TAX Newsletter: October 2020

 October 2nd, 2020    

As the October 15th tax deadline approaches, the 2020 filing season ends and we prepare for the 2021 season. Many are engaged in preparing the final 2020 returns and in some cases getting the client to provide those final pieces of information.

October is also our annual TAX Boot Camp. This series of classes prepare new tax preparers with the tools needed to prepare basic returns and introduce available drafts of the 2020 tax forms.  Many seasoned preparers also take select classes as a refresher.  We may have been doing returns for many years but a good review can remind us of some of the common issues we face daily.

https://www.cpehours.com/webinar-schedule/

Tax Boot Camp

 

 

 

 

 

 

 

 

 

 

Tax Boot Camp 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020 Year-End Seminars

https://www.cpehours.com/income-tax-seminar-information/

2020 Year-end Income Tax Update

  1. 2020 Tax Legislation–New Developments, Review of Cases, Rulings & IRS Pronouncements
  2. QBI, CARES and Secure Act Unique Year End Issues
  3. Meals & Entertainment under the TCJA
  4. IRC 121 and the Primary Residence
  5. Ethics – The Creative Tax Professional
  6. S-Corporation Basis Issues
  7. Centralized Partnership Audit Regime
  8. Preparing for the 2021 Tax Season and the Coronavirus Impact

Year-End Tax Update: $279

In This Issue

Issue 1: Update on Backlog of Unopened Checks
Issue 2: Release of Lien Due to Coronavirus Hardship
Issue 3: Information Reporting Requirements for PPP Loans Forgiven Under the CARES Act
Issue 4: TD 9925 Final Regulations for §274
Issue 5: E-Filing Thresholds Remain Unchanged Until Further Notice
Issue 6: Update on Plug-In Vehicles Credit List
Issue 7: IRS Provides Final Regulations on Income Tax Withholding on Certain periodic Retirement and Annuity Payments
Issue 8: Follow up Question from out Fall Sessions
Issue 9:  Annual Update List Sets the Extreme Drought Areas for Extended Livestock Replacement Period
Issue 10: IRS New Individual Tax Processing Engine – Replaces the Individual Master File System
Issue 11: ITIN Expiration – Frequently Asked Questions
Issue 12:  IRS Issues Marijuana Industry Guidance
Issue 13:  Notice 2020-71 High Low Per Diem Method for Lodging, Meal and Incidental Expenses – Special Per Diem Rates
Issue 14: Remember to Verify Your Electronic Filing Identification Number (EFIN) Activity and other E-file Application Information
Issue 15: IRS Reminds Taxpayers and Practitioners of Expedited Letter Ruling Procedures
Issue 16: Applicable Federal Rates (AFR) for October 2020 – Rev. Rul. 2020-20

NEWS

Issue 1: Update on Backlog of Unopened Checks

The IRS is processing a backlog of mail due to COVID-19, and paper checks mailed to the IRS, either with or without a tax return, may still be unopened.

Taxpayers in this situation should not cancel their checks and should make sure funds remain available so the IRS can process them to avoid potential penalties and interest.  The IRS credits payments using the postmarked date on mail – rather than the date they opened and processed them – so they will not be late if postmarked timely.

The IRS will provide relief to taxpayers for bad check penalties for dishonored checks the agency received between March 1 and July 15, 2020, due to delays in IRS mail processing.

Issue 2: Release of Lien Due to Coronavirus Hardship

What should a taxpayer do if they need a lien release, certificate of discharge, or have another lien issue? (Updated July 20, 2020)

The IRS is processing all lien certificate applications normally and assigning them within 10 days.

The IRS encourages taxpayers to use the E-Fax line for the Advisory Consolidated Receipts (ACR) site (844-201-8382) for requests such as: discharge of property from the federal tax lien, withdrawal of the notice of federal tax lien, and subordination of the federal tax lien. Publication 4235, Collection Advisory Group Numbers and Addresses, has additional information on the process for submitting applications for lien certificates, and on related topics. Please visit IRS.gov and search “Lien Certificates” for further information.

Issue 3: Information Reporting Requirements for PPP Loans Forgiven Under the CARES Act

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) allows qualifying small business owners to receive Paycheck Protection Program (PPP) loans in order to stay in business and pay their employees during the Coronavirus epidemic.

