In This Issue
Issue 1: Treasury Reviewing Planned Changes to Tax Professional Ethics Rules
The U.S. Treasury Department is currently reviewing proposed updates to ethics standards for tax professionals who represent clients in matters involving the Internal Revenue Service. IRS efforts include correction or removal of those sections of the Circular 230 that have proved inconsistent or legally unenforceable, including changes made the Internal Revenue Code.
IRS requested feedback from external tax organizations as well as internal IRS offices concerning what changes needed to be made and received about 200 proposed revisions to the circular, some of which were duplicative, the IRS official recalled, adding that the feedback affected 145 of the document’s provisions.
Besides addressing provisions now deemed inconsistent or unenforceable, the draft revisions reflect work by OPR staff to add clarity to other measures while conducting “a comprehensive review of the whole circular to make sure that it’s uniform and consistent and clear.
Questions and Answers from the Year End Virtual Seminars
| Question | Answer | |
| Miscellaneous Questions | ||
| If you own a life insurance policy whereby loans exceed the value of the cash surrender value (CSV) and you cancel the life insurance policy, is the income excludable under the cancellation of debt if you are insolvent?
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Insolvency is still an option Form 982. Worksheets are available to determine the insolvency. You do not have to include the worksheets with tax return when filed. Keep for your records and the documents used to determine the insolvency.
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| Is the required minimum distribution (RMD) age? 72 or 70.5?
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72 going forward there may be some who fell under the 70.5 previously that remains the same. Please check with the retirement plan on whether they have yet to adopt the 72 age as there was a short transition period for applying the change in the requirements.
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| Do other practitioners have clients who still have not received refunds on paper-filed returns for 2020? Is there any way to track these if nothing shows up on the where is my refund site?
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There are still many 2019 and 2020 refunds that have not been issued – generally they are from paper returns or 1040X. I would have the client make an appointment with the local IRS office to review the status. Not much luck with the phone call. To make an appointment call: 844-545-5640. Your client must have an appointment. As of December 2021, there were 9.6 million unprocessed 2020 paper returns plus an additional 5 million e-filed suspended returns unprocessed. The number may be larger, but this is what IRS has acknowledged.
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| Just wondering if you have recommendations on clients that do not think they received correct economic impact payments for 2020 so filed return with the amount they believe they received & now are getting notices for money due? We wrote 2 different letters requesting information on what IRS thinks they received, check, card etc. but still no response from IRS on this – just continued notices requesting payment. Any ideas how to proceed?
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This is a huge problem; I have been having client go back to their bank statements to verify what they received. In some case – the money has been there, and they did not remember receiving it.
You can do a payment trace Form 3911, mark it EIP 1 or EIP 2 and IRS will send them information on what was received. Correspondence is taking 6-8 months to resolve.
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| What is the process for partnerships and S Corporations to pay state income tax payments for partners and shareholders and pass these on through the K-1P’s? In a recent tax seminar, it was stated additional information and guidance would be coming from the IDR. Are these payments due by 12/15/2021?
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Look at Iowa Form IA103.
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| With the advent of Sports Betting changes for the court case, is Online Poker likely to see an Un-banning by the U.S.? | This is unknown at this time. | |
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Fantasy sports is still taxable, and we should inquire. | |
| Was the retired public service employee health deduction still in place for 2021 (up to $3,000)?
Sorry, left out – exclusion from income – mainly looking at police officers, law enforcement types. |
IRS guidance, notice 2007-7 issued on January 10, 2007, is still in force. | |
| Who handles cyber (?) insurance?
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I would check with your current insurance provider. If they do not handle, they may be able to refer you to someone. | |
| Client received notice I’ve never seen in 25 years of practice. LTR 6217C that is stating after a review of the account, the EIN application information is no longer valid. This entity has existed for decades. Do we simply update the EIN application info? Why issued now? | IRS website under “What you need to do if you received Letter 6217C – If we notified you that the employer identification number (EIN) information on file is not correct, submit Form 8822-B, Change of Address or Responsible Party-Business. | |
| What is SALT?
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State and Local Tax
The limitation on the “Taxes” deduction on Schedule A. Limited to $10K. |
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| I have always understood if partners cohabitate and are not married, only the partner who pays household expenses or has the higher income, only one person can claim head of household.
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One person claims H of H and then you can determine who claims kid(s). Tie breaker rules go to higher AGI only in the case of disagreeing.
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| With a PPP Loan are you saying that I can do the basis adjustment in 2020 even though it wasn’t forgiven until 2021? | Under Rev Proc 2021-48 you may treat amounts that are excluded from gross income in connection with the forgiveness of PPP loans as received or accrued:
(1) as eligible expenses are paid or incurred, (2) when an application for PPP Loan forgiveness is filed or (3) when PPP Laon forgiveness is granted. |
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| I’ve been told that Tax Prep Chains such as Block & Jackson Hewlett don’t have to follow these rules. Is that correct? If it is, then why do smaller firms have to comply?
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We all are required to follow these rules.
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| Can we get the URL for the IRS directory by Code Section? |
https://www.taxnotes.com/free-resources
Use the drop-down menu under free resources to the right of the top line menu. |
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| Client has installment agreement but is not gaining any ground on balance. Is there any option to request settlement? If so, what are procedures?
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You can look at Offer in Compromise. Also, what is the remaining Collection Statute?
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| If you are a shareholder that owns 2 % or more of the company, do you still have to gross up wages for the paid hospitalization insurance premiums on their w-2 and life insurance premium if you have accountable plan?
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No. The insurance premium is handled as wages on the W-2 and generally only Federal tax withholding is required.
Health Insurance is included on W-2, only in Boxes 1 and 16, but not subject to Social Security or Medicare. Also, include memo on Box 14.
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| Can you repeat what the number was to call at 7AM to get client transcripts. What information will you need to have on hand to provide during that phone call?
