The IRS has now clarified how it will handle overpayments on 2020 individual tax returns applied to 2021 income taxes in a post on the IRS website.[1] We had covered pre-existing guidance in a prior article released on April 6, 2021.[2]

As we discussed in that article, the IRS was entering a bit of uncharted territory since we hadn’t before faced a due date that had been moved back from the original due date by the agency itself, while leaving the next year’s estimate date untouched. Luckily, the IRS did not take the most heavy-handed approach possible, though they took quite a bit of time deciding to clarify the issue.

In Action on Decision AOD 2021-01 the IRS announced that the agency will not acquiesce in a decision that treated an interest in a defined benefit pension plan in which the taxpayer only had rights to monthly payment was not an asset for computation of the insolvency exception to the exclusion of cancellation of debt income from tax under IRC §108(a)(2).

In CCA 202114020[1] the IRS outlines the impact of two different situations involving 2017’s hard fork of Bitcoin that created Bitcoin Cash and allocated one unit of Bitcoin Cash for each unit of Bitcoin held by a taxpayer.

The American Rescue Plan Act of 2021 added IRC §36B(f)(2)(B)(iii) that provided that taxpayers are not required in tax year 2020 to repay advance premium tax credits received in excess of the premium tax credit they actually qualified for. In IR-2021-84[1] the IRS described the procedures that taxpayers will use to deal with this retroactive change in the law, one enacted after some taxpayers had filed 2020 tax returns paying back the excess advance premium tax credit.

The IRS released guidance in Notice 2021-25[1] to deal with the temporary allowance of a 100% deduction for restaurant business meal expenses under IRC §274(n)(2)(D) that was added to the law in December of 2020 by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTRA).

Let’s start this article by noting that this is an issue that likely costs more in wasted time to research and resolve than the dollars that might be saved by finding the tax payment can be pushed back a month. But many advisers are stressing quite a bit over trying to answer this question: “If a taxpayer pays money with an extension filed on May 17, ends up with an overpayment when the return is finally filed and applies the amount to the 2021 return, will that overpayment be treated as paid as part of the first estimate due on April 15?”

Some advisers have gotten used to “beefing up” the payment with extensions, expecting the taxpayer to be overpaid when the return is completed. That expected overpayment is meant to cover the first estimated tax payment due for the following year. Two reasons are offered for going this route:

• It eliminates the need to prepare both an extension and an estimated tax voucher at the original due date, as well as allowing the taxpayer to make a single payment and

• It provides some protection to the client from a failure to pay penalty and interest on the return being extended if it turns out there’s more income than expected (albeit at the potential cost of now incurring some underpayment of estimated tax penalty on the following year’s return).

Area 51 is that mysterious area in the Nevada desert under the control of the United States Air Force. But it turns out that Area 51 is not the only mysterious 51 related to the United States federal government. Tax advisers have been exploring their own “area 51,” this time found at IRC Section 51(i)(1) that is cross-referenced for limiting the application of the employee retention credit.

Some parts of this 51 item are relatively clear. We know the employee retention credit (ERC) isn’t allowed for the various relatives of a control owner under CARES Act Section 2301(e) and its later updated versions. But what has become as obscure to some as Area 51 is whether this provision will work to also eliminate the ability of most shareholders owning more than 50% of the stock of a corporation to obtain the employee retention credit on their own wages.

The IRS released guidance on the version of the Employee Retention Credit (ERC) contained in the Taxpayer Certainty and Disaster Relief Act (TCDRA) of 2020 that is in effect for the first two quarters of 2021 in Notice 2021-23.[1]

As with Notice 2021-20, which was issued to cover the revised 2020 Employee Retention Credit, this Notice only updates the original Notice for issues related to the January-June 2021 version of the credit, and later guidance will be released governing new IRC §3134 that was added by the American Rescue Plan Act of 2021 and will apply from July-December 2021.