Recipients of these loans are eligible for forgiveness of all – or a portion of these loans – if the loan proceeds are used in accordance with the CARES Act.

Announcement 2020-12 notifies lenders who make PPP loans (that are later forgiven under the CARES Act) should not file information returns or furnish payee statements to report the forgiveness. Bottom line – Lenders are not required to issue Forms 1099-C – Cancellation of Debt.

Issue 4: TD 9925 Final Regulations for §274

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

The 56-page document generally disallows a deduction for any item with respect to an activity of a type considered to constitute entertainment, amusement, or recreation (entertainment expenditures).  However, prior to the amendment by the TCJA, §274(a)(1)(A) provided exceptions to that disallowance if the taxpayer established that:

(1) the item was directly related to the active conduct of the taxpayer’s trade or business (directly related exception); or

(2) in the case of an item directly preceding or following a substantial and bona fide business discussion (including business meetings at a convention or otherwise), the item was associated with the active conduct of the taxpayer’s trade or business (business discussion exception).

  • 274(e)(1) through (9) also provide exceptions to the rule in §274(a) that disallows a deduction for entertainment expenditures. The TCJA did not change the application of the §274(e) exceptions to entertainment expenditures.
  • 274(a)(1)(B) disallows a deduction for any item with respect to a facility used in connection with an activity referred to in §274(a)(1)(A). §274(a)(2) provides that, for purposes of applying §274(a)(1), dues or fees to any social, athletic, or sporting club or organization shall be treated as items with respect to facilities. §274(a)(3) disallows a deduction for amounts paid or incurred for membership in any club organized for business, pleasure, recreation, or other social purpose.

Prior to amendment by the TCJA, § 274(n)(1) generally limited the deduction of food or beverage expenses and entertainment expenditures to 50 % of the amount that otherwise would have been allowable.  Thus, under prior law, taxpayers could deduct 50 % of meal expenses, and 50 % of entertainment expenditures that met the directly related or business discussion exception.

Distinguishing between meal expenses and entertainment expenditures was unnecessary for purposes of the 50 % limitation. § 13304(a)(1) of the TCJA repealed the directly related and business discussion exceptions to the general prohibition on deducting entertainment expenditures in § 274(a)(1)(A).  Also, §13304(a)(2)(D) of the TCJA amended the 50 % limitation in § 274(n)(1) to remove the reference to entertainment expenditures.  Thus, entertainment expenditures are no longer deductible unless one of the nine exceptions to §274(a) in § 274(e) applies.

While the TCJA eliminated the deduction for entertainment expenses, Congress did not amend the provisions relating to the deductibility of business meals.  Thus, taxpayers generally may continue to deduct 50 % of the food and beverage expenses associated with operating their trade or business, including meals consumed by employees on work travel.  However, as before the TCJA, no deduction is allowed for the expense of any food or beverages unless (a) the expense is not lavish or extravagant under the circumstances, and (b) the taxpayer (or an employee of the taxpayer) is present at the furnishing of the food or beverages.  Review § 274(k).

Traveling expenses (including meals and lodging while away from home), however, remain subject to the §274(d) substantiation requirements.  Food and beverage expenses are subject to the substantiation requirements under §162 and the requirement to maintain books and records under § 6001.

On October 15, 2018, the Treasury Department and the IRS published Notice 2018-76,  providing transitional guidance on the deductibility of expenses for certain business meals and requesting comments for future guidance to further clarify the treatment of business meal expenses and entertainment expenditures under §274.  Under the notice, taxpayers may deduct 50 % of an otherwise allowable business meal expense if:

(1) the expense is an ordinary and necessary expense under §162(a) paid or incurred during the taxable year in 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 at the furnishing of the food or beverages.

(4) the food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact.

(5) in the case of food and beverages provided at or during an entertainment activity, the food and beverages 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 notice provides that the entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages.

More can be found in TD 9925.

Issue 5: E-Filing Thresholds for Information Returns Remain Unchanged Until Further Notice

The Taxpayer First Act of 2019, enacted July 1, 2019, authorized Treasury and the IRS to issue regulations that reduce the 250-return requirement for 2020 tax-year and later returns.  If those regulations are issued and effective for 2020 or 2021 tax-year returns required to be filed in 2021 or 2022, we will post an article at IRS.gov/Form1099 explaining the change.  Until regulations are issued, however, the number remains at 250, as reflected in the instructions.

