Small Business Taxes & ManagementTM--Copyright 2020, A/N Group, Inc.
For the full text of new Revenue Rulings, Revenue Procedures,
Regulations, etc. go to:
Internal Revenue Bulletins
For a Tax Court Case:
Tax Court Cases
For IRS News Releases (current month):
News Releases and Fact Sheets
For Fact Sheets:
For Letter Rulings and Technical Advice Memoranda:
IRS Written Determinations
For IRS Forms and Publications:
Forms and Publications
July 10, 2020
NewsThe IRS has issued final regulations (T.D. 9901) that provide guidance on deductions for foreign-derived intangible income (FDII) and global intangible low-taxed income allowed to domestic corporations under the Code. The final regulations provide guidance on both the computation of the deductions available and the determination of FDII. In addition, the guidance provides rules for the computation of FDII in the consolidated return context. The guidance published today also finalizes the reporting rules requiring the filing of Form 8993, Section 250 Deduction for Foreign-Derived Intangible Income and Global Intangible Low-Taxed Income.
The IRS is reminding (IR-2020-142) taxpayers who took advantage of the People First Initiative tax relief and did not make previously owed tax payments between March 25 to July 15 that they need to restart their payments. As the IRS continues to reopen its operations across the country, taxpayers who were in payment agreements and skipped any payments from March 25 and July 15 should start paying again to avoid penalties and possible default on their agreements. This includes installment agreemnts, payments on pending and accepted offers for offers in compromise, and private debt collection payments. Taxpayers who continue encounter hardships should contact the IRS for possible relief.
The IRS is reminding taxpayers that tax returns for tax exempt organizations (Form 990 series) that are normally due May 15 for calendar-year entities and were postponed because of the COVID-19 pandemic are due July 15.
Tip of the DayLien release . . . You borrowed $250,000 to purchase your home 40 years ago. It was paid off just over 10 years ago and now you're selling. But the title company finds a problem--the lien on the house was never released. Technically, there's still a loan outstanding on your home. And you can't sell your home without clearing this up. It's not nearly as unusual as you think. And the solution may not be easy. Loans can be resold many times and in the 2007-2008 financial and the aftermath many banks changed hands not once but often many times. The same problem can occur with any property secured by a loan--a car, boat, business equipment, etc. If you or your business undergoes a credit check the lien will show up (it's recorded with the state). The smart thing to do is to request a release of lien when you make your last payment. And then check the state records for any outstanding liens.
July 9, 2020
NewsRevenue Procedure 2020-37 (IRB 2020-31) contains the limitations on depreciation deductions for owners of passenger automobiles first placed in service by a taxpayer during calendar 2020. The limits are unchanged from 2019. The same revenue procedure also contains a table of amounts that must be incuded in incme by lessees of passenger automobiles first leased by a taxpayer during calendar year 2020.
The IRS has provided guidance in Notice 2020-54 to employers requiring them to report the amount of qualified sick and family leave wages paid to employees under the Families First Coronavirus Response Act (FFCRA) on Form W-2. Employers will be required to report these amounts either on Form W-2, Box 14, or in a statement provided with the Form W-2. The guidance provides employers with optional language to use in the Form W-2 instructions for employees. The wage amount that the notice requires employers to report on Form W-2 will provide self-employed individuals who are also employees with the information necessary to determine the amount of any sick and family leave equivalent credits they may claim in their self-employed capacities.
the IRS has begun opening its Taxpayer Assistance Centers (TACs) to the public in phases. To ensure the safety of the public and employees, people seeking in-person assistance at a TAC will need to call 844-545-5640 to make an appointment. Appointments will be available if people need assistance for authentication of identity and document validation related to tax return filing or application for an Individual Taxpayer Identification Number; Sailing Clearances required for foreign travel by resident and non-resident aliens leaving the United States; assistance with Economic Impact Payment Issues; and cash payments.
Tip of the DayPromises not kept . . . They can get you into trouble. In a recent Federal Trade Commission action, the FTC charged a company's deceptive practices with violating the FTC Act and the FTC's Mail Order Rule which requires that companies advertising that they can ship merchandise within a certain timeframe have a reasonable basis for the promised timeframe. Instead of the promised next day shipping of the personal protection equipment, it took weeks to get the products. In addition, a criminal case against th company owner alleging he engaged in price gouging and mail and wire fraud.
July 8, 2020
NewsThe IRS is reminding taxpayers who live and work abroad have until Wednesday, July 15, 2020 to file and pay their 2019 federal income taxes. U.S. citizens and resident aliens generally have the same filing and payment requirements regardless of where they live. The July 15 postponed deadline also applies to nonresident aliens and foreign entities with a U.S. filing and payment requirement. Taxpayers who still owe 2019 income tax, as well as estimated tax for 2020, must make two separate payments on or by July 15, 2020--One for their 2019 income taxes owed and one for their 2020 estimated tax payments. The two estimated tax payments can be combined into a single payment.
The IRS has announced that interest on individual 2019 refunds reflected on returns filed by July 15, 2020 will generally be paid from April 15, 2020 until the date of the refund. Interest payments may be received separately from the refund. By law, the interest rate on both overpayment and underpayment of tax is adjusted quarterly. The interest rate for the second quarter, ending on June 30, 2020, is 5 percent per year, compounded daily. The interest rate for the third quarter, ending September 30, 2020, is 3 percent per year.
