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July

Who qualifies for which new employer tax credit?


Many businesses affected by COVID-19 qualify for tax relief though credits or deferrals. 

Here’s a breakdown of which employers qualify for these new tax credits and the deferral of employment tax deposits and payments through Dec. 31, 2020.
 

Credits for paid sick and family leave

Businesses and tax-exempt organizations that have less than 500 employees and provide one or both types of leave can claim the refundable credits. Self-employed people can also claim similar credits. Some public employers must provide paid sick leave and family leave but, aren’t eligible for the credits.

 
Guidance from the Department of Labor has details on these leave requirements.

 

Employee Retention Credit
 

The Employee Retention Credit is available to employers of any size, including tax-exempt organizations. It also may be available to tribes, if they operate a trade or business. Self-employed people can’t receive the credit for their own earnings but may be able to claim the credit for wages paid to their employees. Federal agencies, state and local governments and businesses that receive Paycheck Protection Program loans don’t qualify.

Eligible employers are defined as those who operate a trade or business and experienced one of these:

  • Fully or partially suspended operations because of a government order due to COVID-19
  • A significant decline in gross receipts in a calendar quarter when compared to 2019

 

Deferral of employment tax deposits and payments
 

Employers may defer the deposit and payment of their share of Social Security tax and certain Railroad Retirement taxes. However, employers who receive a Paycheck Protection Program loan can’t defer their share of Social Security tax due after the lender forgives their loan.

 

 

 

6 predictions for where states are planning to get their tax money

By Judy Vorndran and Stacey Roberts

 

The financial landscape is looking worse than lawmakers expected, sending states to ferret out every opportunity to expand, demand, and open new and broader tax pipelines. No business will be spared.

 

$3 billion — that is the magic number in economic stimulus money passed by the House in the latest volley of federal funding. This bill, which at the time of this writing is still live but unlikely to gain further traction, would give cash-strapped states and local governments more than $1 trillion.

 

And it’s not enough. Lawmakers know that $1 billion spread across the United States would hardly make a dent. Colorado alone posted preliminary estimates of an immediate budget shortfall of as much as $3.1 billion in the next few years as tax revenues decline and needs rise.

 

Struggling states across the nation are looking at similarly staggering shortfalls. As states grapple with declining revenues and delayed tax collections, policymakers are thinking hard about how to balance their budgets. According to the Tax Foundation, every state but Vermont has varying balanced budget requirements. To find money that has simply vanished during the coronavirus outbreak, lawmakers are reviewing laundry lists of budget cuts and new ways to expand the tax base.

 

Where will the money come from? And how will the pursuit of state and local tax revenue impact businesses? Forecasting where states will focus their attention is anyone’s guess. But we can look at the past for a good idea of where government pay dirt may be the greatest and businesses can expect to see tax regimes move.

 

Broadening the tax base

 

The Tax Foundation states that the current crisis affects almost every meaningful source of state revenue, with varying intensity. Sales tax revenue may be the hardest hit by social distancing, shelter-in-place, and mandatory closure orders. Consumption, however, is expected to return to pre-COVID levels, allowing sales tax to climb more quickly than changes in income tax revenue, making sales tax a flashpoint of government interest.


A state priority through recovery will be expanding the sales tax base. Although under consideration prior to the coronavirus outbreak, states are likely to accelerate a move to capture revenue from services, digital marketing, the gig economy and other sources that were previously outside the tax net. Expect sales tax increases, and if you are not automated, get automated to help absorb the burden of changes in taxability, rates, and rules coming in recovery. Even so, sales tax is not a set it and forget it process — it’s important to understand your business nuances, nexus, and customer uses to get sales tax right.

 

Tax exemptions, a political talking point

With S.B. S8394, New York is working to exempt tax on personal protective equipment. A Pennsylvania lawmaker has said he will introduce a state grocer income tax relief bill mirroring similar legislation (H.R. 6567) introduced at the federal level. These types of moves make tax exemptions a political flashpoint that attracts attention.


No matter the intent, tax exemptions have become a political ploy. In the best of times, tax exemptions are hard to manage and measure in a state. Expect more changes as states manipulate tax policy to protect political gains while creating additional tax complexity in managing the on-again, off-again nature of tax exemptions.

 

Aggressive enforcement

Tax enforcement goes through cycles driven by money — the lack of money and the pursuit of money. Pre-COVID-19, governments had set a course with Wayfair and were beginning to increase the rate of information requests and examinations on taxpayers, using activities such as inventory at Amazon warehouses and late registrations to find non-compliant taxpayers.

COVID-19 has dramatically changed the who, what and when of state collection procedures, leaving governments in a budgetary crisis. Although on pause during the worst of the outbreak, taxpayers can expect a tougher enforcement environment as states work to increase collections and work their way out of deficits. Based on our experience in the recession of 2008-2009, we can expect to see a rapid increase in nexus questionnaires and audits as states seek out sources of money. Violations of Wayfair thresholds and missing or late registrations will trigger notices and audits as authorities question why a business failed to register by the Wayfair enactment date prior to and during the COVID-19 crisis. Think about why you are filing in some states and not others, and where you may have fallen behind. Clients should work with their tax practitioners to firm up a tax plan to reduce their chances of getting caught in the crosshairs of heightened post-coronavirus enforcement.

 

“One sale” de minimis

Lawmakers in Kansas contravened and contradicted the Wayfair case by enacting legislation to apply sales tax to every transaction in the state in 2019. In essence, Kansas has said the second a sale is made into the state, economic nexus is triggered, and a tax is owed, thereby ignoring any small business threshold. Can this rule continue to stand up in a lack of deference to the Wayfair case? Did Kansas overstep its authority, and is its Wayfair rule enforceable?

This controversial issue may have to be settled in court. With fires to put out elsewhere, we’re unlikely to know which way the wind blows on this issue in 2020. If Kansas is successful in gaining more taxpayers with this “one sale” approach, expect other states to follow suit.

 

Remote signatures

It is tough to do “wet” signatures in the era of social distancing, but they are still specifically required in New Jersey and New York. Wet signature requirements can slow down government collections. Remote signatures are eliminating the need to have original and unscanned documents notarized, clearing the way to faster signature capture and a “non-wet” signature future.

Requiring a wet signature is antiquated. States are expected to change their ways, allowing a non-wet signature to be used to routinely transact official business between government and taxpayers over computer networks, transforming how and when government demands are met. In the interim, know the requirements of each state and stay on the right side of the law.

 

Flow-through state audits

Partnership audits are coming on the federal level, with the IRS expected to begin conducting audits using a new partnership audit regime in 2020.


States will follow. State governments are losing out on revenues from flow-throughs, which typically have not been audited. The impact of COVID-19 might accelerate state governments’ move to capture revenue from flow-throughs.


States are in budgetary crisis, with most states eating into rainy day funds or expecting to experience budget shortfalls. As governments find ways to close the gap, businesses should expect state and local taxes to be a significant part of the solution. Governments want businesses back up and running but they need cash to meet their obligations to the citizens of their states, which typically means broadening the tax base.


Flash points will rise and fall as lawmakers debate the best ways to fill state coffers. Business leaders and tax providers must track the fast-moving developments in state and local tax and modify tax plans accordingly to see businesses through a trying 2020.

 

 

 

Is maximizing PPP loan forgiveness the real endgame?

By Steven PinskyRoberto Hinojosa

 

On May 15, 2020, the Small Business Administration released the loan forgiveness application for the Paycheck Protection Program. The application contains a great deal of guidance and direction for assisting companies with calculating their loan forgiveness, including helpful worksheets and step by step instructions. Following the release of the application, Congress passed the Paycheck Protection Program Flexibility Act of 2020, modifying the forgiveness criteria. With this additional guidance in hand, borrowers are working diligently to determine ways to maximize their forgiveness.

 

But is maximizing forgiveness the real endgame?

 

I believe that some borrowers are doing themselves a disservice by focusing on maximum forgiveness instead of maximum long-term viability.

 

In a recent webinar, the New York Small Business Development Center confirmed that any PPP funds that are unused in the covered period (recently increased to 24 weeks as a result of the PPPFA) will be treated, along with the unforgiven portion of funds used in the covered period, as a five-year loan, as adjusted by the PPPFA, at 1 percent and the remaining funds can be used for any SBA approved business expenses.

 

Forgiveness vs. viability

While the economy appears to be opening up, it will be a slow process and companies may encounter possible future setbacks. In evaluating their PPP funds, borrowers should be asking themselves many questions: Does the borrower have the working capital needed to weather the covered period and the months that follow? Is there enough cash to support the on-going operations until the borrower can become cash flow positive? Does it make sense for the borrower to pay employees that are underutilized or worse to sit at home when many of them can make similar or, in some cases, better wages on unemployment? These and many more questions boil down to the key question:

“Am I better off using the PPP funds to maximize payroll and forgiveness, or should I apply them to other approved uses in the covered period and then to additional SBA-approved uses after the covered period?”

 

To answer this question, a borrower needs to look at the bigger picture of long-term viability. Many businesses have not been able to operate during the recent months. Most, or all, of their revenues have dried up and, unfortunately, they still have significant fixed costs. They must make hard choices as to how to survive in the long run. The decisions they make should not solely be based on getting through the 24-week covered period. Companies must look to future months after that. Many borrowers may conclude that maximum forgiveness is not the best avenue forward.

 

Employment levels are the key

The biggest variable in the short term is employment. With many employees eligible for unemployment, keeping them on the payroll to do little to nothing has a net zero effect on the borrower’s cash flow. You pay the employee to stay home and you get full forgiveness. If the employee can make almost as much, and in some cases more, on unemployment, a borrower may be better off by using the PPP funds for other uses or to stretch out the payroll for a smaller number of key employees.

 

It should be noted that the CARES Act, and the PPP in specific, are not just designed to get companies through the end of the covered period. It is part of a larger effort to keep companies viable through the end of the current economic hardships. Therefore, the effective use of funds to accomplish this goal for long-term viability supports that objective.

 

An illustration

The following illustration shows the comparative resulting outcomes of a fictitious company, or borrower, based on how it deploys its PPP funding. The three scenarios are:

  • Scenario 1: Full employment/maximum forgiveness
  • Scenario 2: 50 percent employment/50 percent forgiveness
  • Scenario 3: 25 percent employment/25 percent forgiveness

 

There are many factors that go into making employment decisions. Borrowers should consider the well-being of their employees when moving forward. This analysis assumes several factors regarding employment and operating decisions:

  • Most or all of the employees are eligible for enhanced unemployment benefits and may have the ability to maintain compensation levels close to those prior to unemployment for a period of time.
  • The borrower only plans on reducing the work force until such time as it is able to support the salaries through restored cash flow.
  • The example assumes that no revenue is coming in for the entire overed period. This is an extreme case but best illustrates the potential benefits of a cash conservation strategy in a worst-case scenario.
  • The illustration also assumes that FTE reductions mostly occurred after the April 26, 2020, deadline, thereby not allowing restoration by December 31. Again, a worst-case scenario.

 

Note: The example below is for illustrative purposes only and does not consider many other factors that impact cash flow and profitability, such as the tax effects of forgiveness.

Table 1 shows the assumptions used in this illustration. Please note that this analysis is oversimplified and is designed to directionally illustrate the potential outcomes given certain choices.

 

 

Scenario 1

 

Scenario 2

 

Scenario 3

Cash before PPP

$ 200,000

 

$ 200,000

 

$ 200,000

PPP loan amount

$ 100,000

 

$ 100,000

 

$ 100,000

Full employment monthly payroll

$ 40,000

 

$ 40,000

 

$ 40,000

Employment retained

100%

 

50%

 

25%

Other monthly PPP-approved uses

$ 10,000

 

$ 10,000

 

$ 10,000

Monthly other expenses

$ 10,000

 

$ 10,000

 

$ 10,000

Covered period in months

5.54

 

5.54

 

5.54

 

Table 2 illustrates the cash deployed during the covered period (24 weeks) for each of the scenarios. The table also shows the resulting cash positions of each scenario at the end of the covered period. As shown, there is a $166,000 increase in cash availability from Scenario 1 to Scenario 3. It is also important to note that the borrower will not even survive the covered period in Scenario 1.

 

The excess cash positions in Scenarios 2 and 3 are now available for use to both survive the covered period and in the weeks and months following the covered period. Please note that the PPP funds that were not used in the covered period can still only be used for SBA-approved expenses going forward, but these uses are broader than the PPP-allowable expenses. In the scenarios shown, it is assumed that there are enough SBA-approved expenses to fully utilize remaining PPP funds.

 

 

Scenario 1

Scenario 2

Scenario 3

Covered period uses

     

Payroll uses of PPP

$ 221,538

$ 110,769

$ 55,385

Other uses of PPP

$ 55,385

$ 55,385

$ 55,385

Total uses of PPP

$ 276,923

$ 166,154

$ 110,769

Non-PPP expenses

$ 55,385

$ 55,385

$ 55,385

TOTAL CASH USES

$ 332,308

$ 221,538

$ 166,154

 

Covered period cash position

     

Beginning cash before PPP

$ 200,000

$ 200,000

$ 200,000

PPP proceeds

$ 100,000

$ 100,000

$ 100,000

Less: PPP uses

($276,923)

($166,154)

($110,769)

Less: Non-PPP uses

($55,385)

($55,385)

($55,385)

New cash position after covered period

($32,308)

$ 78,462

$ 133,846

Relative scenario cash position

$ -

$ 110,769

$ 166,154

 

Table 3 shows how those additional funds can be used to stretch the viability of the borrower. Again, please note that Scenario 1 does not even support the borrower through the covered period. The table shows two possible approaches at the end of the covered period: Approach 1 assumes that full employment is restored. Approach 2 shows a case where the employment reductions must be kept at a reduced number assuming that business has not fully rebounded enough to support full payroll. Using a strategic expense deployment, this particular illustration shows that the company can extend its viability in the worst of cases by as much as 1.85 to 2.77 months. Approach 2 shows that the viability can be stretched by 5 months. This provides for more runway to execute a recovery.

 

 

Scenario 1

Scenario 2

Scenario 3

Approach 1: Full restoration of employment

     

Monthly burn rate (no revenues)

$ 60,000

$ 60,000

$60,000

Months of cash flow remaining

-0.54

1.31

2.23

Increase in months of viability over Scenario 1

 

1.85

2.77

       

Approach 2: Maintaining reduced employment

     

Monthly burn rate (no revenues)

$ 60,000

$ 40,000

$ 30,000

Months of cash flow remaining

-0.54

1.96

4.46

Increase in months of viability over Scenario 1

 

2.50

5.00

 

In all scenarios, it is assumed that staff reductions came after the April 26, 2020, reduction deadline so that even with full restoration by Dec. 31, 2020, the forgiveness will still be reduced by the reduction in FTE. Table 4 shows the relative cash positions for each scenario. Although the PPPFA increases the new term to five years, this illustration assumes payment after two years.

As shown, even though forgiveness is greatly reduced in Scenarios 2 and 3, the long-term benefits are significant in terms of cash preservation.

 

 

Scenario 1

Scenario 2

Scenario 3

Loan repayment/ no forgiveness

$ 101,480

$ 101,480

$ 101,480

Forgiveness

$ 100,000

$ 50,000

$ 25,000

Forgiveness percentage

100%

50%

25%

Loan not forgiven

$ -

$ 50,000

$ 75,000

Principal/interest payments with forgiveness

$ -

$ 50,740

$ 76,110

Relative cash impact of loan forgiveness

($50,740)

($76,110)

 

Relative cash position after covered period

$ -

$ 110,769

$ 166,154

Net relative cash position after 2 years

$ -

$ 60,029

$ 90,044

While this is only a sample illustration, it shows that there are situations where the borrower is better off forgoing the benefit of forgiveness to extend their capital.

 

 

 

Lawyer who ran from EY tax shelter case gets 3 years

 

A lawyer who spent more than a decade on the lam avoiding U.S. charges that he worked with partners at Big Four firm Ernst & Young LLP to develop and sell illegal tax shelters was sentenced to three years in federal prison.

 

David Smith pleaded guilty in February to a single count of filing a false tax return. He was initially indicted in 2008, but he fled to Vancouver ahead of the charges, selling his house in San Francisco and another in Marin County before going on the run. He fought extradition for 11 years before Canada’s top court handed him over to federal prosecutors in New York last July.

 

U.S. District Judge Sidney Stein in Manhattan handed down the sentence Monday, denying Smith’s request that he be sentenced to the 11 months he’d already served in New York’s Metropolitan Correctional Center. The three-year sentence was the maximum permitted under Smith’s plea agreement, and the judge said it was warranted because the lawyer was among the main facilitators of one of the largest tax-fraud schemes in U.S. history.

 

“I do find his conduct was very serious, long-running and caused great harm,” Stein said. “He was really a leader, a developer of this tax fraud scheme.”

 

The case was part of a major government crackdown on illegal tax shelters at the time. Four former EY partners were charged in 2007 with helping wealthy clients manufacture billions of dollars in paper losses that were used to offset their taxes. According to prosecutors, the scheme cost the government around $2 billion in lost revenue. Just two years earlier, federal prosecutors had targeted another $2 billion tax shelter ring, which resulted in Big Four firm KPMG LLP paying a $456 million fine.

 

Smith and Charles Bolton, an investment adviser, were also charged with participating in the EY scheme. The former partners were found guilty in 2009 though an appeals court later reversed convictions for two of them. Bolton and two other people pleaded guilty, but Smith went to Canada.

 

He told the judge on Monday that he did so not to avoid charges but because he wanted his daughters to grow up “in a different environment” after the Sept. 11, 2001, terrorist attacks. But he also argued that he feared prosecutors would renege on promises of leniency after he fully cooperated with their investigation.

 

Stein countered that the sale of tax shelters “certainly wasn’t tied to 9/11” and that Smith had the full opportunity to take the case to trial.

 

The case is U.S. v. Coplan, 07-cr-453, U.S. District Court, Southern District of New York (Manhattan).

 

 

 

Here’s who qualifies a taxpayer for the child and dependent care credit


Childcare or adult dependent care can be a major expense. Fortunately, the child and dependent care credit can provide some relief. Taxpayers who pay for daycare expenses may be eligible to claim up to 35% of what they spend; limits apply.

 

For the purposes of this credit, the IRS defines a qualifying person as:

• A taxpayer’s dependent who is under age 13 when the care is provided.

• A taxpayer’s spouse who is physically or mentally unable to care for themselves and lived with the taxpayer for more than half the year.

• Someone who’s physically or mentally unable to take care of themselves and lived with the taxpayer for six months and either:

a)The qualifying person was the taxpayer’s dependent or

b)They would have been the taxpayer’s dependent except for one of the following:
• The qualifying person received gross income of $4,200 or more

• The qualifying person filed a joint return

• The taxpayer or spouse, if filing jointly, could be claimed as a dependent on someone else’s return

 

Taxpayers can use the Interactive Tax Assistant on IRS.gov to determine if they can claim this credit.

 

 

 

4       reasons to contribute to an IRA

Saving in an IRA comes with tax benefits that can help you grow your money.

FIDELITY VIEWPOINTS

 

Key takeaways

  • Give your money a chance to grow.
  • Get tax benefits.
  • The earlier you start contributing, the more opportunity you have to build wealth.

 

It can pay to save in an IRA when you're trying to accumulate enough money for retirement. There are tax benefits, and your money has a chance to grow. Every little bit helps and you can still put money into an IRA for the 2019 tax year.

 

Due to the impact of COVID-19, the new date for filing federal income tax returns and for making contributions to your IRA for 2019 is July 15, 2020. It is currently unclear if state filings and payments are affected; taxpayers should consult their advisors for state tax information.

If your employer doesn't offer a retirement plan—or you're self-employed—an IRA may make sense.

 

Here are some reasons to make a contribution now

 

1. Put your money to work

Eligible taxpayers can contribute up to $6,000 per year, or your taxable compensation for the year (whichever is less), to a traditional or Roth IRA, or $7,000 if they have reached age 50, for both tax years 2019 and 2020 (assuming they have earned income at least equal to their contribution). It's a significant amount of money—think about how much it could grow over time.

 

Consider this: If you're age 25 and invest $6,000, the maximum annual contribution in 2019, that one contribution could grow to $89,847 after 40 years. If you’re age 50 or older, you can contribute $7,000, which could grow to about $19,313 in 15 years.1 (We used a 7% long-term compounded annual hypothetical rate of return and assumed the money stays invested the entire time.)

 

The age you start investing in an IRA matters: It's never too late, but earlier is better. That’s because time is an important factor when it comes to compound growth. Compounding is what happens when an investment earns a return, and then the gains on the initial investment are reinvested and begin to earn returns of their own. The chart below shows just that. Even if you start saving early and then stop after 10 years, you may still have more money than if you started later and contributed the same amount each year for many more years.

 

https://www.fidelity.com/bin-public/060_www_fidelity_com/images/Viewpoints/RET/contribute_IRA_2019_info.jpg

 

This hypothetical example assumes the following: (1) annual IRA contributions on January 1 of each year for the age ranges shown, (2) annual $6,000 contribution for first year and thereafter, (3) an annual rate of return of 7% and (4) no taxes on any earnings within the IRA. The ending values do not reflect taxes, fees, or inflation. If they did, amounts would be lower. Earnings and pre-tax (deductible) contributions from traditional IRAs are subject to taxes when withdrawn. Earnings distributed from Roth IRAs are income tax-free provided certain requirements are met. IRA distributions before age 59½ may also be subject to a 10% penalty. Systematic investing does not ensure a profit and does not protect against loss in a declining market. This example is for illustrative purposes only and does not represent the performance of any security. Consider your current and anticipated investment horizon when making an investment decision, as the illustration may not reflect this. The assumed rate of return used in this example is not guaranteed. Investments that have potential for a 7% annual rate of return also come with risk of loss.

 

2. You don't have to wait until you have the full contribution

The $6,000 (or your compensation limit) IRA contribution limit is a significant sum of money, particularly for young people trying to save for the first time.

 

The good news is that you don't have to put the full $6,000 into the account all at once. You can automate your IRA contributions and have money deposited to your IRA weekly, biweekly, or monthly—or on whatever schedule works for you.

 

Making many small contributions to the account may be easier than making one big one.

 

It's important to note that you don't have to contribute up to the limit each year. Save what you can on a regular basis—even small amounts can make a big difference over time.

 

3. Get a tax break

IRAs offer some appealing tax advantages. There are 2 types of IRAs, the traditional and the Roth, and they each have distinct tax advantages and eligibility rules.

 

Contributions to a traditional IRA may be tax-deductible for the year the contribution is made. Your income does not affect how much you can contribute to a traditional IRA—you can always contribute up to the annual limit as long as you have enough earned income to cover the contribution. But the deductibility of that contribution is based on your modified adjusted gross income (MAGI) and the access you and/or your spouse have to an employer plan like a 401(k). If neither you nor your spouse are eligible to participate in a workplace savings plan like a 401(k) or 403(b), then you can deduct the full contribution amount, no matter what your income is. But if one or both of you do have access to one of those types of retirement plans, then deductibility is phased out at higher incomes.2 Earnings on the investments in your account can grow tax-deferred. Taxes are then paid when withdrawals are taken from the account—typically in retirement.

 

Just remember that you can defer, but not escape, taxes with a traditional IRA: Starting at age 72, required minimum withdrawals become mandatory, and these are taxable (except for the part—if any—of those distributions that consist of nondeductible contributions).3 If you need to withdraw money before age 59½, you may be hit with a 10% penalty unless you qualify for an exception.4

The CARES act temporarily waives required minimum distributions (RMDs) for all types of retirement plans (including IRAs, 401(k)s, 403(b)s, 457(b)s, and inherited IRA plans) for calendar year 2020. This includes the first RMD, which individuals may have delayed from 2019 until April 1, 2020.

 

On the other hand, you make contributions to a Roth IRA with after-tax money, so there are no tax deductions allowed on your income taxes. Contributions to a Roth IRA are subject to income limits.5 Earnings can grow tax-free, and, in retirement, qualified withdrawals from a Roth IRA are also tax-free. Plus, there are no mandatory withdrawals during the lifetime of the original owner. If you need to take an early withdrawal from a Roth IRA, withdrawals of earnings before age 59½ may be subject to both tax and early withdrawal penalties if withdrawn before the qualifying criteria are met.6

 

As long as you are eligible, you can contribute to either a traditional or a Roth IRA, or both. However, your total annual contribution amount across all IRAs is still $6,000 (or $7,000 if age 50 or older).

 

What's the right choice for you? For many people, the answer comes down to this question: Do you think you'll be better off paying taxes now or later? If, like many young people, you think your tax rate is lower now than it will be in retirement, a Roth IRA may make sense.

 

4. You may think you can't have an IRA, but maybe you can

 

There are some common myths about IRAs—especially about who can and who can't contribute.

Myth: I need to have a job to contribute to an IRA.

