Notice 2020-70 modifies Notice 2011-26 (2011-17 I.R.B. 720) to generally remove Form 1040-NR, U.S. Nonresident Alien Income Tax Return, from the list of returns that are administratively exempt from the electronic filing requirement imposed on specified tax return preparers by section 6011(e)(3) and to provide the circumstances under which the Form 1040-NR remains subject to the exemption.  This notice also provides that future updates to the list of returns in Notice 2011-26 that are administratively exempt from the electronic filing requirement due to IRS e-file limitations will be set forth in IRS Publication 4164, Modernized e-File (MeF) Guide for Software Developers and Transmitters.  This notice applies to taxable years ending on or after December 31, 2020.

Notice 2020-70 will be in IRB:  2020-43, dated 10/19/2020.

WASHINGTON — The Internal Revenue Service issued final regulations on the business expense deduction for meals and entertainment following changes made by the Tax Cuts and Jobs Act (TCJA).

The 2017 TCJA generally eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation. However, taxpayers may still deduct business expenses related to food and beverages if certain requirements are met.

These final regulations address the disallowance of the deduction for expenditures related to entertainment, amusement or recreation activities, including the applicability of certain exceptions to this disallowance.  They also provide guidance to determine whether an activity is considered entertainment.  The final regulations also address the limitation on the deduction of food and beverage expenses.

Updates on the implementation of the TCJA can be found on the Tax Reform page of IRS.gov.

TD 9925 contains final regulations that provide guidance under section 274 of the Internal Revenue Code (Code) regarding certain recent amendments
made to that section. Specifically, the final regulations address the elimination of the deduction under section 274 for expenditures related to entertainment, amusement, or recreation activities, and provide guidance to determine whether an activity is of a type generally considered to be entertainment. The final regulations also address the limitation on the deduction of food and beverage expenses under section 274(k) and
(n), including the applicability of the exceptions under section 274(e)(2), (3), (4), (7), (8), and (9). The final regulations affect taxpayers who pay or incur expenses for meals or entertainment.

WASHINGTON – The Internal Revenue Service today launched a redesigned page on IRS.gov to help business owners navigate the federal tax steps when closing a business.

During this difficult and challenging time, the IRS streamlined the “Closing a Business” page into simple steps, so business owners and self-employed individuals can quickly find the information they need.

"The IRS realizes small businesses and self-employed individuals are facing challenges in their personal and business lives during these uncertain times,” said Eric Hylton, Commissioner, Small Business/Self-Employed Division. “Closing a business is a difficult decision and we want to help ease the burden for people making this tough choice. We redesigned the closing a business page on IRS.gov to help businesses comply with final tax responsibilities.”

The information includes what forms to file and how to report revenue received in the final year of business and expenses incurred before closure.

• File a Final Return and Related Forms. The type of return to file depends on whether the business is a sole proprietorship, partnership or corporation. The page features a section for each business type. Business owners can click on the section that applies to them to get the returns and forms they need.

• Take Care of Employees. Business owners with one or more employees must make final federal tax deposits and report employment taxes.

• Pay the Taxes Owed. Even if the business closes now, tax payments may be due next filing season.

• Report Payments to Contract Workers. Businesses that pay contractors at least $600 for services (including parts and materials) during the calendar year in which they go out of business, must report those payments.

• Cancel EIN and Close IRS Business Account. The IRS cannot close out an account until the business has filed all necessary returns and paid all taxes owed.

• Keep Business Records. How long a business needs to keep records depends on what’s recorded in each document.

The page also has information to help business owners who are declaring bankruptcy, selling their business and terminating retirement plans. For easy access, they can reach the page at IRS.gov/closingabiz.

More information
How to close a sole proprietorship: fact sheet and e-poster, (Spanish version)
How to close a partnership: fact sheet and e-poster, (Spanish version)
How to close a corporation: fact sheet and e-poster, (Spanish version)

WASHINGTON — The U.S. Department of the Treasury and the Internal Revenue Service today issued final regulations updating the federal income tax withholding rules for certain periodic retirement and annuity payments made after Dec. 31, 2020.   