There are a number of tools available to taxpayers willing to take the time and effort to work at it. In James C. Nelson; Mary P. Nelson (T.C. Memo. 2020-81) the donor transferred limited partnership interests; the first transfer was a gift, the second a sale. Each one was memorialized in a memorandum and appraised. The donor specified a percentage interest rather than a fixed dollar amount. The Court allowed two different lack of control discounts and a discount for the lack of marketability.
Tip of the DayTrying to contact the IRS? . . . It won't be easy. While they're continuing to call back staff, they're still not up to where they were before the pandemic. And they still have to clean up a backlog in many areas and they've been short staffed for a while. IRS.gov is a good place to find answers.
July 7, 2020
NewsThe IRS has issued proposed regulations and temporary regulations that provide guidance for consolidated groups regarding net operating losses (NOLs). The Tax Cuts and Jobs Act (TCJA) and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) amended the rules for NOLs. After amendment, the NOL deduction is the sum of:
The total of the NOLs arising after December 31, 2017; or
80% of taxable income less pre-2018 NOLs (the 80 percent limitation).
The TCJA generally eliminated NOL carrybacks and permitted NOLs to be carried forward indefinitely. The TCJA also provides special rules for nonlife insurance companies and farming losses. Nonlife insurance companies are permitted to carry back NOLs two years and forward 20 years, and the 80 percent limitation does not apply. Farming losses are permitted to be carried back two years and carried forward indefinitely, subject to the 80% limitation. The CARES Act effectively delays the application of the TCJA amendments until January 1, 2021. Additionally, the CARES Act permits a five-year carryback for NOLs, including farming losses and NOLs of nonlife insurance companies, for taxable years beginning after December 31, 2017 and before January 1, 2021. The proposed regulations provide guidance to consolidated groups on the application of the 80 percent limitation. Additionally, the proposed regulations would remove obsolete provisions from the rules for consolidated groups that contain both life insurance companies and nonlife insurance companies. Because the CARES Act allows certain NOLs to be carried back five years, the temporary regulations allow certain acquiring consolidated groups to make an election to waive all or a portion of the pre-acquisition portion of the extended carryback period for certain losses attributable to certain acquired members.
The SBA has released a list of recipients of Paycheck Protection Program (PPP) loans in CVS format (SBA Paycheck Protection Program Loan Level Data). (It's a very large file.) The information contains NAICS codes, business type, demographic data, and jobs supported. The names and addresses of recipients who received $150,000 or more were also listed. Some 4.9 million businesses received loans, with 86.5 percent of the loans for less than $150,000. Some 72.8 percent of the $521.5 billion in loans were more than $150,000. The average loan size was $107,000 and loans of $50,000 totaled 3.5 million.
Tip of the DayShipping more? . . . Many small businesses that rarely shipped before the pandemic are sending many packages by mail or express shippers. And the cost of doing so has risen. Now might be a good time to the cost of doing so. Virtually every shipping company has a different rate schedule. Get familiar with the costs and use the cheapest service that will get the job done on time. Try to use a slower service for packages that are less time sensitive. If you offer free shipping, charge customers for the premiums services. Some items can be particularly expensive to ship because of their weight or size. Exclude those items from free shipping. Analyze the charges you might pay under different shippers. If your costs are high enought it might make sense to hire a specialty firm to analyze your shipping and suggest changes.
July 6, 2020
NewsSpecial, strict recordkeeping requirements apply to travel expenses. In Theron E. Johnson (T.C. Memo. 2020-79) the taxpayer used a computer calendar to record his travel expenses. The taxpayer traveled between his working farm and another business. The Court noted the taxpayer failed to report the business purpose for the travel--whether it was for farm business, his other business, property management, or personal purposes. The taxpayer claimed the Sec. 179 expense election on his pickup truck, but because there was no record of the business purpose, he could not show the business use exceeded 50 percent, a requirement for expensing all or a portion of the asset. The taxpayer also sought a charitable contribution deduction for a conservation easement. The Court found that both the IRS's and taxpayer's experts' appraisals were flawed and used a midpoint of both values as a more accurate estimate of the value.
Tip of the DaySmall acquisitions . . . Now may be a good time to pick up distressed businesses. It may be sad, but more than a few businesses will not survive the current environment. Acquisitions can make sense if there's a good business fit and the price is right. Even so, more than a few businesses have gotten into trouble through acquisitions. That could be even more true for small business owners with limited experience and the inability to engage the best legal and financial advice. Making acquisitions of smaller business will limit the risk that the acquired business will be a drag on the original or that you'll make a big mistake. It'll also give you valuable experience for the next one. Even if you see several potential candidates, go slow enough to make sure the most recent acquisition will work out.
July 2, 2020
NewsLegislation that would extend the Paycheck Protection Program by five weeks until August 8, 2020 has passed both the House and Senate and will now go to the President. He is expected to sign it.
Victims of the tornadoes, severe storms, flooding and straight-line winds that began on April 12, 2020 in Tennessee may qualify for tax relief from the IRS. Following the recent disaster declaration for individual assistance issued by the FEMA, the IRS announced today that affected taxpayers in certain areas will receive tax relief. Individuals and households who reside or have a business in Bradley and Hamilton 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 April 12, 2020, and before October 15, 2020 are postponed to October 15, 2020. This includes 2019 individual and business returns that, due to COVID-19, were due on July 15. Among other things, this also means that affected taxpayers will have until October 15 to make 2019 IRA contributions. The October 15 deadline also applies to estimated tax payments for the first two quarters of 2020 that were due on July 15, and the third quarter estimated tax payment normally due on September 15. It also includes the quarterly payroll and excise tax returns normally due on April 30 and July 31. For more information, go to Tax Relief for Tennessee Victims of Severe Storms.
