Small Business Taxes & ManagementTM--Copyright 2020, A/N Group, Inc.
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September 30, 2020
NewsEligible individuals can visit IRS.gov and use the Get My Payment tool to find out the status of their Economic Impact Payment. This tool will show if a payment has been issued and whether the payment was direct deposited or sent by mail. In certain situations, this tool will also give people the option of providing their bank account information to receive their payment by direct deposit. Information is updated once a day, usually overnight, so there's no need to check it more than once a day. The site also has additional information on the Economic Impact Payment.
It's not unusual for a municipality to ask a real estate developer to contribute property to the municipality when planning a development. If all the rules are complied with, the taxpayer will receive a charitable contribution for the fair market value of the land. One of the issues in Peter C. Emanouil and Pascale Emanouil (T.C. Memo. 2020-120) was whether the contribution of the property to the municipality was a "quid pro quo". In the latter no deduction would be allowed. The Court noted that in examining whether a transfer was made with the expectation of a quid pro quo, it gives most weight to the external features of the transaction, avoiding imprecise inquiries into taxpayers' subjective motivations. If it is understood that the property will not pass to the charitable recipient unless the taxpayer receives a specific benefit, and, most relevant to our determination in this case, if the taxpayer cannot garner that benefit unless he makes the required "contribution", then the transfer does not qualify the taxpayer for a charitable deduction. The IRS argued the taxpayer used the contribution as a bargaining chip to secure approval for the development. Instead, after the development was approved the taxpayer had land excess land that he was unable to sell because no prospects materialized. The Court found the gift of property was a charitable contribution and not a quid pro quo. The Court also found the taxpayer complied with the requirements of a charitable contribution of property.
Tip of the DayLooking to buy an electric car? . . . There are tax credits of up to $7,500 per vehicle available to buyers. There are a number of requirements. The original use of the vehicle must begin with the taxpayer, the vehicle must be predominantly used in the U.S., and the vehicle has to comply with certain technical specifications. There's a big caution here. The credit is phased out beginning in the calendar quarter when the 200,000th vehicle is sold. To see which cars qualify for the credit, go to Qualified Plug-In Electric Drive Motor Vehicles.
September 29, 2020
NewsThe IRS has issued final regulations (T.D. 9920) updating the federal income tax withholding rules for certain periodic retirement and annuity payments made after Dec. 31, 2020. Prior to the Tax Cuts and Jobs Act (TCJA), if no withholding certificate was in effect for a taxpayer’s periodic payments, the amount to be withheld from the payments was determined by treating the taxpayer as a married individual claiming three withholding exemptions. The TCJA amended this rule to provide that the rate of withholding on periodic payments when no withholding certificate is in effect (the default rate of withholding) would instead be determined under rules prescribed by the Secretary of the Treasury.
The IRS has released a number of new publications including Pub. 5447-B, How to Close a Corporation, Pub. 5447-A, How to Close a Partnership, and Pub. 5447, How to Close a Sole Proprietorship.
Tip of the DayPay your suppliers . . . In the current economic crisis many customers are delaying payment to suppliers. But your supplier may be in much the same boat you are. If he's squeezed for cash he may take action such as requiring cash before delivery, just stopping business with you, or he could go out of business. All of those actions could be more trouble than you need.
September 28, 2020
NewsIf you take a deduction for state income, real estate, or other taxes and get a refund in the following year you have to report that amount as income. (You don't have to report the income if you got no tax benefit for the amount.) In Alka Sham (T.C. Memo. 20201-119) the Court found the taxpayer failed to report the refunds as income. The IRS claimed the taxpayer underreported income based on Forms 1099-MISC. The taxpayer successfully disputed those forms, showing by credible evidence they were inaccuracte. The taxpayer argued that she was unable to file returns for several years based on health reasons. The Court noted she was able to conduct other affairs and, for one year, she was able to file a return for an earlier year, but not for the current year. The IRS also sought the failure-to-pay addition to tax penalty. The Court noted "the taxpayer is liable for the failure-to-pay addition to tax unless it is shown that such failure is due to reasonable cause and not due to willful neglect". The taxpayer must show that she exercised ordinary business care and prudence in providing for payment of her tax liabilities in light of her financial situation. The Court found that in light of the taxpayer's continued expenditures unrelated to her business, she did not exercise ordinary business care and prudence in providing for payment of her tax liabilities.
Tip of the DayRefinancing rental property? . . . The interest on a refinanced rental property is fully deductible under the regular rules, but only up to the amount of the previously outstanding balance unless the excess is used for property improvements. For example, on December 1 you refinance a loan with a $220,000 balance. If the new loan is for the same amount, the interest is deductible. But if the new loan is for $250,000 and the additional $30,000 is used for personal purposes, interest on the $30,000 is not deductible. Now assume the $30,000 is used to repave the parking lot and put in a new septic system. Interest on the $30,000 would be fully deducible.
September 25, 2020
NewsYour basis in property is important. It will determine the gain or loss when you sell the asset. Your starting point for basis in an asset is generally what you paid for it. But it's not always that simple. In Steven R. Matzkin and Sarah Schroeder (T.C. Memo. 2020-117) the taxpayer and his wife were getting divorced and in a property split she was to receive a share of a partnership. But the wife did not want, and could not realistically be given, an interest in the partnership. The husband agreed to pay for the property by making an upfront payment and executing a promissory note for the remainder. The taxpayer sought to increase his basis in the partnership by the amount of the payment. The Court rejected the claim and dismissed the taxpayer's several arguments.
Tip of the DayMoney laudering rules . . . The government has found that some banks, credit unions, etc. have been lax in their requirement to tighten up anti-money laundering activities. And, when your bank gets pressured expect to be pressured if you deal in cash or other activities that suggest laundering. The IRS is also advising taxpayers of the requirement to report cash received from customers in amounts of more than $10,000. You can get more information in IRS Publication 1544, Reporting Cash Payments of Over $10,000. Keep in mind there are stiff penalties for failing to report receipts of cash.
