Tax Updates October 27

FAQ Updates and Clarification

Due to concerns around transparency and impact on taxpayers, the IRS is updating its process for certain frequently asked questions (FAQs). The IRS is also addressing concerns regarding the application of penalties to taxpayers who rely on FAQs in making business and tax decisions. FAQs on newly enacted tax legislation will now be announced in a news release and posted in a Fact Sheet, which will confirm to taxpayers the date at which changes are enacted. Prior versions of Fact Sheet FAQs will be maintained on A statement is also being released clarifying that if a taxpayer relies on any FAQ in good faith and that reliance is reasonable, the taxpayer will have a “reasonable cause” defense against any penalty if it turns out the FAQ was inaccurate.

Research Credit Claim Changes

The IRS aims to improve tax administration with clearer instructions for those seeking to claim a research and experimentation credit. Each year thousands of claims are submitted from corporations, businesses, and individuals. Currently those claims consume significant IRS resources. It is proposed that taxpayers provide information at the time the refund claim is filed, including all business components to which the claim relates that year; identifying all research activities and the names of the individuals doing the research; and the total qualified wage, supply, and contract expenses. By requiring this information, it is hoped the IRS will be able to determine immediately whether a credit refund should be paid, or if further review is needed. There is a grace period until January 10, 2022 before this information will be required and further comments are welcomed.

More COVID Relief – Hiring Retirees

The IRS is reminding employers that they generally won’t put the tax status of their pension plans at risk if they rehire retirees or permit distributions of retirement benefits to current employees who have reached age 59 1/2 or the plan’s normal retirement age. Retaining experienced workers and encouraging retirees to return to the workforce may help address COVID-related labor shortages. There are two new FAQ pages designed to guide public and private employers who sponsor pension plans.

Timely E-Filing of Payroll Tax Returns

The IRS is reminding employers that the next quarterly payroll tax return is due November 1, 2021, and urges them to file electronically. E-filing is the most accurate and efficient method to file returns, and reduces processing time and errors. There are two options available for filing: Self-file (purchase IRS-approved software, pay a fee, apply for an online signature PIN or attach the required form), or hire a qualified tax professional who can file on behalf of the business.