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January 21, 2021
NewsAs a result of the COVID-19 pandemic, the IRS provided temporary relief (Notice 2020-53) from certain requirements under Sec. 42 for qualified low-income housing projects and under Sec. 142 and 147 for qualified residential rental projects. Notice 2021-12 extends that temporary relief and als provides temporary relief from additional Sec. 42 requirements not addressed in Notice 2020-53.
It would be nice to dip into your IRA or other plan to finance your business or rental property without tax consequences. There are some very limited options, but it's risky. In Brett John Ball (T.C. Memo. 2020-152) the taxpayer instructed the custodian (a bank) of his SEP-IRA to distribute an amount to a limited liability company (LLC) he controlled. The LLC lent the received amount in the name of the SEP-IRA and, eventually, contributed the amounts repaid on the loans (plus interest) to the SEP-IRA. The Court found he had unfettered control over the distributions and, as a result, they were income to the taxpayer. In addition, since he was not age 59-1/2, the 10 percent penalty applied. The Court also found him liable for an accuracy-related penalty.
Tip of the DayTax relief coming? . . . The government has spent a lot on the pandemic so far and it's clear it'll have to spend more. But how much and where is the issue. An increase in three credits has been discussed--raising the child credit to $3,000 from $2,000; increasing the child and dependent care credit cap to $4,000 for one child and $8,000 for two; and increasing the earned income credit. All would be a big help to lower-income taxpayers.
January 20, 2021
NewsNotice 2021-08 (IRB 2021-6) provides a waiver of the addition to tax under Sec. 6654 for underpayment of estimated income tax by individual taxpayers, where the underpayment is attributable to the amendment to Sec. 461(l)(1)(B) made by the CARES Act. The relief, which is not automatic, applies only for the purpose of calculating installments of estimated income tax of an affected individual taxpayer that were due on or before July 15, 2020, with respect to the taxable year that began during 2019.
Notice 2021-06 (IRB 2021-6) waives the requirement to file certain information returns and furnish certain payee statements pursuant to section 279 of the COVID-related Tax Relief Act. The waiver applies to Form 1099 series information returns for specified grants, payments, subsidies and loan forgiveness excludible from income under various COVID-19 relief acts. The notice does not waive information reporting requirements to file and furnish Forms 1098 and 1098-T with respect to those amounts.
The IRS has released Notice 2021-11 (IRB 2021-6) addressing how employers who elected to defer certain employees' taxes can withhold and pay the deferred taxes throughout 2021 instead of just the first four months of the year. In response to a presidential memorandum signed Aug. 8, 2020, Notice 2020-65 was issued on Aug. 28, 2020, giving employers the option to defer certain employees' Social Security taxes from Sept. 1, 2020, to Dec. 31, 2020. This applied to employees paid less than $4,000 every two weeks, or an equivalent amount for other pay periods, with each pay period considered separately. The taxes, which are technically called Old Age, Survivors and Disability Insurance, or OASDI, are calculated at 6.2 percent of employees' wages. Originally, employers had from January 1 through April 30, 2021 to collect the deferred taxes. Notice 2021-11 provides that the end date of the period during which employers must withhold and pay the deferred taxes is postponed from April 30, 2021, to December 31, 2021, and associated interest, penalties, and additions to tax for late payment with respect to any unpaid deferred taxes will begin to accrue on January 1, 2022, rather than on May 1, 2021. Thus, employers now have from January 1, 2021 through December 31, 2021 to collect the deferred tax.
Tip of the DayDebt forbearance . . . It may not be without its costs. You may be able to get your credit card or other debt reduced or allowing you to defer payments or avoid late penalties, by petitioning he credit card company or other lender. But there can be consequences. If a portion of your debt is written off (forgiven) by the lender that could result in taxable income. Deferred payments and certain other forbearances could result in future problems with borrowing from that creditor or even damage to your credit score, or a reduced credit limit from the lender. That's why you might want to avoid asking for help unless you really need it. On the other hand, if it looks like you won't be able to make future payments you should contact the lender as soon as possible.
January 19, 2021
NewsThe IRS is reminding (IR-2021-14) the deadline for filing Forms 1099-MISC and 1099-NEC (for nonemployee compensation) are due to recipients by February 1, 2021 (January 31 is a Sunday) and to the IRS by February 1 for Forms 1099-NEC and March 1 (March 31 if filing electronically) for Forms 1099-MISC. (Keep in mind that the late filing penalties per form are substantial.)
The IRS has issued final regulations (T.D. 9947) that provide guidance to cooperatives to which Sections 1381 through 1388 of the Code apply (Cooperatives) and their patrons regarding the deduction provided by Section 199A(a) for qualified business income (QBI), as well as guidance to specified agricultural or horticultural cooperatives (Specified Cooperatives) and their patrons regarding the deduction provided by Section 199A(g) for eligible domestic production activities undertaken by Specified Cooperatives. The final regulations also provide guidance on Section 199A(b)(7), the statutory rule requiring patrons of Specified Cooperatives to reduce their QBI deduction under Section 199A(a). In addition, the final regulations include a definition of patronage and nonpatronage sourced items under Section 1388 of the Code, and revise existing regulations under Section 1382 to reference this definition.
