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September 21, 2021
NewsThe IRS has added five counties to the list of those in New Jersey where victims of remnants of Hurricane Ida that began September 1, 2021 will be granted tax relief. Essex, Hudson, Mercer and Union counties ere added on September 10 and Morris county was added on September 14. As a result, individuals and households affected by Hurricane Ida that reside or have a business in Bergen, Essex, Gloucester, Hudson, Hunterdon, Mercer, Middlesex, Morris, Passaic, Somerset and Union counties qualify for tax relief. The relief allows affected taxpayers to postpone filing until January 3, 2022 and extends the deadline for other requirements. For a more complete summary of the relief and procedures, go to IRS Announces Tax Relief for New Jersey Victims of Hurricane Ida.
Tip of the DayDue diligence when there's no time . . . No matter how rushed you are to close a deal, you should do as much due diligence as you can. Sometimes you can do some work even before the deal becomes available. For example, you're looking to purchas a home and will accept a fixer-upper because your funds are limited. You can find out what some work will cost before even looking at properties. For example, what's the cost of a new oil hot water heater? A new furnace? Upgrading the electric to 200 amp service? New windwos? You may not be off by 20 percent or more, but at least you'll have an idea. For example, you had a quick look at the house and even if you can live with the pink bathroom for a year or two, you'll need a new furnace, hot water heater, two double-hung windows, and a roof to survive the winter. From doing some research you know the furnace is about $6,000, the hot water heater $3,000, the windows $1,500 and the roof $4,000. That's $14,500 on move-in day. Can you afford that or can you get financing for some of it? And keep in mind, if you can see problems and you're not a professional, there's probably more yet to be discovered.
September 20, 2021
NewsThe IRS has added three counties to the list of those in New York State where victims of remnants of Hurricane Ida that began September 1, 2021 will be granted tax relief. Suffolk and Sullivan counties were added on September 14 and Nassau county was added on September 10. The relief allows affected taxpayers to postpone filing until January 3, 2022 and extends the deadline for other requirements. For additional information, go to IRS Announces Tax Relief for New York Victims of Remnants of Hurricane Ida.
In issue CL-21-26 of a Closer Look, IRS Commissioner Chuck Rettig discusses how the IRS had to pause and modify operations during the pandemic. He also provides a glimpse of what the IRS is doing to help struggling taxpayers and to get caught up during this unprecedented time. "We have done the best we could under the circumstances, and we will continue to do our best as we face the current challenges," Rettig said.
Tip of the DayBack property taxes may not be deductible . . . You buy a home, commercial property, etc. with delinquent back taxes (and other charges such as interest, etc.) at a foreclosure sale. Can you deduct all the taxes? No. Your deduction is limited to the portion of the taxes attributable to the time since you owned the property. Those prior accumulated taxes are part of the purchase price. If the property includes a building, a portion of the taxes, interest, etc. should be allocated to the building for which you can claim depreciation.
September 17, 2021
NewsThe IRS has announced (IR-2021-188) that qualifying taxpayers are now receiving their advance Child Tax Credit (CTC) payment for the month of September. This third batch of advance monthly payments, is reaching about 35 million families across the country. The majority of payments will be issued by direct deposit. Under the American Rescue Plan, most eligible families received payments dated July 15 and Aug. 13, along with today's September 15 payment. Future payments are scheduled for October 15, November 15 and December 15. For these families, each payment is up to $300 per month for each child under age 6 and up to $250 per month for each child ages 6 through 17.
Substantiation is the key to securing a deduction. In William Geiman (T.C. Memo. 2021-80) the IRS disallowed all of the taxpayer's unreimbursed employee business expenses (these would no longer be deductible under current law). The Tax Court first sought to determine if the taxpayer was working "away from home". Based on the facts the taxpayer had a home in Colorado and was working on temporary assignments in Wyomining. The Tax Court sifted through the taxpayer's documentation for lodging, meals, and vehicle expenses. The Court found the taxpayer substantiated meal expenses for 101 days (based on a per diem amount), and a portion of his lodging, vehicle and union and professional dues. The Court disallowed expenses that appeared purely personal in nature.
Tip of the DayTime for a vacation . . . Running a small business is tougher than most people know. Having a small staff that does a number of tasks is often the rule rather than the exception. Some employees may take only a short vacation or a couple of days here and there. That can be a problem for several reasons. First, employees that have certain responsibilities in the company should take a two-week vacation to insure they're not embezzling funds, cooking the books, etc. Problems can show up during a two-week absence that may not be spotted any other way. Second, if an employee can bank the time, the business can end up with a large accrual on the books. From an accounting standpoint that's a liability that has to be reported in the financials. From a strict business standpoint, the employee could decide to take most of the time at once--and that could put the business in a bind. Third, if an employee is so critical or you're so short-staffed that employees can't take two weeks at once, it shows a weakness in the company. If an employee can't take a vacation, how would the company fare if the employee quit or passed away?
September 16, 2021
NewsIn response to continued shortages of undyed diesel fuel caused by Hurricanes Ida and Nicholas, the IRS announced (IR-2021-187) it will extend the penalty relief provided in IR-2021-176 when dyed diesel fuel is sold or used on the highway. The IRS announced it would not impose a penalty when dyed diesel fuel is sold for use or used on the highway for the following parishes in the state of Louisiana: Ascension, Assumption, East Baton Rouge, East Feliciana, Iberia, Iberville, Jefferson, Lafourche, Livingston, Orleans, Plaquemines, Pointe Coupee, St. Bernard, St. Charles, St. Helena, St. James, St. John the Baptist, St. Martin, St. Mary, St. Tammany, Tangipahoa, Terrebonne, Washington, West Baton Rouge and West Feliciana. That relief has been extended and is effective as of August 29, 2021 and will remain in effect through September 30, 2021. In addition, due to the impact of Hurricanes Ida and Nicholas, the IRS is also providing penalty relief to the parishes of Acadia, Allen, Avoyelles, Beauregard, Calcasieu, Cameron, Evangeline, Jefferson Davis, Lafayette, Rapides, St. Landry, Vermilion, and Vernon. This additional relief is effective as of August 29, 2021 and will remain in effect through September 30, 2021.
Tip of the DayState disaster relief . . . Your state also provides tax relief to disaster victims in addition to that provided by the IRS. But don't assume it's automatic. While the states frequently follow the same relief the federal government provides, that's not always the case. In many cases it's more expansive. Check the tax website for your state.
September 15, 2021
NewsThe IRS will close its paper return processing center in Fresno, California, permanently at the end of September this year. Originally announced in 2016, this closure is part of a larger, ongoing efficiency strategy as most taxpayers now file electronically. The number of individual returns taxpayers filed electronically has grown from 90 million in 2008 to over 145 million in 2020, which is more than 90 percent of all returns filed. The IRS expects this trend to continue for both individual and non-individual returns. Taxpayers located in Alaska, California, Hawaii, Ohio and Washington state who previously filed their federal tax returns with Fresno should now mail their returns to the Ogden, Utah, processing center. The Ogden address for filing paper individual returns is:
Department of the Treasury
Internal Revenue Service
Ogden, UT 84201-0002
The IRS can seize a taxpayer's property for unpaid taxes, but there are a number of safeguards in the law with which the IRS must comply. The Treasury Inspector General for Tax Administration (TIGTA) reviewed 90 of the 145 seizures the IRS conducted from July 1, 2019, through June 30, 2020. The IRS generally adhered to procedures that help ensure compliance with Sections 6330 through 6344. However, TIGTA identified some instances in which the IRS did not comply with a particular Code Section or internal procedure and identified ways to strengthen internal procedures. Before the IRS can seize an asset, management must approve the seizure and an advisor will conduct a review for legal sufficiency. For five cases, there were questions raised about the ownership and/or legal description of the property after the seizure took place in which all five seizures were subsequently released. To read the full report, go to www.treasury.gov/tigta/auditreports/2021reports/202130055fr.pdf.
