The IRS issued guidance on the federal income and employment tax treatment of cash payments made by employers under leave-based donation programs to aid victims of the further Russian invasion of Ukraine.

The IRS issued guidance on the federal income and employment tax treatment of cash payments made by employers under leave-based donation programs to aid victims of the further Russian invasion of Ukraine. Employer leave-based donation payments made by an employer before January 1, 2023, to Code Sec. 170(c) organizations to aid said victims (qualified payments) will not be treated as gross income, wages or compensation of the employees of the employer.

Similarly, employees electing or with an opportunity to elect to forgo leave that funds said qualified payments will not be treated as having constructively received gross income, wages, or compensation. Further, electing employees are not eligible to claim a charitable contribution deduction under Code Sec. 170 for the value of the forgone leave that funds said qualified payments.

During the National Small Business Week, May 1 to 7, the IRS highlighted tax benefits and resources tied to the theme for this year’s celebration: " Building a Better America through Entrepreneurship.".The IRS urged business taxpayers to take advantage of tax benefits for 2022, make estimated tax payments electronically, e-file payroll tax returns, and check out the Work Opportunity Credit.

During the National Small Business Week, May 1 to 7, the IRS highlighted tax benefits and resources tied to the theme for this year’s celebration: " Building a Better America through Entrepreneurship.".The IRS urged business taxpayers to take advantage of tax benefits for 2022, make estimated tax payments electronically, e-file payroll tax returns, and check out the Work Opportunity Credit.

The IRS urged business taxpayers to begin planning now to take advantage of the enhanced 100 percent deduction for business meals and other tax benefits available to them when filing their 2022 income tax return. For 2021 and 2022 only, businesses can generally deduct the full cost of business-related food and beverages purchased from a restaurant. Further, more information about this provision is provided in IRS Publication 463, Travel, Gift, and Car Expenses.

Additionally, many business owners may qualify for the home office deduction, also known as the deduction for business use of a home. Usually, a business owner must use a room or other identifiable portion of the home exclusively for business on a regular basis. Those eligible can figure the deduction using either the regular method or the simplified method. To choose the regular method, taxpayers can fill out and attach Form 8829, Expenses for Business Use of Your Home. Alternatively, business owners can choose the simplified method, based on a six-line worksheet found in the instructions to Schedule C, Profit or Loss from Business. Under both the regular and simplified methods, business expenses in excess of the gross income limitation are not deductible.

Further, the IRS informed taxpayers about a variety of other tax benefits often available to business owners. This includes business start-up expenses, qualified business income deduction and the health-insurance deduction for self-employed individuals. Finally, more information about these and other tax benefits is provided in Publication 535, Business Expenses.

Making Estimated Tax Payments Electronically

The IRS reminded all businesses to make estimated tax payments quarterly and that making them electronically is fast, easy and safe. Estimated tax is used to pay income tax and other taxes including self-employment tax and alternative minimum tax. If a taxpayer doesn’t pay enough tax through withholding and estimated tax payments, they may be charged a penalty. However, generally, paying quarterly estimated taxes will lessen or even eliminate any penalties.

Further, the IRS informed that individuals, including sole proprietors, partners and S corporation shareholders, generally must make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed. For corporations, the threshold is $500 or more. Self-employed individuals and gig workers who also receive salaries and wages from an employer can avoid paying estimated tax by asking their employer to withhold more tax from their paycheck. They can check the Tax Withholding Estimator on the IRS website for more help. Individuals generally use Form 1040-ES to figure estimated tax while corporations generally use Form 1120-W.

Additionally, for estimated tax purposes, the year is divided into four payment periods. However, alternative payment periods are allowed if enough tax is paid in by the end of the quarter. Further, taxpayers can use the Electronic Federal Tax Payment System for all their federal tax payments. Individual Taxpayers can also create an IRS Online Account or use Direct Pay, a debit, credit card or digital wallet to make their estimated tax payments. The 2022 Form 1040-ES can help taxpayers estimate their first quarterly tax payment. Moreover, taxpayers may also send estimated tax payments with Form 1040-ES by mail. Finally, the IRS also provided a list of resources available to taxpayers, including the Small Business Tax Workshop and E-News for Small Businesses among others.

E-File Payroll Tax Returns

The IRS has urged small businesses to take advantage of filing their payroll tax returns and making tax payments electronically. Further, the IRS announced that payroll taxes include federal income tax withheld from employee wages, as well as both the employer and employee portions of Social Security and Medicare taxes. Payroll taxes also include the Federal Unemployment Tax.

Additionally, the IRS informed taxpayers that taxpayers who file on paper miss out on all the advantages of e-filing. E-filing saves time and is secure and accurate. The IRS acknowledges receipt of an electronically filed return within 24 hours. With electronic filing, any mistake is often discovered and fixed quickly. Additionally, employers choosing to e-file themselves will need to purchase IRS-approved software. Alternatively, the Authorized IRS e-file Providers Locator Service can help employers find a suitable tax professional.

