The IRS will begin accepting and processing 2020 tax year returns for individual filers on Friday, February 12, 2021. This start date will allow the IRS time to do additional programming and testing o...
The IRS has expanded the Identity Protection PIN Opt-In Program to all taxpayers who can verify their identities. The Identity Protection PIN (IP PIN) is a six-digit code known only to the taxpayer an...
The IRS released the optional standard mileage rates for 2021. Most taxpayers may use these rates to compute deductible costs of operating vehicles for:business,medical, andcharitable purposes.Some me...
The U.S. Small Business Administration (SBA), in consultation with the Treasury Department, announced that the Paycheck Protection Program (PPP) would re-open during the week of January 11 for new bor...
The IRS has released final regulations with the procedures under Code Sec. 6402(n) for identification and recovery of a misdirected direct deposit refund. This guidance reflects modifications to the l...
The IRS has announced that it is extending its temporary acceptance of certain images of signatures (scanned or photographed) and digital signatures on documents related to the determination or collec...
There are no local Arizona transaction privilege tax (TPT) changes effective February 1, 2021. The TPT rate chart can be viewed at: https://azdor.gov/sites/default/files/media/TPT_RATETABLE_02012021....
A California trial court’s postjudgment order awarding attorney fees to a taxpayer who successfully contested the property tax valuation of his property was reversed because the trial court had rema...
Enacted Colorado legislation creates a deduction from corporate and personal income taxes related to the state’s decoupling with certain CARES Act provisions for:net operating losses;excess business...
Florida provides motor vehicle sales tax rates by state as of December 16, 2020. The chart indicates, for each state, the Florida tax rate to be imposed and whether credit for a trade-in is allowed by...
For Indiana property tax purposes, the Board of Tax Review’s final determination increasing the assessed property tax value of the taxpayer’s retail store was affirmed because it was supported by ...
The Kentucky Department of Revenue has notified taxpayers that the maximum homestead exemption from property tax applicable to real estate owned by qualified taxpayers is increased by $1,200, from $39...
Montana announced that COVID business grant income is taxable in the state. Montana adjusted gross income is derived from federal adjusted gross income. Unless exempted, grant income to businesses i...
Ohio Department of Taxation reminds financial institutions tax (FIT) practitioners and taxpayers that the first estimated tax payment for the 2021 FIT tax year is due by February 1, 2021. Release, Oh...
A taxpayer who operates an online forum that connects sellers of certain taxable foods and beverages with potential customers would be considered a delivery network company, not required to collect an...
For personal income tax purposes, the Wisconsin Department of Revenue (department) has updated a fact sheet on health savings accounts (HSAs). An HSA is a special account owned by an individual and us...
As the coronavirus (COVID-19) continues to affect local communities and global economies, Bezold Tax & Accounting Services, LLC remains committed to serving your tax and financial planning needs. As part of this commitment, we want to make you aware of key tax provisions impacting businesses contained in the year-end coronavirus relief legislation, known as the Consolidated Appropriations Act, 2021 (H.R. 133), that was signed into law on Dec. 27, 2020.
Business Clients – Regarding Forgivable PPP Loans and Employee Retention Tax Credit.
As the coronavirus (COVID-19) continues to affect local communities and global economies, Bezold Tax & Accounting Services, LLC remains committed to serving your tax and financial planning needs. As part of this commitment, we want to make you aware of key tax provisions impacting businesses contained in the year-end coronavirus relief legislation, known as the Consolidated Appropriations Act, 2021 (H.R. 133), that was signed into law on Dec. 27, 2020.
Payroll Protection Program (PPP) Round 2
Businesses may qualify for first and/or second draw of PPP. If you did not apply for first draw or were originally denied, you may qualify if your business has been negatively impacted by COVID-19. Self-employed business owners may qualify even if business doesn’t have employees. The first draw for such a business would be based on 2019 or 2020 Schedule C net income. If your business did receive a first draw on PPP 1, you may qualify for a second draw if your business experienced a reduction in gross receipts of 25% in any quarter of 2020 compared to same quarter of 2019 and has already used or will use 100% of first draw funds. Borrowers may be eligible for 100% loan forgiveness if they meet specific requirements.
Employee Retention Tax Credit
The new law extends the employee retention tax credit (ERTC sometimes referred to as ERC) through June 30, 2021. It also expands the ERTC. A noteworthy modification provides that employers who receive PPP funds may still qualify for the ERTC with respect to wages that are not paid with forgiven PPP proceeds. Employers are now able to claim the ERTC retroactively for 2020. This would entail filing amended Form 941 payroll tax returns, but may result in substantial refunds.
We at Bezold Tax and Accounting Services are committed to keeping you our clients informed of any new opportunities during this trying time. Please contact our office to discuss your circumstances in more detail.
There are many other provisions that benefit businesses. Please visit the Newsletter page on our website www.bezoldtax.com to learn more and contact us to discuss your circumstances in more detail.
Here we go again! Seems like we just finished filing 2019 returns and ready, set, go for 2020.
We have learned a lot this year! And, we face 2021 with great optimism. The last few months have been spent upgrading and learning new ways to communicate with you as our main priority. As you are aware, late the filing season everyone's world was rocked with COVID 19. Ours included. We had to maximize safety precautions to keep both you and us safe and still prepare accurate and timely tax returns. Like doing a 360 in the middle of an ocean!
BEZOLD TAX AND ACCOUNTING SERVICES, LLC
7817 Alexandria Pike
P O Box 382
ALEXANDRIA, KY 41001
Phone: 859-635-2077
Fax: 859-635-9118
Janet@bezoldtax.com
January l, 2021
Here we go again! Seems like we just finished filing 2019 returns and ready, set, go for 2020.
We have learned a lot this year! And, we face 2021 with great optimism. The last few months have been spent upgrading and learning new ways to communicate with you as our main priority. As you are aware, late the filing season everyone's world was rocked with COVID 19. Ours included. We had to maximize safety precautions to keep both you and us safe and still prepare accurate and timely tax returns. Like doing a 360 in the middle of an ocean!
I think we got it. Some of you have already been introduced to our "Verlfyle" program. It is a secure messaging program to send and receive personal information. Your link is forever and you can upload 2020 information to this program. The information is delivered directly to us. For those who are not set up with "Verifyle" and would like to be, please call the office and we will set you up. Please DO NOT send personal Information over regular email. It is not safe.
We added phone lines and the ability to conduct "Zoom" meetings. We miss our personal meetings with you and did not want to lose the ability to review your return, answer your questions and concerns, and conduct tax planning. It isn't perfect but it has proven to be helpful.
With all of the turmoil, some of you have not picked up your 2019 tax information. We have it here! Therefore, you do not have your "envelope" for 2020 Information or the check-off list, We will accept any envelope! And, we have included a list of "Documents most often not included" with your tax information that usually delay the processing of returns. Rule of thumb for all information is if it says "Tax Document", please Include. And if you're not sure if we need it, include it. We would rather have it and not need it than need it and not have it. Each and every one of you do a tremendous job of gathering your information, and for this, we are most grateful.
Following are new legislation and things to expect on your 2020 tax returns. Also, changes at Bezold Tax and Accounting to serve you our most precious asset.
Be Well and Safe!
Janet
DOCUMENTS TO REMEMBER:
Soon you will be receiving and want to gather for your tax returns: Forms W-2, wage and tax statements; Forms 1099-MISC; 1099NEC (new this year for Non-employee Contract work); All Income Documents: 1099NT; 1099B; 1099DIV•, 1099R just to name a few. Sales of Stock require a Cost Basis. This is what you actually paid for the stock, usually it is listed on the statement but purchases before 2011 the owner of the stock would need to provide.
Form 1099SA — Health Savings Account Distributions along with a statement that all distributions were used for qualified Health cost.
Form 1099-T Tuition Statement for College Students. To maximize your College Credit it is beneficial for us to complete the students and the parent's returns. Also if you paid for books and fees separately please note with your information.
Form 1099-Q for those who used distributions from a "College Plan" for Tuition and fees please include this document. It can be taxable income and we need this form to complete worksheets to prove non-taxable.
New Baby! ! Congratulations, please remember to include a copy of the Social Security Card and Birthdate.
Copy of all newly issued Driver' s License that may have expired In 2020.
For our retirees, please include the pink and grey Social Security Statement received in January.
A question on the return is "Did you at any time during 2020, receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency? YES NO Please circle one. If you have circled YES, we will need the information included with your documents. Thank You.
This was a big year for unemployment benefits. Unemployment is taxable income so please include the tax document for unemployment received for 2020.
Notice 1444 — this is new this year, see information later In the newsletter.
You may have made Estimate Tax Payments during the year. Please include the date and amount -of each estimated payment separated by Federal and State. If you have them, please include the canceled checks with our information. Remembering the one made in January 2021 if for 2020 tax year and the one made in January 2020 was for 2019 tax year.
It is not too soon to be taking steps to gather the vital tax information we will need to ensure you file both a complete and accurate tax return and to pay the lowest legal amount of tax. Questions? Call 859-635-2077
APPOINTMENTS: We are forced to re-think appointments. During this uncertain time, we are asking for you to brmg in your tax information and leave with the front desk. Please have it contamed in an envelope with your name, a good phone number, and email address. We will notify you when we start the return and if we have any questions. Once we finish the return, we will set up either a zoom meeting or phone call to go over the return with you. We have enhanced software that allows for virtual signatures. We will also accommodate clients who do not have internet access for signatures. We realize this may not be ideal and we sincerely appreciate everyone's patience and cooperation.
For those who cannot drop off during business hours, we have a secure drop box next to the garage door in the brick. We will notify you that we have received your information so you do not worry.
We are concemed about everyone's safety and want to do everything we can to follow guidelines to prevent the spread of the "Big Germ" (direct quote from my great-granddaughter). We now have the promise of a vaccine to fight COVID-19 and hopefully we can see a bright light at the end of the tunnel. Again, thank you all for your understanding and cooperationa Prayers for all who have been affected by the virus and wishes for a full recovery
RETURNS: With the ability of sending you a PDF of your return, please note with your information If you prefer a PDF —OR- PAPER copy.
Bezold Tax and Accounting was voted Best Accountmg/CPA Services of NKY! We were recognized in the Best of INKY Magazine. Thank you we are honored and humbled with the award.
WEBSITE: Please refer to our website for complete information of Legislative updates. We will be posting a monthly newsletter for Individuals and one for businesses. Bezoldtax.com
2020 WHAT TO EXPECT
RECOVERY REBATE CREDIT - New in 2021, those who didn't receive an Economic Impact Payment (stimulus check) may be able to claim the Recovery Rebate Credit. Taxpayers may be able to clann the Recovery Rebate Credit if they met the eligibility criteria in 2020 and they didn't receive an EIP In the spring of 2020, or their was less than it should have been. For instance, your income was less in 2020 than it was on the return they used to calculate your payment or you added a child 111 2019 or 2020 that was not included with your EIP payment. These adjustments can be made on your 2020 return and you Will receive the credit as an additional refund.