Reality: Not necessarily. A spouse with no earned income can contribute to a spousal Roth or traditional IRA as long as their spouse has earned income and the couple files a joint tax return. Note, however, that all other IRA limits and rules still apply.

 

Myth: I have a 401(k) or a 403(b) at work, so I cannot have an IRA.

Reality: You can, with some caveats—as mentioned earlier. For instance, if you or your spouse have access to a retirement plan like a 401(k) or 403(b) at work, your traditional IRA contribution may not be deductible, depending on your modified adjusted gross income (MAGI).2 But you can still make a nondeductible, after-tax contribution and reap the potential rewards of tax-deferred growth within the account. You can contribute to a Roth IRA, whether or not you have contributed to your workplace retirement account, as long as you meet the income eligibility requirements.5

 

Myth: Children cannot have an IRA.

Reality: An adult can open a custodial Roth IRA (also known as a Roth IRA for Kids) for a child under the age of 18 who has earned income, including earnings from typical kid jobs such as babysitting or mowing lawns, as long as this income is reported to the IRS.7

 

An adult needs to open and maintain control of the account. When the child reaches the age of majority, which varies by state, the account's ownership switches from the adult over to them.

Make a contribution

 

Your situation dictates your choices. If your employer doesn't offer a retirement plan—or you're self-employed—an IRA may make sense. But one thing applies to everyone: the power of contributing early. Pick your IRA and get your contribution in and invested as soon as possible to take advantage of the tax-free compounding power of IRAs.

 

 

 

Taxpayers will soon be able to file amended tax returns electronically

 

Later this summer, for the first time taxpayers will be able to file their Form 1040-X, Amended U.S Individual Income Tax Return electronically.

 

Making this form electronically fileable has been a long-time goal for the IRS. It will greatly benefit the tax professional community and taxpayers.

 

The new electronic option will allow the IRS to receive amended returns faster while minimizing errors normally associated with manually completing the form. It will also provide the IRS with more complete and accurate data to help customer service representatives answer taxpayer questions.

 

When the electronic filing option becomes available, taxpayers will only be able to amend tax year 2019 Forms 1040 and 1040-SR returns electronically. In general, taxpayers will still have the option to submit a paper version of the Form 1040-X and should follow the instructions for preparing and submitting the paper form.

 

Whether an amended return is filed electronically or manually, taxpayers can still use the "Where's My Amended Return?" online tool to check the status of their amended return.

 

 

 

 

Coronavirus may revitalize cryptocurrencies, but issues remain

By Shaun Hunley

 

It’s become a near-daily occurrence: Practically every morning, Americans awake to find the next batch of luminaries — everyone from scientists to civic leaders — asking the world to consider the “new normal” in the age of COVID-19. Whether it’s regular mask wearing, the re-imagining of office spaces, or the permanence of telecommuting, it seems some of society’s basic tenets will be turned on their heads in the not-too-distant future.

 

That, too, will almost certainly lead to more widespread adoption of digital payments as an alternative to cash.

 

Cash hasn’t been king for some time. While an overwhelming majority of Americans still believe cash should be accepted, their habits say they’re not too attached to their paper money. In fact, according to the Federal Reserve, cash is used in just 26 percent of all transactions, and 49 percent of those are under $10.

 

Now, in the midst of a global pandemic brought on by the spread of COVID-19, the gravitational pull toward digital transactions has been amplified. Customers are happily leveraging their debit and credit cards, as well as mobile payment vehicles like Venmo and PayPal, to avoid handling communal money. It’s the same environment that has shot virtual currencies like bitcoin back to the forefront of the public consciousness.

 

After its explosive jump in December 2017 to trading at nearly $20,000 per coin, bitcoin has been on a rollercoaster ride with more valleys than peaks. But the pandemic could change that for not only bitcoin, but all cryptocurrencies, as both banks and regulators could flock to crypto as a useful way to steady an uneven economy, propping it up once again as the must-have asset in everyone’s portfolio.

 

Even as it regains steam, though, the nature of cryptocurrency still remains largely niche, and it could severely complicate tax matters for investors who simply can’t keep track of the comings and goings.

 

Take, for example, the IRS’s own thoughts on the subject. In October 2019, the IRS released additional guidance that spoke to the technological side of cryptocurrency. In it, the IRS addressed some major points of contention, specifically the difference between hard forks and soft forks.

 

If an investor has existing virtual currency, and the distributed ledger of the cryptocurrency is changed, that’s a hard fork. An example of this is when bitcoin, in an effort to facilitate faster, cheaper transactions, forked to “Bitcoin Cash” in August 2017. According to the IRS, if a hard fork does not result in new units of cryptocurrency, the transaction is not taxable. If it does, it is taxable.

 

Meanwhile, soft forks — when investors are given new units of crypto in the same currency — are not taxable at all because taxpayers are in the same position as they were before. Sound confusing? Don’t worry, it is.

 

What’s more, if the dates don’t quite line up for you, you’re not alone. The guidance came more than two years after the first bitcoin fork, leaving investors and practitioners to completely fly blind. Not only are we asking for advisors to take on a heavy lift in understanding some relatively new and very nuanced terminology, the difference between the two could have major tax consequences.

 

Additionally, the cryptocurrency market offers other products (futures, retirement accounts invested in crypto assets, and interest paid on crypto deposits). Currently, the IRS offers no guidance on those. As virtual currency becomes more popular, practitioners will struggle with the tax treatment of these items, and again, struggle to make recommendations to their clients that will ensure their compliance.

 

So, as the world envisions itself free of physical cash and rushes to pump money into digital tokens, these complex issues will trickle down to more unsuspecting practitioners and investors. And with the ramifications of a misstep being potentially huge, it will be of the utmost importance to demystify the jargon and to get timelier guidance to help keep an audit at bay.

 

 

 

IRS urged to pursue preparers with overdue returns, debts and penalties

By Michael Cohn

 

The Internal Revenue Service should make more of a priority of going after tax preparers who haven’t filed their own tax returns or paid their tax liabilities and penalties, according to a new report.

 

The report, released Monday by the Treasury Inspector General for Tax Administration, noted that as of November 2018, the IRS’s Return Preparer Database indicated that more than 30,000 preparers self-identified as being tax noncompliant on their Preparer Taxpayer Identification Number applications in tax years 2011 through 2018. TIGTA’s analysis of that database found 10,495 preparers who prepared more than 2 million tax returns for clients in 2016, but who didn’t file their own personal tax return to report the income they received.

 

On top of that, TIGTA identified the top 100 nonfiler preparers out of those 10,495 preparers based on the number of returns they prepared for clients in 2016 using their PTIN information. Those top 100 preparers prepared between 1,000 to 6,000 tax returns for clients in 2016, and TIGTA estimates that each of those 100 preparers potentially received somewhere from $189,000 to upwards of $1 million. In addition, TIGTA estimates $45.6 million in potential taxes could be assessed if the IRS worked on 6,903 of the preparer nonfiler cases. After reviewing a draft of the report, IRS management told TIGTA it has included 449 of the nonfiler preparers in its examination plan for this fiscal year.

 

TIGTA also did an analysis of delinquent preparer penalty and tax “modules” as of May 27, 2019, and it indicated the majority were in active collection status. However, a significant part of them weren’t in active status because they were in “currently not collectible,” or CNC, status or were in a queue awaiting assignment to the IRS’s Collection function. There seemed to be discrepancies when TIGTA analyzed those modules showing there were high-priority preparer penalty modules in CNC shelved status, preparers in CNC hardship status who were probably earning significant income nonetheless, and high-dollar modules that were sitting around aging in the queue.

 

The IRS’s new nonfiler strategy doesn’t include specific items to address preparers who have failed to file their own tax returns that are due, and the IRS’s current preparer misconduct strategy doesn’t offer specific direction on how the agency might deal with preparers who are nonfilers or have balances due on their own tax accounts.

 

“Paid tax return preparers (preparers) serve an important role in the U.S. tax system as they prepare approximately 60 percent of all tax returns filed, and their actions have an enormous impact on the IRS’s ability to administer the tax laws effectively,” said the report. “When preparers cannot manage their own tax affairs, or worse, if they intentionally claim credits and deductions to which they are not entitled, they could undermine the tax administration system.”

 

TIGTA made 11 recommendations in the report to help the IRS identify and deal with preparer nonfilers and high-risk preparers who have balance due tax liabilities and preparer penalties. The IRS agreed or partially agreed with six of TIGTA’s recommendations and intends to take action, including updating the Internal Revenue Manual to include the Return Preparer Database as a recognized internal source for identification and referral of preparer nonfilers to the IRS’s Examination function. However, the IRS disagreed with five of TIGTA’s recommendations. For its part, TIGTA said it believes these recommendations will help the IRS to identify and address preparer nonfilers who don’t fall into the normal work streams and hold preparers accountable for their own delinquent penalty and tax liabilities.

 

“Our goal at the IRS is to address preparer noncompliance as quickly as possible and in the most efficient and effective manner,” wrote Eric Hylton, commissioner of the IRS’s Small Business/Self-Employed division, in response to the report. “We employ a multi-faceted and multifunctional approach to bring return preparers into compliance with their filing and paying responsibilities.”

 

 

 

Fossil fuel’s answer to climate change just got less expensive thanks to IRS

By Will WadeBrian Eckhouse

 

Carbon capture, the fossil-fuel industry’s favorite weapon against climate change, has never really caught on because of the expense.

 

That may be about to change. The Internal Revenue Service recently issued crucial guidance to help developers take advantage of tax credits for the systems, and supporters say it could usher in a new era for the controversial technology.

 

“It’s the make-or-break financial element,” said Peter Mandelstam, chief operating officer for Enchant Energy Corp., which is preparing to put in a carbon-capture system at a coal-fired power plant near Farmington, New Mexico. “The Enchant project only works if the tax credit is in place.”

 

Thirteen commercial systems are operating in the U.S., with 30 more in development, according to the Carbon Capture Coalition. Developers include Occidental Petroleum Corp. and Starwood Energy Group Global. A similar tax credit jump-started the U.S. wind-power industry more than a decade ago, and supporters say the new IRS guidance may prove to be the missing piece of the financial puzzle that will make capturing carbon economical.

 

Carbon capture systems put the “clean” in clean coal and can cut emissions at industrial sites like ethanol plants or cement factories. They trap carbon dioxide, which can then be stored underground or sold to drillers to help them pump oil and natural gas. Either way, carbon is kept out of the atmosphere where it causes global warming. Green groups say the technology extends America’s reliance on fossil fuels and steers financing away from wind and solar, but many of them support the credits because it helps reach the ultimate goal — slowing climate change.

 

Enthusiasm appears to be growing. Norton Rose Fulbright, a law firm that specializes in project funding, held an online seminar last week about tax-equity for carbon capture, a financing arrangement that’s common in renewable-energy projects. Organizers said they would’ve been happy with 150 registrants. Nearly 1,000 signed up, and 540 joined.

 

“The numbers say to me that the tax-equity market is looking for ways to diversify out of wind, solar and low-income housing,” said Keith Martin, the firm’s co-head of projects in the U.S.

 

Congress more than doubled the existing tax credit in 2018. The incentive provides $50 for every metric ton of CO2 that’s sequestered, or $35 a ton for producing oil with the captured carbon. That was enough for developers to start hatching plans, but tax questions held up financing deals. The IRS issued proposed regulations for the so-called Section 45Q credit last month.

 

For developers, “this gets us a lot closer to getting deals done,” said Himanshu Saxena, CEO of Starwood Energy, which is working with OGCI Climate Investments to retool a natural-gas power plant. “Without this, we would’ve been very far from the goal-posts.”

 

Oil companies, coal miners and utilities have talked for years about the promise of carbon capture without backing up the hype with action, and a potential revenue stream — selling the carbon dioxide to oil drillers — is less attractive due to the collapse in crude. But one advantage of the system is its ability to remove emissions from existing facilities, a possible selling point with so many Americans out of work.

 

Enchant Energy's plan to install a carbon-capture system in New Mexico may help save 450 jobs at the 847-megawatt San Juan power plant and the nearby mine that feeds it. The facility is slated to close in 2022 because its majority owner, the local utility, says it’s no longer economical to operate and can’t meet an emission cap established last year.

 

With the tax credit, Enchant Energy says it can solve both problems. The company has a deal to take over the generator for $1. Its planned $1.3 billion carbon-capture system will reduce emissions by as much as 90% and introduce a new revenue source by selling the CO2, according to Enchant’s Mandelstam. The company is looking to complete financing this year and start construction in the second quarter of 2021, he said.

 

Big picture

But extending the life of fossil-fuel plants may not be the best long-term strategy, according to Mike Eisenfeld at the San Juan Citizens Alliance. He said he has doubts about whether the San Juan project will be able to trap all the emissions that Enchant claims it can and if the company will find a buyer for the electricity.

 

Eisenfeld said he’s opposed to spending money to prop up coal plants when the funds could be directed to renewable energy.

 

“These subsidies are really misguided,” he said. They don’t “look at the big picture.”

 

Carbon capture at U.S. power plants has a mixed record. The highest-profile project, Southern Co.’s Kemper plant in Mississippi, was once heralded as the future of clean coal. It was designed to turn the fuel into a gas, then burn the gas to produce power. But Southern pulled the plug in 2017 after construction issues and equipment problems helped drive up costs to $7.5 billion. Southern decided to run the plant on regular natural gas.

 

High costs have impeded projects in Europe, too, though there are signs of a possible breakthrough. Last month, oil giants Royal Dutch Shell Plc, Total SA and Equinor ASA said they were ready to go ahead with the transport and storage portion of Norway’s plan for a full-scale carbon-capture chain. That would cost 6.9 billion kroner ($744 million) in the first phase alone, but the government would shoulder most of the investment if Parliament gives its green light later this year.

 

U.S. supporters tout Petra Nova, a $1 billion joint venture of NRG Energy Inc. and JX Nippon Oil & Gas Exploration Corp. The facility outside Houston went into service in late 2016, and captures CO2 from burning coal and delivers the gas for oil production.

 

Oil companies like Occidental view the technology as a way to make operations more environmentally friendly. Occidental is co-developing a system at a White Energy Co. ethanol plant in Texas.

 

“We know there’s a growing C02-emissions problem,” said Richard Jackson, president and general manager of the company’s Oxy Low Carbon Ventures unit. “There’s got to be a solution.”

 

 

 

IRS alert: Economic Impact Payments belong to recipient, not nursing homes or care facilities

WASHINGTON – The Internal Revenue Service today alerted nursing home and other care facilities that Economic Impact Payments (EIPs) generally belong to the recipients, not the organizations providing the care.

 
The IRS issued this reminder following concerns that people and businesses may be taking advantage of vulnerable populations who received the Economic Impact Payments.

 

The payments are intended for the recipients, even if a nursing home or other facility or provider receives the person’s payment, either directly or indirectly by direct deposit or check. These 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.

 
The Social Security Administration (SSA) has issued FAQs on this issue, including how representative payees should handle administering the payments for the recipient. SSA has noted that under the Social Security Act, a representative payee is only responsible for managing Social Security or Supplemental Security Income (SSI) benefits. An EIP is not such a benefit; the EIP belongs to the Social Security or SSI beneficiary. A representative payee should discuss the EIP with the beneficiary. If the beneficiary wants to use the EIP independently, the representative payee should provide the EIP to the beneficiary.

The IRS also noted the Economic Impact Payments do not count as resources that have to be turned over by benefit recipients, such as residents of nursing homes whose care is provided for by Medicaid. The Economic Impact Payment is considered an advance refund for 2020 taxes, so it is considered a tax refund for benefits purposes.

 
The IRS noted the language in the Form 1040 instructions apply to Economic Impact Payments: “Any refund you receive can't be counted as income when determining if you or anyone else is eligible for benefits or assistance, or how much you or anyone else can receive, under any federal program or under any state or local program financed in whole or in part with federal funds. These programs include Temporary Assistance for Needy Families (TANF), Medicaid, Supplemental Security Income (SSI), and Supplemental Nutrition Assistance Program (formerly food stamps). In addition, when determining eligibility, the refund can't be counted as a resource for at least 12 months after you receive it.”

 
Additional information about EIPs and representative payees involving Social Security and Supplemental Security Income benefits can be found at www.ssa.gov/coronavirus/#reppayee.

 

 

 

What Kind of Tax Professional Is Right for You?

Ashley Lee

 

If you’ve been using software like TurboTax or H&R Block to do your own taxes for years, hiring a professional to help you with tax issues may seem daunting. There are so many choices — should you use an enrolled agent? A CPA? A tax attorney?

 

Anyone with an IRS Preparer Tax Identification Number (PTIN) can be a paid tax return preparer, but different kinds of tax professionals have varying levels of education, experience, and credentials. Furthermore, they differ in representation rights before the IRS. If you’ve never had an issue with a tax return before, that may not bother you. But when your tax situation gets more complicated, it can help to have someone who can represent you before the IRS.

 

The question of which type of tax preparer to hire depends on your individual financial situation. Generally speaking, the more complicated your situation, the higher credentials you’ll want in your tax preparer — and the more expensive their tax preparation services will be.

 

What are the different types of tax preparer? And which kind of tax preparer is right for you?

 

Tax Attorney

A tax attorney is a lawyer who specializes in tax law. A tax attorney has a law degree and has passed the state bar exam. Similar to CPAs, tax attorneys are licensed by state courts or state bars, so requirements for continuing education vary between states.

 

A tax attorney's services are usually the most expensive compared to other kinds of tax preparers.

 

A tax attorney may be a good choice for you if you’re dealing with tax-related legal issues, such as back taxes, or IRS penalties like wage garnishment or bank levies. The best tax relief companies often employ professionals including tax attorneys and specialize in problems such as these.

 

Enrolled agent

An enrolled agent has achieved the highest level of credential the IRS awards. These individuals become enrolled agents by either passing a three-part exam that covers both individual and business tax returns, or through their experience as a former IRS employee. Every three years, they have to complete 72 hours of continuing education to maintain their enrolled agent status.

An enrolled agent may be the right choice for you if your tax situation is particularly complicated, such as if you are self-employed, have rental property, sold a home or other property, have a large number of itemized deductions, experiencing a life event such as divorce, death of a spouse, or other complicated situation. Enrolled agents are also trained to represent taxpayers before the IRS. 

 

CPA

A CPA, or certified public accountant, helps individuals and organizations achieve their financial goals. Because CPAs are licensed by state boards of accountancy, accounting and continuing education requirements vary from state to state. But all CPAs must pass the same Uniform CPA Exam.

 

You may want to get tax help from a CPA if you already use the services of a reputable CPA and you aren’t expecting any potential legal issues in regard to your tax return. If you already employ a CPA, he or she would already be familiar with your financial situation, and hopefully your regular use of their services means they're good at what they do. A CPA may also be particularly useful during tax season if you own a business.

 

Annual Filing Season Program Participant

The annual filing season program (AFSP) is for tax return preparers who don’t hold credentials. The program is designed to encourage non-credentialed preparers to keep up with continuing education. To participate in the program, preparers need to take 18 hours of continuing education, including passing the timed examination for 6 credit hours of an Annual Federal Tax Refresher course whose content is specified by the IRS.  

 

A person can be a paid return preparer without being an annual filing season program participant, but participating in the program gives the preparer limited representation rights before the IRS. An AFSP preparer can represent clients whose returns they prepared and signed before revenue agents, customers service representatives, and other similar IRS employees.

 

If your tax situation is relatively simple, such as if you have only one source of income and aren’t planning on claiming itemized deductions, you probably don't need someone with unlimited representation rights. Someone who's an annual filing season program participant may be enough to suit your needs.

 

PTIN Holder

Anyone with a PTIN, or preparer tax identification number, can be a paid tax return preparer, but if they aren’t an annual filing season program participant, they don’t have even limited representation rights before the IRS.

 

Someone who’s simply a PTIN holder and not an annual filing season program participant will probably be your cheapest option among the various kinds of tax professionals. Just keep in mind that you may be on your own should any issues arise after you’ve filed.

 

Be wary of anyone who claims to be a tax preparer who does not have a PTIN and who does not sign the returns they prepare. When you encounter one of these, the signature area of the tax return will say “Self-Prepared.” 

 

The Bottom Line

There’s no one right answer in regard to who you should hire to help you with your taxes. The right choice will vary from person to person, and the answer could change from year to year for even a single person. Use your personal tax situation, as well as your budget, as your guide in choosing a tax professional.

 

 

 

COVID-19: Time to update a health care proxy?

Learn why you need 3 key health forms: A living will, a health care proxy, and HIPAA.

FIDELITY VIEWPOINTS

 

Key takeaways

  • With or without the COVID-19 pandemic, most people should have 3 key health-related legal documents in place: a living will, a health care proxy, and HIPAA authorization.
  • When naming a health care proxy, think about whether the person (such as a spouse/domestic partner, adult child, or trusted friend) has the emotional capacity to carry out your wishes.
  • You may be able to execute estate planning documents while you shelter in place at home. Work with your attorney to determine how much of the estate planning process, such as document execution and notarization, can be done digitally or remotely.
  • Consider drafting health care proxies for all members of your family, including adult children.

 

The pandemic reminds us all just how important our health is—and making sure we have the right plans in place for ourselves and our loved ones should we fall ill.

 

"Turning the responsibility for making key health decisions over to a loved one can be particularly challenging for many people," advises Christin Haley, vice president, advanced planning at Fidelity. "But planning in advance can help provide peace of mind to everyone involved."

3 health-related legal documents everyone needs

Generally, when it comes to making important health care and "life or death" decisions, the following key legal documents should be available to the family to ensure that your loved one's wishes are carried out:

1.Living will

2.Health care proxy

3.HIPAA authorization

 

What is a living will?

A living will allows someone to state their wishes regarding certain kinds of medical treatments, as well as life-prolonging and end-of-life procedures. This document typically takes effect if someone cannot communicate their own health care decisions. The benefit of a living will is that it helps ensure health care wishes are carried out so that family members are not in the position of having to make difficult decisions on their own. Many state laws dictate the form and content of living wills; the enforceability of living wills also varies by state.

 

What is a health care proxy?

A health care proxy grants authority to another person to make medical decisions on a person's behalf when that person is not able to communicate decisions on their own. The health care proxy ends when the person granting authority revokes it, or dies.

 

What is HIPAA authorization?

A Health Insurance Portability and Accountability Act (HIPAA) authorization is a legal document that allows an individual’s health information to be used or disclosed to a third party, typically the individual named as health care POA. This waiver can be customized to some extent, allowing for sharing some information while keeping other information private.

Take the following steps to get health care documents in order and consider adding new COVID-19 directives:

  1. Locate your health care proxy, living will, and HIPAA authorization (and if you don’t have them, get them drafted).
  2. Confirm that the documents still reflect your wishes. Some questions to ask:

- Is the named agent still appropriate?

- Do you have back-up or alternate agents in case something happens to your designated POA?

  1. Review the documents to see if they need to be updated to reflect current circumstances. For example:

- Consider whether or not you want life-prolonging medical treatment used if a recovery is unlikely.

- Consider an update to the definition of "medical treatment" to specifically include the maintenance of respiration, nutrition, and hydration by artificial means.
- Consider the definition of "extraordinary measures" and whether they might make sense under certain circumstances, such as the use of a ventilator in treating COVID-19 related illnesses.
- Consider adding language for how your POA can communicate with medical staff and whether email, video conference, and other means of communication are acceptable.

Tip: Many estate planning attorneys now offer video meetings to assist clients with the process of reviewing and updating documents.

 

7 health care proxy best practices to keep in mind

  1. Think about whether the person you name (such as a spouse/domestic partner, adult child, or trusted friend) has the emotional capacity to carry out your wishes.
  2. Discuss the provisions with all named POAs and family. Talk with the person chosen as health care POA and with your family members specifically about your wishes about ventilators and respirators.
  3. Put a copy of the HCP on file with primary care doctors' offices as well as local or preferred hospitals; see if they are able to accept the HCP electronically and update your patient record ahead of admittance; provide updated copies when changes are made.
  4. If you are hospitalized, give a copy of the HCP to the hospital admitting clerk upon admission to the hospital and have your POA bring or send a copy as well.
  5. Keep a small card in your wallet stating the fact that you have an HCP; provide the name and phone number of the agent.
  6. Be sure that the forms you sign upon admission to the hospital align with your wishes.
  7. Keep the HCP easily accessible (in a home safe rather than safe deposit box) or electronically in FidSafe®.

 

Authorizing your legal documents as you shelter in place

 

Financial services firms, including Fidelity, are reviewing online signature and notarization policies and procedures to better accommodate the remote execution of documents, including powers of attorney.

 

Tip: Check with your attorney to see if there is an option for online execution including notarization. You may be able to scan or fax documents to the notary public and then receive a notarized copy in return.

 

Align your HCP with your estate and financial plans

 

"Planning ahead is vital to helping your family find the information they may need especially during the uncertain times we're all living through," says Haley. "You should prepare and securely store a current inventory of key assets, a contact list of advisors, and a list of legal documents and other key information."

