The CARES Act says PPP loans may be forgiven without any tax consequences. The new ruling and accompanying revenue procedure follow up on previous guidance stating that PPP loan expenses could not be deducted 

“Today’s guidance provides taxpayers with greater clarity and flexibility,” said Treasury Secretary Steven T. Mnuchin in a press release.  “These provisions ensure that all small businesses receiving PPP loans are treated fairly, and we continue to encourage borrowers to file for loan forgiveness as quickly as possible.”

But not everyone is completely on board. Some stakeholders in the tax community—including the influential American Institute of CPAs (AICPA)—are calling for more clarity. The AICPA is also one of over 80 organizations that have signed letters expressing concerns about the requirement that PPP borrowers with loans of $2 million or more complete a new form and provide extensive documentation supporting their request for relief funds.

Background: Based on the latest modifications to the CARES Act, PPP loans may be forgiven if proceeds are used over a 24-week period to cover payroll costs or other qualified expenses like employee benefits, mortgage interest and rent and utilities. o qualify for forgiveness, at least 60 percent of the proceeds must go to payroll expenses. Normally, loan forgiveness results in taxable income to the debtor.

Key point: The CARES Act creates a special exception for PPP loans. However, this tax treatment isn’t automatic; a business must file for forgiveness.

Because a business isn’t taxed on the proceeds of a forgiven PPP loan, prior guidance provided that loan expenses aren’t deductible. As a result, there’s no tax benefit nor is there any tax harm because the business hasn’t paid anything out of pocket. It’s a virtual wash for tax purposes.

The latest guidance concerns the timing of the loan forgiveness. If a business reasonably believes that a PPP loan will be forgiven in the future, expenses related to the loan aren’t deductible whether or not the business has filed for forgiveness. Accordingly, you should encourage clients to file for forgiveness as soon as possible.

In the case where a PPP loan was expected to be forgiven but it is not, a new safe- harbor rule provides that the business will be able to deduct those expenses. 

Yet, the new guidance doesn’t go far enough to suit some tax experts. Notably, it doesn’t address the order in which expenses may be deducted and tax implications relating to other aspects like the qualified business income (QBI) for pass-through entities and sole proprietors.

Finally, some lawmakers continue to protest that it was the intent of Congress to allow deduction of expenses even when PPP loans are forgiven. The AICPA has consistently lobbied for deductions of expenses as well as requesting greater simplification in the processes and greater clarity on the tax treatment.

For more information visit: https://www.accountingweb.com/tax/irs/irs-issues-tax-guidance-on-ppp-loans

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Many taxpayers have been receiving balance-due notices from the IRS even though they sent in their tax payments to the IRS months ago because trailers full of mail have remained unopened since the start of the pandemic. This spring, as many IRS offices were shuttered, a backlog of millions of pieces of unopened mail accumulated in trailers set up outside agency facilities. As more IRS employees returned to work to deal with tax season, they began to sort through and process the mail, but that hasn’t stopped more correspondence from coming in every day.

The backlog has likely been exacerbated by the slowdown in mail delivery due to changes by the new Postmaster General, Louis DeJoy, who ordered cuts in overtime, mail-processing equipment, return trips for mail delivery, and mailboxes shortly after taking over the U.S. Postal Service this summer as states ramp up their efforts to expand mail-in voting for the elections. Amid a national outcry and a congressional probe, DeJoy announced Tuesday he would suspend such changes until after the November election. However, he stopped short of promising to reverse the changes, and reports persisted of mail-sorting equipment and blue mailboxes continuing to be removed around the country Wednesday.

Last week, the IRS said it would post the payment as of the date it was received rather than the date when it was finally processed, but taxpayers shouldn’t cancel the checks they have sent, as the IRS slowly processes the mail in order to avoid interest and penalties. As opposed to sending out the erroneous notices, Neal suggested the IRS set up an online portal for taxpayers to let the IRS know they previously mailed in their tax payments. He also urged the IRS to make sure taxpayers aren’t charged any penalties or interest for the agency’s delay in processing their payments.

