IRS provides tax relief through increased flexibility for taxpayers in section 125 cafeteria plans

May 12, 2020





WASHINGTON — The Internal Revenue Service today released guidance to allow temporary changes to section 125 cafeteria plans. These changes extend the claims period for health flexible spending arrangements (FSAs) and dependent care assistance programs and allow taxpayers to make mid-year changes.





The guidance issued today addresses unanticipated changes in expenses because of the 2019 Novel Coronavirus (COVID-19) pandemic and provides that previously provided temporary relief for high deductible health plans may be applied retroactively to January 1, 2020, and it also increases for inflation the $500 permitted carryover amount for health FSAs to $550.





Notice 2020-29 (PDF) provides greater flexibility for taxpayers by:





  • extending claims periods for taxpayers to apply unused amounts remaining in a health FSA or dependent care assistance program for expenses incurred for those same qualified benefits through December 31, 2020.
  • expanding the ability of taxpayers to make mid-year elections for health coverage, health FSAs, and dependent care assistance programs, allowing them to respond to changes in needs as a result of the COVID-19 pandemic.
  • applying earlier relief for high deductible health plans to cover expenses related to COVID-19, and a temporary exemption for telehealth services retroactively to January 1, 2020.




Notice 2020-33 (PDF) responds to Executive Order 13877, which directs the Secretary of the Treasury to "issue guidance to increase the amount of funds that can carry over without penalty at the end of the year for flexible spending arrangements." The notice increases the limit for unused health FSA carryover amounts from $500, to a maximum of $550, as adjusted annually for inflation.





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 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 Office)





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

Tax Court Slam Dunks Charitable Deduction Conservation Easement

A partnership was denied charitable contribution deduction because it had entered in an conservation easement that violated the perpetuity requirement of Code Sec. 170(h)(5) and the regulations. The Tax Court held that if there is a judicial extinguishment of an easement the donee receives a proportionate value of any proceeds.

The Easement Deed

The taxpayer had donated a conservation easement to a land trust and claimed a charitable contribution deduction under Code Sec. 170(a). The easement deed provided that, if the conservation restriction were extinguished at some future date, the donee would receive a share of the proceeds equal to the fair market value (FMV) of the easement on the date the contribution was made. The deed further provided that the donee’s share as thus determined would be reduced by the value of any improvements made by the donor after granting the easement.

The taxpayer argued that Reg. §1.170A-14(g)(6) does not say that the donee is entitled to a proportionate share of any proceeds upon extinguishment of the easement but proportionate value. It argued this means fixed value and because the regulation requires that the value be fixed as of the donation date, the donee was not entitled to any proceeds attributable to the value of post-donation improvements.

Windfall for Donees?

The IRS disallowed the deduction, contending that the extinguishment clause violated the requirements of Reg. §1.170A-14(g)(6). The Tax Court concurred with the Service’s reasoning and held that the easement deed violated the "protected in perpetuity" requirement of Code Sec. 170(h)(5), as interpreted in Reg. §1.170A-14(g)(6).

The Court held that the donee’s share of the "proportionate value" as used in the regulation means a fraction of the proceeds from a judicial extinguishment, and not a fixed value.

The taxpayer argued that it was unfair for a donee to receive extinguishment proceeds attributable to the value of improvements made solely by the donor because it would amount to an unintended charitable contribution for which it received no deduction. However, the Tax Court found that the purpose of the regulation is to avoid any windfalls to donors, not donees, if an easement was extinguished. The easement deed violated the regulation because the donee must be entitled to any proceeds from extinguishment or condemnation that were at least equal to the total proceeds multiplied by a fraction defined by the ratio of the FMV of the easement to the FMV of the unencumbered property determined as of the date of the easement deed.

The taxpayers were not held liable for accuracy-related penalties because the taxpayer acted reasonably and in good-faith. The partner was unfamiliar with the nuances of setting up a conservation easement and had relied on public letter rulings.

The Validity of the Regulation

The taxpayer challenged the validity of Reg. §1.170A-14(g)(6) which was addressed by the Tax Court in a concurrent opinion. The taxpayer contended the "proportionate value" approach to division of proceeds from a judicial extinguishment of the easement does not take into account for the possibility of donor improvements. The Tax Court held that the regulation was properly promulgated as it substantially revised the text regarding the proportionate value in response to comments and had only received one comment on the possibility of improvements. It therefore found that the regulation was valid under the Administrative Procedure Act, 5 U.S.C. Section 553.

