IRS Announces New COVID Tax Relief!

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IRS Announces New COVID Tax Relief!

IRS providing broad-based penalty relief for certain 2019 and 2020 returns due to the pandemic with $1.2 billion in penalties being refunded to 1.6 million taxpayers.

On August 24, 2022 the Internal Revenue Service issued Notice 2022-36, 2021-15 I.R.B. 986 to help struggling taxpayers affected by the COVID-19 pandemic providing penalty relief to most people and businesses who file certain 2019 or 2020 returns late. The IRS announced that it is also taking an additional step to help those who paid these penalties already. The IRS states that nearly 1.6 million taxpayers will automatically receive more than $1.2 billion in refunds or credits with many of these payments will be completed by the end of September 2022.

“Throughout the pandemic, the IRS has worked hard to support the nation and provide relief to people in many different ways,” said IRS Commissioner Chuck Rettig. “The penalty relief issued today is yet another way the agency is supporting people during this unprecedented time. This penalty relief will be automatic for people or businesses who qualify; there’s no need to call.”

The relief applies to the failure to file penalty. The penalty is typically assessed at a rate of 5% per month and up to 25% of the unpaid tax when a federal income tax return is filed late. This relief applies to forms in both the Form 1040 and 1120 series and Forms 1041, 1065 and 1120-S.  All qualifying forms are listed in the Notice.  To qualify for this relief, any eligible income tax return must be filed on or before September 30, 2022.

The Notice also provides details on relief for filers of various international information returns, such as those reporting transactions with foreign trusts and receipt of foreign gifts (Form 3520); and ownership interests in foreign corporations (Forms 5471 and 5472). To qualify for this relief, any eligible tax return must be filed on or before September 30, 2022.

In addition, the Notice also provides penalty relief to banks, employers and other businesses required to file various information returns, such as those in the 1099 series. To qualify for relief, the notice states that eligible 2019 returns must have been filed by August 1, 2020, and eligible 2020 returns must have been filed by August 1, 2021.  Because both of these deadlines fell on a weekend, a 2019 return will still be considered timely for purposes of relief provided under the notice if it was filed by August 3, 2020, and a 2020 return will be considered timely for purposes of relief provided under the notice if it was filed by August 2, 2021. The notice provides details on the information returns that are eligible for relief.

However, penalty relief is not available where a fraudulent return was filed, where the penalties are part of an accepted offer in compromise or a closing agreement, or where the penalties were finally determined by a court.  Other penalties, such as the failure to pay penalty and delinquent FBARs, are not eligible but there are other programs existing in IRS which taxpayers may be able to utilize to successfully abate other penalties not covered under the Notice.  To see if you would qualify for relief in other IRS programs, you should check with tax counsel having experience in IRS penalty abatements.

An Opportunity For Taxpayers Who Owe The IRS.

Do not think that if you owe the IRS your tax problem will disappear because of the IRS has been back-logged from the pandemic. Instead you should be utilizing this valuable time to get yourself prepared so that when IRS enforcement activity regains momentum, you are ready to make the best offer or proposal to take control of your outstanding tax debts.

As a prerequisite to any proposal to the IRS, you must be in current compliance. That means if you have any outstanding income tax returns, they must be completed and submitted to IRS. Also, if you are required to make estimated tax payments, you must be current in making those payments.

Remember that COVID-19 does not alter the tax laws, so all taxpayers should continue to meet their tax obligations as normal. Individuals and businesses should keep filing their tax returns and making payments and deposits with the IRS, as they are required to do.

Also, the IRS will continue to take steps where necessary to protect all applicable statutes of limitations. In instances where statute expirations might be jeopardized during this period and a taxpayer is not agreeing to extend such, the IRS will issue Notices of Deficiency and pursue other similar actions to protect the interests of the government in preserving such statute.

The Bottom Line For Taxpayers.

If you are having a tax issue, don’t go silent. Don’t ignore the notice arriving in your mailbox. Tax problems don’t get better with time. Click here for the KahnTaxLaw Coronavirus Resource Center for more information on COVID-19 tax relief.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Diego County (Carlsbad) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

 

IRS Continues To Expand Tax Relief From COVID

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IRS Continues To Expand Tax Relief From COVID

On February 9, 2022 the IRS announced additional relief for taxpayers suspending the mailing of certain enforcement letters.

IRS Coronavirus Tax Relief

The IRS has established a special section focused on steps to help taxpayers, businesses and others affected by the coronavirus and as information becomes available, the IRS will be updating this special page on its website.

The executive branch of the Federal government declared the coronavirus pandemic a national emergency. Therefore, under Sec. 7508A, the declaration of an emergency under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, P.L. 100-707, the IRS is allowed to delay certain tax filing and payment deadlines.  While the IRS has not delayed the filing deadlines for 2021 tax returns, as part of ongoing efforts to provide additional help for people during this period the IRS is suspending more than a dozen additional letters, including the mailing of automated collection notices normally issued when a taxpayer owes additional tax, and the IRS has no record of a taxpayer filing a tax return.

Suspended IRS Notices

The IRS entered this filing season with several million original and amended returns filed by individuals and businesses that have not been processed due to challenges of the COVID pandemic.  With the IRS facing a huge backlog, it had to take this step to help avoid confusion for taxpayers and tax professionals.

The suspended notices include:

Individual Taxpayer Notices
Notice/Letter Number Title Description
CP80 Unfiled Tax Return This notice is generally sent when the IRS credited payments and/or other credits to a taxpayer’s account for the tax period shown on the notice, but the IRS hasn’t received a tax return for that tax period.
CP59 and CP 759 (Spanish) Unfiled Tax Return(s) – 1st Notice IRS sends this notice when there is no record of a prior year return being filed.
CP516 and CP616 (Spanish) Unfiled Tax Returns – 2nd Notice Request for information on a delinquent return as there is no record of a return filed.
CP518 and CP618 (Spanish) Final Notice – Return Delinquency This is a final reminder notice when there is no record of a prior year(s) return filed.
CP501 Balance Due – 1st Notice This notice is a reminder that there is an outstanding balance on a taxpayer’s accounts.
CP503 Balance Due – 2nd Notice This notice is the second reminder that a there is an outstanding balance on a taxpayer’s accounts.
CP504 Final Balance Due Notice – 3rd Notice, Intent to Levy The IRS sends this notice when a payment has not been received for an unpaid balance. This notice is a Notice of Intent to Levy (Internal Revenue Code Section 6331 (d)).
2802C Withholding Compliance letter This letter is mailed to taxpayers who have been identified as having under-withholding of Federal tax from their wages. This letter provides instructions to the taxpayer on how to properly correct their tax withholding.
Business Notices
CP259 and CP959 (Spanish) Return Delinquency IRS sends this notice when there is no record of a prior year return being filed.
CP518 and CP618 (Spanish) Final Notice – Return Delinquency This is a final reminder notice that we still have no record of a prior year tax return(s).

