Guidance Issued re: Retirement, Annuity Withholding
The IRS and Treasury have issued a proposed regulation impacting federal income tax withholding rules for periodic retirement and annuity payments made after December 31, 2020. Prior to the Tax Cuts and Jobs Act (TCJA), if there was no W-4 in effect for periodic payments, the withholding was determined by treating the taxpayer as a married individual claiming three withholding exemptions. That will continue for year 2020. Beginning in 2021, when there is no W-4 in effect, the IRS and Treasury Department will provide the rules and procedures to determine the withholding with
various forms, instructions, publications and other guidance.
Plain Envelopes Deliver Economic Impact Payments
The IRS reminds taxpayers that their economic impact payment may arrive in the form of a prepaid debit card in a plain white envelope from "Money Network Cardholder Services.” Not every recipient will receive their payment in the form of a prepaid debit card, but for those who do, it may be used to make purchases online or in person anywhere a Visa credit card is accepted, get cash from an ATM, and transfer money to a bank account. More information can be found at EIPcard.com.
Safe Harbor For Renewable Energy Projects
Because Covid-19 has impacted the supply chain for many renewable energy projects eligible for tax credits , the IRS and Treasury have issued a notice for tax relief. Projects include those that produce electricity from wind, biomass, geothermal, landfill gas, trash, and hydropower, and use technologies such as solar panels, fuel cells, microturbines, and combined heat and power systems. Some projects begun in 2016 or 2017 have had a fifth year added to the four-year "Continuity Safe Harbor,” and those paid for by the taxpayer on or after September 16, 2019 and received by October 15 of this year have 3½ months safe harbor added. This aims to allow the taxpayers to remain eligible for certain tax credits.
Qualified Opportunity Funds Tax Relief
The Internal Revenue Service has provided guidance for Qualified Opportunity Funds (QOFs) and their investors in response to the ongoing COVID-19 pandemic. Taxpayers looking to invest in a QOF to defer gain may have additional time. Certain statutory penalties and working capital safe harbor rules have been eased and timelines extended. The QOF FAQ has also been updated.
The IRS is Not Accepting Paper Applications
Little Giant Tax Services are are here to help you with your tax filing throughout the next few months of stay at home orders. At this time, the IRS is not accepting physical returns. If you want to have one of our staff help you e-file your return, please call or email us.
Extensions Extended To Trusts, Estates, Corporations
The IRS recently extended the filing and payment deadline for most individual taxpayers to July 15, from April 15. Now they have extended that same relief to trusts, estates, corporations, and other non-corporate filers. Additionally, those with estimated tax payments typically due June 15, 2020 can wait until July 15 to make that payment, without penalty.
Registration Tool For Non-Filers
The Treasury and IRS have released a new tool for certain individuals to register to receive economic impact payments. Those who have not filed taxes for 2018 or 2019, and also did not receive Social Security payments or Railroad Retirement benefits will need to use the new web tool to register and input their information in order to receive payment. This may apply to individual and joint filers who do not make enough to file a tax return, but will not apply to students or others who are claimed as dependents on another tax return. A new tool is being built to check the status and expected date of all economic impact payments, and should be online by the end of this week.
Reschedule April 15 Payments Now
Taxpayers who have scheduled quarterly payments for April 15 have until midnight eastern time on the 13th to reschedule their payment for July 15, 2020. Those who have scheduled electronic funds transfer (EFT) or debit, credit, or digital wallet payments can reschedule those payments, but those adjustments must be made right away.
Reminder: Up-To-Date Coronavirus Tax Relief
The IRS is aggregating all pertinent tax information regarding Coronavirus tax relief in one central site. Whether you are a taxpayer, employer, small business owner, health plan administrator, or just wanting to know the latest deadline updates, you can find it here.
The IRS warns taxpayers to avoid unethical “ghost” tax return preparers. The 2020 filing season is underway and fraudulent predators are taking every advantage. A ghost preparer is someone who prepares a tax return for someone, but does not sign it. They print it out and tell the taxpayer to sign and mail it or, if e-filing, they do not add their digital signature as a paid preparer, as required by law. You can avoid falling prey to a ghost by being aware of their tactics: They may require payment in cash and withhold a receipt; they may invent income or deductions to qualify the taxpayer for credits or refunds; they may direct the tax refund into their own bank account instead of the taxpayer’s. Using a legitimate tax preparer with a valid Preparer Tax Identification Number is a sure way to avoid falling prey to a ghost preparer.
