Answers to your questions from the COVID-19 April 2, 2020 Tax Webinar
Our April 2, 2020 tax webinar was a great success. Thank you all for attending and supporting Basics & Beyond and our efforts to keep you informed.
This newsletter will address questions, based on what we currently know, as these issues of tax law and the loan program are a fast-moving target.
Additional guidance has been released which in some instances changed what was discussed on April 2, 2020 and in the April 2, 2020 newsletter. We will provide updated new information after we address questions and provide additional information on some of the issues we presented on April 2, 2020.
Cares Rebates – Short Review and Questions Addressed
Many questions will be addressed in the April 23, 2020 webinar. Some less than common questions, are addressed here or reiterated from the April 2, 2020 webinar as some may have missed the original question and answer.
The CARES Act provides for a flat rebate in the form of a credit against 2020 tax liability of eligible individuals of $1,200 per individual ($2,400 for joint filers). Plus $500 per qualifying child (essentially, a dependent child of the eligible individual who lives with the taxpayer and has not attained the age of 17). The Act provides for an “advance rebate” in the form of a credit treated as a tax payment, up to the full amount, against 2019 tax liability (or 2018, if a client has not yet filed a 2019 return).
For the 2020 tax year, filed in 2021 – we will need to reconcile the rebate on the tax return – similar to what we currently do as it relates to Marketplace Insurance.
If an individual has not filed returns for either 2018 or 2019, the IRS will use certain other available information to determine eligibility for refund relief – checking income based on Social Security or other IRS information documents
A taxpayer is described as:
- Having qualifying income of at least $2,500, or has—
- Includes earned income, social security benefits, pension income and any certain other forms compensation
- Must have a Social Security Number and be legally within the U. S
- Individuals who are in the country illegally will not get the rebate
We stated that the stimulus checks would be not less than $600.00. The original bill proposed that those on Social Security get only a $600.00 check. That changed in the final legislation.
Adjusted Gross Income (AGI) will be used to determine the rebate amount. The phase-out will be $5.00 for every one hundred dollars over the threshold. The amount of the credit begins to phase out for taxpayers with incomes above $75,000 ($112,500 for heads of household, and $150,000 for taxpayers filing joint returns).
The credit fully phases out for those with incomes exceeding $99,000 for individuals, $146,500 for heads of household with one child, and $198,000 for joint filers with no children. Under CARES Act, it appears that no income recognition and no provisions for repayment apply.
- Each dependent claimed by a parent and under age 17, will qualify the parent for an additional $500 per dependent child. If a child was born in 2019, presently the couple or individual would claim the child as a dependent when they file the 2019 return and be eligible for the $500 stimulus amount, if they meet the test for claiming the child as a dependent.
- The birth of a child in 2020 is a factor, and an example was provided in the webinar.
- An interesting question did arise: What date will IRS use to determine the age of under 17? The law states that the stimulus payment would be based on the 2018 return or if filed the 2019 tax return. The payment is an advanced rebate and if paid too much, the excess does not have to be paid back. The IRS has not addressed this question, as yet. But for now, it would be logical that if under 17 in 2018 and the 2019 return has not been filed or 2019 and the return has been filed the $500 stimulus would apply.
- If a child was born in 2019, presently the couple or individual would claim the child as a dependent when they file the 2019 return and be eligible for the $500 stimulus amount.
- Those with Social Security Income or the Railroad Retirement Equivalent and have not been required to file – will get a rebate if within the criteria. They do not need to file a return.
Filing and Payment of Tax Liability
- Can a client wait until July 15, to file the return and pay the liability? Yes, taxpayers have until July 15 to file and pay. If an additional extension is needed for 1040 clients, Form 4868 must be filed to extend the due date. Extending the requirement to pay will not apply after July 15, 2020.
- For individuals on an installment agreement, IRS will continue to debit payments from the bank for Direct Debit Installment Agreements (DDIAs) during the suspension period. However, taxpayers who are unable to comply with terms of their Installment Agreement may suspend payments during this period. Installment agreements will not default due to missing payments during the suspension period through July 15.