These automatic notices have been temporarily stopped until the backlog is worked through. The IRS says it will continue to assess the inventory of prior year returns to determine the appropriate time to resume the notices.

While the suspension of these notices started February 9th, some taxpayers may still receive these notices during the next few weeks as they were in the works of being sent or generated prior to today. Also, keep in mind that this suspension does not cover all IRS notices as many are legally required to be issued within a certain timeframe.

An Opportunity For Taxpayers Who Owe The IRS

Do not think that if you owe the IRS your tax problem will disappear because of the measures being considered by the government. Instead you should be utilizing this valuable time to get yourself prepared so that when activity in this nation regains momentum, you are ready to make the best offer or proposal to take control of your outstanding tax debts.

As a prerequisite to any proposal to the IRS, you must be in current compliance. That means if you have any outstanding income tax returns, they must be completed and submitted to IRS.

Also, if you are required to make estimated tax payments, you must be current in making those payments. Fortunately, as we are now in 2022, taxpayers who expect to owe for 2021 should have their 2021 income tax returns done now so that the 2021 liability can be rolled over into any proposal and the requirement to make estimated tax payments will now start for 2021.

Remember that COVID does not alter the tax laws, so all taxpayers should continue to meet their tax obligations as normal. Individuals and businesses should keep filing their tax returns and making payments and deposits with the IRS, as they are required to do.

Also, the IRS will continue to take steps where necessary to protect all applicable statutes of limitations. In instances where statute expirations might be jeopardized during this period and a taxpayer is not agreeing to extend such, the IRS will issue Notices of Deficiency and pursue other similar actions to protect the interests of the government in preserving such statute.

The take away from this – use the Federal government’s downtime to your advantage to prepare for the future.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles (including Long Beach and Ontario) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in cryptocurrency, check out what a bitcoin tax attorney can do for you.

 

Oral CBD Found to Inhibit COVID-19 Infection in Humans

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According a report published in the journal Science Advances, a research study found that cannabidiol (CBD) effectively blocks SARS-CoV-2 replication in human cells.

The goal of this study was to determine whether CBD, a natural product extracted from the cannabis plant, has the potential to inhibit infection of cells by SARS-CoV-2. To this end, researchers utilized three different human or monkey cell lines. They tested four independent preparations of CBD from chemical as well as natural sources, and also tested related cannabinoid compounds and metabolites. They used RNA-seq analysis to demonstrate that CBD, in contrast to the inactive cannabinoid CBDV, effectively eliminated SARS-CoV-2 viral RNA from infected cells, activated the ER stress response and XBP1 splicing, induced expression of the interferon pathway and suppressed viral induction of cytokines. They demonstrated using IRE1α knockout cells and anti-interferon blocking antibodies that both IRE1 and interferons contribute to the anti-viral activity of CBD. Finally, utilizing medical records for groups of human patients from the National COVID Cohort Collaborative under appropriate IRB protocols, they analyzed the association of patients taking CBD with their risk of testing positive for SARS-CoV-2.

The results of the study found that “CBD and its metabolite 7-OH-CBD can block SARS-CoV-2 infection at early and even later stages of infection.”

Additionally, the study stated that CBD has a number of advantages as a potential preventative agent against SARS-CoV-2, namely:

1.      CBD as a food additive with THC content less than 0.3% is widely available without restricted access.
2.      With proper formulation, quality control and delivery, CBD could be used prophylactically in contrast to recent anti-viral drugs.
3.      Multiple means of CBD ingestion are possible, including potential for inhalation and nasal delivery.
4.      CBD blocks viral replication after entry into cells and, thus, is likely to be effective against viral variants with mutant spike proteins.
5.      Unlike drugs such as Remdesivir or antiviral antibodies, CBD administration does not require injection in hospital settings.

Developments like this contradict the basis of classification of cannabis under Federal law which makes cannabis illegal.

The Anti-Federal U.S. Climate

The Federal Controlled Substances Act (“CSA”) 21 U.S.C. § 812 classifies marijuana as a Schedule 1 substance with a high potential for abuse, no currently accepted medical use in treatment, and lack of accepted safety for use under medical supervision. Although you can still face federal criminal charges for using, growing, or selling weed in a manner that is completely lawful under California law, the federal authorities in the past have pulled back from targeting individuals and businesses engaged in medical marijuana activities. This pull back came from Department of Justice (“DOJ”) Safe Harbor Guidelines issued in 2013 under what is known as the “Cole Memo”.

The Cole Memo included eight factors for prosecutors to look at in deciding whether to charge a medical marijuana business with violating the Federal law:

  • Does the business allow minors to gain access to marijuana?
  • Is revenue from the business funding criminal activities or gangs?
  • Is the marijuana being diverted to other states?
  • Is the legitimate medical marijuana business being used as a cover or pretext for the traffic of other drugs or other criminal enterprises?
  • Are violence or firearms being used in the cultivation and distribution of marijuana?
  • Does the business contribute to drugged driving or other adverse public health issues?
  • Is marijuana being grown on public lands or in a way that jeopardizes the environment or public safety?
  • Is marijuana being used on federal property?

Since 2013, these guidelines provided a level of certainty to the marijuana industry as to what point could you be crossing the line with the Federal government.  But on January 4, 2018, then Attorney General Jeff Sessions revoked the Cole Memo.  Now U.S. Attorneys in the local offices throughout the country retain broad prosecutorial discretion as to whether to prosecute cannabis businesses under federal law even though the state that these businesses operate in have legalized some form of marijuana.

