March 16, 2021
Do nothing until you hear from them, says IRS to 2020 unemployment benefits recipients. The IRS has issued a statement telling taxpayers with 2020 unemployment benefits to await further guidance before filing 2020 amended returns reflecting the Rescue Act exclusion of benefits from income. From the statement:
The IRS is reviewing implementation plans for the newly enacted American Rescue Plan Act of 2021. Additional information about a new round of Economic Impact Payments, the expanded Child Tax Credit, including advance payments of the Child Tax Credit, and other tax provisions will be made available as soon as possible on IRS.gov. The IRS strongly urges taxpayers to not file amended returns related to the new legislative provisions or take other unnecessary steps at this time.
The IRS will provide taxpayers with additional guidance on those provisions that could affect their 2020 tax return, including the retroactive provision that makes the first $10,200 of 2020 unemployment benefits nontaxable. For those who haven't filed yet, the IRS will provide a worksheet for paper filers and work with software industry to update current tax software so that taxpayers can determine how to report their unemployment income on their 2020 tax return. For those who received unemployment benefits last year and have already filed their 2020 tax return, the IRS emphasizes they should not file an amended return at this time, until the IRS issues additional guidance.
The new legislation retroactively provides a tax exclusion for the first $10,200 of unemployment benefits received in 2020. The benefit vanishes with no phase-out if adjusted gross income exceeds $150,000.
Related: What’s Included in the $1.9 Trillion COVID-19 Rescue Bill.
IRS offers guidance on unemployment benefits exclusion - Michael Cohn, Accounting Today. "The agency recommended taxpayers and preparers use the updated instructions and the Unemployment Compensation Exclusion Worksheet to calculate their exclusion and the amount to be entered on Schedule 1, lines 7 and 8. The instructions for Schedule 1 (Form 1040), line 7, Unemployment Compensation, and line 8 on the worksheet, have been updated to reflect the latest changes, and the IRS guidance page shows the revised instructions."
IRS Issues Instructions for Unemployment Compensation Exclusion - William Hoffman, Tax Notes. "The IRS also cautioned that some states issue Forms 1099-G to taxpayers electronically rather than by mail."
Cooling Breeze For The Tax Season From Hell - IRS Does Not Want Amended Returns Right Away - Peter Reilly, Forbes ($). "My money is that they will program things to make the adjustment automatically. They can likely do that more easily than processing many thousands of amended returns. We'll see."
IRS Releases Instructions on Reporting ARPA Unemployment Exclusion - Ed Zollars, Current Federal Tax Developments.
The American Rescue Plan has expanded Paycheck Protection Program (PPP) loan eligibility to include any “additional covered nonprofit entity”. Additional covered entities include any organization described in Section 501(c) of the Internal Revenue Code, except for section (3), (4), (6) or (19). The expansion applies only to nonprofit organizations with fewer than 300 employees that do not receive more than 15% of gross receipts from lobbying activities, engage more than 15% of activities in lobbying or incur more than one million in lobbying expenses...
The deadline for applying for the PPP loans was not extended, so organizations have until March 31, 2021, to apply for loans.
Related: What to Know About the Employee Retention Credit.
Child Tax Credit Change for 2021 Brings Equity and Complexity - Annette Nellen, 21st Century Taxation. "It will also require taxpayers to reconcile when they file their 2021 return and pay any excess advance back (although a safe harbor might apply to limit how much as to be paid back). The IRS has to get this system in place even though, unless renewed, it is only for 6 months!"
Federal COVID-19 Relief Law Could Prevent New State Tax Incentives - Lauren Loricchio, Tax Notes:
The $1.9 trillion American Rescue Plan Act of 2021 (P.L. 117-2), signed March 11, includes $350 billion in aid for state and local governments. It also contains a provision that prevents states or local territories from using the funds to “either directly or indirectly offset a reduction in the net tax revenue of such State or territory resulting from a change in law, regulation, or administrative interpretation during the covered period that reduces any tax (by providing for a reduction in a rate, a rebate, a deduction, a credit, or otherwise) or delays the imposition of any tax or tax increase.”
John Mozena, president of the Center for Economic Accountability, told Tax Notes that he thinks the bill would prohibit states from creating any new tax credit or rebate programs until the end of 2024 if they want to keep the federal aid. Another plausible reading is that states could not hand out new tax abatements under existing programs, he said.
