The IRS has released a revised draft version of Form 7200[1] to be used to obtain a refundable payment of the employee retention credit and the qualified sick pay and family leave credit. The revisions include the first guidance on how employers will claim the advance employee retention credit for 2021.

The Taxpayer Certainty and Disaster Relief Act of 2020 §207(g)(1) revised CARES Act §2301(j)(2)(A) to provide for an advance payment of the employee retention credit to employers who did not employ more than 500 employees in 2019. The maximum credit is set at 70% of the employer’s average wages in 2019. A special rule allows for a modified computation for seasonal employers.[2]

In a web page posted on January 22, 2021, the IRS has determined that the special fourth quarter Form 941 procedure to claim the Employee Retention Credit will apparently only apply to borrowers who have had their PPP application for forgiveness denied.[1]

In a procedural notice[1] the SBA provided lenders with guidance to deal with the additional disbursements on First Draw PPP loan provisions found in Section 312 of the Economic Aid Act. This guidance implements provisions found in the law and the January 6, 2021 Interim Final Rule released by the SBA.

In Notice 2021-13[1] the IRS has provided for relief from penalties for certain incorrect reporting related to partners’ tax basis capital accounts on Schedules K-1s.

The Small Business Administration met the requirement to issue the one page form for PPP loan forgiveness by 24 days after the date of enactment of the Consolidated Appropriations Act, 2021. The agency also published additional updated forms.

The SBA has issued guidance on the Second Draw Payroll Protection Program dealing with:

• Calculation of the required revenue reduction and

• Maximum loan amounts for Second Draw Loans including what documentation to supply.[1]

The SBA describes the guidance as follows:

The Small Business Administration (SBA), in consultation with the Department of the Treasury, is providing this guidance to assist businesses in calculating their revenue reduction and payroll costs (and the relevant documentation that is required to support each set of calculations) for purposes of determining their eligibility for and amount of a Second Draw PPP Loan.

Borrowers and lenders may rely on the guidance provided in this document as SBA’s interpretation of the CARES Act, the Economic Aid Act, and the Paycheck Protection Program Interim Final Rules. The U.S. government will not challenge lender PPP actions that conform to this guidance and to the PPP Interim Final Rules and any subsequent rulemaking in effect at the time the action is taken.[2]

The SBA has updated its FAQ computing the maximum first draw PPP loan amounts[1] following the passage of the Economic Aid Act in December of 2020.

The revised guidance begins with a note that while the SBA’s calculations often refer to 2019 information to compute the maximum borrowing, in the IFRs issued on January 6, 2021 describing the revisions found in the Economic Aid Act, the SBA allows the use of calendar year 2020 as well:

The guidance describes payroll costs using calendar year 2019 as the reference period for payroll costs used to calculate loan amounts. However, borrowers are permitted to use payroll costs from either calendar year 2019 or calendar year 2020 for their First Draw PPP Loan amount calculation. Documentation, including IRS forms, must be supplied for the selected reference period.[2]

In a footnote the document indicates that the year chosen must be used for all calculations:

All components of payroll costs must be from the same calendar year. Payroll costs, including for covered benefits, can only be included for employees whose principal place of residence is in the United States.[3]

The partnership in the case of Michael Hohlet ux. et al. v. Commissioner, TC Memo 2021-5[1] attempted to claim that amounts it received from a partner it had treated in prior years as loans were actually capital contributions in the final year of the partnership. However, both the IRS and the Tax Court did not agree, finding that amount represented cancellation of indebtedness income in the final year of the partnership.

Three of the partners had contributed no funds to start the partnership, but were paid guaranteed payments each year. They each were treated as having a 30% interest. Eduardo Rodriguez put up $265,000 of cash for a 10% interest. In later years, Mr. Rodriguez advanced the partnership money that was treated as loans to the partnership, money used for partnership operations.

The IRS has outlined the details of its voluntary Identity Protection Personal Identification Number (IP-PIN) program where taxpayers will receive an IP-PIN, as well as opening up the process nationwide.[1] In the news release announcing the program, the IRS provides:

The Identity Protection PIN (IP PIN) is a six-digit code known only to the taxpayer and to the IRS. It helps prevent identity thieves from filing fraudulent tax returns using a taxpayers’ personally identifiable information.