- What is the best way to suspend direct debit payments for a Direct Debit Installment Agreement (DDIA)? Taxpayers should contact their bank directly to stop payments if they prefer to suspend direct debit payments during the suspension period. Banks are required to comply with customer requests to stop recurring payments within a specified time-frame. IRS may be able to suspend certain single DDIA payments upon request, but due to disruptions caused by COVID-19 issues it may be difficult to reach an assistor. Note that if payments are stopped, in order to avoid possible default of the agreement once the suspension period expires on July 15, 2020, taxpayers must inform their bank to allow the debits to resume at least two weeks before their next payment is due.
- The client is a fiscal year filer. Does the delay in filing apply? Yes, the relief provided in Notice 2020-18 applies to Federal income tax returns and payments in respect of an Affected Taxpayer’s 2019 taxable year, and postpones those 2019 return filings and payments due on April 15, 2020 until July 15, 2020. If the Federal income tax return for the fiscal year ending during 2019 is due on April 15, 2020, whether that is the original due date or the due date on extension, the due date is postponed to July 15, 2020. Please review charts provided in power point for the April 2, 2020 webinar.
Note there has been additional filing relief later in the newsletter.
Newly released Information between April 2, 2020 – April 15, 2020
- What should a recipient do if IRS doesn’t have his direct deposit information? In the coming weeks, Treasury plans to develop a web-based portal for individuals to provide their banking information to the IRS online, so that individuals can receive payments immediately as opposed to checks in the mail.
- The first web portal was introduced but at this time, can only be used by non- – If you don’t file taxes, use the “Non-Filers: Enter Your Payment Info Here” application to provide simple information so the client can get their payment.
Clients should use this application if:
- They did not file a 2018 or 2019 federal income tax return because their gross income was under $12,200 ($24,400 for married couples). This includes people who had no income. The homeless would have to open a bank account to get the stimulus.
- The client as not required to file a 2018 or 2019 federal income tax return for other reasons
If the client receives the following benefits, IRS already has the information and the client will receive $1,200. Do not use this application if the client received:
- Social Security retirement, disability (SSDI), or survivor benefits
- Railroad Retirement and Survivor Benefits
Special note: People in these groups who have qualifying children under age 17 can use this application to claim the $500 payment per child.
- The second portal will open in mid-April and will be for those to enter banking information to receive the stimulus check by direct deposit.
Both portals are at www.irs.gov.
Our April 23, 2020 webinar will cover more on: How to Claim the Credits and How Form 941 and New Form 7200 function? A good basic understanding of the Employer Retention Credit will help in understanding how and when to claim the credits.
Employee Retention Credit – Key Issues to Remember
- The CARES Act generally defines “qualified wages” as “wages” as defined in §3121(a) and “compensation” as defined in §3231(e).
- The CARES Act also notes that “qualified health plan expenses” are also generally deemed to be “wages” for purposes of computing the employee retention payroll tax credit.
- Even if amounts constitute “wages” under the CARES Act, whether such wages are “qualified wages” depend on how many employees are employed by an employer.
- Provides eligible employers a refundable credit against applicable employment taxes for each calendar quarter for 50 % of qualified wages paid to employees.
- This section only applies to wages paid after March 12, 2020 and before January 1, 2021.
- Employers are eligible for this credit if the employer’s operations were fully or partially suspended by a governmental authority due to COVID-19 or if gross receipts are less than 50 % of gross receipts for the same calendar quarter in the prior year.
- If an eligible employer has 100 or fewer full-time employees, all employee wages are qualified wages.
For employers with 100 or fewer employees:
- Employer required to fully or partially suspend its trade or business
- “Qualified wages” generally include those wages paid to all employees during the period in which the employer is required to fully or partially suspend its business (whether or not an employee is able to provide services because the employer is required to fully or partially suspend its business).
- Employer experienced a significant decline in gross receipts
- “Qualified wages” generally include those wages paid to all employees during the period in which the employer is experiencing a significant decline in gross receipts (whether or not an employee is able to provide services because the employer experienced a significant decline in gross receipts)
- The amount of qualified wages for any employee for all calendar quarters shall not exceed $10,000, which includes qualified health plan expenses allocable to such wages.
- Employers receiving a covered loan under § 7(a)(36) of the Small Business Act (as added by § 1102 of the Act) shall not be eligible for the credit under this provision.
