IRS Tax News

  • 30 Jul 2020 11:21 AM | Anonymous

    WASHINGTON — The Internal Revenue Service today issued proposed regulations proposed regulations updating various tax accounting regulations to adopt the simplified tax accounting rules for small businesses under the Tax Cuts and Jobs Act (TCJA).

    For tax years beginning in 2019 and 2020, these simplified tax accounting rules apply for taxpayers having inflation-adjusted average annual gross receipts of $26 million or less (known as the gross receipts test).

    Taxpayers classified as tax shelters cannot use the simplified rules even if they would meet the gross receipts test.

    Prior to the TCJA, certain taxpayers could determine whether they were eligible to figure taxable income under the cash method of accounting by meeting a different gross receipts test.  That gross receipts test was met if the taxpayer’s average annual gross receipts for all prior taxable years did not exceed $5 million. 

    After the TCJA, a taxpayer meets the gross receipts test and can use the cash method if average annual gross receipts for the three-taxable year period ending immediately before the current taxable year are $25 million (adjusted for inflation) or less.

    The TCJA also exempted taxpayers meeting the gross receipts test from the uniform capitalization rules.  Tax reform also added an exception to the requirement to use an inventory method if their inventory is treated as non-incidental materials and supplies, or in accordance with the applicable financial statement (AFS).  If they do not have an AFS, taxpayers can use their books and records. The proposed regulations issued today implement these statutory changes and provide clarifying definitions.

    The proposed regulations issued today also provide guidance for small businesses with long-term construction contracts and the requirements for exemption from the percentage-of-completion method and the uniform capitalization rules. For taxpayers with income from long-term contracts reported under the percentage-of-completion method, guidance is provided for applying the look-back method after repeal of the corporate alternative minimum tax and enactment of the base erosion and anti-abuse tax (BEAT).

    For more information about this and other TCJA provisions, visit IRS.gov/taxreform.

  • 30 Jul 2020 10:16 AM | Anonymous

    WASHINGTON — Because of the burdens the COVID-19 pandemic has placed on taxpayers claiming the rehabilitation credit, the Internal Revenue Service today issued Notice 2020-58 that provides additional relief to taxpayers in satisfying the substantial rehabilitation test. 

    Projects must satisfy the “substantial rehabilitation test” within a 24- or 60-month period for determining whether the rehabilitation work is sufficient to qualify a building for the rehabilitation credit.

    The Tax Cuts and Jobs Act (TJCA) generally requires the rehabilitation credit to be claimed over a five-year period for amounts that taxpayers pay or incur for qualified rehabilitation expenditures after Dec. 31, 2017.  However, taxpayers may claim the credit all in one year under pre-TCJA rules for projects that qualify under a transition rule.

    The notice issued today allows taxpayers that have a measuring period under the substantial rehabilitation test ending on or after April 1, 2020, and before March 31, 2021, now have until March 31, 2021 to satisfy the test.  This relief applies to the substantial rehabilitation test for claiming the credit or qualifying under the TCJA transition rule. 

    Previously, the IRS issued Notice 2020-23 that provided additional time for satisfying the substantial rehabilitation test. 

    Additional tax relief related to the COVID-19 pandemic can be found on IRS.gov.

  • 29 Jul 2020 12:08 PM | Anonymous

    WASHINGTON − The Internal Revenue Service provided a reminder today that the Coronavirus Aid, Relief, and Economic Security (CARES) Act can help eligible taxpayers in need by providing favorable tax treatment for withdrawals from retirement plans and IRAs and allowing certain retirement plans to offer expanded loan options.
     
    Can I get money from my retirement account now?
     
    Under the CARES Act, individuals eligible for coronavirus-related relief may be able to withdraw up to $100,000 from IRAs or workplace retirement plans before Dec. 31, 2020, if their plans allow. In addition to IRAs, this relief applies to 401(k) plans, 403(b) plans, profit-sharing plans and others.
     
    These coronavirus-related withdrawals:

    • May be included in taxable income either over a three-year period (one-third each year) or in the year taken, at the individual’s option.
    • Are not subject to the 10% additional tax on early distributions that would otherwise apply to most withdrawals before age 59½,
    • Are not subject to mandatory tax withholding, and
    • May be repaid to an IRA or workplace retirement plan within three years.

    Can I take out a loan?
     