Tip of the DayPending legislation . . . The House Ways and Means Committee is working on the $3.5 trillion package known as the Build Back Better Act. While it's still very early in the legislative process, some options discussed include an extension of the expanded Child Tax Credit, the increased Child and Dependent Care Credit, the increased Earned Income Tax Credit, as well as payroll tax credits for caregivers. More than a few representatives want to change the deduction cap on state and local taxes (SALT). Additional proposals include credits for insfrastructure investment and renewable and green energy. The corporate tax rate would go up to 26.5 percent and the top capital gains tax rate could go to 25 percent (from 20), but only for taxpayers with taxable income of $400,000 ($450,000, married filing joint) and the 3.8 percent net investment income tax would apply to all outside income instead of just passive income. There would be a surtax on taxpayers with incomes in excess of $5 million. No mention was made of eliminating the step-up in basis for assets acquired from a decedant.
September 14, 2021
NewsThe IRS has announced (IR-2021-183) that victims of Hurricane Ida in parts of Pennsylvania now have until Jan. 3, 2022, to file various individual and business tax returns and make tax payments. The IRS has also provided relief to Ida victims in Louisiana, Mississippi, New Jersey and New York. The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual or public assistance. Currently, this includes Bucks, Chester, Delaware, Montgomery, Philadelphia and York counties, but taxpayers in Ida-impacted localities in other parts of Pennsylvania, subsequently designated by FEMA, will automatically receive the same filing and payment relief. The current list of eligible localities is available on the disaster relief page on IRS.gov. The tax relief postpones various tax filing and payment deadlines that occurred starting on Aug. 31, 2021. As a result, affected individuals and businesses will have until Jan. 3, 2022, 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 2020 return due to run out on Oct. 15, 2021, will now have until Jan. 3, 2022, to file. The IRS noted, however, that because tax payments related to these 2020 returns were due on May 17, 2021, those payments are not eligible for this relief. The Jan. 3, 2022 deadline also applies to quarterly estimated income tax payments due on Sept. 15, 2021, and the quarterly payroll and excise tax returns normally due on Nov. 1, 2021. It also applies to tax-exempt organizations, operating on a calendar-year basis, that had a valid extension due to run out on Nov. 15, 2021. Businesses with an original or extended due date also have the additional time including, among others, calendar-year partnerships and S corporations whose 2020 extensions run out on Sept. 15, 2021 and calendar-year corporations whose 2020 extensions run out on Oct. 15, 2021. In addition, penalties on payroll and excise tax deposits due on or after Aug. 31 and before Sept. 15, will be abated as long as the deposits are made by Sept. 15, 2021.
The IRS has announced the releaae of the 2021-2022 Priority Guidance Plan. The 2021-2022 Priority Guidance Plan contains 193 projects that are priorities during the 12-month period from July 1, 2021 through June 30, 2022. The projects on the plan will be the focus of our efforts during the plan year. However, the plan does not provide any deadline for completing the projects.
Tip of the DayLook behind the numbers . . . Often the numbers speak the truth. Your sales are up 20% year over year as a result of a new product that's cheaper and better. Or you've introduced a new service boosting revenue and traffic. But before taking the numbers at face value, ask yourself if they make sense. Is it the new product that generated the sales or the fact that your competitor was shut down for three months because of a storm damage. If it's the former, you should take steps to take advantage of the new product. If it's the latter, you may still be able to take advantage of the situation, but in a much different way.
September 13, 2021
NewsThe IRS has announced that victims of Remnants of Tropical Storm Fred in North Carolina that began August 16, 2021 now have until December 15, 2021, to file various individual and business tax returns and make tax payments. Following the recent disaster declaration issued by the Federal Emergency Management Agency, the IRS announced today that affected taxpayers in certain areas will receive tax relief. Individuals and households affected by Remnants of Tropical Storm Fred that reside or have a business in Avery, Buncombe, Haywood, Madison, Transylvania, Watauga and Yancey counties qualify for tax relief. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after August 16, 2021, and before December 15, 2021, are postponed through December 15, 2021. This means that individuals who had a valid extension to file their 2020 returns, due to run out on October 15, will now have until December 15, 2021 to file. The IRS noted, however, that because tax payments related to these 2020 returns were due on May 17, 2021, those payments are not eligible for this relief. Businesses with extensions also have the additional time including, among others, calendar-year partnerships and S corporations whose 2020 extensions run out on September 15, 2021 and calendar-year corporations whose 2020 extensions run out on October 15, 2021. The December 15, 2021, deadline applies to the quarterly estimated tax payment, normally due on September 15 and to the quarterly payroll and excise tax returns normally due on December 15, 2021. It also applies to tax-exempt organizations, operating on a calendar-year basis, that had a valid extension due to run out on December 15, 2021. Also, penalties on deposits due on or after August 16, 2021, and before August 31, 2021, will be abated as long as the tax deposits were made by August 31, 2021. Click on the link above for additional information.
The IRS has reported that there is a Transcript Delivery System (TDS) programming issue impacting business taxpayers who reported information related to COVID-19 employment tax relief on Form 941. Account Transcripts requested for Form 941 for all quarters in Tax Year 2021 may not generate properly. Transcripts are not being delivered to the Secure Object Repository (SOR) Mailbox for e-Services users. When viewing the transcript online, a message will display on the transcript indicating TDS has encountered an unrecoverable error processing the request. With the Postal Mail delivery method, no transcript is mailed. As the Record of Account Transcript is a combination of the Tax Return and Account Transcripts, the Record of Account Transcript is also impacted and can display a message of "No record of return filed". IRS Customer Service Representatives are also unable to obtain these transcripts. The programming issue is expected to be fixed on September 26, 2021.
Tip of the DayGet latest forms . . . Forms can be revised more rapidly now because the IRS and the states believe that most people will download a form when needed. In the past From 941 Employer's Quarterly Federal Tax Return would be revised annually, often with little change. As a result of COVID law changes, it's been revised several times recently. Other forms have also gone under more revisions than in the past. The same is true for a lesser extent for state forms. Don't assume you have the latest form and instructions. Check the IRS or state website for the latest. For IRS forms and publications, go to IRS Forms and Publications.
September 10, 2021
NewsThe SBA has made a number of changes to the Economic Injury Disaster Loans (EIDL) program. The most significant is that the loan limit has been increased from $500,000 to $2,000,000. Other changes include the ability to use the funds for debt repayment and the deferral of repayment of the EIDL loans for 2 years after the the orgination date. The SBA has also provided a 30-day window for approving and disbursing loans of less than $500,000. Only after that period will larger loans be approved.
The IRS has announced (IR-2021-180)victims of Hurricane Ida in parts of Mississippi now have until November 1, 2021, to file various individual and business tax returns and make tax payments. The IRS is offering relief to any area designated by the FEMA as qualifying for individual or public assistance. Currently, individuals and households affected by Hurricane Ida that reside or have a business in all 82 counties and the Mississippi Choctaw Indian Reservation qualify for tax relief. The current list of eligible localities is always available on the disaster relief page on IRS.gov. The tax relief postpones various tax filing and payment deadlines that occurred starting on Aug. 28, 2021. As a result, affected individuals and businesses will have until November 1, 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 2020 return due to run out on October 15, 2021, will now have until November 1, 2021, to file. The IRS noted, however, that because tax payments related to these 2020 returns were due on May 17, 2021, those payments are not eligible for this relief. The November 1, 2021 deadline also applies to quarterly estimated income tax payments due on September 15, 2021, and the quarterly payroll and excise tax returns normally due on November 1, 2021. Businesses with an original or extended due date also have the additional time including, among others, calendar-year partnerships and S corporations whose 2020 extensions run out on September 15, 2021 and calendar-year corporations whose 2020 extensions run out on October 15, 2021. In addition, penalties on payroll and excise tax deposits due on or after August 28, 2021 and before September 13, will be abated as long as the deposits are made by September 13, 2021. Click on the link above for additional information.
Tip of the DayOne trick pony . . . Or executive. A great manager can come up with new ideas and be productive in different fields. Often a fresh look at the problem, or a look from a different angle can be just the answer needed. But just because Fred Flood turned around an appliance manufacturer doesn't mean he can revive a chain of hardware stores. If you're hiring someone from a different field or culture, you've got to ask more questions and tread cautiously. Retailing is different than manufacturing; and selling hardware at retail is different than selling dresses.
