WASHINGTON — The Internal Revenue Service today announced the tax year 2021 annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes. Revenue Procedure 2020-45 provides details about these annual adjustments. 

Highlights of changes in Revenue Procedure 2020-45: The Consolidated Appropriation Act for 2020 increased the amount of the minimum addition tax for failure to file a tax return within 60 days of the due date. Beginning with returns due after Dec. 31, 2019, the new additional tax is $435 or 100 percent of the amount of tax due, whichever is less, an increase from $330. The $435 additional tax will be adjusted for inflation. 

The tax year 2021 adjustments described below generally apply to tax returns filed in 2022. 

The tax items for tax year 2021 of greatest interest to most taxpayers include the following dollar amounts:

WASHINGTON — The Internal Revenue Service announced cost‑of‑living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2021 in Notice 2020-79, posted today on IRS.gov. 

Highlights of changes for 2021

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the Saver’s Credit all increased for 2021.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or his or her spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor his or her spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2021:

Key employee contribution limits remain unchanged

The limit on contributions by employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $19,500.

The catch-up contribution limit for employees aged 50 and over who participate in these plans remains unchanged at $6,500.

The limitation regarding SIMPLE retirement accounts remains unchanged at $13,500.

The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

Details on these and other retirement-related cost-of-living adjustments for 2021 are in Notice 2020-79, available on IRS.gov.

WASHINGTON – The next quarterly payroll tax return due date is Oct. 31, and the Internal Revenue Service urges business owners to use the speed and convenience of filing the returns electronically.

IRS Forms 940, 941, 943, 944 or 945 are used to report employment tax information. The IRS recommends electronic filing, or e-filing, of these returns for many reasons.

E-filing saves taxpayers time by performing calculations and populating forms and schedules using a step-by-step process. Once submitted, the information is quickly available to the IRS, thus reducing processing time.

E-filing is the most accurate method to file returns. Those who e-file receive missing information alerts. Electronically filed returns have fewer errors, which reduces a taxpayer's chance of receiving an IRS notice.

The IRS takes safeguarding personal information seriously, and e-filing security is a top priority at the agency. E-file security standards ensure tax information is protected from security breaches. The IRS requires all authorized IRS e-file providers to ensure only authorized users have access to secure information.

The IRS acknowledges receipt of e-filed returns within 24 hours. The agency retains the information on the tax return. Unlike filing a return on paper, e-filing assures the filer that the tax return is with the IRS and not misplaced or lost in the mail.

There are two options for electronically filing payroll tax returns:

Self-file

o Businesses purchase IRS-approved software. A list of providers offers options based on the relevant tax year.

o Business owners may need to pay a fee to electronically file their returns.

o The tax software requires a signature. The taxpayer has the option to apply for an online signature PIN or to scan and attach Form 8453-EMP, Employment Tax Declaration for an IRS e-file Return.

Tax professional file on behalf of the business

o Use the Authorized IRS e-file Provider Locator Service to find a tax professional who offers this service.

Only the business owner, authorized signers and reporting agents can apply for an online signature PIN. Third parties, such as attorneys, CPAs, tax return preparers or other tax professionals can't request a PIN on behalf of the business, nor can they use the PIN to sign returns on behalf of their clients.

For more information on electronic filing of payroll tax returns, see the E-file Employment Tax Forms Page.

WASHINGTON – The Internal Revenue Service today set Nov. 10 as “National EIP Registration Day,” as the agency and partners across the country launch a final push to encourage everyone who doesn’t normally file a tax return to register to receive an Economic Impact Payment.

“National EIP Registration Day” will take place just a few days ahead of the extended Nov. 21 registration deadline. This special event will feature support from IRS partner groups inside and outside of the tax community, including those that work with low-income and underserved communities. These groups will help spread the word about the new Nov. 21 deadline and, in some cases, provide special support for people who still need to register for the payments.

The IRS has already sent nearly 9 million letters to people who may be eligible for the $1,200 Economic Impact Payments but don’t normally file a tax return. The letters, along with the special Nov. 10 event, both urge people to use the Non-Filers: Enter Info Here tool, available exclusively on IRS.gov.

