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June 11, 2021
NewsVictims of severe storms and flooding that began May 17, 2021 now have until August 16, 2021, to file various individual and business tax returns and make tax payments, the Internal Revenue Service announced today. Following the recent disaster declaration issued by the FEMA, the IRS announced that affected taxpayers in certainareas will receive tax relief. Individuals and households affected by severe storms and flooding that reside or have a business in Ascension, Calcasieu, East Baton Rouge, Iberville, and Lafayette Parishes qualify for tax 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 May 17, 2021, and before August 16, 2021 are postponed through August 16, 2021. This includes deadline, previously postponed until June 15, for filing 2020 individual income tax returns and paying any tax due. Taxpayers also have until August 16 to make 2020 IRA contributions. The deadline remains June 15 for the rest of Louisiana. The August 16, 2021 deadline applies to the second quarter payment normally due on June 15. Also, penalties on deposits due on or after May 17, 2021 and before June 1, 2021, will be abated as long as the tax deposits were made by June 1, 2021. For more information, go to IRS Announces Relief for Victims of Severe Storms and Flooding in Louisiana.
Look for more reporting requirements on cyrtocurrency. President Biden wants more scrutiny of taxpayers by the IRS and one of the changes mentioned by IRS Commissioner Rettig before the Senate Finance Committee recently was a $10,000 threshold reporting requirement for transfers of cryptocurrency.
Tip of the DayIs free really free? . . . You've seen the ads, sign up for service and receive a free (or discounted) phone. Or open a store credit card and get $40 off your first purchase or 5 percent off all purchases. There are a myriad of other similar deals. They sound like a good deal, but there's always a catch. That doesn't mean it's not a good deal. If you're already a regular customer and sign up for he store card you may indeed be getting something for free. But the retailer is betting you'll buy more because the card is convenient and you're getting a discount. If there's no difference in cost or quality versus another store, you do indeed have a good deal. But always look for the catch. In the free phone situation, you've got to sign up for a multi-year plan. Again nothing wrong if that's what you would have done anyway. But it may not be such a good deal if you've got to buy services you don't need. Evaluate the deal before signing.
June 10, 2021
NewsThe research and experimentation credit can produce significant tax savings, particularly under recent law changes that allow the credit to be used against employment taxes. But expenses that qualify for the credit must pass critical tests. To be qualified research, the research must relate to a new or improved function, performance, reliability, or quality of the product or process. Certain activities cannot be qualified research. Qualified research does not include research after commercial production; adaptation or duplication of an existing business component; market research, testing, or development; or routine or ordinary testing or inspection for quality control. Qualified expenditures must pass the the Section 174 test, the technological information test, the business component test, and the process of experimentation test. The Section 174 test basically is that the expenditures must represent research and development costs in the experimental or laboratory sense. Essentially, for there to be experimental expenditures, the taxpayer must show that it does not already have information that can address a capability or method for improving the product or design of the product (uncertainty exists) and its activities were meant to eliminate those uncertainties. In Leon Max (T.C. Memo. 2021-37) the taxpayer was a clothing designer that developed, produced and sold women's clothing under many different brands or lines. The Court found that the taxpayer's work in developing clothing designs did not meet the requirements of the expenditures necessary for the research credit.
Tip of the DayEmployee fraud . . . It happens, more often than you think. In larger companies you can split jobs to make it more difficult, but that's tough in a small business. Your bookkeeper may be handling accounts payable as well as receivable. There are still steps you can take. If there are company credit cards in use, keep the limit on the cards as small as possible. Make sure someone other than the person making out the checks sign them--and that the signer reviews the check and there's documentation to back up the amount. That's certainly not foolproof, but it may prevent checks written to an unknown vendor or multiple checks written to a vendor in one month. Have someone, other than the person handling accounts receivable, open the mail, run a tape on the checks, and make out the deposit ticket. Talk to your accountant. He or she is sure to have a number of suggestions that should be reasonably easy to implement.
June 9, 2021
NewsYou can take a deduction for a net operating loss (NOL), but the year you use the loss to offset income you may have to prove the amount of the NOL. In Linda J. Martin and John A. Martin (T.C. Memo. 2021-35) the IRS disallowed the taxpayers' NOL. The taxpayer bears the burden of providing the amount of any NOL and the amount that's utilized each year or carried forward. The Court held that the fact that the IRS audited prior returns and the NOLs were not challenged doesn't mean they are valid.
You've heard the ads on TV--settle your tax debt for pennies on the dollar. It's not that easy. In Thomas L. Siebert and Beborah S. Siebert (T.C. Memo. 2021-34) the taxpayers received a Notice CP90, Notice of Intent to Seize Your Assets and Notice of Your Right to a Hearing. The taxpayers sought a collection due process (CDP) hearing and wished to pursue collection alternatives--an offer-in-compromise, an installment agreement or currently not collectible status. The taxpayers presented the IRS with financial information on form 433-A. The IRS offer specialist used an average of the taxpayers' income from the latest three years of returns and arrived at a much higher income. The revenue officer found their necessary monthly living expenses less than the amount they claimed. The officer also determined the net realizable equity in artwork and vehicles. The officer also noted the taxpayers failed to comply with an earlier installment agreement, that they did not use the proceeds from the sale of a partnership to pay down their tax liability, that part of the husband's Social Security check could be used to pay the outstanding liability and that the proceeds from a dissolved 401(k) account were not applied to their tax liability. The officer found the taxpayers did not properly document the use of the proceeds from the 401(k) or the partnership sale to pay living expenses. The officer noted the payment of claimed debts was not proper because they did not have priority of the federal tax liability. The IRS also noted the taxpayers "an egregious history of noncompliance" spanning 15 years. The officer also found that despite the taxpayers' claim of reduced earning potential was inaccurate. The Court noted that the IRS does not abuse its discretion if it follows the IRM (Internal Revenue Manual). The Court found no abuse of discretion sustaining the proposed levy to collect the taxes.
Tip of the DayOffer discount for early payment . . . There's nothing new here. Offering customers a discount for early payment has been around for a very long time. But the calculus has changed. Many businesses are paying slower to conserve cash or for other reasons. But your business needs the cash too. With interest rates low a relatively small discount may encourage a customer to pay early. Of course from the vendor's standpoint even that small discount is more expensive than when rates are high. But for small businesses getting cash quicker is usually preferable to a high interest business loan. Run the numbers with your accountant.