Prior to the Tax Cuts and Jobs Act (TCJA), if no withholding certificate was in effect for a taxpayer’s periodic payments, the amount to be withheld from the payments was determined by treating the taxpayer as a married individual claiming three withholding exemptions. 

The TCJA amended this rule to provide that the rate of withholding on periodic payments when no withholding certificate is in effect (the default rate of withholding) would instead be determined under rules prescribed by the Secretary of the Treasury.

The final regulation issued today provides guidance for 2021 and future calendar years.  This guidance specifies that the Treasury Department and the IRS will provide the rules and procedures for determining the default rate of withholding on periodic payments in applicable forms, instructions, publications and other guidance. 

In July 2020, the IRS released a draft of a redesigned 2021 Form W-4P and instructions intended to align with the redesigned Form W-4, “Employee’s Withholding Certificate.” 

The draft 2021 Form W-4P also proposed a new default rate of withholding on periodic payments that begin after Dec. 31, 2020.  Based on comments received on the draft Form W-4P, regarding the time required by payors to implement the new form and a new default rate of withholding, the IRS will postpone issuance of the redesigned form. Instead, the 2021 Form W-4P will be similar to the 2020 Form W-4P.

The IRS also intends to provide in the instructions to the 2021 Form W-4P and related publications that the default rate of withholding on periodic payments will continue to be determined by treating the taxpayer as a married individual claiming three withholding allowances.

The Treasury and IRS will continue working closely with the tax community on the redesign of Form W 4P, with the intention of making the withholding system more accurate and transparent for taxpayers.

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

WASHINGTON — Victims of Hurricane Sally that began on Sept. 14 now have until Jan. 15, 2021 to file various individual and business tax returns and make tax payments, the Internal Revenue Service announced today.

The IRS is offering this relief to any area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual assistance. Currently this includes Baldwin, Escambia and Mobile counties in Alabama, but taxpayers in localities qualifying for individual assistance added later to the disaster area, elsewhere in the state and in neighboring states, will automatically receive the same filing and payment relief. The current list of eligible localities is always available on the disaster relief page on IRS.gov.

The tax relief postpones various tax filing and payment deadlines that occurred starting on Sept. 14, 2020. As a result, affected individuals and businesses will have until Jan. 15, 2021, to file returns and pay any taxes that were originally due during this period. This means individuals who had a valid extension to file their 2019 return due to run out on Oct. 15, 2020, will now have until Jan. 15, 2021, to file. The IRS noted, however, that because tax payments related to these 2019 returns were due on July 15, 2020, those payments are not eligible for this relief.

The Jan. 15, 2021, deadline also applies to quarterly estimated income tax payments due on Sept. 15, 2020, and the quarterly payroll and excise tax returns normally due on Nov. 2, 2020. It also applies to tax-exempt organizations, operating on a calendar-year basis, that had a valid extension due to run out on Nov. 16, 2020. Businesses with extensions also have the additional time including, among others, calendar-year corporations whose 2019 extensions run out on Oct. 15, 2020.    

In addition, penalties on payroll and excise tax deposits due on or after Sept. 14 and before Sept. 29, will be abated as long as the deposits are made by Sept. 29, 2020.

The IRS disaster relief page has details on other returns, payments and tax-related actions qualifying for the additional time.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Therefore, taxpayers do not need to contact the agency to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2020 return normally filed next year), or the return for the prior year (2019). Be sure to write the FEMA declaration number – 4563 − for Hurricane Sally in Alabama on any return claiming a loss. See Publication 547 for details.

The tax relief is part of a coordinated federal response to the damage caused by Hurricane Sally and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov.

WASHINGTON —During Small Business Week, the Internal Revenue Service reminds business owners and self-employed individuals of the employer credits available to them during COVID-19.  

These credits were specially created to help small business owners during this unprecedented time. During Small Business Week, the IRS wants to ensure all eligible people know about the relief these credits provide.

Employee Retention Credit

The Employee Retention Credit is designed to encourage businesses to keep employees on their payroll. The refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19.

The credit is available to all employers regardless of size, including tax-exempt organizations. There are only two exceptions: State and local governments and their instrumentalities and small businesses who take small business loans.

Qualifying employers must fall into one of two categories

Employers will calculate these measures each calendar quarter.