“Our partner groups have been a critical part of the unprecedented IRS outreach and education campaign this year to contact as many people as possible about these payments,” said IRS Commissioner Chuck Rettig. “As a result, millions of Americans have successfully used the Non-filers portal and received their Economic Impact Payment. Registration is quick and easy, and we urge everyone to share this information to reach as many people before time runs out on Nov. 21.”

To support the ongoing effort as well as “National EIP Registration Day,” many partner groups have been working with the IRS, helping translate and making available Economic Impact Payment information and resources in 35 languages. The IRS also plans a special push on social media to support the final registration drive in multiple languages.

While most eligible U.S. taxpayers have automatically received their Economic Impact Payment, others who don’t have a filing obligation should use the Non-Filers tool to register with the IRS to get their money. Typically, this includes people who receive little or no income.

Since the Non-Filers tool launched in the spring, over 8 million people who normally aren’t required to file a tax return have registered for the payments. The IRS continues to work to reach others who haven’t used the tool yet, which led to the special mailing and the special Nov. 10 registration event.

The tool is designed for people with incomes typically below $24,400 for married couples, and $12,200 for singles who could not be claimed as a dependent by someone else. This includes couples and individuals who are experiencing homelessness.

Anyone using the Non-Filers tool can speed up the arrival of their payment by choosing to receive it by direct deposit. Those not choosing this option will get a check.

Beginning two weeks after they register, people can track the status of their payment using the Get My Payment tool, available only on IRS.gov.

WASHINGTON — The Internal Revenue Service announced today a second time-limited settlement initiative for certain taxpayers under audit who participated in abusive micro-captive insurance transactions.

In the coming days, the IRS will begin sending settlement offers with terms that are stricter than the IRS’s first time-limited initiative started last year. This announcement occurs after the IRS recently deployed its 12 newly formed micro-captive examination teams to substantially increase the examinations of abusive micro-captive insurance transactions.

The IRS has decided to offer to resolve certain cases by requiring substantial concession of the income tax benefits claimed by the taxpayer together with penalties that can be partly mitigated if the taxpayer can demonstrate good faith, reasonable reliance on an independent, competent tax advisor and if the taxpayer can demonstrate it did not participate in any other reportable transactions.
 
“The IRS maintains a relentless agencywide commitment to combat abusive transactions” said IRS Large Business & International Commissioner Douglas O’Donnell. “Our offer terms are only getting stricter; and taxpayers would be well advised to consult with an objective, competent advisor with the aim of getting out now and putting this behind them.”

This settlement initiative is currently limited to taxpayers with at least one open year under exam. Taxpayers who also have unresolved years under the jurisdiction of the IRS Independent Office of Appeals may also be eligible, but those with tax years involving micro-captive transactions docketed in Tax Court under Counsel's jurisdiction, in general, are not eligible. Taxpayers who do not receive an offer letter are not eligible for this settlement.

Because the terms of this second settlement initiative reflect the IRS’s current settlement position, certain taxpayers who received but rejected an offer under the IRS first time-limited initiative may receive an offer under this second time-limited settlement initiative, but under the new, stricter terms.

Taxpayers who receive offer letters under this settlement initiative, but who opt not to participate, will continue to be audited by the IRS under its normal procedures. Potential outcomes include, but are not limited to, full disallowance of captive insurance deductions, inclusion of income by the captive, withholding tax related to any foreign captives, and imposition of all applicable penalties.

Although taxpayers who decline to participate in the settlement will have full Appeals rights, the IRS Independent Office of Appeals is aware of this settlement initiative. Given the current state of the law, taxpayers should not anticipate receiving better terms in Appeals than those offered under this initiative.

In 2016, the Department of Treasury and IRS issued Notice 2016-66, which identified certain micro-captive transactions as having the potential for tax avoidance and evasion.