Finally, the IRS informed that though some employers can choose to pay their taxes when they file their payroll tax returns, most need to deposit them regularly with the Treasury Department instead. Federal tax deposits must be made by electronic funds transfer (EFT). A fast, easy and free way to do that is through the Electronic Federal Tax Payments System (EFTPS). Payments can be made either online or by phone. To enroll or for more information, taxpayers can visit EFTPS.gov or call 800-555-4477.

Work Opportunity Tax Credit

The IRS reminded employers to check out the Work Opportunity Tax Credit (WOTC) for hiring long-term unemployment recipients and other group of workers facing significant barriers to employment. The WOTC encourages employers to hire workers certified as members of any of ten targeted groups facing barriers to employment. The WOTC is available for wages paid to certain individuals who begin work on or before December 31, 2025. Further, the IRS also provided a list of the ten groups mentioned above.

Additionally, the IRS announced that to qualify for the credit, an employer must first request certification by submitting IRS Form 8850, Pre-screening Notice and Certification Request for the Work Opportunity Credit, to their state workforce agency (SWA). It must be submitted to the SWA within 28 days after the eligible worker begins work. Further, employers can help new hires by making sure they have the right amount of tax taken out of their pay and encourage them to use the Tax Withholding Estimator. This tool will also help them correctly fill out Form W-4, Employee’s Withholding Certificate.

The Financial Crimes Enforcement Network is behind but making progress on implementing the Anti-Money Laundering Act of 2020 (which includes the Corporate Transparency Act), FinCEN Acting Director Himamauli Das told Congress.

The Financial Crimes Enforcement Network is behind but making progress on implementing the Anti-Money Laundering Act of 2020 (which includes the Corporate Transparency Act), FinCEN Acting Director Himamauli Das told Congress.

According to written testimony provided to the House Committee on Financial Services prior to an April 28, 2022, hearing, Das noted that "timely and effective implementation of the AML Act, which includes the CTA, is a top priority," but he also acknowledged that "we are missing deadlines, and we will likely continue to do so" due to lack of funding from the government forcing the agency to make prioritization decisions, promoting Dim to advocate for Congress to accept the White House budget request of $210.3 million for fiscal year 2023.

That being said, Das highlighted the implementation progress to date.

"The AML Act has helped put FinCEN in the position to address today’s challenges, such as illicit use of digital assets, corruption, and kleptocrats hiding their ill-gotten gains in the U.S. financial system, including through American shell companies and real estate."

Combating the latter is a key focus of the activity surrounding the Corporate Transparency Act that the agency is undertaking. The CTA "will establish a beneficial ownership reporting regime to assist law enforcement in unmasking shell companies used to hide illicit activities," Das said, adding that beneficial ownership information "can add valuable context to financial analysis in support of law enforcement and tax investigations" in addition to providing information to the intelligence and national security professionals protecting the nation.

FinCEN has three regulations planned to implement the CTA, the first of which was published in the Federal Register in December 2021 as a notice of proposed rulemaking and is focused on the reporting requirements of beneficial ownership. The agency is currently reviewing the more than 240 comments received on this NPRM. Das said the timing of when the rule would be finalized "is not clear yet. It is a complex rulemaking that we need to get right—both for law enforcement and because of the effect that it will have on stakeholders such as small businesses and financial institutions."

The second NPRM under development will rules around access to beneficial ownership information by law enforcement, national security agencies, financial institutions, and other relevant stakeholders. That proposed rule is expected to be issued this year.

Finally, FinCEN also is working on a revision to the Customer Due Diligence regulation, which must be issued one year after the reporting requirement rule goes into effect. Dim did not provide a timeframe for when that proposal would be available for comment.

The agency also is developing a beneficial ownership database, known as the Beneficial Ownership Secure System.

"These beneficial ownership reporting obligations will make our economy—and the global economy—stronger and safer from criminals and national security threats," Das said.

FinCEN also is looking at the real estate market to close gaps in the nation’s anti-money laundering framework. Din referenced an advanced notice of proposed rulemaking that was issued in December 2021 to solicit comments on developing a rule to address money-laundering vulnerabilities in the real estate market. The ANPRM generated 150 comments and will ultimately lead to a proposed rule, although he said that "it is still too early to identify the scope of any NPRM or final rule."

The agency also is examining how to use its information collection authorities to enhance transparency and understand money laundering and terrorism financing through investment advisers.

"Even though investment advisers in the United States are not expressly subject to AML/CFT requirements under BSA [Bank Secrecy Act] regulations, investment advisers may fulfill some AML/CFT obligations in certain circumstances," Das said. "For example, investment advisers may perform certain AML/CFT functions because they are a part of a bank holding company, are affiliated with a dually-registered broker-dealer, or share joint custody with a BSA-regulated entity such as a mutual fund."