June 8, 2021
NewsThe IRS has started sending letters to more than 36 million American families who, based on tax returns filed with the agency, may be eligible to receive monthly Child Tax Credit payments starting in July. The expanded and newly-advanceable Child Tax Credit was authorized by the American Rescue Plan Act, enacted in March. The letters are going to families who may be eligible based on information they included in either their 2019 or 2020 federal income tax return or who used the Non-Filers tool on IRS.gov last year to register for an Economic Impact Payment. Families who are eligible for advance Child Tax Credit payments will receive a second, personalized letter listing an estimate of their monthly payment, which begins July 15. Most families do not need to take any action to get their payment. Normally, the IRS will calculate the payment amount based on the 2020 tax return. If that return is not available, either because it has not yet been filed or it has not yet been processed, the IRS will instead determine the payment amount using the 2019 return. Eligible families will begin receiving advance payments, either by direct deposit or check. The payment will be up to $300 per month for each qualifying child under age 6 and up to $250 per month for each qualifying child ages 6 to 17.The IRS will issue advance Child Tax Credit payments on July 15, August 13, September 15, October 15, November 15 and December 15. If you have not filed your 2020 reurn yet, you should do so as soon as possible. For additional information go to IR-2021-124.
Tip of the DayEnhanced non-compete agreement . . . It's not unusual for an employer to make an employee sign a noncompete agreement, but it's usually focused on restricting the employee from starting a or working for a business after leaving your employ. But you may want to go further and restrict an employee from doing any outside work, even in another field. What' the purpose? Some employer don't want a highly paid worker dividing his time. That can be particularly important now when many employees are working outside the office. In the case of technical workers such as programmers, engineers, etc. you may want to make sure they aren't going to leak any information on products or processes. You may want to include a clause that allows some exceptions, but only if approved by HR. Discuss the issue with your attorney.
June 7, 2021
NewsThe IRS has added Anderson, Fayette, Jessamine, Laurel, Madison, Warren and Woodford counties to the list of counties in Kentucky where victims of severe storms, flooding, landslides and mudslides that began February 27, 2021 can get tax relief. Now individuals and households affected by severe storms, flooding, landslides and mudslides that reside or have a business in Anderson, Bell, Boyd, Breathitt, Calloway, Carter, Casey, Clark, Clay, Cumberland, Edmonson, Elliott, Estill, Fayette, Floyd, Franklin, Graves, Greenup, Harlan, Jackson, Jessamine, Johnson, Knott, Knox, Lawrence, Laurel, Lee, Leslie, Letcher, Lincoln, Madison, Magoffin, Marion, Martin, Mason, Menifee, Morgan, Ohio, Owsley, Perry, Pike, Powell, Pulaski, Rockcastle, Union, Warren, Whitley, Wolfe, and Woodford counties qualify for tax 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 February 27, 2021, and before June 30, 2021 are postponed through June 30, 2021. This includes the May 17 deadline for filing 2020 individual income tax returns and paying any tax due. Taxpayers also have until June 30 to make 2020 IRA contributions. For additional information go to IRS Announces Tax Relief for Kentucky Victims.
The IRS is sending more than 2.8 million refunds this week to taxpayers who paid taxes on unemployment compensation that new legislation now excludes as income. IRS efforts to correct unemployment compensation overpayments will help most affected taxpayers avoid filing an amended tax return. So far, the IRS has identified 13 million taxpayers that may be eligible for the adjustment. Some will receive refunds, which will be issued periodically, and some will have the overpayment applied to taxes due or other debts. For some there will be no change. The American Rescue Plan Act of 2021 (ARPA) excluded up to $10,200 in unemployment compensation per taxpayer paid in 2020. The $10,200 is the maximum amount that can be excluded when calculating taxable income; it is not the amount of refunds. The IRS is reviewing tax returns filed prior to the enactment of ARPA to identify the excludible unemployment compensation. The IRS also is making corrections for the Earned Income Tax Credit, Premium Tax Credit and Recovery Rebate Credit affected by the exclusion. The IRS plans to issue the next set of refunds in mid-June. The review of returns and processing corrections will continue during the summer as the IRS continues to review the simplest returns and then turns to more complex returns. Taxpayers will receive letters from the IRS, generally within 30 days of the adjustment, informing them of what kind of adjustment was made (such as refund, payment of IRS debt payment or payment offset for other authorized debts) and the amount of the adjustment.
Tip of the DaySaving it for your kids? . . . We're not talking about stocks, but other, less saleable assets. You may have a collection of vintage autos, but do your children know anything about them? Many people have collected more exotic assets such as comic books, movie memorabilia, antiques, or art from yet unrecognized artists. You may be leaving them items in which they have little interest, or, in some cases little knowledge. We know of several individuals who have an uncataloged collection of electronics and tools which only experts and contemporaries may recognize. These assets may be difficult to value in an estate and your children may not be able to realize their true value when they sell them. Even rental properties can fall in this category. You've done well renting single or two-family houses. But while it may have been easy for you and your spouse, your children have no experience or live in another part of the country or maybe are busy with their own businesses. You've got to weigh the tax consequences (if any) against the potential losses the children may incur in managing or selling your properties. You might also consider educating them on the potential value of the items.
June 4, 2021
NewsCancellation of debt results in income. For example, your bank forgives $10,000 of the $12,500 balance on your credit card. That cancellation of debt will be reported to the IRS as income. And normally it's fully taxable. But there are a number of exceptions. One of them is insolvency. You are considered insolvent if your liabilities exceed the fair market value of your assets. In Lateesa Ward (T.C. Memo. 2021-32) the taxpayer claimed that exemption applied. The audit was triggered by a mismatch between the W-2 the taxpayer's S corporation submitted and the wages shown on the S corporation and wages shown on the taxpayer's Form 1040. The Tax Court noted that the taxpayer has the burden to show he or she is insolvent when the debts were discharged. The Court found the taxpayer presented insufficient proof of the insolvency. There was no mortgage statement, statement of account showing debt to the IRS, or supporting information on her student loan debt. The Court held that she failed to show she was insolvent at the time of discharge.
Not surprisingly, the IRS doesn't like frivolous returns and there's a penalty for filing one. And the frivolous return penalty can be filed against each filer of a joint return. What's a frivolous return? They're usually easy to spot. In Sheila Ann Smith (T.C. Memo. 2021-29) the taxpayer filed returns showing zero income despite income from several employers. In addition, the taxpayer claimed refunds for withheld income tax, Social Security tax and Medicare tax. The taxpayer was warned that if no correction was made a penalty would be imposed under Sec. 6702. The taxpayer took no action and some three months later the IRS assessed a penalty of $5,000. The IRS subsequently assessed additional penalties for the same reason for other years. When the penalties were not paid the IRS filed a NFTL (Notice of Federal Tax Lien). The taxpayer petitioned the Tax Court to have the NFTL withdrawn and the penalties abated. The Court found the penalties valid, except with respect to a Form 1040 marked as "copy" which the Court found to not be a valid return. The Court also added it's own frivolous position penalty in the amount of $2,500.