Joyce-Blumenauer Amendment (previously referred to as the Rohrabacher-Farr Amendment)

Five states (Arizona, Mississippi, Montana, New Jersey and South Dakota) on November 3, 2020 passed new medical or recreational cannabis laws.  South Dakota voters adopted legalization of both medical and recreational cannabis.  Arizona, Montana and New Jersey voters adopted expansion of cannabis legalization to recreational use.  Mississippi voters adopted legalization of medical cannabis use.  This adds to an existing group of 11 states and Washington, D.C. that have legalized recreational cannabis, and adds to an existing group of 33 states that have legalized it for medical purposes.

Building on the DOJ’s issuance of the Cole Memo, in 2014 the House passed an amendment to the yearly federal appropriations bill that effectively shields medical marijuana businesses from federal prosecution. Proposed by Representatives Rohrabacher and Farr, the amendment forbids federal agencies to spend money on investigating and prosecuting medical marijuana-related activities in states where such activities are legal.

The amendment states that:

NONE OF THE FUNDS MADE AVAILABLE UNDER THIS ACT TO THE DEPARTMENT OF JUSTICE MAY BE USED, WITH RESPECT TO ANY OF THE STATES OF ALABAMA, ALASKA, ARIZONA, ARKANSAS, CALIFORNIA, COLORADO, CONNECTICUT, DELAWARE, FLORIDA, GEORGIA, HAWAII, ILLINOIS, INDIANA, IOWA, KENTUCKY, LOUISIANA, MAINE, MARYLAND, MASSACHUSETTS, MICHIGAN, MINNESOTA, MISSISSIPPI, MISSOURI, MONTANA, NEVADA, NEW HAMPSHIRE, NEW JERSEY, NEW MEXICO, NEW YORK, NORTH CAROLINA, NORTH DAKOTA, OHIO, OKLAHOMA, OREGON, PENNSYLVANIA, RHODE ISLAND, SOUTH CAROLINA, TENNESSEE, TEXAS, UTAH, VERMONT, VIRGINIA, WASHINGTON, WEST VIRGINIA, WISCONSIN, AND WYOMING, OR WITH RESPECT TO THE DISTRICT OF COLUMBIA, GUAM, OR PUERTO RICO, TO PREVENT ANY OF THEM FROM IMPLEMENTING THEIR OWN LAWS THAT AUTHORIZE THE USE, DISTRIBUTION, POSSESSION, OR CULTIVATION OF MEDICAL MARIJUANA.

This action by the House is not impacted by the change of position by the DOJ. However, unless this amendment gets included in each succeeding federal appropriations bill, the protection from Federal prosecution of medical marijuana businesses will no longer be in place.  Fortunately, Congress has included this amendment but yet has changed any of the tax or banking laws that pose challenges to the cannabis industry.

Clearly, to avail yourself of the protections of the amendment, you must be on the medical cannabis side and you must be in complete compliance with your State’s medical cannabis laws and regulations. You may not be covered under the amendment if you are involved in the recreational cannabis side even if legal in the State you are operating.

What Should You Do?

Given the illegal status of cannabis under Federal law you need to protect yourself and your marijuana business from all challenges created by the U.S. government.  Although cannabis is legal in California, that is not enough to protect you. Be proactive and engage an experienced Cannabis Tax Attorney in your area. Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County, Inland Empire (Ontario and Palm Springs) and other California locations protect you and maximize your net profits.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

How COVID-19 And Underfunding Impacts IRS Operations And Causes Refund Delays For Taxpayers.

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How COVID-19 And Underfunding Impacts IRS Operations And Causes Refund Delays For Taxpayers.

As required by law, once a year the Taxpayer Advocate’s Office (an independent Federal government department that monitors the Internal Revenue Service) must send a report to Congress describing challenges the IRS is facing, problems experienced by taxpayers in dealing with the IRS and recommendations to resolve these problems.

On January 12, 2022, National Taxpayer Advocate Chief Erin M. Collins released her 2021 Annual Report to Congress focusing on the unprecedented challenges taxpayers faced in filing their tax returns and receiving refunds and stimulus payments during a year consumed by the COVID-19 pandemic. Specifically noting that tens of millions of taxpayers experienced delays in the processing of their returns and with 77% of individual taxpayers receiving refunds “processing delays translated directly into refund delays”. The report also finds that the underfunding of the IRS over the last decade has resulted in the IRS still using antiquated technology and inadequate staffing levels to meet taxpayers’ needs.

Advocate Chief Collins also released the 2022 edition of the National Taxpayer Advocate’s “Purple Book” which presents 68 legislative recommendations designed to strengthen taxpayer rights and improve tax administration.

Impact of COVID-19 on tax administration

Advocate Chief Collins cited in her report that: “There is no way to sugarcoat the year 2021 in tax administration. The year 2021 provided no shortage of taxpayer problems. While my report focuses primarily on the problems of 2021, I am deeply concerned about the upcoming filing season”.

  • Unprocessed Returns: As of late December 2021, the IRS indicated there were still 6 million unprocessed individual returns and 2.3 million unprocessed business returns, more than 2 million unprocessed employer’s quarterly tax returns (Forms 941 and 941-X), and about 5 million pieces of taxpayer correspondence – with some of these submissions dating back at least to April 2021 and many taxpayers still waiting for their refunds nine months later.
  • Missing Or Inaccurate Economic Impact Payments (“EIP”) and Recovery Rebate Credits (“RRC”): The most common discrepancy involved RRC claims by taxpayers who did not receive some or all of their stimulus payments as EIPs the prior year. These returns had to be manually reviewed, and the IRS issued more than 11 million math error notices to taxpayers over RRC discrepancies with IRS records. When a taxpayer disagreed with a math error notice and submitted a response, the taxpayer’s response went into the IRS’s paper processing backlog, further delaying the refund.
  • Delayed Responses: The IRS received 6.2 million taxpayer responses to proposed adjustments and took an average of 199 days to process them – up from 74 days in the 2019 fiscal year, the most recent pre-pandemic year.

An Opportunity For Taxpayers Who Owe The IRS.

Do not think that if you owe the IRS your tax problem will disappear because the IRS is under challenges from COVID-19 or from underfunding.  Instead you should be utilizing this valuable time to get yourself prepared so that when IRS is resuming action against you, you are ready to make the best offer or proposal to take control of your outstanding tax debts.