This EIP is nontaxable income, but we must report the amount that you received. You will need Notice 1444, which was mailed to you at the time of the payment. Most taxpayers Will not have this; it wasn't marked as a tax document. If you can bring in a bank statement or check stub of what you received, we can figure the credit. If you do have the Notice 1444, please include with your tax information.
End of December another Stimulus payment went out to qualifying taxpayers. Please list this one separate from the first one.
REFUNDS: Although the IRS issues most refunds in less than 21 days, the IRS cautions taxpayers not to rely on receivmg a 2020 federal tax refund by a certain date, especially when making major purchases or paying bills. Some returns may require additional review and may take longer. Refunds that include the Earned Income Tax Credit or Additional Child Tax Credit should be available by the first week of March. By law, the IRS cannot issue refunds for people clanmng the EITC or ACTC before mid-February.
INTEREST PAYMENTS: Taxpayers who received a federal tax refund in 2020 may have been paid interest. The IRS sent interest payments to individual taxpayers who timely filed their 2019 federal Income tax returns and received refunds. Most interest payments were received separately from tax refunds. Interest payments are taxable and must be reported on 2020 income tax returns. In January 2021, the IRS will send a form 1099-INT, Interest Income, to anyone who received interest totalmg at least $10.00
STANDARD DEDUCTION: The Standard deduction for married filing jointly rises to $24,800, for single taxpayers and married individuals filing separately $12,400, and for head of household status $18,650
ITEMIZING DEDUCTIONS: The CARES act allows a $300 "above-the-line" deduction for cash contributions to charity if you take the standard deduction when you file in 2021. For those who itemize, the law lifts the 60% of adjusted gross income limitation, on cash contributions. Individuals can elect to deduct donations up to 100% of their 2020 income. Contributions must be made In cash (check, cash, and credit card) to a public charity, The unlimited amount is not applicable to private foundations nor to gifts of appreciated stock or Donor-Advised Funds.
The exclusion for Medical Expenses in 2020 is 7.5% of the Adjusted Gross Income. If your income is $100,000, the first $7 ,500 in Medical is not deductible.
RETIREMENT WITHDRAWAL: Waiver of the Early Withdrawal Penalty on up to $100,000 withdrawal from IRAs and Defined Contribution Plans such as 401(k)'s made between January 1 and December 31, 2020 by a person who or whose family is infected with the Coronavirus or they are economically harmed. Rules are complex and we should discuss.
Required Minimum Distributions, RMDs, otherwise required for 2020 from 401(k) plans and IRAs are waived, meaning you do not have to take them in 2020. This includes distributions that would have been required by April 1, 2020 due to the account owner's having turned age 70 1/2 in 2019.
CAPTIAL GAINS: Income thresholds for long-term capital gains rates also increased. Single and married filing separately taxpayers with income up to $40,000, up to $80,000 for married filing jointly, and up to $53,600 for Head of Household can experience a 0% Long Term Capital Gains rate. The rate then goes to 15% and 20% as Income thresholds increase
ESTATES AND GIFTS: The annual exclusion for gifts is $15,000 for calendar 2020, the same as it was for calendar 2019
BUSINESS NEWS
The CARES Act instituted an Employee Retention Credit that an employer can qualify for a refundable credit against generally the employer's 6.2% portion of the social security payroll tax for 50% of certain wages paid to employees during the COVD-19 crisis.
The most notable provision was the section on the Paycheck Protection Program loan. The IRS had repeatedly said that taxpayers who received debt forgiveness for spending the PPP loan on specific expenses could not take those expenses as deductions on their 2020 tax returns. Congress said otherwise and basically corrected the CARES Act which did not address this issue. CAA2021 now states that the expenses used to receive debt forgiveness would be allowed as deductions on the taxpayers return. We have been waiting for this ever since they issued the loans in the spring of 2020, For those who we are tracking and monitoring expenses, we can now complete the loan forgiveness application as soon as the banks issue the revised application.
Consolidated Appropriations Act, 2021 signed into law 12-27-2020 provides additional aid to small businesses Including PPP-2 (Payroll Protection Program) and EIDL (Economic Injury Disaster Loan)-The requirements for obtaining these are more restricted than original ald provided through the CARES Act. We can help you calculate if you are eligible. You can call for specific details if you want to apply.
NET OPERATING LOSSES (NOLS) have been liberalized. The 2017 Tax Cuts and Jobs Act limited NOL's arising after 2017 to 80% of taxable income and eliminated the ability to carry NOL'S back to prior tax years. For NOL's arising in tax years beginnina before 2021, the CARES Act allows taxpayers to carryback 100% of NOL's to the prior five tax years, effectively delaying for carrybacks the 80% taxable Income limitation and carryback prohibition until 2021. NOL carryforwards are also liberalized. For NOL's m tax years beginning before 2021 taxpayers can take an NOL deduction equal to 100% of taxable income, rather than the present 80%.
This has been a year of change, for just about everyone, both business and personal. We have only scratched the surface of the results of the new legislation and the CARES Act. We have been in seminars for the most part since October 15th and still getting updates.
We look forward to working with you with your taxes for 2020 and tax planning for changes that may occur in 2021. Our clients are planners and we Invite the chance to travel that road with you. Allow us to serve you,
ON THE HOME FRONT:
We are very excited to welcome to our Bezold Tax and Accounting Family Donna McClure and Linda Espelage-Scaggs.
Donna McClure an EA is a long-time friend of mine and very experienced in tax for over 30 Years. Donna is married to her long time love of her life Mac and has 3 grown children, all married with 8 Grand Children. It's a new day every day! And Donna enjoys every minute, We are very excited you have added us to your family and can't wait to kick off the tax season with you!
Linda Espelage-Scaggs is an EA who also holds an accounting degree. Linda is a selfproclaimed "tax nerd" and has extensive experience in tax and accounting. Linda lives in Pendleton County with her long-time soul mate Rusty. They have 6 children and 17 grandchildren. Now that's a Christmas to remember! Thank you for adding us to your family, Linda! Lookina forward to a great tax season!
Donna and Linda are new faces and we can't walt for all of you to meet them. You will find out very quickly how they complement our team with their knowledge and interest in helping each of you reach your goals and understand your taxes.
Debbie and Jeff are still empty nesters. I guess that's a good thing? They have enjoyed many outdoor bike rides this summer. Tyler and Haylee still reside in Florida and have pursued very successful careers. Tyler is getting back into the music industry a little, you can see his latest on https:/(www.youtube.com/user/tribetyler Kaitlyn is still in CA living the dream. She loves living close to the beach and the beautiful CA weather but still likes to visit us when she comes In town. Miss you!
Renee is learning all about virtual school! Laynie is now In the 4th grade and little Kye is growing up too fast, Life surely has been different with all the hoops and new rules due to the Virus. Hopefully things get back on track for you Renee. Husband Shaun is still the best diesel mechanic in town.
Tina and Jimmy are down to one left in the house, but gaining a Grand Daughter in 2021! They are so excited. They look forward to spoiling her. Congratulations, Life will definitely change and you will love it! Just think after 3 boys you are finally gettmg a little girl!
Christy is commiserating with Renee. She has 3 girls in Virtual School. The internet is going wild. Carlee will be graduating High School this spring, Josie is a Freshman at Campbell County and Cassidy is in the 7th grade at CC Middle School. Good Luck Girls! And hang in there Christy !
Haley is a very accomplished sophomore at NKU! Bringing the house down with great grades and sharing all of her expertise with us. We are so fortunate, her youth keeps us all young!
Thanks Haley!
Roger and Janet still living the dream! We welcomed our 2nd Great Grand baby, Blakely Mae in August this year! Quinn's little sister and Andrew and Kayla's daughter. We celebrated a beautlful wedding of Grandson Brandon and Katie, good time had by all. Trevor and Madison are entrepreneurs of the year! It's all about the grandkids these days !
Wishing you a better 2021! Debbie, Renee, Tina, Christy, Haley, Linda, Donna, Roger and Janet
Filing Season Begins!
Filing Season Begins!
IRS Announces various dates related to tax season: They will begin accepting Individual Income Tax returns on Friday February 12th, 2021. We can prepare and E-file prior to this date, the returns however, will not be accepted by IRS until this date.
The later date of accepting returns is a result of Congressional tax law changes in late December and IRS having to modify the forms and software to accommodate the changes. Also, the Path Act requires IRS to hold refunds on returns claiming the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) until at least February 15th, allowing IRS to spend more time to detect and prevent fraud. IRS anticipates starting to send out refunds from these returns the first week of March.
The due date for 2020 calendar year individual income tax returns is Thursday April 15th, 2021.
We are ready, whenever you are!
Dear Taxpayers:
Here is an overview of key provisions in the recent COVID relief legislation that affect individuals. The legislation is the COVID-related Tax Relief Act of 2020 (the "Act" or COVIDTRA) and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTR), both of which are part of the Consolidated Appropriations Act, 2021.
January 14, 2021
Dear Taxpayers:
Here is an overview of key provisions in the recent COVID relief legislation that affect individuals. The legislation is the COVID-related Tax Relief Act of 2020 (the "Act" or COVIDTRA) and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTR), both of which are part of the Consolidated Appropriations Act, 2021.
RECOVERY REBATE/ECONOMIC IMPACT PAYMENT
Direct-to-taxpayer recovery rebate. The Act provides for a refundable recovery rebate credit for 2020 that will paid in advance to eligible individuals, often automatically, early in 2021. (Code Sec. 6428A, as added by COVIDTRA Sec. 272) These payments are in addition to the direct payments/rebates provided for in earlier Federal legislation, the 2020 Coronavirus Aid, Relief, and Economic Security Act (CARES Act, PL 116-136, 3/27/2020), which were called Economic Impact Payments (EIP).
The amount of the rebate is $600 per eligible family member—$600 per taxpayer ($1,200 for married filing jointly), plus $600 per qualifying child. Thus, a married couple with two qualifying children will receive $2,400, unless a phase-out applies. The credit is phased out at a rate of $5 per $100 of additional income starting at $150,000 of modified adjusted gross income for marrieds filing jointly and surviving spouses, $112,500 for heads of household, and $75,000 for single taxpayers.
Treasury must make the advance payments based on the information on 2019 tax returns. Eligible taxpayers who claimed their EIPs by providing information through the nonfiler portal on IRS's website will also receive these additional payments.
Nonresident aliens, persons who qualify as another person's dependent, and estates or trusts don't qualify for the rebate. Taxpayers without a Social Security number are likewise ineligible, but if only one spouse on a joint return has a Social Security number, that spouse is eligible for a $600 payment. Children must also have a Social Security number to qualify for the $600-per-child payments.
Taxpayers who receive an advance payment that exceeds the amount of their eligible credit (as later calculated on the 2020 return) will not have to repay any of the payment. If the amount of the credit determined on the taxpayer's 2020 return exceeds the amount of the advance payment, taxpayers receive the difference as a refundable tax credit.
Advance payments of the rebates are generally not subject to offset for past due federal or state debts, and they are protected from bank garnishment or levy by private creditors or debt collectors.