NOTE: In 2018, the IRS proposed changing how the 250-return threshold is applied. Under the proposed regs, instead of the 250-return threshold applying separately to each type of information return, all types of information returns a taxpayer is required to file during the calendar year would be aggregated. BUT IRS has not finalized regulations.

We had discussed these potential changes in some of our 2019 seminars.  We await the IRS regulations.

Issue 6: Update on Plug-In Vehicles Credit List

Our Fall seminars discussed the current listing of plug-in vehicles that were eligible for the Qualified Plug in Electric Drive Motor Vehicle Credit §30D. A listing was provided in the Fall 2020 text.

The IRS has added the 2021 Honda Clarity and several 2021 model year Volvo vehicles to the list of vehicles eligible for the plug-in electric drive motor vehicle credit.

According to the IRS website, the 2021 Honda Clarity is eligible for a $7,500 credit.

The 2021 Volvo XC40 Recharge Pure Electric P8 AWD is also eligible for a $7,500 credit.

Other 2021 Volvo models that qualify for the credit are the S60, S90, V60, XC 60 and XC 90, which qualify for a $5,419 credit.

The 2020 Audi e-tron Sportback is eligible for the maximum credit of $7,500. The 2020 Audi A8L PHEV and AudiQ5 PHEV are eligible for a credit of $6,712.

The 2020 MINI Cooper S E Hardtop 2 Door and MINI Cooper S E Hardtop are eligible for the maximum credit of $7,500. The 2020 and 2021 MINI Cooper S E Countryman ALL4s are each eligible for a credit of $5,002.

The 2021 Toyota RAV4 Prime Plug-In Hybrid is eligible for the maximum credit of $7,500. The 2020, 2021 Prius Prime Plug-in Hybrid is eligible for a credit of $4,502.

Issue 7: IRS Provides Final Regulations on Income Tax Withholding on Certain periodic Retirement and Annuity Payments

Many of you may not deal with this, but a few may need the information, if for nothing else but to provide information to your clients as needed.

Treasury and the IRS issued final regulations updating the federal income tax withholding rules for certain periodic retirement and annuity payments made after Dec. 31, 2020.

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

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

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

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

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

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

Issue 8: Follow up Question from out Fall Sessions

Is a sole owner of a corporation able to contribute to a SEP/IRA after age 72 in 2020?

The sole owner of a corporation may contribute to an SEP / IRA after age 72 in 2020.  The only additional requirement, they have compensation to support a contribution.  Also, the deductibility of the contribution may be limited if the individual is also covered by another retirement plan.

Is a sole owner of a corporation who is still working and over 72 required to make RMD in 2021?  Yes, this is because a 5% or more owner is treated as an HCE and therefore may not delay RMDs.

Issue 9:  Annual Update List Sets the Extreme Drought Areas for Extended Livestock Replacement Period

Farmers and ranchers who were forced to sell livestock due to drought may have an additional year to replace the livestock and defer tax on any gains from the forced sales, according to the Internal Revenue Service.

To qualify for relief, the farm or ranch must be in an applicable region. This is a county or other jurisdiction designated as eligible for federal assistance plus counties contiguous to it. Notice 2020-74, lists applicable regions in 46 states, the District of Columbia and four U.S. territories.

The relief generally applies to capital gains realized by eligible farmers and ranchers on sales of livestock held for draft, dairy or breeding purposes. Sales of other livestock, such as those raised for slaughter or held for sporting purposes, or poultry, are not eligible.

To qualify, the sales must be solely due to drought, flooding or other severe weather causing the region to be designated as eligible for federal assistance. Livestock generally must be replaced within a four-year period, instead of the usual two-year period. The IRS is also authorized to further extend this replacement period if the drought continues.

The one-year extension, announced in the notice, gives eligible farmers and ranchers until the end of the tax year after the first drought-free year to replace the sold livestock. Details, including an example of how this provision works, can be found in Notice 2006-82.

The IRS provides this extension to farms and ranches located in the applicable region that qualified for the four-year replacement period if any county that is included in the applicable region is listed as suffering exceptional, extreme or severe drought conditions during any week between Sept. 1, 2019, and Aug. 31, 2020. This determination is made by the National Drought Mitigation Center. All or part of 46 states, plus the District of Columbia and four U.S. territories are listed in the notice.