The IRS is issuing proposed regulations (REG-123027-19) relating to the compliance-monitoring duties of state agencies for purposes of the low-income housing credit. The proposed regulations relax the minimum compliance-monitoring sampling requirement for purposes of physical inspections and low-income certification review, providing flexibility and reduced burdens with respect to the requirements set forth in the final regulations published on February 26, 2019.
Notice 2020-53 provides temporary relief from certain requirements under Sec. 42 of the Code for qualified low-income housing projects and under Secs. 142(d) and 147(d) of the Code for qualified residential rental projects. Section IV of this notice describes the Agencies, Issuers, Operators, and Owners eligible for the relief granted in section V of this notice, which provides relief pursuant to Sec. 7508A(a) of the Code, and section VI of this notice, which provides relief pursuant to Sec. 1.42–13(a) of the Income Tax Regulations.
Tip of the DayThree-year deadline for 2016 returns . . . The IRS announced that it's holding some $1.5 billion in unclaimed income tax refunds for 1.4 million taxpayers who did not file their 2016 return. There's a three-year deadline (generally from the due date of the return) and that deadline this year is July 15 (it's usually April 15). Miss the date and you won't be able to collect the refund.
July 1, 2020
NewsThe IRS has announced it won't be extending the tax deadline past July 15th. All returns that were automatically postponed because of the COVID-19 pandemic will be due July 15th. Individual taxpayers can request an automatic extension on Form 4868 to October 15th. An extension for filing does not include an extension for paying any amount owing. You must be paid in full. (See Tip of the Day, below.) That will also be the due date for any contributions to IRAs for 2019. (Contributions to SEP and certain other plans are due by the extended due date.)
The IRS has released the 2019 IRS Data Book, featuring a redesigned format that provides a different and expanded look at IRS accomplishments during the past year. The redesigned Fiscal Year 2019 edition of the IRS Data Book provides the annual set of statistical tables summarizing tax filings, revenue collections, taxpayer services, enforcement activities and agency operations. The new Data Book features an updated format with additional tables designed to more accurately reflect the way the IRS does business today.
The Tax Court has announced that it will resume accepting mail and hand-delivered documents on July 10.
Tip of the DayCan't pay by July 15th? . . . The IRS is sympathetic to the economic issues facing many taxpayers. A number of payments may be due on July 15th. The first order of business is either to file your return or request an extension--even if you can't pay the amount due. If you owe and don't file, you can get hit with two penalties, and the one for not filing is the larger. The IRS will accept credit cards (there's a fee associated with paying that way). For information on what options are available, go to Taxpayers Should File by July 15 Deadline and Filing and Payment Deadlines Questions and Answers.
June 30, 2020
NewsNotice 2020-52 (IRB 2020-29) clarifies the requirements that apply to a mid-year amendment to a safe harbor 401(k) or 401(m) plan that reduces only contributions made on behalf of highly compensated employees. This notice also provides temporary relief in connection with the ongoing Coronavirus Disease 2019 (COVID-19) pandemic from certain requirements that would otherwise apply to a mid-year amendment to a safe harbor 401(k) or 401(m) plan adopted between March 13, 2020, and August 31, 2020, that reduces or suspends safe harbor contributions.
The Treasury Inspector General for Tax Administration (TIGTA) initiated an audit to evaluate the selection process, use of resources, and examination productivity for corporate returns examined as part of the Large Business and International (LB&I) Division's Discriminant Analysis System (DAS) workstream. Approximately 44 percent of Form 1120, U.S. Corporation In come Tax Return, examinations during Fiscal Years 2015 through 2018 were closed from the DAS workstream. The IRS's primary objective in selecting returns for examination is to promote the highest degree of voluntary compliance. The LB&I Division has a variety of examination programs and uses a multitude of methods to select returns. However, it consistently spent most of its examination resources on large business returns. TIGTA analyzed the 10,755 returns closed in the DAS workstream during Fiscal Years 2015 through 2018 and found that 47 percent were closed with no change to the tax return. TIGTA analyzed the potential cost for excessive time charged to no-change returns, i.e. , time in excess of 200 hours, and estimated that potentially $22.7 million was spent examining no-change returns in excess of 200 hours. Of the 10,755 returns, 7,831 returns (73 percent) were systemically selected, i.e. , were selected as the primary tax return to be examined. The overall no-change rate for these returns was about 55 percent (4,327 of the 7,831), and the no-change rate was generally high across all activity codes for businesses with assets of $10 million or more (ranging from 44 percent to 61 percent). The LB&I Division is updating the DAS model to improve the no-change rates. However, TIGTA found that the LB&I Division is not leveraging all available information to improve the model, such as the examination scope and which tax issues are the most productive to examine. LB&I also plans to test the new formulas only on returns that are nearly a decade old. TIGTA reviewed the examination results for the 10,755 DAS returns and found that the LB&I Division is not adequately monitoring DAS examination results to assess whether the model is effectively ranking returns based on the likelihood of potential tax adjustment. When assessing the productivity of its models, the LB&I Division does not use the actual examination amount when an examination results in a refund. Instead, it treats examinations that result in a refund as no change in tax. By not using the actual examination amount for refunds, the LB&I Division’s productivity is skewed to the positive and does not accurately reflect the true compliance impact. To read the full report, go to www.treasury.gov/tigta/auditreports/2020reports/202030031fr.pdf.