Amount of payment. IRS has begun making payments of up to $600 to eligible taxpayers or up to $1,200 to married couples filing joint returns. Parents will get an additional $600 for each dependent child under age 17. Thus, a married couple with two children under 17 will get a $2,400 payment.
Who is eligible. U.S. citizens and residents are eligible for a full payment if their adjusted gross income (AGI) is under $75,000 for singles or marrieds filing separately, $112,500 for heads of household, and $150,000 for married couples filing jointly and surviving spouses. The recipient must not be the dependent of another taxpayer and must have a social security number that authorizes employment in the U.S.
Phaseout based on income. For individuals whose AGI exceeds the above thresholds, the payment amount is phased out at the rate of $5 for each $100 of income. Thus, the payment is completely phased out for single filers with AGI over $87,000 and for joint filers with no children with AGI over $174,000. For a married couple with two children, the payment will be completely phased out if their AGI exceeds $198,000.
Payments are nontaxable. The economic impact payment that you receive won't be included in your income for tax purposes. It won't cause you to owe tax or decrease your refund for 2020.
How to get a payment. The vast majority of people won't have to do anything to get an economic impact payment. IRS will calculate and send the payment automatically to those who are eligible.
If you've filed your 2019 tax return, IRS will use the AGI and dependents from that return to calculate the payment amount. The credit won't be allowed if the return doesn't include a valid identification number (typically, a social security number) for each individual for whom a credit is sought. Thus, for example, a joint return must include valid identification numbers for both spouses to get the full $1200 credit. A $600 credit is allowed if only one spouse provides a valid identification number, and no credit is allowed if neither spouse does so.
IRS will deposit the payment directly into the bank account reflected on the return. IRS has developed a web-based tool called Get My Payment, www.irs.gov/coronavirus/get-my-payment, for individuals to provide banking information to IRS, so that payments can be received by direct deposit rather than by check sent in the mail. The tool includes the date the payment is scheduled to be issued to the individual.
If you have not yet filed for 2019. The due date for 2019 individual income tax returns was July 15, 2020, or October 15 if an automatic extension of time was requested on Form 4868. Individuals who are required to file a return for 2019 and haven't done so should file the return as soon as possible. Doing so will help give IRS time to process and make all resulting economic impact payments before January 15, 2021 (the deadline for processing payments).
If you aren't required to file. If you receive social security, supplemental security income, social security disability income, railroad retirement, or veterans' compensation and pension benefits, and you aren't required to file a tax return, you don't have to file to receive a payment. IRS will generate an automatic payment using information from the Social Security Administration and the Department of Veterans Affairs. The payment will be made by direct deposit or paper check, in the same manner as the recipient's regular benefits.
If you aren't required to file a tax return and you don't receive any of the above payments, you can register to receive an economic impact payment by providing information on IRS's web-based Non-Filers: Enter Payment Info Here tool, www.irs.gov/coronavirus/non-filers-enter-payment-info.
Non-filers with dependent children; $600 payment. Non-filers who have a dependent child under age 17 must register their dependents on the Non-Filers: Enter Payment Info Here tool to receive the additional payment of $600 per child. Non-filers who receive the economic impact payment before registering a dependent child can still get the additional $600 payment by filing a 2020 income tax return on which the dependent is listed.
Pro-taxpayer changes to CARES Act Economic Impact Payment rules. As noted above, the CARES Act provided EIPs.
The Act makes the following changes to the CARES Act EIP:
- Provides that the $150,000 limit on adjusted gross income before the credit amount starts to phase out, which, under the CARES Act, applied to joint returns, also applies to surviving spouses. (Code Sec, 6428(c)(1), as amended by Act Sec. 273(a)) This change may allow taxpayers who qualify to use the surviving-spouse filing status to claim a larger EIP on their 2020 returns.
- Makes the requirement to provide IRS with the taxpayer's identification number identical to the same requirement under the new rebate, described above under "Direct-to-taxpayer recovery rebate." (Code Sec. 6428(g), as amended by COVIDTRA Sec. 273(a))
DEDUCTIONS
$250 educator expense deduction applies to PPE, other COVID-related supplies. The Act provides that eligible educators (i.e., kindergarten-through-grade-12 teachers, instructors, etc.) can claim the existing $250 above-the-line educator expense deduction for personal protective equipment (PPE), disinfectant, and other supplies used for the prevention of the spread of COVID-19 that were bought after March 12, 2020. IRS is directed to issue guidance to that effect by Feb. 28, 2021. (COVIDTRA Sec. 275; Code Sec. 62(a)(2)(D)(ii))
7.5%-of-AGI "floor" on medical expense deductions is made permanent. The Act makes permanent the 7.5%-of-adjusted-gross-income threshold on medical expense deductions, which was to have increased to 10% of adjusted gross income after 2020.
The lower threshold will allow more taxpayers to take the medical expense deduction in 2021 and later years. (Code Sec. 213(a), as amended by Act Sec. 101)
Mortgage insurance premium deduction is extended by one year. The Act extends through 2021 the deduction for qualifying mortgage insurance premiums, which was due to expire at the end of 2020. The deduction is subject to a phase-out based on the taxpayer's adjusted gross income. (Code Sec. 163(h)(3)(E)(iv)(I), as amended by Act Sec. 133)
Above-the-line charitable contribution deduction is extended through 2021; increased penalty for abuse. For 2020, individuals who don't itemize deductions can take up to a $300 above-the-line deduction for cash contributions to "qualified charitable organizations." The Act extends this above-the-line deduction through 2021 and increases the deduction allowed on a joint return to $600 (it remains at $300 for other taxpayers). (Code Sec. 170(p), as added by Act Sec. 212(a)) Taxpayers who overstate their cash contributions when claiming this deduction are subject to a 50% penalty (previously it was 20%). (Code Sec. 6662(l), as added by Act Sec. 212(b))
Extension through 2021 of allowance of charitable contributions up to 100% of an individual's adjusted gross income. In response to the COVID pandemic, the limit on cash charitable contributions by an individual in 2020 was increased to 100% of the individual's adjusted gross income. (The usual limit is 60% of adjusted gross income.) The Act extends this rule through 2021. (Code Sec. 170(b)(1)(G), as amended by Act Sec. 213)
EXCLUSIONS FROM INCOME
Exclusion for benefits provided to volunteer firefighters and emergency medical responders made permanent. Emergency workers who are members of a "qualified volunteer emergency response organization" can exclude from gross income certain state or local government payments received and state or local tax relief provided on account of their volunteer services. This exclusion was due to expire at the end of 2020, but the Act made it permanent. (Code Sec. 139B, as amended by Act Sec. 103)
Exclusion for discharge of qualified mortgage debt is extended, but limits on amount of excludable discharge are lowered. Usually, if a lender cancels a debt, such as a mortgage, the borrower must include the discharged amount in gross income. But under an exclusion that was due to expire at the end of 2020, a taxpayer can exclude from gross income up to $2 million ($1 million for married individuals filing separately) of discharge-of-debt income if "qualified principal residence debt" is discharged. The Act extends this exclusion through the end of 2025, but lowers the amount of debt that can be discharged tax-free to $750,000 ($375,000 for married individuals filing separately). (Code Sec. 108(a)(1)(E), as amended by Act Sec. 114(a))
Extension of exclusion for certain employer payments of student loans. Qualifying educational assistance provided under an employer's qualified educational assistance program, up to an annual maximum of $5,250, is excluded from the employee's income. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act, PL 116-136, 3/27/2020) added to the types of payments that are eligible for this exclusion, "eligible student loan repayments" made after Mar. 27, 2020, and before Jan. 1, 2021. These payments, which are subject to the overall $5,250 per employee limit for all educational payments, are payments of principal or interest on a qualified student loan by the employer, whether paid to the employee or a lender. The Act extends the exclusion for eligible student loan repayments through the end of 2025. (Code Sec. 127(c)(1)(B), amended by Act Sec. 120)
TAX CREDITS
Individuals may elect to base 2020 refundable child tax credit (CTC) and earned income credit (EIC) on 2019 earned income. If an individual's child tax credit (CTC) exceeds the taxpayer's tax liability, the taxpayer is eligible for a refundable credit equal to 15% percent of so much of the taxpayer's taxable "earned income" for the tax year as exceeds $2,500. And the earned income credit (EIC) equals a percentage of the taxpayer's "earned income." For both of these credits, earned income means wages, salaries, tips, and other employee compensation, if includible in gross income for the tax year. But for determining the refundable CTC and the EIC for 2020, the Act allows taxpayers to elect to substitute the earned income for the preceding tax year, if that amount is greater than the taxpayer's earned income for 2020. (Act Sec. 211(a))
Health coverage tax credit (HCTC) for health insurance costs of certain eligible individuals is extended by one year. A refundable credit (known as the health coverage tax credit or "HCTC") is allowed for 72.5% of the cost of health insurance premiums paid by certain individuals (i.e., individuals eligible for Trade Adjustment Assistance due to a qualifying job loss, and individuals between 55 and 64 years old whose defined-benefit pension plans were taken over by the Pension Benefit Guaranty Corporation). The HCTC was due to expire at the end of 2020, but the Act extended it through 2021. (Code Sec. 35(b)(1)(B), amended by Act Sec. 134)
New Markets tax credit extended. The New Markets credit provides a substantial tax credit to either individual or corporate taxpayers that invest in low-income communities. This credit was due to expire at the end of 2020, but the Act extended it through the end of 2025. Carryovers of the credit were extended, as well. (Code Sec. 45D(f)(1)(H), amended by Act Sec. 112(a))
Nonbusiness energy property credit extended by one year. A credit is available for purchases of "nonbusiness energy property"—i.e., qualifying energy improvements to a taxpayer's main home. The Act extends this credit, which was due to expire at the end of 2020, through 2021. (Code Sec. 25C(g)(2), amended by Act Sec. 141)
Qualified fuel cell motor vehicle credit extended by one year. The credit for purchases of new qualified fuel cell motor vehicles, which was due to expire at the end of 2020, was extended by the Act through the end of 2021. (Code Sec. 30B(k)(1), as amended by Act Sec. 142)
2-wheeled plug-in electric vehicle credit extended by one year. The 10% credit for highway-capable, two-wheeled plug-in electric vehicles (capped at $2,500) was extended until the end of 2021 by the Act. (Code Sec. 30D(g)(3)(E)(ii), amended by Act Sec. 144)
Residential energy-efficient property (REEP) credit extended by two years, bio-mass fuel property expenditures included. Individual taxpayers are allowed a personal tax credit, known as the residential energy efficient property (REEP) credit, equal to the applicable percentages of expenditures for qualified solar electric property, qualified solar water heating property, qualified fuel cell property, qualified small wind energy property, and qualified geothermal heat pump property. The REEP credit was due to expire at the end of 2021, with a phase-down of the credit operating during 2020 and 2021. The Act extends the phase-down period of the credit by two years—through the end of 2023; the REEP credit won't apply after 2023. (Code Sec. 25D(h), as amended by Act Sec. 148(a))
The Act also adds qualified biomass fuel property expenditures to the list of expenditures qualifying for the credit, effective beginning in 2021. (Code Sec. 25D(a), as amended by Act Sec. 148(b)).