September 9, 2021
NewsRevenue Procedure 2021-40 amplifies Rev. Proc. 2021-3 setting forth the areas of the Code relating to issues on which the IRS will not issue letter rullings or determination letters. This revenue procedure announces that the Service will not issue letter rulings on whether certain transactions are self-dealing within the meaning of section 4941(d) of the Code.
You can't "net" income and expenses on a tax return. The IRS wants to know all the income you earned. To prove you earned the income all the IRS needs is a 1099 or W-2 from a third party. The burden of proof is on you to show the 1099 or W-2 is incorrect. In Engen Robert Nurumbi (T.C. Memo. 2021-79) the taxpayer the taxpayer was both an Uber driver and had other individuals driving for him under his account. Uber issued a Form 1099-K in the amount of $542,420, but the taxpayer only reported wage income of $18,810. The IRS allowed some Schedule C deductions, but the taxpayer petitioned the Court for additional amounts. The IRS allowed a dedcution of $157,803 for payments to drivers that the Service could substantiate from correlating the Uber payments and transfers out of the taxpayer's bank account. The Court noted that while the taxpayer testified credibly that he also paid his drivers in cash out of those proceeds, the Court had no basis on which to estimate how much he paid, the Court could not even guess how much that would be and declined to allow any deduction in excess of that allowed by the IRS.
Tip of the DayRecords must contain detail . . . Ensuring an expense is deductible is 98 percent recordkeeping. The IRS looks for detail in the records. Summaries will rarely be sufficient. For example, claiming $6,500 for maintenance and repairs on a truck for the year isn't sufficient. You've got to record the individual expenses such as tires, replace crankshaft sensor and computer, etc. You should be able to back up charges with an invoice and proof of payment such as a credit card, canceled check, bank statement entry, etc. In the case of business travel, you should show where, when, how, who, and why as well as the charges. A single entry for the mileage for the day when you visited three clients isn't good enough. Talk to your tax adviser about specifics.
September 8, 2021
NewsNotice 2021-53 (IRB 2021-39) provides guidance to employers on the requirement to report qualified sick leave wages and qualified family leave wages paid to employees under the Families First Coronavirus Response Act, as amended by the COVID-related Tax Relief Act of 2020 and under Sections 3131, 3132, and 3133 of the Code for leave provided in 2021.
The IRS has issued final regulations (T.D. 9952) modifying regulations relating to IRS administrative proceedings to reflect limitations that are required by the enactment of the Taxpayer First Act of 2019. These final regulations implement new rules regarding the persons who may be provided books, papers, records, or other data obtained pursuant to Section 7602 for the sole purpose of providing expert evaluation and assistance to the IRS, and adopt further limitations on the types of non-governmental attorneys to whom, under the authority of Section 6103(n) of the Code, any books, papers, records, or other data obtained pursuant to Section 7602 may be provided. These final regulations also prohibit any IRS contractors from asking substantive questions of a summoned witness under oath or asking a summoned person's representative to clarify an objection or assertion of privilege.
Tip of the DayLove your pet? . . . That's great, but don't leave Milly cash or other property in your will. It just won't work. (No matter how smart you think your dog is, she can't write checks.) You'll need a person to provide for her. You can set up a trust to pay for her expenses, but you'll need someone to manage the trust. And while Milly's care costs may be minimal now, you've got to consider what her expenses might be as she ages or gets sick. Consider the circumstances--the pet's age, life expectancy, who might be a good caretaker and if they're interested, etc. If you really love your pet this shouldn't be a snap decision at the estate attorney's office.
September 7, 2021
NewsThe IRS has added two webpages specifically for victims of Hurricane IDA and the California Wildfires. The Hurricane Ida page consolidates information from several IRS sources as well as FEMA and USA.gov the latter of which includes information on disaster housing assistance, status reports on electricity, oil, and natuaral gas sectors, etc. The page on California Wildfires contains basic information as well as supplemental information on the disasters and links to other resources.
Notice 2021-52 announces the special per diem rates effective October 1, 2021, 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. Notice 2021-52 also modifies Notice 2020-71, to correct the portion of the year Sedona, Arizona is a high-cost locality under section 5 of Notice 2020-71.
Tip of the DayBack property taxes may not be deductible . . . You buy a home, commercial property, etc. with delinquent back taxes (and other charges such as interest, etc.) at a foreclosure sale. Can you deduct all the taxes? No. Your deduction is limited to the portion of the taxes attributable to the time since you owned the property. Those prior accumulated taxes are part of the purchase price. If the property includes a building, a portion of the taxes, interest, etc. should be allocated to the building for which you can claim depreciation.
September 3, 2021
NewsThe IRS allows taxpayers to use electronic or digital signatures on certain paper forms they cannot file electronically. The agency is balancing the e-signature option with critical security and protection needed against identity theft and fraud. Understanding the importance of electronic signatures to the tax community, the IRS offers an overview about using them on certain forms. Fact sheet FS-2021-12 provides additional information and a list of forms where the IRS allows taxpayers and representatives to use electronic or digital signatures on paper forms, which the cannot file using IRS e-file.
Full-time students at colleges who also work at those colleges to assist in financing their education may be exempt from employment taxes. In Jamillah Kamillah Muhammad (T.C. Memo. 2021-77) the taxpayer reported none of her W-2 wages as income. She did not attach her W-2 to the return, but filed a substitute W-2 on Form 4862. She worked for a univerisity but did not testify as to the nature of her employment. The taxpayer insisted that the payments she received were not wages. The Court noted this was a time-word tax protester argument and dismissed her claim. The Tax Court assessed a small frivolous position penalty of $250 (it can be as high as $25,000).
Tip of the DayRules are rules . . . Sometimes it seems like it shouldn't make a difference, but you've got to follow the rules. One taxpayer, who was covered by a SIMPLE IRA where he worked simply deposited the maximum contribution into the SIMPLE with money taken from his savings account instead of having his employer reduce his salary to fund the deposits. In addition, he took a deduction for the contribution. In court the taxpayer argued the IRS was no worse off. The Court was not unsympathetic to the taxpayer's position, but said the law was clear and disallowed the deduction.
September 2, 2021
NewsThe IRS has announced that victims of Severe Storms and Flooding that occurred on August 21, 2021 in Tennessee now have until January 3, 2022, to file various individual and business tax returns and make tax payments. Following the recent disaster declaration issued by FEMA, the IRS announced today that affected taxpayers in certain areas will receive tax relief. Individuals and households affected by Severe Storms and Flooding that reside or have a business in Dickson, Hickman, Houston, and Humphreys counties qualify for tax relief. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after August 21, 2021, and before January 3, 2022, are postponed through January 3, 2022. This means that individuals who had a valid extension to file their 2020 returns, due to run out on October 15, will now have until January 3, 2022 to file. The January 3, 2022, deadline applies to the quarterly estimated tax payment, normally due on September 15. Also, penalties on deposits due on or after August 21, 2021, and before September 7, 2021, will be abated as long as the tax deposits were made by September 7, 2021 If an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date that falls within the postponement period, the taxpayer should call the telephone number on the notice to have the IRS abate the penalty. For information on services currently available, visit the IRS operations and services page at IRS.gov/coronavirus. The IRS automatically identifies taxpayers located in the covered disaster area and applies filing and payment relief. But affected taxpayers who reside or have a business located outside the covered disaster area should call the IRS disaster hotline at 866-562-5227 to request this tax relief. For additional information, go to IRS Announces Tax Relief for Victims of Severe Storms in Tennessee.
