President Biden released a fact sheet on his just proposed changes to the tax system early on April 28.[1] We’ve seen quite a bit of discussion in the popular, financial and tax press about items in this proposal since its release, so we’ll summarize some of the key items here.

The 15-page document details more than just tax proposals, with the major tax proposals that have gotten a lot of notice found on the last two pages of the fact sheet. Some other tax-related items are found elsewhere in the document.

In the case of Plentywood Drug Inc. et al. v. Commissioner, TC Memo 2021-45,[1] the IRS and the taxpayer were disputing whether rents paid by a C corporation to its shareholders were excessive. While the Tax Court did not agree with the IRS’s determination of what amount was reasonable, the Court did find a portion of the rent paid was above a reasonable amount and denied that amount of the deduction.

The IRS has updated its online FAQ[1] on the unemployment compensation exclusion for 2020 and its application in community property states.

State law generally determines ownership of property and income, thus defining what is each spouse’s income when filing separate returns. In a community property state, community income (which is the default income in a community property state) is considered to be equally the income of each spouse, even if the income arises from the services of one spouse to the exclusion of the other.

The IRS has once again extended its special relief for the temporary use of e-signatures on specified tax documents in Memorandum NHQ-10-0421-0002[1], now providing that digital signatures may be used beyond the June 30, 2021 expiration of the prior memorandum.

Sometimes the IRS decides to make an announcement about what might appear to be a “new” development that really is just reminding taxpayers of items that were already part of the law. Such is the case with IRS News Release IR-2021-90[1] that discussed a tax credit available to subsidize employers who provide paid leave to employees receiving a COVID-19 vaccine or who take time off due to a reaction to the vaccine.

In this case the President decided to emphasize these credits in a speech on Wednesday[2] and many headlines implied that the program had just been created by the President. In reality, the President was simply emphasizing the changes made to the credit for paid sick leave (now found at IRC §3131) and qualified family leave wages (now found at IRC §3132) by the American Rescue Plan Act of 2021.

The IRS has provided relief for some taxpayers who filed returns for tax years ending on or after March 26, 2020 and on or before December 31, 2020 who did not deduct expenses paid with PPP loan proceeds in Revenue Procedure 2021-20.[1] Those taxpayers may now worry that they will have to amend their already filed tax returns or face the loss of a deduction for those expenses that were retroactively allowed as a deduction by the COVID-related Tax Relief Act that was enacted on December 27, 2020.

The IRS has now admitted, via a QuickAlert[1] sent the afternoon of April 22, 2021, that there has been a delay in processing payments requested via Modernized e-File.

Many advisers began getting calls beginning on April 16 from clients concerned that payments scheduled to have been withdrawn from their accounts on April 15 had not been withdrawn. Reports on CPA society discussion forums and on TaxTwitter made it clear that this was not an isolated problem, impacting individuals all across the country.

In PLR202114001[1] the IRS ruled that most of the costs incurred by a male couple wishing to have a child were not deductible medical expenses.

The question involves IRC §213 which allows a deduction for medical care of the taxpayer and dependents of the taxpayer. Specifically, the ruling looks at the definition of such care found at IRC §213(d)(1)(A) which reads:

(d) Definitions

For purposes of this section—

(1) The term “medical care” means amounts paid—

(A) for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body,…

A question that many professionals had after the IRS announced the formal extension of time to file calendar year Forms 1040 in Notice 2021-21 was the impact of that extension on using a Form 4868 to extend both the income tax and gift tax return for 2020. In an update to the What’s New page for estate and gift taxes on the IRS website, the IRS provided information on this issue.[1]

The IRS states that a six-month extension of time to file the Form 709 otherwise due on April 15, 2021 can be obtained by:

• Filing Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return (or, in limited cases, Form 2350, Application for Extension of Time to File U.S. Income Tax Return) on or before April 15, 2021 which will extend the due date for both the income tax and gift tax return; or

• Filing Form 8892, Application for Automatic Extension of Time to File Form 709 and/or Payment of Gift/Generation-Skipping Transfer Tax on or before April 15, 2021.[2]

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]