As a result, qualified farmers and ranchers whose drought-sale replacement period was scheduled to expire at the end of this tax year, Dec. 31, 2020, in most cases, now have until the end of their next tax year. Because the normal drought-sale replacement period is four years, this extension immediately impacts drought sales that occurred during 2016. The replacement periods for some drought sales before 2016 are also affected due to previous drought-related extensions affecting some of these localities.

Issue 10: IRS New Individual Tax Processing Engine – Replaces the Individual Master File System

The primary goal of the Individual Tax Processing Engine project is to reengineer the Individual Master File, written in an old programming language (Assembly Language Code), into a modern programming language (Java).  The IRS implemented a scenario-based approach for Java code development.

TIGTA determined that this is an effective approach given the size and complexity of the Individual Master File. The IRS is effectively monitoring the progress of the Individual Tax Processing Engine project.  Project planning meetings, project monitoring meetings, and Integrated Project Team meetings occur at regular intervals.  The Integrated Project Team meetings are intended to discuss project status, hot topics, and next steps.  The results of these meetings are documented.  In addition, comparisons of planned work versus actual work completed are reported weekly.

As a result of their monitoring efforts, IRS management has identified and mitigated development challenges.  For example, the IRS approved additional resources to increase project velocity ( i.e. , how much work can be completed in each product increment iteration) and extended the project’s schedule to compensate for the time lost during the Government Shutdown.

The IRS is using a Trajectory Model to estimate the planned velocity goals of the project and to track whether the goals are met.  An updated Trajectory Model was used in September 2019 and will be updated approximately every seven and a half months.  In our next review, TIGTA will fully analyze the effectiveness of the updated Trajectory Model. The IRS developed Java code that complied with documented guidelines for the Java declaration and statement standards and are applied in the 58 files reviewed.  The IRS developed Java code that generally conforms to industry best practices, but some best practices were not followed.  For example, Java code files contained lines in excess of 100 characters, files are longer than 2,000 lines, and opening comments are incomplete or missing.  According to the IRS, these deviations from best practices do not affect the quality of the code or runtime, but future maintenance could be inefficient.

Impact on Taxpayers

The IRS Integrated Modernization Business Plan states that a key project supporting the Customer Account Data Engine 2 is the Individual Tax Processing Engine project, which will convert lines of legacy Assembly Language Code to Java, a modern software language.  This code conversion is a major milestone towards retiring the Individual Master File.

The Customer Account Data Engine 2 is intended to provide state-of-the-art individual taxpayer account processing as well as data-centric technologies to improve service to taxpayers.  However, deployment delays and cost overruns can decrease stakeholder and public confidence in the IRS’s ability to develop, monitor, and use its resources effectively to deliver improved taxpayer services.

The Customer Account Data Engine 2 Program, chartered in 2009, is one of the most complex modernization programs in the Federal Government and involves major changes to core IRS tax processing systems.  This audit was initiated to determine whether the IRS is effectively and efficiently managing the Customer Account Data Engine 2 program’s Individual Tax Processing Engine project with a focus on velocity estimates and development.

Issue 11: ITIN Expiration – Frequently Asked Questions

Q1: Which ITINs are subject to expire at the end of 2020?

A1: ITINs that have not been used on a tax return for tax years 2017, 2018 or 2019 will expire December 31, 2020. Additionally, ITINs with middle digits 88 (For example: 9NN-88-NNNN) will expire December 31, 2020. Those with middle digits 90, 91, 92, 94, 95, 96, 97, 98 or 99, that were assigned before 2013 and have not already been renewed, will also expire at the end of this year.

Q1a: Where can I find my ITIN assignment date?

A1a: The ITIN assignment date can be found on the CP565 ITIN Assignment notice.  If the client no longer has their CP565, call 1-800-829-1040 within the U.S., or 1-267-941-1000 (not a toll-free number) if they are outside the U.S.

Q2: Which ITINs will NOT expire?

A2: Any ITIN that does not have a middle digit of 88, 90, 91, 92, 94, 95, 96, 97, 98 or 99 and was used on a tax return for tax years 2017, 2018  or 2019 will not expire in 2020.