“These notices impose unnecessary stress on taxpayers who, upon receipt, must contact the IRS for assistance,” Rep. Richard Neal added. “This is particularly troubling at a time when the IRS is telling taxpayers who need to call the agency ‘to expect long waits due to limited staffing.’ Taxpayers reaching out for assistance on the telephone must hope someone can answer their call and that all payments they have made have been opened, processed, and indicated on their account. Certainly, any additional correspondence generated by these notices can prove difficult for the IRS to handle and cause significant delays for taxpayers seeking fair resolution.”

Neal wants the IRS to waive any interest or penalties and to halt the alarming notices. “To provide fair and equitable treatment, the IRS is providing relief from bad check penalties for dishonored checks the agency received between March 1 and July 15 due to delays in this IRS processing,” said the IRS. “However, interest and penalties may still apply.”

He would like for the IRS to wait until the volume of unopened mail subsides to a more manageable level. “At such time, the IRS should carefully review any notices before sending to ensure that they are correct and timely and that taxpayers are in no way being penalized for the delay …. The IRS should not make its backlog problem a taxpayer problem.”

For more information please visit: https://www.accountingtoday.com/news/irs-urged-to-stop-sending-notices-for-unpaid-taxes-until-it-catches-up-on-mail-backlog?position=editorial_1&campaignname=ACT_Bi%20Weekly_Tax%20Practice-08202020&utm_source=newsletter&utm_medium=email&utm_campaign=ACT_Bi+Weekly_Tax+Practice%2B%27-%27%2B08202020&bt_ee=eBSSA7UAtToGRetmDdoxP8bDzzWmjIlXt4O5zJYHLG048Jv1M%2FNGRWFnrp9FUQK%2B&bt_ts=1597939333136

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The IRS is required to add interest to tax refunds on timely filed refund claims issued more than 45 days after the return due date. 

The Internal Revenue Service plans to send interest payments averaging $18 to approximately 13.9 million individual taxpayers who filed their 2019 federal income tax returns on time and are receiving tax refunds. The interest payments will go out to individual taxpayers who filed a 2019 return by this year’s July 15 deadline and who have received a tax refund in the past three months or will be receiving a refund. 

Taxpayers who received their tax refund by direct deposit will have their interest payment directly deposited in the same bank account. Everybody else will get a paper check. The IRS will send a 2020 Form 1099-INT to anyone who receives interest totaling at least $10.

For more information please visit: https://www.accountingtoday.com/news/irs-plans-to-send-13-9m-taxpayers-extra-interest-on-their-tax-refunds-amid-coronavirus

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Businesses that legally grow or sell marijuana have a major tax problem. IRS takes the view that even in states where it is legal to sell and use marijuana, a federal tax statue prohibits tax deductions for sellers of controlled substances that are considered illegal under U.S. law. Here, a Calif. Retail sellers of marijuana can deduct only the cost of the drugs … what it paid for the inventory. Other expenses aren’t deductible, the Tax Court says.

For more information please visit: https://www.kiplinger.com/store/letter-promo/index.html

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The IRS is setting the record straight. In addition to previously announced filing extensions, it is also extending the second quarter due date for estimated tax payments—normally, June 15—to July 15, as well as providing more flexibility for other taxpayers (IR-2020-66, 4/9/20).

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Unsigned forms and expired ITINs also make the list of frequent mistakes, as do wrong deductions and credits. Some preparers have also found that their clients are struggling with the new W-4. The issue has arisen from many people being under-withheld in 2018, the first year of the numerous tax changes. Reform reduced the taxes taken out of many paychecks. Many clients failed to recalculate withholdings — and dropped their jaws at their tax returns a year ago yet often failed to heed preparers’ advice. Many clients have not adjusted their withholdings and need an explanation as to why they owe more or their refund is less this year.

A taxpayer had a large tax bill for 2018, went on an IRS payment plan, and was provided estimated payment vouchers by tax prep software. The 2019 tax year also had a large tax-due amount, and the client had used all the free cash they had for a down-payment on additional investment property. A huge problem and a huge mistake so, take your tax obligations seriously.

This mistake is rampant enough during the pandemic that the IRS is postponing certain payments related to installment agreements and offers in compromise and limiting certain enforcement initially — at least — through the new Tax Day of July 15.

This coming off-season may be rife with another common mistake in the wake of the pandemic. Clients may neglect thinking about the impact of a home purchase or sale, kids going to college, family illness or death, or starting a business. A bit of planning now can help avoid unpleasant surprises at tax time. It may seem like it doesn’t matter at the moment, but it is always better to be in the know when tax time arrives.

For more information visit: https://www.accountingtoday.com/news/timeless-blunders-what-mistakes-are-clients-making-this-season?position=editorial_7&campaignname=ACT%20Best%20of%20the%20Week-04252020&utm_source=newsletter&utm_medium=email&utm_campaign=ACT_Weekly_Best+of+the+Week%2B%27-%27%2B04252020&bt_ee=wW2WAGyiou2vaZCFyOXEqFr7mrd%2F4HYaBA%2FfzwxZAo2RsR14wKmmZ7StQioupFmb&bt_ts=1587819742385

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The IRS said Friday that to protect the public and its own employees, and in compliance with orders of local health authorities across the U.S., some IRS services such as live assistance on telephones, processing paper tax returns and responding to correspondence are extremely limited or suspended until further notice. All of the IRS’s in-person Taxpayer Assistance Centers are temporarily closed along with many volunteer tax preparation sites until further notice. However, that won’t affect the IRS’s ability to deliver “economic impact payments,” the stimulus payments of at least $1,2000 that it began directly depositing Saturday in some taxpayers’ bank accounts.

However, regarding already filed paper returns the IRS says: “If you already have filed via paper but it has not yet been processed, do not file a second tax return or write to the IRS to inquire about the status of your return or your economic impact payment … Paper returns will be processed once processing centers are able to reopen.”

For more information visit https://www.accountingtoday.com/news/irs-not-processing-paper-tax-returns-due-to-coronavirus

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The IRS said it will use the information on the Form SSA-1099 and Form RRB-1099 to generate $1,200 economic impact payments to Social Security recipients who didn’t file tax returns in 2018 or 2019. Social Security recipients will receive the stimulus payments.

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For more information and updates visit https://tax.utah.gov/

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The Tax Cuts and Jobs Act got rid of the deduction for any expenses related to activities typically considered to be for entertainment, amusement or recreation. It also restricted the deduction for expenses related to food and beverages offered by employers to workers.

The regulations proposed Monday by the IRS eliminates the deduction for expenditures related to entertainment and give guidance to figure out whether an activity is considered to be entertainment. The proposed rules also deal with the limitation on the deduction of food and beverage expenses.

The proposed regulations can have an impact on taxpayers who pay or incur expenses for meals or entertainment. Some common examples of deductible meals and entertainment include: a company-wide party for employees (such as holiday parties), or when foods and beverages are provided free of charge for public events. Some examples of meals and entertainment that will be 50% deductible include: a non-lavish meal with a client where business is discussed, employee meals while traveling, and meals for board meetings.  However, expenses for entertaining clients, such as concert tickets or golf outings are non-deductible. 

The proposed rules note that while the Tax Cuts and Jobs Act eliminated the deduction for entertainment expenses, Congress didn’t amend the provisions relating to the deductibility of business meals. That means taxpayers can generally continue to deduct 50 percent of the food and beverage expenses associated with operating their trade or business, including meals consumed by employees on work travel. However, no deduction is permitted for the expense of any food or beverages unless the expense is not lavish or extravagant under the circumstances, and the taxpayer (or the taxpayer’s employee) is present while the food or beverages are being provided.

For more information visit https://www.accountingtoday.com/news/irs-proposes-new-rules-for-deducting-meals-and-entertainment  and https://bench.co/blog/tax-tips/deduct-meals-entertainment/

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