The IRS announced (IR-2021-176) in response to shortages of undyed diesel fuel caused by Hurricane Ida, it will not impose a penalty when dyed diesel fuel is sold for use or used on the highway for a number of parishes in the state of Louisiana. The Louisiana parishes are: Ascension, Assumption, East Baton Rouge, East Feliciana, Iberia, Iberville, Jefferson, Lafourche, Livingston, Orleans, Plaquemines, Pointe Coupee, St. Bernard, St. Charles, St. Helena, St. James, St. John the Baptist, St. Martin, St. Mary, St. Tammany, Tangipahoa, Terrebonne, Washington, West Baton Rouge and West Feliciana. This relief is effective as of August 29, 2021, and will remain in effect through September 15, 2021. This penalty relief is available to any person that sells or uses dyed fuel for highway use. In the case of the operator of the vehicle in which the dyed fuel is used, the relief is available only if the operator or the person selling the fuel pays the tax of 24.4 cents per gallon that is normally applied to diesel fuel for highway use. Click the link above for more information.
Tip of the DayEarly distributions from SIMPLE plans . . . SIMPLE plans are just that; simple. They allow employees to defer up to $13,500 (2021 amount) to a special IRA. The amount deferred escapes current income tax (but not FICA or medicare taxes). Employees age 50 and older may make annual "catch-up" contributions of $3,000 (2021 amount). And most of the IRA rules apply. Thus, unlike a 401(k) plan you can't borrow from a SIMPLE. Distributions before age 59-1/2 are subject to a 10% penalty, unless one of the exceptions applies. There's a trap here. Distributions during the first two years of participation in a SIMPLE plan are subject to a 25% (instead of 10%) penalty. That includes rollovers from a SIMPLE IRA to a non-SIMPLE IRA.
September 1, 2021
News>b>Amounts received as a result of the repayment of loans are not income nor is the receipt of funds from taking out a loan. Distributions from a business may be income depending on the facts. Bad debts may be deductible as either a business loss (fully deductible) or as a nonbusiness bad debt and treated as a capital loss. In Michael R. Kelly (T.C. Memo. 2021-76) the taxpayer was engaged in the business of buying businesses and flipping loans. The business was successful until shortly before 2008. The taxpayer controlled a number of businesses and there were many intercompany transactions involving funds transfers and loans. Some of these loans could not be repaid and were forgiven. The Tax Court after 2007 there was a dimished likelihood the "loans" could be repaid. A resonable prospect of repayment of a loan is an important criteria in determining whether or not a debt is bona fide. The Court also noted that respect for the loan characterizatiopn and repayments gradually disappered after 2007. The Court found that transfers and other intercompany transfers were not properly characterized as loans beginnin on January 1, 2008. As a result that the transfers beginning on January 1, 2008 were shareholder distributions.
Tip of the DayAccounting for business assets . . . Whether you expense business assets under Sec. 179 or depreciate them over a number of years, if you're audited by the IRS there's a good chance you'll have to show the information surrounding the acquisition such as an invoice. You may also have to show details of any disposition or be able to show you still own the asset. The higher the asset's value, the greater the chance documentation may be requested. Ideally each asset of significance should be tracked and a file kept. That may also be required for accounting purposes. It's also a good way to check on assets from time to time to make sure they don't grow "legs".
August 31, 2021
NewsThe IRS added Assumption and Lafourche Parishes to the parishes in Louisiana where victims of the severe storms and flooding that began May 17, 2021 qualify for tax relieve. The full list of parishes not includes Ascension, Assumption, Calcasieu, East Baton Rouge, Iberville, Lafourche and Lafayette. While the extended deadline has now passed (it was August 16, 2021) taxpayers may benefit from a reduction in any penalties that would have started on the original due date. For more information, go to IRS Announces Tax Relief for Victims fo Severe Storms and Flooding in Louisiana.
The IRS has posted News Release IR-2021-174, September is National Preparedness Month to its webpage. The release has a number of tips to what to do to prepare for an emergency along with several links to IRS and SBA and other government resources.
Tip of the DayDistributing an estate . . . Being the executor of an estate is not without pitfalls. Unless you're experienced, there are times you should consult an attorney. One area of concern is making sure you don't distribute assets that may be needed to pay liabilities of the estate. For example, Fred dies with $250,000 of assets. Unbeknownst to you Fred's business, which is now defunct accumulated $175,000 in unpaid employment taxes and penalties for which Fred was personally responsible. You distribute the $250,000 to the heirs. The IRS can hold you responsible for the full $175,000. You may be able to recover the funds from the heirs, but don't count on it. While you're doing a search for assets, do a diligent search for liabilities.
August 30, 2021
NewsThe IRS has announced that victims of California wildfires that began July 14, 2021 now have until November 15, 2021, to file various individual and business tax returns and make tax payments. Following the recent disaster declaration issued by the FEMA, affected taxpayers in certain areas will receive tax relief. Individuals and households affected by wildfires that reside or have a business in Lassen, Nevada, Placer, and Plumas counties qualify for tax relief. The declaration permits the IRS to postpone certain tax-filing and tax-payment deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after July 14, 2021, and before November 15, 2021, are postponed through November 15, 2021. Individuals who had a valid extension to file their 2020 returns, due to run out on Oct. 15, will now have until November 15, 2021 to file. The November 15, 2021, deadline applies to the quarterly estimated tax payment, normally due on September 15. It also applies to the quarterly payroll and excise tax returns normally due on August 2, 2021. Also penalties on deposits due on or after July 14, 2021, and before July 29, 2021, will be abated as long as the tax deposits were made by July 29, 2021. For more information go to IRS Announces Tax Relief for California Wildfire Victims.
Revenue Ruling 2021-15 provides a list of the average annual effective interest rates on new loans under the Farm Credit System and a list of states withing each Farm Credit System Bank Territory. These rates are used in computing the special use value of real property used as a farm for which an election is made under Sec. 2032A for estate tax purposes.
Tip of the DayCutting the price of a product or service . . . Be careful you don't aggravate recent customers. There's no clear percentage cut. It could depend on the product, the amount of the cut, the price of the product or service, and how it was marketed. For example, if you've been advertising a product at $2,199 and suggesting that's a good deal a customer may be mad if you soon thereafter drop the price $300. How much of a cut is the threshold. Certainly dropping the price in one move from $2,199 to $1,199 is going to be upsetting. Several gradual cuts is less likely to be. And some companies telegraph their cuts. Madison Inc. comes out with updated phones in August of every year and soon thereafter cuts the price on existing models. That's unlikely to raise the ire of few customers.
August 27, 2021
NewsThe IRS has added the 2022 Audi, BMW and Lincoln plug-in electric vehicels to the list of eligible autos for the qualified plug-in electric dirve motor vehicle credit. for the full list of qualifying vehicles go to Qualified Plug-In Electric Drive Motor Vehicles.
There are more than a few tax schemes out there and many of them don't work. In Bell Capital Management, Inc. (T.C. Memo. 2021-74) the corporation was a U.S. entity with a sole shareholder and director. The sole shareholder worked for the company, and was paid a regular salary for some years. For six years the shareholder received annual salaries between $580,000 and $978,000. At the end of that period the taxpayer changed the shareholder's compensation structure. Instead of paying the salary directly, the company began leasincg the shareholder's services. The leasing agreement provided for a salary plus perks including a car, medical insurance, etc. The Court noted the shareholder was listed as president and signed tax returns and legal documents as such and that the leasing transaction lacked economic substance. The Court upheld the determination of the IRS that the taxpayer was liable for employment taxes and related withholding.
Tip of the DayBackup executor . . . Serious consideration should be given to naming one in your will. Even if you've discussed it with your first choice he or she may end up declining or not up to the task when the time comes. There could be any number of reasons. Don't forget that person may not be called on for many years.
August 26, 2021
NewsThe IRS announced (IR-2021-173) that interest rates will remain the same for the calendar quarter beginning October 1, 2021. The rates will be:
The rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.
Tip of the DayNoncompete agreement . . . If you're selling your business, more than likely you'll be asked to sign a noncompete agreement. Generally, there's nothing wrong with that. However, you should make it conditional on the buyer fulfilling his side of the deal. For example, if he defaults on the payments on a note, the noncompete becomes voidable. It gives you some leverage and allows you to get back in the business, if you want. Talk to your attorney. You'll probably want other guarantees.