Q3: What should I do if the client has been notified that their ITIN will expire?

A3: If the client received a notice that they or their spouse, or dependent’s ITIN is scheduled to expire and they will be filing a tax return or claim for refund in 2021, they should begin the renewal process as soon as possible. If they received the CP48 Notice after they submitted the Form W-7 to renew the ITIN, they may disregard the notice. No additional action is required.  They should not renew an ITIN if the ITIN holder now has or is qualified to get a social security number (SSN). See Q&A11.

Q4: When can I renew my ITIN?

A4: Taxpayers whose ITINs are scheduled to expire may renew their ITIN immediately. They don’t have to wait for IRS to send a notice of expiration, if the middle digits have been identified for expiration by IRS. They should allow 7 weeks from the mailing date of the Form W-7, for the IRS to notify them of the ITIN application status (9 to 11 weeks if you submit the application during peak processing periods (January 15 through April 30) or if filing from overseas).

Q5: How do I renew an expiring ITIN?

A5: To renew an expiring ITIN, the client must submit a completed Form W-7, Application for IRS Individual Taxpayer Identification Number, along with a valid supporting original or certified copies by the issuing agency, identification documents and any other required attachments. Applicants must also select the appropriate reason for needing the ITIN, as outlined in the Form W-7/W-7(SP) instructions. No tax return is required for a renewal application. Spouses and dependents cannot renew in advance. They may renew their ITIN only when filing an individual tax return, or someone else files an individual income tax return claiming them for an allowable tax benefit (such as a dependent parent who qualifies the primary taxpayer to claim head of household filing status). Mail the application to Internal Revenue Service, ITIN Operation, P. O. Box 149342, Austin, TX 78714-9342. See Q&A 12 for information if the client does not want to mail documents to the IRS.

Q6: Can I submit copies of my identification documents with my Form W-7?

A6: No, only original identification documents or certified copies of the documents from the issuing agency will be accepted. See www.irs.gov/ITIN.

Q7: Do I need to renew my ITIN if I won’t be filing a tax return or claim for refund?

A7: No, however, in the future if the client files a U.S. tax return or claim for refund, the ITIN (including for a dependent) will need to be renewed at that time.

Q8: I only use my ITIN on information returns, like Forms 1099.  If my ITIN is expiring, do I need to renew it?

A8: No, if the ITIN is only used on information returns and the client will not be filing a tax return or claim for refund, they do not need to renew your ITIN.

Q9: If I have an ITIN with middle digits of 88, 90, 91, 92, 94, 95, 96, 97, 98 or 99, can I renew my family member’s ITIN, even if it is not expiring?

A9: Yes, the IRS will accept a Form W-7 renewal application for each member of a family if at least one of the family members listed on a tax return has middle digits of 88, 90, 91, 92, 94, 95, 96, 97, 98 or 99 . All family members who were issued an ITIN may submit a Form W-7 at the same time.

Q10: Can I renew my ITIN even though my ITIN is not expiring, and no one in my family has an ITIN that is expiring?

A10: Because the ITIN is not expiring and there are no tax implications at this time, we ask that the client wait and renew the ITIN when it is scheduled to expire. Only ITINs that are scheduled to expire at the end of 2020 and need to be included on a U.S. tax return in 2021 should be renewed now. To assist taxpayers and minimize burden as much as possible, we are putting in place a rolling renewal schedule and will announce the middle digits each year. 2020 is the last year that ITINs will expire.

Q11: I have a Social Security Number (SSN) and no longer need my ITIN that will be expiring. Do I need to renew my ITIN?

A11: No, you should not renew your ITIN if you have or are eligible for an SSN.  Please notify us that you have obtained an SSN and no longer need the ITIN by visiting a local IRS office or writing a letter explaining that you have now been assigned an SSN and want your tax records combined.  If you write a letter, include your complete name, mailing address, and ITIN along with a copy of your social security card and a copy of the CP 565, Notice of ITIN Assignment, if available.  The IRS will void the ITIN so it cannot be used by anyone in the future and associate all prior tax information filed under the ITIN with the SSN.  Send your letter to: Internal Revenue Service, Austin, TX 73301-0057.

Q12: If I do not want to mail my original documents to the IRS when renewing my ITIN, do I have other options?