As a prerequisite to any proposal to the IRS, you must be in current compliance.  That means if you have any outstanding income tax returns, they must be completed and submitted to IRS.  Also, if you are required to make estimated tax payments, you must be current in making those payments.  Fortunately, as we are now in 2022, taxpayers who expect to owe for 2021 should have their 2021 income tax returns done now so that the 2020 liability can be rolled over into any proposal and the requirement to make estimated tax payments will now start for 2022.

Remember that COVID-19 does not terminate the tax laws, so all taxpayers should continue to meet their tax obligations as normal. Individuals and businesses should keep filing their tax returns and making payments and deposits with the IRS, as they are required to do by law.

The take away from this – use the Federal government’s downtime to your advantage to prepare for the future.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Metropolitan Los Angeles (Long Beach and Ontario) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.  Also if you are involved in cannabis, check out what our cannabis tax attorneys can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

Living In The Era Of COVID-19 – Business Meals May Be Fully Deductible

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Living In The Era Of COVID-19 – Business Meals May Be Fully Deductible

The Consolidated Appropriations Act, 2021, Pub. L. No. 116- 260, 134 Stat. 1182 (December 27, 2020) amended §274 of the Internal Revenue Code (Code) providing a temporary 100-percent deduction for expenses that are paid or incurred after December 31, 2020, and before January 1, 2023, for food or beverages provided by a restaurant.

On April 8, 2021 the IRS released Notice 2021-25 which provides guidance regarding the temporary 100-percent deduction for expenses that are paid or incurred in 2021 and 2022, for food or beverages provided by a restaurant.  In particular, the notice explains when the temporary 100-percent deduction applies and when the 50-percent limitation continues to apply for purposes of § 274 of the Internal Revenue Code.

Historical Treatment Of Deductions Relating to Meal And Entertainment Expenses

Under prior law, a taxpayer generally can deduct business-related meal and entertainment expenses paid or incurred in entertaining a client, customer, or employee. The taxpayer had to show that the item was directly related to (or, in certain cases, associated with) the active conduct of the taxpayer’s trade or business.  In such case, a deduction is allowed, although it is generally limited to 50% of the expense amount.

Starting with 2018 more stringent rules apply with respect to a deduction for meal and entertainment expenses paid after 2017.  The Tax Cuts And Jobs Act Of 2017 (“TCJA”) TCJA signed into law by President Trump on December 22, 2017, repeals the deduction for most entertainment expenses, effective for amounts incurred after 2017. There was no exception for amount incurred that are directly related to, or associated with, the active conduct of the taxpayer’s trade or business. This repeal would extend to the cost of tickets to sporting events, stadium license fees, private boxes at sporting events, theater tickets, golf club dues, etc.

However, it is still possible that some amounts may still be deductible if they meet the exceptions in IRC § 274(e), a provision that was not touched by the TCJA.

The main exceptions in IRC § 274(e) allowing deductibility are:

  1. Expenses for food and beverages (and facilities used in connection therewith) furnished on the business premises of the taxpayer primarily for the taxpayer’s employees.
  2. Expenses for recreational, social, or similar activities (and facilities used in connection therewith) primarily for the benefit of employees, other than highly-compensated employees.
  3. Expenses incurred by a taxpayer which are directly related to business meetings of the taxpayer’s employees, stockholders, agents, or directors.
  4. Expenses directly related and necessary to attendance at a business meeting or convention of any certain organizations such as business leagues, chambers of commerce, real estate boards, and boards of trade.
  5. Expenses for goods, services and facilities made available by the taxpayer to the general public.

This lack of clarity by the TCJA created a lot of confusion in the business community which the IRS was looking to address.

IRS Guidance Issued 2018

On October 3, 2018 the IRS issued guidance, Notice 2018-76, clarifying that taxpayers may generally continue to deduct 50% of the food and beverage expenses associated with operating their trade or business, despite changes to the meal and entertainment expense deduction by the TCJA.    Taxpayers can rely on the guidance in the notice until the IRS issues proposed regulations.

Under the interim guidance, taxpayers may deduct 50% of an otherwise allowable business meal expense if:

  1. The expense is an ordinary and necessary business expense under IRC § 162(a) paid or incurred during the tax year when carrying on any trade or business;
  2. The expense is not lavish or extravagant under the circumstances;
  3. The taxpayer, or an employee of the taxpayer, is present when the food or beverages are furnished;
  4. The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
  5. For food and beverages provided during or at an entertainment activity, they are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts.

The interim guidance includes three examples illustrating how the IRS would apply these rules. All three examples involve attending a sporting event with a business client and having food and drink while attending the event.

Living In The Era Of COVID-19 – Impact Of New Law And New Guidance

Most taxpayers consider business meals to be part of entertainment and promotion which is an area that IRS targets in examinations of income tax returns as the IRS believes that there is abuse of this provision and/or a higher level of errors made by taxpayers in trying the comply with the law’s limitations.  So the issuance by IRS of Notice 2021-25 is extremely timely.

To summarize –

  1. The 100% deduction of business meals is available when the business meal from a restaurant. The term “restaurant” means a business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business’s premises. However, a restaurant does not include a business that primarily sells pre-packaged food or beverages not for immediate consumption, such as a grocery store; specialty food store; beer, wine, or liquor store; drug store; convenience store; newsstand; or a vending machine or kiosk.  In addition, an employer may not treat as a restaurant for purposes of this provision: (a) any eating facility located on the business premises of the employer and used in furnishing meals excluded from an employee’s gross income, or (b) any employer-operated eating facility treated as a de minimis fringe even if such eating facility is operated by a third party under contract with the employer as described. Additionally, the 5 points listed above would still apply.
  2. Ineligible business meals described above should still qualify to be 50% deductible but again the 5 points listed above would still apply.

In all cases, only the food and benevrage portion are deductible.  Entertainment continues to be non-deductible.  The 100% deduction enhancement that started January 1, 2021 expires January 1, 2023.

What Should You Do?

Like with any expense you are looking to deduct it is important to make sure that the tax law would support a deduction and that you have the required backup documentation in case you are audited by the IRS. Also, be mindful that in any audit by IRS, an agent will be making sure that taxpayers are not inflating the amount charged for food and beverages in order to circumvent the disallowance of entertainment.

