New Coronavirus Aid for Businesses to Carryback Losses Five-Years

Proposed and temporary regulations provide guidance for consolidated groups regarding net operating losses (NOLs). Specifically, the proposed regulations explain application of the rule enacted by the Tax Cuts and Jobs Act which limits the NOL deduction to 80 percent of taxable income less pre-2018 NOLs, effective for tax years beginning after 2020. In addition, the proposals remove obsolete provisions from the rules for consolidated groups that contain both life insurance companies and nonlife insurance companies.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) allows NOLs arising in tax year to be carried back five years, effective for NOLs arising in tax years beginning after 2017 and before 2021. Temporary regulations allow certain acquiring consolidated groups to make an election to waive all or a portion of the pre-acquisition portion of this extended carryback period for certain losses attributable to certain acquired members.

Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group is exclusively comprised of former IRS litigators and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division and Criminal Division.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Newport Beach and Yorba Linda, California

Tel: (949) 397-2292 (Newport Beach Office)

Tel: (714) 463-4430 (Yorba Linda Office)

 

IRS Announces More Than $1.5 Billion of Unclaimed Tax Refunds for 2016 Tax Year

The IRS announced that more than $1.5 billion of unclaimed income tax refunds awaited an estimated 1.4 million individual taxpayers who did not file a 2016 federal income tax return. The IRS extended the due date for filing tax year 2016 returns and claiming refunds for that year to July 15, 2020, as a result of the COVID-19 pandemic. The IRS urged taxpayers who haven't filed past due tax returns no later than this year's extended tax due date of July 15, 2020 to claim refunds. However, the IRS reminded taxpayers that there would be no penalty for filing late when a refund is involved.

The law provides most taxpayers with a three-year window of opportunity to claim a tax refund, in cases where a tax return was not filed. Further, taxpayers are required to properly address, mail and ensure the tax return is postmarked by the July 15 date. It is worth noting that checks of taxpayer's seeking a 2016 tax refund may be held if they have not filed tax returns for 2017 and 2018. Additionally, the refund would be applied to any amounts owed to the IRS or state tax agency and may be used to offset unpaid child support or past due federal debts, such as student loans.

Taxpayers stand to lose more than just their refund of taxes withheld or paid during 2016, if they fail to file a tax return. Many low- and moderate-income workers may be eligible for the Earned Income Tax Credit (EITC). Finally, current and prior year tax forms (such as the tax year 2016 Form 1040, 1040A and 1040EZ) and instructions are available on the IRS Forms and Publications page or by calling toll-free 800-TAX-FORM (800-829-3676).

Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group is exclusively comprised of former IRS litigators and Assistant US Attorneys from the US Attorney's Office, Central District of California, Tax Division and Criminal Division.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Newport Beach and Yorba Linda, California

Tel: (949) 397-2292 (Newport Beach Office)

Tel: (714) 463-4430 (Yorba Linda Office)

Coronavirus-Related Distributions and Plan Loan Guidance

The IRS has issued guidance on Coronavirus-related distributions and plan loans. The guidance presents the rules set out in Act Sec. 2202 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136). It adds three new categories to the list of individuals who qualify due to adverse financial consequences. It provides analysis and examples repayments reporting. The guidance includes safe harbors for employee certification and the plan loan payment suspension period.

 

Background: Coronavirus-Distributions and Plan Loan Relief

The CARES Act provides that qualified individuals may treat as coronavirus-related distributions up to $100,000 in distributions made from their eligible retirement plans (including IRAs) between January 1 and December 30, 2020. A coronavirus-related distribution is not subject to the 10 percent additional tax that otherwise generally applies to distributions made before an individual reaches age 59 ½. In addition, a coronavirus-related distribution can be included in income in equal installments over a three-year period, and an individual has three years to repay a coronavirus-related distribution to a plan or IRA and undo the tax consequences of the distribution.

In addition, the CARES Act provides that plans may implement certain relaxed rules for qualified individuals relating to plan loan amounts and repayment terms. In particular, plans may suspend loan repayments that are due from March 27 through December 31, 2020, and the dollar limit on loans made between March 27 and September 22, 2020, is raised from $50,000 to $100,000.