DISASTER-RELATED CHANGES IN RETIREMENT PLAN RULES
10% early withdrawal penalty does not apply to qualified disaster distributions from retirement plans. A 10% early withdrawal penalty generally applies to, among other things, a distribution from employer retirement plan to an employee who is under the age of 59½. The Act provides that the 10% early withdrawal penalty doesn't apply to any "qualified disaster distribution" from an eligible retirement plan. The aggregate amount of distributions received by an individual that may be treated as qualified disaster distributions for any tax year may not exceed the excess (if any) of $100,000, over the aggregate amounts treated as qualified disaster distributions received by that individual for all prior tax years. (TCDTR Sec. 302(a))
Increased limit for plan loans made because of a qualified disaster. Generally, a loan from a retirement plan to a retirement plan participant cannot exceed $50,000. Plan loans over this amount are considered taxable distributions to the participant. The Act increases the allowable amount of a loan from a retirement plan to $100,000 if the loan is made because of a qualified disaster and meets various other requirements. (TCDTR Sec. 302(c)(3))
As always, we are here to assist in tax preparation and planning. Your questions are important and as we approach the 2021 filing season we assure you your confidence in us is well-placed.
Your referral of us to a friend or a colleague is the greatest compliment you can pay.
Thank you for your loyalty.
The Bezold Tax and Accounting Team.
Dear Business Client:
The Consolidated Appropriations Act, 2021 (the CCA, 2021), signed into law on December 27, 2020, is a further legislative response to the coronavirus (COVID-19) pandemic. The CCA, 2021 includes--along with spending and other non-tax provisions and tax provisions primarily affecting individuals--the numerous business tax provisions briefly summarized below. The provisions are found in two of the several acts included in the CCA, 2021, specifically, (1) the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (the TCDTR) and (2) the COVID-related Tax Relief Act of 2020 (the COVIDTRA).
Dear Business Client:
The Consolidated Appropriations Act, 2021 (the CCA, 2021), signed into law on December 27, 2020, is a further legislative response to the coronavirus (COVID-19) pandemic. The CCA, 2021 includes--along with spending and other non-tax provisions and tax provisions primarily affecting individuals--the numerous business tax provisions briefly summarized below. The provisions are found in two of the several acts included in the CCA, 2021, specifically, (1) the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (the TCDTR) and (2) the COVID-related Tax Relief Act of 2020 (the COVIDTRA).
Tax provisions made permanent (without other changes). The TCDTR makes permanent without other changes (1) the railroad track maintenance credit and (2) the exclusion of the aging period in determining the mandatory interest capitalization period in producing beer, wine or distilled spirits.
Tax provisions extended (without other changes). The TCDTR extends the following tax credits without other changes: (1) the new markets tax credit, (2) the work opportunity credit, (3) the employer credit for paid family and medical leave that was provided by the 2017 Tax Cuts and Jobs Act (2017 TCJA), (4) the carbon sequestration credit, (5) the business energy credit (the ‘‘Code Sec. 48 credit’’) both as regards termination dates and phase-downs of credit amounts, (6) the credit for electricity produced from renewable resources (the ‘‘Code Sec. 45 credit’’) and the election to claim the Code Sec. 48 credit instead for certain facilities (but the phase-down of the amount of the Code Sec. 45 credit for wind facilities isn’t deferred), (7) the Indian employment credit, (8) the mine rescue team training credit, (9) the American Samoa development credit, (10) the second generation biofuel producer credit, (11) the qualified fuel cell motor vehicle credit as applied to businesses, (12) the alternative fuel refueling property credit as applied to businesses, (13) the two-wheeled plug-in electric vehicle credit as applied to businesses, (14) the credit for production from Indian coal facilities, and (15) the energy efficient homes credit.
Additional provisions extended by the TCDTR without other changes are the following: (1) the exclusion from employee income of certain employer payments of student loans, (2) the 3-year recovery period for certain racehorses, (3) favorable cost recovery rules for business property on Indian reservations, (4) the 7-year recovery period for motor sports entertainment complexes, (5) expensing for film, television and live theatrical productions, (6) empowerment zone tax incentives except for the increased section 179 expensing for qualifying property and the deferral of capital gain for dispositions of qualifying assets, and (7) the exclusion from being personal holding company income for certain payments or accruals of dividends, interest, rents, and royalties from a related person that is a controlled foreign corporation.
Energy provisions. The TCDTR makes changes to energy provisions in addition to making them permanent or extending them.
The TCDTR adds ‘‘waste energy recovery property’’ to the types of property that qualify for the Code Sec. 48 credit (above). And the credit rate assigned is 30%. ‘‘Waste energy recovery property’’ is property (1) the construction of which begins before 2024, (2) that has a capacity of no more than 50 megawatts, and (3) generates electricity solely from heat from buildings or equipment if the primary purpose of that building or equipment isn’t the generation of electricity. But it doesn’t include property eligible for the Code Sec. 48 credit for cogeneration property unless the taxpayer doesn’t take the Code Sec. 48 credit for that property.
For wind facilities that are ‘‘qualified offshore wind facilities,’’ the TCDTR relaxes the rules under which wind facilities that are eligible for the Code Sec. 45 credit can, by election (see above), be eligible instead for the Code Sec. 48 credit.
The TCDTR makes permanent the energy efficient commercial buildings deduction. Additionally, the TCDTR indexes for inflation the per-square-foot dollar caps on the full and partial versions of the deduction. And the TCDTR provides that to the extent that deductibility depends on specified recognized energy efficient standards, the referred-to standards will be standards issued within two years of construction (rather than the standards bearing now-stale dates that applied under pre- TCDTR law).
Clarifications of tax consequences of PPP loan forgiveness. The COVIDTRA clarifies that the non-taxable treatment of Payroll Protection Program (PPP) loan forgiveness that was provided by the 2020 CARES Act also applies to certain other forgiven obligations. Also, the COVIDTRA clarifies that taxpayers whose PPP loans or other obligations are forgiven as described above, are allowed deductions for otherwise deductible expenses paid with the proceeds and that the tax basis and other attributes of the borrower’s assets won’t be reduced as a result of the forgiveness.
Waiver of information reporting for PPP loan forgiveness. The COVIDTRA allows IRS to waive information reporting requirements for any amount excluded from income under the exclusion- from-income rule for forgiveness of PPP loans or other specified obligations. Note: IRS had already waived information returns and payee statements for loans that, before enactment of the COVIDTRA, were guaranteed by the Small Business Administration under section 7(a)(36) of the Small Business Act.
Extensions and modifications of earlier payroll tax relief. The TCDTR extends the CARES Act credit, allowed against the employer portion of the Social Security (OASDI) payroll tax or of the Railroad Retirement tax, for qualified wages paid to employees during the COVID-19 crisis. Under the extension, qualified wages must be paid before July 1, 2021 (instead of January 1, 2021). Additionally, beginning on January 1, 2021, the credit rate is increased from 50% to 70% of qualified wages. and qualified wages are increased from $10,000 for the year to $10,000 per quarter. Many other rules are also relaxed. And the TCDTR makes some retroactive clarifications and technical improvements to the credit as initially enacted.
The COVIDTRA extends (1) the credits provided by the Families First Coronavirus Response Act (FFCRA) against the employer portion of OASDI and Railroad Retirement taxes for qualifying sick and family paid leave and (2) the equivalent FFCRA-provided credits for the self-employed against the self-employment tax. Under the extension of the employer credits, wages taken into account are those paid before April 1, 2021 (instead of January 1, 2021). Under the extension of the credits for the self employed, the days taken into account are those before April 1, 2021 (instead of January 1, 2021).
The COVIDTRA also makes retroactive clarifications of (1) the employer (but not self-employed equivalent) FFCRA paid leave credits that were extended as discussed above, (2) the exclusion of qualifying paid leave in calculating the employer portion of Railroad Retirement taxes and (3) and the increase in the amount of the FFRCA paid leave credits against the employer portion of Railroad Retirement taxes by the amount of the Medicare payroll taxes on qualifying paid leave. Additionally, the COVIDTRA directs IRS to extend the Presidentially ordered deferral of the employee’s share of OASDI and Railroad Retirement taxes. As first provided by IRS, the deferral was of taxes to be withheld and paid on wages and other compensation (up to $4,000 every two weeks) paid in the period from September 1, 2020 to December 31, 2020 so that the taxes were instead withheld and paid ratably in the period from January 1, 2021 to April 30, 2021. Under the deferral, the period over which the deferred-from-2020 taxes are ratably withheld and paid is extended to all of 2021 (instead of the four-month period ending on April 30, 2021).
Employee benefits and deferred compensation. The TCDTR provides that expenses for business-related food and beverages provided by a restaurant are fully deductible if they are paid or incurred in calendar years 2021 or 2022, instead of being subject to the 50% limit that generally applies to business meals. The TCDTR temporarily allows (1) carryovers and relaxed grace period rules for unused flexible spending arrangement (FSA) amounts, whether in a health FSA or a dependent care FSA, (2) the raising of the maximum eligibility age of a dependent under a dependent care FSA from 12 to 13 and (3) prospective changes in election limits set forth by a plan (subject to the applicable limits under the Code).
With a view to layoffs in the current economic climate, the TCDTR relaxes rules that would otherwise cause a partial qualified retirement plan termination if the number of active participants decreases.
Because of market volatility during the COVID-19 pandemic, the COVIDTRA relaxes, if certain conditions are met, the funding standards that, if met, allow a defined benefit pension plan to transfer funds to a retiree health benefits account or retiree life insurance account within the plan. The CARES Act’s relaxed rules for ‘‘coronavirus-related distributions’’ are retroactively amended by the COVIDTRA to additionally provide that a coronavirus-related distribution that is a during-employment withdrawal from a money purchase pension plan meets the distribution requirements of Code Sec. 401(a).
And under a provision of narrow applicability, the TCDTR lowers to 55 years, from the usually applicable 59½ years, the age at which certain employees in the building or construction trades can, though still employed, receive pension plan payments under certain multiple employer plans without affecting the status of trusts that are part of the pension plans as qualified trusts.
Residential real estate depreciation. For tax years beginning after December 31, 2017, the TCDTR assigns a 30-year ADS depreciation period to residential rental property even though it was placed in service before January 1, 2018 (when the 2017 TCJA first applied the more-favorable 30-year period) if the property (1) is held by a real property trade or business electing out of the limitation on business interest deductions and (2) before January 1, 2018 wasn’t subject to the ADS.
Farmers’ net operating losses. The COVIDTRA allows farmers who had in place a two-year net operating loss carryback before the CARES Act to elect to retain that two-year carryback rather than claim the five-year carryback provided in the CARES Act. It also allows farmers who before the CARES Act waived the carryback of a net operating loss, to revoke the waiver.
Low-income housing credit. The TCDTR provides a 4% per year credit floor for buildings that aren’t eligible for the 9% per-year credit floor. (Both floors are alternatives to the calculation under which the per-year credit is generally a percentage, prescribed by IRS, that is intended to result in a credit that, in the aggregate over the 10-year credit period, has a present value of 70% of the qualified basis for certain new buildings and 30% of the qualified basis for certain other buildings.)
