IRS CHANGES THEIR MIND ON UCE!

[Lee B]

Copied from the current Federal Tax Development Blog:

 

"As a tax adviser, you may have recently installed a tax software update to take into account the unemployment compensation exclusion for 2020 passed as part of the American Rescue Plan Act of 2021 and found at IRC §85(c).  Now it turns out that, due to an IRS change of heart on how to read IRC §85(c)(2)(B), your software may now be subjecting unemployment to tax the IRS has now decided is not to be subject to such tax.

On March 12, 2021, the IRS provided updated instructions on their website for preparing returns that have excludable unemployment compensation.[1]  However, on March 23, 2021 the IRS made a significant change in those instructions.[2]

Originally the IRS instructions had taxpayers include the unemployment compensation in determining the modified AGI (reading “without regard to this section” in IRC §85(c)(2)(B) to mean without regard to the exclusion at IRC §85(c)) but now they have decided that means without regard to any unemployment compensation covered by §85"

Are you kidding me  When they first released the Instructions, I pulled up Page 1 of Form 1040, Schedule ! of Form 1040

and the newly published instructions and carefully followed them line by line and this was the exact result that I arrived at!

Then the next day when the tax software providers started releasing their UCE worksheets, the total UC was included in the

MAGI.   Now it isn't included in MAGI! 

Whoa Nelly!

  At this rate there wan't even be a close second for Most Confusing Tax Season!!!

 

[Lee B]

This is approaching the classic definition of a "Dumpster Fire"

[GLJEANNE]

Just when I was feeling excited that ATX had updated. 

Last year was the Season-that-just-won't-end.  This year is just the Season from Hell.  Dumpster Fire indeed.

[Abby Normal]

I was only half joking when I said a few weeks ago that we should all close our offices for a month, to let this all get sorted.

[JohnH]

I don't have a lot of clients who filed for unemployment, but of those who did, I've prepared extensions as soon as the info came in.  I don't intend to look at them again for at least 3-4 weeks.