The testimony outlines a number of other AML Act requirements that the agency is working on, including understanding minimum standards for AML/CFT programs, certain information sharing requirements, technology, and training requirements and other modernization efforts.

"The FinCEN team is working diligently with law enforcement and regulatory stakeholders to promulgate rules and take other steps under the legislation that will further the national security of the United States and promote a more transparent financial system," Das concluded.

The IRS has reminded taxpayers to create or review emergency preparedness plans for surviving natural disasters. The Service has designated the month of May to include National Hurricane Preparedness Week and National Wildfire Awareness Month.

The IRS has reminded taxpayers to create or review emergency preparedness plans for surviving natural disasters. The Service has designated the month of May to include National Hurricane Preparedness Week and National Wildfire Awareness Month. Further, the IRS has advised taxpayers to:

• secure key documents such as tax returns, birth certificates, deeds, titles and insurance policies inside waterproof containers in a secure space, make their copies and scanning them for backup storage on electronic media such as a flash drive;
• record all property, especially expensive and high value items. The IRS disaster-loss workbooks in Publication 584 can help individuals and businesses compile lists of belongings or business equipment;
• employers who use payroll service providers should check fiduciary bonds as they could protect the employer in the event of default by the payroll service provider; and
• reconstruct records after a disaster for tax purposes, getting federal assistance or insurance reimbursement. Further, taxpayers who have lost some or all their records during a disaster can visit IRS’s Reconstructing Records webpage as one of their first steps.

Additionally, the Service has urged taxpayers to not call the IRS to request disaster relief because it automatically identifies taxpayers located in the covered disaster area and applies filing and payment relief. Taxpayers impacted by a disaster with tax-related questions can contact the IRS at 866-562-5227 to speak with an IRS specialist trained to handle disaster-related issues. Taxpayers who do not reside in a covered disaster area, but suffered impact from a disaster should call 866-562-5227 to find out if they qualify for disaster tax relief and to discuss other available options. Moreover, taxpayers can find complete disaster assistance and emergency relief details for both individuals and businesses on the Service’s Around the Nation webpage. Lastly, the taxpayers can also visit the FEMA Prepare for Disasters web page to Build a Kit of emergency supplies.

Treasury Secretary Janet Yellen is calling on the United States and the European Union to get the global corporate minimum tax into law in their respective territories.

Treasury Secretary Janet Yellen is calling on the United States and the European Union to get the global corporate minimum tax into law in their respective territories.

The "EU and the United States must show leadership by expeditiously implementing the global minimum tax in our domestic laws," Yellen told attendees May 17, 2022, at the Brussels Economic Forum, according to her prepared remarks distributed by the Department of the Treasury.

Yellen’s remarks promoted the Organisation for Economic Co-operation and Development agreement signed by 137 countries that would, among other things, set the global corporate minimum tax at 15 percent.

"Once implemented, we can put the revenues produced by this deal toward funding investments to make our economies more sustainable and fairer—not just in the United States and the EU, but also in emerging and developing countries," she said. "And by moving together we will raise these revenues in a way that levels the playing field. Businesses will be able to compete on economic fundamentals, rather than on tax incentives, thereby contributing to our collective prosperity."

According to the Department of the Treasury, Yellen met with European Commission President Ursula von der Leyen, European Commission Executive Vice President Valdis Dombrovskis and European Commissioner for the Economy Paolo Gentiloni and identified ways to move forward on the international tax reform agreement, although those specific details were not made public. Her remarks also noted that in addition to addressing the global corporate minimum tax issues, known as Pillar 2 of the agreement, "[w]e must resolve the open issues in Pillar 1 so that the multilateral treaty can be ready for signature," although the specific issues that need resolution were not identified in the speech.

"Pillar 1 of this deal, focused on the taxation of digital services, puts an end to trade tensions between the EU and the United States that threaten our companies with multiple layers of taxation and our consumers with rising costs from tariffs."Yellen said. "That dynamic isn’t good for anyone."

She continued: "Pillar 1 will also update and stabilize the international tax architecture, providing a fairer allocation of revenues than the status quo and tax certainty that is good for business and investment. Rather than facing harmful unilateral measures, companies will be able to plan and thus invest their capital efficiently."

The Internal Revenue Service continues to struggle with issues related to staff shortages, the Treasury Inspector General for Tax Administration said.

The Internal Revenue Service continues to struggle with issues related to staff shortages, the Treasury Inspector General for Tax Administration said.

In a May 2, 2022, interim report on the 2022 filing season, the IG stated that "significant staffing shortages continue to hamper the IRS’s efforts to address backlog inventories and continue to affect the IRS’s ability to ensure that current year tax returns are processed timely."