New Categories of Qualified Individuals

One of the categories of individuals who qualify for Coronavirus-related distributions are those who experience adverse financial consequences as a result of Coronavirus. As laid out in the CARES act, these consequences may include: being quarantined; being furloughed or laid off or having work hours reduced due to such virus or disease; being unable to work due to lack of child care due to such virus or disease; and closing or reducing hours of a business owned or operated by the individual due to such virus or disease.

The CARES Act authorizes the Treasury Department to add to this list of adverse financial consequences, the these are the new additions:


  • a reduction in pay (or self-employment income) due to COVID-19 or having a job offer rescinded or start date for a job delayed due to COVID-19;

  • the individual’s spouse or a member of the individual’s household being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19, being unable to work due to lack of childcare due to COVID-19, having a reduction in pay (or self-employment income) due to COVID-19, or having a job offer rescinded or start date for a job delayed due to COVID-19; or

  • closing or reducing hours of a business owned or operated by the individual’s spouse or a member of the individual’s household due to COVID-19.


For purposes of applying these additional factors, a member of the individual’s household is someone who shares the individual’s principal residence.

 

Recontributions for Taxpayers Recognizing Income in Year of Distribution

The new guidance goes into some detail about recontributions. Individuals have up to three years to recontribute qualified distributions. Recontributed dollars are not taxed, so earlier returns may have to be amended. The rules differ depending on whether the individual is recognizing income over three years or entirely in the year of distribution.

If a taxpayer includes all coronavirus-related distributions received in a year in gross income for that year and recontributes any portion during the three-year recontribution period, the amount of the recontribution will reduce the amount of the related distribution included in gross income for the year of the distribution.

Example 1. Taxpayer Bob receives a $45,000 coronavirus distribution from B’s employer plan on November 1, 2020. Bob recontributes $45,000 to an IRA on March 31, 2021. Bob reports the recontribution on Form 8915-E and files the 2020 federal income tax return on April 10, 2021. No portion of the coronavirus-related distribution is includible as income for the 2020 tax year.

Example 2.. The facts are the same as in Example 1, except that Bob timely requests an extension of time to file the 2020 federal income tax return and makes a recontribution on August 2, 2021, before filing the 2020 federal income tax return. Bob files the 2020 federal income tax return on August 10, 2021. As in Example 1, no portion of the coronavirus-related distribution is includible in income for the 2020 tax year because Bob made the recontribution before the timely filing of the 2020 federal income tax return. 

Example 3. Taxpayer Cynthia receives a $15,000 distribution from an employer plan on March 30, 2020. Cynthia elects out of the 3-year ratable income inclusion on Form 8915-E and includes the entire $15,000 in gross income for the 2020 tax year. On December 31, 2022, she recontributes $15,000 to her employer plan. Cynthia will need to file an amended federal income tax return for the 2020 tax year to report the amount of the recontribution and reduce the gross income by $15,000 with respect to the coronavirus-related distribution included on the 2020 original federal income tax return.

Recontributions for Taxpayers Recognizing Income Over Three Years

If a qualified individual includes a coronavirus-related distribution ratably over a three-year period and the individual recontributes any portion to an eligible retirement plan at any date before the timely filing of the individual’s federal income tax return (that is, by the due date, including extensions) for a tax year in the three-year period, the amount of the recontribution will reduce the ratable portion of the coronavirus-related distribution that is includible in gross income for that tax year.

Example 4. Taxpayer Dan receives $75,000 from his employer plan on December 1, 2020. Dan uses the three-year ratable income inclusion method. Dan makes one recontribution of $25,000 to the plan on April 10, 2022. Dan files his 2021 federal income tax return on April 15, 2022. Without the recontribution, Dan should include $25,000 in income with respect to the coronavirus-related distribution on each of Dan 2020, 2021, and 2022 federal income tax returns. However, as a result of the recontribution, Dan should include $25,000 in income with respect to the coronavirus-related distribution on the 2020 federal income tax return, $0 in income with respect to the coronavirus-related distribution on the 2021 federal income tax return, and $25,000 in income with respect to the coronavirus-related distribution on the 2022 federal income tax return.

Example 5. The facts are the same as in Example 4 except Dan recontributes $25,000 to the plan on August 10, 2022. Dan files the 2021 federal income tax return on April 15, 2022, and does not request an extension of time to file that federal income tax return. As a result of the recontribution, Dan should include $25,000 in income with respect to the coronavirus-related distribution on the 2020 federal income tax return, $25,000 in income with respect to the coronavirus-related distribution on the 2021 federal income tax return, and $0 in income with respect to the coronavirus-related distribution on the 2022 federal income tax return. 