August 25, 2021
NewsNotice 2021-51 (IRB 2021-36) announces that the Treasury Department and the IRS intend to amend certain regulations under Sections 1446(a) and 1446(f) to defer the applicability date to January 1, 2023 for certain provisions relating to the following: (i) withholding under Section 1446(f) on transfers of interests in publicly traded partnerships (PTP interests); (ii) withholding under Section 1446(a) on distributions made with respect to PTP interests; and (iii) withholding under Section 1446(f)(4) by partnerships on distributions to transferees.
The Treasury Inspector General for Tax Admninistration (TIGTA) initiated an audit because some S corporation owners may be motivated to underpay or not pay themselves in order to avoid paying employment taxes. TIGTA sought to determine whether the IRS's policies, procedures, and practices are adequately ensuring that compensation is considered in examinations of closely held S corporations and its shareholders. TIGTA found the issue of S corporations not paying salaries to officers and avoiding employment taxes has been reported for many years. IRS revenue agents have the opportunity to assess the issue when examining Forms 1120-S, U.S. Income Tax Return for an S corporation, in the field; addressing the issue more directly by examining it in the IRS's Employment Tax function; or through Compliance Initiative Projects. The IRS is selecting less than 1 percent of all S corporations for examination. When the IRS does examine S corporations, nearly half of the revenue agents do not evaluate officer's compensation during the examination even when single-shareholder owners may not have reported officer's compensation and may have taken tax-free distributions in lieu of compensation. TIGTA's analysis of all S corporation returns received between Processing Years 2016 through 2018 identified 266,095 returns with profits greater than $100,000, a single shareholder, and no officer's compensation claimed that were not selected for a field examination. The analysis found that the single-shareholder owners had profits of $108 billion andtook $69 billion in the form of a distribution, without reporting they received officer’s compensation for which they would have to pay Social Security and Medicare tax. TIGTA estimated 266,095 returns may not have reported nearly $25 billion in compensation and may have avoided paying approximately $3.3 billion in FICA tax. For the complete report, go to https://www.treasury.gov/tigta/auditreports/2021reports/202130042fr.pdf.
Tip of the DayRetired property . . . Most businesses are careful to put acquired assets on the books and take depreciation, but often don't retire the assets when they're sold, scrapped, converted to personal use, destroyed, etc. In many cases there can be tax consequences. If the asset is sold for more than its adjusted basis (generally, cost less depreciation taken) you may have an ordinary and/or capital gain. If it's disposed of for less, you could end up with an ordinary loss. Old equipment should be taken off the books for a number of reasons. Talk to your accountant or tax adviser.
August 24, 2021
NewsYou may be able to get a whistleblower award from the IRS by turning in employer, a business, or even and individual. But the government looks for excuses not to pay. In Whistlebolwer 10084-16w (T.C. Memo. 2021-73) the Court sided with the IRS in denying the award because the IRS did not use the information provided to make adjustments to the taxpayer's return for the years at issue and no proceeds were generated from the information provided by the whistleblower.
Tip of the DayParticipating in a trade show? . . . Check the rules in the state where the show is being held. In an advisory opinion one state held that a company's participation at two 5-day trade shows was de minimus, that is too small a connection to subject it to the state's income tax. The corporation did not make any sales or take orders at the show. It merely displayed and demonstrated its products. If you limit your activities to simply demonstrating your products, you should be safe. Once you start taking orders or actually making sales, you'll have to check the laws for that state. There's a good chance you'll not only be subject to sales tax but to income taxes as well. Stay up-to-date on the rules for the states you visit. The rules today change faster than in the past, particularly since the Supreme Court Wayfair decision. And just because you checked the rules nine months ago, doesn't mean they haven't changed.
August 23, 2021
NewsThe IRS has launched a new feature allowing any family receiving monthly Child Tax Credit payments to quickly and easily update their mailing address using the Child Tax Credit Update Portal, found exclusively on IRS.gov. This feature will help any family who chooses to receive their payment by paper check avoid mailing delays or even having a check returned as undeliverable. To have the change take effect in time for the September payment, people need to complete the change request before midnight ET on Monday, Aug. 30.
The IRS is closing several individual payment P.O. boxes (or lockbox addresses) in the San Francisco, Calif., and Hartford, Conn., areas beginning Jan. 1, 2022. Payments mailed to these closed payment locations after Jan. 1 will be returned to sender. To help ensure timely receipt, encourage your clients to avoid mailing to these closing addresses. Check Where to File on IRS.gov for active addresses before mailing payments. If you or your client receive an IRS payment letter, send payment to the address found in the letter. The IRS also encourages taxpayers to use IRS Direct Pay. It's a fast, secure and easy way to pay a tax bill or estimated tax payment directly from a checking or savings account. Users receive instant confirmation that their payment has been made.
Tip of the DayPrivate rulings from your state . . . The IRS issues private letter rulings directed to taxpayers with questions about a transaction where the tax consequences are unclear. The rulings are public, but the name and other information is omitted so the taxpayer can't be identified. Many states have a similar procedure. Thus, if there are no regulations, case law, etc. on the topic you can request a written determination asking, for example, whether a certain item is subject to sales tax. You can usually rely on the letter ruling, but only if the facts are the same as stated in the request. The good news is you can avoid getting hit with taxes and penalties if you request a ruling and the state later takes a contrary position. The bad news is if you don't like the ruling, you're stuck with it. Even if the state doesn't charge for a ruling (we don't know of any that do; the IRS does), there is an expense on your part. Requesting a ruling makes sense if the amount involved is substantial or the issue will recur. Talk to your tax adviser.
August 19, 2021
NewsYou may be able to seek an abatement of interest on a tax deficiency, but only if you can show the delay was due to a ministerial or managerial act by the IRS. That's tougher to show than it sounds. In Kannarkat P. Verghese, deceased, Annie P. Verghese, Personal Representative, and Annie P. Verghese (T.C. Memo. 2021-70) a married couple held investments in partnerships that, unbeknownst to the taxpayers reported fraudulent charitable contributions on the partnership returns. The partnerships contested the IRS deficencies. The case carried on for some time for close to 15 years. The IRS sent the taxpayers notices for taxes and interest. The taxpayers filed a Form 843 requesting an abatement of interest for the years during which the TEFRA litigation was pending. Their claim was based on allegations of unfairness and unreasonable delay by the IRS. The IRS denied the claim determining Sec. 6404 did not permit abatement under any of the circumstances the taxpayers alleged. The Court held that Sec. 6404(b) precludes a claim under Sec. 6404(a) for abatement of interest on income tax. The Court also held Appeals did not abuse its discretion when it determined there was no ministerial or managerial act by the IRS sufficient to constitute unreasonable delay justifying abatement under Sec. 6404(e) (except for a five-month period).
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.
August 19, 2021
NewsLawsuit settlement proceeds are generally taxable unless they're to compensate for physical injury, such as a broken leg from a car accident. In Carol E. Holliday (T.C. Memo. 2021-69) the taxpayer was represented by her attorney in divorce proceedings. The attorney filed a motion for a new trial stating the taxpayer received some $75,000 less than her equal share in the community estate. The motion for a new trial was denied and the attorney told the taxpayer he would file an appeal, but failed to do so. The taxpayer filed a malpractice lawsuit against the attorney for damages including "damages for past and future mental anguish, suffering, stress, anxiety, humiliation, and loss of ability to enjoy life" as well as punitive damages. The taxpayer won, but the defendants did not admit liablity or fault in the settlement agreement, and the parties did not allocate any of the settlement proceeds toward any particular claim or type of damages. The taxpayer received $175,000, $73,500 of which was withheld by the malpractice attorney. The IRS claimed the entire $175,000 should be reported as income and the attorney fee of $73,500 was deductible as a miscellaenous itemized deduction. The taxpayer argued the proceeds were a nontaxable return of capital to compensate her for her portion of the marital estate she did not receive because of the malpractice. The IRS claimed the proceeds were taxable as compensation for the alleged failings of her divorce attorney. The Court noted the settlement agreement made it clear the proceeds were in lieu of damages for legal malpractice. The Court held the proceeds were taxable.