 

"Be sure to review the beneficiary designations on life insurance policies, retirement plans, and taxable accounts, and review the titling of the assets with the family's tax advisor and estate planning attorney to make sure they are aligned with your overall financial plan," she adds.

 

In hiring a qualified estate planning attorney, look to identify several candidates and speak with each of them to assess how well they fit. Be sure to ask each for an estimate of cost and what is included.

 

With COVID-19 in our midst, now may be a good time to hold a family meeting to lay the groundwork for a solid estate plan, including the addition of health care proxies for all family members, to help manage expectations for all involved.

 

Tip: For guidance on selecting an attorney to work with your family, read Viewpoints on Fidelity.com: How to find an estate planning attorney and access the Fidelity Estate Planner®.

 

 

 

Trump tax break fails to deliver for communities, study finds

By Noah Buhayar

 

President Donald Trump recently highlighted the “opportunity zone” tax breaks he signed into law in late 2017 as a reason his administration “has done more for the Black Community than any president since Abraham Lincoln.”

 

A new analysis by the left-leaning Urban Institute questions if the program is meeting its goal of spurring development and creating jobs in “undercapitalized communities,” many of which are majority Black.

 

“It was sobering for us in terms of how hard it is to do impact projects under the program,” said researcher Brett Theodos, one of the authors of the study. It’s “not impossible, but it’s harder than it might seem, and certainly than it should be, for a program purporting to help neighborhoods.”
 

One of the key findings of the report is that backers of “mission-oriented” projects — which include affordable housing, arts organizations and small business development groups — are struggling to get traction with family offices and other high net-worth individuals that are taking advantage of the tax breaks. That’s partly because community development projects often have lower returns than most investors in the zones are willing to accept.

 

Governors selected the more than 8,700 zones two years ago from a list of eligible low-income census tracts in their states. Investors who develop real estate or put equity into businesses located inside these communities can defer or even avoid taxes on capital gains.

 

Getting a handle on the impact of opportunity zones has been a challenge, in large part because the federal government has required so little data collection on who’s using the tax breaks and what they’re investing in.

 

Detractors can highlight examples of waste, while supporters can point to ways the breaks have catalyzed development. As members of Congress weigh potential adjustments to the incentives, Theodos and his colleagues are suggesting changes to make them work better for low-income neighborhoods.

 

Among them: Allow investors to back small businesses in the zones through hybrid debt and other structures, rather than just pure equity; scaling the tax benefit to social outcomes, like the number of quality jobs created, rather than profit on the projects; and widening the pool of investors that can benefit through refundable tax credits.

 

“Although there are compelling examples of community benefit, the incentive as a whole is not living up to its economic and community development goals,” the report said. “The incentive’s structure makes it harder to develop projects with community benefit in places with greatest need. In contrast, OZs are providing the biggest benefits to projects with the highest returns, which are rarely aligned with equitable development.”

 

 

 

Relief for taxpayers affected by COVID-19 who take distributions or loans from retirement plans
 

WASHINGTON – The Internal Revenue Service today released Notice 2020-50 (PDF) to help retirement plan participants affected by the COVID-19 coronavirus take advantage of the CARES Act provisions providing enhanced access to plan distributions and plan loans.  This includes expanding the categories of individuals eligible for these types of distributions and loans (referred to as “qualified individuals”) and providing helpful guidance and examples on how qualified individuals will reflect the tax treatment of these distributions and loans on their federal income tax filings.

 

The CARES Act provides that qualified individuals may treat as coronavirus-related distributions up to $100,000 in distributions made from their eligible retirement plans (including IRAs) between Jan. 1 and Dec. 30, 2020. A coronavirus-related distribution is not subject to the 10% additional tax that otherwise generally applies to distributions made before an individual reaches age 59 ½. In addition, a coronavirus-related distribution can be included in income in equal installments over a three-year period, and an individual has three years to repay a coronavirus-related distribution to a plan or IRA and undo the tax consequences of the distribution. 

 

In addition, the CARES Act provides that plans may implement certain relaxed rules for qualified individuals relating to plan loan amounts and repayment terms. In particular, plans may suspend loan repayments that are due from March 27 through Dec. 31, 2020, and the dollar limit on loans made between March 27 and Sept. 22, 2020, is raised from $50,000 to $100,000.

 

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 coronavirus on the individual’s spouse or household member. As expanded under Notice 2020-50, a qualified individual is anyone who –

  • is diagnosed, or whose spouse or dependent is diagnosed, with the virus SARS-CoV-2 or the coronavirus disease 2019 (collectively, “COVID-19”) by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetic Act); or
  • experiences adverse financial consequences as a result of the individual, the individual’s spouse, or a member of the individual’s household (that is, someone who shares the individual’s principal residence):
    • being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19;
    • being unable to work due to lack of childcare due to COVID-19;
    • closing or reducing hours of a business that they own or operate due to COVID-19;
    • having pay or self-employment income reduced due to COVID-19; or
    • having a job offer rescinded or start date for a job delayed due to COVID-19.

 

Notice 2020-50 clarifies that employers can choose whether to implement these coronavirus-related distribution and loan rules, and notes that qualified individuals can claim the tax benefits of coronavirus-related distribution rules even if plan provisions aren’t changed. The guidance clarifies that administrators can rely on an individual’s certification that the individual is a qualified individual (and provides a sample certification), but also notes that an individual must actually be a qualified individual in order to obtain favorable tax treatment. Further, Notice 2020-50 provides employers a safe harbor procedure for implementing the suspension of loan repayments otherwise due through the end of 2020, but notes that there may be other reasonable ways to administer these rules.

 

Employers, financial institutions, and individuals should refer to Notice 2020- fo50r more details about how the CARES Act rules for coronavirus-related distributions and loans from plans apply.   

 

This tax relief and other information related to the effects of COVID-19 on federal income tax is available on the IRS Coronavirus Tax Relief pages of IRS.gov.

 

 

 

 

 

SBA and Treasury streamline PPP loan forgiveness applications

By Michael Cohn

 

The Small Business Administration and the Treasury Department unveiled a simpler loan forgiveness application for the Paycheck Protection Program to reflect changes in the PPP Forgiveness Act, which was signed into law this month and provides more flexibility to small businesses to receive forgiveness on their SBA-backed loans.

 

The PPP was included as part of the CARES Act, the $2.2 trillion program that included economic impact payments to individuals and aid to businesses in response to the novel coronavirus pandemic. The program initially launched on April 3 with $349 billion in funding to help small businesses keep their doors open and retain their employees. The loans would be forgiven as long as businesses retained their employees for up to eight weeks.

 

However, many small businesses had trouble accessing the loans or applying for them, and the funding quickly ran out as larger companies managed to get the loans with the help of their banks. Congress provided another $320 billion and the program resumed on April 27. But the rules and eligibility and forgiveness criteria have been changing constantly, prompting many businesses to take a wait-and-see attitude. Around $120 billion to $130 billion is still left in the program, and it doesn’t run out until June 30. Lawmakers have expressed frustration that the Treasury and the SBA are not providing more transparency about which businesses have gotten the loans and for how much.

 

In an effort to encourage more businesses to sign up and to alleviate concerns about being able to get the loans forgiven for businesses like restaurants that haven’t been able to open to customers, Congress provided more flexibility by passing the Paycheck Protection Program Forgiveness Act earlier this month. It extends the covered period from eight weeks to 24 weeks. It also amends the requirement that no more than 25% of the loan forgiveness amount be attributed to non-payroll costs and allows up to 40% to be used for non-payroll costs. The bill also included several other changes, such as extending the deferral of payments of loan principal, interest and fees, from the current six months, until the date when the SBA pays the forgiveness amount to the lender.

 

The new loan forgiveness application from the SBA reflects these changes. Along with revising the full forgiveness application, the SBA is also introducing a new EZ version of the forgiveness application that applies to borrowers who:

  • Are self-employed and have no employees; or
  • Did not reduce the salaries or wages of their employees by more than 25%, and didn't reduce the number or hours of their employees; or
  • Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%.

 

The EZ application requires fewer calculations to be done and less documentation is needed for eligible borrowers. Details about the applicability of the various provisions are available in the instructions accompanying the new EZ application form.

 

Both applications give borrowers the option of using the original eight-week covered period (if their loan was made before June 5, 2020) or the extended 24-week covered period provided under the new law. The SBA and Treasury said the changes would result in a more efficient process and make it easier for businesses to realize full forgiveness of their PPP loan.

 

Separately, the payroll company Paychex released the PPP Loan Forgiveness Estimator and Forgiveness Report as part of its Paychex Flex set of cloud-based HR software to help small businesses keep track of their PPP loans and loan forgiveness requirements last week. It includes changes from the PPP Forgiveness Act. Accountants can access the Forgiveness Estimator for each of their clients through the Paychex AccountantHQ dashboard to provide more strategic consultation and help clients optimize PPP loan forgiveness.

 

Another company, Smart Communications, introduced a PPP Loan Forgiveness Application Solution on Wednesday to simplify applications and speed processing for banks and other lenders.

 

 

 

IRS employees are returning to offices amid coronavirus

By Michael Cohn

 

Internal Revenue Service employees are beginning to go back to their offices to deal with the mountain of paperwork awaiting them, even as some are testing positive for COVID-19, but they quickly adapted to working remotely in recent months, according to a group of top IRS officials.

IRS employees in Utah, Texas and Kentucky began reporting back to their buildings in the first week of June, according to the National Treasury Employees Union, and more facilities in other states began opening this week. However, at least three IRS employees tested positive in Austin, Texas, according to Bloomberg Tax.

 

IRS employees have mostly been working from home in the past three months while trying to deal with the demands of delivering Economic Impact Payments to taxpayers’ accounts and grappling with the various pieces of legislation passed by Congress. During the NYU Tax Controversy Forum, which was presented online on Thursday via CPA Academy, a panel of IRS officials discussed the many changes in recent months at the agency and what to expect going forward.

 

“We worked with the Treasury and [the `Department of Financial Services] to send out about 259 million payments, which amounted to $268 billion,” said Sunita Lough, deputy commissioner for services and enforcement at the IRS. “That’s a lot of money that has gone into the economy. Eighty million of those transactions were done within two weeks of the CARES Act passing. Making these payments was a huge, herculean task for the IRS. We understood that these payments were much needed by our fellow citizens, so our goal was to get them out as rapidly as possible, but as accurately as we could do it.”


The IRS also had to scramble to create a new Form 7200, “Advance Payment of Employer Credits Due to COVID-19,” first for the Families First Coronavirus Response Act and then quickly adjust it for the subsequent CARES ACT.

 

“Almost all IRS offices shut down in the third week of March,” said Lough. “Starting June 1, we have started to reopen our offices again, slowly. Kentucky, Texas and Utah opened on June 1. Georgia, Minnesota, Tennessee and Missouri opened on June 15. Two of them will open on June 29. We will have a few more states opening as we go along, and by mid-July, we hope to be in business. But we are ensuring that when our employees do come back, they come back to a safe and a clean place where they can social distance.”

 

Over the past few months, the IRS was able to make much of its workforce telework-capable. While some employees were able to simply bring back their laptops, others needed equipment such as large monitors delivered to their homes, along with headsets. Meanwhile, the IRS has needed to deal with an avalanche of paperwork that has accumulated, especially paper tax returns that weren’t electronically filed.

 

“We've had 136 million returns filed and we've processed 134 million, but there are a number of paper returns that are in the mail that need to be opened and processed,” said Lough. “We estimate that we receive 1 million new pieces of mail each week. Think about all of the weeks that we were closed. Our mailrooms are opening 5 million per week. We’re working really hard to open them. We currently have about 11 million pieces of mail that are unopened, but we are continuing to make progress.”

 

The IRS was able to offer some more flexibility for communicating with taxpayers and tax professionals by enabling secure email to be sent. “We created a way for people who are in compliance contact with us or have applications pending like the exempt organizations to be able to communicate with us through email, which is something we have never done,” said Lough. “That's another change that was good that came out of this because we are concerned about unsecured emails and disclosure issues for taxpayer information. We were able to work with our cyber and privacy people to set up secure emails where we could send information to the taxpayer, like information document requests, or receive information back from the taxpayer so we could keep working on their cases or their exempt organization applications or employee plans.”

 

The IRS also delayed many of its compliance actions until July 15 in tandem with the extension to file and extension to pay provided under the CARES Act. “In parallel with that, we put a sort of moratorium on installment agreements that people weren't able to pay,” said Lough. “We stopped the liens and levies for the time being. We stopped opening audits other than for when there was a statute of limitation issue, or an issue of egregious noncompliance that can’t wait.”

 

Eric Hylton, commissioner of the IRS’s Small Business/Self-Employed Division, said he has seen more collaboration than he’s ever seen before in his 30 years at the IRS. “We've been extremely busy,” he said. “A lot of long conversations, late-night conversations about a lot of issues as we move forward. We had to reduce our presence to some degree over the last few months as related to examination, collection and enforcement actions. But we still were out there a little bit with some egregious taxpayers.”

 

For example, the SB/SE Division needed to deal with some high-income nonfilers with “jeopardy assessments” and make some referrals to the IRS Criminal Investigation division.

 

“We looked at this as an opportunity to turn a crisis into an opportunity,” said Hylton. “Yes, we were hit with the crisis, but we also thought about what is the opportunity that we can take advantage of. I think we did yeoman's work as it relates to getting our nonportable workforce into a telework environment. With SB/SE, we increased our numbers by 40 percent, which was outstanding. We had a lot of different efforts and a lot of different managers doing outstanding work to try to assist employees to get telework ready. Ultimately, that's going to be a paradigm shift for us as we move forward.”

 

He believes telework will offer more flexibility with new seasonal hires, as well as office space. “There are certain pockets around the country where we could actually have more employees if we have the space, so it gives us an opportunity to look at this environment and turn this crisis into an opportunity,” said Hylton.

 

SB/SE also set up a new agencywide Fraud Enforcement Office, headed by Damon Rowe from IRS Criminal Investigation. SB/SE has been looking at various forms of fraud, including digital currency, and building up its portfolio as it relates to civil fraud, while discussing when to make criminal referrals to CI when appropriate. The IRS has become more open to allowing digital signatures during the pandemic and overcoming other operational barriers between the different divisions.

 

Doug O’Donnell, commissioner of the Large Business & International Division, is seeing more collaboration across divisions, and his group adapted easily to working from home. “We were accustomed to working in a telework environment,” he said. “99.9 percent of our employees were equipped to do so. Only about a dozen of our employees faced any real challenge with being able to telework.”

 

O'Donnell also highlighed the new secure email system. “This really improved our ability to work in a telework environment. In addition to being able to send and receive documents, we also had an improved capability to accept signed documents,” he said. “We greatly improved our ability to operate in that environment and are actually progressing on work from our homes, which was a significant change from where we've been operating previously.”

 

The LB&I division has started a Tax Cuts and Jobs Act compliance campaign and another campaign targeting global high-wealth individuals. Other areas of focus are micro-captive insurance companies and syndicated conservation easements.

 

On the TCJA campaign, the LB&I Division is going to have more flexibility to examine returns. “We'll start those examinations soon after the July 15 conclusion of the People First initiative,” said O’Donnell. “This campaign is very different from campaigns in the past where we focus on a specific transaction or issue or line item. This is looking at the entirety of a return, giving examiners the authority to look beyond any specific issue. … We're asking our employees to go into returns and understand how taxpayers have implemented the TCJA. What did they actually do? Is there something about the returns that lend themselves to a greater likelihood to have one type of transaction versus another transaction? Is there something specific we can say about entities that are smaller, that have fewer controls, that are closely held? Which controls are different? There are a lot of opportunities to learn here.”

 

LB&I will also be looking at S corporations and partnerships. “Obviously, some of those will be controlled by high-wealth individuals, so that will touch on our global high-wealth program as well, and we’ll understand better the linkages to what those individuals may be up to,” said O’Donnell. “We're going to be collecting this examination information and using a very robust feedback mechanism to do this. We put in place a number of subject matter experts to keep in touch with the teams to understand what they are seeing.”

 

Tammy Riperda, commissioner of the IRS’s Tax Exempt and Government Entities Division, said her group was able to pivot easily to a telework environment. “The impact of the evacuation order as the pandemic spread and the mandatory telework of our employees had less impact on our field operations and our examination functions. It had more impact on our service functions, where most of our determination employees and our compliance employees actually do work out of the office. However, much like [the Wage & Investment Division], we were able to pivot very easily and quickly to that telework environment because the great majority of our employees are also telework-able.”

 

Some of the managers in the TE/GE Division would retrieve applications for tax-exempt status that arrived in the mail and deliver them curbside to the determination specialists who were driving up in their cars. The employees could then take the applications home and work through them in a telework environment. “Kudos to those managers and the ingenuity that they had and the ambition that they had to keep things going,” said Riperda.

 

But she acknowledged there is still a delay with paper-filed information returns, such as the Form 990 series. “We're still trying to proceed with the processing of those as best we can,” said Ripperda. “But even those, as well as the processing of the applications, we’re unable to get them uploaded to TEOS, the Tax-Exempt Organization Search tool on IRS.gov, because of some back-end processing requirements for those uploads. That must be done in the office and by our folks who have primarily not-portable work. But really it can almost be seen as fortunate timing that we stopped accepting paper applications for 501(c)3s on April 30 of this year.”

 

Lough pointed out that the Form 1023 application for tax-exempt status was mandated to be electronically filed after that date.

 

“It was just kind of dumb luck,” Riperda agreed. She noted that her division is continuing to process exemption applications on a first-in, first-out basis, but nonprofits can still ask for expedited handling through the electronic process. “We have seen some of those come in for newly created relief organizations like for COVID-19 relief, and we are moving those to the front of the line,” she said.

 

However, the determination specialists are also on the lookout for any scammers who are trying to take advantage of the pandemic to set up fake charities. “I'm happy to report that we have not had a lot of instances where they are just blatantly bad,” said Riperda. “They are looking at them closely and they have identified a handful that were more questionable and they were pulled out for additional questioning. But by and large, there have been some really good organizations come through for COVID-19 relief.”

 

Criminal Investigation has helped her group come up with indicators to spot the scammers.

 

Don Fort, chief of IRS CI, noted that many of his agents are used to working in the field, which has been difficult to do during the pandemic. But they have been adjusting. “The work of a special agent is a field job,” he said. “If they're doing their job correctly, they don’t spend a lot of time in the office. With the exception of a handful of people, we were quickly able to get up and running. We didn't completely cease our fieldwork, although obviously depending on the locations where agents were located, we weren't able to do a lot of field work. What we focused on was getting agents and supervisors to spend time on some of what they consider administrative paperwork that they don't always have the time to do when they're running around doing their casework — writing up special agent reports, writing up memos, things like that. By nature the job has slowed down just because grand juries have not been meeting. Courts have been closed, and all of our counterparts for the most part in the other agencies are pretty much doing the same thing.”

 

In the meantime, Fort has been trying to keep up the morale of his line employees, staying in touch with his team through video and phone conferences. They have tried to continue to keep cases moving forward.

 

“You are going to see special agents more actively out in the field here in the very near future,” said Fort. “Agents need to be in the field meeting with witnesses, taking witnesses into the grand jury, gathering evidence, meeting with their [Department of Justice] counterparts and law enforcement counterparts to build cases. It’s a difference in mindset in terms of not worrying so much about where the work is physically done, in terms of whether an agent's doing that in a home office or an office office, but making sure that when we start reengaging the public and start back to work, using common sense and good judgment.”

 

IRS CI is continuing to work closely with other law enforcement agencies and the Department of Justice on combating fraudsters, including those who are trying to take advantage of the trillions of dollars going out in the CARES Act and other recent stimulus legislation. “We are seeing a lot of fraud,” said Fort. “That's no surprise to anybody. Whenever that volume of money goes out, you've got a lot of fraudsters that are just waiting to take advantage, unfortunately, of people that really need the money the most.”

 

 

 

Trump administration flips on PPP disclosures after backlash

By Mark Niquette

 

The Trump administration, following a backlash, said it would release details about companies that received loans of $150,000 or more from a coronavirus relief program for small businesses.

Treasury Secretary Steven Mnuchin (pictured) said last week the firms that got billions of dollars in taxpayer-funded aid wouldn’t be disclosed, sparking fury from Democrats and others.

 

In a joint statement on Friday night, the Treasury Department and the Small Business Administration said the company names, addresses, demographic data and other information would be disclosed in five ranges — starting with $150,000 to $350,000, and going up to between $5 million and $10 million.


For loans below $150,000, only totals will be released and will be aggregated by zip code, by industry, by business type, and by various demographic categories, the agencies said. The loans above $150,000 account for almost 75% of the total loan dollars approved, they said. The statement didn’t say when the data would be released.

 

Lawmakers demanded the disclosure of details about Paycheck Protection Program loans after Mnuchin said at a Senate committee hearing on June 10 that the names of companies that received forgivable loans and the amounts were proprietary or confidential. The administration had previously said the details would be disclosed, and the PPP application said such data would “automatically” be released.

 

Officials had expressed concerns about releasing the details because a company’s payroll is used to determine the loan amount, and some independent contractors and small businesses use their home addresses that would then be disclosed.

 

“We have been able to reach a bipartisan agreement on disclosure which will strike the appropriate balance of providing public transparency, while protecting the payroll and personal income information of small businesses, sole proprietors, and independent contractors,” Mnuchin said in a statement on Friday.

 

Critics said the public has a right to know how taxpayer dollars were being spent, and that more detail was needed to know whether PPP was serving businesses that need help. Eleven news organizations, including Bloomberg News, sued to make details of the loan recipients public.

 

The SBA reported that as of Friday night, loans had been approved for almost 4.7 million small businesses totaling $514.5 billion. As of June 12, there were 3.9 million loans of less than $150,000 totaling $136.7 billion and almost 650,000 larger loans worth $375.6 billion.

 

Not far enough

Releasing details about companies with loans of more than $150,000 is a step in the right direction but doesn’t go far enough because it means the identities of more than 85% of loan recipients will still be withheld, said Democratic Representative James Clyburn of South Carolina, chairman of the Select Subcommittee on the Coronavirus Crisis.

 

“This is far from the full transparency that American taxpayers deserve,” Clyburn said in a statement.

 

Democrats on the House panel have sent letters to several banks, including JPMorgan Chase, Bank of America, Wells Fargo & Co and Citigroup Inc., asking whether they favored larger, well-connected companies over smaller firms from rural or minority communities when making PPP loans. The Democrats also demanded that the Trump administration release the names of all PPP borrowers.

 

Friday’s action “is an overdue step toward securing the transparency needed to ensure struggling small businesses, particularly minority, women and veteran-owned businesses, are getting the vital assistance they need to survive and retain their workers,” House Speaker Nancy Pelosi said in a statement on Saturday.

 

Republican Senator Marco Rubio of Florida, chairman of the Small Business & Entrepreneurship Committee, said the public deserves to know how effective the PPP has been, but that there are legitimate concerns about disclosing information about small firms.

 

“Today’s announcement strikes a balance between those concerns and the need for transparency,” Rubio said in a statement.

 

Lawmakers have also called on the Treasury and the SBA to provide details about its coronavirus relief loans to the Government Accountability Office, which is preparing a report about how relief dollars were spent.

 

 

 

Property Tax Deferral Program Moves Unanimously Through House

 

The Chamber led initiative to delay summer 2020 property tax payments moved through the Michigan House with NO OPPOSITION this week.  The delay will provide an estimated $1 billion of breathing room over an 11-month period. 

 

The Michigan Chamber quickly identified the upcoming property tax bill as being a major problem for businesses who have been forced to shut down due to the COVID-19 pandemic.  Businesses who have seen greatly reduced revenues or a total loss of revenue for an entire calendar quarter will not have the liquidity needed to meet their property tax obligations.  For some businesses the summer property tax bill is their largest expense and could be the last straw when it comes to survival.  In order to help facilitate a quicker economic recovery something had to be done to address this immediate hardship.  

 

Working lockstep with Representative Lower, the Chamber helped to craft a program that, as currently written, will provide for a 6-month interest and penalty free delay in summer property tax payments.  If a business is still struggling to make their property tax payment after the 6-month period, they will have an opportunity to enter into an installment plan with their county Treasurer for an additional 3 months at no cost.  Subsequently, more time could provided up to the due date of the winter levy but the 4% county treasurer administrative fee will apply. 

 

HB 5761 and HB 5810 moved out of the second House committee Wednesday and off the House floor on Thursday.  The Michigan Chamber has testified in committees and worked immensely hard to educate legislators on how the program will work and its importance to our members. 

 

Despite the Department of Treasury’s baseless opposition, the Chamber has quickly and apparently effectively, made the case to legislators from both side of the aisle on the benefits of delaying the upcoming summer property tax levy.  