For employers with greater than 100 employees:
- Employer required to fully or partially suspend its trade or business.
- “Qualified wages” generally include those wages paid to an employee during the period in which the employee is not providing services because the employer is required to fully or partially suspend its business.
- Employer experienced a significant decline in gross receipts.
- “Qualified wages” generally include those wages paid to an employee during the period in which the employee is not providing services because the employer experienced a significant decline in gross receipts.
- The credit is not a deferment of payroll taxes. It is a credit to keep small business in business and still provide employees income.
- The employers share of heath insurance is considered wages for purposes of the employer Retention Credit. What the employee pays does not count.
- An Eligible Employer may not receive the Employee Retention Credit if the Eligible Employer receives a Small Business Interruption Loan under the Paycheck Protection Program that is authorized under the CARES Act (“Paycheck Protection Loan”). An Eligible Employer that receives a Paycheck Protection Loan should not claim Employee Retention Credits.
- The COVID-19 crisis is a unique opportunity for many government agencies to work together to provide guidance. Treasury, the IRS as well as the Department of Labor and the Small Business Administration are working together to make sure information is flowing, in process and made available to those who need information to make educated decisions. Much has happened in “just days” which is impressive. Each agency still maintains their identity and programs.
- A question concerning whether tax professionals can charge a fee to help clients get financial information around that is needed for the application, is that allowed? – I have seen nothing that would prohibit this practice.
Relief from Failure to Make Employment Tax Deposits Due to Coronavirus Credits – Notice 2020-22
The Notice provides that an employer will not be subject to a penalty under §6656 or failing to deposit Employment Taxes relating to Qualified Leave Wages or Qualified Retention Wages in a calendar quarter if:
- The employer paid Qualified Leave Wages or Qualified Retention Wages to its employees in the calendar quarter prior to the time of the required deposit.
- For purposes of Qualified Leave Wages, the amount of Employment Taxes that the employer does not timely deposit is less than or equal to the amount of the employer’s anticipated credits under § 7001 and § 7003 of the Families First Act for the calendar quarter as of the time of the required deposit;
- For purposes of Qualified Retention Wages, the amount of Employment Taxes that the employer does not timely deposit, reduced by the amount of Employment Taxes not deposited in anticipation of the credits claimed for Qualified Leave Wages, Qualified Health Plan Expenses, and the employer’s share of Medicare tax on the Qualified Leave Wages, is less than or equal to the amount of the employer’s anticipated credits under §2301 of the CARES Act for the calendar quarter as of the time of the required deposit; and
- The employer did not seek payment of an advance credit by filing Form 7200 with respect to the anticipated credits it relied upon to reduce its deposits.
For purposes of employment taxes related to Qualified Leave Wages, the total amount of any reduction in any required deposit may not exceed the total amount of Qualified Leave Wages and Qualified Health Plan Expenses and the employer’s share of Medicare tax on the Qualified Leave Wages in the calendar quarter, minus any amount of Qualified Leave Wages, Qualified Health Plan Expenses, and employer’s share of Medicare tax that had been previously used to reduce a prior required deposit in the calendar quarter and obtain the relief provided by this notice or to seek payment of an advance credit.
For purposes of employment taxes related to Qualified Retention Wages, the total amount of any reduction in any required deposit may not exceed the total amount of Qualified Retention Wages in the calendar quarter, minus any amount of Qualified Retention Wages that had been previously used to reduce a prior required deposit in the calendar quarter and obtain the relief provided by this notice or to seek payment of an advance credit.
The Notice adds that for employers subject to FICA tax, the credits under § 7001 and § 7003 of the Families First Act are increased by the amount of the employer’s share of Medicare tax imposed on Qualified Leave Wages.
IRS Extends More Tax Deadlines to Cover Individuals, Trusts, Estates, Corporations and Others – NEW Information Released After April 2, 2020 Webinar
To help taxpayers, Treasury and the IRS issued Notice 2020-23 to extend additional key tax deadlines for individuals and businesses.
Last month, the IRS announced that taxpayers generally have until July 15, 2020, to file and pay federal income taxes originally due on April 15. No late-filing penalty, late-payment penalty or interest will be due.