The data in the report comes from March and predates a number of appearances of IRS Commissioner Charles Rettig before Congress where he has pledged that barring another significant spike in the pandemic or some other unforeseen issue, the backlogged inventories will be back to "healthy" by the end of the year.

The report highlights the agency’s overall "IRS Get Healthy Initiatives" and states the IG will be performing separate reviews on how the agency is addressing the backlog as well as hiring shortfalls.

The IG reported that as of March 15, 2022, the IRS onboarded 521 submission processing employees, or 9.5 percent of the hiring goal of 5,437, although Rettig has testified before Congress that in-person and virtual job fairs have yielded higher numbers since then and those hired should be onboarded and complete their training in June. The IG also reported that as of March 17, 2022, the agency onboarded 3,827 accounts management employees, or 76.5 percent of the hiring goal of 5,000 for the 2022 tax season.

Five staffing concerns were highlighted by the report, including:

• The use of a seasonal workforce that does not provide permanent employment or desirable schedules and shifts;
• Entry-level salaries that are lower than what can be obtained in private industry;
• Applicants who apply for multiple jobs, reducing the true number of candidates available to fill vacancies;
• Applicants who fail to respond to or pass pre-screnning or do not show up to work after they have been hired; and
• Long onboarding times.

IG estimates that as of the week ending March 12, 2022, there are nearly 5 million paper tax returns that still need to be processed. Through March 4, for the 2022 filing season, the IRS received nearly 55 million returns, including 1.5 million paper returns, which is 15 percent lower than the paper returns received in roughly the same window (March 5, 2021) during the previous year’s tax filing season.

As of March 4, the IRS has issued about 38 million refunds totaling $129.2 billion. Both represent increases from the same time in the previous tax filing season through March 5 that had about 36 million refunds issued totaling $107.8 billion.

Rettig Defends Budget Request Before Senate Appropriations Committee

Internal Revenue Service Commissioner Charles Rettig appeared May 3 before the Financial Services and General Government Subcommittee of the Senate Appropriations Committee to defend the White House budget request for fiscal year 2023.

During the hearing, Commissioner Rettig testified on a number of the usual topics, noting the backlog of unprocessed returns and other written correspondence should be at a "healthy" level by the end of the year, assuming no other spikes in the pandemic or other unanticipated issues, as well as improvements to the workforce due to direct hiring authority granted by Congress, and the need for more funding to update and improve the IT infrastructure. He also touched on the need for more enforcement personnel to help close the tax gap, reiterating that enforcement will be targeted toward the wealthy who are avoiding paying taxes and not the low and middle income taxpayers.

A recent report by the Treasury Inspector General for Tax Administration primarily focused on the need for the Internal Revenue Service to expand its electronic filing capabilities also noted that the agency has destroyed some 30 million paper-filed documents in 2021.

A recent report by the Treasury Inspector General for Tax Administration primarily focused on the need for the Internal Revenue Service to expand its electronic filing capabilities also noted that the agency has destroyed some 30 million paper-filed documents in 2021.

"The continued inability to process backlogs of paper-filed tax returns contributed to management’s decision to destroy an estimated 30 million paper-filed information return documents in March 2021," the report, dated May 4, 2022, states. "The IRS uses these documents to conduct post-processing compliance matches such as the IRS’s Automated Underreporter Program to identify taxpayers not accurately reporting their income."

IRS said in a May 13 statement that the documents destroyed were document "submitted to the IRS by third-party payors, not taxpayers. 99 percent of the information returns we used were matched to corresponding tax returns and processed. The remaining 1 percent of those documents were destroyed due to a software limitation and to make room for new documents relevant to the pending 2021 filing season."

The agency added that there were "no negative taxpayer consequences as a result of this action. Taxpayers or payers have not been and will not be subject to penalties resulting from this action."

The IG report adds that agency management "advised us that once the tax year concludes, the information returns, e.g. Forms 1099-Miscellaneous Information, can no longer be processed due to system limitations. This is because the system used to process these information returns is taken offline for programming updates in preparation for the next filing season."

More E-Filing Needed

The revelation comes as the IG calls for more documents to be able to electronically filed.

Indeed, the first recommendation of the report was that IRS "develop a Service-wide strategy to prioritize and incorporate all forms for e-filing," a recommendation the IRS agreed with.

To put the need in context, the IG report highlights the cost of processing a paper return compared to an electronically filed return in 2020. For example, an individual Form 1040 costs 36 cents to process if the form that was filed electronically, but increases to $15.21 if the Form 1040 was filed in paper form. A Form 1041 costs 37 cents to process electronically and $14.02 to process a paper return.

E-filed returns also allow for "a number of upfront validations that check for more than 1,000 possible errors before the IRS accepts an e-filed tax return for processing" giving e-filed returns a greater degree of accuracy, compared to a paper return that requires an individual to keypunch all the details, a key contributor to the backlog of processing during the COVID-19 pandemic.