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PPS is 1-866-860-4259 and ACS is 800-829-7650
You will need a POA on file with IRS. |
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| Child Tax Credit Issues | ||
| For the advanced child tax credit payments do we have to opt out for 2022, or will the opt out for 2021 carry over?
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First the law has not been extended into 2022. If extended, we will have to see how IRS will handle the issue. | |
| Will taxpayers that opted out of the advance child tax credit & received $0 payments; will they still receive the letter from the IRS stating they received $0? Sure, would help us to confirm that information. | I have heard nothing on $0.00 payments only if they received payments. | |
| Do we know at this time if IRS will have a look up for the 6419 if they don’t have the letter?
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As of December 2021, it appears the only notification will be Letter 6419. | |
| So just to be clear, for the advance tax credit you have two different phase out amounts? One for the credit and another for is for some reason you have to repay it?
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The Child Tax Credit phases out in two different steps based on the modified adjusted gross income (AGI) in 2021.
The first phaseout can reduce the Child Tax Credit to $2,000 per child. That is, the first phaseout step can reduce only the $1,600 increase for qualifying children ages 5 and under, and the $1,000 increase for qualifying children ages 6 through 17, at the end of 2021. The second phaseout can reduce the remaining Child Tax Credit below $2,000 per child. |
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| Is the age of the child determined on the last day of the tax year for the CTC? Example, if a child turns age 6 during the year, do they get $3600 for part of the year or $3000 for the entire year? What if they got advance payments of $3600 and did not notify IRS that the child was age 6 during the year.
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Age is as of 12/31/2021. So, if they turned 6 in 2021, they would only qualify for the $3,000. Any overpayment may be subject to repayment.
The client would qualify for full repayment protection and won’t need to repay any excess amount if the main home was in the United States for more than half of 2021 and the modified adjusted gross income (AGI) for 2021 is at or below the following amount based on the filing status on your 2021 tax return: $60,000 if you are married and filing a joint return or if filing as a qualifying widow or widower. $50,000 if you are filing as head of household; and $40,000 if you are a single filer or are married and filing a separate return. The repayment protection may be limited if the modified AGI exceeds these amounts, or the main home was not in the United States for more than half of 2021. There are exceptions for military overseas.
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| Do you have any suggestions as an alternative to parents alternating years to make this easier for the taxpayers for tax preparation? What else could they do to make it equitable to claiming the CTC when they are getting divorced to include in a decree?
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AJ stated he would cover this issue in the discussion. I would suggest that if this is continued into 2022 that the issue be resolved between the two parents and not get involved. | |
| For the Child Tax Credit:
Taxpayer lives with his girlfriend and her 3 kids. Even if they live together for the whole year, I don’t think he qualifies to claim the child tax credit. Since the couple isn’t married, the kids are not stepchildren – is that right?
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We would need more information, who do the children live with, what about the father etc. do a good interview.
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| Who qualifies for the Child Tax Credit? | A child qualifies you for the CTC if the child meets all of the following conditions.
1. The child is your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of any of them (for example, your grandchild, niece, or nephew). 2. The child was under age 18 at the end of 2021. 3. The child didn’t provide over half of his or her own support for 2021. 4. The child lived with you for more than half of 2021. 5. The child is claimed as a dependent on your return. 6. The child doesn’t file a joint return for the year (or files it only to claim a refund of withheld income tax or estimated tax paid). 7. The child was a U.S. citizen, U.S. national, or U.S. resident alien. |
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| How can you be single and not head of household for Child Tax Credit? | You could be single with a child but did not pay for more the half the cost of keeping up a home for themselves and the child. | |
| What was the notice number that clients will receive with their advance child tax credit amount received?
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Letter 1444C
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| Will both parents receive Letter 6419 concerning the amount of Child Tax Credit advanced?
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I believe that both spouses should receive a letter on the advanced CTC credit. If divorced only the one who was eligible
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| If income is in phaseout but $2,000 is still in play will the advances go against the $2,000?
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Yes | |
| I have several clients that have received one- or two-months payments in advance and then nothing after that and didn’t opt out!!?? What the heck are we supposed to do with all this. | Wait for Letter 6419 that taxpayers will receive in January or have them check their online accounts or get a 8821 and we can obtain information.
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| For the advance payments are they going to count 401k withdrawal as income and/or withdrawals that were split up for the 3 years last years?
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Yes, that would be income for the MAGI computation for the Advanced Child Tax Credit in 2021. | |
| Does this mean that people on welfare can come in & file a return to get the rest of the Child Tax Credit?
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Yes | |
| Notices and Representation Issues | ||
| Are ALL notices selected by computer or is there human intervention?
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The computer that generates the notices from each campus is programed by a “human.” If the notice is a CP (Computer Paragraph) the programmer must select the appropriate “paragraphs” to include in the notice. BUT the computer through the use of “Filters” select which taxpayers will receive the notice. There is a set of “standards” the computer uses in selecting which taxpayers will get the notice.
Example: Our recent unemployment compensation issue is a good example: The computer “filters” for those who received unemployment and then the computer made the appropriate adjustments to the account. In this case as we moved into later in the year the “human” just told the computer to make that adjust ONLY and ignore other changes that a change in the unemployment compensation may have impacted. IRS relies on the computer to generate nearly 95% of IRS correspondence. With only 3 campuses now instead of the 10 in the past and lack of staffing, IRS cannot handle extensive “human” interaction. |
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| I have had a couple of clients receive Letter 4883c asking them to verify their identity. Why has that seemed to increase, and why are they only stamped integrity and operations instead of signed?
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IRS has about 200 “filters” it uses to identify potential ID theft. IRS has been very successful and has refined the “filters” if the tax return identifies with one of these filters an 4883c will be issued. I would either have them respond via phone or online if possible. The other option is to make an appointment at and IRS walk-in office.
844-545-5640 As for signature – Integrity and Operations is the entity on the campus that handles these issues. There may not be a current overall manager at this moment and the issue is being handled as a group. |
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| Are there any other ways to verify ID outside the Des Moines area?