The notice expands this relief to additional returns, tax payments and other actions. As a result, the extensions generally now apply to all taxpayers that have a filing or payment deadline falling on or after April 1, 2020, and before July 15, 2020.
Individuals, trusts, estates, corporations and other non-corporate tax filers qualify for the extra time. This means that anyone, including Americans who live and work abroad, can now wait until July 15 to file their 2019 federal income tax return and pay any tax due.
Extension of Time to File beyond July 15
Individual taxpayers who need additional time to file beyond the July 15 deadline can request an extension to Oct. 15, 2020, by filing Form 4868 through their tax professional. Businesses who need additional time must file Form 7004. An extension to file is not an extension to pay any taxes owed. Taxpayers requesting additional time to file should estimate their tax liability and pay any taxes owed by the July 15, 2020, deadline to avoid additional interest and penalties.
Estimated Tax Payments
Besides the April 15 estimated tax payment previously extended, today’s notice also extends relief to estimated tax payments due June 15, 2020. This means that any individual or corporation that has a quarterly estimated tax payment due on or after April 1, 2020, and before July 15, 2020, can wait until July 15 to make that payment, without penalty.
2016 Unclaimed Refunds – Deadline Extended to July 15, 2020
For 2016 tax returns, the normal April 15 deadline to claim a refund has also been extended to July 15, 2020. 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 July 15, 2020, date.
Small Business Administration Payroll Protection Program
The law creates a “paycheck protection program” for small employers, self-employed individuals, and “gig economy” workers, with $350 billion to help prevent workers from losing their jobs and small businesses from going under due to economic losses caused by the COVID-19 pandemic.
The “Paycheck Protection Program” would provide 8 weeks of cash-flow assistance through 100 % federally guaranteed loans to small employers who maintain their payroll during this emergency. This proposal would be retroactive to February 15, 2020, to help bring workers who may have already been laid off back onto payrolls.
Payroll costs include employee salaries (up to an annual rate of pay of $100,000), hourly wages and cash tips, paid sick or medical leave, and group health insurance premiums. If the employer maintains payroll, the portion of the loans used for covered payroll costs, interest on mortgage obligations, rent, and utilities would be forgiven,
Thus far these are the only costs that have been identified that would apply.
- A statement was made in the question box, that Monthly Payroll Costs vary from bank to bank. All banks must follow the SBA guidelines.
Based on the Act that passed the definition of payroll costs include:
- The sum of payments of any compensation with respect to employees that is a;
- Salary, wage, commission, or similar compensation.
- Payment of cash tip or equivalent.
- Payment for vacation, parental, family, medical, or sick leave.
- Allowance for dismissal or separation.
- Payment required for the provisions of group health care benefits, including insurance premiums.
- Payment of any retirement benefit or
- Payment of State or local tax assessed on the compensation of employees; and
- The sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in 1 year, as pro-rated for the covered period; and
Shall not include—
- The compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the covered period.
- Taxes imposed or withheld under chapters 21, 22, or 24 of the Internal Revenue Code of 1986 during the covered period.
- Any compensation of an employee whose principal place of residence is outside of the United States.
- Qualified sick leave wages for which a credit is allowed under 7001 of the Families First Coronavirus Response Act (Public Law 116– 5 127); or
- Qualified family leave wages for which a credit is allowed under 7003 of the Families First Coronavirus Response Act (Public Law 116– 11 127); and
The term veterans’ organization’ means an organization that is described in § 501(c)(19) of that is exempt from taxation under § 501(a).
What are Chapters 21,22 or 24 of the IRC?
- Chapter 21— Federal Insurance Contribution Act
- Chapter 22— Railroad Retirement Tax Act
- Chapter 24 —Collection of Income Tax at Source on Wages.
The definition of “payroll costs” in the CARES Act, 15 U.S.C. 636(a)(36)(A)(viii), excludes “taxes imposed or withheld under chapters 21, 22, or 24 of the Internal Revenue Code of 1986 during the covered period,” defined as February 15, 2020, to June 30, 2020.
The SBA interprets this statutory exclusion to mean that payroll costs are calculated on a gross basis, without subtracting federal taxes that are imposed on the employee or
withheld from employee wages. Unlike employer-side payroll taxes, such employee-side taxes are ordinarily expressed as a reduction in employee take-home pay; their exclusion from the definition of payroll costs means payroll costs should not be reduced based on taxes imposed on the employee or withheld from employee wages.