And while the agency has been relatively successful in getting individuals to electronically file their returns (a 93.4 percent e-file rate in 2020), it is not having the same success in getting businesses to do the same (63.3 percent e-file rate in 2020). That number goes down to 49 percent when looking at employment tax returns.

IG noted that the agency has not taking previously recommended actions, including:

• Developing a business tax return e-filing Service-wide strategy;
• Developing a less burdensome electronic signature process for employment tax returns; and
• Working with the Department of the Treasury to consider revising current requirements and/or creating new requirements for e-filing business returns.

IG also called upon the IRS to be more active in identifying business who are non-compliant with e-filing mandates and assessing the noncompliance penalties. The report noted that in 2018, there were 897 corporate taxpayers that were mandated to e-file but still filed paper returns. The agency could have assessed more than $2.4 million in penalties that were not assessed on these corporate filers.

The report notes that IRS did not take actions to assess penalties "because of potential implementation issues," an excuse the IG Office of Audit called "insufficient. The IRS could develop processes and procedures to identify these filers post-filing. In view of the paper backlogs of paper tax returns, the IRS should take additional steps in an effort to continue to reduce paper filings."

WASHINGTON–The Internal Revenue Service’s Independent Office Of Appeals has seen its cycle times for handling appeals cases stretch to more than year during the COVID-19 pandemic, but the office is working to get it back to pre-pandemic levels.

WASHINGTON–The Internal Revenue Service’s Independent Office Of Appeals has seen its cycle times for handling appeals cases stretch to more than year during the COVID-19 pandemic, but the office is working to get it back to pre-pandemic levels.

Speaking May 13, 2022, at the American Bar Association’s May Tax Meeting, office Chief Andy Keyso provided an update on where the agency stands as it, and the IRS as a whole, prepare for all offices to open for employees, as the end of June.

The cycle time for closed cases in fiscal year 2021 reached 372 days, up from 194 days in fiscal year 2018. Keyso noted that the upward trend started from there into FY 2019, where it increased to 229 days due to the government shutdown during that time, and then increased again in FY 2020 to 289 days during the first year of the pandemic that including a temporary shutdown as all employees were sent home and began working remotely.

Despite the increase, Keyso is optimistic that change can happen.

"I’m troubled by the increase in cycle time but I am not defeated by it," Keyso said. "I believe that it is reversible, and we will reverse it as we get people back in the office."

His optimism stems from the fact that while cycle times have gone up, it is not because more time is being spent on cases by appeals officers. That time hasn’t changed, he said. The problems are more a function of issues that are plaguing the agency as a whole since the start of the pandemic, including the backlog of processing written correspondence.

Getting that cycle time back down is one of the office’s priorities once people are back in their offices full time, Keyso said.

Cycle times went up despite declines in new case receipts by the office. In FY 2018, the office received 92,430 cases. That number dropped in the following two years to 85,286 in FY 2019 and then to 57,573 in FY 2020 before rebounding to 72,216 cases in the last fiscal year. As expected, total case closures follows a similar trend, with 94,832 cases getting closed in FY 2018, dropping down to 73,207 in FY 2019, and falling again to 62,997 in FY 2020. In the last fiscal year, 66,522 cases were closed.

Collection due process cases make up the most cases handled by the Independent Office of Appeals in FY 2021 (27,420), followed by examination cases (25,247) and then offers in compromise cases (6,858).

The Internal Revenue Service is not providing taxpayers with sufficient tools to manage their accounts online, National Taxpayer Advocate Erin Collins said.

The Internal Revenue Service is not providing taxpayers with sufficient tools to manage their accounts online, National Taxpayer Advocate Erin Collins said.

In an April 28, 2022, blog post, Collins stated that despite progress in the development of its online account application, "the IRS has yet to develop and adopt a one-stop solution for online and digital offerings that combine communications and interaction with individual and business taxpayers as well as with tax professionals."

Collins offered a number of solutions the IRS should be working on to help improve its virtual offerings, including:

• providing taxpayers with the ability to navigate to all IRS online information and services;
• making it simple for taxpayers to access various online tools;
• conditioning taxpayers to use Online Account application as the starting and ending point with their online interactions with the agency; and
• providing the option for those who are married and jointly file their tax returns to link their individual accounts.

Additionally, the IRS needs to offer a business version of the Online Account application to increase digital support for businesses that “at minimum” offers the same support features for individual taxpayers, Collins added.

For tax professionals, Collins said there is a need for better access by those professionals to their clients’ Online Account application from within the Tax Pro Account application.

"This one improvement would be significant for tax professionals in assisting taxpayers to meet their filing and payment obligations and provide much-needed assistance and guidance to them," she stated.

Collins also called for the IRS to integrate the "Where’s My Refund" tool into the Online Account application as well as prioritize improving its functionality to help decrease the call volume customer service representatives are dealing with.

