Notice 2020-62: Administrators of qualified retirement plans are required to provide a written explanation of tax consequences when making distributions that are eligible for rollover. The explanation is often referred to as the “402(f) notice” after the relevant section of the Internal Revenue Code governing the requirement, or simply as the “special tax notice.” The IRS has historically provided “safe harbor” model notices that plan administrators may rely upon to satisfy the requirement. The IRS periodically updates the notice based on changes in the law. The last IRS notice being Notice 2018-74, 2018-40 I.R.B. 529. Notice 2020-62 modifies the two model notices in Notice 2018-74, that may be provided to recipients of eligible rollover distributions to satisfy the notice requirements under section 402(f).  The model notices as modified by this Notice 2020-62 take into consideration certain legislative changes, including changes related to the Setting Every Community Up for Retirement Enhancement Act of 2019, Pub. L. 116-94 (“SECURE Act”). 

It will appear in IRB 2020-35 dated Aug. 24, 2020.

WASHINGTON — As more tax professionals consider teleworking during COVID-19, the Internal Revenue Service and the Security Summit partners today urged practitioners to secure remote locations by using a virtual private network (VPN) to protect against cyber intruders.

A VPN provides a secure, encrypted tunnel to transmit data between a remote user via the Internet and the company network. As teleworking or working from home continues during the coronavirus, VPNs are critical to protecting and securing internet connections.

Using virtual private networks is the third in a five-part Security Summit series called Working Virtually: Protecting Tax Data at Home and at Work. The security 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.

“For firms expanding telework options during this time, a virtual private network is a must have,” said IRS Commissioner Chuck Rettig. “We continue to see tax pros fall victim to attacks every week. These networks are something you can’t afford to go without. The risk is real. Taking steps now can protect your clients and protect your businesses.”

Failure to use VPNs risks remote takeovers by cyberthieves, giving criminals access to the tax professional’s entire office network simply by accessing an employee’s remote internet.

Tax professionals should seek out cybersecurity experts if they can afford it. If not, practitioners can search for “Best VPNs” to find a legitimate vendor, or major technology sites often provide lists of top services. Remember, never click on a “pop-up” ad marketing security product. Those generally are scams.

The Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency (CISA) also encourages organizations to use VPNs. CISA also offers this advice:

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 of 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.

WASHINGTON – The Internal Revenue Service announced today that James Lee will become the new chief of IRS Criminal Investigation (CI) on Oct. 1.

Lee, currently CI’s deputy chief and a 25-year veteran of the organization, will succeed current Chief Don Fort, who announced last month he will retire on Sept. 30.

“Jim brings a quarter-century of Criminal Investigation management and field experience into this key enforcement role,” said IRS Commissioner Chuck Rettig. “Jim is highly respected throughout the IRS and will continue long-standing working relationships with the civil enforcement functions of the IRS as well as with the Department of Justice’s Tax Division and tax prosecutors throughout the country. He understands the need to support compliant taxpayers by maintaining a strong, robust enforcement effort focused on those who are compliance challenged.” 

As Chief, CI, Lee will lead the IRS’s criminal enforcement efforts to investigate tax code violations and other related financial crimes such as money laundering, public corruption, cyber-crimes, identity theft, narcotics and terrorist-financing.

Prior to serving as Deputy Chief of CI, he served as the Director of Field Operations, Northern Area where he oversaw CI enforcement programs in the Boston, New Jersey, New York, Ohio and Philadelphia Field Offices. He also previously served in executive roles as the Director of Field Operations, Southern Area and the Director, Strategy.

Lee began his IRS CI career in 1995 as a special agent in Detroit. He moved into the CI leadership ranks and has held positions of increasing responsibility throughout his career including Supervisory Special Agent in the New Orleans Field Office; Headquarters Senior Analyst in the International and Financial Crimes Sections; Assistant Special Agent in Charge within the Boston Field Office; and Special Agent in Charge of the New Orleans Field Office and later the Chicago Field Office. 

Lee has a Bachelor of Business Administration Degree with a concentration in Accounting from Tiffin University in Ohio.

He will follow Fort into CI’s top position. Fort, who was named CI Chief in June 2017 will retire after a long career, which began in 1991 as a special agent in CI’s Baltimore District.

“Don has been a remarkable leader and champion for IRS Criminal Investigation,” Rettig said. “He has a distinguished career and the entire IRS leadership team appreciates everything he has done to uphold the law and support tax administration. We look forward to Don’s remaining time at the IRS as well as Jim taking on a new role and building on the great tradition in CI.”

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.

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.

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:

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:

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.

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.

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 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

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.

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