Eddy Libolt, Author at Spidell

Fraud Friday: How do you hide $2 billion?

How do you hide $2 billion? Apparently, you don’t. Robert Brockman, the CEO of software company Reynolds and Reynolds Co., has been charged with tax evasion, wire fraud, money laundering, and other offenses after it was discovered he hid capital gains income for over 20 years through a web of offshore entities in Bermuda and Nevis and secret bank accounts in Bermuda and Switzerland. This is the largest-ever tax charge against an individual in the United States. However, Brockman, who is #461 on the Forbes billionaires list, so far is cooperating with the investigation. (Source: https://www.nbcnews.com/business/business-news/tech-billionaire-charged-largest-ever-tax-fraud-hiding-2-billion-n1243776)

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.

Fraud Friday: Arrested after boasting in a YouTube video

A rapper known as Nuke Bizzle was arrested after boasting in a YouTube video about getting rich off an unemployment benefit scam. He applied for Pandemic Unemployment Assistance benefits under the CARES Act using stolen identities, and ninety-two pre-loaded debit cards with more than $1.2 million in fraudulently obtained benefits from the California Employment Development Department were sent to an address linked to Bizzle. In the video, Bizzle waves a stack of EDD envelopes and informs viewers, “You gotta sell cocaine, I just file a claim.” This advice also applies to how to land oneself in prison, because he’s now facing a sentence of up to 22 years. (https://www.yahoo.com/news/rapper-charged-coronavirus-benefit-fraud-163101525.html)

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.

PPP forgiveness forms do not expire October 31

In a recent FAQ, the SBA has clarified that the expiration date in the upper right corner of the posted PPP loan forgiveness application forms is displayed for purposes of the SBA’s compliance with the Paperwork Reduction Act, and reflects the temporary expiration date for approved use of the forms. This date will be extended, and when approved, the same forms with the new expiration date will be posted.

Borrowers may submit a loan forgiveness application any time before the maturity date of the loan, which is either two or five years from loan origination. However, if a borrower does not apply for loan forgiveness within 10 months after the last day of the borrower’s loan forgiveness covered period, loan payments are no longer deferred and the borrower must begin making payments on the loan. For example, a borrower whose covered period ends on October 30, 2020, has until August 30, 2021, to apply for forgiveness before loan repayment begins.

For the current version of the PPP forgiveness FAQs, go to:

www.sba.gov/sites/default/files/2020-10/PPP%20–%20Loan%20Forgiveness%20FAQs%20%28October%2013%2C%202020%29.pdf

Attend Spidell’s 2020/21 Federal and California Tax Update and get the most current PPP information. Multiple dates and times are available. Click here for details.

2020-63: PPP forgiveness forms do not expire October 31

In a recent FAQ, the SBA has clarified that the expiration date in the upper right corner of the posted PPP loan forgiveness application forms is displayed for purposes of the SBA’s compliance with the Paperwork Reduction Act, and reflects the temporary expiration date for approved use of the forms. This date will be extended, and when approved, the same forms with the new expiration date will be posted.

Borrowers may submit a loan forgiveness application any time before the maturity date of the loan, which is either two or five years from loan origination. However, if a borrower does not apply for loan forgiveness within 10 months after the last day of the borrower’s loan forgiveness covered period, loan payments are no longer deferred and the borrower must begin making payments on the loan. For example, a borrower whose covered period ends on October 30, 2020, has until August 30, 2021, to apply for forgiveness before loan repayment begins.

For the current version of the PPP forgiveness FAQs, go to:

www.sba.gov/sites/default/files/2020-10/PPP%20–%20Loan%20Forgiveness%20FAQs%20%28October%2013%2C%202020%29.pdf

Attend Spidell’s 2020/21 Federal and California Tax Update and get the most current PPP information. Multiple dates and times are available. Click here for details.

Sign up for Spidell’s Flash E-mail — Get breaking news delivered to your inbox, plus other free analysis and information for tax professionals. Join our community and stay at the top of your game. Click here to sign up.

Fraud Friday: Survivor

Back when reality TV was in its infancy, Richard Hatch, winner of the first season of “Survivor,” served two jail terms for failing to file amended returns to pay the tax owed on the $1 million he won on “Survivor.” The first accounting firm Hatch hired to prepare his 2001 tax return calculated that he owed $441,501 in taxes, but he never filed the return. He went to a second preparer who came up with about half the amount owed, but Hatch didn’t file that return, either. That second firm then prepared an “informational” return that didn’t include the winnings at all, but warned Hatch not to file it. Of course, he immediately did. He served a total of 51 months in federal prison. (www.brysonlawfirm.com/news/253-the-irs-woes-of-the-first-survivor-winner.html)

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.

2020-62: Good news for small PPP loans

The Treasury and SBA have released a new PPP Loan Forgiveness Form 3508S, and new interim final rules, that ease the forgiveness rules for borrowers of $50,000 or less. These borrowers are no longer required to reduce forgiveness amounts based on reductions in full-time equivalent employees, or reductions in salaries and wages.

This is great news for many small businesses. However, this is not automatic forgiveness. All of the other rules regarding qualified forgiveness expenses still apply, including the requirement that at least 60% of the forgiveness amount must be from payroll expenses.

The new forgiveness form can be found here:

www.sba.gov/document/sba-form-3508s-ppp-loan-forgiveness-form-3508s

Instructions for the form can be found here:

www.sba.gov/document/support-ppp-loan-forgiveness-form-3508s-instructions

New interim final rules can be found here:

https://home.treasury.gov/system/files/136/PPP–IFR–Additional-Revisions-Loan-Forgiveness-Loan-Review-Procedures-Interim-Final-Rules.pdf

For more information on PPP forgiveness and future tax deductions for these borrowers, attend Spidell’s 2020/21 Federal and California Tax Update webinar. Multiple dates and times are available. Click here for details.

Sign up for Spidell’s Flash E-mail — Get breaking news delivered to your inbox, plus other free analysis and information for tax professionals. Join our community and stay at the top of your game. Click here to sign up.

Fraud Friday: How much does it pay to be a whistleblower?

How much does it pay to be a whistleblower? If the taxes, penalties, interest, and other amounts in dispute exceed $2 million, and a few other qualifications are met, the IRS will pay 15–30% of the amount collected. If the case deals with an individual, his or her annual gross income must be more than $200,000. For dollar amounts under the $2 million/$200,000 thresholds, there is a different process and the awards through this program are less, with a maximum award of 15% up to $10 million, and are at the discretion of the IRS. The whistleblower program has been around since March 1867. (www.irs.gov/compliance/whistleblower-informant-award)

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.

Penalty relief for CCH users

Both the IRS and the FTB are granting penalty relief to taxpayers whose returns were filed late due to the CCH outage on September 15.

The IRS issued a memorandum stating that they will treat any returns (and elections filed with those returns) that were impacted by the outage as timely filed if the taxpayer successfully e-filed the return by September 17, 2020.

The FTB has stated that they are working closely with CCH to identify and properly process the affected taxpayer returns as timely. Due to the timing in being notified of the issue and the process of identifying the impacted taxpayers, many of these returns have completed processing. As a result, the FTB is taking additional steps to resolve the issue and ensure each return receives the timely filed date of September 15.

There is no action necessary by the taxpayer or their representative to correct this issue with either the IRS or the FTB.

Sign up for Spidell’s 2020/21 Federal and California Tax Update webinar and let us simplify your tax season. Multiple dates and times are available. Click here for details.

2020-61: Penalty relief for CCH users

Both the IRS and the FTB are granting penalty relief to taxpayers whose returns were filed late due to the CCH outage on September 15.

The IRS issued a memorandum stating that they will treat any returns (and elections filed with those returns) that were impacted by the outage as timely filed if the taxpayer successfully e-filed the return by September 17, 2020.

The FTB has stated that they are working closely with CCH to identify and properly process the affected taxpayer returns as timely. Due to the timing in being notified of the issue and the process of identifying the impacted taxpayers, many of these returns have completed processing. As a result, the FTB is taking additional steps to resolve the issue and ensure each return receives the timely filed date of September 15.

There is no action necessary by the taxpayer or their representative to correct this issue with either the IRS or the FTB.

Sign up for Spidell’s 2020/21 Federal and California Tax Update webinar and let us simplify your tax season. Multiple dates and times are available. Click here for details.

Sign up for Spidell’s Flash E-mail — Get breaking news delivered to your inbox, plus other free analysis and information for tax professionals. Join our community and stay at the top of your game. Click here to sign up.

Fraud Friday: Beverly Hills stolen identities

During the month of September, federal investigators have arrested 44 people in Beverly Hills who were involved in a complex fraud ring involving unemployment benefits obtained from the EDD by out-of-state individuals using stolen identities. Those arrests netted 129 EDD debit cards with a total value exceeding $2.5 million, along with $289,000 in cash and seven handguns. The funds on the debit cards could be as high as $20,000 and cardholders are able to withdraw up to $1,000 per day, per card. The EDD is looking at a segment of PUA applications that may have used a vulnerability in the PUA system to fraudulently obtain the benefits. (https://apnews.com/article/arrests-california-archive-2f6f6392a5f3c32312048c0aa77c7770)

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.

Reminder: File CPAR partnership amended returns by September 29

To help partnerships take advantage of retroactive provisions contained in the CARES Act, the IRS allows partnerships subject to the centralized partnership audit regime to amend returns for taxable years beginning in 2018 or 2019. (Rev. Proc. 2020-23)

The due date to file these returns and provide K-1s to partners is September 29, as the Revenue Procedure requires the filing to be done before September 30.

The centralized partnership audit regime, which was enacted as part of the Bipartisan Budget Act of 2015, generally prohibits subject partnerships from filing amended returns beginning with the 2018 tax year.

The CARES Act provides retroactive tax relief for 2018 and 2019. Without the option to file amended returns, partnerships that already filed their returns for the affected years would generally be unable to take advantage of CARES Act relief except by filing administrative adjustment requests. This would result in the partners’ only being able to receive benefits from CARES Act relief once their partnership’s 2020 income tax return is filed, which could be in 2021.

The following limitations apply to these amended returns for partnerships subject to the centralized partnership audit regime:

  • A partnership that files an amended return for the 2018 or 2019 taxable year pursuant to Rev. Proc. 2020-23 is still subject to the centralized partnership audit regime otherwise;
  • Only those partnerships that filed a Form 1065 and furnished all required Schedule K-1s for the taxable years beginning in 2018 or 2019 prior to the issuance of Rev. Proc. 2020-23 (April 8, 2020) may file amended partnership returns for those years;
  • Partnerships that choose to take advantage of the amended partnership return rules of Rev. Proc. 2020-23 must file amended returns for 2018 or 2019 and furnish all required Schedule K-1s before September 30, 2020; and
  • Partnerships that choose to take advantage of the amended partnership return rules do so by filing Form 1065 (with the “Amended Return” box checked) and must write the following notation at the top of both the amended Form 1065 and each amended K-1: “FILED PURSUANT TO REV. PROC. 2020-23.”

Sign up for Spidell’s Amending CPAR Returns on-demand webinar and get detailed information on amending partnership returns. Click here and register today.

2020-60: Reminder: File CPAR partnership amended returns by September 29

To help partnerships take advantage of retroactive provisions contained in the CARES Act, the IRS allows partnerships subject to the centralized partnership audit regime to amend returns for taxable years beginning in 2018 or 2019. (Rev. Proc. 2020-23)

The due date to file these returns and provide K-1s to partners is September 29, as the Revenue Procedure requires the filing to be done before September 30.

The centralized partnership audit regime, which was enacted as part of the Bipartisan Budget Act of 2015, generally prohibits subject partnerships from filing amended returns beginning with the 2018 tax year.

The CARES Act provides retroactive tax relief for 2018 and 2019. Without the option to file amended returns, partnerships that already filed their returns for the affected years would generally be unable to take advantage of CARES Act relief except by filing administrative adjustment requests. This would result in the partners’ only being able to receive benefits from CARES Act relief once their partnership’s 2020 income tax return is filed, which could be in 2021.

The following limitations apply to these amended returns for partnerships subject to the centralized partnership audit regime:

  • A partnership that files an amended return for the 2018 or 2019 taxable year pursuant to Rev. Proc. 2020-23 is still subject to the centralized partnership audit regime otherwise;
  • Only those partnerships that filed a Form 1065 and furnished all required Schedule K-1s for the taxable years beginning in 2018 or 2019 prior to the issuance of Rev. Proc. 2020-23 (April 8, 2020) may file amended partnership returns for those years;
  • Partnerships that choose to take advantage of the amended partnership return rules of Rev. Proc. 2020-23 must file amended returns for 2018 or 2019 and furnish all required Schedule K-1s before September 30, 2020; and
  • Partnerships that choose to take advantage of the amended partnership return rules do so by filing Form 1065 (with the “Amended Return” box checked) and must write the following notation at the top of both the amended Form 1065 and each amended K-1: “FILED PURSUANT TO REV. PROC. 2020-23.”

Sign up for Spidell’s Amending CPAR Returns on-demand webinar and get detailed information on amending partnership returns. Click here and register today.

Sign up for Spidell’s Flash E-mail — Get breaking news delivered to your inbox, plus other free analysis and information for tax professionals. Join our community and stay at the top of your game. Click here to sign up.