Tip of the DayStarting a business? . . . Strangely, this may be a good time to do so. But it depends on what business you're going into. There is pent-up demand for goods and services. Meanwhile some providers did not survive the pandemic. But the road to riches may not be paved with gold. Some of that pent-up demand may be just that. The house makeovers may return to normal after the demand has been satisfied in the next few years. Worse, there may be an over correction. Some activities will return to normal even quicker. Summer resorts will be packed this year, but may be back to normal next year. Forecasting sales in less than normal times is particularly difficult. Make sure demand for your product or service will survive the recovery. And get some good, independent advice before committing too heavily.
June 3, 2021
NewsThe IRS is reminding taxpayers living and working outside of the United States that they must file their 2020 federal income tax return by Tuesday, June 15. This deadline applies to both U.S. citizens and resident aliens abroad, including those with dual citizenship. Taxpayers with foreign bank accounts need to complete and attach Schedule B to their tax return. Part III of Schedule B asks about the existence of foreign accounts, such as bank and securities accounts, and usually requires U.S. citizens to report the country in which each account is located.In addition, certain taxpayers may also have to complete and attach to their return Form 8938, Statement of Foreign Financial Assets. Generally, U.S. citizens, resident aliens and certain nonresident aliens must report specified foreign financial assets on this form if the aggregate value of those assets exceeds certain thresholds. See the instructions for this form for details. Separate from reporting specified foreign financial assets on their tax return, taxpayers with an interest in, or signature or other authority over foreign financial accounts whose aggregate value exceeded $10,000 at any time during 2020, must file electronically with the Treasury Department a Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). Because of this threshold, the IRS encourages taxpayers with foreign assets, even relatively small ones, to check if this filing requirement applies to them. The form is only available through the BSA E-filing System website. The deadline for filing the annual Report of Foreign Bank and Financial Accounts (FBAR) was April 15, 2021, but FinCEN is granting filers who missed the original deadline an automatic extension until October 15, 2021, to file the FBAR. There is no need to request this extension.
You can only take business expense deductions if you have a real business. In Clarence J. Mathews (T.C. Memo. 2021-28) the taxpayer was employed at a trucking company. His tax return also contained a Schedule C showing he was a minister with szome $11,000 of income and $31,000 of expenses for car and truck, repairs and maintenance, meals, and other expenses. The largest, by far, share of the expenses related to the vehicle. The IRS disallowed all the expenses but did have the income and was liable for the self-employment tax. After the finding of deficiency by the IRS the taxpayer filed an amended return claiming the expenses should have been recorded on Form 2106, Employee Business Expenses and that there was no income as a minister. The Tax Court sided with the IRS in disallowing the expenses due to lack of substantiation and that the vehicle expenses were for commuting. The Court did not sustain the IRS's finding of income or self-employment tax.
Tip of the DayBlame your lawyer . . . Or your accountant. Or any convenient outside professional. You negotiating a deal with a vendor, customer, negotiating a contract with an employee, selling or buying an asset, etc. You want to take a position that is likely to put the other party off. Tell them "I don't want to do this, but my lawyer (or accountant, or . . ) says I have to because . . ." You look like the good guy and your attorney looks like the bad guy. But that's what people expect. It's also a good way to delay finalizing an agreement ("my accountant says he wants to check . . . "). Just make sure your accountant, attorney, etc. knows what you're doing.
June 2, 2021
NewsAunt Florence recently passed away leaving you with a bunch of old furniture, clothes, and household items. While the items are in good condition, you have no use for them and no time to sell them. The logical approach is to give them to charity to claim a tax deduction. That's what the taxpayer was advised to do in Luke Joseph Chiarelli (T.C. Memo. 2021-27) and claimed noncash charitable contribution deductions of some $89,000, $93,000 and $77,000 for the three years at issue. If the value of similar property donated in any one year exceeds $5,000 a qualified appraisal is required. For example, a the claimed donation for various items of furniture totals more than $5,000 for the year, the appraisal requirement applies. In addition, on Form 8283 you need to provide a brief description of the property, the date of the contribution(s) the condition, the appraised fair market value, the manner of acquisition, your basis in the property, and how the property was valued. In addition, the form has to be signed by the appraise and the appraiser has to provide information on his qualifications. The donee organization also has to sign the form as well as the taxpayer as well as provide information about the organization. For one of the years some of the donations were listed as "large bags of clothes". The Court found the taxpayer failed to comply, either strictly or substantially, with the regulatory reporting requirements for noncash charitable contributions. The Court found the taxpayer also liable for the accuracy-related penalty.
Tip of the DayUsing the right amount of risk . . . Often we lose sight of the risk we should be taking in our investments. It's not unusual to find older individuals heavily invested in stocks; younger ones in bonds. Part of determining the right level of risk is an individual's risk tolerance. A second part involves other investments and overall finances and life situation. Fred's 70 and still has his entire portfolio of personal and retirement funds in stocks. But he also has several rental properties that are cash cows. He lives modestly and his only child is well off on her own. Nothing wrong with Fred's choice, if he understands the risk. Sue is 35 has a secure job and isn't married. She has 75% of her funds in low risk investments, largely because she told her broker she was risk adverse. Truth was, she wasn't that risk adverse. Putting more money in stocks now will pay off later. And should the market go down, there's plently of time to recover. Much the same applies to business decisions.
June 1, 2021
News<>b>A charitable contribution of property can be a win-win. You get a tax deduction and dispose of possibly unwanted property. But once the contribution exceeds $500 special rules apply. The next threshold is $5,000. For contributions over $5,000 you must have a qualified appraisal and attach a summary to the return. The third threshold is $500,000, when that amount is exceeded you must attach the full appraisal. In Duane Pankratz (T.C. Memo. 2021-26) some of the properties contributed exceeded the third threshold. In the case of one donation the taxpayer failed to get a professional appraisal. In the case of a second property the taxpayer contacted an appraiser who felt unqualified to value the complex property. In the end the taxpayer just used his cost (the building was recently purchased). While an appraisal is critical to sustaining a deduction, there is an escape clause if the taxpayer can show that failure to attach the appraisal was due to reasonable cause and not willful neglect. The taxpayer claimed reliance on the advice of a tax professional. But that requires a three-part test (1) the professional must be competent, (2) the taxpayer must provide the professional with necessary and accurate information, and (3) the taxpayer must show he actually relied in good faith on that advice. The Court found that the tax professional was not a CPA or even a regular preparer. The return reviewer (not the preparer) never told the taxpayer an appraisal was needed, but did tell the preparer. But the issue the Court focused on was that the taxpayer never reviewed the return. The Court noted that had the taxpayer simply looked at Form 8283 (for noncash contributions) he would have realized an appraisal was necessary. The Court denied the deduction for the contributions and that the penalities were applicable.