The agency "needs to have robust online accounts available for all taxpayers and tax professionals that provide information, guidance, and the capability to work and resolve issues online," she stated.

The IRS has issued guidance and temporary relief for required minimum distribution (RMD) changes in 2020. Distributions that would have been RMDs under old law are treated as eligible rollover distributions. The 60-day rollover period deadline for any 2020 RMDs already taken has been extended to August 31, 2020. Notice 2007-7, I.R.B. 2007-5, 395 is modified.

The IRS has issued guidance and temporary relief for required minimum distribution (RMD) changes in 2020. Distributions that would have been RMDs under old law are treated as eligible rollover distributions. The 60-day rollover period deadline for any 2020 RMDs already taken has been extended to August 31, 2020. Notice 2007-7, I.R.B. 2007-5, 395 is modified.

SECURE and CARES Acts
The new guidance addresses RMD issues arising from recent unexpected changes in the rules. The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) ( P.L. 116-94), enacted at the end of 2019, changed the required beginning date for RMDs for individuals turning age 70-1/2 in 2020. The Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136), enacted in March 2020, waived the RMD requirements for 2020.

Plans, administrators, and individuals were taken by surprise. Some plans and participants treated distributions as RMDs even though they were not under new rules then in effect. The SECURE Act provided no relief. However, the CARES Act allowed plans and participants to treat would-be RMDs as eligible rollover distributions. Still, under the rules, individuals have 60 days to recontribute distributions, and can only do that once in a 12-month period. That left individuals who took early distributions twisting in the wind, not to mention people taking monthly RMD installments.

60-Day Deadline Extended
Under the new relief, any distribution already taken in 2020 that would have been an RMD under the old rules has a 60-day recontribution deadline of no earlier than August 31. For example, if someone took a distribution in January 2020 that would have been an RMD under the old rules (either sets of old rules), they have until August 31 to recontribute it to an eligible plan or IRA.

For an IRA owner or beneficiary who has already received a distribution that would have been an RMD in 2020 but for the 2020 RMD waiver under the CARES Act or the change in the required beginning date under the SECURE Act, the recipient may repay the distribution to the distributing IRA, even if the repayment is made more than 60 days after the distribution, provided the repayment is made no later than August 31, 2020. The repayment will be treated as a rollover, but will be subject to the one rollover per 12-month period limitation or the restriction on nonspousal beneficiary rollovers.

SECURE Act Relief
Distributions that were intended as RMDs but in fact are not due to the SECURE Act change in required beginning date are treated as eligible rollover distributions. RMDs do not have to satisfy rules regarding mandatory withholding, the option of a direct rollover, and notice of that right. Under this relief, individuals and plans can still treat these as eligible rollover distributions.

2020 Waiver Guidance
The IRS has clarified that the CARES Act relief applies for 2020 distributions that would have been RMDs, had it not been for the 2020 RMD waiver. These include distributions to a plan participant paid in 2020 (or paid in 2021 for the 2020 calendar year in the case of an employee who has a required beginning date of April 1, 2021) if the payments equal the amounts that would have been RMDs in (or for) 2020 had it not been for 2020 RMD waiver. They also include distributions that are one or more payments (that include the 2020 RMDs) in a series of substantially equal periodic payments made at least annually and expected to last for the participant’s life or life expectancy, the joint lives (or joint life expectancies) of the participant and the participant’s designated beneficiary, or for a period of at least 10 years.

For a plan participant with a required beginning date of April 1, 2021, distributions paid in 2021 that would have been an RMD for 2021 had it not been for the CARES Act are treated as eligible rollover distributions. However, a plan participant with a required beginning date of April 1, 2021, must still receive RMD for the 2021 calendar year by December 31, 2021. If the employee receives a distribution during 2021, that distribution is an RMD for the 2021 calendar year to the extent the total RMD for 2021 has not been satisfied even if the distribution is made on or before April 1, 2021, and accordingly, is not an eligible rollover distribution. However, to the extent the RMD for 2021 has been satisfied, subsequent amounts distributed in 2021 that would otherwise not be eligible rollover distributions may be rolled over.

Extended Deadlines Due to 2020 Waiver
If a plan permits an employee or beneficiary to elect whether the 5-year rule or the life expectancy rule applies in determining RMDs, then the deadline for making that election typically would be the end of calendar year following the calendar year of the employee’s death. For example, if a 50-year-old employee in a plan providing the election died in 2019 with his sister as his designated beneficiary, the plan provision would require the election by the end of 2020. However, that type of plan may be amended to permit the extension of the election deadline to the end of 2021.