Fraud Friday: Promoters of a bitcoin mining Ponzi scheme

The promoters of a bitcoin mining Ponzi scheme have been charged with wire fraud and selling unregistered securities. From April 2014 through December 2019, BitClub Network was a fraudulent scheme in which investors got shares of cryptocurrency mining pools and were rewarded for recruiting new investors into the scheme. Investors were shown fabricated “bitcoin mining earnings” allegedly generated by BitClub Network’s bitcoin mining pool. The promoters of the scheme sold BitClub Network shares—which were securities BitClub Network did not register with the SEC. The scheme defrauded hundreds of thousands of investors out of around $722 million, one of the largest cryptocurrency frauds in the books. (www.justice.gov/usao-nj/bitclub)

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.

Fraud Friday: Inflated bills of sale

A Columbus, Ohio, tax attorney was sentenced to 18 months in prison for providing the IRS with false documents and misleading information to help his client cover up tax fraud. The attorney provided false, inflated bills of sale to support depreciation deductions on medical equipment. He also lied to a revenue officer, causing her to believe that some of the taxpayer’s entities were defunct with no assets which led her to close the collection cases. In January 2017, the taxpayer pleaded guilty to drug, tax, and fraud charges, but died before sentencing in that case. (https://www.justice.gov/opa/pr/ohio-tax-attorney-pleads-guilty-obstructing-irs)

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.

Fraud Friday: “The IRS Tapes: Who Will Buy My Memories?”

Country music star Willie Nelson got into tax trouble after the IRS found that the tax shelters his accountants set up were not valid. Left with a $16.7 million tax bill (negotiated down to $6 million), Nelson’s property was seized and sold at auction. But most of it was purchased by friends and supporters who immediately returned it to him. To pay off the balance, Nelson released the album “The IRS Tapes: Who Will Buy My Memories?” and did an ad spot for Taco Bell. This tactic certainly cannot be used by everyone owing money to the IRS, but it worked for Nelson; his debt was paid off by 1993. (www.rollingstone.com/music/music-country/flashback-willie-nelson-settles-irs-tax-debt-196254/)

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.

AB 5 and COVID-19 retirement plan loan conformity bills sent to Governor

Dozens of tax-related bills were sent to the Governor’s desk on the last day of the 2020 California General Assembly’s session, including:

  • AB 323 and AB 2257: These are the AB 5 cleanup bills that expand upon current exemptions from AB 5’s ABC employee classification test, including:
    • New exemptions for music and entertainment industry professionals;
    • Expanded exemptions for newspaper carriers, journalists, photographers, and other content creators; and
    • The easing of the requirements to qualify for the business-to-business exemption and the referral agency exemptions.
      The law also states that an employee for payroll tax purposes under AB 5 is also an employee for income tax filing purposes. Absent from the bill is any mention or exemption for Uber/Lyft or other transportation or delivery workers.
  • AB 276: This bill conforms to the CARES Act provision that increases the amount of loans that may be taken from qualified plans from $50,000 to $100,000 without the withdrawal being considered a taxable distribution.

The Governor is expected to sign these bills.

We will discuss details of these bills and how to compute individual income tax returns for affected workers at Spidell’s AB 5 Update: Legislation and Audits webinar. Click here to register.

2020-59: AB 5 and COVID-19 retirement plan loan conformity bills sent to Governor

Dozens of tax-related bills were sent to the Governor’s desk on the last day of the 2020 California General Assembly’s session, including:

  • AB 323 and AB 2257: These are the AB 5 cleanup bills that expand upon current exemptions from AB 5’s ABC employee classification test, including:
    • New exemptions for music and entertainment industry professionals;
    • Expanded exemptions for newspaper carriers, journalists, photographers, and other content creators; and
    • The easing of the requirements to qualify for the business-to-business exemption and the referral agency exemptions.
      The law also states that an employee for payroll tax purposes under AB 5 is also an employee for income tax filing purposes. Absent from the bill is any mention or exemption for Uber/Lyft or other transportation or delivery workers.
  • AB 276: This bill conforms to the CARES Act provision that increases the amount of loans that may be taken from qualified plans from $50,000 to $100,000 without the withdrawal being considered a taxable distribution.

The Governor is expected to sign these bills.

We will discuss details of these bills and how to compute individual income tax returns for affected workers at Spidell’s AB 5 Update: Legislation and Audits webinar. Click here to register.

Sign up for Spidell’s Flash E-mail — Get breaking news delivered to your inbox, plus other free analysis and information for tax professionals. Join our community and stay at the top of your game. Click here to sign up.

PPP loan forgiveness COD exclusion bill sent to Governor

AB 1577, which would conform to the federal provisions that exclude from taxable income any cancellation of debt income arising from Paycheck Protection Program loan forgiveness, has been sent to the Governor for his signature.

Unfortunately, the bill also specifically prohibits taxpayers from claiming any deduction or credit for expenses paid with the forgiven loans. This means California taxpayers cannot claim any payroll or business deductions for expenses paid with PPP amounts that have been forgiven.

The text of AB 1577 is available at:

https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB1577

Subscribe to Spidell’s California Taxletter and get more information on this bill and other new legislation. Click here for details.

2020-58: PPP loan forgiveness COD exclusion bill sent to Governor

AB 1577, which would conform to the federal provisions that exclude from taxable income any cancellation of debt income arising from Paycheck Protection Program loan forgiveness, has been sent to the Governor for his signature.

Unfortunately, the bill also specifically prohibits taxpayers from claiming any deduction or credit for expenses paid with the forgiven loans. This means California taxpayers cannot claim any payroll or business deductions for expenses paid with PPP amounts that have been forgiven.

The text of AB 1577 is available at:

https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB1577

Subscribe to Spidell’s California Taxletter and get more information on this bill and other new legislation. Click here for details.

Sign up for Spidell’s Flash E-mail — Get breaking news delivered to your inbox, plus other free analysis and information for tax professionals. Join our community and stay at the top of your game. Click here to sign up.

Employee payroll tax deferrals are a messy proposition

The Treasury and the IRS released guidance today on the deferral of the employee’s share of Social Security taxes pursuant to President Trump’s August 8, 2020, Presidential Memorandum. (IRS Notice 2020-65) Unfortunately, the guidance leaves some important questions unanswered.

The Presidential Memorandum directed the Secretary of the Treasury to use his authority to defer the withholding, deposit, and payment of the employee’s portion of Social Security taxes paid from September 1, 2020, through December 31, 2020. The deferral is only available to employees with wages or compensation of less than $4,000 paid during a bi-weekly pay period, or the equivalent threshold amount with respect to other pay periods. Today’s guidance “implements” that deferral.

The amounts that are not withheld will go to the employees. However, the ultimate liability for the taxes remains with the employer under the guidance. What is not clear from the guidance is whether employers are required to offer this deferral to their qualifying employees, though Treasury Secretary Mnuchin has said he can’t force employers to stop withholding on employees.

If the taxes are deferred, employers must withhold and pay the deferred tax ratably from wages and compensation paid to the employees between January 1, 2021, and April 30, 2021. So the employees will repay the deferral through double withholding during that period. But what if the employee no longer works for the employer? The guidance states that the employer may “make arrangements to otherwise collect the total Applicable Taxes from the employee.” Any amounts still owed by the employer on May 1, 2021, will be subject to penalties, interest, and additions to tax.

The Presidential Memorandum does require the Secretary of the Treasury to explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred, but at this time there is no forgiveness for the deferred taxes.

Employers and employees should consider the potential costs of deferring these taxes as illustrated above before participating in this deferral program.

The guidance is available at:

www.irs.gov/pub/irs-drop/n-20-65.pdf

The Presidential Memorandum is available at:

www.whitehouse.gov/presidential-actions/memorandum-deferring-payroll-tax-obligations-light-ongoing-covid-19-disaster/

Attend Spidell’s 2020/21 Federal and California Tax Update webinar and get the latest information on payroll tax deferrals. Click here for a list of available dates.

2020-57: Employee payroll tax deferrals are a messy proposition

The Treasury and the IRS released guidance today on the deferral of the employee’s share of Social Security taxes pursuant to President Trump’s August 8, 2020, Presidential Memorandum. (IRS Notice 2020-65) Unfortunately, the guidance leaves some important questions unanswered.

The Presidential Memorandum directed the Secretary of the Treasury to use his authority to defer the withholding, deposit, and payment of the employee’s portion of Social Security taxes paid from September 1, 2020, through December 31, 2020. The deferral is only available to employees with wages or compensation of less than $4,000 paid during a bi-weekly pay period, or the equivalent threshold amount with respect to other pay periods. Today’s guidance “implements” that deferral.

The amounts that are not withheld will go to the employees. However, the ultimate liability for the taxes remains with the employer under the guidance. What is not clear from the guidance is whether employers are required to offer this deferral to their qualifying employees, though Treasury Secretary Mnuchin has said he can’t force employers to stop withholding on employees.

If the taxes are deferred, employers must withhold and pay the deferred tax ratably from wages and compensation paid to the employees between January 1, 2021, and April 30, 2021. So the employees will repay the deferral through double withholding during that period. But what if the employee no longer works for the employer? The guidance states that the employer may “make arrangements to otherwise collect the total Applicable Taxes from the employee.” Any amounts still owed by the employer on May 1, 2021, will be subject to penalties, interest, and additions to tax.

The Presidential Memorandum does require the Secretary of the Treasury to explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred, but at this time there is no forgiveness for the deferred taxes.

Employers and employees should consider the potential costs of deferring these taxes as illustrated above before participating in this deferral program.

The guidance is available at:

www.irs.gov/pub/irs-drop/n-20-65.pdf

The Presidential Memorandum is available at:

www.whitehouse.gov/presidential-actions/memorandum-deferring-payroll-tax-obligations-light-ongoing-covid-19-disaster/

Attend Spidell’s 2020/21 Federal and California Tax Update webinar and get the latest information on payroll tax deferrals. Click here for a list of available dates.

Sign up for Spidell’s Flash E-mail — Get breaking news delivered to your inbox, plus other free analysis and information for tax professionals. Join our community and stay at the top of your game. Click here to sign up.

 

August 31 is the last day to roll that RMD

Under IRS Notice 2020-51 Reminder: August 31 is the final day a taxpayer may roll over an RMD taken on or after January 1, 2020 back into an IRA. The notice also clarifies that the one rollover per 12 month period limitation does not apply to 2020 RMDs that are recontributed to a retirement accounts by August 31, 2020.

The CARES Act provides that taxpayers with an RMD requirement due in 2020 may skip those RMDs in 2020. The 2020 RMD suspension also includes anyone who turned age 70½ in 2019 and would have had to take their first RMD by April 1, 2020. The 2020 RMD suspension does not apply to defined benefit plans.

Eligible retirement accounts are:

  • 401(k)s;
  • Defined contribution plans (IRC §403(a) and (b));
  • Tax-sheltered annuity plans (IRC §403(b));
  • Defined contribution plans under IRC §457(b) maintained by a state or municipal government (the waiver does not apply to current or former employees of exempt organizations that maintain an IRC §457(b) plan); and
  • An individual retirement plan such as a traditional, SEP, or SIMPLE IRA.

Fraud Friday: Living in a shed

For the purposes of using the First-time Homebuyer Credit, a taxpayer who was living in a shed on his property was deemed not to have owned a principal residence within the three years prior to the purchase of a new home. After losing his home in a fire, the taxpayer lived with friends, family, and his girlfriend, and then moved into a storage shed on his property. The taxpayer only spent about 40% of his time living in the shed; the rest of the time was spent living mostly with his girlfriend. The shed was found not to be the taxpayer’s principal residence because he did not spend the majority of his time there. (CCA 201104037)

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.

Great news in new PPP guidance

The latest PPP loan forgiveness guidance brings some good news for minority shareholders, Schedule C borrowers with home office expenses, and self-renters:

  • Owner-employees with less than a 5% ownership interest in a C or S corporation: These owner-employees are not subject to the owner-employee compensation rule (which generally limits the amount of compensation eligible for loan forgiveness to 2.5 months of compensation reported on the 2019 return);
  • Home-office expenses: Deductible home-office expenses are qualified expenses, but only to the extent they were deductible on 2019 tax filings (or if a new business, the borrower’s expected 2020 tax filings);
  • Self-renters: Rent or lease payments to related parties (defined as any ownership in common between the business and property owner) are eligible for forgiveness if:
    • The amount of loan forgiveness requested for rent or lease payments to a related party is no more than the amount of mortgage interest owed on the property during the covered period that is attributable to the space being rented by the party; and
    • The lease and the mortgage were entered into prior to February 15, 2020.
  • Borrowers with tenants or subtenants: Amounts attributable to a tenant or subtenant of the PPP borrower are ineligible for loan forgiveness (e.g., a tenant with a monthly rent of $10,000 who subleases a portion of the space for $2,500 will only be eligible for $7,500 of forgiveness).

The interim rule can be found at:

https://home.treasury.gov/system/files/136/PPP–IFR–Treatment-Owners-Forgiveness-Certain-Nonpayroll-Costs.pdf

Attend Spidell’s 2020/21 Federal and California Tax Update webinar and get all the latest PPP information. Click here for a list of available dates.

2020-56: Great news in new PPP guidance

The latest PPP loan forgiveness guidance brings some good news for minority shareholders, Schedule C borrowers with home office expenses, and self-renters:

  • Owner-employees with less than a 5% ownership interest in a C or S corporation: These owner-employees are not subject to the owner-employee compensation rule (which generally limits the amount of compensation eligible for loan forgiveness to 2.5 months of compensation reported on the 2019 return);
  • Home-office expenses: Deductible home-office expenses are qualified expenses, but only to the extent they were deductible on 2019 tax filings (or if a new business, the borrower’s expected 2020 tax filings);
  • Self-renters: Rent or lease payments to related parties (defined as any ownership in common between the business and property owner) are eligible for forgiveness if:
    • The amount of loan forgiveness requested for rent or lease payments to a related party is no more than the amount of mortgage interest owed on the property during the covered period that is attributable to the space being rented by the party; and
    • The lease and the mortgage were entered into prior to February 15, 2020.
  • Borrowers with tenants or subtenants: Amounts attributable to a tenant or subtenant of the PPP borrower are ineligible for loan forgiveness (e.g., a tenant with a monthly rent of $10,000 who subleases a portion of the space for $2,500 will only be eligible for $7,500 of forgiveness).