This interpretation is consistent with the text of the statute and advances the legislative purpose of ensuring workers remain paid and employed.
Further, because the reference period for determining a borrower’s maximum loan amount will largely or entirely precede the period from February 15, 2020, to June 30, 2020, and the period during which borrowers will be subject to the restrictions on allowable uses of the loans may extend beyond that period, for purposes of the determination of allowable uses of loans and the amount of loan forgiveness, this statutory exclusion will apply with respect to such taxes imposed or withheld at any time, not only during such period.
An employee who earned $4,000 per month in gross wages, from which $500 in federal taxes were withheld, would count as $4,000 in payroll costs. The employee would receive $3,500, and $500 would be paid to the federal government. However, the employer-side federal payroll taxes imposed on the $4,000 in wages are excluded from payroll costs under the statute.
Is there anything that is expressly excluded from the definition of payroll costs?
Yes. The Act expressly excludes the following:
- Any compensation of an employee whose principal place of residence is outside of the United States.
- The compensation of an individual employee in excess of an annual salary of $100,000, prorated as necessary.
iii. Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees; and
- Qualified sick and family leave wages for which a credit is allowed under §§ 7001 and 7003 of the Families First Coronavirus Response Act.
- What types of 1099-Misc payments qualify as wages? And what income for a self-employed individual qualifies for the PPP Loans, Gross or Net?
- During the covered period, individuals who operate under a sole proprietorship or as an independent contractor and eligible self-employed individuals shall be eligible to receive a covered loan. An eligible self-employed individual, independent contractor, or sole proprietorship seeking a covered loan shall submit such documentation as is necessary to establish themselves as eligible, including payroll tax filings, Forms 1099–MISC, and income and expenses from the sole proprietorship.
- Do independent contractors count as employees for purposes of PPP loan calculations?
- No, independent contractors have the ability to apply for a PPP loan on their own, so they do not count for purposes of a borrower’s PPP loan calculation.
Our client is a dentist who wants to have his employees apply for unemployment now, and apply for a PPP loan now, but not start the 8-week period until later. Can this be done? I read the information to say that the 8-week period begins right after you get the loan. Can you apply for the loan now, but not have the loan origination until later? I know you can apply for the loan up until 6-30-20, but the total amount available is limit correct?
An eligible recipient applying for a covered loan shall make a good faith certification—
- That the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient;
- Acknowledging that funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments;
- That the eligible recipient does not have an application pending for a loan under this subsection for the same purpose and duplicative of amounts applied for or received under a covered loan; and
- During the period beginning on February 15, 2020 and ending on December 31, 2020, that the eligible recipient has not received amounts under this subsection for the same purpose and duplicative of amounts applied for or received under a covered loan.
- How Much Can Be Borrowed and Other Information?
- The PPP Loan is 2.5x the average monthly payroll for the previous 12 months before the emergency, up to $10 million. For seasonal employers, the average total employees shall be calculated for the period between 2/15/19 and 6/30/19.
- Loan payments (including interest) will be deferred for at least 6 months and up to one year starting at the origination of the loan.
- Interest rates shall not exceed 4%.
- Loan maturity is 10 years.
- SBA guarantees 100% of the loan.
- No collateral is required.
- There is no prepayment penalty.
- Funds can be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments.
- The business must certify that the loan will support the ongoing operations of the business due to current economic conditions.
- The loan can only be used for expenses incurred between 2/15/2020 and 6/30/2020.
- Borrowers can choose which 8 weeks they want to count towards the covered period, which can start as early as February 15, 2020.
- The amount of forgiveness of a PPP loan depends on the borrower’s payroll costs over an eight-week period; when does that eight-week period begin? The eight-week period begins on the date the lender makes the first disbursement of the PPP loan to the borrower. The lender must make the first disbursement of the loan no later than ten calendar days from the date of loan approval.
- What time period should borrowers use to determine their number of employees and payroll costs to calculate their maximum loan amounts?
- In general, borrowers can calculate their aggregate payroll costs using data either from the previous 12 months or from calendar year 2019.