 

For more information on this issue, please contact Dan Papineau at dpapineau@michamber.com

 

 

 

Keep an Eye on Your Mailbox: Millions of Backlogged Notices Are Being Mailed Over the Next Few Months, Some Reflect Expired Action Dates. But Don’t Panic, See Inserts Providing Extended Due Dates

 

As the country continues to grapple with the COVID-19 emergency, IRS campuses are reopening and employees have begun processing the work backlog, including notices.  During the shutdown, the IRS generated more than 20 million notices; however, these notices were not mailed.  As a result, the notices bear dates that now have passed, some by several months, and some of the notices require taxpayers to respond by deadlines that also have passed.  There is a silver lining, however. The IRS is providing additional time to respond before interest or penalties apply.  To explain the extended response deadlines, the IRS is including in its mailings “inserts” such as Notice 1052-A, entitled “Important! You have More Time to make Your Payment.”  But even with these inserts, we anticipate confusion for taxpayers.  The challenge will be to review the entire package and reference the insert to determine the revised due date before stressing out.

 

There are several dozen kinds of IRS notices ready to be mailed in the next month or two.  As the mailing and response dates have passed, the IRS is establishing new response dates.  For business reasons, the IRS is not revising the generated notices. Rather, it is enclosing an “insert” in its mailings, which consists of an additional page at the end of the notice that provides updated due-date information.  For that reason, taxpayers who receive these notices may be confused and distressed, believing they missed response deadlines.  Thus, it is critical that taxpayers and representatives read through all pages included in IRS notices and pay special attention to the due dates on the insert.  Here’s what taxpayers can expect:

 

Initial Balance Due Notices (sometimes called a Notice and Demand)

The IRS has begun mailing the backlog of 1.5 million notices informing taxpayers that their tax has been assessed and they have a balance due.  The law requires the IRS to send these notices within 60 days of making an assessment.  Taxpayers should look for the insert included at the end, Notice 1052-A, entitled “Important! You have More Time to make Your Payment.”  It specifies that:

  • For returns due on or after April 1, 2020, and before July 15, 2020, taxpayers have until July 15, 2020, to make a payment before interest or penalties apply.
  • For income tax returns due before April 1, 2020, or employment or excise returns due on or after April 1, 2020, taxpayers have until July 10, 2020, to make a payment before interest or penalties apply.

Notice 1052-A provides a link to the IRS.gov webpage on coronavirus relief, which provides further details about the relief for filing and payment deadlines.

 

Math Error Notices Increasing the Amount of Tax

A subset of the notice and demand backlog is math error notices, which include critical deadlines.  When the IRS proposes an increase in tax for a simple mathematical or clerical error, the law provides the taxpayer with 60 days to request a reversal of the math error adjustment.  If the taxpayer does not timely request a reversal, the tax is assessed and the taxpayer loses the opportunity to appeal the liability in U.S. Tax Court, which is the taxpayer’s only opportunity to challenge the liability in court prior to paying it.  TAS worked with the IRS to create a special insert for these notices to ensure taxpayers know what they need to do to protect this fundamental taxpayer right. 

  • The backlog of math error notices will include Notice 1052-B, Important! You Have More Time to Make Your Payment, which provides taxpayers with 60 days after the notice is sent to contact the IRS to request a reversal.

 

Collection Due Process and Other Backlog Notices

For other notices in the backlog that provide a deadline for action, TAS is working with the IRS to develop insert language that will clarify the new deadlines.  For Collection Due Process (CDP) notices, TAS has recommended the IRS provide a revised deadline to request a CDP hearing that is 30 days after the IRS mails out its backlog CDP notices – and include an insert to that effect.  This approach will help ensure that the taxpayer’s right to request an appeal in an independent forum is not compromised during the coronavirus emergency.

 

Even with these efforts, there will likely be taxpayers who contact the IRS because they are confused about when they must respond.  In addition to reading the insert, taxpayers and practitioners should check the IRS’s website and look for updates via alternative channels, such as social media and other outreach.  Compounding the confusion surrounding notice dates, IRS transcripts for taxpayers’ accounts will also reflect incorrect dates for some of the notices.  TAS is continuing to work with the IRS to provide guidance to its employees about how to help taxpayers understand their notices and account transcripts. 

 

Bottom Line: Look for and Read the Insert for Applicable Due Dates

 

 

 

Gig economy tips taxpayers should remember


The gig economy, also called sharing or access economy, is activity where taxpayers earn income providing on-demand work, services or goods. Often, it’s through a digital platform like an app or website. While there are many types of sharing economy businesses, ride-sharing and home rentals are two of the most popular.

 

Here are some things taxpayers should remember:

  • Income from these sources is taxable, regardless of whether an individual receives information returns. This is true even if the work is full-time, part-time or if an individual is paid in cash.
  • Taxpayers may also be required to make quarterly estimated income tax payments and pay their share of Social Security, Medicare or Medicaid taxes.

 

While providing gig economy services, it is important that the taxpayer is correctly classified.

  • This means the business or the taxpayer must determine whether the individual providing the services is an employee or independent contractor.
  • Taxpayers can use the worker classification page on IRS.gov to see how they are classified.
  • Independent contractors may be able to deduct business expenses, depending on tax limits and rules. It is important for taxpayers to keep records of their business expenses.

 

Since income from the gig economy is taxable, it’s important that taxpayers remember to pay the right amount of taxes throughout the year to avoid owing when they file.

  • An employer typically withholds income taxes from their employees’ pay to help cover income taxes their employees owe.
  • Gig economy workers who are not considered employees have two ways to cover their income taxes:
    • Submit a new From W-4 to their employer to have more income taxes withheld from their paycheck, if they have another job as an employee.
    • Make quarterly estimated tax payments to help pay their income taxes throughout the year, including self-employment tax.

 

The Gig Economy Tax Center on IRS.gov answers questions and helps gig economy taxpayers understand their tax responsibilities.

 

 

 

Don’t forget, Social Security benefits may be taxable


Taxpayers receiving Social Security benefits may have to pay federal income tax on a portion of those benefits.


Social Security benefits include monthly retirement, survivor and disability benefits. They don't include supplemental security income payments, which aren't taxable.


The portion of benefits that are taxable depends on the taxpayer’s income and filing status.

To find out if their benefits are taxable, taxpayers should:

  • Take one half of the Social Security money they collected during the year and add it to their other income. Other income includes pensions, wages, interest, dividends and capital gains.
    • If they are single and that total comes to more than $25,000, then part of their Social Security benefits may be taxable.
    • If they are married filing jointly, they should take half of their Social Security, plus half of their spouse's Social Security, and add that to all their combined income. If that total is more than $32,000, then part of their Social Security may be taxable.

 

Fifty percent of a taxpayer’s benefits may be taxable if they are:

  • Filing single, single, head of household or qualifying widow or widower with $25,000 to $34,000 income.
  • Married filing separately and lived apart from their spouse for all of 2019 with $25,000 to $34,000 income.
  • Married filing jointly with $32,000 to $44,000 income.

 

Up to 85% of a taxpayer’s benefits may be taxable if they are:

  • Filing single, head of household or qualifying widow or widower with more than $34,000 income.
  • Married filing jointly with more than $44,000 income.
  • Married filing separately and lived apart from their spouse for all of 2019 with more than $34,000 income.
  • Married filing separately and lived with their spouse at any time during 2019.

 

The Interactive Tax Assistant on IRS.gov can help taxpayers answer the question Are My Social Security or Railroad Retirement Tier I Benefits Taxable?

 

 

 

Procrastination may pay this tax season, IRS says

By Laura DavisonAllyson Versprille

 

Taxpayers who are owed a refund may also get a second check this year if they took advantage of the July 15 extended filing deadline, according to the Internal Revenue Service.

Individuals eligible for a refund who didn’t receive one by April 15 will get paid interest, accruing from the original April filing deadline to the date that the refund is issued, the IRS said in a statement Wednesday. The interest rate is 5% through June 30 and 3% after that. The interest payment may come separately from the refund.

 

The announcement is an added bonus for taxpayers who waited to file after the IRS said it would extend the filing deadline by three months to give people more time to submit their tax paperwork amid the coronavirus pandemic. Generally, the IRS has 45 days to issue refunds before it has to pay interest, but because of the delayed filing deadline, it now has to pay interest on refunds sooner.


The IRS encouraged taxpayers to file by April 15, despite the later deadline, to get their refunds sooner and so that the agency could have up-to-date bank account and address information for stimulus payments. Despite that recommendation, millions of taxpayers have yet to file and some could end up benefiting financially for waiting.

 

Slow-moving tax filers could also see the deadline extended a second time. Treasury Secretary Steven Mnuchin said Tuesday he may consider an additional delay, though that wasn’t currently his intention.

 

The IRS has faced pressure from employees represented by the National Treasury Employees Union and conservative groups, including the National Taxpayers Union, to delay the filing deadline.

 

The agency has slowly started bringing thousands of workers back to its offices so they can begin working through a massive backlog of paper returns. All employees who can’t perform their jobs from home and haven’t yet been recalled will return to their work sites July 13, the agency previously announced.

 

 

 

Mnuchin says he may consider second tax due-date extension

By Saleha MohsinLaura Davison

 

Treasury Secretary Steven Mnuchin said he may consider a second extension in the U.S. tax filing deadline as the coronavirus pandemic continues.

 

“It’s something I’m thinking about,” he said Tuesday during a Bloomberg Invest Global virtual event. “As of now I’m not intending on doing that, but it’s something we may consider.”

The delay would give taxpayers additional time to file their tax returns and pay any balances due. The Internal Revenue Service in March extended the April 15 tax deadline to July 15. Mnuchin could extend the due date administratively, meaning he wouldn’t need Congress to approve the change.

Several groups, including the National Taxpayers Union and the National Treasury Employees Union, have asked the IRS to extend the tax due date. A second delay would be akin to the IRS giving an interest-free loan to individuals and companies that owe the government money. Mnuchin said the first three-month delay injected about $300 billion of liquidity into the economy.

 

 

 

How to report nonemployee compensation and backup withholding

 

There is a new Form 1099-NEC, Nonemployee Compensation for business taxpayers who pay or receive nonemployee compensation.


Starting in tax year 2020, payers must complete this form to report any payment of $600 or more to a payee.


Generally, payers must file Form 1099-NEC by January 31. For 2020 tax returns, the due date is February 1, 2021. There is no automatic 30-day extension to file Form 1099-NEC. However, an extension to file may be available under certain hardship conditions. 

 

Nonemployee compensation may be subject to backup withholding if a payee has not provided a taxpayer identification number to the payer or the IRS notifies the payer that the TIN provided was incorrect.


A TIN can be one of the following numbers:

• Social Security

• Employer identification

• Individual taxpayer identification

• Adoption taxpayer identification+



What is backup withholding?

Backup withholding can apply to most kinds of payments reported on Forms 1099 and W-2G. This means that the person or business paying the taxpayer doesn’t generally withhold taxes from certain payments. There are, however, situations when the payer is required to withhold a certain percentage of tax to make sure the IRS receives the tax due on this income. This is backup withholding.


 

Find a qualified tax professional using IRS website resources

WASHINGTON — With the federal income tax deadline just around the corner, the Internal Revenue Service wants to remind taxpayers that IRS.gov offers tips on finding a qualified tax professional.

 

Over 84 million tax returns were prepared by a paid return preparer last year. Though most tax professionals provide honest, high-quality service, taxpayers should keep in mind these basic tips when selecting a tax professional:

  • Choose a trusted preparer. Taxpayers entrust vital personal data with the person preparing their tax return, including Social Security numbers and information on income and investments.
  • Review the tax return carefully before signing. Taxpayers are legally responsible for what’s on their tax return, regardless of whether someone else prepared it. If something does not look right, don’t hesitate to ask questions.
  • Make sure the preparer signs the return and includes their Preparer Tax Identification Number (PTIN).
  • Never sign a blank tax return. Consider it a red flag when a taxpayer is asked to sign a blank tax return.
  • Ask about service fees. Avoid preparers who base fees on a percentage of their client’s refund or boast bigger refunds than their competition.

 

The Directory of Federal Tax Return Preparers with Credentials and Select Qualifications is a free searchable and sortable database. It includes the name, city, state and zip code of credentialed return preparers who are CPAs, enrolled agents or attorneys, as well as those who have completed the requirements for the IRS Annual Filing Season Program. A search of the database can help taxpayers verify credentials and qualifications of tax professionals or locate a tax professional in their geographic area.There is also a page with IRS Tax Pro Association Partners that includes links to national nonprofit tax professional groups that can help taxpayers seek the right type of qualified help from a tax preparer.

 

More resources:

  • The IRS requires anyone who prepares any federal tax return for compensation to have a PTIN. For 2020, the IRS has issued more than 773,000 PTINs.
  • Taxpayers can use several options to help find a tax preparer. One resource is Choosing a Tax Professional, which includes a wealth of consumer guidance for selecting a tax professional. There are various types of tax return preparers, including enrolled agents, certified public accountants, attorneys and some who don’t have a professional credential.

 

 

 

IRS says a Paycheck Checkup helps avoid tax surprises

WASHINGTON — The Internal Revenue Service is reminding taxpayers that using the IRS Tax Withholding Estimator to do a Paycheck Checkup can help them have the right amount of tax withheld and avoid surprises when filing next year.

 

Because income taxes are pay-as-you-go, taxpayers are required by law to pay most of their tax as income is received. There are two ways to do this:

  • Through withholding from paychecks, pension payments, Social Security benefits or certain other government payments.
  • Making quarterly estimated tax payments throughout the year for income not subject to withholding.

 

Income tax withholding is generally based on the worker’s expected filing status and standard deduction. The Tax Withholding Estimator is a tool on IRS.gov designed to help taxpayers determine how to have the right amount of tax withheld from their paychecks. It offers workers, retirees, self-employed individuals and other taxpayers a clear, step-by-step method to help determine if there is a need to adjust their withholding and submit a new Form W-4 to their employer. The latest update of the Tax Withholding Estimator provides detailed explanations to withholding recommendations on the Results Page.

 

When to do a Paycheck Check-up

Taxpayers should check their withholding annually and when life changes occur, such as marriage, childbirth, adoption and buying a home. The IRS recommends anyone who changed their withholding this year or received a tax bill after they filed their 2019 return should do a Paycheck Checkup.

 

Estimated taxes

Taxpayers with a substantial portion of their income not subject to withholding − the self-employed, investors, retirees, those with interest, dividends, capital gains, alimony and rental income − often need to pay quarterly installments of estimated tax.

 

The IRS reminds taxpayers that various financial transactions, especially late in the year, can often have an unexpected tax impact. Examples include year-end and holiday bonuses, stock dividends, capital gain distributions from mutual funds and stocks, bonds, virtual currency, real estate or other property sold at a profit.

 

Form 1040-ES, Estimated Tax for Individuals, includes instructions to help taxpayers figure their estimated taxes. They can also visit IRS.gov/payments to pay electronically. IRS offers two free electronic payment options where taxpayers can schedule their estimated federal tax payments up to 30 days in advance with IRS Direct Pay or up to 365 days in advance with the Electronic Federal Tax Payment System (EFTPS).

 

 

 

Major changes to retirement plans due to COVID-19

Qualified individuals affected by COVID-19 may be able to withdraw up to $100,000 from their eligible retirement plans, including IRAs, between Jan. 1 and Dec. 30, 2020.

 

These coronavirus-related distributions aren’t subject to the 10% additional tax that generally applies to distributions made before reaching age 59 and a half, but they are still subject to regular tax. Taxpayers can include coronavirus-related distributions as income on tax returns over a three-year period. They must repay the distribution to a plan or IRA within three years.

Some plans may have relaxed rules on plan loan amounts and repayment terms. The limit on loans made between March 27 and Sept. 22, 2020 is raised to $100,000. Plans may suspend loan repayments due between March 27 and Dec. 31, 2020.

 

Qualifications for relief

The law defines a qualifying person as someone who:

  • Has tested positive and been diagnosed with COVID-19
  • Has a dependent or spouse who has tested positive and been diagnosed with COVID-19
    Experiences financial hardship due to them, their spouse or a member of their household:
    • Being quarantined, furloughed or laid off or having reduced work hours
    • Being unable to work due to lack of childcare
    • Closing or reducing hours of a business that they own or operate
    • Having pay or self-employment income reduced
    • Having a job offer rescinded or start date for a job delayed

 

Employers can choose whether to implement these coronavirus-related distribution and loan rules.Qualified individuals can claim the tax benefits of coronavirus-related distribution rules even if plan provisions aren't changed. Administrators can rely on an individual's certification that they’re a qualified person.

 

Required minimum distributions

People who already took a required minimum distribution from certain retirement accounts in 2020 can now roll those funds back into a retirement account.

 

The 60-day rollover period has been extended to Aug. 31, 2020.

 

Under the relief, taxpayers with required minimum distributions from certain retirement plans can skip them this year. Distributions that can be skipped were due in 2020 from a defined-contribution retirement plan. These include a 401(k) or 403(b) plan, as well as an IRA. Among the people who can skip them are those who would have had to take the first distribution by April 1, 2020. This waiver does not apply to defined-benefit plans.

 

 

 

IRS unveils ‘Dirty Dozen’ list of tax scams for 2020; Americans urged to be vigilant to these threats during the pandemic and its aftermath

 

WASHINGTON – The Internal Revenue Service today announced its annual "Dirty Dozen" list of tax scams with a special emphasis on aggressive and evolving schemes related to coronavirus tax relief, including Economic Impact Payments.

 

This year, the Dirty Dozen focuses on scams that target taxpayers. The criminals behind these bogus schemes view everyone as potentially easy prey. The IRS urges everyone to be on guard all the time and look out for others in their lives.

 

"Tax scams tend to rise during tax season or during times of crisis, and scam artists are using pandemic to try stealing money and information from honest taxpayers,” said IRS Commissioner Chuck Rettig. “The IRS provides the Dirty Dozen list to help raise awareness about common scams that fraudsters use to target people. We urge people to watch out for these scams. The IRS is doing its part to protect Americans. We will relentlessly pursue criminals trying to steal your money or sensitive personal financial information."

 

Taxpayers are encouraged to review the list in a special section on IRS.gov and be on the lookout for these scams throughout the year. Taxpayers should also remember that they are legally responsible for what is on their tax return even if it is prepared by someone else. Consumers can help protect themselves by choosing a reputable tax preparer.

 

The IRS urges taxpayers to refrain from engaging potential scammers online or on the phone. The IRS plans to unveil a similar list of enforcement and compliance priorities this year as well.

An upcoming series of press releases will emphasize the illegal schemes and techniques businesses and individuals use to avoid paying their lawful tax liability. Topics will include such scams as abusive micro captives and fraudulent conservation easements.

 

Here are this year's ‘Dirty Dozen’ scams:

 

Phishing: Taxpayers should be alert to potential fake emails or websites looking to steal personal information. The IRS will never initiate contact with taxpayers via email about a tax bill, refund or Economic Impact Payments. Don’t click on links claiming to be from the IRS. Be wary of emails and websites − they may be nothing more than scams to steal personal information.

 

IRS Criminal Investigation has seen a tremendous increase in phishing schemes utilizing emails, letters, texts and links. These phishing schemes are using keywords such as “coronavirus,” “COVID-19” and “Stimulus” in various ways.

 

These schemes are blasted to large numbers of people in an effort to get personal identifying information or financial account information, including account numbers and passwords. Most of these new schemes are actively playing on the fear and unknown of the virus and the stimulus payments. (For more see IR-2020-115.)

 

Fake Charities: Criminals frequently exploit natural disasters and other situations such as the current COVID-19 pandemic by setting up fake charities to steal from well-intentioned people trying to help in times of need. Fake charity scams generally rise during times like these.

 

Fraudulent schemes normally start with unsolicited contact by telephone, text, social media, e-mail or in-person using a variety of tactics. Bogus websites use names similar to legitimate charities to trick people to send money or provide personal financial information. They may even claim to be working for or on behalf of the IRS to help victims file casualty loss claims and get tax refunds.

 

Taxpayers should be particularly wary of charities with names like nationally known organizations. Legitimate charities will provide their Employer Identification Number (EIN), if requested, which can be used to verify their legitimacy. Taxpayers can find legitimate and qualified charities with the search tool on IRS.gov.

 

Threatening Impersonator Phone Calls: IRS impersonation scams come in many forms. A common one remains bogus threatening phone calls from a criminal claiming to be with the IRS. The scammer attempts to instill fear and urgency in the potential victim. In fact, the IRS will never threaten a taxpayer or surprise him or her with a demand for immediate payment. 

 

Phone scams or “vishing” (voice phishing) pose a major threat. Scam phone calls, including those threatening arrest, deportation or license revocation if the victim doesn’t pay a bogus tax bill, are reported year-round. These calls often take the form of a “robocall” (a text-to-speech recorded message with instructions for returning the call).

 

The IRS will never demand immediate payment, threaten, ask for financial information over the phone, or call about an unexpected refund or Economic Impact Payment. Taxpayers should contact the real IRS if they worry about having a tax problem.

 

Social Media Scams: Taxpayers need to protect themselves against social media scams, which frequently use events like COVID-19 to try tricking people. Social media enables anyone to share information with anyone else on the Internet. Scammers use that information as ammunition for a wide variety of scams. These include emails where scammers impersonate someone’s family, friends or co-workers.

 

Social media scams have also led to tax-related identity theft. The basic element of social media scams is convincing a potential victim that he or she is dealing with a person close to them that they trust via email, text or social media messaging.

 

Using personal information, a scammer may email a potential victim and include a link to something of interest to the recipient which contains malware intended to commit more crimes. Scammers also infiltrate their victim's emails and cell phones to go after their friends and family with fake emails that appear to be real and text messages soliciting, for example, small donations to fake charities that are appealing to the victims.

 

EIP or Refund Theft: The IRS has made great strides against refund fraud and theft in recent years, but they remain an ongoing threat. Criminals this year also turned their attention to stealing Economic Impact Payments as provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

 

Much of this stems from identity theft whereby criminals file false tax returns or supply other bogus information to the IRS to divert refunds to wrong addresses or bank accounts.

 

The IRS recently warned nursing homes and other care facilities that Economic Impact Payments generally belong to the recipients, not the organizations providing the care. This came following concerns that people and businesses may be taking advantage of vulnerable populations who received the payments. These payments do not count as a resource for determining eligibility for Medicaid and other federal programs They also do not count as income in determining eligibility for these programs. See IR-2020-121 for more.

 

Taxpayers can consult the Coronavirus Tax Relief page of IRS.gov for assistance in getting their EIPs. Anyone who believes they may be a victim of identity theft should consult the Taxpayer Guide to Identity Theft on IRS.gov.

 

Senior Fraud: Senior citizens and those who care about them need to be on alert for tax scams targeting older Americans. The IRS recognizes the pervasiveness of fraud targeting older Americans along with the Department of Justice and FBI, the Federal Trade Commission, the Consumer Financial Protection Bureau (CFPB), among others.

 

Seniors are more likely to be targeted and victimized by scammers than other segments of society. Financial abuse of seniors is a problem among personal and professional relationships. Anecdotal evidence across professional services indicates that elder fraud goes down substantially when the service provider knows a trusted friend or family member is taking an interest in the senior's affairs.

 

Older Americans are becoming more comfortable with evolving technologies, such as social media. Unfortunately, that gives scammers another means of taking advantage. Phishing scams linked to Covid-19 have been a major threat this filing season. Seniors need to be alert for a continuing surge of fake emails, text messages, websites and social media attempts to steal personal information.

 

Scams targeting non-English speakers: IRS impersonators and other scammers also target groups with limited English proficiency. These scams are often threatening in nature. Some scams also target those potentially receiving an Economic Impact Payment and request personal or financial information from the taxpayer.

 

Phone scams pose a major threat to people with limited access to information, including individuals not entirely comfortable with the English language.  These calls frequently take the form of a “robocall” (a text-to-speech recorded message with instructions for returning the call), but in some cases may be made by a real person. These con artists may have some of the taxpayer’s information, including their address, the last four digits of their Social Security number or other personal details – making the phone calls seem more legitimate.

 

A common one remains the IRS impersonation scam where a taxpayer receives a telephone call threatening jail time, deportation or revocation of a driver’s license from someone claiming to be with the IRS. Taxpayers who are recent immigrants often are the most vulnerable and should ignore these threats and not engage the scammers.

 

Unscrupulous Return Preparers: Selecting the right return preparer is important. They are entrusted with a taxpayer's sensitive personal data. Most tax professionals provide honest, high-quality service, but dishonest preparers pop up every filing season committing fraud, harming innocent taxpayers or talking taxpayers into doing illegal things they regret later.

 

Taxpayers should avoid so-called "ghost" preparers who expose their clients to potentially serious filing mistakes as well as possible tax fraud and risk of losing their refunds. With many tax professionals impacted by COVID-19 and their offices potentially closed, taxpayers should take particular care in selecting a credible tax preparer.