The American Rescue Plan Act Greatly Expands Benefits through the Tax Code in 2021 - Garrett Watson and Erica York, Tax Foundation. "Much of the economic relief in the American Rescue Plan is administered through the tax code in the form of direct payments (stimulus checks) and expanded Child Tax Credit (CTC) in 2021. The size and method of relief will revive debates over the proper role of spending in the tax code and whether the temporary benefits should become permanent after the economy has recovered."
High-Income Tax Deadbeats Draw TIGTA, Congressional Scrutiny - William Hoffman, Tax Notes ($). "TIGTA found that under its case selection system, the IRS collected $1.56 billion from balance-due taxpayers with adjusted gross incomes of more than $1.5 million — but left $2.44 billion in unpaid tax on the table. The IRS also assigned high-income taxpayer cases to its private tax collection program at one-eighth the rate of their representation in a sample population of 2.2 million, the inspector general said."
TIGTA report link: High-Income Taxpayers Who Owe Delinquent Taxes Could Be More Effectively Prioritized
IRS Properly Denied Chronic Tax Dodgers’ Settlement Offer - Kristen Parillo, Tax Notes. "The IRS was justified in rejecting a Washington, D.C., couple’s offer to settle a $645,000 tax debt for about $12,000, given that the couple failed to pay taxes for 15 years despite their lavish lifestyle, the Tax Court held."
Link to opinion: T.C. Memo. 2021-3
Update on Offset of Recovery Rebate Credits: The IRS Has Agreed to Exercise Its Discretion to Stop Offsets of Federal Tax Debts - National Taxpayer Advocate Blog. "The IRS has agreed to use its discretion to bypass offsets for federal tax debts for taxpayers who file 2020 returns that claim the RRC." The "RRC" is the recovery rebate credit, known by many as the "stimulus payments."
Related: How to Address COVID-19-Related Tax Collection Issues.
Selling Farm Business Assets – Special Tax Treatment (Part Two) - Roger McEowen, Agricultural Law and Taxation Blog. "For land that is sold with an unharvested crop, if both the land and the growing crops are used in the seller’s trade or business of farming and are sold (or exchanged or compulsorily or involuntarily converted) to the same buyer in a single transaction, the land and crops are considered to be 'property used in the trade or business.'"
How IRS Taxes Lawsuit Settlements, Sometimes Twice - Robert Wood, Forbes ($). "Whenever possible, settlement agreements should be specific about taxes."
Will the tax filing deadline be extended? - Keith Nichols, Thomson Reuters Tax & Accounting. "Given the statements we’ve heard from the IRS, I advise practitioners to continue working toward the April 15th deadline."
The IRS should move the April 15 due date - Edward Karl, AICPA. "An immediate decision is needed to allow states enough time to conform to any changes."
Divided Congress Sees Allure Of Manufacturing Tax Breaks - Law360 Tax Authority ($). "A proposal backed by Sens. John Cornyn, R-Texas, a former GOP whip, and Sen. Mark Warner, D-Va., was mentioned in the White House meeting. The plan would create a 40% refundable investment tax credit for qualified semiconductor factory expenditures through 2024, followed by reduced tax credit rates of 30% and 20% in 2025 and 2026 respectively."
State film production tax breaks again in spotlight with 2021 Oscars nominations - Kay Bell, Don't Mess With Taxes. "Opponents say any residual tax revenue is not nearly enough to offset the tax breaks that states and more local taxing jurisdictions surrender. And sometimes, they note, the production tax breaks are abused, by both creators and state officials."
Missoula CPA sentenced to two years in prison, fined for filing false tax returns - US Department of Justice. "A Missoula certified public accountant convicted of filing false tax returns for a couple's businesses was sentenced today to two years in prison to be followed by one year of supervised release and fined $10,000, Acting U.S. Attorney Leif Johnson said."
From the Department of Justice Press Release (names changed to protect the guilty):
Prosecutors further alleged an undercover investigation by the IRS showed that the CPA instructed the Clients not to deposit cash in the bank or report it as income as required, to deduct personal expenses as business expenses and to improperly depreciate assets. An undercover IRS agent met with the CPA and in a recorded interview, the CPA agreed to file false tax returns for the undercover agent. At one point, the CPA asked the agent, “You're not an undercover agent from the IRS or anything?” The agent responded no. The CPA told the agent how to avoid taxes.
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