Revenue Procedure 2021-9 provides a safe harbor that allows a trade or business that manages or operates a qualified residential living facility, as defined in the revenue procedure, to be treated as a real property trade or business, solely for purposes of qualifying to make the election under Internal Revenue Code section 163(j)(7)(B) to be an electing real property trade or business. This safe harbor has no effect on any determination for purposes of section 469 of the Code.

Revenue Procedure 2021-9 will appear in Internal Revenue Bulletin 2021-3, dated Jan. 19, 2021.

In response to the continuing public health emergency caused by the Coronavirus Disease 2019 (COVID-19) pandemic, Notice 2021-03 extends from January 1, 2021, through June 30, 2021, the temporary relief provided in Notice 2020-42, 2020-26 I.R.B. 986, from the physical presence requirement in Treasury Regulation § 1.401(a)-21(d)(6) for participant elections required to be witnessed by a plan representative or a notary public, and solicits comments with respect to the relief.

Notice-2021-3 will appear in IRB 2021-02, dated Jan. 11, 2021.

Notice 2021-04 provides the final extension of the temporary dyed fuel relief provided in section 3.02 of Notice 2017-30, 2017-21 I.R.B. 1248.  The temporary relief was extended through December 31, 2018, by section 3 of Notice 2018-39, 2018-20, I.R.B. 582, then extended through December 31, 2019, by section 3 of Notice 2019-04, 2019-02 I.R.B. 282, and further extended through December 31, 2020, by section 3 of Notice 2020-04, 2020-04 I.R.B. 380.  A claimant may submit a refund claim for the § 4081(a)(1) tax imposed on undyed diesel fuel and kerosene for fuel that is (1) removed from a Milwaukee or Madison terminal; (2) entered into a Green Bay terminal within 24 hours; and (3) subsequently dyed and removed from that Green Bay terminal.  The relief provided in this notice takes effect beginning January 1, 2021, and ending December 31, 2021. 

Notice 2021-04 will appear in IRB 2021-02, dated Jan. 11, 2021

IRS issues standard mileage rates for 2021

WASHINGTON — The Internal Revenue Service today issued the 2021 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2021, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

   • 56 cents per mile driven for business use, down 1.5 cents from the rate for 2020,
   • 16 cents per mile driven for medical or moving purposes for qualified active duty members of the Armed Forces, down 1 cent from the rate for 2020, and
   • 14 cents per mile driven in service of charitable organizations, the rate is set by statute and remains unchanged from 2020.

The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, unless they are members of the Armed Forces on active duty moving under orders to a permanent change of station. For more details see Moving Expenses for Members of the Armed Forces.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Taxpayers can use the standard mileage rate but must opt to use it in the first year the car is available for business use. Then, in later years, they can choose either the standard mileage rate or actual expenses. Leased vehicles must use the standard mileage rate method for the entire lease period (including renewals) if the standard mileage rate is chosen.

Notice 2021-02 contains the optional 2021 standard mileage rates, as well as the maximum automobile cost used to calculate the allowance under a fixed and variable rate (FAVR) plan. In addition, the notice provides the maximum fair market value of employer-provided automobiles first made available to employees for personal use in calendar year 2021 for which employers may use the fleet-average valuation rule in or the vehicle cents-per-mile valuation rule. 

Year-end reminder: Expanded tax benefits help individuals and businesses give to charity during 2020

WASHINGTON – The Internal Revenue Service today explained how expanded tax benefits can help both individuals and businesses give to charity before the end of this year.

The Coronavirus Aid, Relief and Economic Security (CARES) Act, enacted last spring, includes four temporary tax changes that are designed to help people and businesses who give to charity this year. Here is a rundown of these key changes.

New deduction for people who don’t itemize
Individuals who elect to take the standard deduction generally cannot claim a deduction for their charitable contributions. However, the CARES Act permits these individuals to claim a limited deduction on their 2020 federal income tax returns for cash contributions made to certain qualifying charitable organizations and still claim the standard deduction. Nearly nine in 10 taxpayers now take the standard deduction and could potentially qualify.

Under this change, these individuals can claim an “above-the-line” deduction of up to $300 for cash contributions made to qualifying charities during 2020. The maximum above-the-line deduction is $150 for married individuals filing separate returns.

Though cash contributions to most charitable organizations qualify, those made either to supporting organizations or to establish or maintain a donor advised fund, do not. Cash contributions carried forward from prior years do not qualify, nor do most cash contributions to charitable remainder trusts.  In general, a donor-advised fund is a fund or account in which a donor can, because of being a donor, advise the fund on how to distribute or invest amounts held in the fund. A supporting organization is a charity that carries out its exempt purposes by supporting other exempt organizations, usually other public charities. See Pub. 526 for more information on the types of organizations that qualify.