Tip of the DayFranchise vs. franchise . . . While a good franchise can be a path to a good living, not all franchises are worth it. Be particularly careful if the entry fee is low. We know of one franchise where the purchase price is only $5,000. But you're not guaranteed a territory. And the franchisor is entitled to far more of your gross receipts than other, similar franchises. While you're saving up front your earnings will be less and, with little or no guaranteed territory, your risk is high. The terms could also make it difficult to sell even if you've built up a substantial following. You're often making a big commitment. On the other hand, some franchises are overpriced. Remember, if you've decided to go the franchise route, you've probably done so because you want support from the franchisor in startng and operating the business. There's a good chance you're investing more than what you paid for your house, and the downside in that purchase is generally small. Get good advice before signing.
May 28, 2021
NewsRevenue Ruling 2021-10 (IRB 2021-25) announced that interest rates will remain the same for the calendar quarter beginning July 1, 2021 the rates will be:
The IRS announced that victims of severe storms and flooding in West Virginia that began February 27, 2021 now have until June 30, 2021, to file various individual and business tax returns and make tax payments. Following the recent disaster declaration issued by the Federal Emergency Management Agency, the IRS announced today that affected taxpayers in certain areas will receive tax relief. Individuals and households affected by severe storms, straight-line winds, tornadoes, and flooding that reside or have a business in Boone, Cabell, Kanawha, Lincoln, Logan, Mingo, and Wayne counties qualify for tax 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 February 27, 2021, and before June 30, 2021 are postponed through June 30, 2021. This includes the May 17 deadline for filing 2020 individual income tax returns and paying any tax due. Taxpayers also have until June 30 to make 2020 IRA contributions. The June 30, 2021 deadline applies to the first quarter estimated tax payment, normally due on April 15, and the second quarter payment normally due on June 15. It also applies to the quarterly payroll and excise tax returns normally due on April 30, 2021. In addition, it applies to tax-exempt organizations, operating on a calendar-year basis, that have a 2020 return due on May 17, 2021. Also, penalties on deposits due on or after February 27, 2021 and before March 15, 2021, will be abated as long as the tax deposits were made by March 15, 2021.
Tip of the DayCheap rent? . . . No denying there are bargins to be had, but often you get what you pay for. When it comes to rent for office, retail, or providing a service, make sure the space matches your needs. The big, first question is, do you need the exposure? If you're repairing cell phones you want maximum exposure. If you're repairing hydraulic units for construction equipment, tractors, customers will find you. In the latter case a shop in the low-rent district that hasn't been updated since the 70's will do just fine. Meeting customers or just need a place for your staff to work? Makes a difference in your requirements. And whether your business is urban or suburban or rural makes a difference. If your business grew up in a big city, moving 5 miles out of town and you may lose customers. If you started in a surburban environment moving out of town to a cheaper location may have little effect on the business. Of course, that depends on the type of business.
May 27, 2021
NewsIf you're not engaged in an activity with a profit motive, you can't deduct the losses. The losses from those activities are often called "hobby losses". And you can't bury them in a profitable activity. In Joseph A. Gallegos and Joy K. Gallegos (T.C. Memo. 2021-25) the taxpayer had a very profitable business and began reporting losses from his team roping (a rodeo sport) on the same Schedule C. While the taxpayer had gross receipts each of the years at issue, he incurred losses of just over $50,000 for each of the three years. His entry fees in the contests accounted for the bulk of the losses. The Tax Court examined the nine factors usually reviewed in determining whether or not the taxpayer had a profit motiv. The Court found all but one factor favored the IRS and the factor that wasn't in the IRS's favor the Court considered neutral. The Court denied the losses.
Tip of the DayEmployee discounts . . . They're generally a good idea. They improve morale and often can be less expensive than provide a like amount of additional salary. And who doesn't like to get something at a discount? The IRS has their eye on discounts. Done the wrong way, at least part of the discount could be additional income to the employee. In the case of property, the discount can't exceed the gross profit percentage of the price at which the property is offered to customers. In the case of services, the discount can't exceed 20% of the price at which the services are offered to customers. Discounts in excess of this amount taxable income to the employee. For example, Andersen Marine will haul a boat out of the water, wash the bottom, put it on a cradle and shrinkwrap it for the winter for $40 a foot. Fred, an employee, has Andersen perform the services on his 35 foot boat. The charge would normally be $1,400, but Andersen charges Fred only $1,000. With a 20% discount his cost would be $1,120. The extra $120 of discount is taxable income to Fred and has to be included on his W-2. The rules can quickly become involved because of the different situations that can be encountered. However, a short talk with your tax adviser and you should be able to devise some guidelines that keep it simple.
May 26, 2021
NewsThe SBAannounced that it is accepting applications for its new Community Navigator Pilot Program. This new initiative, established by the American Rescue Plan, will leverage a community navigator approach to reach our nation's smallest businesses, with a priority focus on those owned by socially and economically disadvantaged individuals, as well as women and veterans. SBA will accept applications through July 12, 2021, and anticipates making award decisions by August 2021. The Biden-Harris Administration has made delivering equitable relief to hard-hit small businesses a top priority and will continue to take steps to ensure equitable distribution of relief.
The IRS continues to experience processing delays on a number of fronts. The IRS has made significant progress in processing Form 941s and 941-X. However, the Service cannot provide a timeframe for processing Forms 1139 and 1045. The Service asks taxpayers to consider the significant additional approval time and plan for it and not submit duplicate claims. Duplicate filings will only cause more delays.
Tip of the DayBounced a check? . . . There can be a number of consequences including fees by your bank and the party you gave the check to. If it's a business-to-business transaction the counterparty could have sanctions in any agreement you have with them. It's not unusual for suppliers to put the maker of a bounced check on a cash basis. A bounced check can affect your credit rating. A history or pattern of bounced checks can be grounds for civil or criminal charges. You should know what's in your checking account and what's still in limbo. Many small business owners write the checks for the business. If you're not keeping a running balance in the check register and reconciling at the end of the month, you should do so. Check your account on line regularly to make sure a customer's check hasn't bounced and left you short or your account has less than it should for any reason. If you do write a check without sufficient funds by accident, tell the recipient and the bank (before it hits if possible). Cover the amount as soon as you can. If you have a good track record the bank my waive any fees. If you can, get an overdraft account for backup. Then try not to use it.
May 25, 2021
NewsMany credit cards provide cash rewards for purchases put on the cards. If the purchases on the card are goods or services, the cash rewards are rebates. But in Konstantin Anikeev and Nadezhda Anikeev (T.C. Memo. 2021-23) the taxpayers used two credit cards to purchase gift cards, debit cards and money orders to generate activity on the cards and generate cash rewards. They used the gift cards purchased with the credit card to purchase additional money orders. The IRS claimed the cash rewards were taxable. The taxpayers claimed the amounts were nontaxable rebates. The Court found otherwise. It held the cash rewards were income, except for those small cash rewards generated by the purchase of goods or services on the cards.