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Yes
Go to irs.gov and in the search area type TAC. It will bring up a “hit” Contact Your local office and then input the zip code of your client. It will bring up all the IRS local offices. |
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| When preparing a Form 1040X because of CP 2000 do you always attach the CP2000? Is the signature on the 1040X the client disagreement with the CP2000?
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The proper procedure is as follows:
If the CP 2000 is correct there is no need to prepare a Form 1040X. The client would sign the CP 2000 that they agree and mail the response form into IRS, and they will process and change the return to reflect the required changes. If the client disagrees in part or completely, depending on the issue, an amended return may not be required. If due to the changes IRS made that the client agrees partially but IRS did not make other required adjustments, then attach the 1040X to CP 2000 behind the response form checking that the client agreed in part. The amended return will show the other changes IRS may not have caught due to their adjustment your client agreed with. It is important to agree, disagree or partially agree on the CP 2000 response form. |
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| Is there somewhere we may go to reference the CP letter codes?
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Yes,
Irs.gov Taxhelplaw.com and click on the top lone menu “Notices”. Practitioners who have a research subscription which likely has the notices and even templates, due date info, etc. for responding to them. Some practitioners may not realize their research subscription has this information; they should check. I just input the Notice number into google and often get hit to help. |
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| What is the proper way to fill out a Form 2848 for a deceased individual? Does the date of death need to be shown? Who signs for the deceased? If there is an executor, should a copy of the appointment letters be attached. Should two POAs be filed – one for the deceased and one for the estate?
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Place name of Decease first than in care of person, such as executor or Personal Representative. Than address of Executor. In addition, when I upload and or fax POA I include Death Certificate and Letter of appointment issued by courts that allows Executor/Personal Rep to handle affairs of deceased. I have Executor/Personal Rep sign input his/her title and sign.
Also look at the instructions of Form 1040 as well as Form 2848. |
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| We have had clients receive a notice of balance due on return, including P&I (sent to each spouse). The eFile return was accepted and the check has already cleared the bank account. Do we just wait for the IRS to match the payment to the return or correspond?
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This has been common lately. I would wait until it resolves itself. Unless you receive a CP90, Ltr11 or Ltr 1058. Then you must reply and can send in a copy of the front and back of the cancelled check or request a Collection Due Process Hearing. I doubt it will come to this but just wanted to mention
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| When does a tax professional to use 8821 or 2848 if not a CPA or EA — I have had the IRS reject a 2848?
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A tax professional can use a form 2848 Code H in Part 2 page 2 of Form 2848, if they are an RTRP. If not an RTRP, CPA, EA or and attorney, they must use Form 8821.
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| I have clients who have been turn over to collections in Nov for letters received (and we responded to) in August. They are in 3rd Party Collection.
How do you send it back to the IRS? I have 3 clients who were sent to the outside collectors 90 days after the first letter, which we responded to within 3 days of receiving.
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IRS is at least 6 months behind in correspondence, so our responses are setting there waiting to be worked.
If a levy is at issue, I would call ACS. 866-860-4259 then press 4 to talk to ACS.
You do not have to work with 3rd party collection. Write a letter stating you want the account returned to IRS for management.
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| Did she say they no longer issue 502?
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Yes, that is correct. | |
| I can never get thru on their fax line to fax for IRS requested paperwork. when’s the best time?
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Do it as early as possible in the morning or late at night e-fax is available 24 hours a day.
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| I’ve been calling the Tax Practitioner’s Line in the morning a couple of times a week. At 8:00 and 9:00 AM I get a message saying, “due to high call volume they cannot take my call and to try back the next business day”. Any advice for getting through? I have several client notices that are stacking up because I cannot get through.
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I assume you have a POA. I have had the same issue and am corresponding. Otherwise, you could make an appointment at an IRS walk-in at: 844-545-5640 and take in your POA and have them address. | |
| In the case of a divorce would dividing the two new clients amongst two different CPAs within the same firm solve the Conflict-of-Interest issue.
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Potentially but IRS or the client could say there was a conflict. I would not do this just to be safe. | |
| Ethics and Due Diligence and EITC | ||
| Do you recommend that the client sign the Form 8867 or the workpapers?
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That is up to you. I make extensive notes in file and attached explanation with 8867 that the client gets copy of. I know several tax pros that have client sign the 8867. I do not see anything wrong with it
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| EIC stopped at age 65 before, what is the new top age?
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No age limit for 2021.
The PERMANENT changes. Permanent changes to the Earned Income Credit (EIC) Taxpayers who claim children that do not have an SSN are now eligible for the credit using the rules for individuals with no qualifying children The investment income limitation has been increased to $10,000 MFS taxpayers qualify to claim the earned income credit using the rules for taxpayers with no qualifying children if they are either: Did not have the same principal residence as their spouse for the last six months of the year; or Are under a separation instrument and did not live in the same household as their spouse as of the end of the year. |
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| What do you put as documentation records for clients you have been doing taxes for forever? in other words you know them.
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SS Cards only need to obtained once. Proof of household I obtain on an annual basis.
Letter from School or Doctors office is also a good piece of documentation.
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| For the earned income credit-what if someone was 18 in 2019 and 21 in 2021? Can they still use 2019 tax return?
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In order to used I would assume they would have to be a qualifying age in 2019. I was unable to find specific guidance on this. | |
| How do the letters/notifications you mentioned earlier affect due diligence? 1444-C, 6419, and 6475?
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Due Diligence and Form 8867. 1444-C and 6475 are for EIP, which is not covered on Form 8867.
However, IRS letter 6419 cover Advance CTC and CTC is listed on Form 8867, hence, we believe we need to perform due diligence in reference to these advance payments. The receipt of Letter 6419 and proof on taxpayers’ transcripts should cover our due diligence requirements. |
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| What is our (tax preparer) liability or responsibility to report a company that we are suspicious of money laundering?