Paid Sick Leave Credit and Family Leave Credit

The Paid Sick Leave Credit is designed to allow business to get a credit for an employee who is unable to work (including telework) because of Coronavirus quarantine, self-quarantine or has Coronavirus symptoms and is seeking a medical diagnosis. Those employees are entitled to paid sick leave for up to 10 days (up to 80 hours) at the employee's regular rate of pay up to $511 per day and $5,110 in total.

The employer can also receive the credit for employees who are unable to work due to caring for someone with Coronavirus or caring for a child because the child's school or place of care is closed, or the paid childcare provider is unavailable due to the Coronavirus. Those employees are entitled to paid sick leave for up to two weeks (up to 80 hours) at 2/3 the employee's regular rate of pay or, up to $200 per day and $2,000 in total.

Employees are also entitled to paid family and medical leave equal to 2/3 of the employee's regular pay, up to $200 per day and $10,000 in total. Up to 10 weeks of qualifying leave can be counted towards the Family Leave Credit.

Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees' wages by the amount of the credit.

Eligible employers are entitled to immediately receive a credit in the full amount of the required sick leave and family leave, plus related health plan expenses and the employer's share of Medicare tax on the leave, for the period of April 1, 2020, through Dec. 31, 2020. The refundable credit is applied against certain employment taxes on wages paid to all employees.

How will employers receive the credit?

Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees' wages by the amount of the credit.

Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns or Form 941 beginning with the second quarter. If the employer's employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.

Eligible employers can also request an advance of the Employee Retention Credit by submitting Form 7200.

The IRS has also posted Employee Retention Credit FAQs and Paid Family Leave and Sick Leave FAQs that will help answer questions.

Updates on the implementation of the Employee Retention Credit and other information can be found on the Coronavirus page of IRS.gov.

WASHINGTON — During Small Business Week, Sept. 22-24, the Internal Revenue Service wants individuals to consider taking the home office deduction if they qualify. The benefit may allow taxpayers working from home to deduct certain expenses on their tax return. 

The home office deduction is available to qualifying self-employed taxpayers, independent contractors and those working in the gig economy. However, the Tax Cuts and Jobs Act suspended the business use of home deduction from 2018 through 2025 for employees. Employees who receive a paycheck or a W-2 exclusively from an employer are not eligible for the deduction, even if they are currently working from home.

Qualifying for a deduction

There are two basic requirements to qualify for the deduction. The taxpayer needs to use a portion of the home exclusively for conducting business on a regular basis and the home must be the taxpayer’s principal place of business.

To claim the deduction, a taxpayer must use part of their home for one of the following:

The term "home" for purposes of this deduction:

Qualified expenses

Deductible expenses for business use of home normally include the business portion of real estate taxes, mortgage interest, rent, casualty losses, utilities, insurance, depreciation, maintenance, and repairs. In general, a taxpayer may not deduct expenses for the parts of their home not used for business; for example, expenses for lawn care or painting a room not used for business.

Claiming the deduction

A taxpayer can use either the regular or simplified method to figure the home office deduction.

Using the regular method, qualifying taxpayers compute the business use of home deduction by dividing expenses of operating the home between personal and business use. Self-employed taxpayers filing IRS Schedule C, Profit or Loss from Business (Sole Proprietorship) first figure this deduction on Form 8829, Expenses for Business Use of Your Home.

Using the Simplified Option, qualifying taxpayers use a prescribed rate of $5 per square foot of the portion of the home used for business (up to a maximum of 300 square feet) to figure the business use of home deduction. A taxpayer claims the deduction directly on IRS Schedule C. Revenue Procedure 2013-13 (PDF) provides complete details of this safe harbor method.

Daycare facilities

Taxpayers who use their home on a regular basis for providing daycare may be able to claim a deduction for part of the home even if it is used as the same space for nonbusiness purposes. To qualify, both of the following requirements must be met:

Additional resources

Announcement 2020-12 provides that lenders who make PPP loans that are later forgiven under the CARES Act should not file information returns or furnish payee statements to report the forgiveness. 

Announcement 2020-12 will be in IRB 2020-41, dated 10/13/20.