The National Taxpayer Advocate Erin Collins delivered her first report to Congress identifying taxpayer challenges arising from the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and the IRS's implementation of the Taxpayer First Act as priority issues the Taxpayer Advocate Service (TAS) plans to focus on in the coming year. The report also assesses the 2020 filing season, identifies other TAS areas of focus, and includes the IRS’s responses to administrative recommendations proposed in the National Taxpayer Advocate’s 2019 Annual Report.
Tip of the DayJuly 15th payments . . . July 15th is fast approaching and more than a few payments are due. Your federal (and probably state) return (or extension) is due, along with any payments you may need to make to insure your liability is fully paid. If you need a federal extension, file Form 4868 to extend the return to October 15, 2020. If you have to make estimated tax payments, and you've taken advantage of the IRS postponement period, both your first and second quarter estimates are due. Some taxpayers may be looking at a significant tax bill.
June 29, 2020
NewsThe IRS has announced it is processing paper employment tax returns (Forms 941, 943, 944, 945) and Form 8655, Reporting Agent Authorizations. The Ogden and Kansas City campuses recently reopened at safe social distancing staff levels. Employees there are working on processing backlogs and new submissions of these forms.
There is a new requirement for Reporting Agents (RAs) that sign and submit Form 7200, Advance Payment of Employer Credits Due to COVID-19. This new requirement applies to reporting agents that have the authority to sign and file 94x employment tax returns via a Form 8655, Reporting Agent Authorization. The signatory must be the principal or responsible official listed on the RA's e-file application. The signatory for the RA must sign, date, and print his or her name in the relevant boxes on Form 7200. In the box "Printed Title," the signatory must include the RA's company name or name of business as it appeared on line 9 of the Form 8655. If a Form 8655 is not yet processed, Reporting Agents can still e-file and electronically deposit on behalf of their clients. These processes never stopped. For the complete requirements, see Employee Retention Credit Q/A-88.
Tip of the DayDeferral of employer's Social Security taxes . . . The Paycheck Protection Program Flexibility Act (June 5, 2020) amends the CARES Act, striking the rule that would have prevented an employer from deferring the deposit and payment of the employer's share of Social Security tax after the employer receives a decision that its PPP loan was forgiven by the lender. Therefore, an employer that receives a PPP loan is entitled to defer the payment and deposit of the employer's share of Social Security tax, even if the loan is forgiven. For more information on the deferral of employment tax deposits and payments go to Deferral of Employment Tax Deposits at IRS.gov.
June 26, 2020
NewsInterest on individual 2019 refunds reflected on returns filed by July 15, 2020 will generally be paid from April 15, 2020 until the date of the refund. Interest payments may be received separately from the refund. By law, the interest rate on both overpayment and underpayment of tax is adjusted quarterly. The interest rate for the second quarter, ending on June 30, 2020, is 5% per year, compounded daily. The interest rate for the third quarter, ending September 30, 2020, is 3% per year, compounded daily.
July 1 marks the closing of several business payment P.O. Boxes (also known as Lockbox addresses), in the Cincinnati and Hartford areas. Payments made to these addresses will be returned to sender. There will be no forwarding service. Where to File on IRS.gov has current payment addresses. Publication 3891, Lockbox Addresses for 2020, has more information. In some cases the address for one state may have changed, but not for another, even though they were grouped together in the past.
The Internal Revenue Service Office of Chief Counsel announced (IR-2020-30) a time-limited settlement offer to certain taxpayers with pending docketed Tax Court cases involving syndicated conservation easement transactions. Taxpayers eligible for this offer will be notified by letter with the applicable terms. The settlement offer would bring finality to these taxpayers with respect to the syndicated conservation easement issues in their docketed U.S. Tax Court cases. The settlement requires a concession of the income tax benefits claimed by the taxpayer and imposes penalties. "The IRS will continue to actively identify, audit and litigate these syndicated conservation easement deals as part of its vigorous and relentless effort to combat abusive transactions," said IRS Commissioner Chuck Rettig. "These abusive transactions undermine the public's trust in private land conservation and defraud the government of revenue. Ending these abusive schemes remains a top priority for the IRS." The IRS recognizes the important role of conservation easement deductions in incentivizing land preservation for future generations. However, abusive syndicated conservation easement transactions have been of concern to the IRS for several years. In Notice 2017-10, the IRS identified certain syndicated conservation easement transactions as tax avoidance transactions and provided that such transactions (and substantially similar transactions) are listed transactions for purposes of Reg. Sec. 1.6011-4(b)(2) and Secs. 6111 and 6112.
Tip of the DayEmployees working from home? . . . You could be looking at a higher risk of fraud and attack from hackers. The increased risk of fraud stems from the fact that some of your internal controls are not going to work the same, if at all. Requisitions or payments might not get the same level of approval. A worker doesn't have the same access to a supervisor. The risk from a cyberattack will depend on the employee's security at home, and that's likely to be a lot less than in the office. There are steps you can take with respect to both issues. If you don't have someone in the office who's qualified, talk to your CPA. He'll either have the answers or know someone who does.
June 25, 2020
NewsThe IRS has issued final regulations (T.D. 9899) permitting a regulated investment company (RIC) that receives qualified real estate investment trust (REIT) dividends to report dividends the RIC pays to its shareholders as Section 199A dividends. Section 199A, enacted as part the Tax Cuts and Jobs Act (TCJA), allows individual taxpayers and certain trusts and estates to deduct up to 20 percent of certain income (Section 199A deduction). The Section 199A deduction is available to eligible taxpayers with qualified business income (QBI) from qualified trades or businesses operated as sole proprietorships or through partnerships, S corporations, trusts, or estates, as well as for qualified REIT dividends and income from publicly traded partnerships. The section 199A deduction is not available for C corporations.