Life insurance. The TCDTR changes the interest rate assumptions that determine whether a contract meets the cash value and premium caps for qualifying as a life insurance contract. The change is to designated floating rates from the respective 4% and 6% rates fixed by prior law.
Disaster relief. The TCDTR includes several provisions targeted at ‘‘qualified disaster areas,’’ some of which affect individuals and some which affect businesses as described below. ‘‘Qualified disaster areas’’ are areas for which a major disaster was Presidentially declared during the period beginning on January 1, 2020 and ending February 25, 2021. The incidence period of the disaster must begin after December 27, 2019 but not after December 27, 2020. Excluded are areas for which a major disaster was declared only because of COVID-19.
The relief includes relief for retirement funds that consists of the following: (1) waiver of the 10% early withdrawal penalty for up to $100,000 of certain withdrawals by individuals living in a qualified disaster area and that have suffered economic loss because of the disaster (qualified individuals), (2) a right to re-contribute to a plan distributions that were intended for home purchase but not used because of a qualified disaster, and (3) relaxed plan loan rules for qualified individuals. Changes to plan amendment rules facilitate the relief.
The relief also provides to employers in the harder-hit parts of a qualified disaster area an up-to-$ 2,400-per-employee employee retention credit, subject to coordination with certain other employer tax credits. Generally, tax-exempt organizations can take it as a credit against FICA taxes.
Corporations are provided with relaxed charitable deduction rules for qualified-disaster-related contributions, and individuals are provided with relaxed loss allowance rules for qualified-disaster-related casualties.
The low-income housing credit is modified to allow, subject to various limitations, increases in the state-wide credit ceilings to the extent allocations are made to harder-hit parts of qualified disaster areas.
Excise taxes. The TCDTR makes various excise tax changes for beer, wine and distilled spirits. The TCDTR also provides that the temporary increase in the Black Lung Disability Trust Fund tax won’t apply to coal sales after 2021 (instead of after 2020). And the end of the liability imposed because of the Oil Spill Liability Trust Fund Rate is deferred until after 2025. Additionally, the alternative fuels credit against the diesel and special motor fuels tax is extended.
Food and Beverage No Longer 50% deductible for 2021 and 2022. You have probably heard that the recent stimulus legislation included a provision that removes the 50% limit on deducting business meals provided by restaurants in 2021 and 2022 and makes those meals fully deductible. Here are the details.
In general, the ordinary and necessary food and beverage expenses of operating your business are deductible. However, the deduction is limited to 50% of the otherwise allowable expense.
The new legislation adds an exception to the 50% limit for expenses for food or beverages provided by a restaurant. This rule applies to expenses paid or incurred in calendar years 2021 and 2022.
The use of the word "by" (rather than "in") a restaurant makes it clear that the new rule is not limited to meals eaten on the restaurant's premises. Takeout and delivery meals provided by a restaurant are also fully deductible.
It's important to note that, other than lifting the 50% limit for restaurant meals, the legislation does not change the rules for deducting business meals. All the other existing requirements continue to apply. To be deductible:
- The food and beverages cannot be lavish or extravagant under the circumstances.
- You or one of your employees must be present when the food or beverages are
- This is defined as a current or prospective customer, client, supplier, employee, engage or deal in your business.
If food or beverages are provided at an entertainment activity, either they must be purchased separately from the entertainment or their cost must be stated on a separate bill, invoice, or receipt. This is required because the entertainment, unlike the food and beverages, is nondeductible.
I will be pleased to hear from you at any time with questions about the above news or any other matters.
Very truly yours,
The Bezold Tax Team
Starting this week, the Treasury Department and the Internal Revenue Service are sending approximately 8 million second Economic Impact Payments (EIPs) by prepaid debit card.
For those who don’t receive a direct deposit, they should watch their mail for either a paper check or a prepaid debit card. To speed delivery of the payments to reach as many people as soon as possible the Treasury’s Bureau of Fiscal Service is sending payments out by prepaid debit card.
Starting this week, the Treasury Department and the Internal Revenue Service are sending approximately 8 million second Economic Impact Payments (EIPs) by prepaid debit card.
These EIP Cards follow the millions of payments already made by direct deposit and the ongoing mailing of paper checks that are delivering the second round of Economic Impact Payments as rapidly as possible.
For those who don’t receive a direct deposit, they should watch their mail for either a paper check or a prepaid debit card. To speed delivery of the payments to reach as many people as soon as possible the Treasury’s Bureau of Fiscal Service is sending payments out by prepaid debit card.
IRS and Treasury urge eligible people who don’t receive a direct deposit to watch their mail carefully during this period. The prepaid debit card, called the Economic Impact Payment card, is sponsored by the Bureau of the Fiscal Service and is issued by Treasury’s financial agent, MetaBank®, N.A. The IRS does not determine who receives a prepaid debit card.
Taxpayers should note that the form of payment for the second mailed EIP may be different than the first mailed EIP. Some people who received a paper check last time might receive a prepaid debit card this time, and some people who received a prepaid debit card last time may receive a paper check.
EIP Cards are safe, convenient and secure. EIP Card recipients can make purchases online or in stores anywhere Visa® Debit Cards are accepted. They can get cash from domestic in-network ATMs, transfer funds to a personal bank account and obtain a replacement EIP Card if needed without incurring any fees. They can also check their card balance online, through a mobile app or by phone without incurring fees. The EIP Card provides consumer protections including certain protections against fraud, loss and other errors.
EIP Cards are being sent in a white envelope that prominently displays the U.S. Department of the Treasury seal. The EIP Card has the Visa name on the front of the Card and the issuing bank name, MetaBank®, N.A. on the back of the card. Each mailing will include instructions on how to securely activate and use the EIP Card.
EIP Cards are being issued to eligible recipients across all 50 states and the District of Columbia. Residents of the western part of the United States are generally more likely to receive an EIP Card.
Click above for Update on Office Status, Tax Returns and Stimulus Checks during COVID-19
First, we would like to give a BIG Thank You to our friends at Duke Energy and LPM Electric. The Storm that went through in the middle of April left us without electric. Originally we were told it would be approx. 3 days. But thanks to the Great work and efficiency of Duke and LPM Electric we were back up and running in 36 hours. Our Heroes! Thank You.
We as well as all of you are struggling through this pandemic. We struggle to implement our normal procedures of being here to answer all of your questions and preparing your returns in a timely manner. Communications are definitely not perfect. We understand this is not normal and everyone is anxious to say the least. We are not just your tax preparer. We are here to help you with all the questions that make you anxious. Although it is extremely difficult to respond to everyone and we apologize if we have missed your phone call or email. We have been swamped with phone calls about the Stimulus payment and the SBA and PPP Loan for businesses. Below is some information that may help answer many of your questions regarding the stimulus checks. We hope and pray everyone is well.
Good news is we are all still well and still working. We will be in contact with you about your returns through email. Please keep in mind you are important to us and we are trying our best, but we are struggling with the elements. We hope you find this information helpful. We are definitely looking forward to the days ahead when we can say, Sure Come on IN!
Take Care and Stay Well,
Debbie, Renee’, Tina, Christy, Haley, Janet and Roger.
If you haven’t received your stimulus check from the IRS yet:
First, go to IRS.gov and click Get My Payment. You will then enter information to verify your identity and your Adjusted Gross Income from your 2018 or 2019 tax return, whichever is the last return you filed. This will give you an update of your stimulus check. There is a link on that page to Frequently Asked Questions if you have any trouble. Here is a link to a video for people who were not required to file a tax return for 2018 or 2019 https://www.youtube.com/watch?v=RJG-tr9tr7U&feature=youtu.be and a PDF explaining the process Stimulus Check for Non-Filers
Another issue is taxpayers who have not received a refund, but owed on the last tax return filed with IRS. IRS does not have your bank account information to direct deposit your refund and you are on the list to receive a paper check by mail. You can use the IRS tool to get stimulus check automatically deposited into your bank account; however you may get a "sorry, we can't determine your status" message until the IRS has a date for releasing your check (based on AGI.)
These taxpayers will be given the opportunity to provide bank account info to "flip" back to direct deposit, but NOT until they have a status report. And, once they provide the bank info, they may have to wait until the next cycle (Monday) to see a confirmation that the bank account info uploaded and IRS can provide a deposit date.
Also, the Tool will not allow you to add bank account info if your paper check has already been generated and sent for printing. Taxpayers with AGI under $10K have already had their EIPs sent for printing, so they will not be able to provide bank info, but should get a message that they are receiving a paper check, sent to the address IRS has on file.
IRS does communicate with USPS to locate the most recent address, so taxpayers that moved but did not file Form 8822 (which IRS cannot process right now) should still get their checks (as long as no one breaks into their mailbox to steal them, potential risk, beyond IRS's control.)
Yes, it is working, except for filers with no bank account info that had zero AGI or zero tax due/zero refund. The Tool won't "authenticate" if you enter zero in those questions, even though your return truly did show zero AGI or zero tax.
The Tool updates daily, but payment releases might be weekly, so taxpayers should check weekly, not daily, if they want good information
This document provides a brief summary of tax provisions contained in the Coronavirus Aid, Relief and Economic Security (CARES) Act, H.R. 748, and the Families First Coronavirus Response Act, H.R. 6201. Further research and analysis are recommended based on each client’s facts and circumstances.
Coronavirus
The IRS has issued guidance clarifying that taxpayers receiving loans under the Paycheck Protection Program (PPP) may deduct their business expenses, even if their PPP loans are forgiven. The IRS previously issued Notice 2020-32 and Rev. Rul. 2020-27, which stated that taxpayers who received PPP loans and had those loans forgiven would not be able to claim business deductions for their otherwise deductible business expenses.
The IRS has issued guidance clarifying that taxpayers receiving loans under the Paycheck Protection Program (PPP) may deduct their business expenses, even if their PPP loans are forgiven. The IRS previously issued Notice 2020-32 and Rev. Rul. 2020-27, which stated that taxpayers who received PPP loans and had those loans forgiven would not be able to claim business deductions for their otherwise deductible business expenses.
The COVID-Related Tax Relief Act of 2020 ( P.L. 116-260) amended the CARES Act ( P.L. 116-136) to clarify that business expenses paid with amounts received from loans under the PPP are deductible as trade or business expenses, even if the PPP loan is forgiven. Further, any amounts forgiven do not result in the reduction of any tax attributes or the denial of basis increase in assets. This change applies to years ending after March 27, 2020.
Notice 2020-32, I.R.B. 2020-21, 83 and Rev. Rul. 2020-27, I.R.B. 2020-50, 1552 are obsoleted.
The IRS has waived the requirement to file Form 1099 series information returns or furnish payee statements for certain COVID-related relief that is excluded from gross income.
The IRS has waived the requirement to file Form 1099 series information returns or furnish payee statements for certain COVID-related relief that is excluded from gross income.
