Federal Tax Posts

A reminder: Taxpayers receiving Social Security (SS) benefits may have to pay federal income tax on a portion of those benefits. For example, up to 85% of a taxpayer’s benefits may be taxable if he or she is: 1) filing single, head of household or qualifying widow or widower with more than $34,000 income, 2) married filing jointly with more than $44,000 income, 3) married filing separately and lived apart from their spouse for all of 2019 with more than $34,000 income, or 4) married filing separately and lived with their spouse at any time during 2019. Social Security benefits include monthly retirement, survivor and disability benefits. Learn more: https://bit.ly/2CyOgkX 


Many U.S. taxpayers don’t speak English well enough to understand their rights and responsibilities under tax law. That includes their eligibility for federal stimulus checks and other tax relief during the COVID-19 crisis. To reach as many people as possible, the IRS translates tax information into multiple languages. To get information in one of those languages, taxpayers can click on the language dropdown tab at the top of every IRS.gov page. Languages currently available include Spanish, Chinese, Korean, Russian, Vietnamese and Haitian-Creole. The IRS also offers information in a variety of file formats, such as Braille and screen-reading software. Here’s more: https://bit.ly/37gtstW 


If you owe money to the IRS, a bill may be coming your way soon. As a result of office closures due to the COVID-19 crisis, the IRS had been unable to mail some previously printed “balance due” notices. But the notices will be delivered to taxpayers in the next few weeks as IRS operations continue to reopen, according to the tax agency. An insert in the notice will provide an extended due date of either July 10 or July 15. Taxpayers with questions about their balance due should visit the website supplied in the mailing or call the phone number provided. IRS phone lines remain extremely busy.


COVID-19-affected investors and businesses involved in New Markets Tax Credit transactions are granted deadline relief. The extension applies to community development entities (CDEs) and qualified active low-income community businesses (QALICBs) working in low-income communities. IRS Notice 2020-49 provides a CDE or QALICB with a deadline extension for certain time-sensitive acts due to be performed on or after April 1, 2020, and before Dec. 31, 2020. These actions include making investments, reinvesting and expending amounts for real estate construction. The deadline for performing these actions is now Dec. 31, 2020. Read the notice: http://bit.ly/3cQzTFe 


Proposed IRS regulations define real property for Section 1031 like-kind exchanges. Under the Tax Cuts and Jobs Act, Sec. 1031 like-kind exchange rules are limited to exchanges of real property completed after Dec. 31, 2017. The proposed regs reflect this change by amending the existing regs to add a definition of real property. The proposed regulations also provide a rule addressing a taxpayer’s receipt of personal property that’s incidental to real property received in the exchange. Taxpayers may rely on the proposed regs for exchanges of real property beginning after Dec. 31, 2017, until the final regs are published. For more info on the proposed regs: https://bit.ly/2MU9Mm6 


Reminder: The extended deadline for paying estimated taxes is about a month away. If you pay estimated taxes, be aware that the first and second quarter payments for tax year 2020, which were originally due April 15 and June 15, are now due July 15. Individuals and corporations that make quarterly estimated tax payments have until July 15 to make their payment without penalty. The deadlines were extended as a response to the COVID-19 pandemic.


A leave-sharing program is one an employer sets up where employees can donate their vacation, sick or personal leave in exchange for the employer making cash payments to a tax-exempt organization. The IRS just provided guidance on leave-sharing programs that provide relief to COVID-19 victims. Specifically, Notice 2020-46 provides that cash payments employers make, under leave-sharing programs, to tax-exempt organizations providing relief to COVID-19 victims, won’t be treated as wages or compensation to the employees for federal tax purposes. Employees who forgo leave can’t claim a charitable contribution deduction for its value. For additional details: https://bit.ly/2Yt0LG7 


Proposed IRS regulations would allow deductions for certain medical expenses. The U.S. tax code allows taxpayers to claim itemized deductions for eligible medical expenses to the extent they exceed 7.5% of adjusted gross income in 2020. Under the proposed regs, payments for direct primary care arrangements and for membership in a health care sharing ministry could be deducted. Also proposed: These payments could be reimbursed by a health reimbursement arrangement. A tax-exempt health care sharing ministry has members that share ethical or religious beliefs and share medical expenses among members. The proposed regs were developed in response to an Executive Order from President Trump.