Guidance For Student Borrowers and Creditors
The IRS and Treasury issued guidance that extends the relief for some taxpayers who had student loans discharged. The Revenue Procedure provides relief when the federal loans are discharged by the Department of Education under the Closed School or Defense to Repayment discharge process, or where the private loans are discharged based on certain legal settlements. Taxpayers within the scope of this procedure should not report the amount of discharged loan as gross income, nor should creditors issue a 1099-C to taxpayers or the IRS.
IRS Reconsiders Double Taxation
The IRS is willing to consider requests for relief from double taxation resulting from the repatriation of monies under the Tax Cuts and Jobs Act (TCJA). In a few instances where corporations have paid an unusual dividend, not because of the TCJA, it may be appropriate to provide relief from double taxation. When the same earnings and profits of foreign corporations are taxed both as dividends and under section 965, double taxation could result. Taxpayers who fit these limited circumstances may contact the Office of Associate Chief Counsel (International).
US Tackles International Tax Evasion
The Joint Chiefs of Global Tax Enforcement, known as the J5, brings together leaders of tax enforcement authorities from Australia, Canada, the UK, US and the Netherlands to lead the fight against international tax crime and money laundering. Specifically, it is believed that clients of a financial institution located in Central America may be using a sophisticated system to conceal and transfer wealth anonymously to evade their tax obligations and launder their criminal proceeds. Though this was the first meeting of its kind, the J5 plan to continue coordinating such global enforcement.
National Tax Security Awareness Week
The IRS and Security Summit partners marked National Tax Security Awareness Week earlier this month with a series of tips and reminders for consumers, taxpayers, businesses, and professionals. Advice focused on protecting your personal and financial information while online shopping, guarding against email and phishing scams, creating strong passwords, tips for business owners to avoid identity theft, and encouraging tax professionals to have a data security plan.
Foreign Tax Credit Regulations Finalized
The IRS and Treasury issued final regulations regarding the Foreign Tax Credit. This credit generally allows individuals and businesses to claim a US tax credit for income taxes paid to foreign governments. These regulations were updated due to changes the Tax Cuts and Jobs Act (TCJA) made in how taxable income is calculated and how the US taxes international income.
Jan 31 Filing Deadline For Businesses
The IRS reminds employers and other businesses that wage statements and independent contractor forms have a due date of January 31. While businesses used to have more time to file such forms as Form W-2, Form W-3, and 1099-MISC, the 2015 Protecting Americans from Tax Hikes (PATH) Act permanently changed the due date to help protect against fraud.
Dec 31 Deadline For Minimum Distributions
December 31 is the deadline for retirees to take their required minimum distributions (RMDs) from certain retirement plans. Those who turned 70½ in 2019 are allowed to wait until April 1, 2020, to take their first RMD. This deadline applies to most IRAs, SEP IRAs, SIMPLE IRAs, and workplace plans such as 401(k), 403(b) and 457(b) plans. Roth IRAs don’t require distributions while the original owner is alive.
Interest Rates To Remain the Same
The IRS announced that interest rates will remain the same for the quarter beginning January 1, 2020. The rates will be:
- 5% for overpayments (4% in the case of a corporation)
- 2.5% for the portion of a corporate overpayment exceeding $10,000
- 5% for underpayments
- 7% for large corporate underpayments
These rates are computed from the federal short-term rate determined during October 2019.
The IRS has warned about a recent gift card scams, one of the many scams that people need to be aware of.
IRS GIft Card Scams
These scams follow many of the traits of a typical phone scam: someone calls you from a source that you wouldn’t question. They tell you that something bad has happened (in recent cases, your identity is stolen). Then, they get you to do something that gives them access to your income. In this case, they attempt to convince you that you need to buy different gift cards and give them the card numbers in order to prove that you are who you say you are.
If you think this sounds silly, remember that aware and alert people don’t fall to scammers, but anyone can fall to this type of scam when tired, scared about an actual IRS issue, or too nervous or hopeful from some other issue.
Avoid IRS Scams
If someone contacts you and asks for immediate payment, purchasing gift cards, giving your info, or some other time sensitive activity, remember these principles:
- Call Them – If you are dealing with financial or tax issues, you will get many calls from creditors, collectors, and so on. Look up the organization you are dealing with and call them on an official number. If they demand you do something now, thank them for the information and inform them you will call them back. Then, find the official customer service number and call them.