Cash contributions include those made by check, credit card or debit card as well as amounts incurred by an individual for unreimbursed out-of-pocket expenses in connection with the individual’s volunteer services to a qualifying charitable organization. Cash contributions don’t include the value of volunteer services, securities, household items or other property.

Up to 100% limit on eligible cash contributions made by itemizers in 2020

Subject to certain limits, individuals who itemize may claim a deduction for charitable contributions they make to qualifying charitable organizations. These limits generally range from 20% to 60% of an individual’s adjusted gross income (“AGI”) and vary by the type of contribution and type of charitable organization.  For example, a cash contribution made by an individual to a qualifying public charity generally is limited to 60% of the individual’s AGI. Excess contributions may be carried forward for up to five tax years.

The CARES Act permits electing individuals to apply an increased limit, up to 100% of their AGI, for qualified contributions (“Increased Individual Limit”). The election is made on a contribution-by-contribution basis. Qualified contributions are limited to those made in cash during calendar year 2020 to qualifying charitable organizations.

As with the new limited deduction for nonitemizers, cash contributions to most charitable organizations qualify, but, once again, those made either to supporting organizations or to establish or maintain a donor advised fund, do not.  Nor do most cash contributions to charitable remainder trusts.

Unless an individual makes the election for any given qualified contribution, the usual percentage limit applies. Keep in mind an individual’s other allowed charitable contribution deductions reduce the maximum amount allowed under this election. Individuals who would like to take advantage of the Increased Individual Limit must make their elections with their Form 1040 or Form 1040-SR.

Corporate limit increased to 25% of taxable income

The CARES Act permits C Corporations to apply an increased limit of 25% of taxable income (Increased Corporate Limit) for charitable contributions of cash they make to eligible charities during the 2020 calendar year. The maximum allowable deduction is usually limited to 10% of a corporation’s taxable income.

Here again, the Increased Corporate Limit does not automatically apply. C Corporations must elect application of the Increased Corporate Limit on a contribution-by-contribution basis.

Increased limits on amounts deductible by businesses for certain donated food inventory

Businesses donating food inventory that is eligible for the enhanced deduction (for contributions for the care of the ill, needy, and infants) are eligible for increased deduction limits. For contributions made in 2020, the limit for these contribution deductions is increased from 15% to 25%. For C Corporations, the 25% limit is based on their taxable income. For other businesses, including sole proprietorships, partnerships, and S corporations, the limit is based on their aggregate net income for the year from all trades or businesses from which the contributions were made. A special method for computing the enhanced deduction continues to apply, as do food quality standards and other requirements.

Keep good records
The IRS reminds both individuals and businesses that special recordkeeping rules apply to any taxpayer claiming a charitable contribution deduction. Usually, this includes obtaining a receipt or acknowledgment letter from the charity before filing a return and retaining a cancelled check or credit card receipt. For donations of property, additional recordkeeping rules may apply, including filing a form 8283 and obtaining a qualified appraisal.

For additional details on how to apply the percentage limits described above and a description of the recordkeeping rules for substantiating gifts to charity, see Publication 526, Charitable Contributions, available on IRS.gov.

For more information about other Coronavirus-related tax relief, visit IRS.gov/Coronavirus.

The IRS published the latest executive column, “A Closer Look,” featuring Sunita Lough, the Deputy Commissioner for Services and Enforcement of the IRS explaining many tools the agency has to support compliance for all income levels. “When deciding which tool to use, we work to ensure fairness while also being conscious of taxpayer burden. IRS employees work to minimize the burden of our compliance actions, seeking the right touch – all with an eye toward enforcing the nation’s tax laws for the benefit of all taxpayers.”

Read more here. It’s also available in Spanish here.

“A Closer Look” is a column from IRS executives that covers a variety of timely issues of interest to taxpayers and the tax community. It also provides a detailed look at key issues affecting everything from IRS operations and employees to issues involving taxpayers and tax professionals.

Check here for prior posts and new updates.

Please contact Sarah Maxwell at sarah.k.maxwell@irs.gov or Robyn Walker at robyn.walker@irs.gov for any questions or requests for interviews.

