Lee B

Copied from IRS eNews: "3. Pending check payments and payment notices If your client mailed a check with or without a tax return, it may still be unopened in the backlog of mail the IRS is processing due to COVID-19. Any payments will be posted as the date IRS received them rather than the date the agency processed them. To avoid penalties and interest, taxpayers should not cancel their checks and should ensure funds continue to be available so the IRS can process them. To provide fair and equitable treatment, the IRS is providing relief from bad check penalties for dishonored checks the agency received between March 1 and July 15 due to delays in IRS processing. However, interest and penalties may still apply. Due to high call volumes, the IRS suggests waiting to contact the agency about any unprocessed paper payments still pending. See www.irs.gov/payments for options to make payments other than by mail." I find this a bit confusing, so if my client mails a payment which is due on July 15th on the 15th of July and the IRS records the date of payment on the date they received my client's letter say July 19th, is my clients payment considered to be late subject to a late payment penalty?

AICPA requests guidance on payroll tax deferral By Alistair M. Nevius, J.D. 3 hours ago "The AICPA on Wednesday sent a letter to Treasury and the IRS requesting guidance on the recent presidential memorandum deferring some employee payroll taxes until next year. The memorandum, issued by President Donald Trump on Saturday, defers the withholding, deposit, and payment of the employee portion of the old-age, survivors, and disability insurance (OASDI) tax under Sec. 3101(a) and Railroad Retirement Act Tier 1 tax under Sec. 3201 for any employee whose pretax wages or compensation during any biweekly pay period generally is less than $4,000. It applies to payroll taxes on wages paid from Sept. 1 through Dec. 31, 2020. The AICPA’s letter, addressed to David Kautter, Treasury’s assistant secretary for tax policy, and Charles Rettig, IRS commissioner, requests guidance on several issues related to how the deferral will be implemented. Specifically, the AICPA asks for guidance: Stating that an eligible employee is responsible for making an affirmative election to defer the payroll taxes; Stating that an eligible employee can make an affirmative election at any time from Sept. 1, 2020, to Dec. 31, 2020, and if an employee does not elect to defer Social Security taxes, taxes will continue to be withheld, deposited, and paid; Stating that an “eligible employee” is an employee whose wages are less than $4,000 (or equivalent amount depending on the employer’s pay period) per biweekly period." Providing a model notice for employers to furnish to eligible employees to inform them that the election to defer Social Security taxes is available for the Sept. 1, 2020, to Dec. 31, 2020, period; Stating that the payroll amount used to determine eligibility is a cliff; if the wage amount for a specified pay period is above $4,000 or the equivalent amount based on the employer’s regular payroll periods, no deferral is permitted; Stating that the $4,000 limit should apply separately to each employer of an employee; Stating that it is the responsibility of the employee and not the employer to pay the deferred payroll taxes; Stating which penalties are waived as a result of this deferral, including the penalty applicable to responsible parties; Addressing whether the increase in take-home pay attributable to the deferred taxes can be used to satisfy other employee obligations such as Sec. 401(k) loan repayments, garnishments, and child support payments; and Stating a payment due date(s) for the deferred taxes and a mechanism for employees to pay the deferred taxes." At first it was thought that employers would have recapture the deferred tax from employees beginning with paydates after 12/31/20, which raises a lot of questions about employees leaving, new employees arriving etc, etc, etc! Now after a whirlwind of discussions between Payroll Companies, Employers, the Treasury Dept and the IRS, it is now likely that employees would be required to pay back the tax deferred when they file their Form 1040 on April 15th. Are we having fun yet I am really glad I don't do a lot of 1040s!

The Taxpayer Advocate's Blog details what to do: https://taxpayeradvocate.irs.gov/news/nta-blog-need-help-with-economic-impact-payment-issues-how-tas-can-assist-those-that-qualify?category=Tax News

The House passed a bill in the middle of May which made these expenses deductible. The Senate Banking Cmte introduced a bill to make these expenses deductible two months ago, but it has never been brought up for the full Senate to vote on it.

Another headscratcher will be timing differences. If payroll expenses are paid in 2020 and your loan is forgiven in 2021, how do you handle the situation. I predict a lot of business returns being put on extension to avoid amending the 2020 tax return.

yes

Generally speaking an error or a math mistake is an one-off. When the socalled "error" is repeated over multiple years, that creates a method. If it was my client, I would definitely file the 3115.

Copied from FTB Notice 2000-8 "If a California taxpayer 1) cannot rely on a federally approved request for permission to change an accounting period or method, 2) desires to obtain a change different from the federal change, or 3) desires a change for California tax purposes only, a federal Form 3115, Application for Change in Accounting Method, or federal Form 1128, Application to Adopt, Change, or Retain a Tax Year, should be completed and submitted to the Franchise Tax Board by the due date specified in California law or, if none is specified, by the due date for a federal change request if a federal change request had been submitted to the Internal Revenue Service for that change. The federal forms must be completed using appropriate California tax information and not with federal tax information, except that the Federal Employer Identification Number (FEIN) should be used in the FEIN field. The California Corporate Number (CCN) must also be included on the top of the first page of the form. Due account should be made for differences in federal and California law. For example, Line 18 of the federal Form 3115 refers to a "User Fee." California does not charge a user fee for submitting the change request. Any references on the forms and in the forms' instructions to the Internal Revenue Code should be read as referring to the Internal Revenue Code, as applicable for California purposes, or the specific Revenue and Taxation Code section, if any, that conforms to that federal provision. A cover letter must be attached to the front of the federal Form 3115 or Form 1128, clearly indicating that a "Change in Accounting Period" or a "Change in Accounting Method" is being requested. The name of the taxpayer requesting the change and the taxpayer's California Corporate Number must be included in the cover letter. The appropriate federal form and cover letter should be sent to: Franchise Tax Board Change in Accounting Periods and Methods Coordinator P.O. Box 1998 Sacramento, CA 95812 The Franchise Tax Board will acknowledge receipt of the request within 30 days. After the request has been reviewed, the Franchise Tax Board's Change in Accounting Periods and Methods Coordinator will notify the requestor, in writing, whether the request for an accounting period or method change has been approved or denied." Assuming this Notice is still current, you can in fact file a 3115 for CA only.

