The IRS, following the release of guidance on the payroll tax holiday set to begin on September 1, 2020 in Notice 2020-65, has now released a draft version of a revised Form 941 to take into account the employee old age, survivor and disability insurance withholding that is deferred from September 1 to December 31.[1]

The key change is found on page 3 in Part 3, line 24, which asks for the “Deferred amount of the employee share of social security tax included in line 13b.” Line 13b on page 1 currently has the deferred employer portion of social security taxes under the CARES Act, so the line on page 1 will be used to cover both types of deferred social security taxes, while line 24 will alert the IRS to the portion of the total deferral that must be paid in by May 1, 2021.

After 5:00pm EDT on Friday, August 28, 2020, the IRS and the Treasury Department released their initial guidance on the payroll tax holiday scheduled to begin on September 1, 2020 in Notice 2020-65.[1]

The payroll tax holiday beginning date of September 1 is rapidly approaching but, as I write this on Friday, August 28, 2020 at just after 2:00 pm Mountain Standard Time[1] no guidance has been issued by the Treasury Department. The memorandum issued on August 8 directed the Treasury Department to issue such guidance which then would provide for the deferral of the employee portion of old age, survivors and disability insurance (OASDI), more commonly referred to as FICA.

Without such Treasury guidance, most observers concluded that there was no authority for employers to stop withholding the tax, especially in light of IRC §3201(a) which provides, in part, that the OASDI tax “shall be collected by the employer of the taxpayer, by deducting the amount of the tax from the wages as and when paid.” The memorandum itself notes that “[t]his memorandum shall be implemented consistent with applicable law and subject to the availability of appropriations…” which strongly suggests that employers need to wait for Treasury guidance on exactly how it will interact with §3201(a), or face the potential of becoming liable for the tax not withheld.

The IRS has returned to the virtual currency taxation subject area, this time in a Chief Counsel Advice ruling on the tax consequences for individuals that receive convertible virtual currency in exchange for performing microtasks through a crowdsourcing or similar platform.[1]

The IRS in this memorandum looks at the tax consequences for individuals using a crowdsourcing platform to provide services. A crowdsourcing arrangement is described in the memorandum as follows:

A variety of digital platforms now enable individuals or entities to “crowdsource” jobs by using the Internet to outsource assignments to an undefined and often large group of other individuals or entities. A crowdsourcing arrangement may involve three parties referred to in this memorandum as vendors, firms, and workers. Vendors develop a platform upon which firms can broadcast their tasks and workers can accept, perform and/or submit the work.[2]

The IRS announced a limited, temporary relaxation of rules regarding the use of electronic or digital signatures for certain tax forms in lieu of handwritten signatures.[1] The relief will apply to forms signed and postmarked on or after August 28, 2020 through December 31, 2020.

After months of silence on the topic, the SBA has issued guidance on the percentage of ownership of a borrower that triggers the treatment of an employee as an owner in an August 24, 2020 Interim Final Rule.[1] The IFR also provides for limitations on some rental and mortgage interest expenses a borrower might otherwise seek to treat as nonpayroll costs for forgiveness. But the guidance also gives the go-ahead for the use of certain office in home expenses for this purpose, so long as they are allowed as a deduction on the taxpayer’s tax filings for the years in question.

A day after Representative Neal sent a letter asking the IRS to delay sending out notices to taxpayers regarding balances due until they cleared the mail backlog, the IRS addressed this issue, posting an announcement regarding a delay in the sending of notices due to the mail handling issues. The agency announcement provides:

The IRS has suspended the mailing of three notices – the CP501, the CP503 and the CP504 – that go to taxpayers who have a balance due on their taxes. Although the IRS continues to make significant reductions in the backlog of unopened mail that developed while most IRS operations were closed due to COVID-19, this temporary adjustment to processing is intended to lessen any possible confusion that might be associated with delays in processing correspondence received from taxpayers.

The IRS is taking the step to avoid confusion for taxpayers who previously received a balance due notice (CP14) and mailed a payment to the IRS; however, that payment may still be unopened. The CP501, the CP503 and the CP504 are follow-up notices are typically automatically sent to taxpayers who do not respond to the CP14. These automatic follow-up notices will be temporarily stopped until the backlog of mail is reduced. The IRS will continue to assess the mail inventory to determine the appropriate time to resume the follow-up notices.

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.