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Francisco Bay Area (including San Jose and Walnut Creek) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income.  Additionally, if you are involved in the cannabis industry, check out Cannabis Tax Attorney.  Also, if you are involved in crypto currency, check out what a Bitcoin tax attorney can do for you.

More COVID-19 Tax Relief: IRS extends additional tax deadlines for individuals to May 17 and affirms deductibility of PPE

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More COVID-19 Tax Relief: IRS extends additional tax deadlines for individuals to May 17 and affirms deductibility of PPE

The IRS announced that individuals have until May 17, 2021 to meet certain deadlines that would normally fall on April 15th, such as making IRA contributions and filing certain claims for refund.  Additionally, the IRS announced that the purchase of personal protective equipment (PPE), such as masks, hand sanitizer and sanitizing wipes, for the primary purpose of preventing the spread of coronavirus are deductible medical expenses.

This follows a previous announcement from the IRS on March 17, 2021, that the federal income tax filing due date for individuals for the 2020 tax year was extended from April 15, 2021, to May 17, 2021.  Notice 2021-21 provides details on the additional tax deadlines which have been postponed until May 17th.

Time to make contributions to IRAs and health savings accounts extended to May 17th

In extending the deadline to file Form 1040 series returns to May 17th, the IRS is automatically postponing to the same date the time for individuals to make 2020 contributions to their individual retirement arrangements (IRAs and Roth IRAs), health savings accounts (HSAs), Archer Medical Savings Accounts (Archer MSAs), and Coverdell education savings accounts (Coverdell ESAs).  This postponement also automatically postpones to May 17, 2021, the time for reporting and payment of the 10% additional tax on amounts includible in gross income from 2020 distributions from IRAs or workplace-based retirement plans.  The IRS is also postponing the due date for Form 5498 series returns related to these accounts to June 30, 2021.

2017 unclaimed refunds – deadline extended to May 17th

For tax year 2017 Federal income tax returns, the normal April 15th deadline to claim a refund has also been extended to May 17, 2021. The law provides a three-year window of opportunity to claim a refund.  If taxpayers do not file a return within three years, the money becomes property of the U.S. Treasury. The law requires taxpayers to properly address, mail and ensure the tax return is postmarked by the May 17, 2021, date.

Additionally, foreign trusts and estates with federal income tax filing or payment obligations, who file Form 1040-NR, now have until May 17, 2021.

2021 AFSP deadline postponed to May 17th

Tax preparers interested in voluntarily participating in the Annual Filing Season Program (AFSP) for calendar-year 2021 now have until May 17, 2021 to file their application with the Internal Revenue Service. The normal due date is April 15th.

First Quarter 2021 estimated tax payment remains due April 15th

IRS’ announcement does not alter the April 15, 2021 deadline for estimated tax payments.  These payments are still due on April 15th. Taxes must be paid as taxpayers earn or receive income during the year, either through withholding or estimated tax payments. In general, estimated tax payments are made quarterly to the IRS by people whose income isn’t subject to income tax withholding, including self-employment income, interest, dividends, alimony or rental income. Most taxpayers automatically have their taxes withheld from their paychecks and submitted to the IRS by their employer.

Deductibility of PPE

Expenses for masks, hand sanitizers, sanitizing wipes and other personal protective equipment (PPE) used primarily to prevent the spread of COVID-19 will be treated as amounts paid for medical care under Internal Revenue Code (IRC) §213(d).  These expenses are included in Medical Expenses on Schedule A, Itemized Deductions, and the amount in excess of 7.5% of your Adjusted Gross Income is deductible.

Alternatively, the amounts paid for PPE are also eligible to be paid or reimbursed under health flexible spending arrangements (health FSAs), Archer medical savings accounts (Archer MSAs), health reimbursement arrangements (HRAs), or health savings accounts (HSAs).

An Opportunity For Taxpayers Who Owe The IRS

As a prerequisite to any proposal to the IRS, you must be in current compliance. That means if you have any outstanding income tax returns, they must be completed and submitted to IRS.

Also, if you are required to make estimated tax payments, you must be current in making those payments. Fortunately, as we are now in 2021, taxpayers who expect to owe for 2020 should have their 2020 income tax returns done now so that the 2020 liability can be rolled over into any proposal and the requirement to make estimated tax payments will now start for 2021.

Remember that COVID-19 does not alter the tax laws, so all taxpayers should continue to meet their tax obligations as normal. Individuals and businesses should keep filing their tax returns and making payments and deposits with the IRS, as they are required to do.

The take away from this – use the Federal government’s extension to your advantage to prepare for the future.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Northern California (Sacramento and San Francisco Bay Area) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

“Tax Day” For Individuals To File And Pay Extended To May 17, 2021.

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“Tax Day” For Individuals To File And Pay Extended To May 17, 2021.

On March 17, 2021 The Treasury Department and Internal Revenue Service announced that the federal income tax filing due date for individuals for the 2020 tax year will be automatically extended from April 15, 2021, to May 17, 2021. Formal guidance from the IRS will be forthcoming; however, it should be noted that this announcement of an extension applies to individual income tax returns only.  It does not include C-corporation tax returns or tax returns for other entities due April 15, 2021.

This relief does not apply to estimated tax payments that are due on April 15, 2021. These payments are still due on April 15th. In general, estimated tax payments are made quarterly to the IRS by people whose income is not subject to income tax withholding, including self-employment income, interest, dividends, alimony or rental income.

Individual taxpayers can also postpone federal income tax payments for the 2020 tax year due on April 15, 2021, to May 17, 2021, without penalties and interest, regardless of the amount owed. This postponement applies only to individual taxpayers, including individuals who pay self-employment tax. Penalties, interest and additions to tax will begin to accrue on any remaining unpaid balances as of May 17, 2021. Individual taxpayers will automatically avoid interest and penalties on the taxes paid by May 17th.

Individual taxpayers do not need to file any forms or call the IRS to qualify for this automatic federal tax filing and payment relief. Individual taxpayers who need additional time to file beyond the May 17th deadline can request a filing extension until October 15, 2021 by filing Form 4868. Filing Form 4868 gives taxpayers until October 15, 2021 to file their 2020 tax return but does not grant an extension of time to pay taxes due. Taxpayers should pay their federal income tax due by May 17, 2021, to avoid interest and penalties.