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:
January 15, 2021
NewsThe IRS are issuing millions of second Economic Impact Payments by prepaid debit card to speed delivery of the payments to as many people as possible. If the Get My Payment tool on IRS.gov shows a date that a recipient's payment was mailed, they should watch their mail for either a paper check or debit card. The debit cards arrive in a white envelope that prominently displays the U.S. Department of the Treasury seal. The prepaid debit card, called the Economic Impact Payment card, is issued by Treasury's financial agent, MetaBank, N.A. The IRS does not determine who receives a card. The form of payment for the second mailed EIP may be different than the first mailed EIP. Some people who received a paper check last time might receive a prepaid debit card this time, and some people who received a prepaid debit card last time may receive a paper check.
Revenue Procedure 2021-11 (IRB 2021-5) provides methods for calculating W-2 wages for purposes of section 199A(g)(1)(B)(i), which, for certain specified agricultural or horticultural cooperatives provides a limitation based on W-2 wages to the amount of a deduction under section 199A(g)(1)(A) of 9 percent of the lesser of qualified production activities income or taxable income of a Specified Cooperative. This Revenue Procedure also modifies Revenue Procedure 2019-11, 2019-09 I.R.B. 742, to amend the method for determining W-2 wages for taxpayers with short taxable years.
Rev. Proc. 2021-12 (IRB 2021-5)extends to September 30, 2021, the expiration dates relevant to the application of the safe harbors in Rev. Proc. 2020 26 and Rev. Proc. 2020 34. These safe harbors protect the Federal income tax status of real estate mortgage investment conduits (REMICs) and investment trusts that provide certain forbearances of mortgage loans they hold or that acquire mortgage loans that have received certain forbearances.
Tip of the DayWhat's in your mutual fund? . . . In the semi-annual reports a fund has to list all its holdings. It also lists its top ten holdings, and holdings by sector (for stock funds that might be communications, consumer staples, financials, etc.). For one fund, while having hundreds of holdings, some 47 percent of its portfolio was accounted for by 10 different issues. That's an unusually high number. But you'll find that many funds have very similar holdings of their top ten. That's not necessairly a good or bad thing, it's just another piece of information to factor into your portfolio plans. There could be little reason to buy Exxon shares on your own if you already own a good amount by way of mutual funds. You should at least take a quick look at the semi-annual reports to understand any funds you own.
January 14, 2021
NewsThe IRS has issued proposed regulations (REG-115057-20) relating to the new mandatory 60-day postponement of certain time-sensitive tax-related deadlines by reason of a Federally declared disaster. This document also contains proposed regulations clarifying the definition of "Federally declared disaster." These proposed regulations affect individuals who reside in or were killed or injured in a disaster area, businesses that have a principal place of business in a disaster area, relief workers who provide assistance in a disaster area, or any taxpayer whose tax records necessary to meet a tax deadline are located in a disaster area. This document invites comments from the public regarding these proposed regulations.
The IRS has issued final regulations (T.D. 9946) providing guidance on Section 162(f) of the Code, as amended in 2017, concerning the deduction of certain fines, penalties, and other amounts. This document also contains final regulations providing guidance relating to the information reporting requirements under new Section 6050X with respect to those fines, penalties, and other amounts. The final regulations affect taxpayers that pay or incur amounts to, or at the direction of, governments, governmental entities or certain nongovernmental entities treated as governmental entities relating to the violation of any law or investigations or inquiries by such governments, governmental entities, or nongovernmental entities into the potential violation of any law.
Tip of the DayConsidering a joint venture? . . . Or an investment, using a company as a vendor, etc. Technology is advancing much faster than in the past and many companies are trying to leapfrog another. Recently there have been a number of spectacular tech scams. And, in most cases they would have been caught earlier if someone had done their homework. It can be as spectacular as a product built around a concept that either won't work or is years down the road or it could be a simple case of someone exaggerating the specs of the new product or the inability to deliver at the claimed cost. The more you rely on the product, the more deligence you should use in checking it out.
January 13, 2021
NewsThe IRS announced the expansion the Identity Protection PIN Opt-In Program to all taxpayers who can verify their identities. The Identity Protection PIN (IP PIN) is a six-digit code known only to the taxpayer and to the IRS. It helps prevent identity thieves from filing fraudulent tax returns using a taxpayers' personally identifiable information. The IRS launched the IP PIN program nearly a decade ago to protect confirmed identity theft victims from ongoing tax-related fraud. In recent years, the IRS expanded the program to specific states where taxpayers could voluntarily opt into the IP PIN program. Now, the voluntary program is going nationwide. The program is voluntary and you must pass a rigorous identity verification process. An IP PIN is valid for a calendar year. You can find more information at All Taxpayers Now Eligible for Identity Protection PINs.
The IRS has assured (IR-2021-10) taxpayers and tax professionals that updates to key federal tax forms and instructions are complete and will be available when Americans begin filing their tax returns. Form 1040 and the accompanying instructions as well as many of the other forms necessary for individual filing are now available. The IRS has not yet announced a start date for the 2021 filing season. IRS Free File will open in mid-January when participating providers begin accepting returns. The IRS Free File providers will accept completed tax returns and hold them until they can be filed electronically with the IRS.
