You are now cleared to start filing revisions to the second quarter Form 941 if you have some to fix. The IRS has released the revised Form 941-X[1] that will allow revising Forms 941 that are impacted by provisions found in the Families First Coronavirus Relief Act and/or the CARES Act that impacted second quarter payroll. The related revised instructions to the form were also issued at the same time.[2]

On August 17 the IRS had asked employers not to use the prior version of Form 941-X to attempt to amend a second quarter 2020 Form 941 and to wait for this form, which existed in draft form on that date, to be finalized sometime in “late September.”[3]

The special per-diem rates for the fiscal year running from October 1, 2020 to September 30, 2021 has been released in Notice 2020-71.[1] The special rates governed by this Notice are:

• The special transportation industry meal and incidental expenses (M&IE) rates,

• The rate for the incidental expenses only deduction, and

• The rates and list of high-cost localities for purposes of the high-low substantiation method.[2]

A state level decision in the case of In the Matter of the Appeal of Mazur, California OTA Case No. 19064883[1] has a discussion of the concept of domicile, a key concept used by many states as either the single or one of the tests available to determine if an individual must file an income tax return as a resident of the state.

In states with an income tax, residents generally are required to pay tax to the state on all income for the year, whether or not it is sourced to the state, while nonresidents generally only pay tax on income that can trace its source to the state. But whether someone is or is not a resident isn’t necessarily a simple item to determine.

The IRS has announced an additional six forms that will qualify for electronic signatures, in addition to the forms originally announced as eligible for this program on August 28.[1]

The new forms added to the list are:

• Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return;

• Form 706-NA, U.S. Estate (and Generation-Skipping Transfer) Tax Return;

• Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return;

• Form 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons;

• Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts; and

• Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner.

In Notice 2020-66[1] the IRS provided that Medicaid coverage limited to COVID-19 testing and diagnostic services does not constitute minimum essential coverage. The issue is important in determining if a taxpayer qualifies for a premium tax credit under IRC §36B.

The Tax Court considered the question in the case of Fowler v. Commissioner,[1] 155 TC No. 7 of the impact of a taxpayer electronically filing a tax return without a required IP PIN on the running of the statute of limitations on the time for the IRS to assess tax.

The taxpayer in this case had his identity compromised in 2013 and the IRS claims the agency sent the taxpayer an IP PIN in late December 2013. However, the taxpayer claims that he did not receive the IP PIN by the October 15, 2014 date on which he timely attempted to file his 2013 income tax return.[2]

The Tax Court had to determine what Congress meant with unclear wording of an effective date provided for in the Taxpayer First Act in the case of Sutherland v. Commissioner, 155 TC No. 6.[1] While most readers are not going to be trying cases before the Tax Court that were filed before July 1, 2019, the case reminds those who represent taxpayers in innocent spouse cases in Appeals that Congress has attempted to incentivize taxpayers to cooperate in the Appeals process rather than decide to attempt to go straight to Tax Court in innocent spouse cases.

In the case of Dickinson v. Commissioner[1] the IRS was attempting to treat a taxpayer’s contribution of shares of stock directly to a charity as being rather a redemption of the stock, creating taxable capital gain, followed by a deductible charitable contribution.

In this case, the taxpayers donated shares in a privately held company in which the husband was the CFO to Fidelity Investments Charitable Gift Fund. The case notes:

The GCI board of directors (Board) authorized shareholders to donate GCI shares to Fidelity Investments Charitable Gift Fund (Fidelity), an organization tax exempt under section 501(c)(3), through written consent actions in 2013 and 2014. In both consent actions the Board stated that Fidelity “has a donor advised fund program which incorporates procedures requiring * * * [Fidelity] to immediately liquidate the donated stock” and “seeks an imminent exit strategy and, therefore promptly tenders the donated stock to the issuer for cash”. The Board approved a third round of donations at a Board meeting by unanimous vote in 2015; the Board members signed the written minutes of the meeting. After each Board authorization, petitioner husband donated appreciated GCI shares to Fidelity. Petitioner husband remained a full-time GCI employee following each donation.[2]

The SECURE Act, enacted in late 2019 by the Congress, provided for a number of changes to retirement plans and IRAs. In Notice 2020-68[1] the IRS has provided initial guidance on some of these changes in question and answer format. The Notice also covered plan related provisions found in the Bipartisan American Miner’s Act of 2019 (Miners Act) that was enacted at the same time as the SECURE Act.

The IRS has established a web page on the agency’s site devoted to the BBA Centralized Partnership Audit Regime.[1]

The page is meant to provide a centralized location for the agency’s information and guidance on the new audit regime introduced by the Bipartisan Budget Act of 2015, which replaces the prior TEFRA partnership audit regime.

In the case of Hermann Kuma v. Greater New York Conference of Seventh-Day Adventist Church et al.[1] a former pastor was suing a church for failing to classify him as an employee and withhold FICA and Medicare taxes on the wages he was paid over a 21 year period.

Mr. Kuma was told when he attempted to apply for Social Security benefits that he did not have enough quarters of coverage on his account to qualify for benefits or to be eligible for Medicare. Mr. Kuma claimed that the church had treated him improperly as an independent contractor, causing him to face the loss of benefits under Social Security and Medicare and was looking to be awarded damages in compensation.

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.