In making this announcement IRS Commissioner Chuck Rettig stated that:

“This continues to be a tough time for many people, and the IRS wants to continue to do everything possible to help taxpayers navigate the unusual circumstances related to the pandemic, while also working on important tax administration responsibilities.  Even with the new deadline, we urge taxpayers to consider filing as soon as possible, especially those who are owed refunds. Filing electronically with direct deposit is the quickest way to get refunds, and it can help some taxpayers more quickly receive any remaining stimulus payments they may be entitled to.”

State tax returns

The federal tax filing deadline postponement to May 17, 2021, only applies to individual federal income returns and tax (including tax on self-employment income) payments otherwise due April 15, 2021, not state tax payments or deposits or payments of any other type of federal tax. 42 states plus the District of Columbia have State filing and payment deadlines.  Similar to the federal tax filing and payment deadline extension, the Franchise Tax Board posted on its website that California will also extend the state tax filing and payment deadline for individuals to May 17th, 2021.  Like the federal program, the California extension does not apply to California estimated tax payments due on April 15, 2021.  Click here for a complete list of State Tax Agencies that will take you to their respective filing and payment deadlines which should be automatically updated as these agencies decide to change their deadlines.

Winter storm disaster relief for Louisiana, Oklahoma and Texas

Earlier this year, following the disaster declarations issued by the Federal Emergency Management Agency (FEMA), the IRS announced relief for victims of the February winter storms in Texas, Oklahoma and Louisiana. These states have until June 15, 2021, to file various individual and business tax returns and make tax payments. The extension to May 17th does not affect this June deadline. Click here for more information on disaster relief.

An Opportunity For Taxpayers Who Owe The IRS

As a prerequisite to any proposal to the IRS, you must be in current compliance. That means if you have any outstanding income tax returns, they must be completed and submitted to IRS.

Also, if you are required to make estimated tax payments, you must be current in making those payments. Fortunately, as we are now in 2021, taxpayers who expect to owe for 2020 should have their 2020 income tax returns done now so that the 2020 liability can be rolled over into any proposal and the requirement to make estimated tax payments will now start for 2021.

Remember that COVID-19 does not alter the tax laws, so all taxpayers should continue to meet their tax obligations as normal. Individuals and businesses should keep filing their tax returns and making payments and deposits with the IRS, as they are required to do.

The take away from this – use the Federal government’s extension to your advantage to prepare for the future.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Metropolitan Los Angeles (Long Beach and Ontario) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

Tax Relief During COVID-19: How taxpayers struggling with tax debts can benefit.

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Tax Relief During COVID-19: How taxpayers struggling with tax debts can benefit.

If you are struggling financially because of the pandemic you should tap into the IRS’ newest program – the “Taxpayer Relief Initiative” – with its expanded taxpayer options for making payments and alternatives to resolve balances owed.

On November 2, 2020 The Internal Revenue Service announced a number of changes designed to help struggling taxpayers impacted by COVID-19 more easily settle their tax debts with the IRS by establishing a new program called the “Taxpayer Relief Initiative”.  This program follows what was previously established by the IRS earlier in 2020, specifically the “People First Initiative”.

Taxpayers who owe always had options to seek help through payment plans and other tools from the IRS, but the new IRS Taxpayer Relief Initiative is expanding on those existing tools even more.

The revised COVID-related collection procedures will be helpful to taxpayers, especially those who have a record of filing their returns and paying their taxes on time.

Among the highlights of the Taxpayer Relief Initiative:

  • Taxpayers who qualify for a short-term payment plan option may now have up to 180 days to resolve their tax liabilities instead of 120 days.
  • The IRS is offering flexibility for some taxpayers who are temporarily unable to meet the payment terms of an accepted Offer in Compromise.
  • The IRS will automatically add certain new tax balances to existing Installment Agreements, for individual and out of business taxpayers. This taxpayer-friendly approach will occur instead of defaulting the agreement, which can complicate matters for those trying to pay their taxes.
  • To reduce burden, certain qualified individual taxpayers who owe less than $250,000 may set up Installment Agreements without providing a financial statement or substantiation if their monthly payment proposal is sufficient.
  • Some individual taxpayers who only owe for the 2019 tax year and who owe less than $250,000 may qualify to set up an Installment Agreement without a notice of federal tax lien filed by the IRS.
  • Additionally, qualified taxpayers with existing Direct Debit Installment Agreements may now be able to use the Online Payment Agreement system to propose lower monthly payment amounts and change their payment due dates.

Additional details on the Taxpayer Relief Initiative

The IRS offers options for short-term and long-term payment plans, including Installment Agreements via the Online Payment Agreement (OPA) system. In general, this service is available to individuals who owe $50,000 or less in combined income tax, penalties and interest or businesses that owe $25,000 or less combined that have filed all tax returns. The short-term payment plans are now able to be extended from 120 to 180 days for certain taxpayers.

Installment Agreement options are available for taxpayers who cannot full pay their balance but can pay their balance over time. The IRS expanded Installment Agreement options to remove the requirement for financial statements and substantiation in more circumstances for balances owed up to $250,000 if the monthly payment proposal is sufficient. The IRS also modified Installment Agreement procedures to further limit requirements for Federal Tax Lien determinations for some taxpayers who only owe for tax year 2019.

In addition to payment plans and Installment Agreements, other solutions for taxpayers who owe taxes include Temporarily Delaying Collection Actions, applying for an Offer in Compromise and Relief from Penalties through penalty abatement.

An Opportunity For Taxpayers Who Owe The IRS

Do not think that if you owe the IRS your tax problem will disappear because of the measures being considered by the government. Instead you should be utilizing this valuable time to get yourself prepared so that when activity in this nation regains momentum, you are ready to make the best offer or proposal to take control of your outstanding tax debts.

As a prerequisite to any proposal to the IRS, you must be in current compliance. That means if you have any outstanding income tax returns, they must be completed and submitted to IRS.