Tip of the DayGoing into a new business? . . . The pandemic has created a number of new opportunities, but before you jump in with both feet and all your money, consider if the business has staying power. The pandemic will end at some point. Will the business be able to survive the change back to normalcy or the new normal? If it does endure, how profitable will it be? If it won't survive can you make enough before you have to shut down to make the project worthwhile? Get good advice before committing.
January 12, 2021
NewsFighting the IRS in court is usually risky unless you've got the required documentation and both the facts and the law are clearly on your side. One issue the IRS usually wins is procedural issues. In Scott Lashua (T.C. Memo. 2020-151) the taxpayer argued that the deficiency notice wasn't signed by an authorized IRS official and therefore wasn't valid. The Tax Court found otherwise. It noted that neither Section 6212 nor any other provision of the Code includes such a requirement. The notice the taxpayer received complied with the requirements of Section 6212, identified petitioner, and notified him that the IRS had determined a deficiency>
The Tax Court has just released seven cases using the redesigned website. You can find them at Today's Opinions. The links have been substantially changed and none of our links work with the new system. Please note that the website is not fully operational at this time.
Tip of the DayGift a residence . . . More than a few taxpayers, particularly seniors, gift their principal residence or other assets to get them out of their estate, freeze the value, or just to protect them. But if you retain the right to possession of the property or the income from the property, those assets will be included in your estate for estate tax purposes. In the case of a retained life estate it does not have to be legally enforceable. For example, you gift your home to your son and daughter, but all parties understand that you'll be allowed to live in it until you pass. There are other situations where gifted assets can be included in your estate. This can be a complex area. Check with your tax advisor or attorney.
January 11, 2021
NewsThe IRS has issued final regulations (T.D. 9945) that provide guidance under Section 1061. Section 1061 recharacterizes certain net long-term capital gains of a partner that holds one or more applicable partnership interests as short-term capital gains. An applicable partnership interest is an interest in a partnership that is transferred to or held by a taxpayer, directly or indirectly, in connection with the performance of substantial services by the taxpayer, or any other related person, in any applicable trade or business. These final regulations also amend existing regulations on holding periods to clarify the holding period of a partner' s interest in a partnership that includes in whole or in part an applicable partnership interest and/or a profits interest. These regulations affect taxpayers who directly or indirectly hold applicable partnership interests in partnerships and the passthrough entities through which the applicable partnership interest is held.
The second round of PPP (Paycheck Protection Program) loans will open for application on January 11. For the first few days there will be only to certain lenders. You can download the new form Form 2483-SD, PPP Second Draw Borrower Application Form from the SBA. You can also download Business Loan Program Temporary Changes: Paycheck Protection Program as Amended an 82-page guide with the rules for PPP forgivable loans and Business Loan Program Temporary Changes: Paycheck Protection Program Second Draw Loans with information on the second round of PPP loans for businesses that received an earlier PPP loan.
Tip of the DayPasswords . . . A determined hacker can probably get through all but the strongest passwords, but just like a home burglar who will ignore a home with a security system and look for one with easy access, the stronger the password the better your chances of avoiding trouble. One move is to opt out of having your computer remember your passwords, with the possible exception of very unsensitive sites or programs. The second is to use different passwords for different programs and sites.
January 8, 2021
NewsThe IRS announced (IR-2021-06) it is starting to send approximately 8 million second Economic Impact Payments (EIPs) by prepaid debit card. These EIP Cards follow the millions of payments already made by direct deposit and the ongoing mailing of paper checks that are delivering the second round of Economic Impact Payments as rapidly as possible. For those who don't receive a direct deposit, they should watch their mail for either a paper check or a prepaid debit card. To speed delivery of the payments to reach as many people as soon as possible the Treasury's Bureau of Fiscal Service is sending payments out by prepaid debit card. IRS and Treasury urge eligible people who don't receive a direct deposit to watch their mail carefully during this period. The IRS does not determine who receives a prepaid debit card. Taxpayers should note that the form of payment for the second mailed EIP may be different than the first mailed EIP. Some people who received a paper check last time might receive a prepaid debit card this time, and some people who received a prepaid debit card last time may receive a paper check. More information about these cards is available at EIPcard.com.
Revenue Ruling 2021-02 (IRB 2021-04) obsoletes Notice 2020-32 and Rev. Rul. 2020-27 due to the enactment of the COVID-related Tax Relief Act of 2020 (Act). The Act retroactively amends the CARES Act to provide that no amount is included in the gross income of a Paycheck Protection Program (PPP) participant by reason of forgiveness of a PPP loan, and no deduction is denied, no tax attribute is reduced, and no basis increase is denied, by reason of the exclusion from gross income. Accordingly, the holdings in Notice 2020-32 and Rev. Rul. 2020-27 are no longer determinative with regard to the treatment of certain expenses paid with PPP loan proceeds.
Tip of the DayMunicipal bonds . . . The interest on a municipal bond may escape taxes, but not the capital gain (or loss) on the bond. The gain is fully taxable as either a short-term or long-term one the same as any other security.