If it was a C Corp, then the due date was extended. However if it was S Corp due on March 15th and no extension was filed, then I would expect that there is a penalty due.

Use the worksheet in Pub 523 starting at page 11. Just took a online CPE class last week that covered this topic. It gets kind of convoluted. Really glad I never had to do one these!

Since you mention retained earnings, I assume you are referring to a C or S Corp? What you have is a Book - Tax Difference which is a Schedule M-1 adjustment for an expense recorded on the books which is not a tax deduction. There is no book entry needed.

Good Question, can you do a 3115 for CA only?

I will have to admit, this is a different approach and it would avoid the late filing fees and penalties on the federal and state quarterly reports. However the taxpayer is an employee, not an independent contractor.

If amending 2018 and 2019 would make more than a de minimus change to any partner's tax liability, then I would amend. or consider whether a 3115 would be appropriate. If,not, then I would fix it going forward.

Copied from Accounting Today: "Previously, taxpayers mailed a paper duplicate copy of Form 3115 to the IRS and filed the original Form 3115 with their tax return. Under the new temporary procedure, starting Friday, July 31, the IRS will accept the duplicate copy of Form 3115 via fax to (844) 249-8134. The change will apply only to taxpayers who are asking for consent to make a change in accounting method under the automatic change procedure. This temporary procedure will be in effect until further notice. “Taxpayers will still need to submit two copies of the Form 3115 to the IRS,” the IRS said on its website Wednesday. “Taxpayers must continue to file Form 3115 with their tax return (including extensions). However, instead of mailing the duplicate paper copy of Form 3115 to the IRS in Ogden, Utah, taxpayers can now fax it to (844) 249-8134.” The cover sheet of the fax should include the following information: Subject: Form 3115 Sender's name, title, phone number, address Taxpayer's name Date Number of pages faxed (including cover sheet) The IRS cautioned that taxpayers should not include sensitive information on the cover sheet, such as an Employer Identification Number or Social Security number. The IRS won’t provide a confirmation or receipt of the fax. It advised taxpayers to check their fax transmission log to verify that all the Form 3115 pages have been sent."

They want to call their funds loans but in reality they have made capital contributions, which for tax purposes is the better way to go.

In the past when I have had clients with similar issues, I have always focused on getting the clients into compliance going forward. I have done some scrambling prior to January 31st to clean up the prior year. Perhaps I have been fortunate, since not amending prior years has never bitten my clients and me in the butt.

Since the SBA announced that August 10th will the first day they will accept Forgiveness applications, the SBA hasn't done any audits yet. So far the cases that I have read about the people getting caught were doing things so outrageous and obvious that perhaps they were tripped up by SBA post loan approval screening procedures of some kind.

Copied from IRS eNews: "Individuals and businesses may take advantage of temporary changes this year involving charitable contributions. Individuals may deduct qualified contributions of up to 100 percent of their adjusted gross income in 2020, while a corporation may deduct qualified contributions of up to 25 percent of its taxable income. Contributions that exceed that amount can carry over to the next tax year. For 2020, a special rule is also in effect allowing enhanced deductions by businesses for contributions of food inventory for the care of the ill, needy or infants."

Did the $300,000 in Dividends reduce Retained Earning down to zero ? If this is a C Corp, I don't understand the $200,000 to Capital Gains unless the IRS is saying that the $200,000 constitutes a sale of the owners stock, in which case it's capital gains to the owner, not to the C Corp. In a situation like this, the IRS usually would split the $500,00 between salary and dividends, not to capital gains?

Based on your post it's kind of unclear whether this is a C Corp or an S Corp?

The Treasury Secretary and the head of the SBA testified during a House committee hearing this week. According to various commentators, the following things are under active consideration: 1. Adding more money to the $103 Billion left in the PPP Loan Program and another extension of the application deadline. 2. Allowing borrowers to receive a second PPP Loan if their business has suffered a significant revenue decline. 3. The Treasury Secretary was receptive to the "automatic forgiveness" ( See my earlier post ) of PPP Loans under $150,000.

I made a $ 100 donation with my credit card to a charity last year plus they asked for additional $ 4 to cover their processing costs, which I paid. The official receipt that I received was for $ 104. IMHO, this charity received $ 104, which is revenue that needs to be recorded.

The reality is that the IRS is short staffed, underfunded and running ancient computer systems that don't talk to each other. Outsourcing stuff like this to third party vendors will only accelerate in the future.

There is so much wrong with this situation. First the guaranteed payments have to go directly to the client and spouse, upon which they owe SE tax. Second, reasonable compensation has to be paid by the S Corp. The amount of any legitimate QBI deduction available to these clients is minimal! This is a tax avoidance scheme gone totally wrong!