The interim rule can be found at:

https://home.treasury.gov/system/files/136/PPP–IFR–Treatment-Owners-Forgiveness-Certain-Nonpayroll-Costs.pdf

Attend Spidell’s 2020/21 Federal and California Tax Update webinar and get all the latest PPP information. Click here for a list of available dates.

Sign up for Spidell’s Flash E-mail — Get breaking news delivered to your inbox, plus other free analysis and information for tax professionals. Join our community and stay at the top of your game. Click here to sign up.

Fraud Friday: The Queen of Mean

Of the famous tax cheats, one of the few women on the list is hotelier Leona Helmsley, a.k.a., The Queen of Mean. Illegal billings tied to the renovation of one of the Helmsleys’ weekend mansions clued investigators in to tax evasion. In the end, Helmsley was ordered to report for her jail sentence on April 15, 1992. She was famously quoted as saying “We don’t pay taxes. Only the little people pay taxes.” That may be so, but the big people go to jail.

(https://en.wikipedia.org/wiki/Leona_Helmsley)

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.

Fraud Friday: Divorce and payment not made

A taxpayer had an oral agreement with her then-son-in-law to repay money she lent him; after her daughter divorced him and payment was not made, the taxpayer filed a Form 1099-C discharging $30,000. Her ex-son-in-law filed suit, claiming that the filing was fraudulent and was done only with the intent to cause him to pay extra tax. The Court of Appeals determined that the district court should have thrown out the case because the nine types of false information returns for which an injured taxpayer may recover do not include Form 1099-C. Although the taxpayer was not required to file a Form 1099-C, she was not prohibited from doing so. (Cavoto v. Hayes (February 28, 2011) U.S. Court of Appeals, Seventh Circuit, Case No. 10-2681)

Court rules Uber/Lyft must treat their drivers as employees

The San Francisco Superior Court has ruled that Uber and Lyft must immediately begin treating their drivers as employees in California.

The court found that Uber and Lyft’s treatment of their drivers was in direct contravention of AB 5’s ABC test and refused to grant a stay of the order while Uber and Lyft appeal the decision. The court also refused to grant a stay pending the outcome of Proposition 22 on the November 2020 ballot, in which Uber and Lyft are asking voters to decide whether their drivers should be treated as independent contractors, entitled to specified pay and benefit protections to be provided by the companies.

Uber and Lyft will undoubtedly appeal the decision, but unless a court of appeal quickly intervenes Uber and Lyft must begin treating their California drivers as employees immediately.

The superior court’s order can be found at:

www.caltax.com/files/2020/uberlyft081020.pdf

We will include additional information on this case, and the latest information and developments regarding AB 5 and California worker classification, in upcoming issues of Spidell’s California Taxletter.

2020-55: Court rules Uber/Lyft must treat their drivers as employees

The San Francisco Superior Court has ruled that Uber and Lyft must immediately begin treating their drivers as employees in California.

The court found that Uber and Lyft’s treatment of their drivers was in direct contravention of AB 5’s ABC test and refused to grant a stay of the order while Uber and Lyft appeal the decision. The court also refused to grant a stay pending the outcome of Proposition 22 on the November 2020 ballot, in which Uber and Lyft are asking voters to decide whether their drivers should be treated as independent contractors, entitled to specified pay and benefit protections to be provided by the companies.

Uber and Lyft will undoubtedly appeal the decision, but unless a court of appeal quickly intervenes Uber and Lyft must begin treating their California drivers as employees immediately.

The superior court’s order can be found at:

www.caltax.com/files/2020/uberlyft081020.pdf

We will include additional information on this case, and the latest information and developments regarding AB 5 and California worker classification, in upcoming issues of Spidell’s California Taxletter.

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President signs COVID-19 relief orders

On Saturday, August 8, the President signed four executive actions providing additional COVID-19 relief. However, questions have been raised about whether the President has the authority to take all the actions listed below. We will keep you posted as this issue develops.

The three memorandums and one executive order signed by the President do the following:

  • Direct the Secretary of the Treasury to use his authority to defer the withholding, deposit, and payment of the employee’s portion of Social Security taxes paid from September 1, 2020, through December 31, 2020. The deferral will be available to any employee whose wages are generally less than $104,000 per year;
  • Authorize an additional $44 billion from the Department of Homeland Security’s Disaster Relief Fund to assist states to continue to pay expanded unemployment benefits of up to $400 per week, with the federal government paying $300 and states paying up to $100. States are called upon to use amounts allocated to them out of the Coronavirus Relief fund to pay their $100 share of the expanded unemployment benefits. Each state will manage this individually, so at this time it is unclear how each state will handle it;
  • Provide for the continued temporary cessation of student loan payments and a waiver of all interest on student loans held by the Department of Education until December 31, 2020; and
  • Direct various administrative agencies to take all lawful measures to prevent residential evictions and foreclosures resulting from the COVID-19 pandemic. The order does not contain any specifics for these directives.

The text of the memorandums and order can be found at:

www.whitehouse.gov/news

Subscribe to Spidell’s Federal Taxletter and stay current on breaking federal news throughout the year. Click here for more information.

2020-54: President signs COVID-19 relief orders

On Saturday, August 8, the President signed four executive actions providing additional COVID-19 relief. However, questions have been raised about whether the President has the authority to take all the actions listed below. We will keep you posted as this issue develops.

The three memorandums and one executive order signed by the President do the following:

  • Direct the Secretary of the Treasury to use his authority to defer the withholding, deposit, and payment of the employee’s portion of Social Security taxes paid from September 1, 2020, through December 31, 2020. The deferral will be available to any employee whose wages are generally less than $104,000 per year;
  • Authorize an additional $44 billion from the Department of Homeland Security’s Disaster Relief Fund to assist states to continue to pay expanded unemployment benefits of up to $400 per week, with the federal government paying $300 and states paying up to $100. States are called upon to use amounts allocated to them out of the Coronavirus Relief fund to pay their $100 share of the expanded unemployment benefits. Each state will manage this individually, so at this time it is unclear how each state will handle it;
  • Provide for the continued temporary cessation of student loan payments and a waiver of all interest on student loans held by the Department of Education until December 31, 2020; and
  • Direct various administrative agencies to take all lawful measures to prevent residential evictions and foreclosures resulting from the COVID-19 pandemic. The order does not contain any specifics for these directives.

The text of the memorandums and order can be found at:

www.whitehouse.gov/news

Subscribe to Spidell’s Federal Taxletter and stay current on breaking federal news throughout the year. Click here for more information.

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— 
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Fraud Friday: Gas Station Flipping

Two taxpayers were sentenced and ordered to pay $22 million in restitution for their fraudulent loan scam where they would “flip” gas stations by lining up a buyer for a station before they had even purchased that station. Along with several co-conspirators, they falsified just about all of the documents needed for the buyers to get the loans; the buyers were almost never in a position financially to be able to purchase a gas station. They had relatives act as sham co-signors on the loans, and an accountant who would prepare false tax returns to show nonexistent income. The bank providing the funds ultimately issued more than $38 million in loans as part of the scheme. (U.S. v. Ghuman (July 16, 2020) U.S. Court of Appeals, Seventh Circuit, Case Nos. 19-1734, 19-1745)

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.

Fraud Friday: Lamborghini Huracán EVO

A Florida man was busted for overstating his payroll expenses for the purposed of getting a huge PPP loan, which he immediately turned around and spent on luxury items. First, he dropped $320,000 on a Lamborghini Huracán EVO, $9,000 at a jeweler, and $5,000 at Saks Fifth Avenue. Other payments from the account where he deposited the PPP funds were also clearly not business expenses, including two $15,000 payments to “Mom.” (https://abc7.com/florida-man-david-hines-lamborghini-huracn-evo-ppp/6340991/)

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.

Possible California tax increases coming

AB 1253 (Santiago) is not law yet, but if enacted the bill would impose the following additional taxes retroactively for taxable years beginning on or after January 1, 2020:

  • 1% on income over $1,181,484, but not over $2,362,968;
  • 3% on income over $2,362,968, but not over $5,907,420; and
  • 3.5% on income over $5,907,420.

These increases would mean the California tax rate on income over $1 million would go from 13.3% to 14.3%, and California’s maximum rate would increase to a staggering 16.8%.

Although the bill initially sets $1 million, $2 million, and $5 million as the thresholds, later in the bill those numbers are increased for inflation.

The bill is now pending a hearing in the Senate Governance and Finance Committee, and requires a two-thirds vote of both houses of the Legislature to be enacted.

To view the full text of AB 1253, go to:

http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201920200AB1253

Sign up for Spidell’s 2020/21 Federal and California Tax Update webinar and let us simplify your tax season. Multiple dates and times are available. Click here for details.

2020-52: Possible California tax increases coming

AB 1253 (Santiago) is not law yet, but if enacted the bill would impose the following additional taxes retroactively for taxable years beginning on or after January 1, 2020:

  • 1% on income over $1,181,484, but not over $2,362,968;
  • 3% on income over $2,362,968, but not over $5,907,420; and
  • 3.5% on income over $5,907,420.

These increases would mean the California tax rate on income over $1 million would go from 13.3% to 14.3%, and California’s maximum rate would increase to a staggering 16.8%.

Although the bill initially sets $1 million, $2 million, and $5 million as the thresholds, later in the bill those numbers are increased for inflation.

The bill is now pending a hearing in the Senate Governance and Finance Committee, and requires a two-thirds vote of both houses of the Legislature to be enacted.

To view the full text of AB 1253, go to:

http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201920200AB1253

Sign up for Spidell’s 2020/21 Federal and California Tax Update webinar and let us simplify your tax season. Multiple dates and times are available. Click here for details.

Sign up for Spidell’s Flash E-mail — Get breaking news delivered to your inbox, plus other free analysis and information for tax professionals. Join our community and stay at the top of your game. Click here to sign up.

Fraud Friday: Food stamp fraud

A grocery store owner was caught filing fraudulent returns that failed to report almost $500,000 of income over two years, mostly tied to food stamp fraud. The owner argued against the unreported income, saying that the cash register’s void function didn’t work, and that he used the cash register mostly as an adding machine. He also claimed that cash back transactions were rung into the register as sales and that he made cash payments to vendors but didn’t record them in the register receipts. (U.S. v. Mohammad (July 8, 2020) U.S. District Court, Northern District of Ohio, Case No. 1:18CR735)

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.

Fraud Friday: The Women’s Tax Resistance League

Just before WWI, the Women’s Tax Resistance League was formed as a direct action group that used tax resistance to protest against the disenfranchisement of women in Britain. Their motto was No Vote, No Tax, and one member said, “The least any woman can do is to refuse to pay taxes, especially the tax on actually earned income.” A similar movement appeared in the U.S., holding it was unfair to the women of the U.S. to have taxation without representation. The war put a damper on these movements, and in the U.S. women got the right to vote in 1920; although it wasn’t until the Voting Rights Act of 1965 that women of color would have their voting rights enforced.
 
(https://en.wikipedia.org/wiki/Women%27s_Tax_Resistance_League)

Processing delays of advances of employer credits

The IRS is sending letters to taxpayers who are experiencing delays in the IRS’s processing of their Form 7200, Advanced Payment of Employer Credits Due to COVID-19.

Letter 6312 is being sent out to taxpayers who have either had their Form 7200 rejected or changed by the IRS due to computational errors. For computational errors on Form 7200, the IRS will make the change automatically, but the Form 7200 takes longer to process.

Letter 6313 is being sent out to taxpayers who must provide written verification that the mailing address on their Form 7200 is the current mailing address for their business. The IRS will not process a taxpayer’s Form 7200 without this written verification.

Form 7200 was created after the passage of the Families First Coronavirus Response Act (FFCRA) and the CARES Act to allow employers to expedite refunds of the paid sick leave and paid family leave credits available under the FFCRA and the employee retention credit under the CARES Act.

More information about letters 6312 and 6313 can be found at:

www.irs.gov/newsroom/irs-is-sending-letters-to-those-experiencing-a-delay-with-advance-payment-of-employer-credits

Subscribe to Spidell’s Federal Taxletter and stay current on breaking federal news throughout the year. Click here to learn more.

2020-51: Processing delays of advances of employer credits

The IRS is sending letters to taxpayers who are experiencing delays in the IRS’s processing of their Form 7200, Advanced Payment of Employer Credits Due to COVID-19.

Letter 6312 is being sent out to taxpayers who have either had their Form 7200 rejected or changed by the IRS due to computational errors. For computational errors on Form 7200, the IRS will make the change automatically, but the Form 7200 takes longer to process.

Letter 6313 is being sent out to taxpayers who must provide written verification that the mailing address on their Form 7200 is the current mailing address for their business. The IRS will not process a taxpayer’s Form 7200 without this written verification.

Form 7200 was created after the passage of the Families First Coronavirus Response Act (FFCRA) and the CARES Act to allow employers to expedite refunds of the paid sick leave and paid family leave credits available under the FFCRA and the employee retention credit under the CARES Act.