The Tax Court further relied on the two-part test given in Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc. 467 U.S. 837 (1984) and held that the construction of Code Sec. 170(h)(5) as set forth in Reg. §1.170A-14(g)(6) was valid. The Treasury exercised reasoned judgment by adhering to a simple rule that split sale proceeds in a direct proportional manner on the basis of a fraction determined as of the date the gift was made. Because the regulation as drafted ensures satisfaction of the statutory mandate that the conservation purpose be "protected in perpetuity", the regulation was not arbitrary, capricious, or manifestly contrary to the Code.

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 Office)

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

IRS Employees Ordered Back To Work


The IRS has called for thousands of employees to return onsite for "mission-critical functions," but some lawmakers are criticizing the agency’s move.  This comes as a twist after the IRS ordered all employees to evacuate the worksites as previously discussed in a prior post on March 21, 2020.



IRS Workers Must Obtain Their Own Protective Equipment


After obtaining an internal IRS email sent to employees last week, House Ways and Means Committee Chairman Richard Neal, D-Mass., and Ways and Means Oversight Subcommittee Chairman John Lewis, D-Ga., issued a statement over the weekend criticizing the IRS’s decision to call employees back onsite for work yet require those employees to bring their own face coverings.


"We understand better than nearly anyone in Congress that the IRS is of essential importance to the federal government and to our nation. It is understandable that in carrying out its mission during a crisis, the agency would require some employees to report back to work during perilous times. However, it is completely irresponsible and unethical for the IRS to demand those workers obtain their own protective equipment — this is the responsibility of the federal government to its workers," the lawmakers wrote in a joint statement. "The agency is expecting entirely too much of employees who are likely distraught over the health risks returning to work presents for themselves and for their families, as well as the potential repercussions they could face if they do not clock in on Monday with the mandated equipment in-hand."


Additionally, Neal and Lewis went on to say that IRS Commissioner Charles "Chuck" Rettig told Congress recently that 100 IRS employees have been diagnosed with COVID-19. "The IRS should not require any employees it deems essential to report to work until it is able to provide those individuals with the protective equipment they are required to wear," the lawmakers added.



IRS Statement


However, the IRS issued a statement on Saturday, April 25 saying that the agency has requested, but not required, thousands of employees to volunteer to return to work and provided an offer for incentive pay.  "No employees have been requested to return to work in a manner inconsistent with federal COVID-19 guidelines, and the requirement for employees voluntarily returning to the workplace to wear face coverings is an example of the IRS exceeding the federal safety guidelines and measures," the IRS said. "Employees can use any face covering that is consistent with CDC recommendations, including those fashioned from common household materials. The IRS also has been working to obtain PPE for our employees and expect many to be delivered as early as this weekend and upcoming week."  According to the IRS, employees are needed to fulfill the following key responsibilities:





  • opening mail that has been held for a number of weeks;




  • processing of paper tax returns that may offer refunds to taxpayers;




  • working on returns with refundable credits;




  • answering taxpayers’ questions on our toll-free lines; and




  • performing Income Verification Express Service and certain lien/levy functions.




This is a very uncomfortable and uncertain time, but no employee should be required to work without the proper safety measures in place.  Wilson Tax Law Group endorses any tax relief efforts being sought to assist those communities, industries, businesses and individuals negatively affected by the outbreak. Although tax relief doesn’t solve the problem it helps mitigate the financial fallout.  If you or your business has comments or concerns or requires professional and diligent legal tax help, contact the Wilson Tax Law Group at 949-397-2292.  Wilson Tax Law Group, APLC is an Orange County law firm specializing in Federal and State tax audits, internal compliance, FBAR, offshore bank account disclosures, and criminal tax, including appeals, trials, and collections. The Los Angeles and San Francisco Daily Journals have named Wilson Tax Law Group as one of the “Top 20 Boutique Firms in California”. Firm founder Joseph P. Wilson is a former IRS Attorney, Federal Tax Prosecutor, and California Franchise Tax Board Attorney.