Also, if you are required to make estimated tax payments, you must be current in making those payments. Fortunately, as we are now at the end of 2020, taxpayers who expect to owe for 2020 should have their 2020 income tax returns done as early as possible in 2021 so that the 2020 liability can be rolled over into any proposal and the requirement to make estimated tax payments will start for 2021.

Remember that COVID-19 does not alter the tax laws, so all taxpayers should continue to meet their tax obligations as normal. Individuals and businesses should keep filing their tax returns and making payments and deposits with the IRS, as they are required to do.

Also, the IRS will continue to take steps where necessary to protect all applicable statutes of limitations. In instances where statute expirations might be jeopardized during this period and a taxpayer is not agreeing to extend such, the IRS will issue Notices of Deficiency and pursue other similar actions to protect the interests of the government in preserving such statute.

If you are having a tax issue, don’t go silent. Don’t ignore the notice arriving in your mailbox. Tax problems don’t get better with time.

Click here for the KahnTaxLaw Coronavirus Resource Center for more information on COVID-19 tax relief.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), San Diego County (Carlsbad) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

Where Is My IRS Second Economic Impact Payment?

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Where Is My IRS Second Economic Impact Payment?

Starting December 29, 2020 the IRS begins delivering the second round of Economic Impact Payments

On December 27, 2020 President Trump signed the $900 million Stimulus Bill formally known as the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 (the “CARES Act II”) to provide assistance to workplaces and employees. The CARES Act II provides many benefits intended to deliver cash into the hands of individuals and businesses, as well as many other tax provisions.  One of the most publicized provisions is the immediate cash payments by the Federal government to qualifying taxpayers.

Who is eligible for the economic impact payment?

To get cash assistance promptly delivered to individual taxpayers, qualifying taxpayers will receive one-time cash payments of $600 for individual taxpayers or if married, $1,200 for married couples.  An additional $600 may be paid for each qualifying child.

These amounts are subject to reduction if the individual’s Adjusted Gross Income (AGI) exceeds $75,000 for an individual taxpayer; $112,500 for head of household; or $150,000 for a married couple. Nonresident alien individuals and dependents who are 17 and older are ineligible to receive the payment.

For filers with income above those amounts, the payment amount is reduced by $5 for each $100 above the $75,000/$150,000 thresholds. Single filers with income exceeding $99,000 and $198,000 for joint filers with no children are not eligible.

How will the IRS know where to send my payment?

The vast majority of people do not need to take any action. The IRS will calculate and automatically send the economic impact payment to those eligible.

The cash payments will be based on the most recent tax information available to the IRS looking at a taxpayer’s 2019 tax return filed and if it has not yet been filed, then the taxpayer’s 2018 tax return filed.

The economic impact payment will be deposited directly into the same banking account reflected on the return filed.

If you haven’t filed taxes yet for one of those years, you should still consider having them completed and filed with the IRS so that if further legislation is passed in 2021 extending additional relief, the IRS will have your information to direct deposit any future payments.

The IRS does not have my direct deposit information. What can I do?

If the IRS does not have your bank account information, your check will be mailed to you at your last known address.  NO ONE FROM THE IRS WILL CALL YOU FOR THIS INFORMATION.  Checks should be delivered sometime in January 2021.

I am not typically required to file a tax return. Can I still receive my payment?

The IRS developed a web-based portal for individuals to provide their income information and banking information to receive an economic impact payment. The web-based portal requires you to enter: your personal information, marital status, dependents, bank account information and other information to verify your identity. If you did this already for the first economic impact payment, the IRS should be using this same information for delivering funds for the second economic impact payment.  NO ONE FROM THE IRS WILL CALL YOU FOR THIS INFORMATION.

Low-income taxpayers, senior citizens, Social Security recipients, some veterans and individuals with disabilities who are otherwise not required to file a tax return will not owe tax.

I have not filed my tax return for 2018 or 2019. Can I still receive an economic impact payment?

Yes. Anyone with a tax filing obligation who has not yet filed a tax return for 2018 or 2019 to file as soon as they can to receive an economic impact payment. Taxpayers should include direct deposit banking information on the return.

If you haven’t filed taxes yet for one of those years, you should still consider having them completed and filed with the IRS so that if further legislation is passed in 2021 extending additional relief, the IRS will have your information to direct deposit any future payments.

The IRS developed a web-based portal for individuals to provide their income information and banking information to receive an economic impact payment. The web-based portal requires you to enter: your personal information, marital status, dependents, bank account information and other information to verify your identity. If you did this already for the first economic impact payment, the IRS should be using this same information for delivering funds for the second economic impact payment.  NO ONE FROM THE IRS WILL CALL YOU FOR THIS INFORMATION.

When should I expect to receive my second economic impact payment?

The Treasury Department announced that the initial direct deposit payments may begin arriving as early as December 29th for some and will continue into next week. Paper checks will begin to be mailed, Wednesday, December 30th.  Some taxpayers may see the direct deposit payments as pending or as provisional payments in their accounts before the official payment date of January 4, 2021. As with the first round of payments under the CARES Act, most taxpayers will receive these payments by direct deposit. For Social Security and other beneficiaries who received the first round of payments via Direct Express, they will receive this second payment the same way.  Anyone who received the first round of payments earlier this year but doesn’t receive a payment via direct deposit will generally receive a check or, in some instances, a debit card. For those in this category, the payments will conclude in January 2021.

What happens when I file a 2020 tax return next year?

Keep in mind that if your 2020 tax return will reflect an AGI higher than the above applicable threshold, you should expect to pay back at least some or perhaps all of the cash payments you received under the CARES Act.  Also, eligible individuals who did not receive an Economic Impact Payment this year – either the first or the second payment – will be able to claim it when they file their 2020 taxes in 2021.

Beware Of New IRS Scam!

You get a call from someone claiming to be working for the IRS claiming:

 “We need your personal information in order for you to claim the coronavirus stimulus money.”

This appears to be an identity theft scheme to obtain recipients’ personal and financial information so the scammers can provide the IRS with their banking information to get your economic impact payment deposited into their account.  In reality, the IRS WILL NOT CALL YOU! Federal aid will either be deposited via account information the IRS already has from your tax filings or they will send you a check.

Where can I get more information?

The IRS has established a special section focused on steps to help taxpayers, businesses and others affected by the coronavirus and as information becomes available, the IRS will be updating this special page on its website.  You can also check out the KahnTaxLaw Coronavirus Resource Center.