January 7, 2021
NewsThe IRS has issued final regulations (T.D. 9944) regarding the credit for qualified carbon oxide captured using carbon capture equipment placed in service on or after Feb. 9, 2018. The final regulations help businesses understand how the credit for qualified carbon oxide sequestration may benefit those claiming two carbon capture credit amounts, which are:
The IRS announced victims of Hurricane Zeta that began October 28, 2020 now have until March 1, 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 who reside or have a business in George, Greene, Hancock, Harrison, Jackson, and Stone 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 October 28, 2020, and before March 1, 2021, are postponed through March 1, 2021. The March 1, 2021 deadline applies to the fourth quarter estimated tax payment due on January 15. It also applies to the quarterly payroll and excise tax returns normally due on Nov. 2, 2020 and February 1, 2021. In addition, it applies to tax-exempt organizations, operating on a calendar-year basis, that had a valid extension due to run out on November 16. In addition, penalties on deposits due on or after October 28, 2020, and before November 12, 2020, will be abated as long as the tax deposits were made by November 12, 2020. For more information, go to Relief for Hurricane Zeta Victims in Mississippi.
The IRS announced that it will begin accepting all business tax returns at 9 a.m. Eastern on January 8, 2021.
Tip of the DayDemocrats win Senate . . . With the double win in Georgia the Democrats have control over the Senate, albeit tenuous control at best. They now control the House and Senate, and of course, the Presidency. It's probably too early to put odds on any tax changes, and Biden has more than a few other priorities. Nonetheless, there's a good chance corporate tax rates could rise; 28% has been the number that's been frequently mentioned. Marginal tax rates could rise for high-income individuals, probably those with incomes above $600,000 (married, joint). Capital gain rates could also go up for high-income individuals. Another possibility is a higher threshold for employment taxes. Conversely, taxpayers on the lower end of the income spectrum could see a cut in taxes. But virtually none of that is likely to happen quickly. Biden will be engulfed in an economic crisis with a huge number of unemployed as well as a pandamic. That, along with other business is likely to keep him occupied for much of his first year in office.
January 6, 2021
NewsThe IRS has announced (IR-2021-02) as part of ongoing efforts to improve service for the tax-exempt community, the IRS issued the revised Form 1024-A, Application for Recognition of Exemption Under Section 501(c)(4), and its instructions to allow electronic filing. Beginning January 5, 2021, IRS will make available the electronic version of the Form 1024-A that organizations seeking to be exempt under Section 501(c)(4) may use to submit online at Pay.gov. The IRS will provide a 90-day grace period during which it will continue to accept paper versions of Form 1024-A (Rev. 01-2018); however, after April 5 the Form 1024-A must be submitted electronically.
Revenue Procedure 2021-08 (IRB 2021-4) makes certain modifications to Rev. Proc. 2021-5 to allow for the new electronic submission process on www.pay.gov for the Form 1024-A, Application for Recognition of Exemption Under Section 501(c)(4) of the Code. It also provides a 90-day transition relief period, during which paper Form 1024-A applications will be accepted by EO Determinations.
FinCEN Notice 2020-2 notes that the FBAR regulations do not define a foreign account holding virtual currency as a type of reportable account. It does however intend to amend the regulations to include virtual currency as a type of reportable asset.
Tip of the DayCheck your beneficiaries . . . The rules have changed on IRAs with respect to the period to spread the income on the death of the IRA owner. In the past you could spread it over the life expectancy of the beneficiary--even if the beneficiary was a teenager. But now the full amount has to be distributed in 10 years. You might want to rethink who you want as the beneficiary. In fact, you should review your beneficiaries every year. A beneficiary may have passed away, is no longer in the family, has become wealthy and the money could be of more use to another relative, etc.
January 5, 2021
NewsNotice 2021-07 (IRB 2021-3) provides temporary relief in response to the ongoing COVID-19 pandemic for employers using the automobile lease valuation rule to value an employee's personal use of an employer-provided automobile for purposes of income inclusion, employment tax, and reporting. Due solely to the COVID-19 pandemic, if certain requirements are satisfied, employers and employees that are using the automobile lease valuation rule to determine the value of an employee's personal use of an employer-provided automobile may instead use the vehicle cents-per-mile valuation rule to determine the value of an employee's personal use of an employer-provided automobile beginning as of March 13, 2020.
In response to the Coronavirus (COVID-19) pandemic, small business owners, including agricultural businesses, and nonprofit organizations in all U.S. states, Washington D.C., and territories can apply for an Economic Injury Disaster Loan. The EIDL program is designed to provide economic relief to businesses that are currently experiencing a temporary loss of revenue due to coronavirus (COVID-19). For more information, go to Economic Injury Disaster Loans at the SBA.
Tip of the DayDouble duty doesn't count twice . . . One of the rules of tax law is that each entity is separate. And many business owners operate more than one entity. For example, Fred started as a mason and still has a business that does that work. But he also owns a retail operation selling stone, bricks and other mason supplies. The service business is operated as an LLC; the retail operation is an S corporation. He uses a pickup truck in both businesses to check on jobs, make some deliveries, etc. If the truck is owned by one business the use in the other business is personal and not deductible. There are several ways to cure the problem (your tax advisor should be able to help), but the simplest solution might be to own the truck personally and put in an expense report to each business for the use. The same problem can occur with equipment and buildings. The last thing you want is for an IRS agent to pick it up on audit. Then it's too late.