    Individuals eligible to take coronavirus-related withdrawals may also, until Sept. 22, 2020, be able to borrow as much as $100,000 (up from $50,000) from a workplace retirement plan, if their plan allows. Loans are not available from an IRA.
     
    For eligible individuals, plan administrators can suspend, for up to one year, plan loan repayments due on or after March 27, 2020, and before Jan. 1, 2021. A suspended loan is subject to interest during the suspension period, and the term of the loan may be extended to account for the suspension period.
     
    Taxpayers should check with their plan administrator to see if their plan offers these expanded loan options and for more details about these options.

    Who is eligible?
     
    To be eligible for COVID-19 relief, coronavirus-related withdrawals or loans can only be made to an individual if:

    • The individual is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (collectively, COVID-19) by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetics Act);
    • The individual’s spouse or dependent is diagnosed with COVID-19 by such a test; or
    • The individual experiences adverse financial consequences as a result of:
      • The individual being quarantined, being furloughed or laid off, having work hours reduced, being unable to work due to lack of childcare, having a reduction in pay (or self-employment income), or having a job offer rescinded or start date for a job delayed, due to COVID-19;
      • The individual’s spouse or a member of the individual’s household (that is, someone who shares the individual’s principal residence) being quarantined, being furloughed or laid off, having work hours reduced, being unable to work due to lack of childcare, having a reduction in pay (or self-employment income), or having a job offer rescinded or start date for a job delayed, due to COVID-19; or
      • Closing or reducing hours of a business owned or operated by the individual, the individual’s spouse, or a member of the individual’s household, due to COVID-19.

    Where can I find more information?
     
    Retirement plan recipients can learn more about these provisions in IRS Notice 2020-50.
     
    The IRS has also posted FAQs that provide additional information regarding this relief.
     
    Additional information on the CARES Act and retirement plans, as well as updates, other FAQs, and other information can be found at IRS.gov/coronavirus.

  • 29 Jul 2020 7:34 AM | Anonymous

    Notice 2020-59 contains a proposed revenue procedure with a safe harbor for a trade or business that manages or operates a qualified residential living facility to be treated as a real property trade or business solely for purposes of qualifying as an electing real property trade or business under section 163(j)(7)(B) of the Internal Revenue Code.

    Notice 2020-59 will be in IRB:  2020-34, dated August 17, 2020.


  • 29 Jul 2020 7:33 AM | Anonymous

    WASHINGTON — The Internal Revenue Service issued final regulations regarding the provision of the Tax Cuts and Jobs Act that limits the deduction for business interest expense, including basic statutory amendments made by the CARES Act.

    For tax years beginning after Dec. 31, 2017, business interest expense deductions are generally limited to the sum of:

    • the taxpayer’s business interest income;
    • 30% (or 50%, as applicable) of the taxpayer’s adjusted taxable income; and
    • the taxpayer’s floor plan financing interest expense.

    The business interest expense deduction limitation does not apply to certain small businesses whose gross receipts are $26 million or less, electing real property trades or businesses, electing farming businesses, and certain regulated public utilities. The $26 million gross receipts threshold applies for the 2020 tax year and will be adjusted annually for inflation.

    A real property trade or business or a farming business may elect to be excepted from the business interest expense limitation. However, taxpayers cannot claim the additional first-year depreciation deduction for certain types of property held by the electing trade or business.

    Taxpayers use Form 8990, Limitation on Business Interest Expense Under Section 163(j), to calculate and report their deduction and the amount of disallowed business interest expense to carry forward to the next tax year.

    Along with the final regulations, the IRS today issued the following additional items of guidance related to the business interest expense deduction limitation.

    Proposed Regulations that provide additional guidance on various business interest expense deduction limitation issues not addressed in the final regulations, including more complex issues related to the amendments made by the CARES Act. Subject to certain restrictions, taxpayers may rely on some of the rules in these proposed regulations until final regulations implementing the proposed regulations are published in the Federal Register. Written or electronic comments and requests for a public hearing on these proposed regulations must be received within 60 days of date of filing for public inspection with the Federal Register.

    Notice 2020-59 contains a proposed revenue procedure that provides a safe harbor allowing taxpayers engaged in a trade or business that manages or operates qualified residential living facilities to treat such trade or business as a real property trade or business solely for purposes of qualifying as an electing real property trade or business. Written or electronic comments on the proposed revenue procedure must be received no later than Monday, Sept. 28, 2020.

