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Tax News & Views Do it in Pencil Roundup

March 30, 2021 | Blog
By Joe Kristan

IRS extends additional tax deadlines for individuals to May 17 - IRS. The IRS yesterday announced that the deadline for making 2020 contributions to Individual Retirement Arrangements and Health Savings Accounts is extended to May 17, 2021, to correspond with the extended 1040 filing date. The extended deadline also applies to 2017 refund claims for timely-filed 1040s. 

The IRS refuses to extend the April 15 deadline for first quarter 2021 estimated tax payments. IRS Commissioner Rettig has defended this position (via Tax Analysts)::

“The issue is, where do we draw a line?” Rettig said. “And that line will quickly extend to wealthy individuals who will game the system. Every time we open a door, they come in with all their advisers and everything else. So we had to draw a line, and we drew a line on the most vulnerable individuals.”

Small businesses with estimated tax payment issues should come to the IRS to discuss a solution, Rettig said. “There are many, many avenues for individuals to resolve liabilities,” he said.

Rettig noted that the estimated tax payment penalty is one-quarter of the IRS’s main interest rate, which he said “is already an arbitrarily low rate.”

Each paragraph has its own error. They extended 1040s for everyone, not just "the most vulnerable individuals," however that might be defined. Estimated taxes aren't paid just by "wealthy individuals who game the system." They are how the entire gig economy pays its taxes.  Maybe Uber drivers and Doordash delivery people make a lot more than I would have guessed.

Small businesses "should come to the IRS to discuss a solution." The same IRS that is months behind on correspondence and is answering only a fraction of taxpayer calls. 

The estimated tax rate is the same underpayment rate normally charged by the IRS, 3 percent - not an "arbitrarily low rate," but one set by law based on prevailing rates and adjusted quarterly. 

Most taxpayers base their estimated tax payments on their prior year taxes. By requiring estimated tax payments before the return deadline, they will either impose "arbitrarily low" penalties for no good reason, or undermine the extension by making people scramble to come up with a first quarter payment amount. By reiterating this position in yesterday's release, the IRS diminishes prospects of the only sensible solution: matching the first-quarter payment date to the tax deadline.

The IRS still hasn't said whether 2020 overpayments applied to first quarter 2021 estimates will be considered paid by the April 15 first quarter payment deadline, making it even harder for taxpayers to deal with the due date mismatch.

 

IRS Formalizes Extension of April 15 Form 1040 Due Date to May 17, Clarifies Other Issues Related to the Extension - Ed Zollars, Current Federal Tax Developments. "As most had suspected, the IRS again turned to IRC §7508A, the same provision used one year ago, to extend due dates, but this time doing so in a much more limited fashion than was used for 2019 returns."

IRS extends additional deadlines for individuals - National Association of Tax Professionals. "Notice 2021-21, issued today does not alter the April 15, 2021, deadline for estimated tax payments; these payments are still due on April 15."

Estimated Tax Payments - Don't Sweat The Small Stuff - Peter Reilly, Forbes ($). "The IRS decision to move the due date of returns but not estimates is annoying, but if it is really disturbing you it might be worth looking at how much is involved. That might calm you down a little. Or not."

 

Iowa extends filing deadline; addresses unemployment compensation - Iowa Department of Revenue. "The Iowa Department of Revenue has extended the filing and payment deadline to June 1, 2021 for 2020 individual income tax returns and first quarter estimated income tax payments for individuals from the April 30, 2021 statutory deadline."

That's how it's done, Commissioner Rettig.

All states with income taxes but Arizona and Hawaii have now conformed to the new federal filing date. Hawaii says it will not change its deadline, and Arizona is still considering the issue.

 

IDOR Extends Filing Deadline and Provides Unemployment Compensation Instructions - Kristine Tidgren, Ag Docket.

 

RMDs are back in 2021, but not on April 1 - Kay Bell, Don't Mess With Taxes. "The convergence of coronavirus pandemic tax considerations and a major retirement law's changes mean that there's no April 1 required withdrawal in 2021. No fooling. But you'll still have to make your regular 2021 RMD by the end of the year."

Damaged and/or Destroyed Trees and Crops – How is the Loss Measured? - Roger McEowen, Agricultural Law and Taxation Blog. "The damage calculation can differ based on whether the trees are income producing, soil preservation, or simply provide aesthetic beauty.  However, in general, the courts try to make the damaged party whole by returning them to the place they were in before the damage occurred."

Surviving a Personnel File Audit - Lauri Dahlberg, Eide Bailly. "It’s important to make sure you have good processes in place to ensure that what you’re retaining on an employee is legal and that only those who need to have access to the files. Otherwise, you may find yourself in legal trouble if the department of labor comes knocking."

Erroneously claiming certain refundable tax credits could lead to being banned from claiming the credits - National Taxpayer Advocate Blog:

Did you know the IRS has the authority to ban a taxpayer from claiming the Earned Income Tax Credit (EITC), the Child Tax Credit (CTC), the American Opportunity Tax Credit (AOTC) and the credit for other dependents (ODC) for two years if the IRS determines that the taxpayer improperly claimed the credit “due to reckless or intentional disregard of rules and regulations”? 

A good reason not to use unethical preparers who might "maximize your refund" by padding credits.

 

Congressional Budget Office and Tax Foundation Modeling Show That Some Tax Hikes Are More Damaging Than Others - Garrett Watson, Tax Policy Blog. "A recent working paper by economists at the Congressional Budget Office (CBO) shows that not all taxes are created equalprogressive taxes on labor income and taxes on capital income would have a negative impact on the economy, capital investment, and jobs, especially when compared to flatter taxes on labor income."

The Big Stakes for Treasury’s American Rescue Plan State Tax Cut Guidance - Richard Auxier, TaxVox. "A blanket restriction on all state tax cuts could block policy that aligns with the “rescue” part of the American Rescue Plan. And a restriction based on total revenue changes would be challenging to implement given how the pandemic continues to scramble state finances."

 

Fashion Designer Doesn’t Get Tax Credits for Creating Designs - Frederic Lee, Tax Notes ($). "The Tax Court disallowed a fashion designer’s research credits for 2011 and 2012, finding that his company’s design process didn’t count as qualified research."

From the Tax Court opinion:

We also struggle to grasp how fit testing garments on a model is investigative in nature. During fit testing, the production team — among other things — asked the model to: stand in direct light to see whether the garment needed a lining; walk up stairs to determine whether the garment was too short or restricted movement; sit down to determine whether the garment was too tight; and raise her arms to determine whether the garment moved well with her body. While this process is necessary to develop clothing that women want to buy and wear, it does not require systematic inquiry or close examination. It simply requires observing the model and listening to her feedback.

Eide Bailly's research credit tax team lays out some of the things that actually do qualify for the credit, including:

  • Development of new, improved or more reliable products, processes and techniques
  • Development of prototypes or models
  • Design of tools, jigs, molds, fixtures and dies
  • Automation and/or streamlining of internal processes

You can get an estimate of how much a business might benefit from the R&D credit here.

 

Control freaks unite! Today is National I am in Control Day. It is also National Pencil Day. Anyone familiar with my penmanship might conclude that I should not celebrate these holidays together.


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This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.