Reporting Affected
The IRS waives the requirement to file Form 1099 series information returns, or furnish payee statements, for the following:
- forgiveness of covered loans under the original Paycheck Protection Program (PPP);
- forgiveness of covered loans under the Paycheck Protection Program Second Draw (PPP II);
- Treasury Program loan forgiveness under section 1109 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136);
- certain loan subsidies authorized under section 1112(c) of the CARES Act;
- certain COVID-related student emergency financial aid grants under section 3504, 18004, or 18008 of the CARES Act or section 277(b)(3) of the COVID-related Tax Relief Act of 2020 (COVID Relief Act) (Division N, P.L. 116-260);
- Economic Injury Disaster Loan (EIDL) grants under section 1110(e) of the CARES Act or section 331 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act) (Division N, P.L. 116-260); and
- shuttered venue operator grants under section 324(b) of the Economic Aid Act.
Other Reporting
The waivers do not affect requirements to file and furnish other forms, such as forms in the 1098 series. For example, the waiver does not apply to the requirement to file and furnish Form 1098-T, Tuition Statement, for qualified tuition and related expense payments, including qualified tuition and related expenses paid with COVID-related student emergency financial aid grants. Also, because borrowers may deduct mortgage interest that the Small Business Administration paid to lenders, lenders may include those mortgage interest payments in Box 1 of Form 1098, Mortgage Interest Statement. Lenders who are unable to furnish with this information by February 1, 2021, are encouraged to furnish a corrected Form 1098 as promptly as possible.
Due to the COVID-19 pandemic, certain employers and employees who use the automobile lease valuation rule to determine the value of an employee’s personal use of an employer-provided automobile may switch to the vehicle cents-per-mile method.
Due to the COVID-19 pandemic, certain employers and employees who use the automobile lease valuation rule to determine the value of an employee’s personal use of an employer-provided automobile may switch to the vehicle cents-per-mile method.
Background
Under the general rule, an employer who provides an employee a vehicle must adopt one of the following methods to determine the value of an employee’s personal use of the vehicle: the automobile lease valuation rule, or the vehicle cents-per-mile valuation rule. (In certain cases, a third method, the commuting valuation rule, may be used.)
The employer and the employee must use the chosen valuation method consistently (that is, in each subsequent year), except that the employer and the employee may use the commuting valuation rule if its requirements are satisfied.
As a result of the pandemic, many employers suspended business operations or implemented telework arrangements for employees, thus reducing business and personal use of employer-provided automobiles, This has increased the lease value to be included in an employee’s income for 2020 compared to prior years. In contrast, the vehicle cents-per-mile valuation rule includes in income only the value that relates to actual personal use, providing a more accurate reflection of the employee’s income in these circumstances.
Switch to Cents-per-Mile
Due to the suddenness and unexpected onset of the COVID-19 pandemic, the IRS is allowing an employer that uses the automobile lease valuation rule for the 2020 calendar year to instead use the vehicle cents-per-mile valuation rule beginning on March 13, 2020, if:
- at the beginning of 2020, the employer reasonably expected that an automobile with a fair market value not exceeding $50,400 would be regularly used in the employer’s trade or business throughout the year; and
- due to the COVID-19 pandemic, the automobile was not regularly used in the employer’s trade or business throughout the year.
Employers that choose to switch from the automobile lease valuation rule to the vehicle cents-per-mile valuation rule in the 2020 calendar year must prorate the value of the vehicle using the automobile lease valuation rule for January 1, 2020, through March 12, 2020.
Employers that switch to the vehicle cents-per-mile valuation rule during 2020 generally may:
- revert to the automobile lease valuation rule for 2021; or
- continue using vehicle cents-per-mile valuation rule for 2021.
In either case, the special valuation rule used in 2021 must be used for all subsequent years.
Employees must use the same special valuation rule used by their employer.
Estimated tax underpayment penalties under Code Sec. 6654 are waived for certain excess business loss-related payments for tax years beginning in 2019. The relief is available to individuals, as well as trusts and estates that are treated as individuals for estimated tax payment penalty purposes.
Estimated tax underpayment penalties under Code Sec. 6654 are waived for certain excess business loss-related payments for tax years beginning in 2019. The relief is available to individuals, as well as trusts and estates that are treated as individuals for estimated tax payment penalty purposes.
Rules Delayed
Certain business losses were limited in tax years beginning in 2017 through 2025 by the excess business loss rules of Code Sec. 461(l). Under these rules, any disallowed excess business losses are carried forward as net operating losses (NOLs). The Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136) postponed application of the excess business loss rules to tax years beginning after December 31, 2020.
Relief for 2019
The relief is available only for estimated tax income tax installments due on or before July 15 2020 for a tax year that began in 2019.
An individual taxpayer may have underpaid one or more installments for the tax year that began in 2019, if the individual anticipated having a lower required annual payment after using an NOL carried forward from a prior-year excess business loss that, before the enactment of the CARES Act, would have been available to reduce taxable income in the tax year that began in 2019.
Waiver Request
To qualify for the relief, the taxpayer must:
- have filed a timely 2019 federal income tax return;
- complete the 2019 version of Form 2210, Underpayment of Estimated Taxes, or Form 2210-F, Underpayment of Tax for Farmers and Fishermen; and
- include certain required attachments and calculations.
The IRS has extended the time period during which employers must withhold and pay the employee portion of Social Security tax that employers elected to defer on wages paid from September 1, 2020, through December 31, 2020.
The IRS has extended the time period during which employers must withhold and pay the employee portion of Social Security tax that employers elected to defer on wages paid from September 1, 2020, through December 31, 2020. Specifically:
- the end date of the period for withholding and paying the deferred tax is postponed from April 30, 2021, to December 31, 2021; and
- any interest, penalties, and additions to tax for late payment of any unpaid deferred tax will begin to accrue on January 1, 2022, rather than on May 1, 2021.
Notice 2020-65, I.R.B. 2020-38, 567, is modified.
Employee Tax Deferral
In response to the coronavirus (COVID-19) disaster, President Trump issued a memorandum on August 8, 2020, directing the Treasury Secretary to use his Code Sec. 7508A authority to defer the withholding, deposit, and payment of the employee portion of the 6.2-percent old-age, survivors and disability insurance (OASDI) tax (Social Security tax) under Code Sec. 3101(a), and the Railroad Retirement Tax Act (RRTA) Tier 1 tax that is attributable to the 6.2-percent Social Security tax under Code Sec. 3201. The deferral was available only for tax on wages paid from September 1, 2020, through December 31, 2020, and only for employees whose biweekly, pre-tax pay was less than $4,000, or a similar amount where a different pay period applied.
The Treasury Secretary and the IRS then issued Notice 2020-65, directing employers that elected to apply the deferral to withhold and pay the deferred taxes ratably from wages and compensation paid between January 1, 2021, and April 30, 2021. Interest, penalties, and additions to tax would begin to accrue on May 1, 2021, on any unpaid applicable taxes.
Payment Period Extended
The recent COVID-related Tax Relief Act of 2020 (Division N, P.L. 116-260) extended the payment period, and required the Treasury Secretary to apply Notice 2020-65 by substituting "December 31, 2021" for "April 30, 2021" and substituting "January 1, 2022" for "May 1, 2021."
Employers that elected to defer employees’ payroll taxes can now withhold and pay the deferred tax throughout 2021, instead of just during the first four months of the year.
The IRS has issued guidance that provides partnerships with relief from certain penalties for the inclusion of incorrect information in reporting their partners’ beginning capital account balances on the 2020 Schedules K-1 (Forms 1065 and 8865). The IRS has also provided relief from accuracy-related penalties for any tax year for the portion of an imputed underpayment attributable to the inclusion of incorrect information in a partner’s beginning capital account balance reported by a partnership for the 2020 tax year.
The IRS has issued guidance that provides partnerships with relief from certain penalties for the inclusion of incorrect information in reporting their partners’ beginning capital account balances on the 2020 Schedules K-1 (Forms 1065 and 8865). The IRS has also provided relief from accuracy-related penalties for any tax year for the portion of an imputed underpayment attributable to the inclusion of incorrect information in a partner’s beginning capital account balance reported by a partnership for the 2020 tax year.
Penalty Relief
A partnership will not be subject to a penalty under Code Secs. 6698, 6721, or 6722 for the inclusion of incorrect information in reporting its partners’ beginning capital account balances on the 2020 Schedules K-1 if the partnership can show that it took ordinary and prudent business care in following the 2020 Form 1065 Instructions. Under those instructions, a partnership can report its partners’ beginning capital account balances using any one of the following methods: tax basis method, modified outside basis method, modified previously taxed capital method, or section 704(b) method.
In addition, a partnership will not be subject to a penalty under Code Secs. 6698, 6721, or 6722 for the inclusion of incorrect information in reporting its partners’ ending capital account balances on Schedules K-1 in tax year 2020, or its partners’ beginning or ending capital account balances on Schedules K-1 in tax years after 2020, to the extent the incorrect information is attributable solely to the incorrect information reported as the beginning capital account balance on the 2020 Schedule K-1 for which relief is provided by this guidance.
Finally, on certain conditions, the IRS will waive any accuracy-related penalty under Code Sec. 6662 for any tax year with respect to any portion of an imputed underpayment that is attributable to an adjustment to a partner’s beginning capital account balance reported by the partnership for the 2020 tax year. However, this waiver will be granted only to the extent the adjustment arises from the inclusion of incorrect information for which the partnership qualifies for relief under section 3 of this guidance.
Final regulations provide guidance related to the limitation on the deduction for employee compensation in excess of $1 million.
Final regulations provide guidance related to the limitation on the deduction for employee compensation in excess of $1 million. Specifically, the regulations address:
- what constitutes a publicly held corporation for purposes of Code Sec. 162(m)(2);
- the definition of a covered employee for purposes of Code Sec. 162(m)(3);
- the definition of compensation for purposes of Code Sec. 162(m)(4);
- the application of Code Sec. 162(m) to a taxpayer’s deduction for compensation for a tax year ending on or after a privately held corporation becomes public; and
- what constitutes a binding contract and material modification for purposes of the grandfather rule in Code Sec. 162(m)(4)(B).
The IRS has adopted the proposed regulations with a small number of modifications.
Background
The Tax Cuts and Jobs Act ( P.L. 115-97) (TCJA) modified the definitions of "covered employee," "compensation," and "publicly held corporation" for purposes of the limitation on the deduction for excessive employee compensation paid by publicly held corporations.
Publicly Held Corporations
The TCJA expanded the definition of publicly held corporation to include: (1) corporations with any class of securities and (2) corporations that are required to file reports under section 15(d) of the Exchange Act. The final regulations adopt the prosed regulation’s stance that a corporation is publicly held if, as of the last day of its tax year, its securities are required to be registered under section 12 of the Exchange Act or is required to file reports under section 15(d). A foreign private issuer (FPI) is also a publicly held corporation if it meets the same requirements.