A12: Yes, In lieu of sending original documentation, you may be eligible to use an IRS authorized Certifying Acceptance Agent (CAA) or make an appointment at a designated IRS Taxpayer Assistance Center (TAC) location. To find a local CAA in your area, you can visit Acceptance Agent Program or check your local telephone directory for the nearest location. CAAs can authenticate all the identification documents for the primary and secondary applicant.  For dependents, they can authenticate the passport and civil birth certificate; however, they must send the original or certified copies of all other documents directly to the IRS.

Q13: What kind of passport is acceptable for dependents as a stand-alone identification document?

A13: Only a passport with an entry date into the U.S. is acceptable as a standalone identification document for dependents of military members overseas. Dependent applicants whose passport does not have an entry date into the U.S. will now be required to submit either U.S. medical records for dependents under age 6 or U.S. school records for dependents under age 18, along with the passport. Dependents age 18 and over can submit a U.S. school records or a rental or bank statement or a utility bill listing the applicant’s name and U.S. address, along with their passport.

Q14: What happens if I file a tax return prior to receiving notification that my expired ITIN has been renewed?

A14: Until the ITIN is renewed, a return with an expired ITIN will be processed and treated as timely filed, but it will be processed without certain tax credits and/or any claimed exemptions and no refund will be paid at that time. The taxpayer will receive a notice from the IRS explaining the delay in any refund and that the ITIN must be renewed.  Once the ITIN is renewed, any exemptions and credits will be processed, and any allowed refund will be paid. If the ITIN is not renewed, the taxpayer may be subject to interest and penalties for any tax owed as a result of disallowed exemptions and credits.

Q15: What if an ITIN holder submits a renewal and then files a tax return before receiving confirmation that their ITIN has been renewed?

A15: If a taxpayer files a return with an expired ITIN, the return will be processed.  However, certain tax credits and/or any claimed exemptions will be disallowed, and no refund will be paid at that time.  IRS will send the taxpayer a notice with the appropriate adjustments that may result in a balance due and penalties. The notice will also inform the taxpayer that the ITIN has expired, and they will have to renew. This process will delay the return and any refund associated with the expired ITIN(s).

Q16: How will the taxpayer know that their ITIN is renewed? Will they receive a letter? If so, what is the notice number?

A16: CP565 will be issued to the applicant, Confirmation of your Individual Taxpayer Identification Number, when an ITIN is renewed.

Q17: If someone files a return in tax season without renewing, what kind of correspondence will they receive?

A17: A return filed with an expired ITIN will be processed.  However, certain tax credits and/or any claimed exemptions applicable to the expired ITIN will not be allowed. The taxpayer will receive a notice from the IRS explaining the change(s) made to their tax return and that you, your spouse, and/or your dependent(s) ITIN expired. Once the ITIN is renewed, any exemptions and/or credits previously disallowed will be reconsidered at that time. Until the ITIN is renewed, the taxpayer will be subject to interest and penalties for any tax owed as a result of disallowed exemptions and credits.

Q18: If a non-filer (ITIN owner without middle digits 88, 90, 91, 92, 94, 95, 96, 97, 98 or 99  in their ITIN who hasn’t filed tax year  2017, 2018 or 2019 returns) submits at least one of those returns before December 31, 2020 will they still be asked to renew their ITIN?

A18: If a non-filer submits a tax year 2017, 2018 or 2019 return, and the return completes processing before December 2020, the non-filer will not need to renew the ITIN to file a return in 2021.

Q19: Is an ITIN considered to be issued when the ITIN application and accompanying return are received?

A19: For new ITINs, the “issuance date” will be the received date of the Form W-7 application.  For renewed ITINs the “issuance date” will be the original date the ITIN was assigned before it expired.

Q20: What if an ITIN application is received (without a return) prior to the tax return due date, but the return itself is received after the tax return due date?  What would the issuance date be?

A20: The date the tax return is filed does not impact the “issuance date” of the ITIN.  The “issuance date” of the ITIN will depend on whether it is a new ITIN or whether the taxpayer already had an ITIN that has expired, and they were renewing their ITIN.  See Q&A 19.

Q21: Does a taxpayer have to formally file an extension request in order to extend the tax return due date beyond April 15?

A21: Yes.