More information about letters 6312 and 6313 can be found at:

www.irs.gov/newsroom/irs-is-sending-letters-to-those-experiencing-a-delay-with-advance-payment-of-employer-credits

Subscribe to Spidell’s Federal Taxletter and stay current on breaking federal news throughout the year. Click here to learn more.

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Additional ACA protective claim guidance

We have received a number of questions regarding possible protective claims for ACA-related taxes. In light of those questions, we would like to clarify a few issues:

  1. An amended return is not required. You may simply submit a letter listing:
    • The taxpayer’s name, address, SSN or ITIN, and other contact information;
    • A description of the contingencies the claim is based on (in this case, the pending outcome of California v. Texas);
    • The essential nature of the claim (the refund of the extra 0.9% Medicare tax and the 3.8% net investment income tax); and
    • The specific year(s) for which a refund is sought.
  2. You are not required to list the specific amount of the refund request.
  3. The deadline for timely filed 2016 returns is July 15, 2020. For 2016 returns that were filed on extension, the due date is three years from the date the return was actually filed, if filed on or before October 15, 2017.
  4. You may file one claim listing all open years, but you are not required to do so.

We are also aware that some commentators feel these claims are unnecessary because California v. Texas (U.S. Supreme Court Docket 19-840) addresses the ACA in light of TCJA changes in 2018 and later years. However, there is a possibility that the Act, or a portion of the Act, could be found unconstitutional. This could mean refund claims for years prior to 2018 could be granted. In light of that, we felt it was important to make you aware of these potential refund claims. For a small amount of work, the payoff could be huge, especially for high net worth individuals.

Click here to download Spidell’s sample refund claim letter for these taxpayers.

Subscribe to Spidell’s Federal Taxletter and stay current on breaking federal news throughout the year. Click here to learn more.

2020-50: Additional ACA protective claim guidance

We have received a number of questions regarding possible protective claims for ACA-related taxes. In light of those questions, we would like to clarify a few issues:

  1. An amended return is not required. You may simply submit a letter listing:
    • The taxpayer’s name, address, SSN or ITIN, and other contact information;
    • A description of the contingencies the claim is based on (in this case, the pending outcome of California v. Texas);
    • The essential nature of the claim (the refund of the extra 0.9% Medicare tax and the 3.8% net investment income tax); and
    • The specific year(s) for which a refund is sought.
  2. You are not required to list the specific amount of the refund request.
  3. The deadline for timely filed 2016 returns is July 15, 2020. For 2016 returns that were filed on extension, the due date is three years from the date the return was actually filed, if filed on or before October 15, 2017.
  4. You may file one claim listing all open years, but you are not required to do so.

We are also aware that some commentators feel these claims are unnecessary because California v. Texas (U.S. Supreme Court Docket 19-840) addresses the ACA in light of TCJA changes in 2018 and later years. However, there is a possibility that the Act, or a portion of the Act, could be found unconstitutional. This could mean refund claims for years prior to 2018 could be granted. In light of that, we felt it was important to make you aware of these potential refund claims. For a small amount of work, the payoff could be huge, especially for high net worth individuals.

Click here to download Spidell’s sample refund claim letter for these taxpayers.

Subscribe to Spidell’s Federal Taxletter and stay current on breaking federal news throughout the year. Click here to learn more.

Sign up for Spidell’s Flash E-mail — Get breaking news delivered to your inbox, plus other free analysis and information for tax professionals. Join our community and stay at the top of your game. Click here to sign up.

Consider protective claims for ACA-related taxes

The U.S. Supreme Court has agreed to hear California v. Texas (U.S. Supreme Court Docket 19-840), which addresses the constitutionality of the Affordable Care Act (ACA). If the Court holds that all, or a portion, of the ACA is unconstitutional, taxpayers may be entitled to refunds for the taxes imposed by the ACA. These include the extra 0.9% Medicare tax and the 3.8% net investment income tax that have been paid on prior year returns.

Refunds are limited to years where the statute of limitations is still open. As a result, taxpayers may want to file protective refund claims to protect their refund rights. For taxes paid on timely filed 2016 returns, these protective refund claims must be filed by July 15, 2020.

The good news is that an amended return is not required. For a refund claim to be valid, it must be in writing and signed, and it must include:

  • The taxpayer’s name, address, SSN or ITIN, and other contact information;
  • A description of the contingencies the claim is based on (in this case, the pending outcome of California v. Texas);
  • The essential nature of the claim (the refund of the extra 0.9% Medicare tax and the 3.8% net investment income tax); and
  • The specific year(s) for which a refund is sought.

Mail the protective claim to the mailing address that applies to the taxpayer for Form 1040X.

Click here to download Spidell’s sample refund claim letter for these taxpayers.

Subscribe to Spidell’s Federal Taxletter and stay current on breaking federal news throughout the year. Click here to learn more.

2020-49: Consider protective claims for ACA-related taxes

The U.S. Supreme Court has agreed to hear California v. Texas (U.S. Supreme Court Docket 19-840), which addresses the constitutionality of the Affordable Care Act (ACA). If the Court holds that all, or a portion, of the ACA is unconstitutional, taxpayers may be entitled to refunds for the taxes imposed by the ACA. These include the extra 0.9% Medicare tax and the 3.8% net investment income tax that have been paid on prior year returns.

Refunds are limited to years where the statute of limitations is still open. As a result, taxpayers may want to file protective refund claims to protect their refund rights. For taxes paid on timely filed 2016 returns, these protective refund claims must be filed by July 15, 2020.

The good news is that an amended return is not required. For a refund claim to be valid, it must be in writing and signed, and it must include:

  • The taxpayer’s name, address, SSN or ITIN, and other contact information;
  • A description of the contingencies the claim is based on (in this case, the pending outcome of California v. Texas);
  • The essential nature of the claim (the refund of the extra 0.9% Medicare tax and the 3.8% net investment income tax); and
  • The specific year(s) for which a refund is sought.

Mail the protective claim to the mailing address that applies to the taxpayer for Form 1040X.

Click here to download Spidell’s sample refund claim letter for these taxpayers.

Subscribe to Spidell’s Federal Taxletter and stay current on breaking federal news throughout the year. Click here to learn more.

Sign up for Spidell’s Flash E-mail — Get breaking news delivered to your inbox, plus other free analysis and information for tax professionals. Join our community and stay at the top of your game. Click here to sign up.

Fraud Friday: A prominent political figure in PA

A prominent political figure in PA was sentenced to 7 years in prison for skimming almost $2 million from a federally supported nonprofit, which helped people with substance abuse, and failing to report the income. She jacked up the rents on the clinics and then approved the increases herself, for example charging monthly rent of $75,000 on one of the clinic’s buildings when the market rate was around $23,000. Her husband, who was also involved with the non-profit, was not charged, although he has spent time in prison for bribing elected officials in Atlantic City. (U.S. v. Tartaglione (June 9, 2020) U.S. Court of Appeals, Third Circuit, Case Nos. 18-2638, 18-3017)

PPP application deadline extended

The President has signed Senate bill S. 4116, extending the deadline to apply for Paycheck Protection Program (PPP) loans to August 8, 2020. This provides additional time for small businesses who have yet to receive a PPP loan to apply for the close to $130 billion in loans still available.

The text of the bill is available at:

www.congress.gov/bill/116th-congress/senate-bill/4116/text

Attend Spidell’s 2020 Summer Tax Webinar and get a 1-hour update on what is happening with PPP loans. Click here to register.

2020-48: PPP application deadline extended

The President has signed Senate bill S. 4116, extending the deadline to apply for Paycheck Protection Program (PPP) loans to August 8, 2020. This provides additional time for small businesses who have yet to receive a PPP loan to apply for the close to $130 billion in loans still available.

The text of the bill is available at:

www.congress.gov/bill/116th-congress/senate-bill/4116/text

Attend Spidell’s 2020 Summer Tax Webinar and get a 1-hour update on what is happening with PPP loans. Click here to register.

Sign up for Spidell’s Flash E-mail — Get breaking news delivered to your inbox, plus other free analysis and information for tax professionals. Join our community and stay at the top of your game. Click here to sign up.

Fraud Friday: An extra fee to use stolen names

A tax preparer from the Bronx was sentenced to two years in prison for engaging in numerous filing schemes, one of which involved charging her clients an extra fee to use stolen names and ID numbers as false dependents. She recycled those same names and ID numbers for various returns over a four-year period. She also used stolen personal information to file returns that generated refunds, which she collected. (U.S. v. Bayuo (June 17, 2020) U.S. Court of Appeals, Second Circuit, Case No. 19-1854)

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.

Possible PPP extension coming

Senate bill S. 4116, which would extend the deadline to apply for Paycheck Protection Program loans from June 30, 2020, to August 8, 2020, was passed by the Senate on June 30. This could be good news for small businesses that missed the opportunity to apply for these loans before the June 30 application deadline.

According to news reports, there is still $130 billion of PPP funding remaining, which could be made available to borrowers.

The bill must still be passed by the House and signed by the President. Unless that happens, no new PPP applications will be accepted.

The text of the bill is available at:

www.congress.gov/bill/116th-congress/senate-bill/4116/text

We’ll cover any updates to this bill during Spidell’s Quarterly Tax Update webinar. Click here to register.

2020-47: Possible PPP extension coming

Senate bill S. 4116, which would extend the deadline to apply for Paycheck Protection Program loans from June 30, 2020, to August 8, 2020, was passed by the Senate on June 30. This could be good news for small businesses that missed the opportunity to apply for these loans before the June 30 application deadline.

According to news reports, there is still $130 billion of PPP funding remaining, which could be made available to borrowers.

The bill must still be passed by the House and signed by the President. Unless that happens, no new PPP applications will be accepted.

The text of the bill is available at:

www.congress.gov/bill/116th-congress/senate-bill/4116/text

We’ll cover any updates to this bill during Spidell’s Quarterly Tax Update webinar. Click here to register.

Sign up for Spidell’s Flash E-mail — Get breaking news delivered to your inbox, plus other free analysis and information for tax professionals. Join our community and stay at the top of your game. Click here to sign up.

Fraud Friday: Non-filing preparers and high-risk preparers

TIGTA has issued a report urging the IRS to address non-filing preparers and high-risk preparers with their own balance due tax liabilities and penalties. The report identified 10,495 preparers who prepared more than two million tax returns for clients in 2016, but who did not file a corresponding 2016 personal tax return. The top 100 preparers prepared approximately 1,000 to 6,000 tax returns for clients and received between $189,000 and $1 million in compensation for tax preparation. TIGTA estimated $45.6 million in potential taxes could be assessed if the IRS worked 6,903 of the cases. (www.treasury.gov/tigta/auditreports/2020reports/202030027fr.pdf)

CPAs, get four hours of fraud CPE with our 2020 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.

IRS provides RMD rollover extensions

All taxpayers who have taken a required minimum distribution (RMD) in 2020 (including those taken in January and February), from an eligible retirement account, now have the opportunity to roll those funds back into a retirement account by August 31, 2020. (IRS Notice 2020-51)

The CARES Act provides that taxpayers with an RMD requirement due in 2020 from a defined contribution plan, including a §401(k) or §403(b) plan, or an IRA, may skip those RMDs in 2020. The 2020 RMD suspension includes anyone who turned age 70½ in 2019 and would have had to take their first RMD by April 1, 2020. The 2020 RMD suspension does not apply to defined benefit plans.

However, prior to Notice 2020-51, taxpayers could roll their RMDs back into a retirement account by July 15, 2020, but only if the 60-day rollover deadline fell between April 1, 2020, and July 15, 2020.

Notice 2020-51 also clarifies that the one rollover per 12-month period limitation does not apply to 2020 RMDs that are recontributed to retirement accounts by August 31, 2020.

In addition to the items above, Notice 2020-51 provides:

  • Questions and answers to various RMD issues for 2020; and
  • A sample plan amendment that, if adopted, would provide participants a choice whether to receive waived RMDs and certain related payments.

The full text of the notice can be found at:

www.irs.gov/pub/irs-drop/n-20-51.pdf

For further discussion of this notice, sign up for Spidell’s Quarterly Tax Update webinar. Click here for details.

2020-46: IRS provides RMD rollover extensions

All taxpayers who have taken a required minimum distribution (RMD) in 2020 (including those taken in January and February), from an eligible retirement account, now have the opportunity to roll those funds back into a retirement account by August 31, 2020. (IRS Notice 2020-51)

The CARES Act provides that taxpayers with an RMD requirement due in 2020 from a defined contribution plan, including a §401(k) or §403(b) plan, or an IRA, may skip those RMDs in 2020. The 2020 RMD suspension includes anyone who turned age 70½ in 2019 and would have had to take their first RMD by April 1, 2020. The 2020 RMD suspension does not apply to defined benefit plans.

However, prior to Notice 2020-51, taxpayers could roll their RMDs back into a retirement account by July 15, 2020, but only if the 60-day rollover deadline fell between April 1, 2020, and July 15, 2020.

Notice 2020-51 also clarifies that the one rollover per 12-month period limitation does not apply to 2020 RMDs that are recontributed to retirement accounts by August 31, 2020.

In addition to the items above, Notice 2020-51 provides:

  • Questions and answers to various RMD issues for 2020; and
  • A sample plan amendment that, if adopted, would provide participants a choice whether to receive waived RMDs and certain related payments.

The full text of the notice can be found at:

www.irs.gov/pub/irs-drop/n-20-51.pdf

For further discussion of this notice, sign up for Spidell’s Quarterly Tax Update webinar. Click here for details.