 

Ghost preparers don't sign the tax returns they prepare. They may print the tax return and tell the taxpayer to sign and mail it to the IRS. For e-filed returns, the ghost preparer will prepare but not digitally sign as the paid preparer. By law, anyone who is paid to prepare or assists in preparing federal tax returns must have a Preparer Tax Identification Number (PTIN). Paid preparers must sign and include their PTIN on returns.

 

Unscrupulous preparers may also target those without a filing requirement and may or may not be due a refund. They promise inflated refunds by claiming fake tax credits, including education credits, the Earned Income Tax Credit (EITC) and others. Taxpayers should avoid preparers who ask them to sign a blank return, promise a big refund before looking at the taxpayer’s records or charge fees based on a percentage of the refund.

 

Taxpayers are ultimately responsible for the accuracy of their tax return, regardless of who prepares it. Taxpayers can go to a special page on IRS.gov for tips on choosing a preparer.

 

Offer in Compromise Mills: Taxpayers need to wary of misleading tax debt resolution companies that can exaggerate chances to settle tax debts for “pennies on the dollar” through an Offer in Compromise (OIC). These offers are available for taxpayers who meet very specific criteria under law to qualify for reducing their tax bill. But unscrupulous companies oversell the program to unqualified candidates so they can collect a hefty fee from taxpayers already struggling with debt.

 

These scams are commonly called OIC “mills,” which cast a wide net for taxpayers, charge them pricey fees and churn out applications for a program they’re unlikely to qualify for. Although the OIC program helps thousands of taxpayers each year reduce their tax debt, not everyone qualifies for an OIC. In Fiscal Year 2019, there were 54,000 OICs submitted to the IRS. The agency accepted 18,000 of them.

 

Individual taxpayers can use the free online Offer in Compromise Pre-Qualifier tool to see if they qualify. The simple tool allows taxpayers to confirm eligibility and provides an estimated offer amount. Taxpayers can apply for an OIC without third-party representation; but the IRS reminds taxpayers that if they need help, they should be cautious about whom they hire.

 

Fake Payments with Repayment Demands: Criminals are always finding new ways to trick taxpayers into believing their scam including putting a bogus refund into the taxpayer's actual bank account. Here’s how the scam works:

 

A con artist steals or obtains a taxpayer’s personal data including Social Security number or Individual Taxpayer Identification Number (ITIN) and bank account information. The scammer files a bogus tax return and has the refund deposited into the taxpayer’s checking or savings account. Once the direct deposit hits the taxpayer’s bank account, the fraudster places a call to them, posing as an IRS employee. The taxpayer is told that there’s been an error and that the IRS needs the money returned immediately or penalties and interest will result. The taxpayer is told to buy specific gift cards for the amount of the refund.

 

The IRS will never demand payment by a specific method. There are many payment options available to taxpayers and there’s also a process through which taxpayers have the right to question the amount of tax we say they owe. Anytime a taxpayer receives an unexpected refund and a call from us out of the blue demanding a refund repayment, they should reach out to their banking institution and to the IRS.

 

Payroll and HR Scams: Tax professionals, employers and taxpayers need to be on guard against phishing designed to steal Form W-2s and other tax information. These are Business Email Compromise (BEC) or Business Email Spoofing (BES). This is particularly true with many businesses closed and their employees working from home due to COVID-19.  Currently, two of the most common types of these scams are the gift card scam and the direct deposit scam.

In the gift card scam, a compromised email account is often used to send a request to purchase gift cards in various denominations. In the direct deposit scheme, the fraudster may have access to the victim’s email account (also known as an email account compromise or “EAC”). They may also impersonate the potential victim to have the organization change the employee’s direct deposit information to reroute their deposit to an account the fraudster controls.

 

BEC/BES scams have used a variety of ploys to include requests for wire transfers, payment of fake invoices as well as others. In recent years, the IRS has observed variations of these scams where fake IRS documents are used in to lend legitimacy to the bogus request. For example, a fraudster may attempt a fake invoice scheme and use what appears to be a legitimate IRS document to help convince the victim.

 

The Direct Deposit and other BEC/BES variations should be forwarded to the Federal Bureau of Investigation Internet Crime Complaint Center (IC3) where a complaint can be filed. The IRS requests that Form W-2 scams be reported to: phishing@irs.gov (Subject: W-2 Scam).

 

Ransomware: This is a growing cybercrime. Ransomware is malware targeting human and technical weaknesses to infect a potential victim's computer, network or server. Malware is a form of invasive software that is often frequently inadvertently downloaded by the user. Once downloaded, it tracks keystrokes and other computer activity. Once infected, ransomware looks for and locks critical or sensitive data with its own encryption. In some cases, entire computer networks can be adversely impacted.

 

Victims generally aren't aware of the attack until they try to access their data, or they receive a ransom request in the form of a pop-up window. These criminals don't want to be traced so they frequently use anonymous messaging platforms and demand payment in virtual currency such as Bitcoin.

 

Cybercriminals might use a phishing email to trick a potential victim into opening a link or attachment containing the ransomware. These may include email solicitations to support a fake COVID-19 charity. Cybercriminals also look for system vulnerabilities where human error is not needed to deliver their malware.

 

The IRS and its Security Summit partners have advised tax professionals and taxpayers to use the free, multi-factor authentication feature being offered on tax preparation software products. Use of the multi-factor authentication feature is a free and easy way to protect clients and practitioners' offices from data thefts. Tax software providers also offer free multi-factor authentication protections on their Do-It-Yourself products for taxpayers.

 

 

 

 

IRS: Seniors, retirees not required to take distributions from retirement accounts this year under new law

 

WASHINGTON — The Internal Revenue Service today reminds seniors and retirees that they are not required to take money out of their IRAs and workplace retirement plans this year.

The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, waives required minimum distributions during 2020 for IRAs and retirement plans, including beneficiaries with inherited accounts. This waiver includes RMDs for individuals who turned age 70 ½ in 2019 and took their first RMD in 2020. Roth IRAs do not require withdrawals until after the death of the owner. 

 

What if I already took my RMD?

If an individual has already taken an RMD in 2020, including someone who turned 70 ½ during 2019, the individual will have the option of returning the distribution to their account or other qualified plan.

 

Since the RMD rule is suspended, RMDs taken in 2020 are considered eligible for rollover. Therefore, RMDs can be rolled over to another IRA, another qualified retirement plan, or returned to the original plan.

 

An IRA owner or beneficiary who has already received an RMD in 2020 can also repay the distribution to the distributing IRA no later than Aug. 31, 2020, to avoid paying taxes on that distribution.

 

IRS Notice 2020-51 also provides that the one rollover per 12-month period limitation and the restriction on rollovers to inherited IRAs do not apply to this repayment.

 

The CARES Act provisions apply to most retirement plans, including traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k) plans, 403(b) plans, 457(b) plans, profit sharing plans and other defined contribution plans. The RMD suspension does not apply to qualified defined benefit plans.

 

 

 

 

States see employee telecommuting as a way of creating tax nexus amid coronavirus

By Michael Cohn

 

The majority of states are considering a company to have tax nexus if just a single employee is telecommuting from their state, according to a new survey, which could have wide implications for businesses as more of their employees work from home during the COVID-19 pandemic.

 

The research, from Bloomberg Tax & Accounting, found that 36 states indicate that having just one employee telecommuting from their state will create nexus. That’s more than double the number of responses in 2018 from an earlier survey, before the Supreme Court’s decision in the case of South Dakota v. Wayfair.

 

“The 2020 survey sheds light on how state tax departments are responding to the unique challenges posed by the COVID-19 pandemic and provides guidance for corporate tax professionals looking to navigate these murky waters,” said Christine Boeckel, director of state tax analysis and content at Bloomberg Tax & Accounting, in a statement Tuesday.

 

The survey found that 16 states said a third-party vendor is obligated to collect sales tax on delivery or errand services that are arranged by the third-party vendor, such as Postmates, Grubhub and TaskRabbit, while only five said this obligation was imposed on the delivery or errand person.


https://arizent.brightspotcdn.com/b9/6b/93fefd014d3e88c1b887e021c396/telecommuting-map.jpg
 

In addition, 27 states said that marketplace facilitators, such as eBay and Etsy, are required to collect sales and use tax on sales made via their platforms by marketplace sellers, provided they have nexus with the taxing jurisdiction. Twenty-three of these states said that marketplace sellers are relieved of liability for tax that is supposed to be collected by a marketplace facilitator.

 

Meanwhile, 13 states said they make adjustments, determine imputed tax, and assess and collect tax at the entity level for partnerships, while 25 states said they do so at the owner level. Nine states said they do so at both levels.

 

 

 

New guidance on reporting sick and family leave wages for coronavirus relief

By Michael Cohn

 

The Internal Revenue Service and the Treasury Department provided guidance to employers requiring them to report the amount of qualified sick and family leave wages they have paid to their employees under the Families First Coronavirus Response Act on Form W-2.

In Notice 2020-54, the IRS said Wednesday that 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 gives employers some optional language they can use in the Form W-2 instructions for employees.

 

The wage amount that employers must report on Form W-2 will offer self-employed individuals who are also employees the information they need to determine the amount of any sick and family leave equivalent credits they can claim in their self-employed capacities.

 

In the notice, the IRS noted that the Families First Act generally requires employers with fewer than 500 employees to provide paid leave due to certain circumstances related to COVID-19 through two separate provisions: the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act.

 

The Emergency Paid Sick Leave Act requires some employers to provide employees with up to 80 hours of paid sick leave if the employee is unable to work or telework because, according to the IRS notice, the employee:

 

IRS needs better control over employee pseudonyms

By Michael Cohn

 

The controls over the pseudonym program used by Internal Revenue Service employees to protect their identities could be improved, according to a recent report.

 

The report, released last month by the Treasury Inspector General for Tax Administration, pointed out that the pseudonym program dates back to 1992, allowing IRS employees to use a fictitious name when interacting with taxpayers. That roughly coincides with the early days of the World Wide Web, but before search engines like Google made it easier to find people. That year, the IRS authorized the use of pseudonyms to help protect employees who felt they might be harassed, threatened or assaulted in the performance of their duties.

 

A few years later, the IRS Restructuring and Reform Act of 1998 required employees to justify the need for a pseudonym and get approval from their managers. The 1998 law in part responded to Congress’s concerns that IRS employees could use pseudonyms to avoid accountability for their actions, while at the same time protecting an employee’s right to use a pseudonym. As of December 2018, the IRS reported that 729 employees had registered pseudonyms with the agency.

 

The inspector general decided to evaluate the program to determine whether the IRS has established policies and procedures to manage its pseudonym program effectively. The report points out that taxpayers have a right to know that the person contacting them about their taxes is in fact an IRS employee. Currently, the IRS may be unable to timely verify a pseudonym holder’s identity, which could cause increased taxpayer mistrust of the IRS and undue stress for taxpayers.

 

On the other hand, scammers pretending to be IRS employees demanding immediate tax payments have emerged as a growing problem in recent years, bilking taxpayers out of millions of dollars. But making it easier to identify IRS employees comes with its own problems, as some taxpayers actually do threaten and harass IRS agents. One irate taxpayer even went so far as to steer an airplane into an IRS building in Austin, Texas in 2010.

 

The TIGTA report found the IRS has taken steps to gradually enhance its oversight and control over the pseudonym program over its 27-year history. Those steps have included requirements for employee justification and management approval, and IRS-wide guidance and centralized program oversight. Still, there have been problems.

 

“However, delays in implementing controls over the pseudonym program, and failure to update historical records, significantly contributed to the current inaccurate and incomplete records,” said the report. “For example, upon request, the IRS could not readily provide adequate documentation to support the justification for issuing pseudonyms to 51 percent of the 129 employees included in our statistical sample. Additionally, the IRS could not readily provide documentation to support that a manager approved the use of a pseudonym for 43 percent of the employees included in our statistical sample.”

 

The records haven’t been accurate in many cases either. The report found that the record of active pseudonym holders included incorrect legal names, incorrect standard employee identifiers, and employees who weren’t actually using a pseudonym at all. TIGTA also identified three employees with unregistered pseudonyms.

 

The inspector general’s review of IRS disciplinary records and TIGTA investigative files didn’t turn up any incidents where IRS employees misused their pseudonyms. However, the report cautioned that inaccurate and incomplete records and the lack of supporting documentation increase the risk of the IRS not being able to verify the identity of employees using pseudonyms in a timely manner.

 

The report recommended that the IRS take inventory and develop a complete, accurate list of active pseudonyms; and make sure the pseudonyms given out after the implementation of the 1998 IRS reform law are supported by adequate justification and management approval. The IRS should also develop processes to maintain a complete and fully supported list of pseudonyms, with a standardized form for new pseudonym requests, the report suggested.

 

The IRS agreed with four of the six recommendations in the report. “The IRS is committed to protecting the safety of our employees during the performance of their official duties and while conducting their personal lives,” wrote IRS chief privacy officer Robert Choi in response to the report. “An unfortunate consequence of administering our nation’s tax laws is that individuals threaten, harass and attempt to intimidate IRS employees. In some cases, these actions lead to actual physical harm. The IRS pseudonym program is a vital part of protecting our employees and we appreciate the opportunity to improve this employee protection program.”

 

He disagreed with a statement in the report that the IRS may be unable to timely verify the identity of employees when interacting with taxpayers. He insisted the IRS has procedures in place to verify the identity of the field agent contacting a taxpayer, and whether the employee is using a pseudonym or their actual name. Taxpayers and local law enforcement personnel can also contact the IRS to verify the identities of IRS employees.

 

  • Has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
  • Is experiencing symptoms of COVID-19 and seeking a medical diagnosis;
  • Is caring for an individual who is subject to a federal, state, or local quarantine or isolation order related to COVID-19, or has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
  • Is caring for a son or daughter of such employee if the school or place of care of the son or daughter has been closed, or the child care provider of such son or daughter is unavailable, due to COVID-19 precautions; or,
  • Is experiencing any other substantially similar condition specified by the Department of Health and Human Services in consultation with the Treasury and Labor Departments.

 

 

 

 

 

 

The IRS is ‘back to its new normal’

By Roger Russell

 

The Internal Revenue Service is continuing to open its operations around the country, beginning with several states in June and most of the remaining states by the middle of July. “They’re not doing this blindly, but have established a systematic approach,” said Stephen Mankowski, immediate past president and current tax chair of the National Conference of CPA Practitioners, who recently attended virtual meetings with Washington officials.

 

“The majority of IRS employees were able to telework, but in areas where taxpayers and tax professionals needed direct assistance, such as the Practitioners Priority Service, they came back sooner,” he said. “The priority line had been down since mid-March, but started coming back in June.”

 

“While a lot of employees were teleworking, a lot were not. A number of collections and field personnel were still able to work on outstanding cases,” he said. “Parts of certain facilities could potentially close as a safety precaution. While there’s a significant backlog of work, as well as delays on phones, the IRS is getting back to its new normal, but taking the time to do so safely and securely,” he said.

 

The IRS Forums will be virtual this year, making it possible for preparers from all sections of the country to attend without being limited geographically, according to Mankowski. “Instead of having different speakers at some of the sessions, now everyone will hear the same message,” he said. “From that standpoint, it can be a positive.”

 

The stimulus payments took their toll, according to Mankowski: “There has been an enormous amount of time and energy spent on Economic Impact Payments with an all-out effort in Wage & Investment and IT,” he observed. “Over 150 million Economic Impact Payments have been sent. It’s amazing that the IRS could get this done in a virtual work-from-home position. Several million people without filing requirements may still be eligible — these individuals are urged to access IRS non-filer portals and tools.”

 

Now the IRS will have to come up with yet another new form because there needs to be reconciliation for the EIPs. A payment may have been based on 2018 rather than 2019 income, so there could be additional stimulus money available or there could be someone who had a child during 2020 so they’re due an additional $600 for the child. Or a student who was ineligible because they were claimed as a dependent by their parents may now have become eligible for a $1,200 payment.

 

“It will make [the] next filing season interesting,” Mankowski said.

 

Happily, repayments won’t be necessary, according to Mankowski. “If your stimulus payment was based on your 2018 return, but you would have gotten less if you had filed your 2019 return sooner, there’s no payback. But if you received a reduced amount based on 2018 and should have received a higher amount, you can add it in as an additional payment or a reduction in tax liability for 2020, so you would be made whole,” he said.

 

The IRS was dealt a very difficult hand, he noted: “Things keep getting thrust at them — tax law changes from the Affordable Care Act, the Tax Cuts and Jobs Act, the Taxpayer First Act, and the economic stimulus payments, all with declining budgets from year to year. With all of the negatives, they still go out and do a great job with what they have.”

 

 

 

Millionaires ask for higher taxes to help pay for coronavirus aid

By Frances Schwartzkopff

 

Dozens of millionaires from the U.S. and six other countries have a message for their governments: “Tax us. Tax us. Tax us.”

 

Calling themselves the Millionaires for Humanity, more than 80 wealthy individuals — including Walt Disney Co. heiress Abigail Disney, former BlackRock Inc. managing director Morris Pearl, and Danish-Iranian entrepreneur Djaffar Shalchi — are petitioning for higher taxes on the rich to help pay for the billions in new government programs made necessary by the COVID-19 pandemic.

 

“Today, we, the undersigned millionaires and billionaires, ask our governments to raise taxes on people like us. Immediately. Substantially. Permanently,” according to the open letter. “We are not restocking grocery store shelves or delivering food door to door. But we do have money, lots of it. Money that is desperately needed now.”


Their missive, which comes ahead of this weekend’s Group of 20 meeting, isn’t the first such appeal. Even before the pandemic upended public finances, a cohort of 200 or so wealthy people calling themselves the Patriotic Millionaires — a group that includes Disney and Pearl — were pressing for a more progressive tax system.

 

In their open letter, the Millionaires for Humanity warn that the outbreak could push millions more people into poverty and strain already inadequate health-care systems, staffed largely by underpaid women. Charity isn’t the answer.

 

“Government leaders must take the responsibility for raising the funds we need and spending them fairly,” according to the letter. “We owe a huge debt to the people working on the front lines of this global battle. Most essential workers are grossly underpaid for the burden they carry.”

 

 

 

Congress passes bill to help nonprofits with cash flow amid coronavirus

By Michael Cohn

 

The Senate unanimously passed bipartisan legislation Wednesday to help nonprofits, state and local governments, and federally recognized tribes remain financially viable during the COVID-19 pandemic by ensuring they receive federal help for unemployment payments upfront, instead of being reimbursed later. The House later passed the bill in a pro forma session Thursday and it's headed to President Trump's desk for his signature.

 

The Protecting Nonprofits from Catastrophic Cash Flow Strain Act was introduced by a bipartisan group of lawmakers: Sen. Chuck Grassley, R-Iowa, Sherrod Brown, D-Ohio, Tim Scott, R-S.C., and Ron Wyden, D-Ore. It would clarify a piece of guidance issued by the Labor Department related to the CARES Act that could have dampened the cash flow of charities already reeling from the pandemic.

 

Many nonprofits operate as ‘reimbursing employers,’ meaning they pay their share of unemployment taxes by reimbursing states for 100 percent of the unemployment benefits collected by their former employees. Recognizing that reimbursing employers wouldn’t be able to cover all of their unemployment costs, the CARES Act lets nonprofits reimburse only 50 percent to the states while the federal government covered the remaining 50 percent.

 

The Labor Department issued guidance in April, however, requiring states to collect 100 percent of the unemployment costs from nonprofits upfront and reimburse them later, putting a further strain on organizations hit hard by COVID-19. The bill passed by the Senate would clarify that nonprofits are only required to provide 50 percent in payments upfront. The net cost to the employer and the federal government would remain the same, but would free up much needed money to help nonprofits stay afloat.

 

“The CARES Act provided substantial relief to nonprofits forced to furlough or lay off staff,” Grassley said in a statement Wednesday. “Without this fix, some nonprofits would have to make large payment to the state now — when they’re least able to afford it — and then wait for a reimbursement later. This bill would make sure they don’t have to wait for further relief.”

 

For many nonprofits, the requirement to pay 100 percent of the unemployment insurance bill before getting relief exacerbates the financial impact of historically high claims triggered by COVID-19, increasing the risk of further layoffs, closures, or significant reductions in services. This legislation would allow states to apply the CARES Act’s 50 percent emergency relief to reimbursing employers without requiring these nonprofits or other entities to pay their full bill first.

 

“Nonprofits are on the frontlines of the COVID-19 pandemic and our constituents are increasingly looking to local nonprofits to help feed their families or make ends meet,” Brown said in a statement. “We shouldn’t be putting added financial strains on nonprofits at a time when they need this money to better serve our communities.”

 

BDO USA released a report last month on its annual survey of the nonprofit sector, which found the COVID-19 pandemic hitting the sector hard. It found that 69 percent of the nonprofits surveyed had been forced to postpone or cancel events, 57 percent had limited or canceled programs, while 87 percent had encouraged or required their staff to work remotely. Forty-six percent of the organizations provide telecommuting options for employees, and 48 percent allow remote work arrangements.

 

Nearly half (46 percent) of the nonprofits polled by BDO said that limitations in their technology restricted their ability to respond to the pandemic. However, the majority of organizations (64 percent) plan to invest in new technologies this year, with the goal of using those investments to improve operational efficiency (61 percent) and assist in the delivery of programs and services (29 percent). But many nonprofits have few resources to spend right now, with 30 percent of the nonprofits surveyed having four months or less of operating reserves at hand.

 

“The COVID-19 pandemic exposed many of the financial weaknesses that were already affecting the nonprofit industry,” said Adam Cole, partner and co-leader of BDO’s nonprofit and education practice. “Nonprofits, including health care nonprofits such as hospitals, were on the front lines and essential in helping to combat the virus and providing health services. Pre-COVID we’ve had discussions and debates about the overhead and underfunding of all of the direct care services nonprofits were facing in general. Now, you couple that in the immediate time frame with the fact that they have escalating costs for overtime and hazard pay, and PPE, which is necessary to continue services basically it’s making a situation that was difficult at best at pre-COVID levels, definitely more challenging.”

 

The survey found 43 percent of nonprofit organizations said a downturn would be challenging. BDO also did a webinar on technology with some nonprofit organizations in late May, and found 75 percent of the organizations reported concern over their financial health.

 

“When you look at the cycle for funding at nonprofits, whenever there’s an economic downturn the impact isn’t felt immediately,” said Cole. “In 2008 and 2009, the Great Recession, the impact on the funding was really affected in 2010, 2011, 2012 and maybe 2013. For some organizations, their revenue went down 20 or 30 percent.”

 

On the positive side, there has been an uptick in giving to many charitable organizations in response to the pandemic. The CARES Act included a provision allowing taxpayers to claim up to $300 in above-the-line deductions for charitable giving this year, even if they’re not itemizing their deductions. Last month, another bipartisan group of senators introduced a different bill to increase that limit to up to one-third of the standard deduction for the 2019 and 2020 tax years, or a little over $4,000 for individuals and $8,000 for married couples.

 

Both pieces of legislation could be helpful in encouraging more giving to charities and relieve some of the pressure on the finances of nonprofits. People who have been using donor-advised funds as charitable giving vehicles have also been encouraged in recent months to give a greater percentage of their DAF this year to help worthwhile causes, particularly those dealing with the COVID-19 pandemic.

 

While changes in the Tax Cuts and Jobs Act of 2017 tax law made it more difficult to claim the charitable deduction because it was mainly available to those who earned enough to make it worthwhile to itemize deductions on their returns rather than claim the increased standard deduction under the new tax law, younger people may be helping in some ways to fill the gap in philanthropy, especially now with the pandemic underway.

 

In addition, wealthier professionals have also been lending their expertise to help out nonprofits with management, governance, fundraising and their own donations.

 

“There’s been a shift over the last few years,” said Cole. “More individuals have been looking to give back or as some people say, to ‘repair the world.' People with specialty expertise — whether it be hedge funds, investments, management, accounting, law, marketing and PR — joining boards of organizations so that they can get back and participate and help management. We’ve certainly seen a greater influx of greater board talent over the years. We’ve been trying at BDO to do a lot of training for them on responsibilities and governance so they can truly grasp it. When you get somebody who is a major shareholder at a large public company, they understand the level of transparency that’s needed. They bring a tremendous resource in addition to their own resources as far as contributions as well.”

 

 

 

 

Meet the 1099-NEC

By Lindsey West

 

Despite COVID-19, the Internal Revenue Service is continuing forward with moving 1099-MISC Box 7, “Non-Employee Compensation” to a new form, the 1099-NEC. This is effective starting this tax year, 2020, meaning that in January 2021, organizations will file this new form.

 

The 1099-NEC is straightforward: Box 1 is for non-employee compensation and Box 4 is for federal withholding for that contract employee. To put it simply, income that the company used to report in 1099-MISC Box 7 will now be reported in 1099-NEC Box 1.

