Federal Tax Posts

The IRS has announced that eligible victims of Hurricane Sally qualify for federal tax relief. This includes victims in counties of Florida that are designated as federal disaster areas qualifying for individual assistance. They now have more time to make tax payments and file returns. Deadlines for certain other time-sensitive acts also are postponed. The IRS already announced relief for Hurricane Sally victims in some Alabama counties. For more information about the latest relief: https://bit.ly/2Gqq07a 


COVID-19 is causing operational delays for the IRS, as it has with many businesses. An IRS official recently acknowledged that the tax agency is experiencing delays in processing paper returns and other mail due to limited staffing. As of Oct. 2, around 5 million pieces of unopened mail (about half of which are tax returns) remain unopened and are stored at various IRS processing centers. This unopened mail backlog also consists of tax payments and taxpayer correspondence. The IRS said that it will “systemically abate” late-payment penalties for paper checks mailed by the extended July 15 due date, once it has processed all the backlogged mail.


Do you know someone who isn’t required to file a tax return and hasn’t yet received an Economic Impact Payment (EIP)? The IRS has announced that the deadline to register for an EIP is now Nov. 21, 2020. This new date will provide an additional five weeks beyond the original deadline. EIPs are being sent by the federal government to eligible Americans to help mitigate the effects of the COVID-19 pandemic. The IRS urges people who don’t typically file a tax return (perhaps because they don’t have enough income), and who haven’t received an EIP, to register soon. To register, go to https://bit.ly/2SznNsu 


The IRS has released answers to frequently asked questions about marijuana businesses. For example, one question asks if a taxpayer operating a marijuana business in compliance with his or her state’s laws has the same income and employment tax filing obligations as other businesses. The answer is “yes” even though the federal government considers the business an illegal activity. “Income from any source is taxable,” the IRS explains. Federal courts have consistently upheld IRS determinations that compliant marijuana businesses have taxable income. Similarly, marijuana businesses have no exemption from employment tax obligations. To read the Q&As: https://bit.ly/3l8x9HE 


The IRS has issued final regulations on the business expense deduction for meals and entertainment. The Tax Cuts and Jobs Act generally eliminated the deduction for expenses related to activities generally considered entertainment or recreation. However, taxpayers may still deduct some business expenses related to food and beverages. The final regs address the disallowance of the deduction for expenses related to entertainment or recreation, including the applicability of certain exceptions to the disallowance. They also provide guidance to determine whether an activity is considered entertainment. Also addressed is the limitation on the deduction of food and beverage expenses.


How does the tax code define “dependent” for tax purposes? The IRS has finalized the definition based on changes brought by the Tax Cuts and Jobs Act (TCJA) for tax years 2018 through 2025. The definition of dependent includes a qualifying relative who meets two tests. The “income test” is met if the individual receives gross income below the exemption amount in effect that year ($4,150 for this purpose only. For tax calculations, the exemption is zero). The “support test” is met when an individual receives more than half of his or her support from the taxpayer. The child tax credit of $500 may be available for certain dependents including qualifying relatives who aren’t children.


Taxpayers have the right to know what they need to do to comply with the tax laws. “The right to be informed” is included in the IRS’s “Taxpayer Bill of Rights.” The tax agency explains that this means you have the right: to have a clear explanation of the laws and IRS procedures in all IRS materials, including in correspondence; to be informed of IRS decisions about your tax accounts; and to receive clear explanations of the outcomes of IRS decisions. You can learn more about this right here: https://bit.ly/3hBc5aE 


Final regulations clarify that the premium tax credit isn’t affected by the suspended personal exemption. The IRS has issued an advance copy of final regs stating that the reduction of the personal exemption deduction to zero for tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026, doesn’t have an effect on an individual taxpayer’s ability to claim the premium tax credit. A premium tax credit generally is available to eligible individuals enrolled in qualified health plans. The tax code includes rules that apply based on whether a taxpayer claims a personal exemption deduction. These rules affect eligibility for, among other things, the premium tax credit.


The IRS has submitted its 2021 budget request to Congress. In its budget justification report, the IRS is requesting $12 billion in funding, which is a 5% increase over 2020 funding levels. The request includes a $400 million program integrity investment in 2021 “that over 10 years will generate $79 billion in additional revenue and reduce the $381 billion net tax gap,” the IRS said in the report. Among other requests: $106 million to implement the Taxpayer First Act of 2019 and $300 million for “modernization to transform the taxpayer experience with new digital communications, online payment tools and stronger data encryption.” Read the report here: https://bit.ly/2RC5nqf 


Did you ask for an extension for your 2019 tax return this year? If so, keep in mind that Oct. 15, 2020 is the last day to file for most people who requested an extension. You can file your return any time before that date if you have all your required tax documents. Contact us for assistance. October isn’t that far away.


The IRS offers after-tax-day troubleshooting tips for taxpayers still facing issues. They include: checking the status of your refund using the link provided below and doing a “paycheck checkup” to ensure the right amount of tax is being withheld from your pay so you can avoid an unexpected tax bill and possible penalties for 2020. Also, taxpayers who owe money to the IRS can view their federal tax balances online, pay their tax bills or apply for payment plans. Find answers here: https://bit.ly/2CYkV3F  If you discover that you made an error or omission on your tax return, you can amend an already-filed return. Contact us for assistance or with questions.


Generally, individuals can roll funds from one IRA into another within 60 days, tax-free. The IRS may waive the 60-day rule when the failure to meet the deadline is due to events out of the reasonable control of the taxpayer. In one case, a taxpayer received an IRA distribution and failed to meet the rollover deadline. She contended that the financial institution that issued the check didn’t inform her the check represented an IRA distribution. Also, she was in the midst of a divorce and her then-husband had handled tax and financial matters. In a Private Letter Ruling, the IRS stated that the documentation she submitted supported her assertions and it waived the 60-day rule. (PLR 202029006)


Don’t fall for misleading ads that claim you can easily resolve your tax debt for “pennies on the dollar,” warns the IRS. These ads made the IRS 2020 list of “Dirty Dozen” top scams that target taxpayers. While it’s true that taxpayers who owe more than they can pay can seek an “Offer in Compromise” (OIC) from the IRS, unscrupulous companies exaggerate the chances of settling tax debts for practically nothing. A true OIC requires taxpayers to meet specific criteria under law. Thousands of taxpayers benefit from OICs every year, but not everyone qualifies. In fiscal year 2019, there were 54,000 OICs submitted but only 18,000 were accepted. Contact us for help seeking a true OIC from the IRS.


Here’s a reminder for taxpayers using the IRS’s Income Verification Express Service (IVES). July 31 is the deadline for providing an electronic signature and certifying the update of your account. The IVES program is used by mortgage lenders and others in the financial community to confirm the income of a borrower during the processing of a loan application. In order to update its records and continue each IVES participant’s participation in the program, the IRS requires all IVES participants to take these steps. Failure to submit the certification will result in suspension and potential removal from the IVES program, according to the IRS.


Some people missed the July 15 federal tax filing deadline. If a person is entitled to a refund, there’s no penalty for filing late. But if there’s a balance due, penalties and interest began accruing on unpaid taxes on July 16, 2020. The IRS urges anyone who owes tax and didn’t file (and didn’t request an extension) to file as soon as possible. If a penalty is charged for late filing, there may be penalty relief by calling the IRS at the phone number on the penalty notice. Also, certain taxpayers are permitted extra time to pay, including some disaster victims, military service members and eligible support personnel in combat zones. Here’s more from the IRS: https://bit.ly/2COxhvk