WASHINGTON – The IRS released today an early draft of the instructions to Form 1065, U.S. Return of Partnership Income, for tax year 2020 (filing season 2021) that include revised instructions for partnerships required to report capital accounts to partners on Schedule K-1 (Form 1065).

The revised instructions are part of a larger effort by the agency to improve the quality of the information reported by partnerships to the IRS and furnished to partners to facilitate increased compliance.

The revised instructions indicate that partnerships filing Form 1065 for tax year 2020 are to calculate partner capital accounts using the transactional approach for the tax basis method. Under the tax basis method outlined in the instructions, partnerships report partner contributions, the partner’s share of partnership net income or loss, withdrawals and distributions, and other increases or decreases using tax basis principles as opposed to reporting using other methods such as GAAP.

According to IRS data, most partnerships already use the tax basis method although partnerships previously could report capital accounts determined under multiple methods. Partnerships that did not prepare Schedules K-1 under the tax capital method for 2019 or otherwise maintain tax basis capital accounts in their books and records (for example, for purposes of reporting negative capital accounts) may determine each partner’s beginning tax basis capital account balance for 2020 using one of the following methods: the Modified Outside Basis Method, the Modified Previously Taxed Capital Method, or the Section 704(b) Method, as described in the instructions, including special rules for publicly traded partnerships.

In anticipation of requesting more consistent and useful tax information from partnerships, the Department of the Treasury and the IRS released Notice 2020-43 seeking public comment on other possible methods to report capital accounts to partners. The IRS and the Treasury Department received numerous comments from taxpayers requesting that the tax basis method approach be retained. At the same time, the IRS did not receive practical alternative approaches to partner capital account reporting. Reporting using only one method assists the IRS in assessing compliance risk, and identifying potential noncompliance, while ensuring that compliant taxpayers’ returns are less likely to be examined.

To promote compliance with using the tax basis method described in the revised instructions, the Treasury Department and the IRS intend to issue a notice providing additional penalty relief for the transition in tax year 2020. The notice will provide that solely for tax year 2020 (for partnership returns due in 2021), the IRS will not assess a partnership a penalty for any errors in reporting its partners’ beginning capital account balances on Schedules K-1 if the partnership takes ordinary and prudent business care in following the form instructions to calculate and report the beginning capital account balances. This penalty relief will be in addition to the reasonable cause exception to penalties for any incorrect reporting of a beginning capital account balance.

The draft instructions are intended to give tax practitioners a preview of the changes and software providers the information they need to update systems before the final version of the updated instructions is released in December.

The IRS is now accepting comments for 30 days at LBI.1065.Comments@irs.gov

The IRS plans similar revisions, as applicable, to Form 8865, Return of U.S. Persons with Respect to Certain Foreign Partnerships.

WASHINGTON −The Internal Revenue Service recently awarded over $36 million in Tax Counseling for the Elderly and Volunteer Income Tax Assistance grants to organizations that provide free federal tax return preparation.

This year, the IRS awarded grants to 34 TCE and 273 VITA applicants.  The IRS received 354 applications requesting nearly $80 million.

“These two programs make a huge difference for people in need of tax assistance, and the IRS is proud to award these grants to help these groups perform their important service,” said IRS Commissioner Chuck Rettig. “We appreciate the continuing interest in these programs from our partners, and we greatly appreciate the TCE and VITA volunteers across the country who make a difference for so many taxpayers.” 

The TCE program, established in 1978, provides tax counseling and return preparation nationwide to people who are 60 or older. Volunteers receive training and technical assistance.

The VITA program, created in 1969, assists underserved communities, such as low- and moderate-income individuals and limited English proficient taxpayers. VITA grant recipients provide free federal tax return preparation and electronic filing. Congress first appropriated funds in 2007 to establish a grant program. The grant program helps expand VITA services to underserved populations and increases the number of taxpayers able to file electronically.

The IRS forms partnerships with a wide variety of organizations across the country to develop VITA and TCE programs. Community partners include non-profit agencies, faith-based organizations, community centers and large employers. The IRS provides tax law training, certification and oversight to equip these organizations to prepare accurate returns.