“This is a way to, in essence, lock your tax account, and the IP PIN serves as the key to opening that account,” said IRS Commissioner Chuck Rettig. “Electronic returns that do not contain the correct IP PIN will be rejected, and paper returns will go through additional scrutiny for fraud.”[2]

The IRS has issued final 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 regulations are finalized versions of the proposed regulations issued in August 2020.[2]

The proposed regulations provided 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[3] and before the date the regulations are published in the Federal Register in final form.[4]

In Notice 2021-7,[1] the IRS has granted relief to certain employers and employees using the automobile lease valuation rule to determine the value of an employee’s personal use of an employer-provided automobile. The relief has been granted due to the impact of the COVID-19 pandemic.

The relief is summarized in the Notice as follows:

Due solely to the COVID-19 pandemic, if certain requirements are satisfied, employers and employees that are using the automobile lease valuation rule may instead use the vehicle cents-per-mile valuation rule to determine the value of an employee’s personal use of an employer-provided automobile beginning as of March 13, 2020. For 2021, employers and employees may revert to the automobile lease valuation rule or continue using the vehicle cents-per-mile valuation rule provided certain requirements are met.[2]

The IRS has proposed regulations to begin charging a user fee of $67 for an estate tax closing letter.[1]

The IRS explains its justification for taking this action as follows:

In view of the resource constraints and purpose of issuing estate tax closing letters as a convenience to authorized persons, the IRS has identified the provision of estate tax closing letters as an appropriate service for which to establish a user fee to recover the costs that the government incurs in providing such letters. Accordingly, the Treasury Department and the IRS propose establishing a user fee for estate tax closing letter requests (see parts E and F for explanation of the authority to establish the user fee). As currently determined, the user fee is $67, as detailed in part H. [2]

The new closing letter fee is provided for in Proposed Reg. §300.13. The proposed fee, as noted, is set at $67.[3]

With the pushing back of many filing deadlines in 2020 to July 15, 2020, a question has arisen about how that relief will impact the statute of limitations to file a refund claim. For instance, for a calendar year form 1040 filed on July 15, 2020, will the time period to file a claim for refund on that return end three years from April 15, 2020 or three years from July 15, 2020?

In a Chief Counsel Email,[1] the IRS concludes that the answer is both—but, from a practical standpoint, the earlier date will quite often control. The logic of the email gets deep into the various subsections under IRC §6511.

The IRS is under obligation only to mail notices to the taxpayer’s last known address in order to start the clock running on the time period to take specific actions. In the case of Gregory v. Commissioner, 152 TC No. 7,[1] the Tax Court ruled that neither Form 2848, Power of Attorney and Declaration of Representative, nor Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, served to change a taxpayer’s last known address. But the Third Circuit disagreed with that holding, finding that the IRS clearly had notice of the taxpayer’s address in this case.[2]

The IRS has published the final version of the regulations under IRC §274 that eliminates an employer’s deduction for the cost of providing some employer provided transportation and commuting benefits.[1] Proposed regulations were issued on June 23, 2020 and these regulations mainly adopt those regulations, though with some changes.

One interesting change involves an expansion of the exception under IRC §274(e)(8) where the employer can demonstrate the qualified transportation fringe has zero value—that is, the general public would not pay to park a car in the location in question.

The IRS has decided to extend their program of accepting certain forms using electronic signatures that was scheduled to end on December 31, 2020 to June 30, 2021, per a new memorandum issued by Sunita Lough, IRS Deputy Commissioner for Services and Enforcement.[1]

The original program was discussed earlier in an online article I posted when the program was announced in August.[2] The new memorandum repeats what was found in the original memorandum, but now covers the period from January 1, 2021 to June 30, 2021.

The Small Business Administration has issued information on tax reporting for payments made under §1112 of the CARES Act.[1] That provision provided that the government, via the SBA, would pay principal and interest for loans covered by §7(a) of the Small Business Act for a period of six months.[2]

Although the Act did not provide any explicit guidance governing whether such payments were to be treated as income by the recipient, Congress did not specifically provide that the amounts were not to be treated as taxable income, unlike the explicit provision treating forgiveness of PPP debt as not being subject to tax.[3]

IRC §61 broadly defines gross income as “all income from whatever source derived, including (but not limited to)” a long list of items, including “[i]ncome from the discharge of indebtedness…”[4] Thus, from the very beginning, it appeared that these payments would represent taxable income to the businesses who had a portion of their debts paid.