The tax law disallows a deduction for expenses related to the illegal sale of controlled substances. That includes the sale of marijuana, even if allowed under state law. In Desert Organic Solutions (T.C. Memo. 2021-22) the taxpayer also sold a few nonmarijuana items. The Court found, as it did in Patients Mutual Assistance Collective Corp., that when little revenue comes from sales other than marijuana a business is engaged in only one trade or business. The Court sided with the IRS in denying the deductions.
Tip of the DayUse caution with competitors . . . Your company is still tiny but making a name for itself. You've got a great idea that is spot on. You're approached by Mega Inc. about a potential deal. Flattered, and thinking they might want to buy you out so you and your partner can retire at 25, you discuss some of your methods and ideas. A few months later you find you've just created your biggest competitor. It's happened--and more than once. If they're serious about a buyout or investment, get it in writing. You'll need an attorney qualified in the field to draft the documents and advise you. This is not the time to go online for a DIY approach. And make sure all employees who have inside knowledge sign nondisclosure and noncompete agreements.
May 24, 2021
NewsIn response to questions from the public on the effect, if any, of the 2020 decennial census, recently released by the U.S. Census Bureau, on boundaries of qualified opportunity zones (each, a QOZ) listed in Notice 2018-48, or Notice 2019-42, (each, a Designated QOZ), Announcement 2021-10 confirms that the boundaries of the Designated QOZs were established at the time theywere designated and are not subject to change.
Tip of the DayGrowning too fast? . . . It's possible. Managing growth isn't as easy as it sounds. How hard or easy it is will depend on the business model. There can be a lot of pains associated with more employees, additional locations, etc. Many regulations change as a business increases. New state reporting requirements are often associated with increased employee count, often at 20, 50 and 100 employees. Managing additional employees can also be an issue. You may realize you've grown too quick if you're getting behind on paying suppliers, missing deadlines or staying on target, working excessive hours, getting customer complaints on service, etc.
May 21, 2021
NewsPrior Treasury Inspector General for Tax Admnistration (TIGTA) reviews identified that, due to a lack of adequate processes, billions of dollars in underreported tax by employers were not addressed and taxpayers avoided payment of billions of dollars in backup withholding. Backup withholding noncompliance continues to result in payers avoiding payment of billions of dollars in withholding each year. For Tax Year 2018, TIGTA identified 182,075 payers that submitted 440,404 information returns for which the payee Taxpayer Identification Number was either missing or incorrect, yet the payers did not backup withhold $13.3 billion on $55.6 billion in reported income. In addition, payers continue to report billions of dollars in payments associated with Taxpayer Identification Numbers of deceased individuals. TIGTA's review identified 52,500 payers that submitted 2.7 million information returns for which the payee was deceased at least three years prior to the issuance of the information return. These 2.7 million information returns had reportable payments totaling $3.7 billion. Generally, payers should not submit information returns using the Taxpayer Identification Number of a deceased taxpayer for identification of the payee. These deceased taxpayer Social Security Numbers are likely being used because payers have not been notified about the death of a payee, an estate Employer Identification Number has not been provided to the payer. For the complete report, go to www.treasury.gov/tigta/auditreports/2021reports/202140030fr.pdf.
Generally a spouse is jointly liable for the tax on a joint tax return. A spouse may be able to avoid liability by seeking innocent spouse relief if they did not have knowledge of the underpayment and for certain other reasons. In Vikki L. Rogers, Petitioner, and Brian D. Rogers, Inervenor (T.C. Memo. 2021-20) the taxpayer claimed she was unaware of the understatement and was not involved in the couple's jointly owned company. The Court noted that the taxpayer was a joint owner, kept the books, tracked billing, made loan payments and credit card payments. She also had signature authority on the company's bank account and prepared and signed sales tax returns and worked with an accountant to prepare the company's tax returns. The Court denied the petitioner innocent spouse relief.
Tip of the DayLearning experience? . . . Most businesses are still in recovery mode but it's not too soon to analyze how you did. The pandemic was something no one could have planned for. You can kick yourself if you live on the east coast and don't have plans for a hurricane, but the last time we had a pandemic nearly as bad was 100 yers ago. While many businesses suffered catastrophically, most survived. Businesses came up with unique solutions. Many of those solutions could be used to advance the business in more normal times as well as times of crisis. Businesses have learned lessons that should not be forgotten. Rather, they should take the time to learn from them.
May 20, 2021
NewsThe IRS has added Greenup County to the list of counties in Kentucky where victims of severe storms, flooding, landslides and mudslides that began February 27, 2021 can get tax relief. Now individuals and households affected by severe storms, flooding, landslides and mudslides that reside or have a business in Bell, Boyd, Breathitt, Calloway, Carter, Casey, Clark, Clay, Cumberland, Edmonson, Elliott, Estill, Floyd, Franklin, Graves, Greenup, Harlan, Jackson, Johnson, Knott, Knox, Lawrence, Lee, Leslie, Letcher, Lincoln, Magoffin, Marion, Martin, Mason, Menifee, Morgan, Ohio, Owsley, Perry, Pike, Powell, Pulaski, Rockcastle, Union, Whitley, and Wolfe counties qualify for tax 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 February 27, 2021, and before June 30, 2021 are postponed through June 30, 2021. This includes the May 17 deadline for filing 2020 individual income tax returns and paying any tax due. Taxpayers also have until June 30 to make 2020 IRA contributions. For additional information go to IRS Announces Tax Relief for Kentucky Victims.
If you've been trading Bitcoin or another of the virtual currencies, and haven't reported the transactions to the IRS, you should be talking to your tax advisor. The IRS has engaged a firm to provide information on taxpayer who have been trading virtual currencies. And be sure to answer the question concerning virtual currency on the front page of Form 1040.
Tip of the DayMissed the deadline? . . . The best option is to file as soon as possible. The penalties are accumulate every month so the sooner you file, the better. If the reason you didn't file is that you couldn't pay, file the return, pay what you can and talk to the IRS (and state) about your payment options. Getting an installment agreement is usually relatively easy, and there might be other options. If you haven't filed because your missing information, talk to a tax professional. There may be options. Finally, if the IRS does assess a penalty, you can ask for an abatement if you've got a clean record. No guarantees, but it doesn't hurt to ask. By the way, while the rules vary, much the same applies to the state.
