Taxable Talk

The IRS released Notice 2020-23 this afternoon, formally extending lots more tax deadlines. I’m going to copy the language as it matters:

The Secretary of the Treasury has determined that any person (as defined in section 7701(a)(1) of the Code) with a Federal tax payment obligation specified in this section III.A (Specified Payment), or a Federal tax return or other form filing obligation specified in this section III.A (Specified Form), which is due to be performed (originally or pursuant to a valid extension) on or after April 1, 2020, and before July 15, 2020,is affected by the COVID-19 emergency for purposes of the relief described in this section III (Affected Taxpayer).

The IRS extends various deadlines/payment dates to July 15th:

• Form 1040 Series
• Forms 1040-ES (and other estimated taxes) [1]
• Forms 1120 Series (including Form 1120-S) [2]
• Form 1065 [2]
• Form 1041 Series
• Form 706
• Form 709
• Form 990-T
• Form 990-PF
• Form 3520

However, some tax forms were not included: Form 990, Form 990N, and Form 990-EZ. I’m not sure what the reason was for excluding the forms that most nonprofits have to file.

A couple of notes:

1. The language in this notice appears to extend all estimated payments due between April 1st and July 15th to July 15th. That means that second quarter estimated payments that were due on June 15th are now due on July 15th.
2. The notice states that relief is granted to: “Calendar year or fiscal year corporate income tax payments and return filings on…[Form] 1120-S…[and] Calendar year or fiscal year partnership return filings on Form 1065, U.S. Return of Partnership Income….” This means that the March 15th deadline for S-Corporations and Partnership returns has been retroactively extended to July 15th–at least, that’s how I read the notice. That’s big news as I have some new clients who just submitted their partnership information, so they’ll be considered timely filed.
3. The IRS specifically granted relief for anyone who has to file items such as Forms 3520, 5471, 5472, 8921, 8858, 8865, and 8938 with their tax returns. They can either file by July 15th or with a timely (by July 15th) extension.

Kudos to the IRS for this relief–especially the July 15th second quarter estimated tax deadline. Clients were already very confused regarding the idea that the second quarter estimated payment was due before the first quarter payment.

We prepare tax returns for individuals throughout the United States, so we have to keep track of the deadlines–and that’s a task right now. So we created a spreadsheet with the information so we can see this at a glance (there’s also a pdf version).

This corrects my error. I was provided the “final” version of the CARES Act that wasn’t. Only the first quarter federal estimated payment was extended to July 15th; the second quarter estimated payment is due on June 15th, the third quarter is due on September 15th, and the fourth quarter is due on January 15, 2021. Mea culpa.

Additionally, with all states now having extended the deadlines, we’re unlikely to see any additional changes. So I think these will end up being the final versions.

UPDATE: Late on April 1st, the IRS reversed course. To the question, “I am not typically required to file a tax return. Can I still receive my payment?” The IRS now states,

Yes. The IRS will use the information on the Form SSA-1099 or Form RRB-1099 to generate Economic Impact Payments to recipients of benefits reflected in the Form SSA-1099 or Form RRB-1099 who are not required to file a tax return and did not file a return for 2018 or 2019. This includes senior citizens, Social Security recipients and railroad retirees who are not otherwise required to file a tax return.

Since the IRS would not have information regarding any dependents for these people, each person would receive $1,200 per person, without the additional amount for any dependents at this time.

Thus, as of April 1, 2020, seniors and others do not have to file a tax return.

The IRS released its guidance today on the “Economic Impact” payments. We were told that the IRS would look at Social Security Records, so taxpayers who did not have a filing requirement would not have to file.

Wrong. From the IRS Release:

I am not typically required to file a tax return. Can I still receive my payment.

Yes. People who typically do not file a tax return will need to file a simple tax return to receive an economic impact payment. Low-income taxpayers, senior citizens, Social Security recipients, some veterans and individuals with disabilities who are otherwise not required to file a tax return will not owe tax.

The IRS will soon release guidance on that at irs.gov/coronavirus.

Call me unhappy. This tax season was bad to begin with, and then we have the Covid-19 outbreak, and now make-work.

As I’m sure all of you are aware, Congress passed legislation sending money to Americans, along with a lot of other tax related components. Here’s a summary.

The Stimulus: Each non-dependent will receive a $1,200 “Recovery Rebate” provided their Adjusted Gross Income (AGI) is $75,000 (single) or less; this doubles if married, and the phase-out begins at $112,500 if “Head of Household”. Above this level, it lowers by $50 per $1,000 earned. Thus, it phases out at $99,000 (single) and $198,000 (MFJ). There is an additional $500 for each child dependent.

The IRS will use 2019 AGI to determine the payment. If you have not filed 2019, the IRS will look at 2018. Let’s say you’re ineligible based on both 2018 and 2019, but this year’s income would make you eligible. You will get a refundable tax credit on your 2020 tax return.

The payment does not have to be paid back. Assume your AGI in 2019 is $70,000 (single), but in 2020 it’s $170,000; you do not have to pay back the $1,200.