Q22: What will be the status of the return on “Where’s my refund?”, if the return is filed with an expired ITIN?

A22: When a return is filed with an expired ITIN, credits are denied, and the math error is generated. “Where’s my refund?” will display a general message that addresses the impact of the math error on the return filed (i.e., whether there has been a refund decrease or there is now a balance due).

Q23: How long will the return be delayed in processing, if it’s filed with an expired ITIN? 

A23: It is not possible to provide an exact timeframe for how long the return will be delayed since that would be dependent upon whether it was the ITIN of the primary, secondary, or dependent(s) on the return and which credits are being claimed.  A return filed with an expired ITIN will be processed, however, certain tax credits and/or any claimed exemptions applicable to the expired ITIN will not be allowed.  The taxpayer will receive a notice from the IRS explaining the change(s) made to their tax return and that the ITIN must be renewed.  Once the ITIN is renewed, any exemptions and/or credits previously disallowed will be reconsidered at that time.  Until the ITIN is renewed, the taxpayer will be subject to interest and penalties for any tax owed as a result of disallowed exemptions and credits.

Q24:  When an individual renews their ITIN will they retain the same ITIN or receive a new one?

A24: Once an ITIN is assigned, it belongs to that taxpayer, unless the ITIN has been revoked. When an individual renews their ITIN, the previously assigned number is renewed.

Q25: When will letters (or notices), be sent out to individuals who need to renew their ITINs for the upcoming filing season?

A25: CP-48 Notice will be mailed in late summer of 2020 to households that filed a tax return for Tax Years 2017, 2018, or 2019 containing an ITIN with middle digits 88, 90, 91, 92, 94, 95, 96, 97, 98 or 99, letting them know an ITIN in their household will expire at the end of the year.

Q26: Will only one notice be sent per tax return or will a separate notice be sent to each ITIN holder included on a return, when their ITIN needs to be renewed?

A26: When multiple ITIN holders with middle digit 88, 90, 91, 92, 94, 95, 96, 97, 98 or 99 are identified as currently being used on the same tax return, one CP-48 Notice will be mailed to the primary and secondary taxpayer on the last return where the ITINs were present.

Q27: Will it be a general notice (i.e., “you or someone in your household”) or a personalized notice?

A27: It is a notice advising them that according to our records, the ITIN for them or someone listed on their tax return may be set to expire at the end of the year.

Q28: Will the IRS accept an older version of the W-7 that has Renew an Existing ITIN written on it?

A28: Taxpayers are required to use the most recent version of the Form W-7 available on irs.gov.  The applicant must indicate they are renewing the ITIN, must provide the ITIN number and name under which it was issued, and must indicate the reason for applying (tax filing purpose or claiming one of the Exceptions to a tax return). If the applicant applies for the ITIN for an Exception reason, they must attach the appropriate supporting documentation. Renewing an ITIN is not an Exception reason.

Q29: What type of documents are CAAs and TAC offices authorized to authenticate for dependents? 

A29: CAAs are authorized to authenticate the passport and birth certificate for dependents. TAC Offices are authorized to authenticate the passport, birth certificate and national ID cards for dependents.

Q30: If I submit an ITIN renewal request before the end of 2020, and do not receive my ITIN, what should I do?

A30: You should allow 7 weeks from the mailing date of the Form W-7 for the IRS to notify you of your ITIN application status (9 to 11 weeks if you submit the application during peak processing periods (January 15 through April 30), or if you’re filing from overseas.)  If you do not receive notification within the timeframes above, you may call the IRS toll free line at 1-800-829-1 040 to check on the status of your application.

Issue 12:  IRS Issues Marijuana Industry Guidance

The IRS is offering general guidance for individuals in the marijuana industry. A key component in promoting the highest degree of voluntary compliance on the part of taxpayers is helping them understand and meet their tax responsibilities while also enforcing the law with integrity and fairness to all. This article provides general guidance including frequently asked questions for taxpayers in the marijuana industry.

I.R.C. § 280E and the Marijuana Industry

Businesses that traffic marijuana in contravention of federal or state law are subject to the limitations of Internal Revenue Code (IRC) § 280E. The Marijuana Industry FAQs, linked below, address federal tax filing and information report requirements specific to taxpayers in this industry.

