence interest and deductible on Schedule A. Two of the requirements that can be missed on a private loan is that the mortgage must be secured by the property and the mortgage must be recorded in the government records.
August 20, 2020
NewsThe IRS is reminding employers (IR-2020-186) to carefully choose their payroll service providers following continuing concerns that some disreputable organizations can fail to deposit employment taxes, leaving businesses vulnerable to unpaid bills. Though most of these businesses provide quality service, each year, a few of these third parties fail to remit the payroll taxes entrusted to them and close their doors abruptly. The damage hits their unsuspecting clients hard. Like employers who handle their own payroll duties, employers who outsource this function are in most instances still legally responsible for any and all payroll taxes due. This includes any federal income taxes withheld as well as both the employer and employee shares of Social Security and Medicare taxes. This is true even if the employer forwards tax amounts to the third party to make the required deposits or payments. One third-party arrangement that can reduce this risk is the certified professional employer organization (CPEO). Unlike other third parties, in most circumstances, the CPEO is solely liable for paying the customer's employment taxes, filing returns and making deposits and payments for the taxes reported with regard to wages and other compensation it pays to its employees.
The Appeals section of the IRS is an independent function within the IRS whose mission is to resolve disputes on a fair and impartial basis without litigation. Appeals has the authority to make the final determination on whether a taxpayer is liable (or partially liable) for a Trust Fund Recovery Penalty (TFRP). In Fiscal Year (FY) 2018, Appeals closed 1,511 protested TFRP cases. It is important that Appeals personnel apply a consistent methodology when deciding whether to sustain TFRPs to promote fair and impartial resolutions to taxpayers. In an audit the Treasury Inspector for Tax Administration (TIGTA) found that Appeals generally complied with IRS criteria when processing TFRP protests in FY 2018. However, Appeals personnel did not follow IRS criteria for 31 of 125 FY 2018 TFRP protests TIGTA sampled. To see the complete report, go to www.treasury.gov/tigta/auditreports/2020reports/202010042fr.pdf.
The IRS has reported that if a taxpayer mailed a check with or without a tax return, it may be unopened in the backlog of mail the IRS is processing due to COVID-19. Any payments will be posted as the date the IRS received them rather than the date the agency processed them. To avoid penalties and interest, taxpayers should not cancel their checks and should ensure funds continue to be available so the IRS can process them. To provide fair and equitable treatment, the IRS is providing relief from bad check penalties for dishonored checks the agency received between March 1 and July 15 due to delays in this IRS processing. However, interest and penalties may still apply.
Tip of the DayWhistleblowers and business sale . . . You might want to be careful what you tell a potential buyer for your business. It's not usual for business owner trying to sell to say "that's what I report to the IRS, but the business is much more profitable". We know of several cases where the potential buyers have turned the seller in to the IRS for the reward money. Maybe the prospective buyer was outbid, or the seller said something that annoyed him. Whatever the reason, you should keep it in mind. What if you're the buyer? You might want to do extra due diligence if you're told that. If the seller is willing to cheat the IRS, he's probably not above cheating you.
August 19, 2020
NewsThe IRS has announced (IR-2020-181) that more than 1 million Individual Taxpayer Identification Numbers are set to expire at the end of 2020 as the IRS completes the expiration of ITINs assigned prior to 2013. The IRS continues to urge affected taxpayers to submit their renewal application early to avoid refund delays next year. Taxapyers whose ITIN is expiring and who expect to have a filing requirement in 2021 must submit a renewal application. Others do not need to take any action. ITINs with the middle digits 88 (For example: 9NN-88-NNNN) or 90, 91, 92, 94, 95, 96, 97, 98 or 99 (that meet the criteria above) need to be renewed even if the taxpayer has used it in the last three years.
The IRS will begin sending interest payments to about 13.9 million individual taxpayers who timely filed their 2019 federal income tax returns and are receiving refunds. The interest payments, averaging about $18, will be made to individual taxpayers who filed a 2019 return by this year's July 15 deadline and either received a refund in the past three months or will receive a refund. Most interest payments will be issued separately from tax refunds. In most cases, taxpayers who received their refund by direct deposit will have their interest payment direct deposited in the same account. About 12 million of these payments will be direct deposited. Everyone else will receive a check. A notation on the check − saying "INT Amount" − will identify it as a refund interest payment and indicate the interest amount. By law, these interest payments are taxable and taxpayers who receive them must report the interest on the 2020 federal income tax return they file next year. In January 2021, the IRS will send a Form 1099-INT to anyone who receives interest totaling at least $10. This provision is different from the long-standing 45-day rule, generally requiring the IRS to add interest to refunds on timely-filed refund claims issued more than 45 days after the return due date. Instead, this year's COVID-19-related July 15 due date is considered a disaster-related postponement of the filing deadline. Where a disaster-related postponement exists, the IRS is required, by law, to pay interest, calculated from the original April 15 filing deadline. See IRS News Release IR-2020-183 for more information.