No proof, not responsible for accounting, just file the tax return but the income doesn’t match the lifestyle.
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I don’t believe there is a legal mandate to report such activities to authorities on our part. However, you probably have best business practices issue regarding whether you want to continue the business relationship with this client.
Then I would consider not preparing the returns going forward.
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| Meals | ||
| If a farmer takes helpers out for lunch during harvest and goes to a restaurant is this 100% deductible
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Yes | |
| Does a meal ordered from an independent caterer with no restaurant therefore not count?
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It should count. | |
| What about grocery stores with dining areas?
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If the consumption of the food in the dining setting – Yes. | |
| Truck driver stops to eat at the Circle K and get food. On their bank statement there are hundreds of entries. We have to split out 100% & 50%?
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If provided by restaurant @ 100% if not 50%. So Yes for the food.
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| Cryptocurrency | ||
| Who creates the wallet?
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The wallet can be created on an exchange, or it can be created by the crypto owner. There are “hot” wallets, which are connected to the internet and “cold” wallets, which are not connected to the internet.
A cryptocurrency wallet is a device, physical medium,[program or a service which stores the public and/or private keys for cryptocurrency transactions. In addition to this basic function of storing the keys, a cryptocurrency wallet more often also offers the functionality of encrypting and/or signing information. Signing can for example results in executing a small contract, a cryptocurrency transaction, identification, or legally signing a ‘document.’ When online, exchange and hardware wallets are generated using random numbers a seed phrase is asked to be recorded by the user, so that when access to the wallet becomes misplaced, damaged or compromised, the seed phrase can be used to re-access the wallet and associated keys and cryptocurrency. Set a password for the wallet and do not share it with anyone. Set up a private key so that you alone can access the funds. |
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| You called crypto property, but are recording on a Schedule D? Confused.
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The IRS calls crypto property, but this is one of these areas in which it functions more like a security. Sales and trades are reported on Schedule D.
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| Do you believe bitcoin will be a higher audit item for the future returns?
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Yes, the IRS Commissioner has requested that some new funding will be used to monitor virtual currency.
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| So, if a client has an online sales business, all income whether from sales or forks would be reported on schedule C?
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No. If a client has an online sales business, then the crypto received in exchange for other property (t-shirts, for example) would be reported on Schedule C, because it is self-employment income. If the business crypto account receives income from a fork or an airdrop, I would report that separately on the Schedule 1, just as we report business bank account interest separately from the Schedule C.
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| Did Jane have a taxable transaction when she mined the coin?
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Yes | |
| How do determine FMV when this bought and sold?
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The IRS has specifically told us that a Blockchain Explorer may be used to determine FMV.
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| What is a staking reward?
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Staking is the process of holding funds in a cryptocurrency wallet to support the operations of a blockchain network and, in return, holders are rewarded for their contribution. | |
| Do these “wallet holders” (or anyone else) keep track of FMV when acquired vs. FMV when the bitcoin is disposed/used?
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As of now, no. But beginning in 2022, exchanges will be required to send something similar to a 1099B to the IRS and to account holders. Note, though, that this won’t help the investors who hold their keys privately.
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| It seems as if bitcoin is a mutual fund?
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There are mutual funds that hold cryptocurrency; these are treated just like any other mutual fund.
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| If you loan a bitcoin to a business and the terms are to be repaid in bitcoin, how do you account for the difference in value on the repayment.
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Not good guidance on this yet. Whatever is received as “interest” would be considered other income, valued at the FMV as of the date and time of receipt.
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| With the updated reporting requirements coming for Crypto do you think we will soon get forms similar to a 1099-B or even a year end value statement similar to a retirement fund for any clients that get involved in a crypto currency?
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Yes, that is part of the infrastructure bill, and we await for regulations.
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| Where Crypto has specific market values…can the valuation on the donation date be used or would an actual appraisal be required a-la Cars/Planes/etc.
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If the value of the donation is less than $5K, then no appraisal is required. If over $5K, then an appraisal is required.
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| I would have expected Crypto to be treated more like Stocks for Donation purposes as opposed to vehicles, etc. | If the value of the donation is less than $5K, then no appraisal is required. If over $5K, then an appraisal is required.
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| Would a separate Sch C be needed for each currency if the IRS deems them to all be separate and wholly disparate items? Especially so if you mine specific currency but may get other types through Forks/Airdrops that could be bought/sold, but not mined.
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Especially so if you mine specific currency but may get other types through Forks/Airdrops that could be bought/sold, but not mined.
It’s common for miners to mine multiple currencies. Remember that what you’re reporting on Schedule C is the mining activity. If you performed, say, tax services for someone and were paid with a car and a desk, you wouldn’t need two separate C’s to report the receipt of the car and the desk. You’d add the two FMVs together and include it in income. A lot of the transactions will be reported on Sch D rather than Sch C. We do not have any guidance on this, but I would treat it as we treat stock sales until we get more guidance.
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| When Bob buys the Bitcoin, what does he use to buy it? Regular money? How does he get money to buy the bitcoin?
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Bitcoin/Cryptos/NFT’s etc. can be purchased with cash dollars. You can use wire transfers/direct debits/debit cards to purchase.
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| When you sell or trade virtual currency, do you receive dollars (as we know dollars now)?
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When you sell cryptos you receive cash in most accounts.
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| I bought a crypto currency fund. Will this be treated differently than purchasing the crypto directly?
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Correct; you don’t own crypto; you own a share of the fund.
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| So, if I pay a vendor in Crypto do I answer NO on the 1040?
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It would be YES because you would be DISPOSING Crypto in order to pay vendor.
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| What determines the value of a bitcoin unit?
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The market/the blockchain. This is determined by the marketplace.
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| Can you please clarify – wash sales don’t apply according to Page 261, but I think you said that it is required?