 

State tax withheld, payer state ID number and state income is reported in Boxes 5, 6 and 7 on the 1099-NEC.

 

And that's it: Those are the only boxes on the 1099-NEC.

 

Who gets it

According to the IRS, the people for whom an organization should use the new 1099-NEC are those with at least $600 in:

 

  • Services performed by someone who is not an employee (including parts and materials) (Box 1);
  • Cash payments for fish (or other aquatic life) that the company purchases from anyone engaged in the trade or business of catching fish (Box 1);
  • Payments to an attorney (Box 1). The term "attorney" includes a law firm or other provider of legal services. Attorneys' fees of $600 or more paid in the course of the organization’s trade or business are reportable in Box 1 of Form 1099-NEC, under Section 6041A(a)(1); or,
  • Each person from whom the company has withheld any federal income tax (report in Box 4) under the backup withholding rules, regardless of the amount of the payment.

 

The new 1099-MISC

All of the other income typically reported on a 1099-MISC will stay on that form, though Boxes 7 through 17 on the 1099-MISC have been shuffled. Box 1, “Rents,” and Box 3, “Other Income,” remain the same.

 

More information on the MISC and NEC are on the IRS web site: www.irs.gov/instructions/i1099msc.

 

Most accounting software likely does not yet support a "1099-NEC" flag for vendors, nor does it produce a 1099-NEC report. If a company has vendors that use 1099-MISC Boxes 1 or 3, they may want to consider inserting a “Display Name” flag such as "Vendor Name 1 - NEC" and "Vendor Name 2 - MISC," so that in January they can easily download the 1099-MISC CSV file and separate out the vendors who will go to the 1099-NEC.

 

APIs that connect accounting software to 1099-NEC software may or may not be updated by January, so we suggest reaching out to the organization’s 1099 software tech support and ensuring that they have a plan for mapping vendors into the proper form.

 

Other issues

  • State requirements. Individual state filing requirements are as yet unknown. All of us in the 1099 world have our fingers crossed that the IRS will make the 1099-NEC part of the Combined Federal/State program. This decision is still in flux; and according to the IRS, will be made by late August. We anticipate new state 1099-NEC requirements arriving late in the year, making for a hectic January.
  • Corrections for a prior-year 1099-MISC. So what if a company has to correct a Box 7 amount on a 2019 1099-MISC and the new 1099-MISC Box 7 no longer exists? The IRS says corrections to 1099-MISC box 7 for tax years 2019 and earlier will remain on the old 1099-MISC form.
  • Due dates. The due date for 1099-NEC is Feb. 1, 2021, to both the IRS and to recipients. The new 1099-MISC due date is pushed back to March 31, 2021, for IRS e-filing, since it no longer contains Box 7. It is still due to recipients on Feb. 1, 2021.

 

 

 

Coronavirus and Wayfair at 2: The perfect storm for online retailers

By Mark Friedlich

 

Two years ago, the Supreme Court in South Dakota v. Wayfair expanded the reach of states across the country to impose sales and use tax obligations on retail and other businesses. That’s if the businesses have a certain level of economic activity in a state (so-called economic nexus), no longer requiring a physical presence. As of now, 43 of the 45 states that have sales taxes have adopted the economic nexus standard. Florida and Missouri are the two holdouts. Sales tax bills are likely to be on the agendas of legislatures in both states when they return later this year.

 

As if that wasn’t enough bad news for retailers and other remote online sellers, shopping behavior changed dramatically as the COVID-19 pandemic spread across the U.S. and brick-and-mortar stores were ordered to close. Many retailers and others quickly adopted new strategies and established or greatly expanded their online selling presence and capabilities. Adobe Analytics recently reported that U.S. online sales increased 49 percent in April over the prior year.

 

Many consumer surveys show that the shift to online shopping will continue for at least as long as COVID-19 remains a threat. A survey of 1,200 consumers in late March 2020 by consulting firm Retail Systems Research found that 45 percent expected online shopping would be a necessity for them during the crisis. In fact, online shopping was growing before the pandemic hit. COVID-19 has accelerated that trend to super-speed mode.

 

Marketplace facilitator laws

Most states that impose general sales taxes have adopted marketplace facilitator laws. Florida, Kansas, Mississippi and Missouri are the states that have yet to pass such laws. Legislatures in each of these states are expected to introduce marketplace facilitator bills when they return to take advantage of the substantial revenue they desperately need.

 

The explosion in e-commerce since early March has resulted in a significant increase in online sales tax revenues in most states. State revenue officials have reported to me that sales tax collections from online sellers are up 30% and more in some states. An example of how seismic this change has been can be seen in North Dakota, where state sales taxes from remote sellers grew by more than 500 percent to $2.9 million, up from $475,000 just one year ago. The increase in online sales tax collections has been the one bright spot for state tax revenue collections during the pandemic.

 

What does all this mean to businesses?

As more and more online businesses sell into new states and municipalities and increase their sales into new markets so they can meet economic nexus thresholds, they become subject to sales tax collection and remittance rules in those states and municipalities. For many of these businesses, sales tax compliance hasn’t been a consideration or even something that has occurred to them as they focus on building a new business model or try to handle a surge in new business during the pandemic. The result is likely to be a significant increase in risk and unanticipated tax liability, particularly where sales tax compliance has been ignored or done inaccurately. Many of these remote sellers will be targets for state sales tax audits over the next 12 months. For many small businesses struggling to survive during the pandemic, failure to plan for sales tax liability could be the crowning blow to their very existence.

 

It is critical for businesses to consult with their tax advisers as soon as possible to make certain they are performing their due diligence to determine where they do have economic nexus for sales tax compliance purposes, registering in those states and properly complying with sales tax collection and remittance obligations.

 

What can we expect going forward?

States and municipalities across the nation are estimating they will need well over $1 trillion to shore up revenue shortfalls and expense increases, primarily related to the COVID-19 pandemic. Many have called their situations dire and have expressed the need for significant federal funding that has yet to come. In addition, a few states have begun to expand their tax reach using “economic nexus” for income tax purposes and attempting to expand the obligation for sales tax to digital advertising and services. Other states are considering the imposition of new taxes such as gross receipts taxes that go beyond digital advertising. We can expect states and municipalities to attempt to expand their state sales tax base as well as sales and use tax rates to help make up for revenue shortfalls.

 

In the first half of 2020, there were just over 150 sales tax rate changes at the municipality level, most of which were increases. There were no state sales tax changes. Many state legislatures cut short their sessions because of the pandemic. When they return, state sales tax rate increases are likely to be top of mind.

 

As government employees return to work, we will see a focus on enforcement as states and municipalities try to recoup lost tax revenues. Tax officials are likely to follow the money; remote selling into their states has greatly increased, resulting in many more sellers meeting the economic nexus thresholds and having the obligation to collect and remit sales tax. Many will be unaware of this or will have done so incorrectly. That’s fertile territory for tax auditors.

 

 

 

Spying on remote workers, and other tech stories you may have missed

By Gene Marks

150,000 reasons to protect yourself against ransomware, and nine other developments in technology from this past month and how they’ll impact your clients and your firm.

 

1. A creepy new way to spy on your remote employees

Enaible — a new tech startup — is working to help employers assign “productivity numbers” to each worker to try and monitor and ensure productivity while more and more companies are working from home due to COVID-19. The company plans to monitor employees working from home by attaching AI to already-existing data within a company’s system and providing a score and is based around an algorithm they call the “Trigger-Task-Time” algorithm that can calculate what specific motivation results in which tasks, and what time of day they are performed. (Source: ZDNet)


Why this is important for your firm and clients: One of the biggest concerns small businesses have about working from home is monitoring productivity. I’m of the opinion that my people are grown-ups and that they’re responsible for doing their jobs without micromanagement. But other business owners — many more successful than me — have differing views. I predict more, creepy, monitoring apps like this to come on the market as the remote employee workforce expands.

 

2. Study says the pandemic will boost the adoption of new technologies

A recent report conducted by Startup Nation Central suggests that the coronavirus pandemic will drive companies to start using more technologies to help them transition to working from home more efficiently. The study revealed that a massive $1.8 billion has been invested in fintech’s during 2019 alone. Startup Nation Central — a Tel Aviv-based nonprofit — detailed that 200 investments were made in the AI sector, 119 in money transfer and payment companies, and 74 in companies focusing on compliance anti-fraud, to name a few. (Source: CTech)


Why this is important for your firm and clients: Necessity is the mother of invention, and the pandemic has made it necessary to find new ways for doing things faster, while safely. That’s at least a silver lining amid a very dark environment.

 

3. A case study in ransomware

A small Kentucky business recently found themselves the victims of a ransomware attack and ended up paying the $150,000 in order to regain control of their PCs and get their information back. The company — which only has eight computers — simultaneously received messages on their screens stating that the hacker group had control of their PCs and they needed to pay in order to get their files back. Working with a third-party contractor to help handle the ransom — after paying the $150,000 demand which was originally $400,000 — they regained control of their computers and received all of their information (Source: Tech Republic)

Why this is important for your firm and clients: So there you have it: 150,000 reasons to make sure you’ve installed security and online backup software, paid for training and verified that everyone’s running the most up to date operating systems.

 

4. Cash payments have plummeted in the pandemic

Research released in Australia last month revealed that, since the start of the COVID-19 pandemic, the use of cash payments has greatly decreased. A survey conducted by RBA showed ATM withdrawals have plummeted in the past few months, while annual average debit and credit card transactions per person broke 400 for the first time this year. (Source: ZDNet)

Why this is important for your firm and clients: Yeah, yeah … it’s just Australia. But look, those guys know how to live life and what I’m seeing there is going to continue to spread worldwide. It’s likely that the decline is due to an overall spending decrease coupled with individuals staying home and doing more online shopping. But I think it’s something else. Thanks to the virus, people are using less cash than ever. They’re paying with mobile apps and credit cards. And once many realize these benefits they’ll never go back. It’s a significant trend and your business needs to be prepared to accept payment from any source.

 

5. Microsoft is replacing employees with AI

Microsoft said it has let go several journalists and instead will be implementing artificial intelligence that has the ability to perform their jobs. Nearly 30 journalists were given a month’s notice following Microsoft’s decision to no longer employ people who would research, edit and choose the various news articles for one of their pages. While the individuals who worked on the site run by Microsoft did not write the stories they were curating, they did edit and pick stories from other news outlets and occasionally edit headlines and material when needed. (Source: Novinite)


Why this is important for your firm and clients: No disrespect to my colleagues, but the fact of the matter is that some journalism is pretty basic. Some have jobs that just take information from a press release or a news story and then convert those stories into a column. Wait a second … that sounds like me! Well, at least I add some commentary and insights. But for stories that only require a summary to make into an article, can’t AI do the same? And can’t AI interpret your own technical agreements and turn them into blogs too? The future is here.

 

6. Chrome will soon be less of a memory hog in Windows 10

Google revealed that an upcoming release of Chrome is going to be using an approach also used in Microsoft Edge in order to reduce how much RAM is taken up. The intention of the new release is to improve the browser’s efficiency. When Microsoft applied the approach, known as “Segment Heap” memory, memory usage was cut down by 27 percent. (Source: Engadget)


Why this is important for your firm and clients: While the success rate of the updates and improvements will depend on the type of system, troubleshooting has shown that a lot of the systems will potentially see the greatest improvements. If you’re a Chrome shop, you’ll find faster speeds and greater productivity. But keep an eye on Microsoft Edge … it’s growing too.

 

7. Comcast is extending free Xfinity wi-fi hotspot access

Comcast announced that they are going to extend their offer to provide free, public accessibility to their 1.5 million hotspots through the end of the year. The company will also continue to offer 60 days of internet service — free of charge — to customers who are new to their Internet Essentials sector. Internet Essentials, which is aimed to help customers who are considered to be low-income, will also run through the end of 2020. Comcast was among a group of internet companies offering connectivity and features for free to individuals struggling throughout the financial hardships brought on by the coronavirus pandemic. (Source: The Verge)

Why this is important for your firm and clients: Thank you, Comcast, for recognizing this need among many small businesses, freelancers and independent contractors who are already struggling to keep their costs down and navigate this economic downturn.

 

8. Amazon is going to use AI in warehouses to enforce social distancing

Last month, Amazon rolled out a new AI-based technology to help ensure that employees at their warehouses and offices are following social distancing guidelines in order to help minimize spreading the coronavirus throughout its workforce. According to the announcement, Amazon’s warehouses will now have monitors that will show individuals who are maintaining the suggested distance highlighted in green circles, and individuals who are not following distancing guidelines will be circled in red. Distance Assistant —the name of the new technology — will also utilize footage throughout the buildings to assist in highlighting areas densely populated. (Source: Reuters)


Why this is important for your firm and clients: As a small-business owner I’m a big believer in following big-business practice. We’re all concerned with keeping our workplaces safe, so how are the big companies doing it? In Amazon’s case, it’s a social distancing AI-driven application. Can our software vendors provide something similar? Is it worthwhile creating an app of our own? Sure, there’s a cost. But there’s also a potentially significant liability for not doing so.

 

9. Yelp is adding new features for reopening businesses

Throughout the COVID-19 pandemic, Yelp has worked to provide resources for businesses through fundraisers and waiving fees as they navigated the shutdown. Now — with easing restrictions — Yelp is rolling out tools to help businesses during the reopening phase of the shutdown. (Source: TechCrunch)


Why this is important for your firm and clients: One of the two new tools will be an expansion of their existing COVID-19 banners that appear at the top of each profile, allowing businesses to share what they are doing to follow social distancing guidelines. The second feature will come as an update to their waitlist function to help prevent long lines for things like curbside pickup or outside dining. If you rely on Yelp for traffic to your business, then you should make sure you’re familiar with these changes.

 

10. YouTube is trying to become more transparent

YouTube is working to operate in a more transparent manner when it comes to how channels are able to make money while providing stricter guidelines on the kind of content advertisers will be more willing to pay to have ads on. Historically, YouTube has allowed videos that contain malicious content to contain advertisements. However — due to past and recent events — YouTube has implemented many changes to their guidelines concerning advertising and content, including an “ineligible for advertising” portion of the guidelines based off of hateful content alone. (Source: The Verge)


Why this is important for your firm and clients: If your business is trying to monetize YouTube, it’s important to stay up to date on their latest guides and announcements. I’m doing the same for my YouTube site and am quickly discovering that it’s almost a full-time job. I guess if it were that easy everyone would be doing it.

Some of these items originally appeared on Forbes.com.

 

 

 

Accountants predict 2020 will be worst year for economy since World War II

By Michael Cohn

 

This year is expected to be the worst for the global economy since World War II, according to a new survey by the Association of Chartered Certified Accountants and the Institute of Management Accountants.

 

The Q2 2020 Global Economic Conditions Survey polled ACCA and IMA members and found that while there are dire predictions for the economy for this year, accountants in North America were more optimistic about an imminent economic recovery from the COVID-19 pandemic than other parts of the globe. The survey also discovered that global confidence recovered slightly from a record low in the first quarter of the year, offering some optimism that recovery is on the horizon during the second half of the year. Nevertheless, many parts of the world still face challenging economic times.

 

 “Confidence in Q2 was a mixed picture and globally there was a modest bounce from the record low in Q1,” said IMA vice president of research and policy Raef Lawson in a statement. “This unusual combination of very weak orders but slightly better confidence can be interpreted as expectations of a turning point — an unprecedented collapse in activity in the first half of the year, to be followed by some degree of recovery in the second half.”

 

Economic activity indicators on orders, capital spending and employment are at or close to record lows in most regions of the world and the global orders balance fell by 15 points, approximately two times its previous biggest quarterly drop, while other global measures of extreme weakness include plummeting employment index and the rise in concern about customers and suppliers going out of business.

 

The economic turmoil unleashed by the novel coronavirus pandemic is sending unemployment rates from close to record lows late last year to extreme highs in just a few months. In the U.S., the report noted, the unemployment rate rose to 13.3 percent in May from below 4 percent at the beginning of the year (but improved slightly to 11.1 percent in June, per the U.S Bureau of Labor Statistics last week).

 

The headwinds against a full economic recovery will probably remain for at least the rest of the year as social distancing dampens consumer spending. Earlier hopes for a sharp V-shaped recovery have given way to expectations of a fairly long period to climb back to the level of output before the pandemic, according to the report. For emerging markets, much will depend on commodity prices along with the strength of the recovery in advanced economies. For many economies, including the United States, it may take until the second half of 2022 at the earliest before the nation can reach the same level of output as at the end of last year.

 

But despite those worrisome findings, survey respondents in North America were optimistic about a recovery. More than one-third of respondents in North America anticipate a recovery during the current quarter spanning July to September.

 

The latest edition of the quarterly ACCA IMA GECS survey included special COVID-19-related questions, which generated an overall 50-50 split between those expecting economic recovery in the second half of this year and those not expecting this until 2021.

 

“The mixed picture on confidence contrasts with the universally gloomy readings on activity indicators such as orders and employment,” said Warner Johnston, head of ACCA USA, in a statement. “Recovery in confidence from Q1 lows can be interpreted as optimism about economic prospects over the second half of the year. In regions such as North America and Europe, the recovery in confidence was modest but in stark contrast with the large fall in orders in both regions.”

 

The report also notes that the plunge in the GECS employment index reflects a dramatic surge in unemployment, particularly in the U.S., and theorizes that this is a downside risk to sustained recovery. While overall confidence rose slightly from a record low in Q1, hinting at a slightly more optimistic outlook, the picture for 2021 depends on the trajectory of the coronavirus.

 

 

 

Looking for a work-at-home tax break? Here’s the bad news

By Alexis Leondis

 

Working remotely has its costs — think of new laptops, ergonomic chairs and high-speed internet — and it’s tempting to think of them as potential tax write-offs.

 

Unfortunately for most employees, or anyone who receives a W-2 form, that’s a fantasy. The 2017 tax law eliminated the federal write-offs previously allowed for unreimbursed business expenses and home offices, along with most other miscellaneous itemized deductions. The thinking was that a doubling of the standard deduction would help offset the pain of ending or capping itemized deductions, but that was before the coronavirus.

 

A very few lucky employees such as struggling performing artists can still qualify for a business-expense tax break, but it's a narrow group and it seems unlikely that the U.S. Congress will widen it.


Some states, including New York, California and Pennsylvania, still allow employees to take deductions for unreimbursed business expenses on their state tax returns. But there may be restrictions on the state deductions — the expenses may have to total more than a certain percentage of income, or taxpayers may have to earn below a specific threshold to qualify.

 

Given the tax limitations, the best way for employees to recover what they’ve had to spend to work remotely may be to negotiate with their employers. The federal tax code lets employers reimburse employees for costs that are reasonable and necessary for them to do their jobs amid a disaster, and the Internal Revenue Service has said the pandemic qualifies. While the IRS doesn't provide a list of acceptable expenses, reasonable interpretations include home-office and child-care costs.

 

Employees don't have to count the payments as income and employers can deduct them as business expenses. There are a few caveats though, including that the payments have to be in addition to an employee's normal salary or wages.

 

Garrett Watson, a senior policy analyst at the Tax Foundation, said that few employers are aware of the provision. But he added that some companies, especially larger ones, may prefer to just provide all employees with a one-time set payment to compensate for remote working expenses, rather than negotiate individual personal situations.

 

There's better news for those who are self-employed: They're still allowed to take deductions for home offices and related business expenses. Even individuals who were self-employed and previously rented office space elsewhere but are now working from home will be able to take advantage of the home-office tax break, which lets them deduct a percentage of some home expenses.

 

But taxpayers have to be cautious about taking the write-off. There must be a designated section of their home that's used exclusively and regularly for work (a dining room table doesn’t count). And since the deduction is often a red flag for auditors, it's important to keep meticulous records of work performed at home and even take pictures of the space.

 

Also, married couples who file jointly aren't entitled to a bigger deduction just because one spouse is self-employed. The home-office deduction isn't shared with a spouse like itemized deductions, so the self-employed person can only deduct the home-office expenses attributable to the portion of the home that is used for his or her business, according to Steve Rossman, an accountant at Drucker & Scaccetti in Philadelphia.

 

Finally, working from home has raised some questions about the tax liabilities of those no longer commuting into different cities or states. In some places, nonresidents are on the hook for taxes where they work, but then receive a credit to offset taxes where they live. Most tax authorities are still figuring it out, but rest assured that a state like New York, which is known for being aggressive about tax collections, will be unlikely to leave any revenue on the table amid pandemic-induced budgetary shortfalls.

 

 

 

Is maximizing PPP loan forgiveness the real endgame?

By Steven PinskyRoberto Hinojosa

 

On May 15, 2020, the Small Business Administration released the loan forgiveness application for the Paycheck Protection Program. The application contains a great deal of guidance and direction for assisting companies with calculating their loan forgiveness, including helpful worksheets and step by step instructions. Following the release of the application, Congress passed the Paycheck Protection Program Flexibility Act of 2020, modifying the forgiveness criteria. With this additional guidance in hand, borrowers are working diligently to determine ways to maximize their forgiveness.

 

But is maximizing forgiveness the real endgame?

 

I believe that some borrowers are doing themselves a disservice by focusing on maximum forgiveness instead of maximum long-term viability.

 

In a recent webinar, the New York Small Business Development Center confirmed that any PPP funds that are unused in the covered period (recently increased to 24 weeks as a result of the PPPFA) will be treated, along with the unforgiven portion of funds used in the covered period, as a five-year loan, as adjusted by the PPPFA, at 1 percent and the remaining funds can be used for any SBA approved business expenses.

 

Forgiveness vs. viability

While the economy appears to be opening up, it will be a slow process and companies may encounter possible future setbacks. In evaluating their PPP funds, borrowers should be asking themselves many questions: Does the borrower have the working capital needed to weather the covered period and the months that follow? Is there enough cash to support the on-going operations until the borrower can become cash flow positive? Does it make sense for the borrower to pay employees that are underutilized or worse to sit at home when many of them can make similar or, in some cases, better wages on unemployment? These and many more questions boil down to the key question:

 

“Am I better off using the PPP funds to maximize payroll and forgiveness, or should I apply them to other approved uses in the covered period and then to additional SBA-approved uses after the covered period?”

 

To answer this question, a borrower needs to look at the bigger picture of long-term viability. Many businesses have not been able to operate during the recent months. Most, or all, of their revenues have dried up and, unfortunately, they still have significant fixed costs. They must make hard choices as to how to survive in the long run. The decisions they make should not solely be based on getting through the 24-week covered period. Companies must look to future months after that. Many borrowers may conclude that maximum forgiveness is not the best avenue forward.

 

Employment levels are the key

The biggest variable in the short term is employment. With many employees eligible for unemployment, keeping them on the payroll to do little to nothing has a net zero effect on the borrower’s cash flow. You pay the employee to stay home and you get full forgiveness. If the employee can make almost as much, and in some cases more, on unemployment, a borrower may be better off by using the PPP funds for other uses or to stretch out the payroll for a smaller number of key employees.

 

It should be noted that the CARES Act, and the PPP in specific, are not just designed to get companies through the end of the covered period. It is part of a larger effort to keep companies viable through the end of the current economic hardships. Therefore, the effective use of funds to accomplish this goal for long-term viability supports that objective.

 

An illustration

The following illustration shows the comparative resulting outcomes of a fictitious company, or borrower, based on how it deploys its PPP funding. The three scenarios are:

  • Scenario 1: Full employment/maximum forgiveness
  • Scenario 2: 50 percent employment/50 percent forgiveness
  • Scenario 3: 25 percent employment/25 percent forgiveness

 

There are many factors that go into making employment decisions. Borrowers should consider the well-being of their employees when moving forward. This analysis assumes several factors regarding employment and operating decisions:

  • Most or all of the employees are eligible for enhanced unemployment benefits and may have the ability to maintain compensation levels close to those prior to unemployment for a period of time.
  • The borrower only plans on reducing the work force until such time as it is able to support the salaries through restored cash flow.
  • The example assumes that no revenue is coming in for the entire overed period. This is an extreme case but best illustrates the potential benefits of a cash conservation strategy in a worst-case scenario.
  • The illustration also assumes that FTE reductions mostly occurred after the April 26, 2020, deadline, thereby not allowing restoration by December 31. Again, a worst-case scenario.

 

Note: The example below is for illustrative purposes only and does not consider many other factors that impact cash flow and profitability, such as the tax effects of forgiveness.

 

Table 1 shows the assumptions used in this illustration. Please note that this analysis is oversimplified and is designed to directionally illustrate the potential outcomes given certain choices.