January 4, 2021
NewsMany credits and tax benefits are phased out as your adjusted gross income increases. But it's often not as simple as that. Some phaseouts are based on modified adjusted gross income (MAGI). MAGI starts with adjusted gross income but the modifications vary depending on the credit or benefit being phased out. In Ram Ratan Sharma and Shakuntala Sharma (T.C. Memo. 2020-147) the taxpayers deducted a loss of $26,877 in rental real estate losses. The taxpayer's MAGI exceeded $100,000 (the beginning of the phaseout) by some $38,071, reducing the taxpayer's allowable rental loss deduction to $5,964. The taxpayers argued that the distributions from pension plans should not be included in their MAGI. The Tax Court found for the IRS and holding that the taxpayers could reduce their MAGI by the taxable portion of Social Security Benefits, but they must include pension distribution in MAGI.
Tip of the DayStart savings plan . . . Whether you thrived or barely survived this past year the sudden appearance of a catastrophe such as COVID-19 should reinforce the importance of a savings/retirement plan. For some the last year put the fear of God in them. If you're not a saver, you're not alone. Some people have no trouble in setting a goal of putting away $50 a week; others won't be able to stick to $5 a week for more than three weeks. The best trick is to set a reasonable goal. If you've got some money left at the end of a month before making discretionary purchases, divide that amount into a weekly number you can set aside. Once that works, you can up your game and try cutting back on some other spending. Setting a reasonable goal is key. If the goal is set too high you'll give up early. The second step is easier. Put the money someplace you won't touch it. In an IRA, SEP, savings bank, etc. Some brokerages now will accept relatively small dollar amounts and let you buy fractional shares. Done on a regular basis it's a great way to dollar average. If your company offers a SIMPLE or 401(k) plan, defer some of your paycheck. Find your best approach. One individual we know always put her loose change in a jar every day. At the end of the year she normally has more than $1,500.
December 30, 2020
NewsThe IRS has announced (IR-2020-280) it will begin delivering a second round of Economic Impact Payments as part of the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 to millions of Americans who received the first round of payments earlier this year. The initial direct deposit payments may begin arriving as early as tonight for some and will continue into next week. Paper checks will begin to be mailed tomorrow, Wednesday, Dec. 30. The IRS emphasizes that there is no action required by eligible individuals to receive this second payment. Some Americans may see the direct deposit payments as pending or as provisional payments in their accounts before the official payment date of Jan. 4, 2021. The IRS reminds taxpayers that the payments are automatic, and they should not contact their financial institutions or the IRS with payment timing questions. As with the first round of payments under the CARES Act, most recipients will receive these payments by direct deposit. For Social Security and other beneficiaries who received the first round of payments via Direct Express, they will receive this second payment the same way. Anyone who received the first round of payments earlier this year but doesn’t receive a payment via direct deposit will generally receive a check or, in some instances, a debit card. For those in this category, the payments will conclude in January. If additional legislation is enacted to provide for an additional amount, the Economic Impact Payments that have been issued will be topped up as quickly as possible. New Release IR-2020-280 will answer most taxpayers' questions with respect to these payments.
Revenue Procedure 2021-9 (IRB 2021-03) provides a safe harbor that allows a trade or business that manages or operates a qualified residential living facility, as defined in the revenue procedure, to be treated as a real property trade or business, solely for purposes of qualifying to make the election under Section 163(j)(7)(B) to be an electing real property trade or business. This safe harbor has no effect on any determination for purposes of Section 469 of the Code.
Tip of the DayDon't be rushed . . . You may have heard the pitch--the windows (siding, boat, etc.) will cost $4,200, but, if you sign now you can get $1,000 off. The salesman is likely to claim the distributor is running a special, or they're in the area, etc. Whatever it may be, there's a reason you have to sign now to get the sale price. And who can resist a $1,000 saving? You can if the right price for the windows is more like $1,800. To be sure, there are situations when you've got to make a quick decision when it's one-of-a-kind like a specially equipped used car or a boat on the dealer's lot. Best advice, do your homework before you start serious shopping.
December 29, 2020
NewsIn response to the continuing public health emergency caused by the Coronavirus Disease 2019 (COVID-19) pandemic, Notice 2021-03 (IRB 2021-02) extends from January 1, 2021, through June 30, 2021, the temporary relief provided in Notice 2020-42, from the physical presence requirement in Treasury Regulation Sec. 1.401(a)-21(d)(6) for participant elections required to be witnessed by a plan representative or a notary public, and solicits comments with respect to the relief.
Certain assets are deemed to be "listed property" and there are stricter substantiation rules if you want to claim depreciation or a deduction for them. The most frequently encountered one is a vehicle, but it can include any property that is amenable to personal use such as a camera, audio equipment, etc. Before 2018 computers and computer peripheral equipment fell under this definition, unless they were used in a regular business establishment or in a portion of a home that qualified as a home office under the Code. In John M. Coleman (T.C. Memo. 2020-146) the Tax Court sided with the IRS in denying the taxpayer a deduction for a computer that he used at home, but the taxpayer did not show that any part of his home was set aside exclusively for his business. The Court found the taxpayer did not supplied no records documenting business use of his laptop, and his wife could not corroborate that he used it solely for work. Even if she corroborated his testimony the taxpayer failed to meet the substantiation requirements of Section 274(d).