Sign up for Spidell’s Flash E-mail — Get breaking news delivered to your inbox, plus other free analysis and information for tax professionals. Join our community and stay at the top of your game. Click here to sign up.

Definition of coronavirus-related retirement distributions expanded

The CARES Act provided taxpayers with the option to take penalty-free coronavirus-related withdrawals of retirement funds of up to $100,000 in the aggregate between January 1, 2020, and December 31, 2020. However, not all taxpayers qualify to take these penalty-free distributions.

To qualify for the penalty relief, taxpayers must be able to demonstrate a reason for the distribution related to the pandemic. The CARES Act provided a list of qualifying factors, and stated that other factors would be determined by the Secretary of the Treasury.

IRS Notice 2020-50 provides us with those additional factors provided by the Secretary of the Treasury.

In addition to the original factors, a qualified individual for purposes of coronavirus-related distributions is an individual who experiences adverse financial consequences as a result of:

  • The individual having a reduction in pay (or self-employment income) due to COVID-19, or having a job offer rescinded or start date for a job delayed due to COVID-19;
  • The individual’s spouse or a member of the individual’s household (as defined below) being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19, being unable to work due to lack of childcare due to COVID-19, having a reduction in pay (or self-employment income) due to COVID-19, or having a job offer rescinded or start date for a job delayed due to COVID-19; or
  • Closing or reducing hours of a business owned or operated by the individual’s spouse or a member of the individual’s household due to COVID-19.

For purposes of applying these additional factors, a member of the individual’s household is someone who shares the individual’s principal residence.

The original factors included on the list include distributions made:

  • On or after January 1, 2020, and before December 31, 2020;
  • To a person diagnosed with SARS-CoV-2 or COVID-19 by a test approved by the Centers for Disease Control and Prevention or whose spouse or dependent was so diagnosed; or
  • To a person experiencing adverse financial consequences as a result of:
    • Being quarantined, furloughed, or laid off;
    • Having work hours reduced due to the virus;
    • Being unable to work due to a lack of child care; or
    • The closing or reducing of hours of a business owned or operated by the individual due to such virus.

The administrator of an eligible retirement plan may rely on an employee’s certification that the employee satisfies the conditions listed above in determining whether any distribution is a coronavirus-related distribution.

For information on these distributions and more, sign up for Spidell’s Quarterly Tax Update webinar. Click here for details.

2020-45: Definition of coronavirus-related retirement distributions expanded

The CARES Act provided taxpayers with the option to take penalty-free coronavirus-related withdrawals of retirement funds of up to $100,000 in the aggregate between January 1, 2020, and December 31, 2020. However, not all taxpayers qualify to take these penalty-free distributions.

To qualify for the penalty relief, taxpayers must be able to demonstrate a reason for the distribution related to the pandemic. The CARES Act provided a list of qualifying factors, and stated that other factors would be determined by the Secretary of the Treasury.

IRS Notice 2020-50 provides us with those additional factors provided by the Secretary of the Treasury.

In addition to the original factors, a qualified individual for purposes of coronavirus-related distributions is an individual who experiences adverse financial consequences as a result of:

  • The individual having a reduction in pay (or self-employment income) due to COVID-19, or having a job offer rescinded or start date for a job delayed due to COVID-19;
  • The individual’s spouse or a member of the individual’s household (as defined below) being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19, being unable to work due to lack of childcare due to COVID-19, having a reduction in pay (or self-employment income) due to COVID-19, or having a job offer rescinded or start date for a job delayed due to COVID-19; or
  • Closing or reducing hours of a business owned or operated by the individual’s spouse or a member of the individual’s household due to COVID-19.

For purposes of applying these additional factors, a member of the individual’s household is someone who shares the individual’s principal residence.

The original factors included on the list include distributions made:

  • On or after January 1, 2020, and before December 31, 2020;
  • To a person diagnosed with SARS-CoV-2 or COVID-19 by a test approved by the Centers for Disease Control and Prevention or whose spouse or dependent was so diagnosed; or
  • To a person experiencing adverse financial consequences as a result of:
    • Being quarantined, furloughed, or laid off;
    • Having work hours reduced due to the virus;
    • Being unable to work due to a lack of child care; or
    • The closing or reducing of hours of a business owned or operated by the individual due to such virus.

The administrator of an eligible retirement plan may rely on an employee’s certification that the employee satisfies the conditions listed above in determining whether any distribution is a coronavirus-related distribution.

For information on these distributions and more, sign up for Spidell’s Quarterly Tax Update webinar. Click here for details.

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Fraud Friday: Tax evasion stats

Here are a few tax evasion stats: Nearly all Americans believe that cheating on taxes is morally and ethically unacceptable. The voluntary compliance rate in the U.S. is generally around 81% to 84%. This is one of the highest rates in the world. By contrast, Germany’s voluntary compliance rate is 68% and Italy’s is 62%. The typical tax evader in the U.S. is a male under the age of 50 in the highest tax bracket and with a complicated return, and the most common means of tax evasion is overstatement of charitable contributions, particularly church donations. (Source: https://en.wikipedia.org/wiki/Tax_evasion_in_the_United_States)

CPAs, get four hours of fraud CPE with our 2019 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.

New PPP loan forgiveness guidelines and applications released

A revised PPP loan forgiveness application and guidelines, and a new “EZ” loan forgiveness application, have been released to incorporate the changes made by the Paycheck Protection Program Flexibility Act and provide additional guidance.

The application and revised interim rules clarify that, for borrowers using the new 24-week loan forgiveness covered period, the maximum compensation eligible for loan forgiveness:

  • Per employee is increased to $46,154 (24 ÷ 52 × $100,000) plus covered benefits such as health care, retirement contributions, and state payroll taxes; and
  • For owners, is capped at 2.5 months of 2019 compensation, with a maximum of $20,833 (2.5 ÷ 12 × $100,000). Note: The application specifically lists self-employed individuals, general partners, and owner-employees, so it appears corporation owner-employees are included in this cap.

The new application instructions also clarify that:

  • Eligible payroll costs do not include any employer health insurance contributions made on behalf of self-employed individuals, general partners, or S corporation owner-employees;
  • Employer retirement contributions made on behalf of a self-employed individual or general partner are also excluded from payroll costs; and
  • Employer retirement contributions on behalf of owner-employees are capped at 2.5 months’ worth of the 2019 contribution amount. This limit is included on the EZ application but is not included on the full forgiveness application or in the updated interim final rule, but it is possible it will be added in the future.

The new simplified EZ application is available to be used by borrowers who:

  • Are self-employed and did not list any employees on their original loan application; or
  • Have employees, but are not subject to any loan forgiveness reduction due to salary or full-time equivalent employee reductions.

The revised interim rules and loan applications and instructions are available at:

https://home.treasury.gov/system/files/136/PPP-IFR–Revisions-to-the-Third-and-Sixth-Interim-Final-Rules.pdf
https://home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf
https://home.treasury.gov/system/files/136/PPP-Loan-Forgiveness-Application-Instructions_1_0.pdf
https://home.treasury.gov/system/files/136/PPP-Forgiveness-Application-3508EZ.pdf
https://home.treasury.gov/system/files/136/PPP-Loan-Forgiveness-Application-Form-EZ-Instructions.pdf

Sign up for Spidell’s PPP Flexibility Act: Computing Loan Forgiveness webinar and get all the latest information on these loans. Click here and register today!

2020-44: New PPP loan forgiveness guidelines and applications released

A revised PPP loan forgiveness application and guidelines, and a new “EZ” loan forgiveness application, have been released to incorporate the changes made by the Paycheck Protection Program Flexibility Act and provide additional guidance.

The application and revised interim rules clarify that, for borrowers using the new 24-week loan forgiveness covered period, the maximum compensation eligible for loan forgiveness:

  • Per employee is increased to $46,154 (24 ÷ 52 × $100,000) plus covered benefits such as health care, retirement contributions, and state payroll taxes; and
  • For owners, is capped at 2.5 months of 2019 compensation, with a maximum of $20,833 (2.5 ÷ 12 × $100,000). Note: The application specifically lists self-employed individuals, general partners, and owner-employees, so it appears corporation owner-employees are included in this cap.

The new application instructions also clarify that:

  • Eligible payroll costs do not include any employer health insurance contributions made on behalf of self-employed individuals, general partners, or S corporation owner-employees;
  • Employer retirement contributions made on behalf of a self-employed individual or general partner are also excluded from payroll costs; and
  • Employer retirement contributions on behalf of owner-employees are capped at 2.5 months’ worth of the 2019 contribution amount. This limit is included on the EZ application but is not included on the full forgiveness application or in the updated interim final rule, but it is possible it will be added in the future.

The new simplified EZ application is available to be used by borrowers who:

  • Are self-employed and did not list any employees on their original loan application; or
  • Have employees, but are not subject to any loan forgiveness reduction due to salary or full-time equivalent employee reductions.

The revised interim rules and loan applications and instructions are available at:

https://home.treasury.gov/system/files/136/PPP-IFR–Revisions-to-the-Third-and-Sixth-Interim-Final-Rules.pdf
https://home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf
https://home.treasury.gov/system/files/136/PPP-Loan-Forgiveness-Application-Instructions_1_0.pdf
https://home.treasury.gov/system/files/136/PPP-Forgiveness-Application-3508EZ.pdf
https://home.treasury.gov/system/files/136/PPP-Loan-Forgiveness-Application-Form-EZ-Instructions.pdf

Sign up for Spidell’s PPP Flexibility Act: Computing Loan Forgiveness webinar and get all the latest information on these loans. Click here and register today!

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Major tax changes included in California budget deal

As part of the California budget deal, the Legislature has sent AB 85 to the Governor (and he is expected to sign). The bill includes the following major tax changes:

  • Suspending net operating losses for the 2020–2022 tax years for businesses with business income, or modified AGI, of $1 million or more;
  • Limiting business credits to $5 million during the 2020–2022 taxable years; and
  • Enacting a new first-year exemption from the $800 annual tax for limited partnerships, limited liability partnerships, and limited liability companies that organize or register with the Secretary of State’s office during 2021 through 2023.

Notably absent from the bill are any conformity provisions to the CARES Act or Families First Coronavirus Response Act.

We will provide additional information on these provisions in the next issue of Spidell’s California Taxletter

The text of the bill can be found at:

https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB85

Subscribe to Spidell’s California Taxletter and get additional details on these California budget provisions. Click here for more information.

2020-43: Major tax changes included in California budget deal

As part of the California budget deal, the Legislature has sent AB 85 to the Governor (and he is expected to sign). The bill includes the following major tax changes:

  • Suspending net operating losses for the 2020–2022 tax years for businesses with business income, or modified AGI, of $1 million or more;
  • Limiting business credits to $5 million during the 2020–2022 taxable years; and
  • Enacting a new first-year exemption from the $800 annual tax for limited partnerships, limited liability partnerships, and limited liability companies that organize or register with the Secretary of State’s office during 2021 through 2023.

Notably absent from the bill are any conformity provisions to the CARES Act or Families First Coronavirus Response Act.

We will provide additional information on these provisions in the next issue of Spidell’s California Taxletter

The text of the bill can be found at:

https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200AB85

Subscribe to Spidell’s California Taxletter and get additional details on these California budget provisions. Click here for more information.

Sign up for Spidell’s Flash E-mail
— 
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Fraud Friday: Blast from the past

Blast from the past: A veteran agent with the CA Bureau of Narcotic organized the biggest drug theft from a CA police agency, conspiring with two others to swipe 650 pounds of cocaine from the agency’s Riverside office over the 1997 Fourth of July weekend. The steal had an estimated street value of $3 million. The agent was caught a year later in an unrelated drug bust involving his girlfriend, who immediately turned him in. The first jury deadlocked on the drug charges but convicted him of filing a false tax return; a second trial resulted in a life sentence with no parole. (https://www.latimes.com/archives/la-xpm-2000-jan-20-me-55840-story.html)

CPAs, get four hours of fraud CPE with our 2019 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.

Treasury says no 60% cliff for PPP loan forgiveness

In a press release issued yesterday, the Treasury Department and Small Business Administration announced they will “promptly” be issuing new PPP rules and guidance, a modified borrower application form, and a modified loan forgiveness application to implement the new Paycheck Protection Program Flexibility Act. (H.R. 7010, P.L. 116-142) As part of this new guidance, the Treasury Department has stated that the 60% payroll cost threshold will not be a “cliff” test, but rather a cap. Specifically, the release stated that the modifications made by the PPPFA:

“Lower the requirements that 75 percent of a borrower’s loan proceeds must be used for payroll costs and that 75 percent of the loan forgiveness amount must have been spent on payroll costs during the 24-week loan forgiveness covered period to 60 percent for each of these requirements. If a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.”

The text of the press release is available at:

https://home.treasury.gov/news/press-releases/sm1026

Sign up for Spidell’s PPP Flexibility Act: Computing Loan Forgiveness webinar and get all the latest information on these loans. Click here and register today!

2020-42: Treasury says no 60% cliff for PPP loan forgiveness

In a press release issued yesterday, the Treasury Department and Small Business Administration announced they will “promptly” be issuing new PPP rules and guidance, a modified borrower application form, and a modified loan forgiveness application to implement the new Paycheck Protection Program Flexibility Act. (H.R. 7010, P.L. 116-142) As part of this new guidance, the Treasury Department has stated that the 60% payroll cost threshold will not be a “cliff” test, but rather a cap. Specifically, the release stated that the modifications made by the PPPFA:

“Lower the requirements that 75 percent of a borrower’s loan proceeds must be used for payroll costs and that 75 percent of the loan forgiveness amount must have been spent on payroll costs during the 24-week loan forgiveness covered period to 60 percent for each of these requirements. If a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.”