- For seasonal businesses, the applicant may use average monthly payroll for the period between February 15, 2019, or March 1, 2019, and June 30, 2019.
- An applicant that was not in business from February 15, 2019 to June 30, 2019 may use the average monthly payroll costs for the period January 1, 2020 through February 29, 2020.
- Borrowers may use their average employment over the same time periods to determine their number of employees, for the purposes of applying an employee-based size standard.
- Alternatively, borrowers may elect to use SBA’s usual calculation: the average number of employees per pay period in the 12 completed calendar months prior to the date of the loan application (or the average number of employees for each of the pay periods that the business has been operational, if it has not been operational for 12 months.
Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease. If the full principal of the PPP loan is forgiven, the borrower is not responsible for the interest accrued in the 8-week covered period. The remainder of the loan that is not forgiven will operate according to the loan terms agreed upon.
Small businesses with 500 or fewer employees—including nonprofits, veterans’ organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors—are eligible. Businesses with more than 500 employees are eligible in certain industries.
Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs. Applicants are eligible to apply for the PPP loan until June 30th, 2020.
Pandemic Unemployment Assistance (PUA)
This program provides up to 39 weeks of unemployment benefits to individuals who are self-employed, independent contractors, nonprofit employees and gig economy workers, as well as to individuals working part-time, or who otherwise would not qualify for regular unemployment under state or federal law. A claimant can be compensated with this benefit beginning February 2, 2020, or the first week a claimant was unable to work as a result of COVID-19, whichever date is later. The last week this benefit is payable is the week ending December 26, 2020.
Pandemic Emergency Unemployment Compensation (PEUC)
The PEUC program provides up to 13 weeks of unemployment insurance benefits to individuals who have exhausted regular unemployment benefits under state or federal law or have no rights to regular unemployment benefits under state or federal law. The first week a claimant can be compensated on this benefit is the week beginning March 29, 2020 and the last payable week is the week ending December 26, 2020.
Revenue Procedure 2020-23 Provide Partnership Filing Relief for CARES Act Changes
|BBA partnerships that filed a Form 1065 and furnished all required Schedules K-1 for the taxable years beginning in 2018 or 2019 prior to the issuance of this revenue procedure may file amended partnership returns and furnish corresponding Schedules K-1 before September 30, 2020. The amended returns may take into account tax changes brought about by the CARES Act as well as any other tax attributes to which the partnership is entitled by law.
Revenue Procedures 2020-23 will allow partnerships to take advantage of items such as the bonus depreciation changes by permitting amended returns for tax years 2018 and 2019 in certain cases.
The CARES Act, through a technical correction, retroactively allows qualified improvement property (QIP) to qualify for 100% bonus depreciation and also reduces the depreciable life of QIP under the ADS (alternative depreciation system) from 40 years to 20 years.
The CARES Act also increases the business interest deduction limitation from 30% to 50% of adjusted taxable income for tax years 2019 and 2020. Note for this latter provision there are special rules for partnerships.
Eligible BBA Partnerships
The filing and furnishing option provided this revenue procedure is available only to BBA partnerships that filed Forms 1065 and furnished Schedules K-1 for the partnership taxable years beginning in 2018 or 2019 prior to the issuance of this revenue procedure. For purposes of §6222, the amended return replaces any prior return (including any AAR filed by the partnership) for the taxable year for purposes of determining the partnership’s treatment of partnership-related items.
Eligible Taxable Years
The filing and furnishing option provided in this revenue procedure applies only to partnership taxable years that began in 2018 or 2019. To take advantage of the option to file an amended, a BBA partnership must file a Form 1065 (with the “Amended Return” box checked) and furnish corresponding amended Schedules K-1.
The BBA partnership must clearly indicate the application of this revenue procedure on the amended return and write “FILED PURSUANT TO REV PROC 2020-23” at the top of the amended return and attach a statement with each Schedule K-1 sent to its partners with the same notation.
The BBA partnership may file electronically or by mail but filing electronically may allow for faster processing of the amended return.