Tip of the DaySection 179 and real property . . . Electing to use Sec. 179 you can expense property in the year it's placed in service. The election with respect to real property is limited to nonresidential real estate. The property must be qualified improvement property and applies to roofs, HVAC property, fire protection and alarm systems and security systems. The expenditure can't increase the size of the building. There are some other restrictions. For more information see IRS Publication 946, How to Depreciate Property.
August 18, 2021
NewsIn News Release (IR-2021-170) the IRS is urging tax professionals to watch out for these critical signs their computer has been hacked:
CClient e-filed returns rejected because client's Social Security number was already used on another return.
Tax professionals should also watch for warning signs when clients report they've received:
--Someone accessed their IRS online account,
--The IRS disabled their online account.
IR-2021-170 contains additional information and links.
Tip of the DayCo-signing a loan? . . . Think thrice. There is rarely an upside. In general, it's one of the dumbest financial moves you can make. When you co-sign you're on the hook for the full amouant of the outstanding debt should the debtor default. In addition, that debt can affect your credit score, even if the debtor is making payments. A potential creditor will see that $35,000 car loan as yours. Worse, you don't have ownership of the property involved. In some cases, such as student loans, the debt can be open-ended. You've co-signed, but as the student signs up for another semester, the debt will increase and you may be liable for the additional amount. As a co-signer the bank, credit card company, etc. doesn't have to wait till the debtor declares bankruptcy before seeking payment from you. And, should you have to make good on the debt, you may be able to get a nonbusiness bad debt deduction on your taxes, but that's considered a capital loss. In some cases co-signing is unavoidable. You may have to co-sign or guarantee the debt of your corporation, LLC, etc. And you might want to co-sign a loan for your children. But make sure they're financially rsesponsible and you have some recourse to the property should they run into financial difficulty. Consider talking with your CPA or financial advier before taking action.
August 17, 2021
NewsMisrepresentation of facts to the IRS (or in many legal situations) can lead to many problems. In New Capital Fire, Inc. (T.C. Memo. 2021-67) the facts involved a merger were the IRS issued a notice of deficiency determining that the merger was a taxable vent and there was a capital gain on the transfer of assets. In an earlier case (New Capital Fire, Inc.; T.C. Memo. 2017-177) the Tax Court held that the taxpayer's return began the running of the period of limitations as to one of the 2002 taxable year, the notice of deficiency issued to the taxpayer was untimely, and the statute of limitations barred assessment of the determined deficiency for that year. After the Court's decision there had become final, the taxpayer filed an amended petition in this case alleging that it did not realize capital gains on the sale of the other corporaton's assets assets on the basis that the merger was a taxable event, i.e., the position that the IRS had taken against the taxpayer in the earlier case. Accordingly, the taxpayer asserted that it did not realize the capital gains it had reported on its return. The taxpayer and the other corporation are in privity for tax reporting purposes. The IRS argued, in part, that the taxpayer should be estopped from changing its reporting of the asset sale after the other corporation's tax year has closed to the detriment of the IRS, under the doctrine of equitable estoppel. The taxpayer argued that the doctrine of equitable estoppel did not apply. The Court noted that equitable estoppel applied in this case because the taxpayer knowingly misrepresented facts relating to the first merger and concealed that the merger occurred in two steps, the taxpayer's misrepresentations were not innocent, and the IRS did not know or have reason to know the correct facts before the limitations period expired for the old corporation's tax year. The taxpayer also misled the IRS through wrongful misleading silence including not filing a separate return for the old corporation's 2002 tax year. The misrepresentations related to questions of fact; it did not make a mistake of law. The IRS reasonably relied on the taxpayer's misrepresentations and silence and has been adversely affected. The Court held the taxpayer was estopped under the doctrine of equitable estoppel from changing its reporting of its bases in the old corporation's assets that the taxpayer acquired in the merger because the statute of limitations bars assessment of tax against the old corporation. The Court also held the taxpayer realized capital gains on the sale of the old corporation's assets in the amount that the taxpayer reported on its return.
Tip of the DayAttorney client privilege has its limits . . . The attorney-client privilege protects confidential communications between client and an attorney made for the purpose of obtaining or providing legal assistance. Information conveyed to a lawyer by a client solely for the purpose of retransmission to a third-party is generally not protected by the attorney-client privilege, and the result is no different when the third-party is the IRS and the means of retransmittal is a tax return. The issue hinges on whether the information was conveyed by the client to the attorney in confidence for the purpose of obtaining legal advice and not merely for the purpose of retransmittal to a third party. The attorney-client privilege can also be lost if you reveal the information to a third party. Best advice? If you want the information to remain privileged, talk to your attorney and make sure you understand the nuances of the law.
August 16, 2021
NewsRev. Proc. 2021-34 modifies Rev. Proc. 2019-43, to provide procedures under Sec. 446 of the Code and Sec. 1.446-1(e) of the Regulations to obtain automatic consent of the Commissioner to change methods of accounting to comply with final regulations under Secs. 1.451-3, 1.451-8, and 1.1275-2(l) and to change methods of accounting for certain inventory costs to comply with Secs. 263A, 461, and 471 if made in connection with a change to comply with Sec. 1.451-3 and/or Sec. 1.451-8, as applicable. The revenue procedure also provide procedures for a taxpayer to obtain the consent of the Commissioner to change its method of accounting to comply with Secs. 1.451-3 and/or 1.451-8, as applicable, by providing rules related to cost offset method changes.
The IRS announced (IR-2021-169) that millions of American families are now receiving their advance Child Tax Credit (CTC) payment for the month of August as direct deposits begin posting in bank accounts and checks arrive in mailboxes. This second batch of advance monthly payments, worth about $15 billion, are reaching about 36 million families today across the country. The majority will be issued by direct deposit. Under the American Rescue Plan, most eligible families received the first payment on July 15, and payments will continue each month for the rest of 2021. For these families, each payment is up to $300 per month for each child under age 6 and up to $250 per month for each child ages 6 through 17. Low-income families can still sign up for advance CTC payments and families can stop the payments at any time even after the payments begin. In the case of married spouses, each must unenroll separately. If only one unenrolls the payments will continue, but at one-half the amount. See the link above for more details and links to tools.
Tip of the DayBlame your lawyer . . . Or your accountant. Or any convenient outside professional. You're negotiating a deal with a vendor, customer, negotiating a contract with an employee, selling or buying an asset, etc. You want to take a position that is likely to put the other party off. Tell them "I don't want to do this, but my lawyer (or accountant, or . . ) says I have to because . . ." You look like the good guy and your attorney looks like the bad guy. But that's what people expect. It's also a good way to delay finalizing an agreement ("my accountant says he wants to check . . . "). Just make sure your accountant, attorney, etc. knows what you're doing.
August 13, 2021
NewsYour business can take a deduction for a theft loss, and, in most situations embezzlment is considered a theft. In order to claim a theft loss deduction, a taxpayer must prove (1) that a theft occurred under the law of the jurisdiction where the alleged loss occurred; (2) the amount of the loss; and (3) the date you discovered the loss. A taxpayer bears the burden of proving by a preponderance of evidence that a theft actually occurred. In Michael Torres (T.C. Memo. 2021-66) the taxpayer was the sole shareholder of an S corporation. He and a woman cofounded the company. While the woman was no longer a shareholder, she continued to manage the company's books and records. She was not compensated and took amounts from the company. The taxpayer alleged that he suffered a loss from embezzlement. The IRS denied a deduction for embezzlement and the alternative claim as a deduction for compensation. The Court looked to the definition of embezzlement under state law. One of the requirements is an intent to defraud. The taxpayer did not offer evidence the woman intended to defraud the company and denied the deduction. The Court also noted that even if a theft loss occured it was discovered in 2017, not 2016 and, therefore, could only be deducted in the year of dicovery. The Court also denied the taxpayer's alternate argument of a deduction for compensation, but on the taxpayer's claim he did not mention the woman was entitled to compensation. The Court denied the alternative argument.