Childcare and adult dependent care can be expensive. That’s especially true for essential workers with dependents, now that schools and many traditional care services are closed during the COVID-19 crisis. The IRS is reminding taxpayers that they may be able to claim a valuable tax credit if they pay for care for qualified persons. The IRS defines a taxpayer’s qualifying person as a dependent who is: under age 13; a spouse who is unable to care for him or herself and lived more than half the year with the taxpayer; a person who is unable to care for him or herself, lived with the taxpayer more than six months and meets certain other conditions. Here’s more: https://bit.ly/2BXgiXj 


Large dollar tax refunds may not get proper scrutiny, according to a recent report. The Treasury Inspector General for Tax Administration (TIGTA) audited the handling of tax refunds that exceeded $2 million for income, estate, gift and certain excise taxes for non-C-corporation taxpayers or exceed $5 million for C corporations. Tax law requires that such refunds be examined by the IRS and then reviewed by the Joint Committee on Taxation (JCT). The audit found 1,664 instances when refunds should’ve been examined but weren’t. TIGTA also noted that returns may be identified for potential JCT review but “not all cases are sent to the JCT when required.” Here’s the audit: https://bit.ly/2XND9wO 


The IRS announced on June 4 that interest rates will decrease for the 3rd calendar quarter starting July 1. The rates will be 3% for overpayments (2% for a corporation), 0.5% for the portion of a corporate overpayment exceeding $10,000, 3% for underpayments, and 5% for large corporate underpayments. Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For non-corporate taxpayers, the overpayment and underpayment rates are the federal short-term rate plus 3 percentage points. These interest rates are computed from the federal short-term rate determined during April to take effect May 1, based on daily compounding. (Rev. Ruling 2020-13)


In a website message, IRS Commissioner Charles Rettig explained that the agency is reopening facilities in various states after curtailing operations because of the COVID-19 pandemic. The IRS is now bringing more employees back into its offices to do work that can’t be performed remotely. The first phase includes certain employees in Kentucky, Texas and Utah. The next steps include opening offices in the following states: Georgia, Tennessee, Missouri and Michigan beginning June 15 and Indiana, Ohio, California, Puerto Rico and Oregon beginning June 29. These include key processing centers, notice print facilities and call center operations. To learn more: http://bit.ly/2MHohtE 


The IRS has provided a safe harbor for taxpayers that develop renewable energy projects. For some projects that began construction in 2016 or 2017, Notice 2020-41 adds an extra year to the 4-year “continuity safe harbor” provided in existing guidance. This is to reflect that COVID-19 has caused delays in the supply chain for components needed to complete energy projects. The Notice also provides other relief. It applies to projects that produce electricity from sources such as wind, biomass, geothermal, trash and hydropower, and technologies including solar panels, fuel cells, microturbines, and combined heat and power systems. Read the Notice: https://bit.ly/2XzgNxK 


The Treasury and IRS have proposed regs to help businesses claim credits for carbon capture. The regs provide guidance on two new credits for carbon oxide captured using equipment placed in service on or after Feb. 9, 2018. The credits, which were part of legislation enacted in Feb. 2018, would allow up to 1) $50 per metric ton of qualified carbon oxide for permanent sequestration and 2) up to $35 for “enhanced oil recovery” purposes. Neither of the credits is limited to a specified number of metric tons of captured carbon oxide. The 2018 legislation, the “Bipartisan Budget Agreement,” also expanded carbon capture to include “qualified carbon oxide.” Learn more: https://bit.ly/3ciWxpC 


In new guidance, the IRS has provided more coronavirus (COVID-19) deadline relief for employment taxes, employee benefit plan and other requirements. Notice 2020-35 postpones deadlines for certain specified time-sensitive actions with respect to certain employment taxes, employee benefit plans, exempt organizations, and Coverdell education savings accounts because of the ongoing COVID-19 pandemic. The notice also provides a temporary waiver of the requirement for a Certified Professional Employer Organization to file certain employment tax returns and accompanying schedules electronically. Read the guidance here: https://bit.ly/2TQcuNE