Income Reporting

Income from any source is taxable and taxpayers are generally required to file a tax return to report that income to the IRS. Many marijuana-industry businesses conduct transactions in cash, which need to be reported, like any other form of payment. See Publication 334, Tax Guide for Small Business, for more details.

Cash Payment Options

Cash payment options are available for unbanked taxpayers. Some IRS Taxpayer Assistance Centers accept cash. Call 844-545-5640 for a location near you to schedule an appointment. Publication 5435 provides additional details about cash payment options.

Large Cash Amounts

Any person in a trade or business who receives more than $10,000 in cash in a single transaction or in related transactions must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, within 15 days after receiving payment.

Estimated Payments

Small business taxpayers often need to make quarterly estimated tax payments to cover their tax obligation. Form 1040-ES, Estimated Tax for Individuals, will help to figure these payments. IRS Direct Pay is the fastest and easiest way to make these payments. The Treasury Department’s (EFTPS) system is also an option.

Records

Good records assist in monitoring a business’s progress, tracking deductible expenses and can substantiate items reported on tax returns. A good recordkeeping system includes a summary of all business transactions. Generally, it is best to record transactions daily.

https://www.irs.gov/businesses/small-businesses-self-employed/marijuana-industry-frequently-asked-questions  (Copy and Paste into Browser)

Issue 13:  Notice 2020-71 High Low Per Diem Method for Lodging, Meal and Incidental Expenses – Special Per Diem Rates

IRS has issued 2020-2021 special per diem rates to be used in substantiating business expenses incurred away from home. Rates include special meal and incidental expense rates for taxpayers in transportation industry ($66 CONUS, $71 OCONUS) and incidental expenses only deduction ($5).

High-cost localities (which have federal per diem of $292 or more) were listed, and changes to this list from last year are noted. Taxpayers using these rates and list of high-cost localities in this guidance must comply with substantiation rules in Rev. Proc. 2019-48,2019-51 IRB 1392. Notice 2019-55, 2019-42 IRB 937 is superseded.

Issue 14: Remember to Verify Your Electronic Filing Identification Number (EFIN) Activity and other E-file Application Information

Now that filing season is slowing down, this might be a good time to review your e-file application information. The application information should be updated within 30 days of any changes, such as names, address or telephone number. You should also check your EFIN Status page.

Check the EFIN status by logging into your e-file application through e-services to make sure the summary of the volume and activity of the returns e-filed in the last two years matches your records.  If you have any concerns or if you notice any discrepancies, call the e-help desk at 866-255-0654 (6:30 AM to 8:00 PM Central).

Issue 15: IRS Reminds Taxpayers and Practitioners of Expedited Letter Ruling Procedures

The Internal Revenue Service continues to look for ways to assist taxpayers affected by the COVID-19 pandemic.  As part of that effort, the IRS reminds taxpayers and tax practitioners of the procedures for requesting expedited handling of requests for letter rulings under Rev. Proc. 2020-1.

As set forth in Rev. Proc. 2020-1, the IRS ordinarily processes requests for letter rulings in the order that they were received.  A taxpayer with a compelling need to have a request processed more quickly may request expedited handling.  The request for expedited handling must be made in writing, preferably in a separate letter submitted with the letter ruling request.  Requests for expedited handling are granted at the discretion of the IRS and typically involve a factor outside of the taxpayer’s control that creates a real business need to obtain a letter ruling before a certain date in order to avoid serious business consequences.  Requests for expedited handling should be submitted as promptly as possible after the taxpayer has become aware of the deadline or compelling business need.

The COVID-19 pandemic is a factor outside of the taxpayer’s control that can support a request for expedited handling under Rev. Proc. 2020-1. As a result, and consistent with Executive Order 13924 of May 19, 2020, taxpayers are encouraged to seek expedited handling if they face a compelling need related to COVID-19.  Such requests will be handled as provided in Rev. Proc. 2020-1.

More information on the procedures for requesting expedited handling is provided in Section 7.02(4) of Rev. Proc. 2020-1.  In addition, Rev. Proc. 2020-29, 2020-21 I.R.B. 859 (May 18, 2020), sets forth procedures for the electronic submission of letter ruling requests.

Issue 16: Applicable Federal Rates (AFR) for October 2020 – Rev. Rul. 2020-20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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