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The Act (Infrastructure Act signed into law on November 15, 2021) provides that a digital asset is a specified security. The applicable date for any specified security that is a digital asset is January 1, 2023.
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| When you earn “interest” on crypto what value do you utilize? At time of earning or something else?
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FMV as of the date and time of receipt.
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| Coinbase seems to continually change the value so I am assuming they will 1099 based upon year end value.
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If you are referring to the Coinbase stock, then you will receive a 1099 from your broker. If you refer to coins held on Coinbase, they are only required to send a 1099K if the gross amount of the transactions exceed $20K.
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| If a client buys and sells virtual currency, can it be put on schedule D like stocks?
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Correct | |
| Transactions using the app Venmo – is this a virtual currency event?
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Possibly. Venmo deals in both dollars and virtual currency.
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| Is Coinbase where you would find historical quotes?
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Yes, they can provide. Yes, note, however, that the IRS has specifically stated that a blockchain explorer is acceptable. Coinbase is an exchange, not a blockchain explorer.
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| Quick question regarding virtual currency. Will taxpayers receive brokerage statements similar to if they owned stocks?
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Beginning in 2023, taxpayers who hold virtual currency on an exchange will receive statements similar to brokerage account statements.
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| What is the difference between Bitcoin, Ethereum, Litecoin? | They are built on different types of blockchains. Bitcoin and Litecoin were both designed as payment systems; Ethereum is both a payment system and a smart contract system.
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| As far as purchasing services. How are people determining they want to purchase Litecoin over Ethereum, etc.?
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It’s like purchasing securities; you buy what you think will increase in value.
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| I attended a NATP course on Virtual Currency and was told that if the taxpayer is using their currency on a regular, short-term basis that they may be considered as day traders and subject to schedule C and SE tax. Could you elaborate on this? At the DRAKE Update training they said NO, don’t do it.
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As of now, the IRS applies the term “day trader” to securities, not crypto.
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| Marijuana Issues | ||
| Is it reasonable to assume that in Ohio where Medical Marijuana is legal, for federal purposes one would report income only as taxable, and for state the Schedule C would include deductions against that income?
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First, any sale of marijuana whether medical or recreational is not legal in the US. Medical use was legalized in 2016 through a bill passed by the state legislature. All income would be taxable by both federal and state authorities.
You would on the federal return limit deductions to Cost of Goods Only. As for Ohio, you want to explore their law as it relates to the issue. If Ohio has coupled with the federal law, then only the Cost of Goods Sold is deductible. |
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| So, for those who are self-employed with a CBD business, Schedule C or Schedule F? Are there any legal expenses?
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Cost of Goods Sold at the federal level as for states you would have to research. | |
| Is it possible in states where CBD Oil is legal for it to be used as an itemized deduction on the State return, but not on the Federal Schedule A?
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You would have to research this on the specific state website. | |
| Would the State Sales Tax collected when the CBD Oil and Gummies are Sold be a deduction on the Federal Tax Return or just on the State?
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No deducted federally but depends on state rules.
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| If the CBD Oil is prescribed by a doctor for a medical reason, can it be deducted
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No, it is still an illegal substance federally. | |
| Employee Retention Credit | ||
| I have a new partnership that was formed in late 2020 and they acquired the customers of a business that was in business prior to 2019.
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See IRS Notice 2021-49, however you can gather additional information in 2021-20 and 2021-23, both notices. If you meet that criteria, you may be able to take an employer retention credit.
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| Does this business qualify under the newly formed company for the employee retention credit?
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Review IRS Notice2021-49 for details on this question. The notice provides that a recovery startup business is an employer that began carrying on a trade or business after February 15, 2020, look at IRS Notice 2021-49 starting on Page 6.
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| What is the deadline for the Employee Retention Credit if the business is a Recovery Start-Up business? | 12-31-2021 | |
| Are 50% shareholder/employees still ineligible for ERC?
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Generally, yes there is a FAQ on IRS.gov that clarifies this issue. | |
| In re to ERC: do amended returns for 2020 941s need to be filed by 12/31/2021?
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No, the normal statute of limitations rules subject to Form 941 filings apply. | |
| Accountable Plan Issues | ||
| Can an S-Corporation shareholder/employee exclude from income amounts reimbursed for home office expenses (assuming all accountable plan requirements are met?)
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NO, since employee business expenses has been suspended from 2018-2025 any reimbursement would be a taxable fringe benefit. | |
| Can partnerships pay auto expenses and parking as a fringe benefits under accountable plan?
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I would have partner pay and take and get reimbursed from the partnership then do a Sch E adjustment – UPE unreimbursed partner expenses – this is the proper way to handle the issue.
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| Can partnerships, S Corp and C Corp have accountable plans?
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Yes | |
| What about an employer who wants to reimburse an employee cellphone bill or internet services because they work from home? Can they reimburse a flat rate of a cellphone or internet as an accountable plan?
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The IRS has indicated that reimbursement of employees’ expenses for their personal cell phones will be analyzed in a similar manner.
Reimbursements should not be considered additional income or wages if— The employer has substantial business reasons for requiring employees to use their personal cell phones and reimbursing employees for that use. The reimbursements are reasonably related to the needs of the employer’s business and reasonably calculated not to exceed the expenses that the employee actually incurred in maintaining the cell phone; and The reimbursements are not a substitute for a portion of the employee’s regular wages.
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| I did not submit some allowable business expenses for reimbursement from a single member LLC to the owner in 2020. Is there a problem with the “reasonable time” rules to push this reimbursement through 2021? If I can do this, I would need to limit the 2020 amounts on the deduction side to 50%, right?
Even for a cash basis taxpayer? We wouldn’t be reimbursing until 2021. |
If in the last 2 months no problem, beyond that it could be an audit issue, I would amend 2020 to take advantages of.
Unless they meet the special accounting situation, they would have to file an amended return for 2020 to take the unreimbursed partnership expenses.