September 24, 2020
NewsThe IRS has issued regulations (T.D. 9919) that provide guidance for certain foreign persons that recognize gain or loss from the sale or exchange of an interest in a partnership that is engaged in a trade or business within the United States. The regulations also affect partnerships that, directly or indirectly, have foreign persons as partners.
The Tax Court can generally determine the employment status of workers. That is, whether the worker is an employee or an independent contractor. In Reflectxion Resources, Inc. (T.C. Memo. 2020-114) the taxpayer was a staffing agency that provided medical services staff for medical facilities. The Court determined it had jurisdiction for 11 calendar quarters where the third party using the workers paid the workers and filed employment tax forms. In another five quarters the taxpayer claimed the workers as employees and never claimed section 540 relief with respect to their status. The Court ruled it had jurisdiction over the 11 quarters with repsect to expenses reimbursed to the employees.
Tip of the DayForebearance period ending? . . . Many business owners, commerical property owners, and even individuals with home mortgages received a forehearance on the loans or mortgages. Renters may have been granted a vacation from payments. For some that forebearance already ended. For others it will end soon. The first step is to understand how the forebearance is to be resolved. In some cases the loan or rent payments can be made up over a period of time, in some cases it's due in a lump sum. In some the interest may be due in a lump sum and the principal can be added to the end of the loan, in essence extending the loan by the amount of the payments on hold. It will generally require a modification of the original loan with at least some associated costs. The important point is that you don't want to be caught off guard and face a bill that cannot be paid, particularly in the current economic environment. Don't wait till the last minute. Your lender may be willing to discuss options.
September 23, 2020
NewsVictims of Hurricane Sally that took place on Sept. 14 now have until Jan. 15, 2021, to file various individual and business tax returns and make tax payments, the IRS announced. 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 Baldwin, Escambia, and Mobile counties 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 Sept. 14, 2020, and before Jan. 15, 2021, are postponed through Jan. 15, 2021. This includes individual and business tax filers that had a valid extension to file their 2019 return due to run out on Oct. 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. The Jan. 15, 2021 deadline applies to the third quarter estimated tax payment due on Sept. 15. It also applies to the quarterly payroll and excise tax returns normally due on Nov. 2. In addition, it applies to tax-exempt organizations, operating on a calendar-year basis, that had a valid extension due to run out on Nov. 16. In addition, penalties on deposits due on or after Sept. 14 and before Sept. 30, will be abated as long as the deposits are made by Sept. 29, 2020. For more information, go to IRS Announces Tax Relief for Hurricane Sally Victims.
The IRS reported in Announcement 2020-12 that lenders who make PPP loans that are later forgiven under the CARES Act should not file information returns or furnish payee statements to report the forgiveness.
Tip of the DayHiring? Make sure there's a culture match . . . There's always been cultural differences between industries and companies. In some industries and companies working 20 hours of overtime a week is expected; in others overtime is frowned on. Some companies foster competition among employees, in others it's discouraged. In some cases moving from one industry to another can be cultural shock. That's more often the case when an employee from a laid-back firm moves to a high-pressure, short-staffed one. But the reverse can also be true. There are often big culture differences between small companies and large firms. Family owned companies can have cultural issues. If you're hiring you should be aware of the differences and that should be an important point discussed with the prospective employee. Some people can adjust, but a high percentage will find it difficult, and that difficulty increases with the time spent in the culture. You're doing both the employee and your firm a disservice if there's a poor fit.
September 22, 2020
NewsThe IRS has released the last set of final regulations (T.D. 9916) implementing the 100% additional first year depreciation deduction that allows businesses to write off the cost of most depreciable business assets in the year they are placed in service by the business. The 100 percent additional first year depreciation deduction, part of the Tax Cuts and Jobs Act of 2017, generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property. Machinery, equipment, computers, appliances and furniture generally qualify. In addition, the IRS plans to issue procedural guidance for taxpayers to opt to apply the final regulations in prior taxable years or to rely on the proposed regulations issued in Sept. 2019.
The IRS has issued final regulations (T.D. 9918) that provide guidance for decedents’ estates and non-grantor trusts clarifying that certain deductions of such estates and non-grantor trusts are not miscellaneous itemized deductions. The Tax Cuts and Jobs Acts (TCJA) prohibits individuals, estates, and non-grantor trusts from claiming miscellaneous itemized deductions for any taxable year beginning after Dec. 31, 2017, and before Jan. 1, 2026. Specifically, the final regulations clarify that the following deductions are allowable in figuring adjusted gross income and are not miscellaneous itemized deductions:
In addition, the final regulations provide guidance on determining the character and amount of, as well as the manner for allocating, excess deductions that beneficiaries succeeding to the property of a terminated estate or non-grantor trust may claim on their individual income tax returns.
The IRS has indicated that tax practitioners can take advantage of procedures for requesting expedited handling of requests for letter rulings under Rev. Proc. 2020-1. The COVID-19 pandemic is a factor outside of the taxpayer's control that can support a request for expedited handling under Rev. Proc. 2020-1. As a result, taxpayers are encouraged to seek expedited handling if they face a compelling need related to COVID-19. More information on the procedures for requesting expedited handling can be found in the revenue procedure. In addition, Rev. Proc. 2020-29, sets forth procedures for the electronic submission of letter ruling requests.
Tip of the DayState disaster relief . . . When the disaster is significant enough the president will designate a FEMA disaster area eligible for tax relief. Your state may have it's own relief program unrelated to the federal one. It can take any number of forms from postponed filings to credits and incentive payment.
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.
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