Under the regulations, a publicly held corporation includes an affiliated group of corporations (affiliated group) that contains one or more publicly held corporations. In addition a subsidiary corporation that meets the definition of publicly held corporation is separately subject to Code Sec. 162(m) compensation limitations. Furthermore, an affiliated group includes a parent corporation that is privately held if one or more of its subsidiary corporations is a publicly held corporation. The regulations provide further clarification for affiliated groups where certain members are not publicly held. In the case where a covered employee of two or more members of an affiliated groups is paid by a member of the affiliated group that is not a publicly held, the compensation is prorated for purposes of determining the deduction.
In instances where a privately held corporation becomes public, Code Sec. 162(m) applies to the deduction for any compensation that is otherwise deductible for the tax year ending on or after the date that the corporation becomes a publicly held corporation. The regulations provide that a corporation is considered to become publicly held on the date that its registration statement becomes effective either under the Securities Act or the Exchange Act.
Covered Employees
Under the TCJA, a covered employee is the principal executive officer (PEO), the principal financial officer (PFO), or one of the three other highest compensated executives. The final regulations adopt the proposed regulation’s stance that there is no requirement that an employee must an executive officer at the end of the tax year to be a covered employee. Covered employees may include employees who have left the corporation. Furthermore, the definition applies regardless of whether the executive officer’s compensation is subject to disclosure for the last completed fiscal year under the applicable SEC rules.
The term "covered employee" also includes any employee who was a covered employee of any predecessor of the publicly held corporation for any preceding taxable year beginning after December 31, 2016. The regulations provide rules for determining the predecessor of a publicly held corporation for various corporate transactions. With respect to asset acquisitions, the regulations provide that, if an acquiror corporation acquires at least 80% of the net operating assets (determined by fair market value on the date of acquisition) of a publicly held target corporation, then the target corporation is a predecessor of the acquiror corporation for purposes of covered employees.
Applicable Employee Compensation
The final regulations define compensation as the aggregate amount allowable as a deduction for services performed by a covered employee, without regard for Code Sec. 162(m). Compensation includes payment for services performed by a covered employee in any capacity, including as a common law employee, a director, or an independent contractor. The regulations clarify that compensation also includes an amount that is includible in the income of, or paid to, a person other than the covered employee, including after the death of the covered employee.
In cases where a publicly held corporation holds a partnership, it must:
- take into account its distributive share of the partnership’s deduction for compensation paid to the publicly held corporation’s covered employee and
- aggregate that distributive share with the corporation’s otherwise allowable deduction for compensation paid directly to that employee in applying the Code Sec. 162(m) deduction limitation.
Grandfather Rules
The amendments made by the TCJA to Code Sec. 162(m) do not apply to any compensation paid under a written binding contract that is effect on November 2, 2017, and is not materially modified after that date. A contract is binding if it obligates a publicly held company to pay the compensation if the employee performs services or satisfies requirements in the contract. Under the final regulations:
- The TCJA amendments apply to any amount of compensation that exceeds the amount that applicable law obligates the corporation to pay under a written binding contract that was in effect on November 2, 2017.
- A provision in a compensation agreement that purports to give the employer discretion to reduce or eliminate a compensation payment (negative discretion) is taken into account only to the extent the corporation has the right to exercise that discretion under applicable law, such as state contract law.
- Under an ordering rule, the grandfathered amount is allocated to the first otherwise deductible payment paid under the arrangement, then to the next otherwise deductible payment, etc. For tax years ending before December 20, 2019, the final regulations allow the grandfathered amount to be allocated to the last otherwise deductible payment or to each payment on a pro rata basis.
- A material modification occurs when a contract is amended to increase the amount of compensation payable to the employee. However, a modification that defers compensation is not a material modification if any compensation that exceeds the original amount based on a reasonable rate of interest or a predetermined actual investment.
The final regulations depart from the proposed regulations with respect to the recovery of compensation. Under the proposed regulations, a corporation’s right to recover compensation is disregarded in determining the grandfathered amount only if the corporation recovery right or obligation depends on a future condition that is objectively outside of the corporation’s control. However, the final regulations recognize that a recovery right is a contractual right that is separate from the corporation’s binding obligation to pay the compensation. Accordingly, the final regulations provide that the corporation’s right to recover compensation does not affect the determination of the amount of compensation the corporation has a written binding contract to pay under applicable law as of November 2, 2017.
The final regulations also clarify the application of the grandfather rule to compensation payable under nonqualified deferred compensation (NQDC) plans. Specifically, the grandfathered amount under an is the amount that the corporation is obligated to pay under the terms of the plan as of November 2, 2017. The regulations also provide rules for calculating the grandfather amount for account balance plans, and analogous rules for nonaccount balance plans when:
- the corporation is obligated to pay the employee the account balance that is credited with earnings and losses and has no right to terminate or materially amend the contract;
- the terms of a plan that is a written binding contract as of November 2, 2017, provide that the corporation may terminate the plan and distribute the account balance to the employee; or
- the plan provides that the corporation may not terminate the contract, but may discontinue future contributions and distribute the account balance.
However, the corporation may instead elect to treat the account balance as of the termination or freeze date as the grandfathered amount regardless of when the amount is paid and regardless of whether it has been credited with earnings or losses prior to payment.
In addition, the final regulations provide that all compensation attributable to the exercise of a non-statutory stock option or a stock appreciation right (SAR) is grandfathered if the option or SAR is grandfathered and the extension satisfies Reg. §1.409A-1(b)(5)(v)(C)(1).
Effective Dates
Generally, these final regulations apply to taxable years beginning on or after the date that they are published as final in the federal register. However, taxpayers may choose to apply these final regulations to a taxable year beginning after December 31, 2017. Taxpayers that elect to apply the final regulations before the effective date must apply the final regulations consistently and in their entirety to that taxable year and all subsequent taxable years.
In addition, the final regulations include special applicability dates for certain aspects of the definition of:
- a covered employee,
- a predecessor of a publicly held corporation,
- compensation, and
- a written binding contract and material modification.
The regulations also include a special applicability date for the application of the Code Sec. 162(m) deduction limitations deductible for a taxable year ending on or after a privately held corporation becomes a publicly held corporation.
The IRS has issued final regulations providing additional guidance on the limitation on the deduction for business interest under Code Sec. 163(j). The regulations finalize various portions of the proposed regulations issued in 2020 with few modifications. They address the application of the limit in the context of calculating adjusted taxable income (ATI) with respect to depreciation, amortization, and depletion. The regulations also finalize rules on the definitions of real property development and redevelopment, as well as application to passthrough entities, regulated investment companies (RICs), and controlled foreign corporations.
The IRS has issued final regulations providing additional guidance on the limitation on the deduction for business interest under Code Sec. 163(j). The regulations finalize various portions of the proposed regulations issued in 2020 with few modifications. They address the application of the limit in the context of calculating adjusted taxable income (ATI) with respect to depreciation, amortization, and depletion. The regulations also finalize rules on the definitions of real property development and redevelopment, as well as application to passthrough entities, regulated investment companies (RICs), and controlled foreign corporations.
Calculating ATI
A taxpayer’s ATI for purposes of the Section 163(j) limit is the taxpayer’s tentative taxable income for the tax year with certain adjustments. For example, depreciation, amortization, and depletion for tax years beginning before January 1, 2022, is added back to tentative taxable income, but is subtracted from tentative taxable income if the taxpayer sells or disposes the property before January 1, 2022.
The final regulations provide that a taxpayer has the option to use an alternative computation method for property dispositions where the ATI adjustment is the lesser of: (1) any gain recognized on the sale or disposition; or (2) the greater of the allowed or allowable depreciation, amortization, or depletion deduction of the property sold before January 1, 2022.
Similar rules apply for the sale or other disposition of an interest in a partnership or stock of a member of a consolidated group. However, the negative adjustment to tentative taxable income is reduced to the extent the taxpayer establishes that the additions to tentative taxable income in a prior tax year did not result in an increase in the amount allowed as a deduction for business interest expense for the year.
Real Property Development
The Section 163(j) limit does not apply to certain excepted trades or businesses, including an electing real property trade or business. An electing real property trade or business is any trade or business described in Code Sec. 469(c)(7)(C).
In response to comments about the application of this definition to timberlands, the 2020 proposed regulations provided definitions for real property development and redevelopment for clarity relying on the Code Sec. 464(e) definition of farming for that purpose. Section 464(e) generally excludes the cultivation and harvesting of trees (except those bearing fruit or nuts) from the definition of "farming".
The final regulations retain these definitions for real property development and real property redevelopment. Thus, to the extent the evergreen trees may be located on parcels of land covered by forest, the business activities of cultivating and harvesting such evergreen trees are a component of a "real property development" or "real property redevelopment" trade or business.
Self-Charged Lending
The final regulations adopt the proposed rules for self-charged lending transactions between partners and partnerships without change. For a transaction between a lending partner and a borrowing partnership in which the lending partner owns a direct interest, any business interest expense of the borrowing partnership attributable to a self-charged lending transaction is business interest expense of the borrowing partnership.
However, to the extent the lending partner receives interest income attributable to the self-charged lending transaction and also is allocated excess business interest in the same tax year, the lending partner may treat that interest income as an allocation of excess business income from the borrowing partnership to the extent of the lending partner’s allocation of excess business interest expense.
The IRS has released final regulations that address the changes made to Code Sec. 162(f) by the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97), concerning the deduction of certain fines, penalties, and other amounts. The final regulations also provide guidance relating to the information reporting requirements for fines and penalties under Code Sec. 6050X.
The IRS has released final regulations that address the changes made to Code Sec. 162(f) by the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97), concerning the deduction of certain fines, penalties, and other amounts. The final regulations also provide guidance relating to the information reporting requirements for fines and penalties under Code Sec. 6050X.
The final regulations adopt proposed regulations released last May ( NPRM REG-104591-18), with modifications.
TCJA Changes
Under changes made to Code Sec. 162(f) by the TCJA, businesses may not deduct fines and penalties paid or incurred after December 21, 2017, due to the violation of a law (or the investigation of a violation) if a government (or similar entity) is a complainant or investigator. Exceptions to this rule are available if the payment was for restitution, remediation, taxes due, or paid or incurred to come into compliance with a law. For the exceptions to apply, the taxpayer must identify the payment as restitution, remediation, or compliance in a court order or settlement agreement. In addition, Code Sec. 6050X now requires the officer or employee that has control over the suit or agreement to file a return with the IRS
The final regulations establish that a taxpayer generally may not take a deduction for any amount that was paid or incurred:
- by suit, agreement, or otherwise;
- to, or at the direction of, a government or governmental entity; and
- in relation to the violation, or investigation or inquiry by the government or governmental entity into the potential violation, of any civil or criminal law.
This rule applies regardless of whether the taxpayer admits guilt or liability, or pays the amount imposed for any other reason. This includes instances where the taxpayer pays to avoid the expense or uncertain outcome of an investigation or litigation.
The final regulations also clarify that a suit or agreement is treated as binding under applicable law even if all appeals have not been exhausted.
Governmental Entities
Under the final regulations, governmental entities include nongovernmental entities that exercise self-regulatory powers, including imposing sanctions.