Tip of the DayBefore you sign . . . Read your lease carefully. Make sure you've got an out should things not work out. One business thought there was plenty of parking for his business. When he signed he had over nine months to build out the space before he had to make his first payment. It turned out the tenant moving into the adjoining space used up much of the available spots forcing the business owner to apply for a variance from the town. Best estimate on getting the variance? Six months. Once construction starts it'll take another six months plus to complete the work and get a certificate of occupancy. The business owner is seriously considering canceling the lease and looking for other space. For many businesses, particularly startups, such a situation could be a disaster. Make sure you have an out in your lease and, of course do your homework on the location and town rules.
August 12, 2021
NewsThe Senate has passed the $1.2 trillion infrastructure bill. It now goes to the House, where there's less consensus. In actuality there's less new spending than what it might seem. Roads and bridges are the biggest recipient at $110 billion; railroads are next at $66 followed by the power grid at $65 billion and broadband for the same amount. There are few income tax provisions in the bill. One would terminate the employee retention credit for wages paid after September 30, 2021 (except for startups), mandate full information reporting requirements for brokers dealing in cryptoassets (similar to what's now done for stocks), and provide automatic extension of certain deadlines for taxpayers affected by a major disaster where the President provides financial aszsistance.
The IRS is again warning taxpayers in general and tax professionals in particular about email phishing scams, many of which use pandemic related themes. By getting you to click on a link to either get the taxpayer or professional to devulge sensitive information or to load malware onto the user's computer that will find and send passwords, social security numbers, etc. back to the scammer. The IRS advises that most phishing schemes appear to come from a trusted source such as your bank, credit card companye, etc. and they tell a story, often with an urgent tone to get you to act, hopefully without investigating. The IRS has found that scammers have posed as potential clients for tax professionals eventually sending an attachment that would download malware. Keep in mind that many large systems have been compromised recently, providing scammers with access to some sensitive information. Using that informatin they may be able to convince you that the source of the email is legitimate. For more information, see IR-2021-166.
Tip of the DayRight to audit . . . You hire an independent contractor for consulting work and agree to reimburse him for expenses including meals, lodging, equipment rentals, subcontractors, etc. If the contract is substantial, make sure you include a right to audit his expenses. Contractors have been known to pad charges that should be legitimately passed through without a markup. Similarly, if you're a tenant in a building you should also have the right to review building cost data if a share of the expenses are being passed through on your lease.
August 11, 2021
NewsThe IRS has issued a safe harbor allowing employers to exclude certain items from their gross receipts solely for determining eligibility for the Employee Retention Credit (ERC). Revenue Procedure 2021-33 provides a safe harbor permitting employers to exclude certain amounts from gross receipts solely for determining eligibility for the ERC. These amounts are:
An employer elects to apply the safe harbor by excluding these amounts solely for determining whether it is an eligible employer for a calendar quarter for purposes of claiming the ERC on its employment tax return. Revenue Procedure 2021-33 requires employers to apply the safe harbor consistently for determining eligibility for the ERC. The employer must exclude the amounts from their gross receipts for each calendar quarter in which gross receipts are relevant to determining eligibility to claim the ERC. The employer claiming the credit must also apply the safe harbor to all employers treated as a single employer under the aggregation rules. An employer is not required to apply this safe harbor, and the safe harbor does not permit the exclusion of these amounts from gross receipts for any other federal tax purpose.
Notice 2021-43 provides transition relief to certain employers claiming the Work Opportunity Tax Credit (WOTC). The WOTC is a federal income tax credit available to employers that hire certified members of certain groups specified in the Code who face significant barriers to employment, including Designated Community Residents or Qualified Summer Youth Employees. Notice 2021-43, extend the 28-day deadline for employers to submit a request to a designated local agency (DLA) to certify that an employee hired between January 1 and October 8 of this year is a Designated Community Resident or a Qualified Summer Youth Employee. To be certified as a Designated Community Resident or a Qualified Summer Youth Employee under the WOTC, an employee must have a principal place of residence within an Empowerment Zone where the employee continuously resides. The notice also provides guidance to certain employers who submitted a Form 8850 to a DLA for these employees during the period of transition relief and received a denial due to the termination of Empowerment Zone designations on Dec. 31, 2020, or who received a certification before Empowerment Zone designations were extended.
Tip of the DayMillions of job openings . . . But there appears to be a mismatch of skills. Restaurant and retail workers seem to have left their fields; but it takes time to make a software engineer. Antecdotal evidence indicates many women have left the work force, and a significant number won't return. The bottom line is if you're looking to hire, your options will vary widely depending on your business and what slots you're looking to fill. One thing seems almost universally true, most jobs are tough to fill and you might have to up salaries for many of your workers. And because openings are hard to fill, you should make a major effort to retain the employees you have.
August 10, 2021
NewsCost of goods sold can be deducted against your gross income for both financial and tax accounting purposes. In BRC Operating Company LLC, Bluescape Resource Company LLC, Tax Matters Partner; Bluescape Resources Company LLC, Bluescape Resources Investors LLC, Tax Matters Partner (T.C. Memo. 2021-59) the taxpayer purchased hundreds of thousands of acres of minerals and leases interests and planned to explore for, mine, and produce natural gas for sale. On its partnership return the company reported as costs of goods sold, estimated drilling costs for natural gas exploration and mining. The amounts were $100 million for the first tax year and $60 million for the second. The company did not drill, receive drilling services from third parties, or receive drilling property during the tax years in issue. It reported no gross receipts or sales during these years attributable to the sale of natural gas. The Court noted it has disallowed cost of goods sold when a taxpayer fails to present evidence of net sales, or beginning or ending inventory. The Court cited a number of cases and concluded that to recover cost of goods sold a taxpayer generally must have some gross receipts from the sale of goods to offset and disallowed the estimated drilling costs.
Tip of the DayRecords and catastrophes . . . You probably considered making PDFs of important papers and records or storing backups in a safe place. But what would happen if your original papers were exposed, scattered, or stolen in a hurricane, tornado or similar catastrophe? Or even in a break-in? Your social security number, bank information, tax returns are now far more valuable or more easily salable. If you store your records at home or office that's vulnerable, at least put them in a safe. While a smart crook can break into most home safes, it's another case of "if it looks like too much work, he'll just move on to the next house". Put some roadblocks in the thief's way.
August 9, 2021
NewsThe IRS has announced the depreciation limits and lease inclusion amounts for cars placed in service in 2021. Go to Depreciation Limits for Cars-2021 for our tables.
The IRS is reminding employers that the SECURE Act of 2019 permits an employer to adopt a retirement plan after the close of the employer's taxable year (by the due date, including extensions, for filing its tax return for the taxable year) and elect to treat the plan as having been adopted as of the last day of the taxable year. This provision applies to plans adopted for taxable years beginning after December 31, 2019. If an employer adopts a plan during the employer's 2021 taxable year (but not later than the due date, including extensions, for filing the employer\'s 2020 tax return)
Instead, the first Form 5500 required to be filed with respect to the plan will be the 2021 Form 5500. However, the plan sponsor will be required to check a box on the 2021 Form 5500 indicating that the employer elects to treat the plan as retroactively adopted as of the last day of the employer's 2020 taxable year. Additionally, if the plan is a defined benefit plan, the employer will be required to attach a 2020 Schedule SB to the 2021 Form 5500 or Form 5500-SF, in addition to a 2021 Schedule SB. The instructions for the 2021 Form 5500 will further explain the filing requirements for plans adopted retroactively. It's anticipated that similar rules will apply to the retroactive adoption of a plan pursuant to the SECURE Act provision after an employer’s 2021 taxable year.
Tip of the DayBusinesses flush with cash and credit . . . Your business may not be, but many larger businesses have weathered the pandemic well and profited during the recovery. They've got cash and they've also have bank credit. Many businesses will replace or add to existing equipment, possibly expand product lines, any may be looking to purchase rivals or smaller businesses. Monitor your industry closely to avoid surprises.