May 19, 2021
NewsThe IRS is providing guidance on tax breaks under the American Rescue Plan Act of 2021 for continuation health coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). Notice 2021-31 provides guidance for employers, plan administrators, and health insurers regarding the new credit available to them for providing continuation health coverage to certain individuals under COBRA. The American Rescue Plan provides a temporary 100 percent reduction in the premium that individuals would have to pay when they elect COBRA continuation health coverage following a reduction in hours or an involuntary termination of employment. The new law provides a corresponding tax credit for the entities that maintain group health plans, such as employers, multiemployer plans, and insurers. The 100% reduction in the premium and the credit are also available with respect to continuation coverage provided for those events under comparable State laws, sometimes referred to as "mini-COBRA." Notice 2021-31 provides information regarding the calculation of the credit, the eligibility of individuals, the premium assistance period, and other information vital to employers, plan administrators, and insurers to understand the credit.
Tip of the DayProtecting profits . . . If you've got more than one product or service chances are pretty good that margins vary by product or service. You should be able to rank them by profitability. You should take a look at the item with the lowest margin. You may want to decide to drop the item, but before doing so, consider if it supports other items that are more profitable. Conversely, you should be careful to guard your high margined items. They frequently produce a much higher percentage of profits. You want to make sure you're insuring the competition isn't poaching the business or that customers are leaving for lower prices, better service, etc.
May 18, 2021
NewsRevenue Procedure 2021-24 (IRB 2021-23) provides two procedures for individuals not otherwise required to file 2020 Federal income tax returns to file returns to receive advance child tax credit payments, 2020 recovery rebate credit payments, additional 2020 recovery rebate credit payments, and third-round economic impact payments. The first procedure permits these individuals to file simplified returns. The second procedure enables these individuals to file complete returns electronically even if they have zero adjusted gross income.
The IRS announced (IR-2021-113) that the first monthly payment of the expanded and newly-advanceable Child Tax Credit (CTC) from the American Rescue Plan will be made on July 15. Roughly 39 million households--covering 88 percent of children in the United States--are slated to begin receiving monthly payments without any further action required. IRS and Treasury also announced the increased CTC payments will be made on the 15th of each month unless the 15th falls on a weekend or holiday. Families who receive the credit by direct deposit can plan their budgets around receipt of the benefit. Eligible families will receive a payment of up to $300 per month for each child under age 6 and up to $250 per month for each child age 6 and above.
May 17, 2021
NewsBecause of an increased volume this weekend, the IRS is experiencing delays in accepting (or rejecting) returns. More than likely, many states are too. Once a return is in the system it's considered filed. It doesn't matter if it's not accepted by the deadline.
The IRS will begin issuing refunds this week to eligible taxpayers who paid taxes on 2020 unemployment compensation that the recently-enacted American Rescue Plan later excluded from taxable income. The IRS identified over 10 million taxpayers who filed their tax returns prior to the American Rescue Plan of 2021 becoming law in March and is reviewing those tax returns to determine the correct taxable amount of unemployment compensation and tax. This could result in a refund, a reduced balance due or no change to tax (no refund due nor amount owed). These corrections are being made automatically in a phased approach, easing the burden on taxpayers. The first phase is underway and includes the simplest returns. The next phase will include the more complex tax returns which the IRS anticipates will take through the end of summer to review and correct. The first phase of adjustments is being made for single taxpayers who had the simplest tax returns, such as those filed by taxpayers who did not claim children or any refundable tax credits. The IRS will issue refunds resulting from this effort by direct deposit for taxpayers who provided bank account information on their 2020 tax return. If valid bank account information is not available, the refund will be mailed as a paper check to the address of record. The IRS will continue to send refunds until all identified tax returns have been reviewed and adjusted. For more information, go to IR-2021-111.
Tip of the DayTime's up . . . Unless you're entering a last number or two or just have to review it one last time, it's probably better to file an extension rather than rush through to file by the Monday deadline. That's even more true if you have a complex return. An extension does not increase your chances of being audited. However, making an error such as forgetting to answer a question or check a box in a last minute rush could. Can't pay? File the return or an extension and pay as much as you can. The penalty for not paying is a lot less than the penalty for not filing. If you're filing a return, you can include a request for an installment agreement on Form 9465.
May 14, 2021
NewsIn IR-2021-108 the IRS announced in response to disruptions of the fuel supply chain, it will not impose a penalty when dyed diesel fuel is sold for use or used on the highway in the States of Alabama, Delaware, Georgia, Florida, Louisiana, Maryland, Mississippi, North Carolina, Pennsylvania, South Carolina, Tennessee, Virginia, and the District of Columbia. This relief is retroactive to May 7, 2021, and will remain in effect through May 21, 2021. This penalty relief is available to any person that sells or uses dyed diesel fuel for highway use. In the case of the operator of the vehicle in which the dyed diesel fuel is used, the relief is available only if the operator or the person selling such fuel pays the tax of 24.4 cents per gallon that is normally applied to diesel fuel for highway use.
Victims of severe storms, straight-line winds, tornadoes, and flooding in Tennessee that began March 25, 2021 now have until August 2, 2021, to file various individual and business tax returns and make tax payments. Following the recent disaster declaration issued by the FEMA, the IRS announced that affected taxpayers in certain areas will receive tax relief. Individuals and households affected by severe storms, straight-line winds, tornadoes, and flooding that reside or have a business in Campbell, Cannon, Cheatham, Claiborne, Clay, Davidson, Decatur, Fentress, Grainger, Hardeman, Henderson, Hickman, Jackson, Madison, Maury, McNairy, Moore, Overton, Scott, Smith, Wayne, Williamson, and Wilson counties qualify for tax 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 March 25, 2021, and before August 2, 2021 are postponed through August 2, 2021. This includes the May 17 deadline for filing 2020 individual income tax returns and paying any tax due. Taxpayers also have until August 2 to make 2020 IRA contributions. The August 2, 2021 deadline applies to the first quarter estimated tax payment, normally due on April 15, and the second quarter payment normally due on June 15. It also applies to the quarterly payroll and excise tax returns normally due on April 30, 2021. In addition, it applies to tax-exempt organizations, operating on a calendar-year basis, that have a 2020 return due on May 17, 2021. Also, penalties on deposits due on or after March 25, 2021 and before April 9, 2021, will be abated as long as the tax deposits were made by April 9, 2021. For more information go to Tax Relief for Victims of Severe Storms in Tennessee
Tip of the DayFunding for restaurants and other eating establishments runs out . . . If you're looking for SBA money from the Restaurant Revitalization Fund (RRF) it may be too late. Apparently the fund has less than half of what it needs to handle the requests in the pipeline. The SBA has $65 billion of requests and the fund has only $28.6 billion authorized. Congress may move to allocate more funds but there is nothing currently in the works. Because the funds were broken down into different tranches, there is some funding for estabilshments with no more than $50,000 in 2019 revenue.