The IRS is continuing to work down existing IVES (Income Verification Express Service) inventory as it continues efforts to return operations to normal. It open the lines starting on Wednesday, June 24, 2020, at 11 a.m. Eastern Daylight Time until Monday, June 30, 2020, 11 a.m. Eastern Daylight Time. Please ensure the taxpayers’ signatures meet the 120-day requirement. Practitioners must use the fax number associated with their assigned site. The IRS will be sending acknowledgements out to confirm the work received, so do not send us duplicate requests. The IRS is reminding practitioners that it still has limited staffing so processing time will be delayed.
Fax number Site (844) 249-6238 Austin (844) 249-6239 Fresno (844) 249-8128 Kansas City (844) 249-8129 Ogden
The tax law defines gross income as income from whatever source derived unless otherwise excluded. One of those exclusions applies to amounts received by gift under Sec. 102. In Burt Kroner (T.C. Memo. 2020-73) the Court noted that the Supreme Court distinguished a common law gift from a gift under Sec. 102. A common law gift requires only a voluntarily executed transfer without consideration. So long as the donor had no legal obligation to pay, a transfer is a gift at common law. A Section 102 gift, on the other hand, is more narrowly defined and requires more—it requires detached and disinterested generosity. A transfer that proceeds from a moral duty or other expectation does not proceed from detached and disinterested generosity and is not an excludable gift. Thus, the intention of the donor is critical. The Court said the intention of the donor was critical to the taxpayer proving a gift was intended and he did not testify. The taxpayer himself testified as did two other witnesses, but the Court found their testimony not credible and unconvincing. The Court found the transfer was not a gift.
Tip of the DayAmended state return? . . . States don't automatically follow federal tax law. Some do, but not always all provisions. And, in some cases, the federal changes have to be adopted by legislation. Keep that in mind when preparing your return. If you're amending your federal return, take a good look at your state return. It too many need to be amended.
June 24, 2020
NewsThe SBA has released another interim final rule (SBA-2020-0038) provides guidance on the Paycheck Protection Program Flexibility Act which expanded the covered period from eight to 24 weeks, lowered the proportion of funds that must be used for payroll to 60 percent, and extended the loan term to five years. The just released rules allow borrowers to apply early for forgiveness, but if they do so they forfeit a safe-harbor provision that allows restoration of salaries by December 31 to avoid reductions in the loan forgiveness. The rules also make it clear the SBA will deduct EIDL Advance Amount from the forgivenss amount remitted to the lender.
Notice 2020-51 (IRB 2020-29) provides guidance relating to the waiver in 2020 of required minimum distributions (RMDs) from certain retirement plans and IRAs due to the amendment of Sec. 401(a)(9) of the Code by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. In particular, this notice provides rollover relief (including an extension of the 60-day rollover period to August 31, 2020) with respect to waived RMDs and certain related payments, permits certain repayments to inherited IRAs, and sets out Q&A’s to answer anticipated questions regarding the waiver of 2020 RMDs.
The IRS has announced victims of the April tornadoes, severe storms and flooding that took place in parts of Mississippi, Tennessee and South Carolina will have until October 15, 2020, to file various individual and business tax returns and make tax payments. The IRS is offering this relief to any area designated by FEMA as qualifying for individual assistance. Currently, this includes Clarke, Covington, Grenada, Jasper, Jefferson Davis, Jones, Lawrence, Panola and Walthall counties in Mississippi, Bradley and Hamilton counties in Tennessee and Aiken, Barnwell, Berkeley, Colleton, Hampton, Marlboro, Oconee, Orangeburg and Pickens counties in South Carolina. Taxpayers in localities added later to the disaster area will automatically receive the same filing and payment relief. The current list of eligible localities is always available on the disaster relief page on IRS.gov. The tax relief postpones various tax filing and payment deadlines that occurred starting on April 12. As a result, affected individuals and businesses will have until October 15, 2020, to file returns and pay any taxes that were originally due during this period. This includes 2019 individual and business returns that, due to COVID-19, were due on July 15. Among other things, this also means that affected taxpayers will have until October 15 to make 2019 IRA contributions. The Oct. 15 deadline also applies to estimated tax payments for the first two quarters of 2020 that were due on July 15, and the third quarter estimated tax payment normally due on September 15. It also includes the quarterly payroll and excise tax returns normally due on April 30 and July 31. In addition, penalties on payroll and excise tax deposits due on or after April 12 and before April 27 will be abated as long as the deposits were made by April 27.
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.
June 23, 2020
NewsLoan or gift? If you make a true loan of money to your children, the amount has, except for the interest, no tax consequences. If it's a gift, it could be subject to gift tax liability. In Estate of Mary P. Bolles, Deceased, John T. Bolles, Executor (T.C. Memo. 2020-71) the IRS contended that amounts transferred to the deceased's son were gifts rather than loans. The Court examined the pattern of gifts by the deceased to her five children. She kept a record of advances and repayments for each child and treated them as loans. She forgave the "debt" account of each child every year on the basis of the gift tax exemption amount. However, she advanced considerable funds to one of the children to assist his business. The Court held that the first few years the amounts were loans based on the deceased's expectation of repayment. Amounts advanced the son after that time were gifts because she no longer believed the business would be able to repay the amounts.