 

Scenario 1

 

Scenario 2

 

Scenario 3

Cash before PPP

$ 200,000

 

$ 200,000

 

$ 200,000

PPP loan amount

$ 100,000

 

$ 100,000

 

$ 100,000

Full employment monthly payroll

$ 40,000

 

$ 40,000

 

$ 40,000

Employment retained

100%

 

50%

 

25%

Other monthly PPP-approved uses

$ 10,000

 

$ 10,000

 

$ 10,000

Monthly other expenses

$ 10,000

 

$ 10,000

 

$ 10,000

Covered period in months

5.54

 

5.54

 

5.54

 

Table 2 illustrates the cash deployed during the covered period (24 weeks) for each of the scenarios. The table also shows the resulting cash positions of each scenario at the end of the covered period. As shown, there is a $166,000 increase in cash availability from Scenario 1 to Scenario 3. It is also important to note that the borrower will not even survive the covered period in Scenario 1.

 

The excess cash positions in Scenarios 2 and 3 are now available for use to both survive the covered period and in the weeks and months following the covered period. Please note that the PPP funds that were not used in the covered period can still only be used for SBA-approved expenses going forward, but these uses are broader than the PPP-allowable expenses. In the scenarios shown, it is assumed that there are enough SBA-approved expenses to fully utilize remaining PPP funds.

 

Scenario 1

Scenario 2

Scenario 3

Covered period uses

     

Payroll uses of PPP

$ 221,538

$ 110,769

$ 55,385

Other uses of PPP

$ 55,385

$ 55,385

$ 55,385

Total uses of PPP

$ 276,923

$ 166,154

$ 110,769

Non-PPP expenses

$ 55,385

$ 55,385

$ 55,385

TOTAL CASH USES

$ 332,308

$ 221,538

$ 166,154

Covered period cash position

     

Beginning cash before PPP

$ 200,000

$ 200,000

$ 200,000

PPP proceeds

$ 100,000

$ 100,000

$ 100,000

Less: PPP uses

($276,923)

($166,154)

($110,769)

Less: Non-PPP uses

($55,385)

($55,385)

($55,385)

New cash position after covered period

($32,308)

$ 78,462

$ 133,846

Relative scenario cash position

$ -

$ 110,769

$ 166,154

 

Table 3 shows how those additional funds can be used to stretch the viability of the borrower. Again, please note that Scenario 1 does not even support the borrower through the covered period. The table shows two possible approaches at the end of the covered period: Approach 1 assumes that full employment is restored. Approach 2 shows a case where the employment reductions must be kept at a reduced number assuming that business has not fully rebounded enough to support full payroll. Using a strategic expense deployment, this particular illustration shows that the company can extend its viability in the worst of cases by as much as 1.85 to 2.77 months. Approach 2 shows that the viability can be stretched by 5 months. This provides for more runway to execute a recovery.

 

Scenario 1

Scenario 2

Scenario 3

Approach 1: Full restoration of employment

     

Monthly burn rate (no revenues)

$ 60,000

$ 60,000

$60,000

Months of cash flow remaining

-0.54

1.31

2.23

Increase in months of viability over Scenario 1

 

1.85

2.77

       

Approach 2: Maintaining reduced employment

     

Monthly burn rate (no revenues)

$ 60,000

$ 40,000

$ 30,000

Months of cash flow remaining

-0.54

1.96

4.46

Increase in months of viability over Scenario 1

 

2.50

5.00

 

In all scenarios, it is assumed that staff reductions came after the April 26, 2020, reduction deadline so that even with full restoration by Dec. 31, 2020, the forgiveness will still be reduced by the reduction in FTE. Table 4 shows the relative cash positions for each scenario. Although the PPPFA increases the new term to five years, this illustration assumes payment after two years.

 

As shown, even though forgiveness is greatly reduced in Scenarios 2 and 3, the long-term benefits are significant in terms of cash preservation.

 

Scenario 1

Scenario 2

Scenario 3

Loan repayment/ no forgiveness

$ 101,480

$ 101,480

$ 101,480

Forgiveness

$ 100,000

$ 50,000

$ 25,000

Forgiveness percentage

100%

50%

25%

Loan not forgiven

$ -

$ 50,000

$ 75,000

Principal/interest payments with forgiveness

$ -

$ 50,740

$ 76,110

Relative cash impact of loan forgiveness

($50,740)

($76,110)

 

Relative cash position after covered period

$ -

$ 110,769

$ 166,154

Net relative cash position after 2 years

$ -

$ 60,029

$ 90,044

 

While this is only a sample illustration, it shows that there are situations where the borrower is better off forgoing the benefit of forgiveness to extend their capital.

 

 

 

Millionaires face near-zero chance of IRS audit — for now

By Laura DavisonAllyson Versprille

 

If you have an income of $1 million or more there’s less than a 1% chance that the IRS has called you in for an audit, according to new figures from the agency.

 

So far, the Internal Revenue Service has audited 0.05% of those earning $1 million to $5 million in 2018, according to data released Monday. For those reporting $10 million or more, that figure drops to 0.03%.

 

In total, the IRS has audited about 0.15% of individual returns from 2018, with people claiming the earned income tax credit most likely to face an examination at a rate of 0.6%. An IRS official said the audit rates appear to be lower than in previous years because of a new way of calculating audits. Those figures will increase in coming years as auditors open more cases before the three-year statute of limitations runs out.

The new calculations mean that the audit data is complete for returns filed in 2015 or earlier, IRS officials told reporters on a call Monday. That’s because the statute of limitations has run its course on those returns so the agency isn’t conducting further audits for those years. But for returns filed in 2016, 2017 and 2018 — the last year covered by the new report — the IRS will update the figures annually until the statute of limitations runs out.

 

Still, IRS audit rates have been trending downward for years as budget cuts and staff reductions have hobbled the agency’s ability to conduct widespread audits. The IRS audited nearly 14.5% of returns reporting $10 million in 2012, for returns filed in 2015 that rate fell to about 8.2%.

 

Fewer resources

“For the past decade, the IRS has seen an increase in the number of returns filed as well as a decrease in resources available for examinations,” the IRS said in its annual data book released on Monday. For example, in fiscal year “2010, the IRS received 230.4 million returns and employed 13,879 revenue agents, compared to 253.0 million returns and 8,526 revenue agents in FY 2019.”

 

Audit rates could further decline in future reports as the coronavirus pandemic has halted many agency operations. The IRS initiated 71% fewer corporate audits this spring compared with the same time period a year ago, according to a separate report released Monday.

 

The IRS began 718 corporate audits from April 1 to June 1 this year, compared with 2,445 in 2019, according to a National Taxpayer Advocate report. The number of partnership audits fell 79% and individual examinations dropped 65%, the report said.

 

The reduction is a result of an IRS decision to delay starting many new audits between April 1 and July 15, unless the statute of limitations runs out and would keep the agency from pursuing a case later. The IRS continued to work on existing audits remotely “where possible,” but significant delays were caused by phone line closures and closed IRS offices where mail went unopened, according to the report.

 

The IRS is unlikely to make up for the decline during the coronavirus pandemic, when many employees have been unable to fully do their jobs from home because of laws protecting sensitive taxpayer data.

“The IRS has begun reopening its operations, but it will take some time before they are restored to full capacity,” the report said.

 

The data was included in the National Taxpayer Advocate’s annual report to Congress. The office is an independent unit within the IRS that helps taxpayers with significant problems.

 

The IRS faces another challenge as it continues to bring workers back to its offices, because the normal April 15 filing deadline was extended to July 15. Treasury Secretary Steven Mnuchin said he has received requests to further delay the due date, but hasn’t yet made a decision.

Many taxpayers filed before the extension was announced, but the IRS is still expecting millions of tax returns to be submitted.

 

By May 22, the IRS had received nearly 120 million individual tax returns of the more than 150 million it expects, the report said.

 

 

 

Accountants see recovery in the mid-term

By Daniel Hood

 

The ACI tracks accountants confidence in U.S. economic growth across five component categories, with 3-month and 6-month composite readings averaging the growth predictions of our Executive Research Council. Readings above 50 indicate expected growth; readings below 50 indicate expected contraction.Accountants Confidence IndexInteractive: Use the dropdown menu and date slider, or mouse over the image, to filter or drill down.3 Month ACI -July 202045.356 Month ACI -July 202052.07

 

The Accountants Confidence Index continued its rebound from June, with accountants predicting modest contraction in the short term — and growth again within six months.

 

A large number of respondents said that they were concerned that attempts to prevent the spread of the coronavirus were causing more damage to the economy than necessary, though many others noted that a resurgence of cases could derail any potential economic recovery.

 

The ACI, published in partnership with ADP, is a monthly economic indicator that leverages the insights of accountants into the strength and prospects of businesses in the U.S. The 3-Month ACI hit 45.35, a significant jump up from the previous month's 36.1 (though still far below the 50 mark that separates expectations of growth from expectations of contraction). The 6-Month ACI, meanwhile, came in at 52.07, up close to 10 points from last month's 42.35 — and just into expansionary territory.

 

The index components were all up significantly — with a particularly sharp rise in short-term expectations for the growth of the economy.

 

The ACI is created from a monthly poll of the Accounting Today Executive Research Council, an online community of more than 1,500 tax and accounting professionals.

 

 

 

RPA is ready for its close-up

By Antoinette Alexander

 

Three little letters are proving they can deliver accounting firms big benefits in the quest for greater process automation.

 

Enter RPA.

 

Robotic process automation, more commonly known as RPA, involves programming software to automate manual processes across applications. The goal: to reduce the burden of repetitive, simple tasks on employees. The potential impact: big.

 

The technology has gained greater attention in recent years as more firms look to drive efficiencies and improve workflows through automation. Despite this, the profession’s adoption of RPA remains in the earlier stages, according to sources.

 

“As far as adoption goes, I think it’s still a little bit slow. Certainly at the larger firms it seems like people are moving in that direction, and certainly integrating RPA with other technologies that you’re purchasing seems to be something that is in play as well,” said Andrew Spikes, shareholder at Topeka, Kansas-based Mize CPAs.

Added Gary Baumgartner, CIO of Armanino in San Ramon, California, “I think everyone kind of agrees they are in the early stages of exploring what RPA brings to the table. I am excluding the Big Four for right now simply because of the amount of investment they have available there further on. But in general I think everyone is in the earlier stages.”

 

That could soon change, however.

 

A 2019 report by consulting firm Protiviti found that companies, including those in the accounting and finance arena, are planning to up the ante on RPA. According to the findings, 67 percent of financial services organizations said that they are in the planning/implementation phase, and 29 percent are in the maturing/advanced stage. More than half (53 percent) of the respondents said that they expect to be in the maturing/advanced stage in two years.

 

It’s not coming for your job

Let’s take a closer look at what RPA is, and what it isn’t.

 

RPA is deployed to automate mundane, repetitive work and improve workflow. It doesn’t seek to mimic human intelligence like artificial intelligence, or gather new insights like analytics. And, much like other emerging technologies, RPA is not designed to replace employees, but rather to augment their roles and enable them to focus on higher-value work.

 

Take, for instance, the example outlined by Baumgartner: “The way we see RPA is providing that connection to multiple solutions. Through leveraging RPA, we can assign work to a digital worker through a task management solution, retrieve client information from, for example, our tax filing system, file the prepared tax return, and then let the team know when the IRS has accepted the return. A significant amount of automation can be applied in a very high-volume transaction, like tax filing,” he said.

 

As outlined in the report from Protiviti, the greatest benefits of RPA include increased productivity, a stronger competitive market position, higher customer satisfaction, and better quality.

 

One firm that is seeing the benefits of RPA firsthand is Mize CPAs. “We really looked at RPA as a way to remove some of the manual, lower-level processes that we do and allow our staff to be able to work on higher-level things that bring more value to our clients,” Spikes said.

 

One of the first projects, said Spikes, was to use RPA to retrieve invoices from the website of a vendor used by many of its clients, then process those invoices through the firm’s bill pay software. “A task that we used to do manually: Twenty-five-plus people a month going out there and pulling invoices, coding recast, and [doing journal entries]. By moving to [RPA], we basically got rid of that entire process but we also then elevated our process,” said Spikes. “In the past, our clients saw a journal entry recap of the expenses for the month. Now, they actually can see invoice-level detail through our AP system for each and every invoice for the month. So, it reduces some of the questions surrounding costs associated with that vendor and, for us, it saved probably just over 2,500 hours of work a year.”

 

It has been about a year since the use of RPA has picked up steam at Mize CPAs, which has developed the technology internally. And, today, there are a handful of RPA-related projects currently in play within the firm, Spikes said. Among the more recent is a project to use RPA to automate the creation of client tax packets to save staff time and expedite the delivery of client tax packets to the tax department. In addition, Mize CPAs is currently working with its internal IT department to develop RPA solutions to assist with the firm’s monthly financial statement preparation work and the creation of month-end ratio sets for clients.

 

“So, we actually have about five [RPA projects] in play right now, all focused on client work. And then we have several internal-focused ones. One [internal project] is surrounding health checks on our servers. We have staff that do that today, but now we can actually have the robots do the monitoring itself, as well as also monitoring and creating different file structures for document storage,” Spikes said.

 

Spikes noted that the firm is currently saving about 3,200 hours annually on mundane tasks. Once it completes the remaining RPA projects now underway, it expects to save about 7,500 hours annually. That’s time and energy that staff can redirect to higher-value work.


Challenges and lessons learned

Despite the benefits, the journey to RPA can be fraught with challenges. According to Protiviti, the top obstacles to adopting RPA include:

  • Inability to prioritize potential RPA initiatives (40 percent);
  • Concerns about cybersecurity/data privacy (40 percent);
  • High implementation costs (37 percent); and,
  • Difficulty in scaling applications (37 percent).

To overcome such hurdles, Protiviti highlighted lessons learned by those that are most advanced in their use of RPA. These include:

  • Start with processes that are simple to automate through RPA;
  • Make processes as efficient as possible before automating them;
  • Plan and budget for ongoing maintenance;
  • Consider the scalability of the application and whether it can support advanced AI technologies;
  • Assess and address up front any cybersecurity and data privacy risks associated with the planned RPA application;
  • Make sure you are purchasing the right RPA software; and,
  • Analyze and track the cost-effectiveness of each RPA application.

 

To assist executives looking to implement such innovation into their business, as well as leverage the learnings internally, Armanino recently unveiled its AI Lab, which aims to take a practical approach to integrating AI in the day-to-day working environment using three core components: predictive analytics, RPA and virtual assistants. It provides members with access to ready-to-deploy, proof-of-concept AI models that can be modified and customized to their specific organizational needs.

 

“The services and the value-add that we want to provide to our end clients we also try to use internally everywhere that it makes sense. So, today our AI Lab is currently focused on democratizing AI and automation and making it accessible to our clients. It’s all about the clients, even though, again, we want to leverage the learnings we are delivering to the clients and also repurposing them inside the organization and vice versa,” said Baumgartner. “Especially important is to help [clients] scale an enterprise RPA program. To be able to go from a proof-of-concept, to scaling, to a more mature operating model is not simple.”

 

The AI Lab, for instance, helps clients navigate such issues as selecting a vendor, selecting the right use cases, setting up the technology platform, and building internal development capabilities. “In our case, team Armanino has helped companies overcome these hurdles and provide support as they set out on their RPA journey,” Baumgartner said.

 

When discussing the benefits of RPA, Baumgartner said it extends well beyond cost savings, though those can certainly be significant. “It definitely increases efficiency. There’s also a pretty significantly improved quality of deliverables, and the overall reduction in human-related errors,” he said, noting that, “How we build integration between multiple systems can be massively complemented by things like RPA.”

 

Daren Campbell, Americas tax innovation leader at Big Four firm EY in Washington, D.C., said that it’s important to look at automation holistically and to leverage the right tools for each specific project. EY leverages RPA in a variety of instances such as onboarding new hires and automating repetitive data entry activities on the back end, as well as within client services.

 

“The No. 1 area that companies seem to start with for automation or use bots is usually in the extraction of invoices. … Primarily related to sales and use, where companies need to be able to pull down invoices on audit or for any of their reviews for monthly compliance. … A lot of companies have looked to RPA to do that. In the sales and use space we see a lot that have used it for managing the exemption certificate process,” said Campbell. “We’ve seen it a lot with being able to pull down source data — when the client has a lot of different ERP systems and it needs to pull down trial balances from all of those ERP systems that it will later be using for tax provision or tax compliance purposes.”

 

Added Campbell, “We’ve used it both internally and externally in a lot of the reconciliations [in] comparing current-year to prior-year reports and schedules. We’ll use RPA to pull down the reports that are needed. This is oftentimes integrated with data integration as well, but bots will pull down the information, will process it through one of the data integration tools, and then the bot will pick up the results of that, prepare that final workbook, and email that to the reviewers. … With any of this, the human in the loop is an important element.”

 

RPA and PPP

When one thinks of RPA, perhaps one of the more recent developments that comes to mind is the ban on RPA in the submission of applications for Paycheck Protection Program loans.

 

Given the speed and efficiency of RPA software compared with human data entry, some banks were using RPA to enter PPP loans applications into the Small Business Administration’s E-Tran electronic loan system. However, in a statement issued in April, the SBA and Treasury announced a ban on RPA in the loan application process. “RPAs burden the processing system and diminish its capabilities. Without RPAs, the loan processing system will be more reliable, accessible and equitable for all small businesses,” the statement read.

 

In commenting on the news, Campbell said, “It sounded like the issue was that the underlying system that they had couldn’t handle the volume and the speed at which the bots were pushing data. I think it was their E-Tran loan system, which isn’t a surprise. … A lot of times, whether we’re working with a system that is internal or a third-party system where we are using RPA, one of the things that we try to do is when it is interacting with those systems that it is operating more at a human pace. So, we actually build in delays and other things to prevent it, [which] sounds like what happened here.”

 

Said Mize CPAs’ Spikes, “I think the SBA’s concern was that some of the larger banks using RPA to automatically transmit applications into the SBA system was going to overload it. … Not overloading the system and clogging it up, and allowing smaller banks to be able to submit as well without having the system crash.”
 

The future of RPA

Most accounting professionals agree that automation is key to future growth. But given the rise of application programming interfaces, the choice between RPA and APIs may be confusing. However, as stated in a blog post by RPA vendor UiPath, “Each has advantages and disadvantages. In many situations, the right answer is a hybrid strategy that uses RPA as the larger framework and API integrations for specific functions.”

 

Campbell of EY noted the rise of APIs, but maintained that RPA will still have its place as a critical automation tool. “For the foreseeable future, there will be systems where APIs just aren’t possible. … So, utilizing RPA to be able to interact through the front end is going to continue to be important,” he said.

 

Also strengthening RPA’s foothold, he added, is the fact that RPA capabilities are increasingly being brought into other solutions. He cited as examples SAP, which has invested in RPA to help automate repetitive processes, and Microsoft’s recent acquisition of Softomotive, a provider of RPA and creator of WinAutomation.

In announcing the news in May, Microsoft stated, “Together with [Microsoft] Power Automate, WinAutomation will provide customers additional options for RPA desktop authoring so anyone can build a bot and automate Windows-based tasks.”

 

“I think increasingly we are going to see RPA being embedded as a capability into some other tools and products,” Campbell said.

 

 

 

How Not to Write Tax Break Statutes

by James Edward Maule

 

As readers of MauledAgain know, I am not a fan of tax breaks. Of course, the fact that I do not think they should be enacted doesn’t mean they won’t be enacted. But if they are being enacted, they ought to be drafted in ways that return something to the taxpaying community. A tax break, after all, is nothing more than a jurisdiction handing money to a taxpayer. Think of the taxpayer paying the tax that would have been paid absent the tax break and then having some or all of that tax handed back. It’s worse, of course, because some tax breaks are nothing more than handouts that exceed what the taxpayer would have paid absent the tax break.

A good example of bad tax break statutory drafting is illustrated by a recent decision of the Pennsylvania Commonwealth Court, Dechert LLP v. Pennsylvania Department of Community and Economic Development. The tax break in question involves Keystone Opportunity Zones (KOZs), Keystone Opportunity Expansion Zones (KOEZs) and Keystone Opportunity Improvement Zones (KOIZs), all of which can be called Keystone Zones (KZs). Properties in a KOZ are exempt from property taxes and qualified businesses within a KZ are “entitled to all tax exemptions, deductions, abatements or credits set forth in [the statute] for a period not to exceed 15 years.” The administration of the tax breaks, including participation in designation of KZs and related matters, is in the hands of the Pennsylvania Department of Community and Economic Development (DCED).

Dechert LLP, a qualified business, leases space from Brandywine Realty Trust in the Cira Center. The Cira Center is within a KOIZ whose designation has expired. From 2004 through 2018, Dechert received almost 15 years of tax breaks. Dechert plans to terminate its lease and enter into a new lease in a new office complex being built by the landlord in a different KZ. Dechert requested a letter ruling from DCED regarding the availability of tax breaks if it should relocate from its current location to the new office complex. Dechert claimed that moving from an expired zone to a different, but active zone, should not limit the tax breaks it would receive by locating its office within the new KZ. The DCED responded by explaining that it interpreted the statute to preclude a taxpayer who received tax breaks in a now-expired KZ from obtaining a new set of tax breaks by moving into a new active KZ. The DCED explained that the KOZ program “is designed to encourage businesses to locate in economically distressed communities; to become economic anchors of the communities; and to re-enter the state and local tax rolls at the end of the KOZ term.” Accordingly, the DCED denied Dechert’s request. Dechert filed a petition challenging the DCED’s conclusion and seeking a declaration that it would not lose tax breaks by relocating into a new KZ.


The statute, however, does not address the treatment of a business that relocates from one zone to another. The DCED argued that failure to prevent taxpayers from “zone hopping” in order to extend KZ benefits infinitely conflicts with the legislative intent that the benefits of KZs are intended to be temporary tax relief. That failure would encourage “mass exodus from one zone to another in an attempt to retain tax exemptions, and thus frustrate the purpose of the statute.”


The statute provides for the treatment of businesses that move from outside a KZ into a KZ, requiring them to meet certain conditions in order to obtain the tax breaks. These conditions involve increases in employment, investments in property, and entry into leases in the KZ. The Court concluded that because the statute did not address movement from one KZ to another, that nothing in the statute prohibits Dechert from obtaining the tax breaks available by moving into the new active zone. The Court explained that Dechert would be moving into a KZ from outside that KZ, even though it already was in a different KZ. The Court noted that there is no prohibition on zone hopping in the statute. It granted summary relief to Dechert and entered the declaratory judgment sought by Dechert.


As the Court pointed out, fixing what the DCED considers to be a problem requires a legislative remedy. Put another way, the problem exists because the legislature failed to consider and address the question one way or the other. Apparently no one asked, “What happens if a taxpayer or business stays in a zone until it expires and then moves to another zone that is active? Should the taxpayer or business get another batch of tax breaks?” Answering the question would then cause the legislators and their staffs to realize another provision in the statute was necessary.


The case illustrates the problem with tax breaks. Once the taxpayer experiences the tax break, the taxpayer wants more, and more. Unless the KZ tax breaks are repealed, sometime in the late 2030s Dechert will be moving again. And it’s not just Dechert. Dechert’s attorney noted that he has “additional clients seeking the same relief.”


It is possible that the DCED will appeal the decision to the Pennsylvania Supreme Court. However, given the way the statute is drafted, it is difficult to envision the Supreme Court reversing the decision. As the Commonwealth Court pointed out, it’s the responsibility of the legislature to fix the problem. Of course, my preference is a provision that limits a taxpayer to 15 years of tax breaks, not 30 or 45 or eternity. Actually, my preference is total repeal but that’s not going to happen. Too many people are deeply invested in this tax break.

 

                                   

 

 

The top 3 state and local tax issues created by remote workers

By John Hayashi

 

New York City; Philadelphia; Portland; St. Louis; Washington, D.C — these are just a few of the dozens of major U.S. metropolitan areas situated on the borders of two or more states. Therefore, it should not be surprising to learn that nearly 4 percent of workers live and work in different states, according to U.S. census data.

 

As state and local tax experts know well, state borders may not segregate minor differences in laws or cultures. State and local income and sales tax laws that govern how, and at what rate, businesses and consumers are taxed can vary significantly from state to state, even those that border each other.

 

Accountants who work in state and local taxes, otherwise known as “SALT,” typically ensure their clients or businesses fulfill their respective obligations and are not overpaying taxes. Often, tax planning strategies are created to reduce their client’s or business’s tax burden to the absolute minimum. But when employees suddenly empty their offices and set up offices at home, as they have due to COVID-19 concerns, a wrench can be thrown into that tax planning.

 

Employee movement may impact tax planning because states tax companies when the company has a taxable nexus, or a minimum amount of business activity (created in most states by either a physical presence or by reaching the more nebulous “economic presence” standard) in that state. Newly remote employees who live in a different state than their employer’s business operations may, in some cases, create a new state income tax nexus and new tax worries for the business.

 

For these new SALT issues happening in the middle of a tax year, businesses have two choices. They can evaluate everything at tax filing time — and potentially incur penalties as well as potentially overpay tax. Or they can take stock of their new remote employees and the new SALT laws they trigger now and plan ways to minimize their tax burden. As a long-time SALT consultant, I sincerely hope you choose the latter.