    Aggregation FAQs provide a general overview of the aggregation rules that apply for purposes of the gross receipts test, and that apply to determine whether a taxpayer is a small business that is exempt from the business interest expense deduction limitation.

    For more information about this and other TCJA provisions, visit IRS.gov/taxreform
  • 28 Jul 2020 10:50 AM | Anonymous

    WASHINGTON — With heightened threats during COVID-19, the Internal Revenue Service and Security Summit partners today called on tax professionals to select multi-factor authentication options whenever possible to prevent identity thieves from gaining access to client accounts.

    Starting in 2021, all tax software providers will be required to offer multi-factor authentication options on their products that meet higher standards. Many already do so. A multi-factor or two-factor authentication offers an extra layer of protection for the username and password used by the tax professional. It often involves a security code sent via text.

    Using multi-factor authentication is the second in a five-part series called Working Virtually: Protecting Tax Data at Home and at Work. The public awareness initiative by the IRS, state tax agencies and the private-sector tax industry – working together as the Security Summit – spotlights basic security steps for all practitioners, but especially those working remotely or social distancing in response to COVID-19.

    “Cybercriminals continue to find new ways to try accessing tax professional and taxpayer data. The multi-factor authentication option is an easy, free way to really step up protection of client data,” said IRS Commissioner Chuck Rettig. “All tax software products will make it a feature, and it’s part of a larger effort to protect taxpayers and the tax community.”

    Of the numerous data thefts reported to the IRS from tax professional offices this year, most could have been avoided had the practitioner used multi-factor authentication to protect tax software accounts.

    Thieves use a variety of scams – but most commonly by a phishing email – will download malicious software, such as keystroke software. This malware will eventually enable them to steal all passwords from a tax pro. Once the thief has accessed the practitioner’s networks and tax software account, they will complete pending taxpayer returns, alter refund information and use the practitioner’s own e-filing and preparer numbers to file the fraudulent return.

    However, with multi-factor authentication, it’s unlikely the thief will have stolen the practitioner’s cell phone so he would not receive the necessary security code to access the account. This protects the tax pro’s account information.

    Practitioners can download to their mobile phones readily available authentication apps offered through Google Play or the Apple Store. These apps will generate a security code. Codes also may be sent to practitioner’s email or text but those are not as secure as the authentication apps. Use a search engine for “Authentication apps” to learn more.

    In additional to tax software accounts, practitioners should use multi-factor authentication wherever it is offered. For example, cloud storage providers and commercial email products offer multi-factor protections as do social media outlets. IRS e-Services is an example of an account using multi-factor authentication.

    Additional resources

    Tax professionals also can get help with security recommendations by reviewing the recently revised IRS Publication 4557, Safeguarding Taxpayer Data (PDF), and Small Business Information Security: the Fundamentals (PDF) by the National Institute of Standards and Technology.

    Publication 5293, Data Security Resource Guide for Tax Professionals (PDF), provides a compilation data theft information available on IRS.gov. Also, tax professionals should stay connected to the IRS through subscriptions to e-News for Tax Professionals and Social Media or visit Identity Theft Central at IRS.gov/IdentityTheft.

  • 27 Jul 2020 12:54 PM | Anonymous

    WASHINGTON – The Internal Revenue Service issued a temporary regulation and a proposed regulation to reconcile advance payments of refundable employment tax credits and recapture the benefit of these credits when necessary. 

    The regulations authorize the assessment of erroneous refunds of the credits paid under both the Families First Coronavirus Response Act (Families First Act) and Coronavirus Aid, Relief and Economic Security Act (CARES Act).

    The Families First Act generally requires employers with fewer than 500 employees to provide paid sick leave for up to 80 hours and paid family leave for up to 10 weeks if the employee is unable to work or telework due to COVID-19 related reasons. Eligible employers are entitled to fully refundable tax credits to cover the cost of the leave required to be paid.

    The CARES Act provides an additional credit for employers experiencing economic hardship due to COVID-19. Eligible employers who pay qualified wages to their employees are entitled to an employee retention credit.

    The IRS has revised or is in the process of revising the Form 941, Form 943, Form 944 and Form CT-1, so that employers may use these returns to claim the paid sick and family leave and employee retention credits.

    Employers may also receive advance payment of the credits up to the total allowable amounts. The IRS has created Form 7200, Advance Payment of Employer Credits Due To COVID-19, which employers may use to request an advance of the credits. Employers are required to reconcile any advance payments claimed on Form 7200 with total credits claimed and total taxes due on their employment tax returns.