The IRS has released an announcement concerning IVES participants: that the Secure Object Repository (SOR) mailbox issue that impacted transcripts delivered from August 7 to August 9, including missing attachments and blank attachments, is being resolved by IT. If you encountered these issues during this timeframe, please do not resubmit any of this work. IT is in the process of resending these transcripts to the SOR and you should begin seeing these transcripts today and tomorrow. You will not be double-billed for these transcripts as they will be systemically delivered by IT. Thank you for your patience.
Tip of the DaySales debriefing . . . If your company has worked on a proposal to a major customer and lost the job or sale, you probably want to just forget the experience. That's the wrong approach. You should find out why you didn't make the cut. Was your price too high? The equipment didn't perform as well as a competitor's? Was there something wrong with the proposal content? By knowing why you lost the sale, you'll have an advantage on the next proposal, either for the same customer or another one. Sometimes the customer may tell you why you lost; more often not. If not, there may be hints. If more than one employee worked on the proposal, you may be able to arrive at a probable reason by pooling your information in a debriefing session. If you won the job or made the sale you should do the same thing. Celebrate first, then find out why. Did you have the best price? Give the customer more than your competitor? If the decision was close, you'll want to know that, and why you won. Your competitors might try to outdo you the next time. If it's because you gave away too much, you may be able to increase your price and profit the next time.
August 18, 2020
NewsThe IRS has announcefd IR-2020-182) that taxpayers can now submit Form 1040-X, Amended U.S. Individual Income Tax Return electronically with commercial tax-filing software. For the initial phase, only tax year 2019 Forms 1040 and 1040-SR returns can be ameded electronically. Additional improvements are planned for the future. Taxpayers still have the option to submit a paper version. Filing either paper or electronically, you can use Where's My Amended Return? feature at IRS.gov to check the status of the return. The IRS noted that about 3 million Forms 1050-X are filed each year.
The Coronavirus, Aid, Relief and Economic Security Act (CARES Act) allows employers to defer the deposit and payment of the employer's share of Social Security taxes and self-employed individuals to defer payment of certain self-employment taxes. The IRS has updated its FAQs on the deferral of employment tax deposits and payments through December 31, 2020. The FAWs address specific issues related to the deferral of deposit and payment of these employment taxes, as well as coordination with the credits for paid leave under the Families First Coronavirus Response Act (FFCRA) and the employee retention credit under the CARES Act.
Tip of the DayTaxes and the election . . . Who will win? A Democratic sweep of both houses and the presidency? Maybe. But the experts were wrong four years ago. I wouldn't put money on anyone at this point. But either way, look for more changes in the tax laws. But there are too many conflicting factors to even suggest a what could happen--even if the winner were known. While it's too early to take action, it's not too early to do some serious thinking on where your business is going and your personal finances. That way you'll be prepared no matter how things break in November. And you may not have much time to act in this year. November only gives you two months to make 2020 moves.
August 17, 2020
NewsIf you mailed a check with or without a tax return, it may still be unopened in the backlog of mail the IRS is processing due to COVID-19. Any payments will be posted as the date IRS received them rather than the date the agency processed them. To avoid penalties and interest, taxpayers should not cancel their checks and should ensure funds continue to be available so the IRS can process them. To provide fair and equitable treatment, the IRS is providing relief from bad check penalties for dishonored checks the agency received between March 1 and July 15 due to delays in IRS processing. However, interest and penalties may still apply. Due to high call volumes, the IRS suggests waiting to contact the agency about any unprocessed paper payments still pending. See www.irs.gov/payments for options to make payments other than by mail.
The IRS continues to look for ways to help people who were unable to provide their information in time to receive Economic Impact Payments for their children. It will reopen the registration period for federal beneficiaries who didn't receive $500 per child payments earlier this year. The IRS urges certain federal benefit recipients to use the IRS.gov Non-Filers tool starting Aug. 15 through Sept. 30 to enter information on their qualifying children to receive the supplemental $500 payments. Those eligible to provide this information include people with qualifying children who receive Social Security retirement, survivor or disability benefits, Supplemental Security Income (SSI), Railroad Retirement benefits and Veterans Affairs Compensation and Pension (C&P) benefits and did not file a tax return in 2018 or 2019. The IRS anticipates the catch-up payments, equal to $500 per eligible child, will be issued by mid-October.
Tip of the DayBreaking a contract . . . How hard is it? It can depend on the type of contract and the way it was written. For example, most agreements to buy a business specify any number of contingencies that could allow at least the buyer to have a strong position in court should he or she try to void the contract. On the other hand, that's much less true for contracts involving the purchase or lease of real property. Often, such documents use existing, time-tested language and contain few, if any, means of escape. While you should always read the contract carefully and discuss anything you don't understand with your attorney, that's especially important when it comes to real estate.
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