The payment on the personal credit card is treated as a payment at the time of the credit card charge. I agree with Kristy that you would have to file an amended tax return for 2020 to reflect these business expenses. I would still reimburse the personal accounts from the business SMLLC account, even it is in 2021.
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| Per Diem | ||
| Why don’t they bring back Per Diem for the Truckers? I hear all the time that they are retired because of NO per diem for them also will the employee’s deduction come back on Schedule A???
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Comes back in 2026 after expiration of TCJA unless Congress extends.
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| What is the amount of Federal Per Diem rate?
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Depends, access at:
https://www.irs.gov/pub/irs-drop/n-21-52.pdf
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| Filing Form 1040 | ||
| Since electronic filing has ended for 1040s for 2021. Which would be faster mailing the return or wait for electronic filing season to start again in 2022 which could be January or February?
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That would depend on what the client wants. As of December 2021, IRS stated that they had 9 million paper returns waiting to be processed from 2019 and 2020 and an addition 5 million of e-filed returns that have been suspended from 2020. I would give your client the choice and then it would also depend on whether there is a statute issue or if there is a balance due. Let the client make this decision. | |
| Did AJ say that 2021 tax season was extended or postpone?
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Both the 2019 and 2020 tax seasons were postponed, not extended. This will make a difference when we have to deal with future returns and amendments. Postponed – IRS can do, extend requires an act of Congress. | |
| For return still in process since March. What can be done about it? Injury spouse included.
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With the difficulties with the phone system, I would suggest they make an appointment with an IRS walk-in to check on the status. 844-545-5640
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| With the 15th being on Good Friday. Is that a Federally Recognized Holiday and will it affect that deadline date?
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Good Friday is not a federal holiday.
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| Do you need to get a copy of the social security card every year if it is a normal social security card? | I make a copy and keep in their permanent file. No need to get copy every year | |
| I had a non-filer who needed to file a 2016 return, which we filed on July 15, 2000 (normally due on April 15 to get the refund). Will this be deemed as filed late & the refund not allowed? Of course, it hasn’t been processed since it is sitting on a truck outside the processing center.
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It should be allowed based on Notice 2020-23; you should be able to pull this up on Google.
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| What is the due date of the 2021 tax return? | IRS will provide us with the due date. In the past they have taken Emancipation Day into account – we will wait and see. | |
| Can you recommend an online client file sharing platform for a very small business? One preparer, less than100 returns per year.
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Verifyle
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| It was stated at the beginning of today’s session that the 2018 e-filing system was going to be shutdown permanently on 12/18/2021. So, from that I’m assuming that I could E-file a 2018 1040 before 12/18/2021, and that a 2019 return could be E-filed now up until a year from now?
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2019 e filing will open back up in January 2022.
You will have to check with your software provider on their dates,
2018 on later date after November 20 I was referencing individual 1040 returns. Individual returns ceased on Saturday November 20, 2021.
Business MeF Production Shutdown Schedule – Shutdown for “Send Submissions” only is scheduled to begin at 11:59 a.m. (noon) Eastern time, Sunday, December 26, 2021. Transmitters can continue to use the other service requests except “Send Submissions” until 11:59 p.m. (midnight) Eastern time, Sunday, December 26, 2021. Each software company has their own cease dates. |
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| Fringe Benefits | ||
| Is disability insurance paid by a self-employed tax-deductible like health insurance?
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Disability insurance is not self-employed health insurance and not deductible
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| Can partnerships pay auto expenses and parking as a fringe benefits under accountable plan?
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I would have partner pay and take and get reimbursed from the partnership then do a Sch E adjustment – UPE unreimbursed partner expenses – this is the proper way to handle the issue.
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| Can partnerships, S Corp and C Corp have accountable plans?
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Yes | |
| How is parking taxed?
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It can be. Look at the IRS.GOV website on Qualified Parking Fringe Benefit – https://www.irs.gov/government-entities/federal-state-local-governments/qualified-parking-fringe-benefit Michael
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| Question about mileage and electric vehicles. any changes on the horizon?
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Not that we are aware of at this time. | |
| General Questions Concerning Tax Law | ||
| If you are filing single what is the homeowner’s exclusion amount if you have lived in the home 2 out of 5 years. | $250,000 | |
| What was that case number of the “cash for keys” case where the taxpayer won? | Bobo v. Comm’r, T.C. Summary 2016-74.
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| My parents are snowbirds and have their mail forwarded. They never received the 2nd stimulus debit card/check as mail service would not forward this. They called IRS and was told to amend 2020 and claim the $1200 which I did. IRS website says received but they are not processing it and want me to call them on this.
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Processing is in dead zone right now as of Nov 20th to give IRS time to upload and perfect the 2021 filing season software. You would need a POA on file to check on the process. Any 1040X is taking about 6-8 months to process in some cases. Outside that time frame I would suggest they go to an IRS walk in – must make an appointment. The number to call for an appointment is: 844-545-5640
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| We are getting a bunch of letters because the client swears, they didn’t receive the rebates but then ended up getting a partial but did not get the letter.
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Yu will need an account transcript to determine just what the client received. You will need a POA. We also had many who claimed they did not receive. Out of the 50 or so I talked to all, but one had the money sitting in their bank account. Form 3911 payment traces were done and identified when the stimulus was issued. | |
| The 1099-K change is going to be a nightmare – the majority of those receiving this form will not be business transactions.
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Some will fall under the new rules and will be personal issues but can be handled on the return by declaring as income and adjusting as an adjustment to the return using the New Schedule 1. We are expecting additional guidance on this issue.
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| Regarding 1099-k, a client said they were stopping the use of Venmo for personal payments with family, friends etc. because they would get a 1099K for this in the future even though personal and not business. Is this correct?
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If they use any third-party payer a 1099 K will be issued. The new Schedule 1 which is still in the draft status, should be used to declare the income and adjust out for personal issues. | |
| How do we offset the income amount from 1099-k from Zelle? | Draft of Schedule 1 can be found by using google input Draft Tax Forms in the find box
Input 1040 on page 2 is the new Schedule 1. There is an area to adjust out personal sales.