Carryovers. If the taxpayer recontributes an amount for a tax year in the three-year period that exceeds the amount that is otherwise includible in gross income for that tax year, the excess amount of the recontribution may be carried forward to reduce the amount of the distribution includible in gross income in the next tax year in the three-year period. Alternatively, the qualified individual is permitted to carry back the excess amount of the recontribution to a prior taxable year or years in which the individual included income attributable to a coronavirus-related distribution. The individual will need to file an amended federal income tax return for the prior taxable year or years to report the amount of the recontribution on Form 8915-E and reduce his or her gross income by the excess amount of the recontribution.

Example 6. Taxpayer Eliza receives a distribution of $90,000 from her IRA on November 15, 2020. Eliza ratably includes the $90,000 distribution in income over a three-year period. Without any recontribution, Eliza will include $30,000 in income with respect to the coronavirus-related distribution on each of the 2020, 2021, and 2022 federal income tax returns. Eliza includes $30,000 in income with respect to the coronavirus-related distribution on the 2020 federal income tax return. Eliza then recontributes $40,000 to an IRA on November 10, 2021 (and makes no other recontribution in the three-year period). Eliza may do either of the following:

  • Option 1: includes $0 in income with respect to the coronavirus-related distribution on the 2021 federal income tax return, and carry forward the excess recontribution of $10,000 to 2022 and includes $20,000 in income with respect to the coronavirus-related distribution on Eliza’s 2022 federal income tax return.

  • Option 2: includes $0 in income with respect to the coronavirus-related distribution on the 2021 tax return and $30,000 in income on the 2022 federal income tax return. Also file an amended federal income tax return for 2020 to reduce the amount included in income as a result of the coronavirus-related distribution to $20,000 (that is, the $30,000 original amount includible in income for 2020 minus the remaining $10,000 recontribution that is not offset on either the 2021 or 2022 federal tax return).


Safe Harbor for Plan Loans

The CARES Act provides that in the case of a qualified individual with a loan from a qualified employer plan outstanding on or after March 27, 2020, if the due date for any repayment with respect to the loan occurs during the period beginning on March 27, 2020, and ending on December 31, 2020, the due date shall be delayed for one year. Under a safe harbor, a qualified employer plan will satisfy this requirement if a qualified individual’s obligation to repay a plan loan is suspended under the plan for any period beginning not earlier than March 27, 2020, and ending not later than December 31, 2020. The loan repayments must resume after the end of the suspension period, and the term of the loan may be extended by up to one year from the date the loan was originally due to be repaid.

Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense. The firm was founded in 2014 by Joseph P. Wilson, a former Federal tax prosecutor, trial attorney for the IRS and trial attorney for the Franchise Tax Board.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Newport Beach and Yorba Linda, California

Tel: (949) 397-2292 (Newport Beach Office)

Tel: (714) 463-4430 (Yorba Linda Office)

New, Revised PPP Forgiveness Applications

The Small Business Administration (SBA), in consultation with Treasury, has released both a new EZ and revised, full Paycheck Protection Program (PPP) loan forgiveness application.

The new and revised forms come on the heels of a recent request made by over 40 bipartisan senators to simplify the forgiveness filing process for certain borrowers. Additionally, the updated forms released on June 17 follow updated PPP guidance released last week.

The updated guidance and forms move to implement the Paycheck Protection Program Flexibility Act (PPPFA), which President Trump signed on June 5, 2020. The PPPFA aims to expand usability of the Coronavirus Aid, Relief, and Economic Security (CARES) Act’s PPP for small businesses.

Notably, both applications give borrowers the option of using the original 8-week covered period (if their loan was made before June 5, 2020) or the PPPFA’s extended 24-week covered period, according to Treasury’s June 17 press release. However, the EZ application requires fewer calculations and less documentation for eligible borrowers.

The new EZ forgiveness application can be located here.

The revised, full forgiveness application can be located here.

Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal tax defense.  Firm founder,  Joseph P. Wilson, is a former Federal tax prosecutor, trial attorney for the IRS and trial attorney for the Franchise Tax Board.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Newport Beach and Yorba Linda, California

Tel: (949) 397-2292 (Newport Beach Office)

Tel: (714) 463-4430 (Yorba Linda Office)

 

 

IRS Reminds Taxpayers to File Taxes Electronically; Use Direct Deposit for Tax Refund

The IRS has reminded taxpayers who have not filed their 2019 federal tax return to file electronically and choose direct deposit for their refund. Further, taxpayers who owe taxes for 2019 or need to pay 2020 estimated taxes originally due for the first quarter on April 15 or the second quarter on June 15 can schedule an electronic payment up to the July 15 due date. The Service has urged taxpayers to use electronic options to support social distancing and speed the processing of tax returns, refunds and payments. Moreover, a list of forms due July 15 is on the Coronavirus Tax Relief: Filing and Payment Deadlines page.

For 2016 tax returns, the normal April 15 deadline to claim a refund is now July 15, 2020. The Service has also advised taxpayers to use direct deposit to deposit their refund into one, two or even three accounts. In addition, taxpayers can file and schedule their federal tax payments up to the July 15 due date. When paying federal taxes electronically taxpayers should remember that IRS Direct Pay allows them to pay online directly from a checking or savings account for free, and to schedule payments up to 365 days in advance. Individual tax filers, regardless of income, can use IRS Free File to electronically request an automatic tax-filing extension which gives them until October 15 to file their tax return. To get the extension, the taxpayers must estimate their tax liability on the extension form and should pay any amount due. Alternatively, taxpayers can get an extension by paying all or part of their estimated income tax due and indicate that the payment is for an extension using IRS Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or a credit or debit card. The IRS has requested taxpayers to use the Interactive Tax Assistant (ITA) and go to IRS.gov/COVIDtaxdeadlines to get their tax-related queries addressed.

Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense. The firm was founded in 2014 by Joseph P. Wilson, a former Federal tax prosecutor, trial attorney for the IRS and trial attorney for the Franchise Tax Board.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Newport Beach and Yorba Linda, California

Tel: (949) 397-2292 (Newport Beach Office)

Tel: (714) 463-4430 (Yorba Linda Office)

IRS Rules Encourage Leave-Based Donation Programs for Victims of COVID-19

The IRS has provided relief to support employer leave-based donation programs to aid victims of the COVID-19 (coronavirus) pandemic. Under these programs, employees may forgo vacation, sick or personal leave in exchange for cash payments the employer makes to charitable organizations providing relief for the victims of the pandemic.

An employer’s donations under a leave-based donation program are not gross income or wages for the employees who surrendered leave so long as the donations are made in cash to a charitable organization for the relief for victims of the COVID-19 pandemic, before January 1, 2021. Similarly, the employee does not receive income or wages from the opportunity to forgo leave. Thus, the employer does not have to report its leave-based donations on the employee’s Form W-2.

An employee may not claim a charitable contribution deduction for the value of leave that is surrendered in a leave-based donation program and excluded from the employee’s wages. However, the employer can deduct its cash payments as a charitable contribution under Code Sec. 170 or as a ordinary and necessary business expense under Code Sec. 162 if the employer otherwise meets the respective requirements.

Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense. The firm was founded in 2014 by Joseph P. Wilson, a former Federal tax prosecutor, trial attorney for the IRS and trial attorney for the Franchise Tax Board.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Newport Beach and Yorba Linda, California

Tel: (949) 397-2292 (Newport Beach Office)

Tel: (714) 463-4430 (Yorba Linda Office)

California—Property Tax: Assessment Appeals Filing Periods Set for 2020

The regular appeals filing periods for 2020 for California county property tax assessments have been certified. The regular appeals filing periods will begin on July 2 and end on either:


  • September 15; or

  • November 30.


The end date a county uses depends on whether the county assessor mails assessment notices by August 1 to all taxpayers with property on the secured roll.

Letter to County Assessors, No. 2020/026, California State Board of Equalization, June 2, 2020

Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense. The firm was founded in 2014 by Joseph P. Wilson, a former Federal tax prosecutor, trial attorney for the IRS and trial attorney for the Franchise Tax Board.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Newport Beach and Yorba Linda, California

Tel: (949) 397-2292 (Newport Beach Office)

Tel: (714) 463-4430 (Yorba Linda Office)

New Coronavirus Aid for Businesses to Carryback Losses Five-Years

Proposed and temporary regulations provide guidance for consolidated groups regarding net operating losses (NOLs). Specifically, the propose...