When amounts received become income can be an issue. Be aware the IRS often claims amounts are income when received. In David A. Novoselsky and Charmain J. Novoselsky (T.C. Memo. 2020-68) the taxpayer was an attorney focusing on class action litigation. He executed "litigation support agreements" with various individuals and entities. Under these agreements the counter-party made an upfront payment to support the cost of litigation. If the litigation was successful, the taxpayer was obligated to return to the counter-party, from his award of attorney's fees and costs, the counter-party's initial payment plus a premium (interest). If the litigation was unsuccessful, petitioner had no obligation to pay the counter-party anything. The taxpayers did not report the payments received as gross receipts on the Schedules C. The taxpayers argued that the amounts received were nontaxable loan proceeds. The Court noted that where an obligation to pay arises only upoin the occurrence of a future event, the Tax Court has consistently held that a valid debt does not exist for tax purposes. The Court noted that it has used seven factors to determine whether a payment is taxable income or a loan. Here the repayments were contingent on successful litigation results. The Court held the amounts received were income.
Tip of the DayEmployee or independent contractor? . . . This issue usually arises on the part of the employer. By classifying a worker as an independent contractor an employer can save employment taxes and possible other costs associated with an employee. But the issue is important from the standpoint of the worker. As an independent contractor he's subject to the self-employment tax, but can deduct contributions to a SEP or other qualified plan, and deduct expenses such as continuing professional education, travel, etc. You want to be sure you're classified properly if you deduct those expenses.
June 22, 2020
NewsNotice 2020-50 (IRB 2020-28) is intended to help retirement plan participants affected by the COVID-19 take advantage of the CARES Act provisions providing enhanced access to plan distributions and plan loans. This relief includes expanding the categories of individuals eligible for these types of distributions and loans and providing guidance and examples on how qualified individuals will reflect the tax treatment of these distributions and loans on their federal income tax filings. As authorized under the CARES Act, Notice 2020-50 expands the definition of who is a qualified individual to take into account additional factors such as reductions in pay, rescissions of job offers, and delayed start dates with respect to an individual, as well as adverse financial consequences to an individual arising from the impact of the COVID-19 on the individual’s spouse or household member. Under the act, a COVID-19 related distribution is not subject to the 10 percent additional tax under Sec. 72 (including the 25 percent additional tax for distributions from a SIMPLE IRA), generally is includable in income over a three-year period, and is not includable in income if rolled over within three years.
The IRS has issued proposed regulations (REG-119307-19) that provide guidance for the deduction of qualified transportation fringe and commuting expenses. The Tax Cuts and Jobs Act (TCJA) does not allow deductions for qualified transportation fringe (QTF) expenses and does not allow deductions for certain expenses of transportation and commuting between an employee’s residence and place of employment.
Notice 1444, Your Economic Impact Payment, is mailed to your address of record within a few weeks after the Payment was issued. Individuals should keep the letter for their tax records. The Economic Impact Payment is considered an advance credit against 2020 tax. Taxpayers will not include the payment in taxable income on their 2020 tax return or pay income tax on the payment. It will not reduce a taxpayer's refund or increase the amount of tax a taxpayer owes when the taxpayer files a 2020 Federal income tax return next year. When a taxpayer files a 2020 tax return next year, the taxpayer may claim any additional credit for which the taxpayer is eligible. The IRS is not able to correct or issue an additional payment at this time and will provide further details on IRS.gov on the action individuals may need to take in the future.
Like-kind exchanges are now limited to real estate, but they can still defer significant amounts of taxes. Most transactions are real estate for real estate, but a variation is real estate solely owned for an interest in a tenant-in-common property. In Laurence Gluck and Sandra Prusock (T.C. Memo. 2020-66) the taxpayers used an interest in a partnership as the replacement property for exchange. The taxpayers claimed the partnership did not exist, but the Court lacked jurisdiction because the issue was a partnership level proceeding. The Court found it did have jurisdiction with respect to the penalty.
June 19, 2020
NewsThe Small Business Admministration (SBA) has released two new forms for PPP borrowers to use in applying for debt forgiveness. The PPP Loan forgiveness Calculation Form (Revised June 16, 2020) is the standard form. Some borrowers may be able to use the PPP Loan Forgiveness Application Form 3508EZ.
The IRS has updated its Economic Impact Payment Information Center page to include additional FAQs concerning Economic Impact Payments. The IRS is also advising that if you receive a letter saying that you'll be getting a check, you could be getting a check or a debit card.
Code Section 1446 requires partnerships to withhold taxes on "effectively connected taxable income" (ECTI) that is allocable to their foreign partners. The withholding serves as an incentive for foreign partners to file the appropriate U.S. tax return, i.e., Form 1040-NR, U.S. Nonresident Alien Income Tax Return, or Form 1120-F, U.S. Income Tax Return of a Foreign Corporation, to report income from the partnership. For Tax Year 2016, the Project 1446 database shows that partnerships reported $12.6 billion in the ECTI allocable to their foreign partners. The Treasury Inspector General for Tax Administration (TIGTA) performed a review to determine the effectiveness of the IRS's efforts to ensure withholding compliance of partnerships with foreign partners. A sample of 137 partnership filings found that partnerships remitted the reported Sec. 1446 tax; however, TIGTA identified barriers for the IRS to use Form 8804, Annual Return for Partnership Withholding Tax (Section 1446), and Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax, data to ensure compliance of partnerships and foreign partners subject to the provisions of Sec. 1446. TIGTA identified significant errors in the Project 1446 database which limit the IRS's ability to verify withholding credits and identify potential nonfilers accurately. For Tax Year 2016, there were 17,734 partnerships that filed Forms 8804 that had related Forms 8805 reporting nearly $3.7 billion in withholding credits. Of these, 2,445 Forms 8804 had discrepancies concerning the withholding amounts reported on their related Forms 8805. Specifically, the 2,445 Forms 8804 reported and paid nearly $303 million less than was reported on their related Forms 8805. Furthermore, some partnerships with foreign partners filed 1,183 Forms 8804 reporting nearly $450 million in income that did not have any related Forms 8805. TIGTA also found Froms 8805 that were filed reporting nearly $907 million in income that did not contain valid Taxpayer Identification Numbers. To see the complete report, go to www.treasury.gov/tigta/auditreports/2020reports/202030026fr.pdf.