Newport Beach Main Office
1401 Dove Street Suite 630
Newport Beach, CA 92660

Yorba Linda Branch Office
18281 Lemon Drive
Yorba Linda, CA 92886

By Appointment Only
949.397.2292 (Newport Beach Office Phone)
714.436.4430 (Yorba Linda Office Phone)

Website: https://wilsontaxlaw.com

New Guidance Concerning Employment Tax Relief for Businesses

The Coronavirus, Aid, Relief and Economic Security Act (CARES Act) allows employers to defer the deposit and payment of the employer's share of social security taxes and self-employed individuals to defer payment of certain self-employment taxes. The IRS issued FAQs to address specific issues related to the deferral of deposit and payment of these employment taxes.  On April 10, 2020, the Internal Revenue Service issued new guidance on the deferral of employment tax deposits and payments through December 31, 2010, as follows:

2020ARD 073-2: Internal Revenue Service: Frequently asked questions: Employment tax deposits: Employment tax payments


1. What deposits and payments of employment taxes are employers entitled to defer?

Section 2302 of the CARES Act provides that employers may defer the deposit and payment of the employer's portion of social security taxes and certain railroad retirement taxes. These are the taxes imposed under section 3111(a) of the Internal Revenue Code (the “Code”) and, for Railroad employers, so much of the taxes imposed under section 3221(a) of the Code as are attributable to the rate in effect under section 3111(a) of the Code (collectively referred to as the “employer's share of social security tax”). Employers that received a Paycheck Protection Program loan may not defer the deposit and payment of the employer's share of social security tax that is otherwise due after the employer receives a decision from the lender that the loan was forgiven. (See FAQ 4).

2. When can employers begin deferring deposit and payment of the employer's share of social security tax without incurring failure to deposit and failure to pay penalties?
The deferral applies to deposits and payments of the employer's share of social security tax that would otherwise be required to be made during the period beginning on March 27, 2020, and ending December 31, 2020. (Section 2302 of the CARES Act calls this period the “payroll tax deferral period.”)

The Form 941, Employer's QUARTERLY Federal Tax Return, will be revised for the second calendar quarter of 2020 (April - June, 2020). Information will be provided in the near future to instruct employers how to reflect the deferred deposits and payments otherwise due on or after March 27, 2020 for the first quarter of 2020 (January - March 2020). In no case will Employers be required to make a special election to be able to defer deposits and payments of these employment taxes.

3. Which employers may defer deposit and payment of the employer's share of social security tax without incurring failure to deposit and failure to pay penalties?
All employers may defer the deposit and payment of the employer's share of social security tax. However, employers that receive a loan under the Small Business Administration Act, as provided in section 1102 of the CARES Act (the Paycheck Protection Program (PPP)), may not defer the deposit and payment of the employer's share of social security tax due on or after the date that the PPP loan is forgiven under the CARES Act. See FAQ 4.

4. Can an employer that has applied for and received a PPP loan that is not yet forgiven defer deposit and payment of the employer's share of social security tax without incurring failure to deposit and failure to pay penalties?
Yes. Employers who have received a PPP loan, but whose loan has not yet been forgiven, may defer deposit and payment of the employer's share of social security tax that otherwise would be required to be made beginning on March 27, 2020, through the date the lender issues a decision to forgive the loan in accordance with paragraph (g) of section 1106 of the CARES Act, without incurring failure to deposit and failure to pay penalties. Once an employer receives a decision from its lender that its PPP loan is forgiven, the employer is no longer eligible to defer deposit and payment of the employer's share of social security tax due after that date. However, the amount of the deposit and payment of the employer's share of social security tax that was deferred through the date that the PPP loan is forgiven continues to be deferred and will be due on the “applicable dates,” as described in FAQs 7 and 8.

5. Is this ability to defer deposits of the employer's share of social security tax in addition to the relief provided in Notice 2020-22 for deposit of employment taxes in anticipation of the Families First Coronavirus Relief Act (FFCRA) paid leave credits and the CARES Act employee retention credit?
Yes. Notice 2020-22 provides relief from the failure to deposit penalty under section 6656 of the Code for not making deposits of employment taxes, including taxes withheld from employees, in anticipation of the FFCRA paid leave credits and the CARES Act employee retention credit. The ability to defer deposit and payment of the employer's share of social security tax under section 2302 of the CARES Act applies to all employers, not just employers entitled to paid leave credits and employee retention credits. (But see the limit described in FAQ 4 for employers that have a PPP loan forgiven.)