The RMD waiver extends the time for making a direct rollover for a nonspouse designated beneficiary if the participant died in 2019. A special rule provides that if the 5-year rule applies to a benefit under a plan, the nonspouse designated beneficiary may determine the amount that is not eligible for rollover because it is an RMD using the life expectancy rule in the case of a distribution made prior to the end of the year following the year of death. This special rule is modified so that if the employee’s death occurred in 2019, the nonspouse designated beneficiary has until the end of 2021 to make the direct rollover and use the life expectancy rule.

Plan Amendments
The guidance provides a sample plan amendment for defined contribution plans that plan sponsors may adopt to implement waiver rules. Any plan amendment must be adopted no later than the last day of the first plan year beginning on or after January 1, 2022 (January 1, 2024, for governmental plans), and must reflect operation of the plan beginning with the effective date of the plan amendment. Timely adoption of the amendment must be shown by a written document signed and dated by the employer (including an adopting employer of a pre-approved plan). IRAs do not need to be amended.

Everybody knows that tax deductions aren't allowed without proof in the form of documentation. What records are needed to "prove it" to the IRS vary depending upon the type of deduction that you may want to claim. Some documentation cannot be collected "after the fact," whether it takes place a few months after an expense is incurred or later, when you are audited by the IRS. This article reviews some of those deductions for which the IRS requires you to generate certain records either contemporaneously as the expense is being incurred, or at least no later than when you file your return. We also highlight several deductions for which contemporaneous documentation, although not strictly required, is extremely helpful in making your case before the IRS on an audit.

Everybody knows that tax deductions aren’t allowed without proof in the form of documentation.  What records are needed to “prove it” to the IRS vary depending upon the type of deduction that you may want to claim.  Some documentation cannot be collected “after the fact,” whether it takes place a few months after an expense is incurred or later, when you are audited by the IRS.  This article reviews some of those deductions for which the IRS requires you to generate certain records either contemporaneously as the expense is being incurred, or at least no later than when you file your return.  We also highlight several deductions for which contemporaneous documentation, although not strictly required, is extremely helpful in making your case before the IRS on an audit.

Charitable contributions.  For cash contributions (including checks and other monetary gifts), the donor must retain a bank record or a written acknowledgment from the charitable organization. A cash contribution of $250 or more must be substantiated with a contemporaneous written acknowledgment from the donee.  “Contemporaneous” for this purpose is defined as obtaining an acknowledgment before you file your return.  So save those letters from the charity, especially for your larger donations.

Tip records.  A taxpayer receiving tips must keep an accurate and contemporaneous record of the tip income.  Employees receiving tips must also report the correct amount to their employers.  The necessary record can be in the form of a diary, log or worksheet and should be made at or near the time the income is received.

Wagering losses.  Gamblers need to substantiate their losses. The IRS usually accepts a regularly maintained diary or similar record (such as summary records and loss schedules) as adequate substantiation, provided it is supplemented by verifiable documentation.  The diary should identify the gambling establishment and the date and type of wager, as well as amounts won and lost. Verifiable documentation can include wagering tickets, canceled checks, credit card records, and withdrawal slips from banks.

Vehicle mileage log.  A taxpayer can deduct a standard mileage rate for business, charitable or medical use of a vehicle.  If the car is also used for personal purposes, the taxpayer should keep a contemporaneous mileage log, especially for business use.  If the taxpayer wants to deduct actual expenses for business use of a car also used for personal purposes, the taxpayer has to allocate costs between the business and personal use, based on miles driven for each.

Material participation in business activity.  Taxpayers that materially participate in a business generally can deduct business losses against other income.  Otherwise, they can only deduct losses against passive income.  An individual’s participation in an activity may be established by any reasonable means.  Contemporaneous time reports, logs, or similar documents are not required but can be particularly helpful to document material participation.  To identify services performed and the hours spent on the services, records may be established using appointment books, calendars, or narrative summaries.

Hobby loss.  Taxpayers who do not engage conduct an activity with a sufficient profit motive may be considered to engage in a hobby and will not be able to deduct losses from the activity against other income.  Maintaining accurate books and records can itself be an indication of a profit motive.  Moreover, the time and activities devoted to a particular business can be essential to demonstrate that the business has a profit motive.  Contemporaneous records can be an important indicator.

Travel and entertainment.  Expenses for travel and entertainment are subject to strict substantiation requirements. Taxpayers should maintain records of the amount spent, the time and place of the activity, its business purpose, and the business relationship of the person being entertained. Contemporaneous records are particularly helpful.

The number of tax return-related identity theft incidents has almost doubled in the past three years to well over half a million reported during 2011, according to a recent report by the Treasury Inspector General for Tax Administration (TIGTA). Identity theft in the context of tax administration generally involves the fraudulent use of someone else’s identity in order to claim a tax refund. In other cases an identity thief might steal a person’s information to obtain a job, and the thief’s employer may report income to the IRS using the legitimate taxpayer’s Social Security Number, thus making it appear that the taxpayer did not report all of his or her income.