The text of the press release is available at:

https://home.treasury.gov/news/press-releases/sm1026

Sign up for Spidell’s PPP Flexibility Act: Computing Loan Forgiveness webinar and get all the latest information on these loans. Click here and register today!

Sign up for Spidell’s Flash E-mail — Get breaking news delivered to your inbox, plus other free analysis and information for tax professionals. Join our community and stay at the top of your game. Click here to sign up.

Fraud Friday: The taxpayer tried to throw his bookkeeper under the bus

A taxpayer who owned and operated various mobile clinics was found to be the responsible person for collected but unpaid California sales and use taxes. The taxpayer, who was an engineer, claimed that he had no background in accounting and shouldn’t have been expected to know that he had to actually pay over the tax charged to and paid by his customers. At his appeal, the taxpayer tried to throw his bookkeeper under the bus, accusing her of embezzling the funds and changing the books to reflect nontaxable sales, but he produced no evidence of the embezzlement and she had started working for him after the years at issue. (Appeal of Mello, 2020-OTA-070)

PPP loan forgiveness expansion bill sent to President

The Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010) was passed by the House and Senate and is now on its way to the President. The President has indicated that he will sign the bill.

Key provisions of the bill include:

  • Extending the loan forgiveness covered period from eight weeks to 24 weeks from the loan origination date, as long as the covered period does not extend beyond December 31, 2020. This means that borrowers will now be able to have all PPP loan amounts paid during this extended covered period forgiven as long as the amounts are expended for qualified purposes (payroll, rent/mortgage interest, and utilities). Borrowers who received the loan prior to the bill’s date of enactment may still elect to use either the original eight-week loan forgiveness period or the new 24-week period;
  • Only allowing loan forgiveness if at least 60% of the total loan proceeds are used for payroll costs. Currently, forgiveness is limited so that at least 75% of the forgiveness amount is for payroll costs;
  • Eliminating the full-time employee equivalent employee reduction provision if the business can document that the reduction was due to the business’s inability to:
    • Rehire individuals who were employees on February 15, 2020, and hire similarly qualified employees for unfilled positions by December 31, 2020; or
    • Return to the same level of business activity as the business was operating at before February 15, 2020, due to compliance with sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19 imposed by specified federal agencies during the period beginning on March 1, 2020, and ending December 31, 2020;
  • Allowing for a five-year rather than a two-year maturity date for:
    • All loans made on or after the bill’s date of enactment; and
    • Loans made earlier than that date, if both the lender and borrower mutually agree;
  • Deferring payments of principal, interest, and fees on any PPP loan until the SBA remits the borrower’s loan forgiveness amount to the bank (previously, this period was six months to one year from the loan origination date); and
  • Allowing taxpayers to qualify for payroll tax deferral even if they’ve received PPP loan forgiveness.

We will be covering this bill in more detail at our upcoming PPP Flexibility Act: Computing Loan Forgiveness webinar.

The text of H.R. 7010 is available at:

www.congress.gov/bill/116th-congress/house-bill/7010/text

Sign up for Spidell’s PPP Flexibility Act: Computing Loan Forgiveness webinar to get more information on this bill, and learn how our spreadsheet can help you help your clients. Click here and register today!

2020-41: PPP loan forgiveness expansion bill sent to President

The Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010) was passed by the House and Senate and is now on its way to the President. The President has indicated that he will sign the bill.

Key provisions of the bill include:

  • Extending the loan forgiveness covered period from eight weeks to 24 weeks from the loan origination date, as long as the covered period does not extend beyond December 31, 2020. This means that borrowers will now be able to have all PPP loan amounts paid during this extended covered period forgiven as long as the amounts are expended for qualified purposes (payroll, rent/mortgage interest, and utilities). Borrowers who received the loan prior to the bill’s date of enactment may still elect to use either the original eight-week loan forgiveness period or the new 24-week period;
  • Only allowing loan forgiveness if at least 60% of the total loan proceeds are used for payroll costs. Currently, forgiveness is limited so that at least 75% of the forgiveness amount is for payroll costs;
  • Eliminating the full-time employee equivalent employee reduction provision if the business can document that the reduction was due to the business’s inability to:
    • Rehire individuals who were employees on February 15, 2020, and hire similarly qualified employees for unfilled positions by December 31, 2020; or
    • Return to the same level of business activity as the business was operating at before February 15, 2020, due to compliance with sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19 imposed by specified federal agencies during the period beginning on March 1, 2020, and ending December 31, 2020;
  • Allowing for a five-year rather than a two-year maturity date for:
    • All loans made on or after the bill’s date of enactment; and
    • Loans made earlier than that date, if both the lender and borrower mutually agree;
  • Deferring payments of principal, interest, and fees on any PPP loan until the SBA remits the borrower’s loan forgiveness amount to the bank (previously, this period was six months to one year from the loan origination date); and
  • Allowing taxpayers to qualify for payroll tax deferral even if they’ve received PPP loan forgiveness.

We will be covering this bill in more detail at our upcoming PPP Flexibility Act: Computing Loan Forgiveness webinar.

The text of H.R. 7010 is available at:

www.congress.gov/bill/116th-congress/house-bill/7010/text

Sign up for Spidell’s PPP Flexibility Act: Computing Loan Forgiveness webinar to get more information on this bill, and learn how our spreadsheet can help you help your clients. Click here and register today!

Sign up for Spidell’s Flash E-mail — Get breaking news delivered to your inbox, plus other free analysis and information for tax professionals. Join our community and stay at the top of your game. Click here to sign up.

Fraud Friday: An unscrupulous ghost preparer

Another ramification of using an unscrupulous ghost preparer: pilfered economic impact payments. A typical tax prep scam involves the preparer diverting a client’s refund to their own account and sending the client a separate, smaller refund amount. When these preparers put their own bank information on their clients’ return, guess which bank account the EIP is deposited into? Bingo. The preparer’s, whose bank info is on file.

CPAs, get four hours of fraud CPE with our 2019 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.

Fraud Friday: Over 2,200 returns

A Sioux Falls tax preparer skimmed his way into 9 years in prison after preparing over 2,200 returns that reported fictitious itemized deductions, including household and personal expenses, and Schedule C deductions for clients who did not own a business. The clients were mostly non-English speaking and the tax preparer provided their completed returns in a sealed envelope with the refund amount written on a Post-It note. At trial, the tax pro argued that just because the IRS knows that household and personal expenses aren’t deductible doesn’t mean the average sole practitioner would know that, and that he was just confused and uninformed when he prepared the returns. (U.S. v. Eviglo (May 5, 220) U.S. Court of Appeals, Eighth Circuit, Case No. 19-1123)

CPAs, get four hours of fraud CPE with our 2019 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.

More PPP changes coming

The House is expected to vote next week on the Paycheck Protection Flexibility Act, a bipartisan bill. The bill would make the following changes to Paycheck Protection Program loans:

  • Allow forgiveness for expenses beyond the eight-week covered period. This would help businesses that are prohibited from opening their doors, or those that will only be allowed to open with restrictions;
  • Eliminate restrictions limiting non-payroll expenses to 25% of loan proceeds;
  • Eliminate restrictions that limit loan terms to two years;
  • Allow businesses that take PPP loans to also take payroll tax deferrals; and
  • Extend the June 30 rehiring deadline, to offset the effect of enhanced Unemployment Insurance.

Sign up for Spidell’s Post-Tax Season Update and Review webinar and learn about new planning opportunities resulting from the Families First Act, the CARES Act, the SECURE Act, and more. Click here to see available dates and register today!

2020-40: More PPP changes coming

The House is expected to vote next week on the Paycheck Protection Flexibility Act, a bipartisan bill. The bill would make the following changes to Paycheck Protection Program loans:

  • Allow forgiveness for expenses beyond the eight-week covered period. This would help businesses that are prohibited from opening their doors, or those that will only be allowed to open with restrictions;
  • Eliminate restrictions limiting non-payroll expenses to 25% of loan proceeds;
  • Eliminate restrictions that limit loan terms to two years;
  • Allow businesses that take PPP loans to also take payroll tax deferrals; and
  • Extend the June 30 rehiring deadline, to offset the effect of enhanced Unemployment Insurance.

Sign up for Spidell’s Post-Tax Season Update and Review webinar and learn about new planning opportunities resulting from the Families First Act, the CARES Act, the SECURE Act, and more. Click here to see available dates and register today!

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PPP loan forgiveness guidance released

The SBA has released the long-awaited loan forgiveness guidance and a Loan Forgiveness Application that Paycheck Protection Program borrowers will submit to their lenders.

Here is what we learned:

  • The SBA is using a 40-hour full-time equivalency standard rather than the 30-hour FTE standard applied to most SBA loans. However, borrowers may use a simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours (even if the employees worked less than 20 hours per week);
  • Payroll costs “paid and incurred” over the eight-week period have been a concern. The application clarifies that payroll costs incurred but not paid during the borrower’s last pay period of the eight-week forgiveness period are eligible for forgiveness if paid on or before the next regular payroll date. To make things a little less complicated, borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day for their first pay period following their loan disbursement date; and
  • Business rent or lease payments on leases of personal property that were in force before February 15, 2020, will qualify for forgiveness.

Here is what we still don’t know:

  • For retirement and health care plan contributions, the instructions do not limit the amount that may be claimed to a pro-rated amount for the eight-week period. Does this mean a borrower could contribute an annual amount during the eight-week period and qualify for forgiveness? We don’t think this is the case but we hope additional guidance will be issued to provide further clarification;
  • The application does not provide any additional guidance on self-rentals; and
  • The application also does not address the forgiveness of home office expenses for self-employed individuals, or any other issues for self-employed borrowers. We are hoping for additional guidance on forgiveness for these borrowers soon.

To view the full application and instructions, go to:

www.sba.gov/document/sba-form–paycheck-protection-program-loan-forgiveness-application

Sign up for Spidell’s Post-Tax Season Update and Review webinar and learn about new planning opportunities resulting from the Families First Act, the CARES Act, the SECURE Act, and more. Click here to see available dates and register today!

2020-39: PPP loan forgiveness guidance released

The SBA has released the long-awaited loan forgiveness guidance and a Loan Forgiveness Application that Paycheck Protection Program borrowers will submit to their lenders.

Here is what we learned:

  • The SBA is using a 40-hour full-time equivalency standard rather than the 30-hour FTE standard applied to most SBA loans. However, borrowers may use a simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours (even if the employees worked less than 20 hours per week);
  • Payroll costs “paid and incurred” over the eight-week period have been a concern. The application clarifies that payroll costs incurred but not paid during the borrower’s last pay period of the eight-week forgiveness period are eligible for forgiveness if paid on or before the next regular payroll date. To make things a little less complicated, borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day for their first pay period following their loan disbursement date; and
  • Business rent or lease payments on leases of personal property that were in force before February 15, 2020, will qualify for forgiveness.

Here is what we still don’t know:

  • For retirement and health care plan contributions, the instructions do not limit the amount that may be claimed to a pro-rated amount for the eight-week period. Does this mean a borrower could contribute an annual amount during the eight-week period and qualify for forgiveness? We don’t think this is the case but we hope additional guidance will be issued to provide further clarification;
  • The application does not provide any additional guidance on self-rentals; and
  • The application also does not address the forgiveness of home office expenses for self-employed individuals, or any other issues for self-employed borrowers. We are hoping for additional guidance on forgiveness for these borrowers soon.

To view the full application and instructions, go to:

www.sba.gov/document/sba-form–paycheck-protection-program-loan-forgiveness-application

Sign up for Spidell’s Post-Tax Season Update and Review webinar and learn about new planning opportunities resulting from the Families First Act, the CARES Act, the SECURE Act, and more. Click here to see available dates and register today!

Sign up for Spidell’s Flash E-mail — Get breaking news delivered to your inbox, plus other free analysis and information for tax professionals. Join our community and stay at the top of your game. Click here to sign up.

Good news for PPP loan recipients

The Treasury Department has announced the following news regarding the Paycheck Protection Program (PPP):

  • A new “current economic uncertainty” safe harbor applies for PPP loans of less than $2 million. These loan recipients will automatically be deemed to have made the required certification concerning the necessity of the loan request in good faith (FAQ #46);
  • For loans of $2 million or more, the deadline to return PPP loans to avoid an audit concerning the good faith certification has been extended from May 14, 2020, to May 18, 2020. If a borrower returns the funds by May 18, the Treasury will not pursue administrative enforcement or make referrals to other agencies (FAQ #47);
  • The Treasury also won’t pursue administrative enforcement or make referrals to other agencies against a borrower with a loan of $2 million or more who didn’t repay the loan by May 18, if the borrower returns the loan after notification by the SBA that it found on audit that the borrower lacked an adequate basis for required certification concerning the necessity of the loan request (FAQ #47);
  • All borrowers who return PPP funds by May 18, 2020, are eligible to claim an Employee Retention Credit (FAQ #45);
  • Partnerships and seasonal employers may be eligible for increased loan amounts resulting from changes in the rules as to how their loans were originally calculated. Lenders may automatically request the SBA increase the loan amount for:
    • Partnerships that received a loan based on payroll costs that did not include compensation paid to partners in their payroll costs. An interim final rule issued on April 14, 2020, now allows self-employment income of general active partners as allowed under the interim final rule posted on April 14, 2020; and
    • Seasonal employers who received a loan based on payroll costs for one of the lookback periods specified in the CARES Act (the 12-week period beginning February 15, 2019, or March 1, 2019, to June 30, 2019) rather than the alternative lookback period adopted by the Treasury Department. Under the alternative rule, seasonal employers may use any consecutive 12-week period between May 1, 2019, and September 15, 2019.

