Spidell's Tax Season Tribune

The beauty of filing an extension

Lynn Freer, EA
President

It's time to start encouraging your clients to file extensions. Don't be brow-beaten into making complex decisions when you have the least amount of time or trying to force software to do something it can't do yet because the law just changed. Remember, even if the client pushes you to finish hurriedly, that same client will blame you if there are any problems later.

If you haven't already set a deadline for getting information, do it NOW! Also, set a deadline for appointments. Remember, even if you extend the return, you'll need information to file the extension, and even that isn't always easy.

5 great ways to make your client feel good about filing an extension

To help you, here are five reasons you can use to convince your client that going on extension is okay:

Only sophisticated, smart, and interesting people file extensions. If you, my client, are ordinary or boring, file on time. It's okay. But if you want to be cool, file an extension.
Once a taxpayer files an extension, he/she never goes back to timely filing. It's just too rushed, and a little extra time is always good.
Don't send your return when the internet is full of tax returns on the filing deadline. That poor little e-filed return will feel like it's part of a cattle stampede. Your fabulous return will be crowded by a bunch of unwashed, possibly incorrect returns, and you don't want the stigma of running with the wrong crowd.
There is no longer a need to have the thrill of going to the post office at midnight on April 15. Your return, dear client, is being electronically filed. So rather than go to the post office in your work clothes, relax at home in front of the television in your pajamas, comforted by the knowledge that your return is being cared for by your tax professional and will be filed lovingly and timely, at the extended due date.
Your client's return is important to you. Having it absolutely correct means that there should not be problems later. And this year, we're not sure what correct means. Software companies are trying to interpret uninterpretable tax changes, and we've already heard of one disastrous error made by the free version of TurboTax. Tell them you don't want to have to charge them for correcting a mistake that is a result of the new law and their requiring you to file an amended return.

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Taxpayers max out credit card rebates

Kathryn Zdan, EA
Editorial Director

A physicist and his wife took using credit card reward dollars to new heights, generating over $300,000 in cash over a two-year period by manipulating their reward dollars.¹

Don't leave home without it

The taxpayers had two American Express credit cards, which had a combined credit limit of $50,500. They continuously bought Visa gift cards and reloadable debit cards from retailers eligible for the rewards program. They then used the gift cards to purchase money orders, which they deposited in their bank account. Other times, the taxpayers would pay their American Express bill with the reloadable debit cards they had purchased using the American Express cards and sometimes bought money orders directly with the American Express cards. All of these transactions generated rewards dollars.

The taxpayers charged $1,208,376 in 2013 and $5,184,033 in 2014 for purchases of Visa gift cards, reloadable debit cards, and money orders. To make this work, the taxpayer and spouse had to convert an average of over $14,000 per day for 365 days. And that's a heck of a lot of gift cards!

They redeemed $36,200 in rewards dollars in 2013. In 2014, they upped their game and redeemed $277,275 in rewards dollars. They did not report these amounts on their returns.

Court says some rewards are taxable and some are not

In general, rebates like credit card rewards are not taxable.² The IRS considers a rebate not to be taxable income, but rather should be treated as a basis adjustment on the product purchased.³

At the end of the day, the court found that the purchase of gift cards using the reward dollars was not taxable, but reward dollars earned for the purchase of money orders and reloading the debit cards was ordinary income.

The Blue Cash rewards card is still available (just saying ...):

www.americanexpress.com/us/credit-cards/card/blue-cash-everyday/

¹ Anikeev v. Comm., TCM 2021-23
² Pittsburgh Milk Co. v. Comm. (1956) 26 TC 707
³ Rev. Rul. 76-96

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What's up with California PPP forgiveness? (We're asking the same thing)

Each day, we get questions from tax pros asking if AB 80, the PPP forgiveness conformity bill, has passed. Each day, the answer is the same: Nope, not yet.

AB 80, which would allow up to $150,000 of expenses to be deducted if paid with PPP forgiven loan amounts, has not yet passed. We currently don't have good information on when and if it will pass, and what will actually be included in the final bill.

For the time being, here are a few important things to know:

Because there is speculation that the $150,000 amount could change, we suggest you extend any returns where the taxpayer received a PPP loan or had EIDL or other federal grant payments until we know the details; and
Consider filing extensions for all returns that have been filed, and if there is a change, you can file a superseded return rather than an amended return.

Searching for a reason as to why this important piece of legislation is being held up, one of our subscribers opined: "Terrible: They are too busy having dinner at the French Laundry!" Touché.

We'll send a Flash E-mail as soon as AB 80 passes, providing complete information on the details of the final bill.

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A few fun facts about this week's writers:

Lynn Freer, EA, is a French literature major, so of course her favorite vacation destination is France. Here she is dining on mussels and fish stew near Nice.

Kathryn Zdan, EA, spends her non-Spidell hours on photography and watching horror films (and then sleeping with the light on). She also enjoys hiking, biking, and walks with her ancient Jindo, Mango.

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