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| I have a question on a 1009-K where do I input that on the return?
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Depends, what is the source. If S/E than Schedule C. If selling personal items than 8949. No trade or business than other ordinary income Schedule 1 form 1040.
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| Is the form 7203 now required for all owners of an S-Corp? Or only if there is a loss”?
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If you have a distribution, loss, or deduction, such as donation, than 7203 will be required. However, stay tuned for final instructions to see if this will be Required for any reasons. We are planning a January 20, 2022, seminar on this. | |
| Do we have to reconcile the premium tax credit on the 2021 tax return? The slide indicated the taxpayers did not have to repay any excess PTC. Is that true?
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You must reconcile the premium tax credit for the 2021 tax year and repayment is required if the client meets certain criteria. For tax year 2020 – reconcile was required but no repayment, if applicable, was required. | |
| On §7508A, how does that affect an extended return? Can’t you file an amended return 3 years from the extended due date not the original due date?
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Yes, the extended due date would apply with the exception of a superseded return and an irrevocable election – the extended due date will not apply. These returns must be filed prior to April 15. You can file if within the extended due date for a normal return
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| If the IRS only gives 3 years from the original due date for amended returns do, they shrink the statute for audits to 3 years from the original due date?
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3 years after the due date of the return, or 3 years after the date the return was actually filed, whichever is later. 1040X piggy backs on the original 1040 so it could have a very short statute. IRS does have a 60-day window after the statue to process the amended return and review.
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| Capital gain for distribution in excess of basis – excluded from NII if the S Corporation is nonpassive, correct?
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That is correct for now. The BBB wants to impose the NIIT for taxable income over $400K and $500K MFJ.
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| Many places have stopped accepting checks. It’s becoming an issue for those people who used cancelled checks as part of their method of tracking expenses.
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Using a dedicated debit or credit card would provide similar documentation.
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| If we utilized 2019 income in 2020 for EITC, are we bound by that election in 2021 or is it a fresh election?
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It is a fresh election. | |
| For 2021 isn’t there also a change to EIC for individuals who have no children and are still under the age of 25?
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For 2021, the age restriction for taxpayers with no qualified children is significantly liberalized. For 2021, you generally must be at least age 19 as of 12/31/21 (versus age 25 under the “regular” rules), and there’s no upper age limit (versus an upper age limit of 64 under the “regular” rules).
If you are a specified student, the minimum age is 24 for 2021. If you are a qualified former foster youth or a qualified homeless youth, the minimum age is 18 for 2021. Under the “regular” rules, the maximum tentative EITC for 2021 for a taxpayer with no qualifying children was scheduled to be only $543. Thanks to the ARPA, the maximum 2021 EITC is upped to $1,502. That increase is because the credit percentage is doubled to 15.3%, the earned income base is increased, and the AGI phase-out threshold is increased.
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| CTA is effective for filing in 2022 for 2021 or will start filing in 2023?
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When is the effective date for the CTA and regulations?
The CTA will become effective on the date that its regulations are prescribed and issued by the Secretary of the United States Treasury, which shall be promulgated within one year after the enactment of the Act- that date being January 2022. |
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| How do we file this CTA reports? May have missed it but are the penalties going to apply starting Jan 1?
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Penalties will not apply until Final Regulations are issued, which should be within next 3 to 6 months.
File date will be within 1 year if company was in existence at time final regs are passed or within 14 days from date company is started if after inal rets are issued
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| Every year I have married clients who file separately with joint accounts that generate interest, dividends, and/or capital gains. We allocate the joint items and attach notes to each return. It is inevitable that at least one sometimes, two CP2000s are generated. Is there any way to prevent this?
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Yes, remember these notices have no human intervention. IRS will match with the social security number on the 1099 etc. Make sure that is reported on the right return. Your client should get 2 accounts to avoid this issue.
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| Some of my clients who are making over $700K a year have gone to a profit-sharing retirement plan, which provides a 25% of their salaries. The client is using a professional broker to set up his profit-sharing plan – with his salary of $550K, he is setting aside $110K a year in his retirement account. Which is a bit more than 20% and of course will require Form 5500 each year. Am I off on this or what?
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This depends on what type of plan arrangements the client set up. Two plan arrangements will allow for more than $58k. A defined benefit plan or a cash balanced plan. The latter is a DC / DB hybrid plan arrangement. | |
| Do you think they’ll increase the max contribution to DCSA?
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It is increased for 2021. We will need to wait and see. | |
| Is Unemployment taxable in 2021 or nontaxable?
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Taxable | |
| Are the Union dues and employee uniform $250 deduction for 2021 or 2022?
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NO- employee business expenses is suspended until 2026. There was some mention in the BBB bill, but that has not passed Congress and been signed into law. | |
| Has NOL and guy dies. What Happens?
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Unfortunately, the NOL dies with him or her. | |
| Back in 2011, the business mileage rate was split for first half and second half of the year. Since gas has gone up so much this year, any talk of them doing that again this year, especially since 56 cents is lower than 2020?
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No announcement as of today December 16, 2021. | |
| Husband and wife 50/50 S Corporation ownership. Husband and wife separated and want to close company. Company has operated at losses since business began.
No basis for either except Husband has contributed/loaned the company approximately $100,000.
Wife owes company approximately 25,000.
Is there a way to take loss of contribution/loan on husband personal tax?
And should wife receive 1099 for loan that she cannot pay back?
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I can quickly address the 1099 question on loan she cannot pay back. Answer, No. S Corporation is not in business of lending money,
Also, general overview is that no basis no loss deduction.
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| A person whose husband died in 2021, will have taxable income of 122.000. Does a cash contribution up to 100% of AGI still apply?