No increased loan amount is available if the lender has already listed the loan on Form SBA 1502 filed with the SBA.

Partnerships and seasonal employers who might be eligible for these increased loan amounts should contact their lenders immediately to ensure they are applying for these increased loan amounts.

The Treasury Department FAQs are available at:

https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf

The interim final rule allowing for increased loans for partnerships and seasonal employers is available at:

https://home.treasury.gov/system/files/136/Interim-Final-Rule-on-Loan-Increases.pdf

Sign up for Spidell’s Post-Tax Season Update and Review webinar and learn about new planning opportunities resulting from the Families First Act, the CARES Act, the SECURE Act, and more. Click here to see available dates and register today!

2020-38: Good news for PPP loan recipients

The Treasury Department has announced the following news regarding the Paycheck Protection Program (PPP):

  • A new “current economic uncertainty” safe harbor applies for PPP loans of less than $2 million. These loan recipients will automatically be deemed to have made the required certification concerning the necessity of the loan request in good faith (FAQ #46);
  • For loans of $2 million or more, the deadline to return PPP loans to avoid an audit concerning the good faith certification has been extended from May 14, 2020, to May 18, 2020. If a borrower returns the funds by May 18, the Treasury will not pursue administrative enforcement or make referrals to other agencies (FAQ #47);
  • The Treasury also won’t pursue administrative enforcement or make referrals to other agencies against a borrower with a loan of $2 million or more who didn’t repay the loan by May 18, if the borrower returns the loan after notification by the SBA that it found on audit that the borrower lacked an adequate basis for required certification concerning the necessity of the loan request (FAQ #47);
  • All borrowers who return PPP funds by May 18, 2020, are eligible to claim an Employee Retention Credit (FAQ #45);
  • Partnerships and seasonal employers may be eligible for increased loan amounts resulting from changes in the rules as to how their loans were originally calculated. Lenders may automatically request the SBA increase the loan amount for:
    • Partnerships that received a loan based on payroll costs that did not include compensation paid to partners in their payroll costs. An interim final rule issued on April 14, 2020, now allows self-employment income of general active partners as allowed under the interim final rule posted on April 14, 2020; and
    • Seasonal employers who received a loan based on payroll costs for one of the lookback periods specified in the CARES Act (the 12-week period beginning February 15, 2019, or March 1, 2019, to June 30, 2019) rather than the alternative lookback period adopted by the Treasury Department. Under the alternative rule, seasonal employers may use any consecutive 12-week period between May 1, 2019, and September 15, 2019.

No increased loan amount is available if the lender has already listed the loan on Form SBA 1502 filed with the SBA.

Partnerships and seasonal employers who might be eligible for these increased loan amounts should contact their lenders immediately to ensure they are applying for these increased loan amounts.

The Treasury Department FAQs are available at:

https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf

The interim final rule allowing for increased loans for partnerships and seasonal employers is available at:

https://home.treasury.gov/system/files/136/Interim-Final-Rule-on-Loan-Increases.pdf

Sign up for Spidell’s Post-Tax Season Update and Review webinar and learn about new planning opportunities resulting from the Families First Act, the CARES Act, the SECURE Act, and more. Click here to see available dates and register today!

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Fraud Friday: Largest tax evasion case in U.S. history

Al Capone may be the most famous tax evader, but American telephone entrepreneur Walter Anderson was convicted in the largest tax evasion case in U.S. history. Anderson admitted to using aliases, shell companies, offshore tax havens, and secret accounts to hide $365 million of income. In 1998, Anderson admitted earning more than $126 million, but he had claimed $67,939 on his federal income tax return, and paid only $495 in taxes. But because of a typo in the plea agreement, Anderson was relieved of paying $175 million of his restitution. Anderson still had to pay $23 million in restitution to the District of Columbia.

CPAs, get four hours of fraud CPE with our 2019 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.

AB 1140, CTEC disclosure requirements, dead for now

Assemblymember Stone, author of AB 1140, has shelved the bill and will no longer be moving this legislation along. However, it’s not out of the realm of possibility that we will see this bill again in the future.

AB 1140 would have required CTEC-registered tax preparers (but not CPAs, lawyers, or enrolled agents) to:

  • Disclose their “usual and customary” tax preparation fees up front to clients;
  • Refer taxpayers who may be eligible for the Earned Income Tax Credit (EITC) to free tax preparation services; and
  • Provide written disclosure of the tax preparation fees actually charged.

A penalty equal to $750 would have been imposed against repeat violators.

Keep up to date with California’s changing laws and requirements each month with Spidell’s California Taxletter. For more information and to subscribe today, click here.

2020-37: AB 1140, CTEC disclosure requirements, dead for now

Assemblymember Stone, author of AB 1140, has shelved the bill and will no longer be moving this legislation along. However, it’s not out of the realm of possibility that we will see this bill again in the future.

AB 1140 would have required CTEC-registered tax preparers (but not CPAs, lawyers, or enrolled agents) to:

  • Disclose their “usual and customary” tax preparation fees up front to clients;
  • Refer taxpayers who may be eligible for the Earned Income Tax Credit (EITC) to free tax preparation services; and
  • Provide written disclosure of the tax preparation fees actually charged.

A penalty equal to $750 would have been imposed against repeat violators.

Keep up to date with California’s changing laws and requirements each month with Spidell’s California Taxletter. For more information and to subscribe today, click here.

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Property tax filing and payment relief available

The Governor signed an executive order on May 6, 2020, that:

  • Extends the May 7, 2020, deadline for deadline for filing business personal property tax statements (Form 571-L) until May 31, 2020; and
  • Provides relief for some taxpayers who were unable to make their April 10, 2020, property tax payments, by suspending penalties, costs, and interest for those late payments until May 6, 2021.

Relief for the late April property tax payments is only available to taxpayers who demonstrate they have experienced financial hardship due to the pandemic, for taxes paid on:

  • Residential real property occupied by the taxpayer; and
  • Real property owned and operated by a small business (defined under the Small Business Administration regulation 13 C.F.R. 121.201).

The taxpayer must file a claim for relief (check with the local tax collector’s office for details).

Note: Relief is not available if the payments are made through an impound account.

The executive order can be viewed at:

www.gov.ca.gov/wp-content/uploads/2020/05/5.6.20-EO-N-61-20-text.pdf

Sign up for Spidell’s Post-Tax Season Update and Review webinar and learn about new planning opportunities resulting from the Families First Act, the CARES Act, the SECURE Act, and more. Our first session has sold out, but click here to see other available dates and register today!

2020-36: Property tax filing and payment relief available

The Governor signed an executive order on May 6, 2020, that:

  • Extends the May 7, 2020, deadline for deadline for filing business personal property tax statements (Form 571-L) until May 31, 2020; and
  • Provides relief for some taxpayers who were unable to make their April 10, 2020, property tax payments, by suspending penalties, costs, and interest for those late payments until May 6, 2021.

Relief for the late April property tax payments is only available to taxpayers who demonstrate they have experienced financial hardship due to the pandemic, for taxes paid on:

  • Residential real property occupied by the taxpayer; and
  • Real property owned and operated by a small business (defined under the Small Business Administration regulation 13 C.F.R. 121.201).

The taxpayer must file a claim for relief (check with the local tax collector’s office for details).

Note: Relief is not available if the payments are made through an impound account.

The executive order can be viewed at:

www.gov.ca.gov/wp-content/uploads/2020/05/5.6.20-EO-N-61-20-text.pdf

Sign up for Spidell’s Post-Tax Season Update and Review webinar and learn about new planning opportunities resulting from the Families First Act, the CARES Act, the SECURE Act, and more. Our first session has sold out, but click here to see other available dates and register today!

Sign up for Spidell’s Flash E-mail — Get breaking news delivered to your inbox, plus other free analysis and information for tax professionals. Join our community and stay at the top of your game. Click here to sign up.

Case Study #9: Grad student

LuAnn is single and was a fulltime grad student in 2018 and 2019; she doesn’t have any dependents and had no earned income, and as such, she did not file a return for either 2018 or 2019.

If LuAnn doesn’t file those returns, she will not receive an economic impact payment. But if she files a 2020 return in 2021, she’ll get a credit against her 2020 tax liability. Or, if she files a 2019 return with zero tax liability, she should receive the payment in 2019.

Unanswered question: Again, we don’t know how long the IRS will make payments to taxpayers who file 2019 returns. However, we believe they will make payments up until December 31, 2020.

Practice Pointer

The IRS has provided information to tax software providers as to how to process and e-file these zero returns. So keep your software updated. Or, taxpayers can go online to enter payment info at:

www.freefilefillableforms.com/#/fd/EconomicImpactPayment

Subscribers to Spidell’s Federal Taxletter or Spidell’s Online Research Package can read the full article here >> https://bit.ly/ORP-Economic-Impact

Fraud Friday: First fraud case involving PPP loans

Two men have been charged in the first fraud case involving Paycheck Protection Program loans. Together, the men created fictitious employees for several businesses that were not in operation prior to the start of the COVID-19 pandemic and used this information to obtain loans totaling almost $550,000. One of the businesses had never existed at all and one was a separate business operation unrelated to either of the men. Both are charged with conspiracy to make false statements and conspiracy to commit bank fraud. One of the men posed as his brother in real estate transactions and is also charged with aggravated identity theft. (USA Today: https://bit.ly/2SCYQN0)

CPAs, get four hours of fraud CPE with our 2019 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.

PPP loan forgiveness available if employee refuses to come back

The Treasury Department has announced that PPP loan forgiveness will not be reduced for laid-off employee(s) who refuse to come back to work. This is great news for employers, as we’ve heard many stories of employees refusing to come back to work because they are making more money on unemployment than they were while working.

In a frequently asked question posted on its website, the Treasury Department has stated that employers will not have to include these employees in their salary/hour loan forgiveness reduction calculation. Generally, an employer must reduce the amount of their expenses eligible for loan forgiveness to account for reduced hours or salaries paid to their employees.

To qualify for this relief, the employer must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the employer. Employees and employers should also be aware that employees who reject offers of re-employment may forfeit their eligibility for continued unemployment compensation.

FAQ #40 is available at:

https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf

Sign up for Spidell’s Post-Tax Season Update and Review webinar and learn about new planning opportunities resulting from the Families First Act, the CARES Act, the SECURE Act, and more. Click here to see available dates and register today!

2020-35: PPP loan forgiveness available if employee refuses to come back

The Treasury Department has announced that PPP loan forgiveness will not be reduced for laid-off employee(s) who refuse to come back to work. This is great news for employers, as we’ve heard many stories of employees refusing to come back to work because they are making more money on unemployment than they were while working.

In a frequently asked question posted on its website, the Treasury Department has stated that employers will not have to include these employees in their salary/hour loan forgiveness reduction calculation. Generally, an employer must reduce the amount of their expenses eligible for loan forgiveness to account for reduced hours or salaries paid to their employees.

To qualify for this relief, the employer must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the employer. Employees and employers should also be aware that employees who reject offers of re-employment may forfeit their eligibility for continued unemployment compensation.

FAQ #40 is available at:

https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf

Sign up for Spidell’s Post-Tax Season Update and Review webinar and learn about new planning opportunities resulting from the Families First Act, the CARES Act, the SECURE Act, and more. Click here to see available dates and register today!

Sign up for Spidell’s Flash E-mail — Get breaking news delivered to your inbox, plus other free analysis and information for tax professionals. Join our community and stay at the top of your game. Click here to sign up.

Case Study #8: Living and working abroad

Cher is a U.S. citizen living and working in Europe. She files her 2019 return and excludes her foreign-source income, and her AGI is below the threshold for a single taxpayer.

Even though she’s not living in the U.S., she still meets the criteria for eligibility and she will receive $1,200. There is no earned income threshold.

Subscribers to Spidell’s Federal Taxletter or Spidell’s Online Research Package can read the full article here >> https://bit.ly/ORP-Economic-Impact

File a superseding tax return to get a refund

The IRS Taxpayer Advocate has suggested that a taxpayer who previously filed a 2019 return can file a superseded 2019 return on or before July 15, 2020 (October 15, 2020, if an extension was filed), and change the request to apply an overpayment to the 2020 year to request a refund instead.

As the Advocate explains in the April 29, 2020, blog post, taxpayers who have filed 2019 tax returns and have elected to apply the 2019 overpayments against their 2020 tax liabilities have made an irrevocable election, which cannot be changed — that is, unless the taxpayer files a superseded return prior to the original due date of the return. Once the original due date passes — in this case, July 15 (or October 15 if on extension) — the election can’t be revoked.

For business entities, the superseded return may be e-filed by checking the superseding return box on the electronic submission.

For individuals, the process takes longer. Superseding individual returns (Forms 1040) must be filed on paper and mailed to an IRS processing center where they are subject to processing delays and a greater risk of transcription errors. Because the IRS processing centers were closed to protect the health of employees, documents sent to the IRS through the mail were not being opened.

As the processing centers re-open, the IRS anticipates delays in processing the backlog of paper returns and correspondence. Even so, filing a superseding return to request the overpayment be refunded now will generate the refund payment in 2020 rather than 2021.

Providing bank or financial institution account information will further speed up the payment by four to six weeks. Paper returns will be processed in the order received, so file the superseded return as soon as possible.