In News Release IR-2021-71[1] the IRS announced that it plans to begin issuing automatic refunds to taxpayers who filed returns that included 2020 unemployment compensation as taxable if the changes made by the American Rescue Plan Act (ARPA) of 2021 make the unemployment not taxable in 2020.

Twelve days after announcing the agency planned to push back the April 15 filing deadline for calendar year 2020 Forms 1040 to May 17, the IRS made it official in IRS News Release IR-2021-67[1] and Notice 2021-21.[2]

In Announcement 2021-7,[1] the IRS has broadened the definition of amounts paid for medical care to include amounts paid for personal protective equipment (PPE).

Examples of PPE given in the Announcement are:

• Masks;

• Hand sanitizers and

• Sanitizing wipes.[2]

If the items were acquired for the primary purpose of preventing the spread of COVID-19, they are referred to in the Announcement as COVID-19 PPE and treated as an amount paid for medical care under IRC §213(d).

The U.S. Senate, by a vote of 92-7, passed the PPP Extension Act of 2021[1] in identical form to the bill passed earlier by the House, sending the bill on to the President for his signature.

The very short bill has the following provisions:

• Applications for both first draw and second draw PPP loans will be accepted through May 31, 2021, resulting in a two-month extension beyond the original deadline enacted in December 2020 of March 31, 2021;[2]

• The SBA will be allowed to approve and fund loans for applications submitted by the May 31 deadline through the end of June.[3]

The IRS in News Release IR-2021-59[1] announced that the due date for individual tax returns originally due on April 15 has been pushed back to Monday, May 17.

The AICPA has sent a letter of comment to the Internal Revenue Service regarding various issues related to basis and entity level accounts for partnerships and S corporations that have or will be receiving forgiveness on Paycheck Protection Program loans.[1]

On March 12, 2021, the IRS provided updated instructions on their website for preparing returns that have excludable unemployment compensation.[1] The IRS notice and modified Form 1040 instructions read as follows:

If your modified adjusted gross income (AGI) is less than $150,000, the American Rescue Plan enacted on March 11, 2021, excludes from income up to $10,200 of unemployment compensation paid in 2020, which means you don’t have to pay tax on unemployment compensation of up to $10,200. If you are married, each spouse receiving unemployment compensation doesn’t have to pay tax on unemployment compensation of up to $10,200. Amounts over $10,200 for each individual are still taxable. If your modified AGI is $150,000 or more, you can’t exclude any unemployment compensation.

In a press release, Chairman of the House Ways and Means Committee Richard Neal (D-MA) has joined in the call for the IRS to extend the 2021 filing season past the scheduled April 15 deadline.[1] The call came in a joint press release with Oversight Subcommittee Chair Bill Pascrell, Jr. (D-NJ). Rep. Pascrell had previously been part of a letter from a number of Committee Democratic Party members calling for such relief, but which had not included the Committee Chairman.

The IRS has continued with their system of guidance by FAQ, this time effectively overriding the plain language of a question on page one of Form 1040 by adding a new question to the frequently asked questions (FAQ) page on the IRS website dealing with virtual currencies.[1]

The IRS added a question to the front page of Form 1040 that asked “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” The initial draft of the instructions for Form 1040 indicated that a purchase of a virtual currency during the year would require a yes answer—which seems like the correct answer given that trading cash for a virtual currency would seem to be the textbook case for obtaining a financial interest in the virtual currency.

The IRS issued updated guidance for the 2020 version of the employee retention credit in Notice 2021-20,[1] taking into account modifications made to the program by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 signed into law on December 27, 2020.

This guidance is limited to the 2020 version of the ERC, and does not take into account changes that took effect on January 1, 2021. The Notice provides:

The guidance provided in this notice addresses the employee retention credit as it applies to qualified wages paid after March 12, 2020, and before January 1, 2021. This notice does not address the changes made by section 207 of the Relief Act that apply to the employee retention credit for qualified wages paid after December 31, 2020. The Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) will address the modifications made by section 207 of the Relief Act applicable to calendar quarters in 2021 in future guidance.[2]