Tip of the DaySubstantiating gambling losses . . . Tax professionals caution gamblers, even occasional ones, to keep track of their losses to offset their winnings. But most taxpayers rarely do so. Without that proof the IRS can deny any claimed losses. You may be able to show your losses based on the casino's records, canceled checks made out to the casino, or ATM receipts from withdrawals from the casino. Barring that, you might be able to win in Tax Court if your losses are large enough and you're willing to hire a gambling expert. In several cases experts have been able to convince the court the taxpayer incurred substantial losses. But there are a number of cautions here. First, hiring an expert is not going to be cheap. Second the approach will only work if you make a large number of bets so that the expert can apply a statistical analysis. In one case, the taxpayer's bets for the year were over $300,000. But even then, you're taking a gamble.
December 28, 2020
NewsThe President has signed into law the Consolidated Appropriations Act of 2021 into law. This is the current stimulus/relief bill that will provide a refundable tax credit of $600 per family member ($1,200 for taxpayers filing jointly). The credit phaseout begins at $75,000 for individuals and $150,000 for married taxpayers filng jointly. The phaseout income is based on 2019 tax returns. The law also provides a number of other stimulus provisions and extends a number of expiring tax provisions.
The IRS has issued final regulations (T.D. 9941) regarding the timing of income inclusion under an accrual method of accounting, including the treatment of advance payments for goods, services, and certain other items. The regulations reflect changes made by the Tax Cuts and Jobs Act and affect taxpayers that use an accrual method of accounting and have an applicable financial statement. These final regulations also affect taxpayers that use an accrual method of accounting and receive advance payments.
The IRS has issued final regulations (T.D. 9942) to implement legislative changes to Sections 263A, 448, 460, and 471 that simplify the application of those tax accounting provisions for certain businesses having average annual gross receipts that do not exceed $25,000,000, adjusted for inflation. This document also contains final regulations regarding certain special accounting rules for long-term contracts under section 460 to implement legislative changes applicable to corporate taxpayers. The final regulations generally affect taxpayers with average annual gross receipts of not more than $25 million, as adjusted for inflation.
Tip of the DayYear-end almost here . . . There are only a few days left to sell stocks, close transactions, etc. There is still some last minute steps you can take to save taxes. See our tax planning articles for guidance.
December 23, 2020
NewsThe IRS has issued (Notice 2021-02) the 2021 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Beginning on Jan. 1, 2021, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
The notice also contains the optional 2021 standard mileage rates, as well as the maximum automobile cost used to calculate the allowance under a fixed and variable rate (FAVR) plan. In addition, the notice provides the maximum fair market value of employer-provided automobiles first made available to employees for personal use in calendar year 2021 for which employers may use the fleet-average valuation rule in or the vehicle cents-per-mile valuation rule.
The IRS has issued final regulations (T.D. 9940) that provide the procedures under Section 6402(n) of the Code for identification and recovery of a misdirected direct deposit refund. The final regulations reflect changes to the law made by the Taxpayer First Act. The final regulations affect taxpayers who have made a claim for refund, requested the refund be issued as a direct deposit, but did not receive a refund in the account designated on the claim for refund.
Tip of the DayDoing some capital improvements on your home? . . . Don't forget to tell your insurance company when you're done. Many improvements are costly and add significantly to the value of your home. You don't want to be underinsured after going through that cost and work. You should also talk to your insurance company if you've added or changed items that could make your house safer such as filling in a pool. You may also have to inform the local tax assessor. (That's usually automatic if you need a building permit from the town for the improvements.) It'd be nice to get away without paying tax on the improvement, but some localities have penalties for failing to report additions.
December 22, 2020
NewsAs of this writing the stimulus bill has not yet passed but it looks fairly certain to be signed into law shortly. All parties are calling it a done deal. There is something for almost everyone, but the three of most interest to businesses are:
Other provisions include businesses that received a PPP loan in the first round may go for another loan if they have 300 or fewer employees, have used the funds for the first loan, and can show at least a 25 percent drop in gross revenue in any 2020 quarter compared with the comparable 2019 quarter. Businesses with up to 500 employees will will also be eligible, but must meet other requirements. The new round covers the same expenses as the first, but also includes PPE to comply with federal health and safety requirements and certain other costs.
The bill provides for a stimulus payment of $600 for every person in a household. The payment is phased out for individuals with income above $75,000 and fully phased out at $99,000. For a family of four with a household income of under $150,000 the payments would total $2,400. The income phaseout is based on 2019 income. Unemployment benefits would get a $300 boost and run for 13 weeks. The unemployment benefits prograsmfor contract and gig workers would also be extended. The bill extends the moratorium on evictions until the end of January. The bill also provides $10 billion for child care assistance and $45 billion for the transportation industry including airline employees, transit, highways, and buses.
The IRS has announced that it is experiencing delays affecting the processing of e-File Applications. Practitioners do not need to take any action at this time. In lieu of calling the e-help desk, continue to monitor your e-file application through e-services on IRS.gov. The Service is working diligently to ensure e-file applications are processed in time for participation in the upcoming filing season.
Tip of the DayReciprocal arrangements may not work . . . It sounds like a good way to be able to deduct some of the expenses on your boat, vacation home, etc. You rent your boat for a month during the summer to your friend and he rents his vacation home on a lake. Neither of you could or would have rented your properties in a regular transaction. The passive activity rules specifically mention such deals and they generally won't work. There are many other situations where reciprocal arrangements may not be allowed for tax purposes. Check with your tax advisor before committing.
