With the major revisions made to Form 941, the IRS is in the process of revising Form 941-X for making corrections to the quarterly federal tax return. While the IRS has issued a draft of the Form 941-X on July 27, 2020,[1] until such time as that form is released in final form the IRS has provided special instructions to be used in filing for adjustments prior to that date on the IRS website.[2]

The website notes that the revised Form 941-X is expected to be released in final form in late September. The new form allows for corrections to be made to the new lines found on the Form 941 that was released for filings for the second quarter of 2020 to take into account the various payroll tax credits and the deferral of old age, survivor and disability employer taxes found in provisions of the Families First Coronavirus Protection Act (FFCPA) and the Coronavirus Aid, Relief, and Economic Security Act (CARES).

The IRS’s backlog in processing some mailed in payments is something most tax professionals have dealt with in recent weeks. Now the Chairman of the House Ways and Means Committee, Representative Richard Neal (D-MA), has called on the IRS to halt sending out notices demanding payment until the backlog is cleared by the agency.[1]

The letter notes:

IRS officials reported that, due to office closures, the IRS has accumulated a staggering backlog of unopened mail. At one point this summer, the IRS had approximately 12 million pieces of unopened correspondence in its inventory. Despite this unprocessed mail, the IRS reportedly has been sending notices to taxpayers whose correspondence and payments remain unopened. Therefore, many of the taxpayers receiving these notices already have made the payments that the IRS seeks.

The U.S. Chamber of Commerce has sent a letter,[1] signed by the Chamber and a number of business industry organizations, to Treasury Secretary Mnuchin, House Speaker Nancy Pelosi and Senate Majority Leader Mitch McConnell stating that many of the employers who are members of the organizations will likely decline to participate in the payroll tax holiday outlined in the Presidential memorandum issued earlier in August. The organizations indicate that the lack of forgiveness for the taxes not withheld creates issues for both employers and employees.

The letter notes that:

Under current law, the EO creates a substantial tax liability for employees at the end of the deferral period. Without Congressional action to forgive this liability, it threatens to impose serious hardships on employees who will face a large tax bill as a result of deferral.

The IRS has announced it has begun sending out interest payments to those individuals who received refunds and filed their tax returns after April 15 but before July 15.[1] The IRS had previously announced the agency would be sending such refunds in a news release issued on June 24, 2020 that was previously discussed on our website.[2]

The IRS has issued proposed regulations[1] that provide information on the extended time period for those plan participants receiving a noncash distribution from a retirement plan that is a qualified plan loan offset (QPLO) to rollover the amount to another retirement plan. This provision was added to the law by the Tax Cuts and Jobs Act (TCJA).

The proposed regulations provide that taxpayers may rely on these regulations beginning with respect to plan loan offset amounts, including qualified plan loan offset amounts, treated as distributed on or after the date the proposed regulations are published in the Federal Register[2] and before the date the regulations are published in the Federal Register in final form.[3]

While the IRS has issued numerous private letter rulings over the years granting taxpayers relief for late IRA rollovers, far fewer rulings have been issued denying relief. But in PLR 2020033008[1] the IRS did just that for a taxpayer’s request for permission to make a late rollover, as the taxpayer had effectively attempted to borrow the funds from the IRA to make a cash offer on a residence.

As many advisers have discovered due to clients (especially trusts) receiving notices regarding payments supposedly due on tax returns where payments had been mailed in when the return was filed at July 15, the IRS is behind in processing items mailed to the agency and that includes certain tax payments. Due to this delay, the IRS has updated guidance on its website to provide relief for taxpayers who end up with a check being dishonored by their bank when the IRS finally gets around to processing that July 15 check.[1]

In what may initially seem like an odd argument for both parties to make, the IRS successfully argued that vacation homes were not rentals in the case of Eger v. United States, USDC Northern District California, Case No. 18-cv-00199-DMR.[1] The taxpayer’s attempt to get the decision overturned on appeal failed when the Ninth Circuit affirmed the District Court decision.[2]

The previously promised guidance on the appeals process for PPP borrowers who are wholly or partially denied forgiveness has been released as an interim final rule (IFR) by the Small Business Administration.[1]

The appeal will be heard by the SBA Office of Hearings and Appeals (OHA) and will involve appealing certain SBA loan review decisions.[2]

The SBA added a new “Economic Injury Disaster Loan (EIDL) FAQs” section to the PPP Loan Forgiveness FAQ on August 11, 2020.[1] The FAQs are the first significant guidance issued on the interaction of EIDL advances and PPP loans.

Under the CARES Act a business that receives an EIDL advance and a PPP loan will have its PPP loan forgiveness reduced by the amount of the EIDL advance.

The SBA added two new questions to their first FAQ on Payroll Protection Loans,[1] dealing with the impact on paying or not paying agent fees on the SBA’s guarantee of a PPP loan or the payment of fees to the lenders and on insurance that qualifies as a health care benefit for forgiveness.

The President has signed an Executive Order directing the Treasury Department to issue guidance under IRC §7508A deferring the withholding, deposit, and payment of the tax imposed under IRC §3101(a) (the old age, survivor and disability portion of social security taxes imposed on individuals) and IRC §3201(Railroad Retirement Act taxes tied to the rate of tax under IRC §3101(a)).[1] The deferral will apply to the period from September 1, 2020 (note the delayed effective date) through December 31, 2020.[2]

Under provisions of the CARES Act, as later amended, all employers are able to defer payment of the employer portion of these taxes at this time, explaining why this order is limited to the employee portion of such taxes.

At the same time the IRS issued final regulations on the business interest deduction limitations under IRC §163(j), the agency issued a proposed Revenue Procedure in Notice 2020-59 to provide a safe harbor for a trade or business that manages or operates a qualified residential living facility to be treated as a real property trade or business solely for the purposes of qualifying as an electing real property trade or business under IRC §163(j)(7)(B).[1]

An electing real property or business is exempted from the business interest limitations under IRC §163(j) but is required to use the alternative depreciation system (ADS) methods to depreciate any real property.

In the case of Matzkin and Schroeder v. Commissioner, TC Memo 2020-117,[1] the Tax Court ruled that a taxpayer could not increase his basis in an LLC (Dental Care Alliance, LLC, or DCA) interest by the amounts he had paid his former spouse Georgeann as part of the divorce to obtain full ownership. The Tax Court found that this was part of the property settlement for federal tax purposes and such payments do not add to the basis of the asset in question.

Eventually Stephen’s 70% interest in the dental practice LLC was transferred by Steven into an S corporation of which he was the only shareholder, SRM Consulting, LLC (SRM).

In Steven Matzkin’s divorce his interest in the LLC, which contained his dental practice, was assumed to be $21 million. The interest was ruled to be a marital asset under Florida law, and it was proposed to divide such assets 50/50 between the two soon to be former spouses.

The IRS has published an FAQ that provides an employer may set up a leave sharing plan related to the COVID-19 national emergency that will be treated as meeting the requirements of Notice 2006-59.[1]

The FAQ starts out by answering the following question:

Q1. May employers set up a leave-sharing plan under IRS Notice 2006-59 (PDF) that permits employees to deposit leave in an employer-sponsored leave bank for use by other employees who have been adversely affected by the COVID-19 pandemic?

A1. Yes. Notice 2006-59 provides guidance on the federal tax consequences of certain leave-sharing plans that permit employees to deposit leave in an employer-sponsored leave bank for use by other employees who have been adversely affected by a major disaster such as the COVID-19 pandemic. See Notice 2006-59 for the requirements of a qualifying leave-sharing plan.[2]