Things can get more complicated if you fail to file a return. The IRS can prepare a substitute for return (SFR) and assess taxes based on the amount it computed. And it's unlikely to be in your favor. In George E. Joseph (T.C. Memo. 2020-65) the taxpayer had interests in partnerships and S corporations. After the IRS prepared SFRs, the taxpayer filed or provided the IRS with returns he prepared with claimed deductions from partnerships and S corporations. The taxpayer agreed he had capital gain income, but argued that the IRS should not have disallowed the depreciation deductions which reduced the basis in assets that gave rise to the capital gain. The Tax Court adjusted the amount of the gain to reflect double counting of the capital gain from another partnership but did not allow an adjustment of the capital gain from the disallowance of the depreciation deduction. In the case of the depreciation, the Court noted there was insufficient evidence to show how the capital gain was computed.
Tip of the DayMore small business help on the way? . . . It's a distinct possibility. Work is progressing on a bill aimed at restaurants and there could be additional help for black and Latino owned businesses who are particularly struggling. PPP loans could continue past the current deadline and there could be additional funding for that program.
June 18, 2020
NewsThere are a number of myths and misconceptions about tax refunds. IRS Tax Tip 2020-72 attempts to dispel some of those misconceptions.
IR-2020-121 alerts nursing homes and other care facilities that Economic Impact Payments generally belong to the recipients, not the organizations providing the care. The payments do not count as a resource for purposes of determining eligibility for Medicaid and other federal programs for a period of 12 months from receipt. They also do not count as income in determining eligibility for these programs.
You may be able to get a substantial award for providing the IRS with information on a individual or business that's cheating on its taxes. But there are certain requirements you must meet. In Martin Douglas Frantz (T.C. Memo. 2020-64) the Court sided with the IRS in denying an award because, in part, the claim did not provide on its face information about tax violations or underpayments for the bankruptcy trustee but instead broadly alleged "tax fraud" on the ground that the trustee provided a "false" estate tax return.
Tip of the DayJuly 15th payments . . . July 15th is rapidly approaching and you could be in for a big cash outlay. If you haven't filed your tax return yet and you owe money, July 15th is the deadline. And, if you have to make estimated tax payments, both the first and second quarter amounts are due on then. If you don't have the money available now, it's time to give it serious thought.
June 17, 2020
NewsAs of November 2018, the IRS's Return Preparer Database showed that more than 30,000 preparers self-identified as being tax noncompliant on their Preparer Taxpayer Identification Number (PTIN) applications during Tax Years 2011 through 2018. The Treasury Inspector General for Tax Administration (TIGTA) initiated an audit to evaluate the IRS's actions taken to ensure that preparers are in compliance with their tax obligations. TIGTA found the Return Preparer Database as of November 2018 identified 10,495 preparers who prepared more than 2 million tax returns for clients in Processing Year (PY) 2016, but did not file a corresponding Tax Year 2016 personal tax return to report income received. TIGTA further identified the top 100 nonfiler preparers from the 10,495 preparers based on the number of returns prepared for clients in Tax Year 2016 using their PTIN information. These top 100 preparers prepared from approximately 1,000 to 6,000 tax returns for clients in PY 2016. TIGTA estimated that each of the 100 preparers potentially received compensation from clients for the preparation of tax returns in PY 2016 from more than $189,000 to more than $1 million. In addition, TIGTA estimates $45.6 million in potential taxes could be assessed if the IRS worked 6,903 of preparer nonfiler cases. After reviewing a draft of this report, IRS management informed TIGTA they had taken action and had included 449 of these nonfiler preparers in their Fiscal Year 2020 Examination Plan. TIGTA's analysis of delinquent preparer penalty and tax modules as of May 27, 2019, showed the majority were in active collection status. However, a significant portion of the modules were not in active status because they were in Currently Not Collectible (CNC) status or were in the Queue awaiting assignment to the Collection function. Analysis of these modules showed there were high-priority preparer penalty modules in CNC shelved status, preparers in CNC hardship status likely earning significant income, and high-dollar modules aging in the Queue. In addition, the IRS's new nonfiler strategy does not include specific items to address preparers who have failed to file their own tax returns that are due, and the current preparer misconduct strategy does not provide specific direction on how the IRS might address preparers who are nonfilers or have balances due for their own tax accounts. To see the complete report, go to www.treasury.gov/tigta/auditreports/2020reports/202030027fr.pdf.