In light of these dangers, the IRS has taken numerous steps to combat identity theft and protect taxpayers. There are also measures that you can take to safeguard yourself against identity theft in the future and assist the IRS in the process.  

IRS does not solicit financial information via email or social media

The IRS will never request a taxpayer’s personal or financial information by email or social media such as Facebook or Twitter. Likewise, the IRS will not alert taxpayers to an audit or tax refund by email or any other form of electronic communication, such as text messages and social media channels.

If you receive a scam email claiming to be from the IRS, forward it to the IRS at phishing@irs.gov. If you discover a website that claims to be the IRS but does not begin with 'www.irs.gov', forward that link to the IRS at phishing@irs.gov.

How identity thieves operate

Identity theft scams are not limited to users of email and social media tools. Scammers may also use a phone or fax to reach their victims to solicit personal information. Other means include:

-Stealing your wallet or purse
-Looking through your trash
-Accessing information you provide to an unsecured Internet site.

How do I know if I am a victim?

Your identity may have been stolen if a letter from the IRS indicates more than one tax return was filed for you or the letter states you received wages from an employer you don't know. If you receive such a letter from the IRS, leading you to believe your identity has been stolen, respond immediately to the name, address or phone number on the IRS notice. If you believe the notice is not from the IRS, contact the IRS to determine if the letter is a legitimate IRS notice.

If your tax records are not currently affected by identity theft, but you believe you may be at risk due to a lost wallet, questionable credit card activity, or credit report, you need to provide the IRS with proof of your identity. You should submit a copy of your valid government-issued identification, such as a Social Security card, driver's license or passport, along with a copy of a police report and/or a completed IRS Form 14039, Identity Theft Affidavit, which should be faxed to the IRS at 1-978-684-4542.

What should I do if someone has stolen my identity?

If you discover that someone has filed a tax return using your SSN you should contact the IRS to show the income is not yours. After the IRS authenticates who you are, your tax record will be updated to reflect only your information. The IRS will use this information to minimize future occurrences.

What other precautions can I take?

There are many things you can do to protect your identity. One is to be careful while distributing your personal information. You should show employers your Social Security card to your employer at the start of a job, but otherwise do not routinely carry your card or other documents that display your SSN.

Only use secure websites while making online financial transactions, including online shopping. Generally a secure website will have an icon, such as a lock, located in the lower right-hand corner of your web browser or the address bar of the website with read “https://…” rather than simply “http://.”

Never open suspicious attachments or links, even just to see what they say. Never respond to emails from unknown senders. Install anti-virus software, keep it updated, and run it regularly.

For taxpayers planning to e-file their tax returns, the IRS recommends use of a strong password. Afterwards, save the file to a CD or flash drive and keep it in a secure location. Then delete the personal return information from the computer hard drive.

Finally, if working with an accountant, query him or her on what measures they take to protect your information.

The Foreign Account Tax Compliance Act (FATCA), enacted in 2010, requires certain U.S. taxpayers to report their interests in specified foreign financial assets.  The reporting requirement may apply if the assets have an aggregate value exceeding certain thresholds. The IRS has released Form 8938, Statement of Specified Foreign Financial Assets, for this reporting requirement under FATCA.

Reporting

For now, only specified individuals are required to file Form 8938, but specified U.S. entities will eventually also have to file the form. Taxpayers who do not file a federal income tax return for the year do not have to File Form 8938, even if the value of their foreign assets exceeds the normal reporting threshold.

Individuals who have to file Form 8938 include U.S. citizens, resident aliens for any part of the year, and nonresident aliens living in Puerto Rico or American Samoa.

Reporting applies to specified foreign financial assets. Specified foreign financial assets include:

• A financial account maintained by a foreign financial institution;
• Other foreign financial assets, such as stock or securities issued by a non-U.S. person, or an interest in a foreign entity.

The aggregate value of the individual’s specified foreign financial assets must exceed specified reporting thresholds, as follows:

• Unmarried U.S. taxpayers, and married U.S. taxpayers filing a separate return – more than $50,000 on the last day of the year, or more than $75,000 at any time during the year;
• U.S. married taxpayers filing a joint return – more than $100,000 on the last day of the year, or more than $150,000 at any time during the year; or
• Taxpayers living abroad: if filing a joint return, more than $400,000 on the last day of the year, or more than $600,000 during the year; other taxpayers, more than $200,000 on the last day of the year, or more than $300,000 at any time during the year.

Taxpayers who report assets on other forms, such as Form 3520, do not have to report the asset on Form 8938, but must use Form 8938 to identify other forms on which they report.

Filing

Reporting applies for tax years beginning after March 18, 2010, the date that FATCA was enacted. Most taxpayers, such as those who report their taxes for the calendar year, must start filing Form 8938 with their 2011 income tax return.

If you have any questions about Form 8938, please contact our office.