Special Rule for BBA Partnerships Whose Returns are Under Examination
If a BBA partnership is currently under examination for a taxable year beginning in 2018 or 2019 and wishes to take advantage of the option to file an amended return, the partnership may only do so if the partnership sends notice to the revenue agent coordinating the partnership’s examination in writing that the partnership seeks to use the amended return option prior to or contemporaneously with filing the amended return. The partnership must also provide the revenue agent with a copy of the amended return upon filing.
Special Rule for BBA Partnerships Who Have Previously Filed an AAR
If a BBA partnership has previously filed an AAR and wishes to file an amended return pursuant to this revenue procedure for the same taxable year, the partnership should use the items as adjusted in the AAR, where applicable, in lieu of any reporting from the originally filed partnership return.
Modifications for Net Operating Losses (NOLs)
The TCJA eliminated the prior two-year carryback of NOLs but provided an indefinite NOL carryforward period. The CARES Act now allows for a five-year carryback of NOLs arising in the 2018, 2019, and 2020 tax years. Businesses may amend or modify tax returns for years dating back to 2013 to take advantage of the expanded carryback.
Additional Guidance was Issued on April 9, 2020 on Net Operating Losses
COVID Relief for Taxpayers Claiming NOLs
Revenue Procedure 2020-24 provides guidance to taxpayers with net operating losses that are carried back under the CARES Act by providing procedures for:
- Waiving the carryback period in the case of a net operating loss arising in a taxable year beginning after Dec. 31, 2017, and before Jan. 1, 2021,
- Disregarding certain amounts of foreign income subject to transition tax that would normally have been included as income during the five-year carryback period, and
- Waiving a carryback period, reducing a carryback period, or revoking an election to waive a carryback period for a taxable year that began before Jan. 1, 2018, and ended after Dec. 31, 2017.
Six month Extension of Time for Filing NOL Forms
In Notice 2020-26, the IRS grants a six-month extension of time to file Form 1045 or Form 1139, as applicable, with respect to the carryback of a net operating loss that arose in any taxable year that began during calendar year 2018 and that ended on or before June 30, 2019. Individuals, trusts, and estates would file Form 1045, and corporations would file Form 1139.
COVID Relief for Partnerships and NOL’s
The IRS issued Revenue Procedure 2020-23, allowing eligible partnerships to file amended partnership returns using a Form 1065, U.S. Return of Partnership Income, by checking the “Amended Return” box and issuing amended Schedules K-1, Partner’s Share of Income, Deductions, Credits, to each of its partners. Partnerships filing these amended returns should write “FILED PURSUANT TO REV PROC 2020-23” at the top of the amended return.
The CARES Act modified certain loss limitations to permit sole proprietors and pass-through entities to use NOLs previously disallowed. In addition, NOLs incurred before January 1, 2021 can be used to fully offset income, without the 80% taxable income limitation under the TCJA. Changes to the NOL utilization rules allow for greater cash flow and liquidity.
Suspended Collection Activities
General Collection Activities – Absent exigent circumstances and executive approval, employees should not:
- Meet with taxpayers, powers of attorney or third parties in the office or the field.
- Issue Final Notices or warn of enforcement action.
- Request new Notices of Federal Tax Lien. Employees should process lien re-files per normal procedures. Employees should extend Lien Determinations past July 15, 2020.
- Issue levies. Employees should expeditiously handle release of levy decisions on a case by case basis under existing guidance, being mindful of the taxpayer’s situation.
- Schedule or take seizure action. Elevate questions regarding currently scheduled seized property sales through management.
- Issue summonses to the taxpayer or third parties.
- Send letters proposing the investigation and assessment of the Trust Fund Recovery Penalty (except as required to protect an imminent ASED).
- Pursue civil suit proceedings (except for internal administrative actions that do not result in taxpayer notification or contact).
Defaults of Installment Agreements
Payments due between April 1 and July 15, 2020 are suspended. Effective immediately, IRS should not manually default any installment agreements. Beginning in April, installment agreements will not systemically default due to missed payments during the suspension period. IRS will continue to deduct payments for Direct Debit agreements. Employees may be able to suspend certain single DDIA payments, however, if taxpayers want to suspend all of their direct debit payments during the suspension period, they should contact their bank to stop the payments. (To avoid possible default on their installment agreement once the suspension period expires on July 15, 2020, taxpayers will need to inform their bank to allow debits to resume at least two weeks before their next payment is due).