 

Planning, of course, begins with understanding. Business leaders and accountants should understand these three significant SALT issues, if they're expecting an increase of remote employees working in new state or local tax jurisdictions this year.

 

1. Remote employees may create taxable nexus in a new state or local jurisdiction

This may be a difficult issue because COVID-19 remote employees may only be temporary. It may not be fair for businesses to follow all new tax laws when their employees may soon be back in their offices when businesses re-open. On the other hand, it may not be fair to not file new state and local tax returns if the new remote employees like working from home and do not want to go back to their office for the rest of the year or longer. When should a business start filing new returns? Or do they ever have to? Does anyone know when remote employees will be going back to their old offices?

 

To answer this issue, nexus laws governing income and sales taxes have to be evaluated. To have taxable nexus in a jurisdiction means your business has sufficient business activity there to be subject to that state’s state and local tax laws. In the not too distant past, nexus generally existed if a business had a physical presence there. However, as business processes changed, state laws began to establish nexus based on a minimum level of business activity in a state, despite not having a physical presence. Ever since the June 2018 decision by the United States Supreme Court in South Dakota v. Wayfair Inc. — a case which focused on sales taxes, but the result of which is having ramifications for income taxes as well — states are more confidently collecting income taxes from businesses that are deemed to have an economic presence or economic nexus in their state. To establish an economic presence or economic nexus, a business need not have a physical presence in the state. It need only exceed a certain level of business sales to create sales tax nexus— the amount of which can range up to $500,000, depending on the state. Laws vary from state to state, instead of lawmakers trying to establish some form of uniformity across the county.

 

Despite the popularity of economic nexus, the concept of physical nexus is still very much alive, for both income and sales taxes. This is causing some business to worry that some newly remote employees who live — and now work — in a different state than the business may create income tax or sales tax nexus for that business in that state. Indeed, there is sufficient legal precedent for states to deem the presence of teleworkers within their boundaries sufficient to constitute taxable nexus.

 

The good news is several states have already declared that businesses with employees forced to work from home because of COVID-19 shelter-in-place orders will have the potential creation of income tax nexus waived. However, most states have yet to release any guidance regarding income tax nexus issues resulting from COVID-19. And with potential budget shortfalls in the offing, it will be hard to predict what positions on nexus states will establish related to COVID-19 remote employees. Accountants, and business leaders with remote workers in new states, will need to keep a close eye on developments in this area of law to ensure the success of financial planning efforts and to avoid any surprises around tax time.

 

This phenomenon around nexus and many of the same considerations also apply to city taxes, such as San Francisco’s payroll tax and gross receipt taxes. In the San Francisco Bay Area, many tech workers employed at large, suburban campuses in Mountain View or Cupertino actually live in San Francisco. Will these remote employees work from home long enough to subject their businesses to San Francisco’s payroll taxes and gross receipts taxes? With Philadelphia being the only major city to release guidance related to its city-level taxes so far, business and finance leaders also will need to keep an eye on local developments in their region to ensure they are meeting all of their SALT obligations and not incur penalties for failure to file and pay.

 

2. Corporate income tax apportionment for multistate taxpayers may be affected

If your business, or your client’s business, has taxable nexus in multiple states, it can be hard to know exactly how much business income is related or traceable to your business’s activities in specific states. That is why states have tried to formalize their rules to determine what percentage of the company’s overall profits are subject to income tax in their state. These rules and the process used by companies with nexus in multiple states is commonly referred to as the apportionment of taxable income.

 

State apportionment formulas are typically focusing more and more on what is commonly called a sales factor, which makes a business’s state income tax simply a function of the share of the company’s overall sales into that state. However, some states (approximately one-third) still include a payroll factor and a property factor in their formulas. In these jurisdictions, the state where the employee’s services are performed and the value of the property where those services are performed become significant factors in determining what portion of the business’s profits get taxed in a particular state.

 

The increase of remote employees who have previously worked in an office in a different state may have a material impact on apportionment calculations. Compensation to remote employees may now be paid in the state where they work remotely, rather than the state that houses the office they used to work in. And the property employees uses to perform their jobs might now be sourced to the state where they work, as well to impact a business’s tax liabilities paid.

 

As an example: Say your company has offices in Maryland — where a large majority of your employees work — and Virginia. Your office shuts down due to COVID-19 and everyone works remotely from their home. You do your homework and find out that your Maryland income tax is not impacted very much, because Maryland’s apportionment law is primarily focused on your sales and not very much on your in-state payroll. However, you discover many of your employees are now working from their Virginia homes. This now increases your Virginia liability, because Virginia apportionment law has a payroll factor in their three-factor apportionment formula. You are disappointed to find out your combined taxes for Maryland and Virginia went up just because more of your employees are now working in Virginia instead of Maryland. You did not know the increase in Virginia tax was not offset by an equal decrease in Maryland tax, because their apportionment rules are different.

 

The Maryland and Virginia result may not actually happen in all states, though, because several states, including Maryland, but not yet Virginia, have stated temporary work from home arrangements will not affect apportionment. Thus, SALT accountants and business leaders whose companies had to establish work from home arrangements this year will need to be aware of this issue and watch closely as more guidance is released.

 

3. A physical presence nexus for sales and use taxes may or may not be established

After the Wayfair decision in 2018, sellers began to worry about what particular actions will mean their business has an economic nexus in a given state. So, it is a bit amusing to see the attention suddenly return to whether a business has a physical presence in a state — in this case, a physical presence caused by a rise in the number of telecommuting workers.

 

Big businesses have less to worry about here: They already sell enough in most states to have economic nexus there. But smaller sellers, who have lacked both an economic nexus and a physical presence nexus in most states, may encounter new sales tax obligations if employees are or were working from home in a different state than before the COVID-19 precautions. Unlike the economic nexus threshold, which deems only businesses with a certain sales volume or number of transactions in that state to have a substantial nexus, the physical presence standard has no such threshold; a single employee can be sufficient to create a nexus in a state. The physical presence of remote employees could thus create significant new accounting and administrative burdens for small sellers to ensure they are collecting sales and use taxes properly.

 

Unlike income tax issues, sales tax nexus is a bigger financial issue because a seller may be making sales every day in the new state. If the seller does not collect sales tax on sales in the new states, and it is determined the seller should have collected it, the tax will come out of the seller’s pocket because the buyer likely cannot be contacted. On the other hand, if sellers do not want to take any chances and immediately registers to start collecting tax, they have just increased their collection and filing obligations by an additional state. If the state subsequently rules it will not take into consideration the temporary presence of COVID-19 remote employees for sales tax nexus consideration, it may not be very easy for the seller to withdraw its registration with the new state and stop collecting tax.

 

As another concrete example, a business headquartered in Nevada does not have to collect state or local sales tax on sales made to California individuals or businesses, if its sales of tangible personal property in the state are under the $500,000-a-year threshold and it has no physical presence there. However, if that business now has an employee working remotely from their home in California, going off of current laws, that employee’s presence would now constitute a physical presence and hence taxable nexus for the business.

 

Like many of the other SALT issues discussed here, we are still waiting on guidance from most state tax agencies whether they will consider a temporary physical presence in their state due to COVID-19 precautions to constitute nexus. Many states have issued some kind of waiver or relief; we are still waiting to hear from others. Accountants and business leaders should be aware that employees working from home across state lines due to COVID-19 precautions could affect sales and use tax collection obligations. As always, consult an experienced SALT accountant for in-depth advice and domain-specific expertise.

 

Plan now to minimize your business’s tax burden.

I know all of this is a lot to think about to avoid getting surprised in the future, and to make matters worse, a good deal of uncertainty still exists, making it difficult to take decisive action now. But waiting until tax time to settle everything is likely the worst approach to dealing with these issues.

 

Many businesses had their cash flow affected by decreases in revenue due to a variety of COVID-related factors. Having extra income taxes or penalties to pay at the end of the year could easily affect the financial health of your business. Moreover, analyzing your comprehensive, post-COVID-19 SALT position now could present you with opportunities to minimize taxation, freeing up additional funds to invest in your business.

 

Ultimately, between the country’s ad hoc approach to coronavirus relief and states desperate to make up for 2020 income shortfalls, your business may face unanticipated tax-related expenses this year. But with proper planning, the effects of these and any other SALT issues arising from COVID-19 on your business can be minimized.

 

 

 

New Taxpayer Advocate sees tax challenges from CARES Act

By Michael Cohn

 

National Taxpayer Advocate Erin Collins released her first report to Congress Monday, discussing some of the difficulties confronting taxpayers and the IRS during the COVID-19 pandemic, which has only exacerbated problems with taxpayer service as the IRS struggled to implement the provisions of the CARES Act and the Taxpayer First Act.

 

Collins took over from Nina Olson, who led the IRS’s Taxpayer Advocacy Service for 18 years. The report also discusses the extended 2020 filing season along with other areas of focus, and includes the IRS’s responses to the recommendations proposed last year in Olson’s final annual report.

 

“On March 30, 2020, I had the honor and privilege of being sworn in as the third National Taxpayer Advocate,” Collins wrote. “Starting in the midst of a pandemic and witnessing IRS offices closing one by one was not the way I envisioned my role when I accepted the position . . . but there also has been a silver lining in this experience: As I have participated in conference calls with members of my leadership team, TAS employees, and the IRS’s COVID-19 response team, I have been extraordinarily impressed by their commitment and focus on the health and safety of all employees during this pandemic, while still doing as much as possible to assist taxpayers.”

 

Collins discussed the unusual situation earlier this month at the online NYU Tax Controversy Forum. “My timing is great,” she said at the forum. “I started the day that the commissioner made the decision to pretty much shut down the entire IRS across the country. The good news for us is we have a really great IT group within TAS. They had, I think, about 100 percent of our people up online with computers and access to the IRS equipment within one week. So within about the first week we were able to operate remotely. The biggest challenge we have is we can’t do the work on our own. We need to coordinate with folks on campus and in the service centers in order to complete the tasks. We can start the process, but we can’t finalize it, and there are a number of remote groups that are still not back into the office. As the IRS goes back more online, we’re able to start closing cases. That was our biggest challenge.”

 

In the report, Collins praised the IRS for acting quickly to postpone more than 300 filing, payment and other time-sensitive deadlines, provide broad relief from compliance actions under its “People First Initiative,” and disburse some 160 million Economic Impact Payments (EIPs) authorized by the CARES Act, enacted on March 27, 2020.

 

But despite the IRS’s best efforts, there have been several significant negative impacts on taxpayers this year from the pandemic, including:

 

  • Taxpayers who filed a 2019 paper return and are entitled to refunds may have a long wait ahead of them. The IRS needed to suspend the processing of paper tax returns, and as of May 16, it estimated it had a backlog of 4.7 million paper returns. While the IRS is still reopening some of its core operations, it’s not clear when the aency can open and process all the returns sitting in mail facilities.

 

Some taxpayers whose returns were incorrectly flagged by IRS processing filters are experiencing lengthy delays in receiving their refunds. All tax returns claiming refunds are passed through filters designed to detect identity theft and other types of refund fraud. As the Taxpayer Advocacy Service has documented, some of these filters produce “false positive rates” of more than 50 percent (meaning that more than half the taxpayers whose returns are stopped by certain filters are entitled to the refunds they claimed). Affected taxpayers are often asked to mail in documentation to substantiate their claims, but the IRS hasn’t opened or processed a great deal of its mail, delaying their refunds. Refund delays can have a major financial impact on low-income taxpayers, as refunds often make up a significant percentage of their annual household incomes. Some of the refund delays have been generated by claims for the Earned Income Tax Credit or Additional Child Tax Credit, which are often claimed by low-income taxpayers.

 

  • Taxpayers who have needed help from the IRS have had trouble getting it. The IRS closed down its Accounts Management telephone lines, so taxpayers couldn’t reach live help by phone. The IRS shut down its Taxpayer Assistance Centers, making it impossible for taxpayers to get in-person help either. The IRS also closed down its mail facilities, so it couldn't track or process taxpayer responses to compliance notices. The only resources readily available were on IRS.gov and automated phone lines. The IRS has started reopening its operations, but it will take some time before they are restored to full capacity.

 

  • IRS systems prepared over 20 million notices during the pandemic that couldn’t be mailed due to closure of notice production centers between April 8 and May 31. The IRS is sending out these notices now. However, some collection notices have old dates and include response deadlines that often have already passed. The IRS plans to include “inserts” with these notices explaining that response deadlines have been postponed, but the report expresses concern that receiving compliance notices with response deadlines that have passed will be confusing and concerning to many taxpayers who may not read the inserts.

 

Taxpayer challenges from the CARES Act

“The IRS issued 160 million separate checks or debit cards or direct deposits to taxpayers across the United States, and they did that in a very short period of time,” Collins said during the NYU Tax Controversy Forum, “Kudos to them. But if you think about it, even if there’s a 1 percent error rate on 160 million, that’s 1.6 million, so we still have the challenge of a number of issues that the IRS is facing that they don’t have a fix for yet. They don’t have a system in place that we at TAS can leverage to fix the challenge for the taxpayer.”

 

The report said the IRS generally did a commendable job implementing the CARES Act. but taxpayer challenges remain, including:

 

  • Individuals who didn’t receive some or all of their economic impact payments may have to wait until next year to receive them. To date, the IRS has taken the position that most taxpayers who did not receive their full payments must wait until they file their 2020 income tax returns to claim the amounts as credits against their 2020 tax liabilities, even though there is no legal constraint on the IRS’s ability to issue additional EIP amounts as advance refunds during 2020. Congress enacted the CARES Act both to provide emergency financial relief to taxpayers on an individual level and to boost spending on the national level. TAS will continue to urge the IRS to provide full EIPs to eligible taxpayers throughout 2020 as rapidly as possible. The report says that making taxpayers wait until next year to receive their EIPs harms the affected taxpayers and is inconsistent with congressional intent.

 

  • Employers are struggling to determine whether they qualify for the Employee Retention Credit (ERC) and in what amounts. The ERC is a complex, refundable tax credit that requires employers to determine when a trade or business was fully or partially suspended by government order; the employer’s number of full-time employees; what constitutes qualified wages; whether a business’s operations post-COVID-19 are comparable to its pre-COVID-19 operations; and the application of aggregation rules. To address these complexities, the IRS has provided considerable guidance regarding when and how to claim the ERC. However, several areas require further clarification. If clarity is not provided, taxpayers will be more likely to make unintentional errors, increasing the risk of an audit. Having to untangle these issues in an audit environment would drain the limited resources of both the IRS and the businesses affected by the COVID-19 pandemic. TAS will continue to advocate that the IRS further clarify the rules governing when and how employers should claim this credit.

 

  • Businesses are facing challenges when seeking to utilize the CARES Act provision that authorizes the use of net operating losses to offset taxable income in prior years (and in some cases to receive refunds). For businesses to determine the optimal application of the CARES Act provisions so they can exercise their right to pay no more than the correct amount of tax, they may need to create and run complex financial models involving multiple tax years. The report says the IRS has provided timely guidance in the form of frequently asked questions (FAQs), but it expresses concern that FAQs are not authoritative or binding on the IRS.


Implementation of Taxpayer First Act

The Taxpayer First Act, enacted one year ago, is probably the most far-reaching revisions to tax administration since the IRS Restructuring and Reform Act of 1998. The TFA included some 23 provisions recommended by the National Taxpayer Advocate. A centerpiece of the new law is a requirement that the IRS develop four strategic plans: (i) a comprehensive taxpayer service strategy; (ii) a plan to redesign the IRS’s organizational structure; (iii) a comprehensive employee training strategy that includes training on taxpayer rights and the role of TAS; and (iv) a multi-year plan to meet IRS information technology needs. The TFA required the IRS to submit its comprehensive taxpayer service strategy to Congress by July 1, 2020. Because of disruptions caused by COVID-19, the IRS has been delayed in developing these plans, but it expects to deliver its taxpayer service strategy to Congress by the end of the year.

 

The report describes some steps the IRS has taken to receive input from taxpayers, practitioners and TAS, and identifies over two dozen TFA provisions that the IRS has implemented. It expresses concern that the IRS has not properly implemented a provision directing it to establish a single point of contact for identity theft victims and that it may not properly implement a provision directing it to exclude taxpayers with adjusted gross incomes at or below 200 percent of the Federal Poverty Level from assignment to private debt collection agencies by December 31, 2020.

 

“I have been impressed by many ideas the IRS is considering, and I look forward to working with the leadership as it refines its taxpayer service strategy in the coming months,” Collins said in a statement Monday.

 

2020 filing season review

The National Taxpayer Advocate’s mid-year report usually includes an assessment of the filing season that measures performance against the results of prior filing seasons. Because the IRS closed most of its operations in March and delayed many filing and payment deadlines from April 15 until July 15, this filing season cannot fairly be compared with prior years. The disruption caused by COVID-19 and the postponed due date has had — and continues to have — a huge impact on the 2020 tax filing season, reflected in the number of returns received, the volume of correspondence received from taxpayers, and the reduction in toll-free telephone service. Among the impacts were:

 

  • Due to IRS campus and office closures, the agency couldn’t staff its phone lines to help callers starting the week of March 21, 2020.
  • After March 20, 2020, taxpayers no longer had access to face-to-face customer service.
  • There’s a tremendous backlog of incoming mail (about 10 million pieces of mailed tax returns or correspondence sitting in trailers at IRS campuses). The IRS couldn’t process paper returns and process or respond to other written correspondence from taxpayers.
  • The IRS has sent only a very limited amount of outgoing taxpayer correspondence.
  • There was a substantial reduction in Volunteer Income Tax Assistance, Tax Counseling for Elderly, and Low Income Taxpayer Clinic services.
  • The National Distribution Center was closed down, depriving taxpayers of a way to acquire pre-printed forms.

Because of the IRS’s limitations and the delayed filing deadline, an assessment of the filing season is therefore incomplete. The report said the Taxpayer Advocacy Service may offer a more thorough analysis at a later date.

 

 

 

Protecting the Rights of Taxpayers Who Rely on IRS “Frequently Asked Questions” (FAQs)

NTA Blog

 

Consider this: In the course of preparing your federal income tax return, you are wondering whether a particular expense is deductible. You go to the IRS website and find a “Frequently Asked Question” (FAQ) that’s directly on point. Good news: The IRS says the expense is deductible. So you deduct it. The next year, the IRS audits your return. The examining agent informs you the IRS changed its position after you filed your return. The examining agent not only denies the deduction, but he imposes a 20 percent accuracy-related penalty as well. You go back to IRS.gov to try to find the FAQ you relied on, but it’s gone.

 

If the Taxpayer Bill of Rights is to be given meaning, this scenario violates “The Right to Informed” and “The Right to a Fair and Just Tax System.” It is neither fair nor reasonable for the government to impose a penalty against a taxpayer who follows information the government provides on its website.

 

As tax professionals know well, some forms of administrative guidance are more authoritative than others. Regulations are at the top of the hierarchy, because they go through a notice-and-comment process and are considered binding on the government and taxpayers alike. Other forms of guidance that are published in the Internal Revenue Bulletin (IRB) like revenue rulings, revenue procedures, and notices generally go through an extensive Treasury and IRS review process and are considered binding on the government (but not on taxpayers). According to a statement included in each IRB, “Rulings and procedures reported in the Bulletin do not have the force and effect of Treasury Department Regulations, but they may be used as precedents.” Below IRB guidance are IRS press releases, FAQs, and well-reasoned arguments, which may be found in Chief Counsel Advice and Private Letter Rulings that have been disclosed to the public.

 

Treasury Regulation § 1.6662-4 says that taxpayers may avoid the accuracy-related penalty for substantial understatements of income tax if there is “substantial authority” for a return position, and reliance on “Internal Revenue Service information or press releases” is considered to meet that standard. With some exceptions, FAQs are not published in the IRB, and the scope of the term “Internal Revenue Service information” is not defined in regulations. It may seem obvious that FAQs posted on the IRS website constitute “Internal Revenue Service information,” but the IRS has declined to concede that point. (See Internal Revenue Manual 4.10.7.2.4 (Jan. 10, 2018) (“FAQs that appear on IRS.gov but that have not been published in the Bulletin are not legal authority and should not be used to sustain a position unless the items (e.g., FAQs) explicitly indicate otherwise or the IRS indicates otherwise.”)

 

There is a legitimate reason why the IRS uses FAQs and doesn’t want them to be accorded the same level of authority as published IRB guidance. The agency seeks to strike a balance between precision and timeliness. The published guidance process is thorough and time-consuming. Treasury and the IRS don’t have the bandwidth to address all legal issues that arise through the published guidance process, and that process is not well-suited to providing guidance quickly. FAQs fill the timeliness gap.

 

The Coronavirus relief provisions provide a good example of the useful role of FAQs. There is no end to the questions that have arisen under the Families First Coronavirus Response Act, the Coronavirus Aid, Relief, and Economic Security Act, and the IRS’s People First Initiative. It would not have been feasible for the IRS to address most of those questions through published guidance, at least not quickly. By our count, the IRS has posted nearly 500 COVID-19-related FAQs on its website, including 94 on the employee retention credit, 93 on the Families First Coronavirus Response Act (via a link to the Department of Labor website), 69 on Economic Impact Payments, 67 on COVID 19-related tax credits, and 40 on filing and payment deadlines.

 

Because FAQs aren’t subject to thorough review, Treasury and the IRS may later decide some of them are wrong and change them. That is reasonable.

 

But what about taxpayers who followed an FAQ and now find that: (i) the IRS is taking the opposite position on audit; (ii) the IRS is imposing a penalty on the taxpayer for taking the position the FAQ had advised; and (iii) the taxpayer can’t locate the original FAQ because the IRS has changed it and removed the initial FAQ from its website?

 

On some FAQ pages, the IRS provides this or a similar disclaimer: “This FAQ is not included in the Internal Revenue Bulletin, and therefore may not be relied upon as legal authority. This means that the information cannot be used to support a legal argument in a court case.” On other FAQ pages, there is no such disclaimer. Either way, it is unreasonable to say taxpayers may not “rely” on FAQs. The sole purpose for posting FAQs and similar information on IRS.gov is to help taxpayers file accurate returns. Why should taxpayers even bother reading and following FAQs if they can’t rely on them and if the IRS can change its position at any time and assess both tax and penalties? At a minimum, the IRS should treat FAQs as “Internal Revenue Service information” for purposes of determining whether a taxpayer had “substantial authority” for taking a return position. The fact that the disclaimer itself refers to FAQs as providing “information” is revealing. When the “Internal Revenue Service” posts “information” on its website, it is hard to see why the information should be characterized as anything other than “Internal Revenue Service information.”

 

To protect the rights of taxpayers who follow FAQs, we make the following recommendations:

  1. The IRS should continue to use FAQs to provide timely guidance to taxpayers where appropriate. We acknowledge that quick answers will sometimes be changed upon more thorough review. Therefore, it is reasonable for examining agents to retain the authority in limited cases to challenge taxpayer return positions if an FAQ has been changed, but when that situation arises, examining agents should be required to consider the previously issued FAQ.

 

  1. For penalty relief purposes, the Treasury Department and the IRS should clarify that the information presented in FAQs constitutes “Internal Revenue Service information” under Treasury Regulation § 1.6662-4(d)(3)(iii). Further, the IRS should never assess a penalty against a taxpayer for taking a position consistent with an FAQ posted on the IRS website at the end of a taxpayer’s taxable year or at the time of return filing unless the IRS has convincing evidence the taxpayer knew the FAQ had been changed.
     
  2. The IRS should include the versions and dates of each FAQ on its website or create an archive of obsolete or modified FAQs, including applicable dates, so that taxpayers can locate an FAQ that was in effect at the time they filed their returns. Regardless of the level of deference a taxpayer’s reliance on an FAQ ultimately receives, it is a basic requirement of government transparency that a taxpayer be able to locate and cite the FAQ that appeared on IRS.gov at the time the taxpayer filed a return. An FAQ should not just “disappear” if the IRS decides to change it or remove it as current guidance.

 

In sum, FAQs play a useful role in providing timely guidance to taxpayers and tax professionals, and this has been particularly true in connection with COVID-19 relief provisions. Because of the haste with which FAQs are sometimes posted, it is understandable that the IRS would want to ensure it can change FAQs without being permanently bound to the position it initially expressed. But taxpayers have the right to expect transparency and fair dealing from their government. If a taxpayer takes the time to visit a government website to locate information to help comply with tax obligations, the taxpayer should be rewarded for trying to do the right thing – not penalized.

 

The views expressed in this blog are solely those of the National Taxpayer Advocate. The National Taxpayer Advocate presents an independent taxpayer perspective that does not necessarily reflect the position of the IRS, the Treasury Department, or the Office of Management and Budget.

 

 

 

 

 

Disclaimer: This article is for general information purposes only, and is not intended to provide professional tax, legal, or financial advice. To determine how this or other information in this newsletter might apply to your specific situation, contact us for more details and counsel.

 

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