May 13, 2021
NewsA number of years ago the income exclusion for settlement payments was narrowed. Now only payments for physical injury or sickness qualify. In Debra Jean Blum (T.C. Memo. 2021-18) the taxpayer received a payment of $125,000 in settlement of a lawsuit she had filed against lawyers who had previously represented her in an unsuccessful personal injury lawsuit and did not report the settlement as income. The parties' settlement agreement expressly stated that it was entered into by the Parties for the purpose of compromising and settling the dispute between them, which the agreement described as a "malpractice claim". The settlement agreement further provided that she did not sustain any physical injuries as a result of the alleged negligence of either of her former attorneys. The Court noted that when damages are received pursuant to a settlement agreement, the nature of the claim that was the actual basis for the settlement controls whether the damages are excludable under Section 104(a)(2). The Court also noted it looks to the settlement agreement to determine whether the damages were to compensate for physical injury. The Court found the settlement agreement doomed here contention that the payments were to compensate her for physical injury. Alternatively the taxapayer argued that the payment was a nontaxable return of capital. The Court was unpresuaded and held the payments were includable in her income.
Tip of the DayMortgage interest deduction . . . This should be straightforward, but, as usual, that's not the case. You can deduct the interest on the first $750,000 of acquisition debt ($1,000,000 on loans secured before before December 16, 2017). That is, debt to purchase your first and a second residence. Interest on additional debt isn't deductible as home mortgage interest. Nor is a home equity loan. It may be deductible as business or investment interest--but that's another topic. But borrowing to remodel your kitchen or add a garage counts as acquisitions interest.
May 12, 2021
NewsThe IRS is providing an overview of some of the key tax provisions in the recently enacted American Rescue Plan Act. Several provisions affect the 2020 tax return people are filling out this filing season, including one exempting up to $10,200 in unemployment compensation from tax and another benefiting many people who purchased subsidized health coverage through either federal or state Health Insurance Marketplaces. In addition, the law also includes a third round of Economic Impact Payments, now going out to eligible Americans, that are generally equal to $1,400 per person for most people, as well as several other key changes for tax-year 2021. For a synopsis go to IRS Offers Overview of Tax Provisions of American Rescue Plan.
Revenue Procedure 2021-26 (IRB 2021-22) provides guidance with respect to accounting method changes made on behalf of certain foreign corporations. Among other issues, the Rev. Proc. expands, for a limited period, the availability of automatic consent for controlled foreign corporations ("CFCs") to change their methods of accounting for depreciation to the alternative depreciation system under Section 168(g) in order to ease the burden on CFCs of conforming their income and earnings and profits computations with their qualified business asset investment computations.
Tip of the DayForm 941 mistakes made by employers . . . The IRS has released Covid Tax Tip 2021-64 discussing common errors on Form 941 and other related forms in the series. As a result of Covid credits and other changes these forms are more complicated and many are not filed electronically. Employers who prepare their own 941s, etc. should read the tax tip. https://www.irs.gov/newsroom/common-but-costly-errors-employers-should-avoid-when-filing-taxes-or-claiming-credits
May 11, 2021
NewsThe IRS has released the 2022 inflation adjusted amounts for Health Savings Accounts (HSAs) and the maximum amount thatg may be made newly available for excepted benefit health reimbursement arrangements (HRAs). The annual limitation on deductions for an individual with self-only coverage under a high deductible health plan is $3,650; for an individual with family coverage the amount is $7,300. For more information see Rev. Proc. 2021-25.
Notice 2021-26 (IRB 2021-21) addresses the taxation of dependent care benefits provided through a dependent care assistance program (DCAP) that are made available in taxable years ending in 2021 and 2022 due to the application of either the carryover or the extension of a claims period made available under section 214 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (the Act), enacted as Division EE of the Consolidated Appropriations Act (CCA). The notice clarifies that if these dependent care benefits would have been excluded from income if used during the taxable year ending in 2020 (or 2021, if applicable), these benefits will remain excludible from gross income and are not wages of the taxpayer for the taxable years ending in 2021 and 2022. In addition, the notice clarifies that these amounts will not be taken into account for purposes of the application of the limits under Sec. 129 to the other dependent care benefits made available for the taxable years ending in 2021 and 2022. This is a change from how the Sec. 129 exclusion has been applied to grace period amounts in years prior to the CAA; in those years (and as a continuing general rule), reimbursements of dependent care benefits in excess of the $5,000 statutory amount attributable to a grace period were taxable to recipients.
Tip of the DayQualified dividend holding period . . . Qualified dividends are taxed at the same rate as long-term capital gains. For some taxpayers that can result in a significant tax break. Most dividends from U.S. corporations are qualified. A notable exception are REIT dividends. But there's another requirement. You must hold the stock for at least 61 days in a 121-day period that begins 60 days before the ex-dividend date.
May 10, 2021
NewsThe IRS is reminding tax-exempt organizations that operate on a calendar-year (CY) basis that certain annual information and tax returns they file with the IRS are due on May 17, 2021. These returns are:
Exempt organizations and preparers should also keep in mind that Form 990, 990-PF or 990-N for CY2020 must be filed electronically. Organizations filing Form 990-EZ for CY2020 received transitional relief and may file electronically or in paper. A six-month extension may be requested on Form 8868.
The SBA has announced some preliminary results of the recently opened Restaurant Revitalization Fund (RRF). As of May 5, the SBA has received 186,200 applications from restaurants, bars, and other eligible businesses. Some 97,600 applications came from eligible businesses owned by women, veterans, and socially and economically disadvantaged individuals. Some 61,700 applications came from businesses with under $500,000 in annual pre-pandemic revenue, representing some of the smallest restaurants and bars in America. While all qualified businesses are allowed to apply, under the law, the SBA will prioritize RRF applications from small business concerns owned and controlled by women, veterans, and socially and economically disadvantaged individuals for the first 21 days of the program. Following the 21-day period, all eligible applications will be funded on a first-come, first-served basis.
Tip of the DayHaven't gotten your refund? . . . The IRS is behind on issuing refunds, even returns filed electronically. There can be a number of reasons that they go through extra steps. Check the "Where's My Refund" page but don't call the IRS. Even if you get through, you won't get any help.