Notice 2021-01 provides that, while subject to a delay, private foundations must electronically file Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code, as required by section 3101 of the Taxpayer First Act of 2019 (Pub. L. No. 116-25) which amended section 6033 of the Internal Revenue Code.  Until the electronic Form 4720 is made available, private foundations may continue to use the paper form.  Private foundations may no longer rely on Treas. Reg. § 53.6011-1(c), which allowed for certain joint filers of the Form 4720, as a result of this electronic filing mandate.

Notice 2021-01 will be in IRB:  IRB 2021-02, dated January 11, 2021.

WASHINGTON – The Internal Revenue Service today encouraged taxpayers to take necessary actions now to help file federal tax returns timely and accurately in 2021.

This is the fourth in a series of reminders to help taxpayers get ready for the upcoming tax filing season. A special page, updated and available on IRS.gov, outlines steps taxpayers can take to make tax filing easier in 2021.

With continued social distancing, taxpayers can stay home and stay safe with IRS online tools and resources that help them find the information they need. These IRS.gov tools are easy to use and available 24 hours a day. Millions of people use them to find information about their accounts, get answers to tax questions or file and pay taxes.  

Free File
Almost everyone can file electronically for free. The IRS Free File program, available only through IRS.gov or the IRS2Go app, offers brand-name tax preparation software packages at no cost. The software does all the work of finding deductions, credits and exemptions. It‘s free for those who earned $72,000 or less in 2020. Some of the Free File packages also offer free state tax return preparation.

Taxpayers comfortable filling out tax forms electronically, can use Free File Fillable Forms, regardless of income, to file their tax returns either by mail or online.

Choosing a preparer
The IRS has several options for finding a tax preparer. One resource is Choosing a Tax Professional, which offers a wealth of information for selecting a tax professional. The Directory of Federal Tax Return Preparers with Credentials and Select Qualifications can help taxpayers find preparers in their area who currently hold professional credentials recognized by the IRS, or who hold an Annual Filing Season Program Record of Completion.

Other online help
The Interactive Tax Assistant answers general tax questions, including helping to determine if a type of income is taxable or if someone is eligible to claim certain credits and deductions. With changes to income and other life events for many in 2020, tax credits and deductions can mean more money in a taxpayer’s pocket and thinking about eligibility now can help make tax filing easier next year.
 
Taxpayers may qualify for credits like the Child Tax Credit and Child and Dependent Care Credit. Taxpayers whose dependent does not qualify for the CTC might be able to claim the Credit for Other Dependents. Individuals paying higher education costs for themselves, a spouse or a dependent, may be eligible to save some money with education tax credits or deductions. Additionally, low- to moderate-income taxpayers may qualify for the Earned Income Tax Credit.

Beginning in January 2021, the Interactive Tax Assistant will be updated to include answers to more tax law questions.

Taxpayers can check the status of their refund using the "Where's My Refund?" tool. The status is available within 24 hours after the IRS receives their e-filed tax return or up to four weeks after they mailed a paper return. The “Where’s My Refund?” tool updates once every 24 hours, usually overnight, so taxpayers only need to check once a day.

The best and fastest way for taxpayers to get their tax refund is to have it direct deposited into their financial account. Taxpayers who don’t have a financial account can visit the FDIC website for information to help open an account online.

For more information about planning ahead, see Publication 5348, Get Ready to File, and Publication 5349, Year-Round Tax Planning is for Everyone.

Rev Ruling 2021-01: Determination of Issue Price in the Case of Certain Debt Instruments Issued for Property

Attached for immediate release is Rev Ruling 2021-01, which provides various prescribed rates for federal income tax purposes including the applicable federal interest rates, the adjusted applicable federal interest rates, the adjusted federal long-term rate, and the adjusted federal long-term tax-exempt rate. These rates are determined as prescribed by § 1274.

The rates are published monthly for purposes of sections 42, 382, 412, 642, 1288, 1274, 7520, 7872, and various other sections of the Internal Revenue Code.

It will appear in IRB: 2021-02, dated Jan. 11, 2021.

Notice 2020-88 announces a new round of credits under the § 48A Qualifying Advanced Coal Project Program available for allocation. Section 48A was enacted in 2005 and was modified and provided additional funding in 2008. Various allocation and re-allocation rounds for § 48A credits have been established, most recently in 2015. The Department of the Treasury and the Internal Revenue Service have now determined that $2,041,500,000 of § 48A credits are available for reallocation due to forfeitures of $279,000,000 and $1,442,200,549 of previously allocated § 48A Phase II and Phase III credits, respectively, and $320,399,451 of unallocated §48A Phase III credits. Accordingly, this notice announces the beginning of Round 3 of the § 48A Phase III Program. 

Notice 2020-88 will be in IRB:    2020-53, dated 12/28/20.