The Tax Court in the case of Complex Media Inc v. Commissioner[1] attempted to explain how it views the opportunity for a taxpayer to raise a substance over form argument in a tax matter.

The Doctrine and Why a Taxpayer Raising the Issue is Different

The substance over form claim argues that the transaction in question should not be evaluated based on the formal legal structure of the transaction, but rather the tax impact should be driven by the underlying substance of the transaction. The IRS raises this argument often when the government believes the transaction was structured in a manner that lacked any real economic substance, but was specifically chosen to achieve a specific tax objective.

The IRS has issued a warning to tax professionals that the agency is aware of a phishing scam that is aimed at obtaining various personal information.[1]

While the IRS published relief that sponsors could give to participants in their cafeteria plans in Notice 2020-29 for 2020 plan years, and the Congress provided additional relief in §214 of the Taxpayer Certainty and Disaster Relief Act of 2020, not all situations are eligible for relief that will make the participant whole. One such situation was discussed in IRS Information Letter 2020-0027.[1]

The letter was written to respond to a constituent of Rep. Madeleine Dean of Pennsylvania who found themselves out funds that had been directed by them into a dependent care flexible spending account in their employer’s cafeteria plan.

The final 1040 instructions seem to suggest that an “acquisition of a financial interest in a virtual currency” may not be an “acquisition of an interest in a virtual currency” in some cases for purposes of answering the first question to be answered on Form 1040 after the taxpayer’s identifying information and address. But the instructions don’t provide any information on how such non-acquisition acquisitions are to be identified.

In the final version of the Form 1040 Instructions[1] the IRS modified the list of reportable virtual currency transactions, eliminating certain items found in the December 31, 2020 draft version, but the question on the Form 1040 remained unchanged—and still suggests, at least to some, that the deleted items would still be reportable.

The COVID-related Tax Relief Act of 2020 Section 275 required the IRS to “clarify” that COVID-19 Protective Items used by an educator for the prevention of the spread of COVID-19 will qualify as an item allowed to be treated as an expense in calculating the above the line deduction (not in excess of $250) for qualified educators under IRC §62(a)(2)(D). In Revenue Procedure 2021-15[1] provides a safe harbor educators may use to claim these expenses.

The IRS has released guidance providing that certain information forms should not be filed that relate to items made tax exempt by the COVID-related Tax Relief Act of 2020,[1] as well as directing institutions that had already issued Forms 1099MISC related to payments made by the SBA on loans to file amended information returns[2] that contained an implied threat that those that fail to update those forms in a timely manner will face potential penalties.

The AICPA has sent a comment letter to the IRS regarding how to deal with the issue of claiming the 2020 version of the employee retention credit when payroll costs have been reported on a Paycheck Protection Program loan forgiveness application.[1]

Prior to the passage of the Taxpayer Certainty and Disaster Relief Act (TCDRA) of 2020, part of the Consolidated Appropriations Act, 2021, taxpayers who had received a Paycheck Protection Program loan were not eligible to claim the Employee Retention Credit enacted as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. However, the December 27, 2020 law removed that restriction, providing instead that such a credit would not be available to be claimed for wages that were used to obtain forgiveness for a Paycheck Protection Program (PPP) loan.

During 2020 a number of states found themselves being faced with claims for unemployment that were fraudulent in nature. Perpetrators would use information they had obtained to claim to be another person, filing for unemployment in that person’s name and having the payment redirected to come to them. Some victims are just discovering this issue in January as they receive a Form 1099G from the state government showing that they had been paid unemployment compensation.

In News Release IR-2021-14[1] the IRS outlined steps for such individuals who have received information returns showing payment of unemployment compensation they never applied for to take.

The IRS announced a new electronic option for submitting Forms 2848 and 8821 online in News Release IR-2021-20.[1] The release describes the option as follows:

The Internal Revenue Service today rolled out a new online option that will help tax professionals remotely obtain signatures from individual and business clients and submit authorization forms electronically.

Tax professionals can find the new “Submit Forms 2848 and 8821 Online” on the IRS.gov/taxpros page. Tax professionals must have a Secure Access account, including a current username and password, or create an account in advance of submitting an online authorization form.

“This online tool will allow tax professionals to safely obtain signatures from individual and business clients and upload authorization forms,” said Chuck Rettig, IRS commissioner. “This is a first step in our ongoing efforts to expand digital options for tax professionals using electronic signatures and online uploads.”

The project is a result of the Taxpayer First Act that requires the IRS to expand use of taxpayers’ electronic signatures on authorization forms. This online option also will help protect taxpayers and tax professionals by more easily allowing remote transactions.[2]

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]