For information on applying for the TCE or VITA programs along with a list of current grant recipients, visit the TCE webpage or the VITA webpage. For details on becoming a TCE or VITA volunteer, visit IRS Tax Volunteers.

Announcement 2020-40; The United States provided written notification, dated August 18, 2020, to the Government of the Hong Kong Special Administrative Region of its termination of a reciprocal agreement to exempt from income tax certain income from the international operation of ships. This announcement provides that the termination shall take effect on January 1, 2021, and shall have effect for taxable years beginning on or after that date.
 
Announcement 2020-40 will be in IRB:  2020.

WASHINGTON – The Internal Revenue Service reminds the nation’s more than 780,000 active tax return preparers to start the upcoming 2021 filing season smoothly by renewing their Preparer Tax Identification Numbers now. All current PTINs will expire Dec. 31, 2020.

“Large segments of the taxpaying public rely on tax return preparers to assist them in complying with their filing and payment obligations” said IRS Return Preparer Director, Carol A. Campbell.  “Obtain or renew your PTIN now so you will be prepared to assist when filing season opens.”

Anyone who prepares or helps prepare a federal tax return for compensation must have a valid PTIN from the IRS before preparing returns, and they need to include the PTIN as the identifying number on any return filed with the IRS.

Tax preparers must pay a fee of $35.95 to renew or obtain a PTIN for 2021. The PTIN fee is non-refundable.

Tax preparers with a 2020 PTIN should use the online renewal process, which takes about 15 minutes to complete. Form W-12, along with the instructions, provides a paper option for PTIN applications and renewals. However, the paper form can take four to six weeks to process. Failure to have and use a valid PTIN may result in penalties.

To renew a PTIN online:

Once completed, users will receive confirmation of their PTIN renewal.

The online system not only allows PTIN renewal, but can also be used by tax preparers to view  a summary of the number of filed returns their PTIN has appeared on in the current year, and to receive communications through a secure mailbox from the IRS Return Preparer Office.

First time PTIN applicants can also apply for a PTIN online.

To apply for a PTIN online:

Opportunity for non-credentialed tax preparers

The Annual Filing Season Program is a voluntary IRS program intended to encourage non-credentialed tax return preparers to take continuing education courses to increase their knowledge and improve their filing season readiness.

Those who choose to participate must renew their PTIN, complete 18 hours of continuing education from IRS-approved CE providers and consent to adhere to specific obligations in Circular 230 by Dec. 31, 2020. The IRS has a video available on how to sign the Circular 230 consent and print the Record of Completion.

After completing the steps, the return preparer receives an Annual Filing Season Program Record of Completion from the IRS. Program participants are then included in a public directory of return preparers with credentials and select qualifications on the IRS website.

The searchable IRS directory helps taxpayers find preparers in their area who have completed the program or hold professional credentials recognized by the IRS.

Enrolled agent credential

The enrolled agent credential is an elite certification issued by the IRS to tax professionals who demonstrate special competence in federal tax planning, individual and business tax return preparation and representation matters. Enrolled agents have unlimited representation rights, allowing them to represent any client before the IRS on any tax matter.

As non-credentialed return preparers think about next steps in their professional career, the IRS encourages them to consider becoming an enrolled agent.

All enrolled agents, regardless of whether they prepare returns, must renew their PTIN annually in order to maintain their active status.

WASHINGTON — Victims of the California wildfires that began on Sept. 4 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 Fresno, Los Angeles, Madera, Mendocino, San Bernardino, San Diego and Siskiyou counties in California, but taxpayers in localities added later to the disaster area 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.

This relief is separate from that provided for the California wildfires that began on Aug. 14. See the agency’s Aug. 26 announcement for details.

The tax relief postpones various tax filing and payment deadlines that occurred starting on Sept. 4, 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 ran out on Oct. 15, 2020.    

In addition, penalties on payroll and excise tax deposits due on or after Sept. 4 and before Sept. 21, will be abated as long as the deposits were made by Sept. 21, 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 – 4569 − for the wildfires in California 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 the wildfires and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov.