Beginning with the 2020 Forms W-2, employers will be allowed to issue Forms W-2 to employees with truncated social security numbers, though the copies sent to the social security administration will continue to have the employee’s complete social security number on them.  The IRS has issued final regulations on the issue, adopting with little change the proposed regulations previously issued on this topic.[1]

The IRS has issued final regulations that bar partnerships from treating partners working for a disregarded entity owned by the partnership as employees.[1]  The final regulations replace identical temporary regulations that were issued in May of 2016.[2]

Some partnerships had argued that since single member LLCs are treated as separate entities, and therefore “like” C corporations, for payroll tax purposes, partners of a partnership holding 100% of the interests in the LLC could be employees of the disregarded entity.  By doing so, the partners could qualify for various tax benefits, such as tax favored benefits available to employees but not self-employed persons.

The IRS has sent an email to tax professionals discussing what to do if the professional becomes aware of a data breach.[1]

The email begins by reminding tax professionals that the IRS had sent out an email in March (which I suspect many overlooked due to coming in the middle of a generally very trying filing season) about the need to develop a data security plan.  But the email continues that even with such a plan in place, a data breach can still occur.

The taxpayer in the case of Brown v. Commissioner, TC Memo 2019-69[1] ran into a number of issues, but a key one was failing to meet the requirements to exclude certain payments received as a minister from the taxpayers’ income as a housing allowance.

Taxpayers who try to reconstruct records when faced with an IRS exam often make obvious mistakes.  But in the case of Burden, et al v. Commissioner, TC Summary Opinion 2019-11[1] the taxpayers may have set a new standard for creating records that clearly did not reflect reality.

The key issues in this case revolved around the taxpayers’ attempt to deduct $41,950 for unreimbursed employee business expenses for both spouses.  Of those expenses $20,334 represented vehicle expenses computed at the standard mileage rate, $10,897 represented travel expenses and $2,904 represented meals and entertainment expenses.

An individual who paid half of an amount previously included in income by her ex-spouse on a joint return was allowed a claim of right deduction under IRC §1341 for her payment in the case of Mihelick v. Commissioner, Case No. 17-14975, CA 11.[1]

Less than two months after the IRS released proposed regulations on nonresident alien potential current beneficiaries in electing small business trusts, the IRS has taken the identical regulations final after no comments have been received on those regulations (TD 9868).

The details of the unchanged proposed regulations can be found in our article on the regulations (Proposed Regulations Issued for ESBTs with NRA Potential Current Beneficiary Subject to Grantor Trust Rules).

The IRS, Department of Labor and Department of Health and Human Services have issued final regulations providing for expanding the use of health reimbursement arrangements (HRAs) that will qualify under the rules established by the Affordable Care Act, in particular the revisions to Section 2711 of the Public Health Service Act (PHSA).[1]

Individual Coverage HRA

The regulation establishes a new category of HRAs that is to be called an individual coverage HRA that an employer may offer that integrates with individual health care policies held by the employee (and, if applicable, his/her dependents and spouse).[2]  An individual coverage HRA must require participants and any dependents covered by the employer’s HRA to be enrolled in individual health coverage and to substantiate compliance with this rule.  The regulations require this step to insure compliance with PHSA sections 2711 and 2713.[3]

The IRS has announced in a news release that on June 28 the agency will no longer fax or mail transcripts to third parties under steps announced to attempt to protect taxpayer data from unauthorized release.[1]  The IRS had warned in 2018 that they planned to take this step.

The news release explains the issues raised by the prior system of faxing or mailing transcripts to third parties:

Tax transcripts are summaries of tax return information. Transcripts have become increasingly vulnerable as criminals impersonate taxpayers or authorized third parties. Identity thieves use tax transcripts to file fraudulent returns for refunds that are difficult to detect because they mirror a legitimate tax return.

The IRS has issued final regulations under §170 to deal with state tax credits that reduce state income taxes in exchange for certain charitable contributions (TD 9864). While the IRS received a number of comments on the regulations, the final regulations generally adopt without change the proposed regulations issued in the summer of 2018.

Under these regulations, a taxpayer who makes a contribution to a charity for which he/she receives a tax credit against state income taxes in excess of 15% of the amount contributed must reduce the amount of the charitable contribution claimed by the amount of the credit.  The amount of the reduction is the maximum amount of the credit allowable for the amount of the contribution made by the taxpayer.

The IRS has unveiled a draft of the employer publication to make use of the 2020 draft Form W-4 to compute payroll check withholdings in Publication 15-T, Federal Income Tax Withholding Methods.[1]  The publication is being issued to assist employers in getting systems ready for 2020 withholding.

The nine page publication has 2 pages devoted to instructions[2], a full page Employer’s Withholding Worksheet[3] outlining calculations for both the wage bracket and percentage method of withholdings, a page of withholding method tables[4], and ends with five pages containing the wage bracket method tables.[5]

The Treasury Inspector General for Tax Administration (TIGTA) issued a report that found the IRS is imposing accuracy-related penalties on businesses covered by the IRS Large Business and International Division (LB&I) less often that it does on businesses examined by the Small Business/Self-Employed Division (SB/SE).  The report looked at accuracy related penalties imposed under IRC §§6662 and 6662A.