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Taxpayers who itemize can generally claim a deduction for charitable contributions to qualifying organizations. The deduction is typically limited to 20% to 60% of their adjusted gross income and varies depending on the type of contribution and the type of charity.
The law now allows taxpayers to apply up to 100% of their AGI, for calendar-year 2021 qualified contributions. Qualified contributions are cash contributions to qualifying charitable organizations. The 100% limit is not automatic; the taxpayer must choose to take the new limit for any qualified cash contribution. Otherwise, the usual limit applies. The taxpayer’s other allowed charitable contribution deductions reduce the maximum amount allowed under this election. Eligible individuals must make their elections on their 2021 Form 1040 or Form 1040-SR.
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| After 2018, does like kind exchange apply.
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Yes, but only to real property.
like-kind exchange tax treatment is now generally limited to exchanges of real property. The Tax Cuts and Jobs Act, passed in December 2017, made tax law changes that will affect virtually every business and individual in 2018 and the years ahead. Effective Jan. 1, 2018, exchanges of personal or intangible property such as machinery, equipment, vehicles, artwork, collectibles, patents, and other intellectual property generally do not qualify for nonrecognition of gain or loss as like-kind exchanges. However, certain exchanges of mutual ditch, reservoir or irrigation stock are still eligible. Like-kind exchange treatment now applies only to exchanges of real property that is held for use in a trade or business or for investment. Real property, also called real estate, includes land and generally anything built on or attached to it. An exchange of real property held primarily for sale still does not qualify as a like-kind exchange. A transition rule in the new law allows like-kind treatment for some exchanges of personal or intangible property. If the taxpayer disposed of the personal or intangible property on or before Dec. 31, 2017, or received replacement property on or before that date, the exchange may qualify for like-kind exchange treatment. Properties are of like-kind if they’re of the same nature or character, even if they differ in grade or quality. Improved real property is generally of like-kind to unimproved real property. For example, an apartment building would generally be of like-kind to unimproved land. However, real property in the United States is not of like-kind to real property outside the U.S. To report a like-kind exchange, taxpayers must file Form 8824, Like-Kind Exchanges, with their tax return for the year the taxpayer transfers property as part of a like-kind exchange. This form helps a taxpayer figure the amount of gain deferred as a result of the like-kind exchange, as well as the basis of the like-kind property received, if cash or property that isn’t of like kind is involved in the exchange. Form 8824 helps compute the amount of gain the taxpayer must report.
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Applicable Federal Rates for January 2022, Rev. Rul. 2022-02
Rev. Rul. 2022-1 TABLE 1
Applicable Federal Rates (AFR) for January 2022
| Period for Compounding | ||||
| Annual | Semiannual | Quarterly | Monthly | |
| Short-term | ||||
| AFR | 0.44% | 0.44% | 0.44% | 0.44% |
| 110% AFR | 0.48% | 0.48% | 0.48% | 0.48% |
| 120% AFR | 0.53% | 0.53% | 0.53% | 0.53% |
| 130% AFR | 0.57% | 0.57% | 0.57% | 0.57% |
| Mid-term | ||||
| AFR | 1.30% | 1.30% | 1.30% | 1.30% |
| 110% AFR | 1.44% | 1.43% | 1.43% | 1.43% |
| 120% AFR | 1.57% | 1.56% | 1.56% | 1.55% |
| 130% AFR | 1.70% | 1.69% | 1.69% | 1.68% |
| 150% AFR | 1.96% | 1.95% | 1.95% | 1.94% |
| 175% AFR | 2.29% | 2.28% | 2.27% | 2.27% |
| Long-term | ||||
| AFR | 1.82% | 1.81% | 1.81% | 1.80% |
| 110% AFR | 2.00% | 1.99% | 1.99% | 1.98% |
| 120% AFR | 2.18% | 2.17% | 2.16% | 2.16% |
| 130% AFR | 2.36% | 2.35% | 2.34% | 2.34% |
Rev. Rul. 2022-1 TABLE 2
Adjusted AFR for January 2022
| Period for Compounding | ||||
| Annual | Semiannual | Quarterly | Monthly | |
| Short-term adjusted AFR |
0.33% | 0.33% | 0.33% | 0.33% |
| Mid-term adjusted AFR |
0.99% | 0.99% | 0.99% | 0.99% |
| Long-term adjusted AFR |
1.37% | 1.37% | 1.37% | 1.37% |
Rev. Rul. 2022-1 TABLE 3
Rates Under Section 382 for January 2022
| Adjusted federal long-term rate for the current month | 1.37% |
| Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted federal long-term rates for the current month and the prior two months.) | 1.45% |
Rev. Rul. 2022-1 TABLE 4
Appropriate Percentages Under Section 42(b)(1) for January 2022
| Note: Under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July 30, 2008, shall not be less than 9%. | |
| Appropriate percentage for the 70% present value low-income housing credit | 7.36% |
| Appropriate percentage for the 30% present value low-income housing credit | 3.15% |
Rev. Rul. 2022-1 TABLE 5
Rate Under Section 7520 for January 2022
| Applicable federal rate for determining the present value of an annuity, an interest in life or a term of years, or a remainder or reversionary interest | 1.6% |
Rev. Rul. 2022-1 TABLE 6
Deemed Rate for Transfers to Pooled Income Funds During 2022
| Deemed rate of return for transfers during 2022 to pooled income funds that have been in existence for
less than 3 taxable years |
1.6% |
Rev. Rul. 2022-1 TABLE 7
Average of the Applicable Federal Mid-Term Rates for 2019, 2020, 2021
| For purposes of section 7702(f)(11), the average of the applicable federal mid-term rates (based on
annual compounding) for the 60-month periods ending December 31, 2019, December 31, 2020, and December 31, 2021, are: |
|
| 60-month period ending December 31, 2019 | 2.00% rounded to 2% |
| 60-month period ending December 31, 2020 | 1.82% rounded to 2% |
| 60-month period ending December 31, 2021 | 1.72% rounded to 2% |