The regulations also clarify that, for purposes of the information reporting requirements in Code Sec. 6050X, a nongovernmental entity treated as a governmental entity does not include a nongovernmental entity of a territory of the United States, including American Samoa, Guam, the Northern Mariana Islands, Puerto Rico, or the U.S. Virgin Islands, a foreign country, or a Native American tribe.
Violations of Law
Under the final regulations, violations of the law do not include any order or agreement in a suit in which a government or governmental entity enforces rights as a private party.
Investigations
The final regulations also make clear that amounts paid or incurred for required routine investigations or inquiries continue to be deductible. In general, amounts paid or incurred for routine investigations or inquiries, such as audits or inspections, required to ensure compliance with rules and regulations applicable to the business or industry, which are not related to any evidence of wrongdoing or suspected wrongdoing, are not amounts paid or incurred relating to the potential violation of any law.
Establishing Payment
Under the final regulations, a taxpayer can establish that a payment was made for restitution or remediation by providing documentary evidence of the following:
- the taxpayer was legally obligated to pay the amount that the order or agreement identified as restitution, remediation, or to come into compliance with a law;
- the amount paid or incurred for the nature and purpose identified; and
- the date on which the amount was paid or incurred.
The final regulations expand the list of documentary evidence that may be used to meet the establishment requirement. According to the regulations, taxpayers may be able to use documentary evidence in a foreign language to satisfy the establishment requirement if the taxpayer provides a complete and accurate certified English translation of the documentary evidence.
Reporting of the amount by a government or governmental entity under Code Sec. 6050X alone does not satisfy the establishment requirement.
Disgorgement, Forfeiture of Profits
Under the final regulations, a taxpayer’s claim for a deduction for amounts paid or incurred through disgorgement or forfeiture of profits will be permitted if:
- the amount is otherwise deductible;
- the order or agreement identifies the payment, not in excess of net profits, as restitution, remediation, or an amount paid to come into compliance with a law;
- the taxpayer establishes that the amount was paid as restitution, remediation, or an amount paid to come into compliance with a law; and
- the origin of the taxpayer’s liability is restitution, remediation, or an amount paid to come into compliance with a law.
However, amounts paid or incurred through disgorgement will be disallowed if the amounts are disbursed to the general account of the government or governmental entity for general enforcement efforts or other discretionary purposes.
Restitution, Remediation
Final Reg. §1.162-21(e)(4)(i) clarifies that restitution and remediation do not include amounts paid to a general account or for discretionary purposes. In addition, the final regulations provide that if amounts paid by the taxpayer pursuant to an order or an agreement is returned, the taxpayer must include the amount in its income under the tax benefit rule.
Reg. §1.162-21(e)(4)(i)(A) also provides special restitution and remediation rules to address amounts paid or incurred for irreparable harm to the environment, natural resources, or wildlife.
Coming into Compliance
The final regulations list certain payments that will not be treated as “paid or incurred to come into compliance with a law.” In addition, the taxpayer must perform any required services or take any required action in order to come into compliance with the law.
The final regulations also modify an example to clarify that when a taxpayer upgrades equipment or property to a higher standard than what is required to come into compliance with the law, the taxpayer will be able to deduct the difference between what the taxpayer paid and the amount required to come into compliance.
Identification
Under Code Sec. 162(f)(2)(A), an order or agreement must identify the amount paid or incurred as restitution, remediation, or to come into compliance with a law. The final regulations modify the proposed rule for payment amounts not identified. Under this rule, the identification requirement may be met even if the order or agreement does not allocate the total lump-sum payment amount among restitution, remediation, or to come into compliance with the law. The rule also applies when the order or agreement fails to allocate the total payment among multiple taxpayers. In addition, the final regulations clarify that the identification requirement may be met even in cases where the order or agreement does not provide an estimated payment amount.
Consistent with Code Sec. 162(f)(2)(A)(ii), the final regulations provide that the order or agreement, not the taxpayer, must meet the identification requirement with language specifically stating or describing that the amount will be paid or incurred as restitution, remediation, or to come into compliance with a law.
The final regulations eliminated the rebuttable presumption for the identification requirement. Instead, the identification requirement is met when the order or agreement specifically states that the payment constitutes restitution, remediation, or an amount paid to come into compliance with a law, or when it uses a different form of the required words. For orders or agreements in a foreign language, in order to meet the identification requirement the taxpayer must provide a complete and accurate certified English translation that describes the nature and purpose of the payment using the foreign language equivalent of restitution, remediation, or coming into compliance with the law.
According to the final regulations, an order or agreement will also meet the identification requirement if it describes the damage done, harm suffered, or manner of noncompliance with a law, and describes the action required of the taxpayer to (1) restore the party, property, or environment harmed or (2) perform services, take action, or provide property to come into compliance with that law.
Taxes and Interest
Under Code Sec. 162(f)(4), taxpayers may still deduct any taxes due, including any related interest on the taxes. However, the final regulations clarify that if penalties are imposed with respect to otherwise deductible taxes, a taxpayer may not deduct the penalties or the interest paid with respect to such penalties.
Multiple Payors
The final regulations address situations where there are multiple payors and the aggregate amount they are required to pay, or the costs to provide the property or the service, meets or exceeds the threshold amount. In those instances, the appropriate official should file an information return and furnish a written statement for the separate amount that each individually liable payor is required to pay, even if a payor’s payment liability is less than the threshold amount.
Material Change
According to the TCJA, the amendments to Code Sec. 162(f) apply to agreements entered into on or after December 22, 2017. However, the proposed regulations clarified that if the parties to an agreement that was binding prior to December 22, 2017, make a material change to that agreement on or after the date that the proposed regulations become final, the regulations will apply to the agreement. The final regulations have eliminated that requirement.
Reporting Requirements
The final regulations provide that if the aggregate amount a payor is required to pay equals or exceeds the threshold amount of $50,000 under Reg. §1.6050X-1(f)(6), the appropriate official of a government or governmental entity must file an information return with the IRS with respect to the amounts or incurred paid and any additional information required. That information includes:
- the amounts paid or incurred pursuant to the order or agreement;
- the payor’s taxpayer identification number (TIN); and
- other information required by the information return and the related instructions.
The official must provide this information by filing Form 1098-F, Fines, Penalties, and Other Amounts, with Form 1096, Annual Summary and Transmittal of U.S. Information Returns, on or before the annual due date. However, the regulations do not require an appropriate official to file information returns for each tax year in which a payor makes a payment pursuant to a single order or agreement. Instead, the appropriate official should only one information return for the aggregate amount identified in the order or agreement.
In instances where the final amount is unknown but is expected to meet or exceed the $50,000 threshold amount, the appropriate official should report the threshold amount on Form 1098-F.
The appropriate official must also furnish a written statement with the same information to the payor. They can satisfy this requirement by providing a copy of Form 1098-F. This statement must be provided by January 31 of such year.
Effective Date
The final regulations apply to tax years beginning on or after the date of publication in the Federal Register. The final regulations under Reg. §1.6050X-1 apply only to orders and agreements, pursuant to suits and agreements, that become binding under applicable law on or after January 1, 2022.
The IRS has provided a safe harbor allowing a trade or business that manages or operates a qualified residential living facility to be treated as a "real property trade or business" solely for purposes of qualifying to make the Code Sec. 163(j)(7)(B) election. This guidance formalizes the proposed safe harbor issued in Notice 2020-59, I.R.B. 2020-34, 782. Taxpayers may apply the rules to tax years beginning after December 31, 2017.
The IRS has provided a safe harbor allowing a trade or business that manages or operates a qualified residential living facility to be treated as a "real property trade or business" solely for purposes of qualifying to make the Code Sec. 163(j)(7)(B) election. This guidance formalizes the proposed safe harbor issued in Notice 2020-59, I.R.B. 2020-34, 782. Taxpayers may apply the rules to tax years beginning after December 31, 2017.
Qualified Residential Living Facilities
A facility is deemed to be a "qualified residential living facility" if it:
- consists of multiple rental dwelling units within one or more buildings or structures that generally serve as primary residences on a permanent or semi-permanent basis to individual customers or patients;
- provides supplemental assistive, nursing, or other routine medical services;
- has an average period of customer or patient use of individual rental dwelling units of 30 days or more; and
- retains books and records to substantiate requirements.
Further, taxpayers must use the Code Sec. 168(g) alternative depreciation system to depreciate the property under Code Sec. 168(g)(8).
Taxpayers satisfying the requirements of the safe harbor after a deemed cessation of the electing trade or business will have their initial election under Code Sec. 163(j)(7)(B) automatically reinstated.
The IRS has released final regulations addressing the post-2017 simplified accounting rules for small businesses. The final regulations adopt and modify proposed regulations released in August 2020.
The IRS has released final regulations addressing the post-2017 simplified accounting rules for small businesses. The final regulations adopt and modify proposed regulations released in August 2020.
Implementation of the Rules
The Tax Cuts and Jobs Act ( P.L. 115-97) put in place a single $25 million gross receipts test for determining whether certain taxpayers qualify as small taxpayers that can use the cash method of accounting, are not required to use inventories, are not required to apply the Uniform Capitalization (UNICAP rules), and are not required to use the percentage of completion method for a small construction contract.
Highlights of Changes in the Final Regulations
Annual syndicate election. The proposed regulations permit a taxpayer to elect to use the allocated taxable income or loss of the immediately preceding tax year to determine whether the taxpayer is a syndicate under Code Sec. 448(d)(3) for the current tax year. Under the proposed regulations, a taxpayer that makes this election must apply the rule to all subsequent tax years, unless it receives IRS permission to revoke the election.
The final regulations provide additional relief by making the election an annual election. The election is valid only for the tax year for which it is made, and once made, cannot be revoked. The IRS intends to issue procedural guidance to address the revocation of an election made under the proposed regulations as a result of the application of the final regulations.
Five-year written consent requirement relaxed. The proposed regulations require a taxpayer that meets the gross receipts test in the current tax year to obtain the written consent of the Commissioner before changing to the cash method if the taxpayer had previously changed its overall method from the cash method during any of the five tax years ending with the current tax year. The final regulations remove the 5-year restriction on making automatic accounting method changes for certain situations.
Other changes. Additional changes include the following:
- To reduce confusion about the nature of property treated as non-incidental materials and supplies under Code Sec. 471(c)(1)(B)(i), the final regulations refer to the method under that provision as the "section 471(c) NIMS inventory method."
- The final regulations provide that inventory costs includible in the section 471(c) NIMS inventory method are direct material costs of the property produced or the costs of property acquired for resale.
- Examples are added to clarify the principle that a taxpayer may not ignore its regular accounting procedures or portions of its books and records under the non-AFS section 471(c) inventory method.
- The final regulations clarify how a taxpayer treats costs to acquire or produce tangible property that the taxpayer does not capitalize in its books and records.
Applicability Date
The final regulations are applicable for tax years beginning on or after the date of publication in the Federal Register. However, a taxpayer may apply the final regulations under a particular Code provision for a tax year beginning after December 31, 2017, if the taxpayer follows all the applicable rules contained in the regulations that relate to that Code provision for the tax year and all subsequent tax years, and follows the administrative procedures for filing a change in method of accounting.