May 7, 2021
NewsThe IRS has updated the list of counties that qualify for relief as a result of severe storms, flooding, landslides and mudslides that began February 27, 2021 in Kentucky. The additional counties are Bell, Calloway, Clark, Edmonson, Graves, Harlan, Leslie, Letcher, Menifee, Owsley, Perry, Pike, Powell, Pulaski, Union and Whitley. Affected taxpayers now have until June 30, 2021, to file various individual and business tax returns and make tax payments. As a result of the addition, individuals and households that reside or have a business in Bell, Boyd, Breathitt, Calloway, Carter, Casey, Clark, Clay, Cumberland, Edmonson, Elliott, Estill, Floyd, Franklin, Graves, Harlan, Jackson, Johnson, Knott, Knox, Lawrence, Lee, Leslie, Letcher, Lincoln, Magoffin, Marion, Martin, Mason, Menifee, Morgan, Ohio, Owsley, Perry, Pike, Powell, Pulaski, Rockcastle, Union, Whitley, and Wolfe counties qualify for tax 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 February 27, 2021, and before June 30, 2021 are postponed through June 30, 2021. This includes the May 17 deadline for filing 2020 individual income tax returns and paying any tax due. Taxpayers also have until June 30 to make 2020 IRA contributions.
The IRS has updated the FAQs for COVID relief for retirement plans and IRAs. The new FAQs deal with the partial termination of a qualified retirement plan under Sec. 209 of the Taxpayer Certainty and Disaster Relief Act of 2020.
Tip of the DayPayment in any form . . . You don't have to get paid by cash, check or credit card to make reimbursement for your services taxable. Getting property or services in return for work performed or goods provided is income subject to taxation. Getting property or services can be a problem because the goods or services have to be valued. Sometimes that's easy. Your barber gives you a free haircut for fixing his TV. He normally charges $20 for the haircut. It's $20 of income to you. But it's not always that simple.
May 6, 2021
NewsThe SBA has run out of money for addtional Payroll Protection Plan loans in the second round of funding. While there are funds remaining, the SBA has stopped taking applications because the remaining money is earmarked for loans in the pipeline but not funded and reserved for special borrowers. To date the SBA has approved more than 5.6 million PPP loans amounting to more than $250 billion.
Tip of the DayPension plan fiiings . . . Now's a good time to mark on your calendar the due date for Form 5500 and 5500-EZ if you've got a pension plan that requires the filing. Most plans require the employer to file the annual information return. SIMPLE and SEP plans don't require the filing, nor do certain plans with less than $250,000 in assets. The return is due on the last day of the seventh month following the end of the plan year. The penalty for failure to file is $250 a day for each day late.
May 5, 2021
NewsWhen it comes to estate and gift taxes valuation of the assets is usually the most signficant, if not the only, factor. In Estate of Miriam M. Warne, Deceased, William R. Warne and Thomas H. Warne, Co-Executors (T.C. Memo. 2021-17) a Family Trust was the majority holder of interests in several LLCs that owned ground leases. The Court determined the comparable value approach was the best in arriving at the value of the leases. The Court allowed a discount for lack of control, but only a nominal percentage. A lack of marketability discount was allowed, but only 5 percent. The estate contributed a property to a church and a family charitable foundation and took deduction for the full value. The Court reasoned otherwise, finding the full value was includable in the estate, and allowed only a partial deduction for the contributions.
Tip of the DayTime in another state? . . . If you spent time in another state and worked in that state you might have to file a nonresident tax return. You'll still be taxed on the income in your home state, but you should be able to claim a credit for the tax paid to the other state. Likewise, if you have rental property in another state you'll have to report the income to that state.
May 4, 2021
NewsThe IRS has revised the instructions for many forms in the 941 series (e.g., 941, 941-X, 943, 941 Schedule B, etc.). The changes could particularly affect filings for the first and second quarter of this year. Be sure to download the current form and instructions.
The IRS has extended the temporary use of E-signatures to forms that can't be filed electronically through December 31, 2021. At the same time the Service has increased the number of forms that qualify for electronic signatures. Popular forms include 706 (Estate Tax Return), 709 (Gift Tax Return), and 3115 (Change in Accounting Method).
Tip of the DayBack to normal? . . . Getting there, but the recovery is mixed. And there's no surprise there. You can't restart an economy the size of the U.S. and expect a return to normal that quick. Some businesses may see business increasing at a steady pace. But far more are feeling disruptions. Restaurants are opening, but there are significant shortages and price increases in certain items. Car dealers are facing a supply problem--in part by a shortage of computer chips, in part by a surge in demand over the prior year. A rental car at a reasonable price? Good luck with that. There may be shortages or delays in delivery because of a dearth of truck drivers. And lumber prices are more than three times that of a year ago. The business that survives and thrives here will be the one that is alert to the changes and reacts quickly.
May 3, 2021
NewsVictims of severe storms, flooding, landslides and mudslides that began February 27, 2021 in Kentucky now have until June 30, 2021, to file various individual and business tax returns and make tax payments, the IRS announced today. Following the recent disaster declaration issued by FEMA, the IRS announced that affected taxpayers in certain areas will receive tax relief. Individuals and households affected by severe storms, flooding, landslides and mudslides that reside or have a business in Boyd, Breathitt, Carter, Casey, Clay, Cumberland, Elliott, Estill, Floyd, Franklin, Jackson, Johnson, Knott, Knox, Lawrence, Lee, Lincoln, Magoffin, Marion, Martin, Mason, Morgan, Ohio, Pike, Powell, Rockcastle, and Wolfe counties qualify for tax 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 February 27, 2021, and before June 30, 2021 are postponed through June 30, 2021. This includes the May 17 deadline for filing 2020 individual income tax returns and paying any tax due. Taxpayers also have until June 30 to make 2020 IRA contributions. The June 30, 2021 deadline applies to the first quarter estimated tax payment, normally due on April 15, and the second quarter payment normally due on June 15. It also applies to the quarterly payroll and excise tax returns normally due on April 30, 2021. In addition, it applies to tax-exempt organizations, operating on a calendar-year basis, that have a 2020 return due on May 17, 2021. Also, penalties on deposits due on or after February 27, 2021 and before March 15, 2021, will be abated as long as the tax deposits were made by March 15, 2021.
The IRS has released draft copies of Forms K2 and K3 for reporting partners' and shareholders in an S corporation share of international items and international income, deductions, and credits. These forms will apply to 2021 returns filed in 2022.
Tip of the DayRequirements to collect sales tax . . . The Supreme Court decision in South Dakota v. Wayfair opened up the floodgates for states to tax online purchases of goods ordered on the internet and sent into a state. The Court held there has to be some threshold so that de minimus sales are not taxed. But for many businesses that threshold is low--$100,000. While states can set the threshold higher, most have opted for the $100,000. Until recently Florida and Missouri were the only holdouts that didn't follow the crowd (that have a general sales tax). The governor has just signed legislation changing that. Now Missouri is the lone survivor. Check the states you have customers in. Even if you don't have to collect tax you should be able to identify all your online sales by state, so you can prove you don't have to collect and remit the tax. Check with your tax advisor to determine your liability.
Copyright 2021 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536