Interest on a tax deficiency can quickly add up, particularly if negotiations with the IRS over the deficiency are protracted. By paying the disputed amount you stop the interest from accruing. In Robert J. Peacock and Bonita B. Peacock (T.C. Memo. 2020-63) the IRS issued the taxpayers a Form 4549-A proposing a tax deficiency and interest related to the findings of the IRS examination of their returns. The taxpayers gave the IRS a check for the amount of the tax due, but included a letter and explanation disagreeing with the determination. The IRS recorded the check as an "advance payment of tax owed". The transcript did not contain a corresponding assessment of that amount, leaving a credit balance of in the taxpayers' account when the IRS issued the actual notice of deficiency. The taxpayers meant the payment as a deposit on the deficiency. The IRS contended the notice of deficincy is invalid because the remittance extinguished the deficiency before the notice was issued. The taxpayers argued that the remittance was not a payment but rather a deposit, which would preserve their right to petition the Court. If a deficiency is paid in full by the taxpayer before a notice of deficiency is issued, the Tax Court and others have held that there is no deficiency, such that the notice of deficiency is invalid and the Tax Court lacks jurisdiction. Conversely, the Tax Court has held that it has jurisdiction if the IRS treats a remittance as a deposit and does not assess additional tax equal to the amount of the remittance before issuing the notice of deficiency. Whether or not a deposit is intended is determined by the written statement from the taxpayer. While the letter didn't provide the language given as an example in the Internal Revenue Manual, the Court found the taxpayer's payment to be a deposit.
June 16, 2020
NewsThe Small Business Administration (SBA) has announced (Disaster Loan Applications) that it has reopened (June 15) the Economic Injury Disaster Loan (EIDL) and EIDL Advance program portal to all eligible applications experiencing economic impacts due to COVID-19. Small business owners may apply for an Economic Injury Disaster Loan (EIDL) Advance of up to $10,000. This advance is designed to provide economic relief to businesses that are currently experiencing a temporary loss of revenue. This loan advance will not have to be repaid. SBA resumed processing EIDL applications that were submitted before the portal stopped accepting new applications on April 15 and will be processing those applications on a first-come, first-served basis. For agricultural businesses that submitted an EIDL application through the streamlined application portal prior to the legislative change, SBA will process these applications without the need for re-applying.
The IRS has announced (Revenue Ruling 2020-14; IRB 2020-28) the Applicable Federal Rates for July and the blended rate for 2020. The rates are little changed from last month with the short-term rate at 0.18 percent, the mid-term rate at 0.45 percent and the long-term rate at 1.17 percent. The blended rate for 2020 is 0.89 percent.
The IRS announced that operations to process Forms 8655, Reporting Agent Authorization, are re-opened. You may resume sending these forms via fax and mail (paper and optical disks with images of Forms 8655). The Ogden service center, which processes these forms, is re-opened but not at full staffing levels to allow social distancing. We are working on the backlog and processing new submissions. In general, it's reasonable to assume that if you submitted a Form 8655 and received from IRS a name control for that client, then that Form 8655 has been entered into the Reporting Agent File (RAF). For more information, go to www.irs.gov/e-file-providers/update-for-reporting-agents.
Tip of the DayMonitor spending . . . There are two ways to get richer--make more money and save more money. Many people think they're saving money by shopping sales, getting free miles from business flying, or getting cash back on purchases. That may provide some savings, but it may also encourage extra spending. A better way to save is to think twice before making the purchase. Do you need the top-of-the-line coffee maker for $150 or will a $50 unit work just as well? Do you even need a new one? Review your credit card purchases or bank statement at the end of the month to see where your money is going. Better yet, list purchases on a spreadsheet. You might be surprised at where your money is going. The advice works for both your personal and business spending.
June 15, 2020
NewsThe IRS has issued proposed regulations (REG-117589-18) that provide guidance under the Code to implement recent changes enacted in the Tax Cuts and Jobs Act. The proposed regulations amend the existing regulations to add a definition of real property to reflect statutory changes limiting Section 1031 to exchanges of real property. The proposed regulations also provide a rule addressing a taxpayer's receipt of personal property that is incidental to real property the taxpayer receives in the exchange. The proposed regulations affect taxpayers that exchange business or investment property for other business or investment property and that must determine whether the exchanged properties are real property for purposes of Section 1031.
The IRS is providing tax relief for certain taxpayers affected by the COVID-19 pandemic involved in new markets tax credit transactions. The taxpayers receiving relief through today's guidance are community development entities (CDEs) and qualified active low-income community businesses (QALICBs) investing and conducting businesses in low-income communities. Notice 2020-49 provides a CDE or QALICB with relief for certain specified time-sensitive acts that are due to be performed between April 1, 2020, and Dec. 31, 2020, in order to meet requirements under Section 45D of the Code and its regulations. A CDE or QALICB may perform these acts by Dec. 31, 2020. The additional time is provided for the following time-sensitive acts of making investments and reinvestments.
Revenue Procedure 2020-16 (IRB 2020-27) provides an automatic procedure for a State or local government in which an empowerment zone is located to extend the empowerment zone designation made under Section 1391(a). Specifically, the automatic procedure under section 3.01 of this revenue procedure provides that a State or local government that nominated an empowerment zone is deemed to extend until December 31, 2020, the termination date designated by that State or local government in its empowerment zone nomination (designated termination date), as described in Section 1391(d)(1)(B).
Tip of the DayUpdated PPP details . . . The Small Business Administration (SBA) has released additional revisions to the First Interim Final Rule with respect to the Payroll Protection Program (PPP). They can be found at www.sba.gov/document/policy-guidance--ppp-interim-final-rule-additional-revisions-first-interim-final-rule as well as a revised Borrower Applicaion Form.
Copyright 2020 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536