An Opportunity For Taxpayers Who Owe The IRS

Do not think that if you owe the IRS your tax problem will disappear because of the measures being considered by the government. Instead you should be utilizing this valuable time to get yourself prepared so that when activity in this nation regains momentum, you are ready to make the best offer or proposal to take control of your outstanding tax debts.

As a prerequisite to any proposal to the IRS, you must be in current compliance. That means if you have any outstanding income tax returns, they must be completed and submitted to IRS.

Also, if you are required to make estimated tax payments, you must be current in making those payments. Fortunately, as we are now at the end of 2020, taxpayers who expect to owe for 2020 should have their 2020 income tax returns done as early as possible in 2021 so that the 2020 liability can be rolled over into any proposal and the requirement to make estimated tax payments will start for 2021.

Remember that COVID-19 does not alter the tax laws, so all taxpayers should continue to meet their tax obligations as normal. Individuals and businesses should keep filing their tax returns and making payments and deposits with the IRS, as they are required to do.

Also, the IRS will continue to take steps where necessary to protect all applicable statutes of limitations. In instances where statute expirations might be jeopardized during this period and a taxpayer is not agreeing to extend such, the IRS will issue Notices of Deficiency and pursue other similar actions to protect the interests of the government in preserving such statute.

What Should You Do?

You know that at the Law Offices Of Jeffrey B. Kahn, P.C. we are always thinking of ways that our clients can save on taxes. If you are selected for an audit, stand up to the IRS by getting representation. Tax problems are usually a serious matter and must be handled appropriately so it’s important to that you’ve hired the best lawyer for your particular situation. The tax attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles (including Long Beach and Ontario) and elsewhere in California are highly skilled in handling tax matters and can effectively represent at all levels with the IRS and State Tax Agencies including criminal tax investigations and attempted prosecutions, undisclosed foreign bank accounts and other foreign assets, and unreported foreign income. Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.

More Guidance From IRS On PPP Loans: Deductibility of Expenses Where a Business Received a PPP Loan

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More Guidance From IRS On PPP Loans: Deductibility of Expenses Where a Business Received a PPP Loan

On March 27, 2020 President Trump signed the $2 trillion Stimulus Bill formally known as the Coronavirus Aid, Relief and Economic Security [CARES] Act (the “CARES Act”) to provide assistance to workplaces and employees. The CARES Act provides many benefits intended to deliver cash into the hands of individuals and businesses, as well as many other tax provisions.  One of the most publicized provisions is the access of funds through banks to qualifying businesses and self-employed taxpayers to pay for payroll, insurance premiums and mortgage, rent and utility payments.  This is known as the Paycheck Protection Program (“PPP”).

Under this program administered by the U.S. Treasury and the U.S. Small Business Administration (SBA), small businesses with 500 or fewer employees including not-for-profits, veterans’ organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors are eligible for loans to pay up to eight weeks of payroll costs including benefits as well as other costs.

Eligible loan recipients are eligible for forgiveness of indebtedness for all or a portion of the stated principal amount of a covered PPP loan if certain conditions are satisfied, and the forgiven amount is excluded from the borrower’s gross income.

How To Report Forgiven PPP Loans?

IRC §6050P generally requires a lender that discharges at least $600 of a borrower’s indebtedness to file a Form 1099-C, Cancellation of Debt, with the IRS and to furnish a payee statement to the borrower.  Concerned that the filing of such information returns could result in the issuance of under-reporter notices (IRS Letter CP2000) to eligible recipients, on September 22, 2020, the IRS announced that lenders in the PPP should not file cancellation-of-debt information returns or furnish payee statements under IRC §6050P to report the amount of qualifying forgiveness with respect to covered loans made under PPP.

Can You Deduct Expenses Paid With PPP Loan Proceeds That Are Forgiven?

On November 18, 2020, the IRS announced that since businesses are not taxed on the proceeds of a forgiven PPP loan, the expenses are not deductible. Now it is interesting to note that the CARES Act did not specifically address whether the expenses used to achieve the loan forgiveness would continue to be deductible.  The IRS came up with this announcement on the basis laid out in Revenue Ruling 83-3 which states that where tax-exempt income is earmarked for a specific purpose, and deductions are incurred in carrying out that purpose, IRC §265(a) applies in disallowing the deductibility of those expenses because such deductions are allocable to the tax-exempt income.

What can PPP funds be used to pay?

PPP funds can be used to pay payroll costs including benefits (with salaries being under $100,000 per employee), interest on mortgages, rent payments, and utility bills; however, no more than 40% of the funds can be used for non-payroll costs.

What counts as payroll costs?

  • Salary, wages, commissions, or tips (capped at $100,000 on an annualized basisfor each employee);
  • Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
  • State and local taxes assessed on compensation; and
  • For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basisfor each employee.

What counts as non-payroll costs?

  • Intereston mortgage obligations, incurred before February 15, 2020;
  • Rent, under lease agreements in force before February 15, 2020; and
  • Utilities, for which service began before February 15, 2020.

Under what circumstances do I have to repay these PPP funds received?

The loan of the PPP funds will be forgiven if you maintain your pre-existing employees at their pre-existing salary levels.  Also, that you do not pay out more than 40% of the PPP funds for non-payroll costs specifically limited to: interest on mortgages, rent, and utilities.

What if I do not spend all the funds or make non-qualifying expenditures?

The amount of loan forgiveness will be reduced including if full-time headcount declines or if salaries and wages decrease.  Also, if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 24 weeks after getting the loan.

How can I request loan forgiveness?

You can submit a request to the lender that is servicing the loan by completing the SBA application. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days.

What Should You Do?

Your year-end tax planning should consider if your PPP loan will be forgiven in the future as the loan forgiveness is tied to deductibility of the expenses which impact how much tax a business could owe.  Let the attorneys at the Law Offices Of Jeffrey B. Kahn, P.C. located in Orange County (Irvine), Los Angeles (including Long Beach and Ontario) and elsewhere in California assist you maximizing your tax deductions.  Also if you are involved in cannabis, check out what a cannabis tax attorney can do for you.  And if you are involved in crypto currency, check out what a bitcoin tax attorney can do for you.