December 21, 2020
NewsThe IRS is warning Electronic Return Originators (ERO) of an identity theft scam targeting Electronic Filing Identification Number (EFIN) holders. Fraudsters posing as a “contractor” for the IRS may contact EROs, suggesting they are verifying or checking on the ERO’s EFIN acceptance letter. The scammers may request that the ERO email them a copy of the EFIN acceptance letter and provide a telephone number to call for questions. As with all scams, this one can evolve and the elements may change. EROs should remain vigilant and take steps to protect their identities and taxpayer data. EROs who receive contacts from individuals posing as the IRS should contact the Treasury Inspector General for Tax Administration at TIGTA.gov to file a complaint. EROs who received a contact and disclosed their acceptance letter should contact the IRS e-Services help desk immediately.
The IRS has released new forms and publications as well as draft forms and publications related to employment taxes:
Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return
Form 940 (Schedule A), Multi-State Employer and Credit Reduction Information
Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund
Form 943, Employer's Annual Federal Tax Return for Agricultural Employees
Form 944, Employer's Annual Federal Tax Return
Form W-4P, Withholding Certificate for Pension or Annuity Payments
Form 941, Employer's Quarterly Federal Tax Return
Inst 940, Instructions for Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return
Inst 941-X, Instructions for Form 941-X, Adjusted Employer's Quarterly Federal Tax Return or Claim for Refund
Inst 943, Instructions for Form 943, Employer's Annual Federal Tax Return for Agricultural Employees
Inst 944, Instructions for Form 944, Employer's Annual Federal Tax Return
Pub 1220, Specifications for Electronic Filing of Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G
Pub 5165, Guide for Electronically Filing Affordable Care Act (ACA) Information Returns for Software Developers and Transmitters
Pub 5258, Affordable Care Act (ACA) Information Returns (AIR) Submission Composition and Reference Guide
Pub 15, Circular E, Employer's Tax Guide
Pub 15-T, Federal Income Tax Withholding Methods
Pub 51, Circular A, Agricultural Employer's Tax Guide
Tip of the DayRebates taxable? . . . If you're an individual and receive a rebate on an auto or other item used for personal purposes, it's not taxable. On the other hand, if the car is used for business purposes you've got to reduce your depreciable basis by the amount of the rebate. That is, if you paid $30,000 and later got a check from the manufacturer for $2,000, your basis for tax purposes would be $28,000. A rebate may be taxable on your personal tax return if you got a tax benefit for that item in a different year. For example, you deducted $6,000 in real estate taxes in 2019, but because of a reassessment the town gave you a rebate of $700 in 2020. There are some situations that can be more complicated. If in doubt, talk to your tax advisor.
December 18, 2020
NewsTheft losses may be deductible and can include fraud, larceny, embezzlement, etc. In Michael C. Giambrone; William W. Giambrone and Michele L. Giambrone (T.C. Memo. 2020-145) two brothers who worked together in a mortgage business. The brothers started a bank which did not fare well. To raise additional capital they sold stock to Taylor Bean Whitaker Mortgage Corp. (TBW) which subsequently transferred escrow deposts to the bank and using those deposits purchased TBW mortgage3 loans. The bank was unable to sell the loans back to TBW or to third parties when required to do so by the Federal Home Loan Mortgage Corporation. The bank was utlimately closed by the Office of Thrift Supervision and placed in receivership. The taxpayers claimed a theft loss of 95 percent of the value of their investments in the bank. The taxpayers argued that Rev. Proc. 2009-20 (IRB 2009-14), intended to provide safe harbor relief to investors in the Madoff Ponzi scheme. The Court noted the election to claime the safe harbor treatment of Rev. Proc. 2009-20 on the return for the discovery year, the year the investor in which the indictment, information, or complaint described in the revenue procedure is filed. The indictment against the majority shareholder of TBW was filed in 2010, but the taxpayers did not claim the deduction until their 2012, 2014, and 2015 tax returns. The Court held they claimed the loss to late to use the revenue procedure.
Tip of the DayRequired minimum distribution-or not? . . . For 2020 taxpayers are not required to take the usual minimum distribution from IRAs and other plans. But just because you don't have to doesn't mean you shouldn't. If this has been a particularly bad year taking a distribution may allow you to get the money out at a much lower rate than usual. Consider it before the end of the year.
December 17, 2020
NewsNotice 2021-01 (IRB 2021-02) provides that, while subject to a delay, private foundations must electronically file Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code, as required by section 3101 of the Taxpayer First Act of 2019 which amended Section 6033 of the Code. Until the electronic Form 4720 is made available, private foundations may continue to use the paper form. Private foundations may no longer rely on Treas. Reg. Sec. 53.6011-1(c), which allowed for certain joint filers of the Form 4720, as a result of this electronic filing mandate.
In some cases you can argue that a transaction is not clearly reflected in the agreement of the parties. The concept is substance-over-form doctrine. But in a case decided some years ago (Danielson the court determined that the tax treatment outlined in the agreement governed where the tax treatment of the proceeds received in a transaction was expressly stated in the agreement. The taxpayer tried to unilaterally change the tax consequences after the deal was completed. In that earlier decision the court held that in order to challenge the agreement the taxpayer would have to show fraud, duress, undue influence, etc. The Court here said the Danielson rule applies to a taxpayer's argument only if the agreement is unambiguous. In Thomas E. Watts and Mary E. Watts; RW Management, Ltd., JRW Management, LLC, Tax Matters Partner (T.C. Memo. 2020-144) the Court found the Danielson rule applied to the taxpayer's circumstances and the tax consequences of the transaction were dictated by the purchase agreement.