    Any refund of these credits paid to a taxpayer that exceeds the amount the taxpayer is allowed is an erroneous refund for which the IRS must seek repayment. 

    For more information on the employer credits, see Employer Tax Credits

  • 22 Jul 2020 1:10 PM | Anonymous

    The information on Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, helps law enforcement combat money laundering, tax evasion, drug dealing, terrorist financing and other criminal activities. Here are facts on who must file the form, what they must report and how to report it.

    Who must file
    Generally, any person in a trade or business who receives more than $10,000 in cash in a single transaction or in related transactions must file a Form 8300. By law, a “person” is an individual, company, corporation, partnership, association, trust or estate. For example, dealers in jewelry, furniture, boats, aircraft or automobiles; pawnbrokers; attorneys; real estate brokers; insurance companies and travel agencies are among those who typically need to file Form 8300.

    Tax-exempt organizations are also “persons” and may need to report certain transactions. A tax-exempt organization doesn’t have to file Form 8300 for a charitable cash contribution. However, under a separate requirement, a donor often must obtain a written acknowledgement of the contribution from the organization. The organization must report noncharitable cash payments on Form 8300. For example, an exempt organization that receives more than $10,000 in cash for renting part of its building must report the transaction. See Publication 526, Charitable Contributions, for details

    What’s cash
    For Form 8300 reporting, cash includes coins and currency of the United States or any foreign country. It’s also cash equivalents that include cashier’s checks (sometimes called a treasurer’s check or bank check), bank drafts, traveler’s checks or money orders with a face amount of $10,000 or less that a person receives for:

    • A designated reporting transaction or
    • Any transaction in which the person knows the payer is trying to avoid the reporting requirement.

    Note that money orders and cashiers checks under $10,000, when used in combination with other forms of cash for a single transaction that exceeds $10,000, is defined as cash for Form 8300 reporting purposes.
     
    A designated reporting transaction is the retail sale of tangible personal property that’s generally suited for personal use, expected to last at least one year and has a sales price of more than $10,000. Examples are sales of automobiles, jewelry, mobile homes and furniture.

    A designated reporting transaction is also the sale of a collectible, such as a work of art, rug, antique, metal, stamp or coin. It’s also the sale of travel and entertainment, if the total price of all items for the same trip or entertainment event is more than $10,000.

    Note that under a separate reporting requirement, banks and other financial institutions report cash purchases of cashier’s checks, treasurer’s checks and/or bank checks, bank drafts, traveler’s checks and money orders with a face value of more than $10,000 by filing currency transaction reports.

    Reporting cash payments
    A person must file Form 8300 if they receive cash of more than $10,000 from the same payer or agent:

    • In one lump sum.
    • In two or more related payments within 24 hours. For example, 24-hour period is 11 a.m. Tuesday to 11 a.m. Wednesday.
    • As part of a single transaction or two or more related transactions within a 12 month period

    Examples of reporting situations:

    New or used automobile dealers
    If a husband and wife purchased two vehicles at one time from the same dealer, and the dealer received a total of $10,200 in cash, the dealer can view the transaction as a single transaction or two related transactions. Either way, the dealer needs to file only one Form 8300.

    • A dealership doesn’t file Form 8300 if a customer pays with a $7,000 wire transfer and a $4,000 cashier check. A wire transfer isn’t cash.
    • A customer purchases a vehicle for $9,000 cash. Within 12 months, the customer pays the dealership cash of $1,500 for accessories for that vehicle. The dealer doesn’t need to file Form 8300 unless the accessories purchase was related to the original vehicle purchase.

    Taxi company
    When lease payments made in cash by a taxi driver to a taxi company within a 12-month period exceed $10,000 in total, the taxi company needs to file Form 8300. Then, if the company receives more than $10,000 cash in additional payments from the driver, the company must file another Form 8300.

    Landlords
    This 12-month period also applies to landlords who need to file Form 8300 once they’ve received more than $10,000 in cash for a lease during the year. If a person uses a dwelling unit as a home and rents it less than 15 days during the year, its primary function isn’t considered rental in a trade or business, so they don’t need to report a cash receipt of more than $10,000.

    Bail-bonding agent
    A bail-bonding agent must file Form 8300 when they receive more than $10,000 in cash from a person. This applies to payments from persons who have been arrested or anticipate arrest. The agent needs to file the form even though they haven’t provided a service when they received the cash.