- Get it in writing – Official correspondence in the United States is in writing. If the IRS is dealing with you in an official manner, they will send you paperwork.
- If It’s too good (or bad) to be true, it’s not true – not to sound too pessimistic, but scammers always attempt to appeal to our hopes by giving us limited time offers to something that has the potential to completely change our lives. Demand double verification and time if something seems to be life changing, either good or bad.
What to Do if You are Contacted By Scammers
If you happen to be targeted by a scammer, you have several options to notify governmental enforcement:
Don’t get scammed by fraudsters pretending to be with the IRS. If you are worried about IRS collections or other issues, come by our office for an appointment and we will discuss your tax needs.
Third Quarter Tax Payments Due
The IRS reminds taxpayers that those owing estimated quarterly tax payments must
pay their third quarter installment by September 16 . This generally applies to small
business owners and the self-employed, including those participating in the sharing
economy as well as others whose earnings aren’t subject to withholding, such as
retirees, investors, landlords, and those receiving alimony.
Regulations For 100% Depreciation Released
The IRS and Treasury released final and proposed regulations regarding the 100% first-
year depreciation allowed on certain depreciable business assets. Machinery,
equipment, computers, appliances and furniture generally qualify. The final regulations
provide guidance on the depreciation of used property as well as qualified film,
television and live theatrical productions. The proposed regulations deal with new
provisions not addressed previously.
Reporting Relief For Some Tax-Exempt Organizations
The IRS has issued proposed regulations regarding the reporting requirements for
certain tax-exempt organizations which include, among other things, the existing
exception from having to file an annual return for certain organizations that have gross
receipts of $50,000 or less, and relief from the requirement to report contributor names
and addresses. In compliance with a recent court decision, the IRS and Treasury
welcome all public comments on the proposed regulations.
Former US Citizens Offered Tax Relief
New procedures have been announced that will enable certain individuals who
relinquished their U.S. citizenship to fulfill their tax and filing requirements and receive
some relief for back taxes. Those whose tax non-compliance was non-willful, who owe
less than $25,000 in back taxes, and whose net assets are less than $2 million may be
able to avoid interest and penalties, and come into compliance with their tax obligations.
The IRS will host a webinar in the near future with additional information and practical
tips for making a submission to the Relief Procedures for Certain Former Citizens .
IRS Updates, July 16
Data Security and Tax Professionals
The IRS and Security Summit partners have issued a checklist to help tax professionals stay ahead of scams and fraud risks. Cybercriminals continue to evolve tactics, but reported identity theft is down significantly since 2015. Tax professionals are urged to deploy the “Security Six” measures (anti-virus software, firewall, two-factor authentication, backup services, drive encryption, and VPNs), create a data security plan, be aware of the latest email phishing scams, recognize the signs of client data theft, and create a data recovery plan. More resources are available.
EITC Report and “Subway Map” Released
National Taxpayer Advocate Nina E. Olson has released a special report on the Earned Income Tax Credit (EITC), which makes recommendations aimed at increasing the participation rate of eligible taxpayers and reduce overclaims by ineligible taxpayers. Additionally, the Taxpayer Advocate Service (TAS) has published a subway map that illustrates a taxpayer’s “journey” through the tax system to help individuals better understand the tax process. Among the EITC recommendations is that the IRS acknowledge its role as an administrator of benefits programs, and that Congress hold regular oversight hearings of the IRS.
Summertime Tax Tips
Many common summertime activities can have an impact on next year’s taxes or deductions. Getting married? That has tax implications. Summer day camp (not overnight camp) can often qualify for the Child and Dependent Care Credit. Part time and seasonal workers should use the Withholding Calculator to make sure their withholding is appropriate. If you plan to itemize deductions next year, buying or refinancing a home, donating cash or time, and paying state and local taxes are things to keep track of to make filing easier. A tax professional can help you be ready for tax season.
Refunds For Combat-Injured Veterans
Time is running out for some combat-injured veterans to claim a tax refund. Those who received disability severance payments after 1991 and claimed it as income may be eligible for a refund of up to $3200. Eligible veterans should have received a mailed notice from the Department of Defense in July of 2018 explaining how to claim their tax refunds. The IRS has instructions for claiming the refund, or what to do if you are eligible for the refund but received no mailed notice.