August 6, 2021
NewsSome deadlines are more severe than others. Late filing your tax return by a few days? You'll get a penalty, but it won't be fatal. (Caution. You may lose out on an election that could be costly.) But other deadlines can catastrophic. In William J. Spain and Idovia A. Spain (T.C. Memo. 2021-58) the taxpayer's Tax Court petition arrived 10 days after the 30-day deadline. The taxpayers argued it was mailed on time, but the Court noted it was not damaged, there was no USPS postmark and the taxpayer had no receipts to prove time of mailing. The Court held it did not have jurisdiction and dismissed the case.
If the IRS wants to assess a penalty along with additional tax after an examination, the IRS agent must obtain approval of his or her immediate supervisor at the time the initial determination of penalties is imposed. There have now been a number of cases where the lack of approval was challenged and the penalties not imposed. In Stanley Battat and Zmira Battat (T.C. Memo. 2021-57) the issue was whether the Form 4549, Income Tax Examination Changes, also known as a revenue agent report (RAR), sent with a Letter 4121, Agreed Examination Report Transmittal, was the "initial determination" by an "individual" to impose a penalty for purposes of Section 6751(b). The Court held the Form 4549 sent with the Letter 4121 was the initial determination and that the accuracy-related penalty should not be imposed.
Tip of the DayMissed issues . . . Seems that everything in life is more complicated these days and everyone is a specialist. It may be up to you to make sure that a professional doesn't miss something. You go to a lawyer to draft a purchase agreement for some property. He also helps with the loan agreement. He knows you use a CPA for your business accounting and tax work so he assumes you'll get the CPA's opinion on some of the terms in the loan agreement. But you assume the attorney is in charge and you don't have to consult another professional. That can be a mistake. You can't blame the attorney here. The reverse can also be true. The smart move would be to consult your CPA regardless.
August 5, 2021
NewsThe IRS has issued further guidance (Notice 2021-49 on the employee retention credit, including guidance for employers who pay qualified wages after June 30, 2021, and before January 1, 2022, and additional guidance on miscellaneous issues that apply to the employee retention credit in both 2020 and 2021. Notice 2021-49 amplifies prior guidance regarding the employee retention credit provided in Notice 2021-20 and Notice 2021-23. The Notice addresses changes made by the American Rescue Plan Act of 2021 (ARP) to the employee retention credit that are applicable to the third and fourth quarters of 2021. Those changes include, among other things, (1) making the credit available to eligible employers that pay qualified wages after June 30, 2021, and before January 1, 2022, (2) expanding the definition of eligible employer to include "recovery startup businesses", (3) modifying the definition of qualified wages for "severely financially distressed employers", and (4) providing that the employee retention credit does not apply to qualified wages taken into account as payroll costs in connection with a shuttered venue grant under section 324 of the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act, or a restaurant revitalization grant under section 5003 of the ARP. (See also IR-2021-165.
The IRS is once again sending correspondence using the Automated Collection System. The income tax levy program has also been restarted. The IRS is still backlogged on processing correspondence in many areas which could lead to a second notice after you've mailed a check.
Tip of the DayBe prepared to file 1099s electronically . . . Right now you don't have to file a 1099 electronically unless you file 250 or more of the same type (e.g. 1099-NEC). Proposed rule changes would require aggregation of information returns. For example, if you file 150 1099-NECs, 75 1099-MISC and 65 1099-INT, you would have broken the 250 threshold and be required to file electronically. But the proposed rules would also reduce the 250 threshold to 100 and, in 2022, to 10. Very few businesses would be able to escape the filing requirement. In addition, Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, would have to be filed electronically.
August 4, 2021
NewsThe text of the infrastructure bill was revealed by the Senate over the weekend. Ultimate passage by the Senate and then the House will take more time. The bill is some 2,772 pages long. The tax provisions in the bill are limited. They include an extension of the highway taxes, an exception for contributions in aid of construction, and the use of private activity bonds to fund qualified broadband and certain other projects. Of more relevance to most taxpayers is a provision requiring information reporting with respect to cryptocurrency brokers. In addition businesses that receive more than $10,000 in digital assets will face the same reporting requirements as if they received cash. Finally, with the exception of a startup business the employee retention credit will terminate for wages paid after September 30, 2021.
The IRS has released a draft copy of Form 8857, Rquest for Innocent Spouse Relief, along with the accompanying instructions. There are a number of changes to the form requesting innocent spouse relief that are needed to comply with the new Code Sec. 6015(e)(7) added by the Taxpayer First Act.
Tip of the DayTaking over a contract . . . If you're acquiring a business, or part of one, you may be taking over one or more contracts that could bind you to purchase or sell goods or deliver services at a certain price. Check the terms carefully and make sure you won't be committing to a deal that will bankrupt you. Conversely, if you won't be taking over a contract make sure you can get products you'll need at a price you can pay. Tip of the Day
August 3, 2021
NewsIncome has to be reported by the person or entity that earned it. In Randy Jenkins; Ira W. Gentry, Jr., and Lynn M. Gentry (T.C. Memo. 2021-54) the Tax Court held that several corporations were the alter-egos of one of the taxpayers under state law and that the capital gains they attributed to the corporations belonged to the taxpayer.
Despite the appearances based on the proliferation of non-profits and tax-exempt organizations, the organization must serve the public interest. In Tikar, Inc. (T.C. Memo. 2021-53) the IRS claimed that the organization had been inactive for a number of years, that it did not substantiate that it purchased the artifacts as claimed, and that the activities associated with authenticating the artifacts did not further its exempt purposes the Tax Court held that the taxpayer had not proved that it served a public interest and that it did not own the claimed artifacts.
Tip of the DayCheap parts and expensive service . . . Many service businesses provide parts as well as service. The garage or dealer that services cars, the contractor that installs windows and doors, etc. What's the common denominator? Often the parts are relatively cheap; it's the labor that makes the price jump. In many cases the contractor has the choice of parts and, to keep prices low, goes with the cheaper option. For example, the cost of installing a new starter in a particular car may be $300 for labor and $85 for the starter. If the starter fails not long after any warranty wears off, you'll have created one irate customer. That's particularly true if you could have opted for a better quality starter for $100. If there are options, explain them to the customer. The higher the labor cost, and the more prone the part is to failure, the more important this becomes. It's not worth losing a customer.
August 2, 2021
NewsNotice 2021-48 (IRB 2021-33) provides guidance regarding the changes to the funding rules for single-employer defined benefit pension plans under Section 430 of the Code that were made by the American Rescue Plan Act of 2021. The changes also affect the application of the funding-based limits on benefits under Sec. 436 of the Code.
The IRS is extending the federal income and employment tax treatment previously provided in Notice 2020-46 with regard to cash payments made to charitable organizations described in Section 170(c) after December 31, 2020, and before January 1, 2022. Notice 2021-42 extends the relief offered in response to the COVID-19 pandemic through December 31, 2021. The tax relief is extended for calendar year 2021 for employers that make cash payments to charitable organizations providing COVID-19 relief in exchange for sick, vacation or personal leave that employees forgo because of the COVID-19 pandemic. These cash payments will not be treated as compensation, and the employees will not be treated as receiving the value of the leave as income and cannot claim a deduction for the leave that they donated to their employer. Employers, however, may deduct these cash payments as a business expense or as a charitable contribution deduction if the employer otherwise meets the respective requirements of either section.
Tip of the DayResponsible party information for federal and state . . . In IR-2021-161 the IRS is advising EIN holders to to update responsible party information within 60 days of any change by filing Form 8822-B, Change of Address or Responsible Party--Business. The IRS intends to step up its awareness efforts aimed at businesses, partnerships, trusts and estates, charities and other entities that are EIN holders. Starting in August, the IRS will begin sending letters to approximately 100,000 EIN holders where it appears the responsible party is outdated. It is critical that the IRS have accurate information in cases of identity theft or other fraud issues related to EINs or business accounts. The form is also used to advise the IRS of a change in address (important for receipt of IRS notices) and to assess the responsible party for employment and other trust fund taxes. States have similar reporting requirements for income, employment, and sales tax purposes. This is an area that's often overlooked. Make sure your information is up to date.
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