    Colleges and universities
    Colleges and universities must file Form 8300 if they receive more than $10,000 in cash in one or more transactions within 12 months. A Form 8300 exception applies for government entities but not for educational entities.

    Contractors
    Contractors must file Form 8300 if they receive cash of more than $10,000 for building, renovating, remodeling, landscaping and painting.

    When to file Form 8300
    A person must file Form 8300 within 15 days after the date the person received the cash. If a person receives multiple payments toward a single transaction or two or more related transactions, the person should file Form 8300 when the total amount paid exceeds $10,000. Each time payments aggregate more than $10,000, the person must file another Form 8300.

    How to file
    A person can file Form 8300 electronically using the Financial Crimes Enforcement Network’s BSA E-Filing System. Those who file many forms may find the batch e-filing option helpful. E-filing is free, quick and secure. Filers will receive an electronic acknowledgement of each submission.

    Those who prefer to mail Form 8300 can send it to Internal Revenue Service, Detroit Federal Building, P.O. Box 32621, Detroit, MI  48232. Filers can confirm the IRS received the form by sending it via certified mail with return receipt requested or by calling the IRS Bank Secrecy Act Helpline in Detroit at 866-270-0733.

    Taxpayer identification number
    Form 8300 requires the taxpayer identification number (TIN) of the payer using cash. If they refuse to provide it, the person should inform the payer that the IRS may assess a penalty.

    If the person is unable to obtain the payer’s TIN, the they should file Form 8300 anyway and include an explanation why the form doesn’t have the TIN. The person should keep records showing they requested the payer’s TIN and provide the records to the IRS upon request.

    Informing customers about Form 8300 filing
    A Form 8300 filer must give each party named on the form written notice by January 31 of the year following the transaction that they filed Form 8300 to report the payer’s cash transaction. The government doesn’t offer a specific format for the payer’s statement, but it must:

    • Be a single statement aggregating the value of the prior year’s total reportable transactions.
    • Include the name, address and phone number of the person filing the Form 8300.
    • Inform the payer that the person is reporting the payments to the IRS.

    A person can give a payer who only had one transaction during the year a copy of the invoice or Form 8300 as notification if it has the required information. The government doesn’t recommend using a copy of Form 8300 because of sensitive information on the form, such as the TIN of the person filing the Form 8300.

    A person may voluntarily file Form 8300 to report a suspicious transaction below $10,000. In this situation, the person doesn’t let the customer know about the report. The law prohibits a person from informing a payer that it marked the suspicious transaction box on the Form 8300.

    More information:

  • 22 Jul 2020 11:37 AM | Anonymous

    WASHINGTON — The Internal Revenue Service reminds businesses required to file reports of large cash transactions that e-filing is a fast, easy and secure option for filing their reports. Now, businesses can batch file their reports, which is especially helpful to those required to file many forms. 

    Although businesses have the option of filing Form 8300, Report of Cash Payments Over $10,000, on paper, many have already found the free and secure e-filing system is a more convenient and cost-effective way to meet the reporting deadline. The form is due 15 days after a transaction and there’s no charge for the e-file option.

    Although many cash transactions are legitimate, information reported on this form can help stop those who evade taxes, profit from the drug trade, engage in terrorist financing and conduct other criminal activities. The government can often trace money from these illegal activities through the payments reported on Form 8300 and other cash reporting forms.

    Businesses that file Form 8300 electronically get free, automatic acknowledgment of receipt when they file. In addition, electronic filing is more accurate, reducing the need for follow-up correspondence with the IRS.

    To file Form 8300 electronically, a business must set up an account with FinCEN’s BSA E-Filing System. For more information, interested businesses can call the BSA E-Filing Help Desk at 866-346-9478 or email them at BSAEFilingHelp@fincen.gov. The help desk is available Monday through Friday from 8 a.m. to 6 p.m. Eastern time.

    For more information about the reporting requirement, see FS-2020-11, available on IRS.gov.

  • 21 Jul 2020 2:09 PM | Anonymous

    RP 2020-36 provides indexing adjustments required by statute for certain provisions under section 36B.  Specifically, this revenue procedure updates the applicable percentage table used to calculate an individual’s premium tax credit for taxable years beginning in calendar year 2021 and updates the required contribution percentage for plan years beginning after calendar year 2020.

    It will appear in IRB 2020-32 dated Aug. 3, 2020.


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