Tip of the DayCybersecurity . . . It's on the minds of many businesses and individuals. While there are still plenty of old-line scams, cyber crimes appear to far outweigh them. Small businesses may not be afford expensive professional help, but some is available for free. The IRS has a publication (Publication 4557, Safeguarding Taxpayer Data) intended for use by tax professionals. But most of the advice in the publication can apply to any business. And the best part is, it's free. It's also easy to understand.
December 16, 2020
NewsThe IRS has reported that employers will experience a delay in receiving payments associated with Form 7200, Advance Payment of Employer Credits, processed between late-December and mid-January due to standard end-of-year close out. The IRS will continue to accept and process valid Forms 7200 during this time, and the payment of valid requests during this time will begin to be processed on January 21, 2021. Employers will still receive Letter 6312, Form 7200 Response, if the Form 7200 cannot be processed.
The Treasury Inspector General for Tax Administration (TIGTA) previously reported that the IRS did not have sufficient controls to identify taxpayers who deducted contributions made to self-employment retirement accounts but did not have evidence of self-employment activity. In response to our previous report, the IRS improved its process to detect unallowable self-employed retirement deductions. The overall objective of the current audit was to determine whether the IRS has sufficient controls to prevent and detect improper deductions for contributions made by self-employed taxpayers to their self-employed taxpayers to their self-employed retirement plans. The audit found the IRS improved internal controls to prevent self-employed retirement plan deductions for taxpayers who do not have evidence of self-employment. TIGTA previously reported that, in Tax Year 2011, 2 percent of tax returns filed claiming a self-employed retirement deduction did not have evidence of self-employment. In this review, TIGTA determined that, for Tax Year 2017, less than one-half of 1 percent of such returns did not have this evidence. The IRS's corrective actions resulted in an 84 percent improvement compared to the prior report. To read the full report, go to www.treasury.gov/tigta/auditreports/2021reports/202110007fr.pdf.
Tip of the DayTraditional or Roth IRA? . . . That's an often asked question. With a traditional, deductible IRA you get a tax deduction up front, but you'll pay tax on the entire amount at ordinary income tax rates when you begin distributions. With a Roth, no deduction, but you'll never pay tax on the distributions. The two plans aren't totally interchangeable. There are income restrictions on the Roth and the traditional if you're covered by a pension plan. That aside, which makes the most sense? The Roth can be a smarter choice if you've still got a number of years to go before retirement. The investments will generate more income and you'll avoid the tax on those distributions. But if you've only got, say 10 years to retirement, income generated may be small. You may be able to get the best of both worlds. If your income fluctuates put the money in a deductible plan in the years with high income; use a Roth when you're in a lower bracket and the benefits of a deductible IRA are less.
December 15, 2020
NewsThe IRS has announced that victims of Hurricane Zeta that began October 28, 2020 in Alabama now have until March 1, 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 who reside or have a business in Clarke, Dallas, Marengo, Mobile, Perry, Washington, and Wilcox 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 October 28, 2020, and before March 1, 2021, are postponed through March 1, 2021. The March 1, 2021 deadline applies to the fourth quarter estimated tax payment due on January 15. It also applies to the quarterly payroll and excise tax returns normally due on November 2, 2020 and February 1, 2021. In addition, it applies to tax-exempt organizations, operating on a calendar-year basis, that had a valid extension due to run out on November 16. In addition, penalties on deposits due on or after October 28, 2020, and before November 12, 2020, will be abated as long as the tax deposits were made by November 12, 2020. For additional information go to IRS Announces Tax Relief for Hurricane Zeta Victims.
T.D. 9928 includes final rules regarding grandfathered group health plans and grandfathered group health insurance coverage that amend current rules to provide greater flexibility for certain grandfathered health plans to make changes to certain types of fixed-amount cost-sharing requirements without causing a loss of grandfather status under the Patient Protection and Affordable Care Act.
The IRS is looking for volunteers for its VITA and TCE tax preparation assistance programs. The VITA program offers free tax help to people who make $57,000 or less, persons with disabilities and limited English-speaking taxpayers. The TCE program offers free tax help to those who are 60 years of age and older. TCE volunteers specialize in questions about pensions and retirement-related issues unique to seniors. For additional information, go to Volunteers Needed for Free Tax Prep Help.
Tip of the DayIf you don't need it, cancel it . . . We've got many conveniences we pay for, or may be liable for, that we rarely, if ever, use. One individual had a pass that could be used in a number of states for parkway and bridge tolls. Their lifestyle changed and they hadn't used it in several years. The pass was stolen and they found themselves responsible for $2,600 in charges. A more common situation is paying for a service you don't use. You've got an online subscription to the Madison Daily Advertiser. You read it maybe several times a year but your credit card is billed $5 a month. That's $60 a year and you probably have other similar monthly charges on your credit card or checking account. Review all recurring charges on your bank or credit card statement at least annually. For larger numbers twice a year may be better. The same advice applies to business charges.
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