The IRS will also look at social security records for seniors who don’t have a filing requirement.

UPDATE: The IRS announcement on how the payments will be made states that in order to obtain the stimulus payments, you must file a tax return. I have a short blog post on this lousy development.

UPDATE: The IRS reversed course, and now will look at social security records for senior and others who don’t normally file tax returns.

When will the stimulus come? Back in 2008 with stimulus checks, direct deposits were distributed from May 2 to May 16 with paper checks sent from May 16 to July 11. Note that the stimulus was passed in February, so it took ten weeks for distribution of checks. While Secretary of the Treasury Mnuchin is hoping to see distribution starting in April, I strongly suspect we’re looking at late May at the earliest, with June far more likely. (I will update this once a schedule is announced.)

UPDATE: In a press release today, the IRS states that the checks will begin to be distributed “in the next three weeks”. The IRS plans to offer a web based system for individuals to provide their banking information if it’s not on file. See the press release here.

Can I game the system? I made a lot more in 2019 than 2018. Yes, you can. You can file an extension on your 2019 taxes (paying the tax you owe by July 15th), and then file your return you owe later. The IRS will look at your 2018 return.

Unemployment Insurance: The legislation includes an expanded $600 per week of benefits for up to four months, and federal funding of benefits for those who are not normally eligible for unemployment (such as independent contractors and the self-employed). Additionally, the federal government will fund an additional 13 weeks of unemployment through year-end for those whose state benefits have ended.

I’m self-employed (or a professional poker player). Can I apply for unemployment? Yes, but don’t be surprised if there are issues. Unemployment is handled by each state (in Nevada, it’s by the Department of Employment, Training, and Rehabilitation). DETR has a special page for benefits for COVID-19 (I assume most states do). But remember, it may take a while for the bureaucrats to fully implement the new law.

Estimated Tax Deadline: The first three quarters of federal estimated tax payments are due on October 15, 2020.

UPDATE: The first quarter federal estimated tax payment is due on July 15th; second quarter is due on June 15th. I was sent the wrong version of the final legislation.

SBA Loans (Paycheck Protection Program). Small businesses may take out loans up to $10 million to cover payroll and other expenses from February 15 to June 30. Loans can be forgiven in certain situations.

Unfortunately, SBA loans are a pain. In good times these take many weeks to be processed. While I’m hopeful we’ll see a nimble SBA, don’t count on it.

SBA loans work through banks that have partnered with the SBA, so check with your financial institution to see.

UPDATE: SBA Paycheck Protection Program loans can be applied for beginning Friday, April 3rd for sole proprietors and small business owners and on Friday, April 10th for independent contractors and the self-employed.

Can a Professional Gambler Apply for an SBA Covid-19 Loan? No, the guidelines specifically prohibit loans to anyone who receive more than one-third gross annual revenue from legal gambling activities. (This provision also prohibits small casinos from such loans.) (My thanks to @NotWittyQuips on Twitter for pointing this out.)

Other Individual Tax Changes: There were some other changes that will benefit Americans:

• IRA Required Minimum Distribution rules are waived for 2020.
• There are no 10% early withdrawal penalties on most retirement account distributions for 2020.
• Some employer payments of up to $5,250 for student loans are not income for employees in 2020.
• There is a new up to $300 charitable contribution deduction that will be taken on the face of Form 1040 (likely as an “Adjustment to Income”) for those who do not itemize their deductions. This new deduction is permanent.

Net Operating Losses: Businesses (and it appears) individuals can take Net Operating Losses (NOLs) from 2018, 2019, or 2020 and fully carry them back two to five years. Note that this provision is retroactive, so a firm with an NOL in 2018 can amend their previous 2013 – 2016 return(s) to receive a refund. The 80% limit was suspended as part of this legislation.

I’m a professional poker player and had an NOL in 2018 from my business expenses. Can I take the NOL? No, the legislation did not change the 2017 provision that overrode the Mayo v Commissioner decision.

Other Business Provisions: There are many other business provisions contained in the legislation:

• Employers are eligible for a 50% refundable payroll tax credit on wages paid up to $10,000. The business must have a 50% (minimum) decrease in gross receipts as compared to the previous year (looked at by quarter). The credit is available for all wages for firms with 100 or fewer employees, and for employees retained but not working for employers with more employees.
• The Net Interest Deduction Limitation is changed from 30% of earnings before EBITDA to 50% of earnings before EBITDA.
• The excise tax on alcohol to produce hand sanitizer is waived for 2020.
• Employer payroll tax payments may be delayed until January 1, 2021 with 50% of the deferred amount due on December 31, 2021 and the other 50% due at the end of 2022.
• Corporation federal estimated taxes are delayed until October 15, 2020.

Pork: It’s Congressional legislation, so there’s pork in the bill. Someone else can talk about that, but I’d guess $200 billion is wasted on that.

I’m sure I’ve missed some items–the legislation is 880 pages long. There’s a four page summary of tax provisions. The Tax Foundation has a good summary of the legislation, too. Remember, federal legislation changes the federal tax code. Some states will conform with all of the legislation; some will not conform at all.