To see the Advocate’s post, go to:

https://taxpayeradvocate.irs.gov/news/NTA_Blog_The_Value_of_a_Superseding_Tax_Return?category=Tax News

Comment: Using the superseded return method can also allow a partnership to change the partnership return, even if the partnership is subject to CPAR rules. We will discuss this at Spidell’s Post-Tax Season Update and Review webinar.

Sign up for Spidell’s Post-Tax Season Update and Review webinar and learn about new planning opportunities resulting from the Families First Act, the CARES Act, the SECURE Act, and more. Click here to see available dates and register today!

2020-34: File a superseding tax return to get a refund

The IRS Taxpayer Advocate has suggested that a taxpayer who previously filed a 2019 return can file a superseded 2019 return on or before July 15, 2020 (October 15, 2020, if an extension was filed), and change the request to apply an overpayment to the 2020 year to request a refund instead.

As the Advocate explains in the April 29, 2020, blog post, taxpayers who have filed 2019 tax returns and have elected to apply the 2019 overpayments against their 2020 tax liabilities have made an irrevocable election, which cannot be changed — that is, unless the taxpayer files a superseded return prior to the original due date of the return. Once the original due date passes — in this case, July 15 (or October 15 if on extension) — the election can’t be revoked.

For business entities, the superseded return may be e-filed by checking the superseding return box on the electronic submission.

For individuals, the process takes longer. Superseding individual returns (Forms 1040) must be filed on paper and mailed to an IRS processing center where they are subject to processing delays and a greater risk of transcription errors. Because the IRS processing centers were closed to protect the health of employees, documents sent to the IRS through the mail were not being opened.

As the processing centers re-open, the IRS anticipates delays in processing the backlog of paper returns and correspondence. Even so, filing a superseding return to request the overpayment be refunded now will generate the refund payment in 2020 rather than 2021.

Providing bank or financial institution account information will further speed up the payment by four to six weeks. Paper returns will be processed in the order received, so file the superseded return as soon as possible.

To see the Advocate’s post, go to:

https://taxpayeradvocate.irs.gov/news/NTA_Blog_The_Value_of_a_Superseding_Tax_Return?category=Tax News

Comment: Using the superseded return method can also allow a partnership to change the partnership return, even if the partnership is subject to CPAR rules. We will discuss this at Spidell’s Post-Tax Season Update and Review webinar.

Sign up for Spidell’s Post-Tax Season Update and Review webinar and learn about new planning opportunities resulting from the Families First Act, the CARES Act, the SECURE Act, and more. Click here to see available dates and register today!

Sign up for Spidell’s Flash E-mail — Get breaking news delivered to your inbox, plus other free analysis and information for tax professionals. Join our community and stay at the top of your game. Click here to sign up.

Case Study #7: Divorced with child

Jett and Cole are divorced, and each year they alternate who claims their five-year-old son Ed on their returns. In 2018, Jett claimed Ed as a dependent.

Assuming both of their incomes are below the threshold amount, if Jett doesn’t file a 2019 return before the economic impact payment is issued, he’ll receive $1,700 based on his 2018 filing, which is the $1,200 plus the $500 for Ed. If Cole files her 2019 return, she’ll also receive $1,700.

Unanswered question: We don’t know if the IRS will deny the dependent credit to Cole if Jett received the refund for that dependent already.

Subscribers to Spidell’s Federal Taxletter or Spidell’s Online Research Package can read the full article here >> https://bit.ly/ORP-Economic-Impact

Fraud Friday: A minister involved in a check-cashing scheme

A North Carolina minister of a faith and finances ministry was sentenced to five years in prison for failing to pay taxes and filing false tax returns. He was also involved in a check-cashing scheme. He claimed business expenses of $227,700 for clothing purchases, and $140,000 for meals and entertainment expenses at various restaurants and movie theaters. He purchased three BMWs, two Ferraris, a Maserati, a Land Rover, and a Regal 2500 boat under the names of the companies he owned. In 2012, his ministry purchased a $1.5 million condominium to be used as a parsonage. (U.S. v. Coontz (April 17, 2020) U.S. Court of Appeals, Fourth Circuit, Case No. 19-4167)

CPAs, get four hours of fraud CPE with our 2019 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.

Case Study #6: Married filing separately

Alexei and Marla are married, but they file separately. Alexei’s AGI is $60,000 and Marla’s AGI is $85,000. Using the threshold for single taxpayers, Alexei will get an economic impact payment of $1,200. Marla will receive $700 ($1,200 − ($85,000 − $75,000) × 0.05).

Practice Pointer

If they could agree and file a joint return, they could get a $2,400 payment. Maybe they could split the difference.

Subscribers to Spidell’s Federal Taxletter or Spidell’s Online Research Package can read the full article here >> https://bit.ly/ORP-Economic-Impact

Case Study #5: New child

Tran and Nancy filed jointly in 2018 when they had AGI of $150,000. In 2019, their AGI increases to $175,000, and they also had a baby.

Their economic impact payment will be based on the 2018 return, and they would qualify for $2,400 if they do not file their 2019 return before the economic impact payment is disbursed.

If they do file the 2019 return, they should get an economic impact payment of $1,150 ($2,400 − ($175,000 − $150,000) × 0.05). If the IRS doesn’t process the 2019 return prior to sending the payment, they’ll be eligible for the $500 dependent payment when they file their 2020 return if their AGI is below the threshold.

However, in 2020, due to a large capital gain in January, their AGI is $250,000. They are not entitled to any economic impact payment, so there would be no adjustment, and as the law is currently written they will not be required to pay back the excess payment.

Unanswered question: We don’t know the cut-off date when the IRS might process the 2019 return, causing it to supersede the 2018 return.

Subscribers to Spidell’s Federal Taxletter or Spidell’s Online Research Package can read the full article here >> https://bit.ly/ORP-Economic-Impact

Case Study #4: Social Security recipient

Luka is 72 years old and single. She receives Social Security and income of over $100,000. She has not filed her 2018 or 2019 tax returns. However, because she receives Social Security, she will receive a $1,200 payment.

Unanswered question: At this point, the IRS may not require a refund of overpaid economic impact payments, but will this law be changed?

Subscribers to Spidell’s Federal Taxletter or Spidell’s Online Research Package can read the full article here >> https://bit.ly/ORP-Economic-Impact

Case Study #3: Marriage and divorce

Laura and Cindy got married in 2018, and they filed their 2018 return jointly. But then they divorced in 2019, and neither one has filed their 2019 return. On their 2018 return, their refund was deposited into Cindy’s bank account (only her name is on the account).

Unless Laura files a 2019 return with her own bank account information, she won’t receive a separate economic impact payment, and the joint economic impact payment is going to go into Cindy’s account. Or, Laura could use the IRS portal to provide her bank information.

Unanswered question: Will the IRS send a check to Laura if she doesn’t file a return? If the IRS sends the whole amount to Cindy, can Laura reconcile the credit on her 2020 return and claim her half of the credit on the 2020 return, or will her only recourse be to get her half of the payment from Cindy?

Subscribers to Spidell’s Federal Taxletter or Spidell’s Online Research Package can read the full article here >> https://bit.ly/ORP-Economic-Impact

Case Study #2: Dependent on Social Security

Omar is single and claims his 80-year-old mother as a dependent on his 2019 return. His AGI is $87,000. His mother lives in a nursing home, and in 2019 she had $11,000 of Social Security benefit income.

Omar will receive an economic impact payment of $600. His payment was reduced due to his income in excess of the threshold amount of $75,000 for single (the payment is decreased $5 for every $100 over the threshold).

Further, he doesn’t get a payment for claiming his mother as a dependent because she’s older than age 17. Taxpayers without a filing requirement receive their economic impact payment based on their current Form 1099-SSA or Form 1099-RRB. But Omar’s mother is not eligible to receive an economic impact payment because she is Omar’s dependent.

Unanswered question: However, we don’t know if the IRS will cross check the  Social Security Administration’s Social Security numbers with returns on file to see if individuals were claimed as a dependent before sending the checks to SSA and Railroad Retirement Act (RRA) recipients. If the IRS sends a check to Omar’s mother, we don’t know whether they will ask for it to be returned.

Subscribers to Spidell’s Federal Taxletter or Spidell’s Online Research Package can read the full article here >> https://bit.ly/ORP-Economic-Impact

Case Study #1: College student dependent

Javier and Helen file a joint return in 2019 with AGI of less than $150,000. They claim their son Parker as a dependent; he is 20 years old and a full-time college student.

Javier and Helen are eligible for an economic impact payment of $2,400. They will not receive the $500 payment for Parker because he is not a qualifying child under age 17. Also, Parker is not eligible to receive an economic impact payment because he was claimed as a dependent on his parents’ return. This is the case even if he files a return showing wages from a part-time job.

Subscribers to Spidell’s Federal Taxletter or Spidell’s Online Research Package can read the full article here >> https://bit.ly/ORP-Economic-Impact

Fraud Friday: Request denied

In contrast to last week’s Fraud Friday post, another prisoner requested to serve out the remainder of his sentence at home due to a serious heart condition and increased susceptibility to COVID-19 in prison. However, this taxpayer was denied. His health was already considered when he was sentenced to a federal medical facility rather than a general population facility. The taxpayer is serving 18 months for bank theft from a $3 million loan he obtained by lying on the application and then spending the funds on hockey tickets, jewelry, and college tuition. (U.S. v. Korn (April 9, 2020) U.S. Dist. Ct., WD NY, Case No. 15-CR-81S; 11-CR-384S)

CPAs, get four hours of fraud CPE with our 2019 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.

Fraud Friday: Testing positive for COVID-19 in prison

A man serving a 70-month sentence for tax fraud has been released into home confinement for the duration of his sentence after testing positive for COVID-19 in prison. Mr. Zukerman pulled out all the stops to avoid paying tax on a $110 million asset sale: lying to his accountant, providing false documents which caused his household employees and family members to file incorrect returns, and making false statements to the IRS. Mr. Zukerman still has a year left of his sentence, but considering his age and health issues, the court agreed to home confinement for the duration. (U.S. v. Zukerman (April 3, 2020) U.S. Dist. Ct., S.D. New York, Case No. 16 Cr. 194 (AT))

CPAs, get four hours of fraud CPE with our 2019 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.

How do I find a bank for a Paycheck Protection Loan?

Even before the CARES Act was signed, taxpayers were excited about applying for a loan that could be partially forgiven with no COD and no “personal guarantee”. At the same time, banks were rounding up their best customers and preparing to pop them into the pipeline as soon as the program opened up.

Now, everyone is complaining that their big name bank won’t process a loan for them, even though they’ve been a customer for 5/10/25 years. Or that their bank isn’t doing these loans, and they can find a bank to take them if they weren’t already customers.

The SBA has a site that your clients can use to find a lender to help them with these loans. We recommend that you have the client go to https://www.sba.gov/paycheckprotection/find. This page will give them a list of lenders in their area. We recommend that they contact the smaller banks on that list to request assistance with these loans.

Small, local banks are eager for the business. Of course, their first priority in putting in the effort is to get new customers that will increase their asset base. As a result, they may require borrowers to open accounts with them, or move their banking to that institution and they may require a minimum number of employees (one bank we talked to won’t accept a business with fewer than 20 employees.

Fraud Friday: 51 months in prison with a special enhancement

A taxpayer who was a Florida psychiatrist was sentenced to 51 months in prison with a special enhancement for using a minor in his scheme. The taxpayer used multiple family members as nominees to hide his income, and he used his 16-year-old son on at least one occasion to move $20,000 via a cashier’s check. The taxpayer also had his son meet with an accountant to prepare tax returns showing income going to the son from one of the taxpayer’s companies. The court noted that it doesn’t matter whether his son understood the true purpose of his actions. (U.S. v. Kranz (March 12, 2020) U.S. Court of Appeals, Eleventh Circuit, Case No. 19-11891)

CPAs, get four hours of fraud CPE with our 2019 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.

Fraud Friday: Five years doesn’t seem all that bad

A Los Angeles tax preparer and former FTB employee is serving a little over five years for preparing tax returns that fraudulently claimed OID withholdings. Over six years, these returns claimed $5.5 million in refunds; the IRS paid out about $3 million before catching on to the scheme. Considering that the statutory maximum for the conviction was 78 years in prison, five years doesn’t seem all that bad.

CPAs, get four hours of fraud CPE with our 2019 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.

Fraud Friday: His frivolous argument would not be tolerated

The Tax Court warned a taxpayer that his frivolous argument would not be tolerated, he naturally continued to argue that same point throughout his trial. The stance in question was the taxpayer’s insistence that his independent contractor commissions were loans and so they were not taxable income. But there was no evidence of a repayment plan, nor did he make any “repayments” and he also conveniently forgot to file a return for the year at issue. He persisted in arguing the income was not taxable, and lost, plus the Tax Court handed down a $1,000 frivolous argument penalty.

CPAs, get four hours of fraud CPE with our 2019 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.

Fraud Friday: A mother–daughter duo are facing 15 years in prison

A mother–daughter duo are facing 15 years in prison each for using stolen Social Security numbers to file 84 returns that netted them just under $450,000 in fraudulent refunds. The daughter tried to argue that she couldn’t have been involved because she was only 20 years old at the time of the fraud, but there was ample evidence that she had not only recruited others into the scheme, she had also acted as the leader and organizer of the operation. (U.S. v. Nunez (December 4, 2019) U.S. Court of Appeals, Third Circuit, Case Nos. 2-16-cr-00148-002 and 001)

CPAs, get four hours of fraud CPE with our 2019 Fundamentals of Fraud Prevention and Detection On-Demand WebinarClick here for more information.