6. Can an employer that is eligible to claim refundable paid leave tax credits or the employee retention credit defer its deposit and payment of the employer's share of social security tax prior to determining the amount of employment tax deposits that it may retain in anticipation of these credits, the amount of any advance payments of these credits, or the amount of any refunds with respect to these credits?
Yes. An employer is entitled to defer deposit and payment of the employer's share of social security tax prior to determining whether the employer is entitled to the paid leave credits under sections 7001 or 7003 of FFCRA or the employee retention credit under section 2301 of the CARES Act, and prior to determining the amount of employment tax deposits that it may retain in anticipation of these credits, the amount of any advance payments of these credits, or the amount of any refunds with respect to these credits.

7. What are the applicable dates by which deferred deposits of the employer's share of social security tax must be deposited to be treated as timely (and avoid a failure to deposit penalty)?
The deferred deposits of the employer's share of social security tax must be deposited by the following dates (referred to as the “applicable dates”) to be treated as timely (and avoid a failure to deposit penalty):

1. On December 31, 2021, 50 percent of the deferred amount; and

2. On December 31, 2022, the remaining amount.

8. What are the applicable dates when deferred payment of the employer's share of social security tax must be paid (to avoid a failure to pay penalty under section 6651 of the Code)?
The deferred payment of the employer's share of social security tax is due on the “applicable dates” as described in FAQ 7.

9. Are self-employed individuals eligible to defer payment of self-employment tax on net earnings from self-employment income?
Yes. Self-employed individuals may defer the payment of 50 percent of the social security tax on net earnings from self-employment income imposed under section 1401(a) of the Code for the period beginning on March 27, 2020, and ending December 31, 2020. (Section 2302 of the CARES Act calls this period the “payroll tax deferral period.”)

10. Is there a penalty for failure to make estimated tax payments for 50 percent of social security tax on net earnings from self-employment income during the payroll tax deferral period?
No. For any taxable year that includes any part of the payroll tax deferral period, 50 percent of the social security tax imposed on net earnings from self-employment income during that payroll tax deferral period is not used to calculate the installments of estimated tax due under section 6654 of the Code.

11. What are the applicable dates when deferred payment amounts of 50 percent of the social security tax imposed on self-employment income must be paid?
The deferred payment amounts are due on the “applicable dates” as described in FAQ 7.

Please note the IRS will update the FAQs to address additional questions as they arise. Clients and businesses should check the IRS website for the most current version and contact their tax professional for assistance.

Wilson Tax Law Group endorses any tax relief efforts being sought to assist those communities, industries, businesses and individuals negatively affected by the outbreak. Although tax relief doesn’t solve the problem it helps mitigate the financial fallout. If you or your business has comments or concerns or require professional and diligent legal tax help, contact the Wilson Tax Law Group at 949-397-2292.

 

Tax Alert: Coronavirus Relief Payment Scams Spreading

Press Release
April 7, 2020
Newport Beach California

TIGTA 2020-2 Release

The Treasury Inspector General for Tax Administration (TIGTA) today urged taxpayers to be on high alert for potential scams related to government assistance to taxpayers impacted by the coronavirus.  “The Coronavirus Aid, Relief, and Economic Security Act authorizes payments to taxpayers to offset the economic impact of the coronavirus,” said J. Russell George, the Treasury Inspector General for Tax Administration. “Previous government assistance efforts have been used by crooks and scammers who see this as an opportunity to defraud taxpayers in every way possible.”

Since 2013, TIGTA has investigated scams in which individuals impersonate Internal Revenue Service (IRS) officials in order to obtain personally identifiable information from unsuspecting taxpayers or to coerce them into making payments to clear up alleged unpaid tax debt.
TIGTA has also investigated phishing attempts in which taxpayers receive scam e-mails claiming to be from the IRS. Scammers use phishing e-mail and text messages to victimize taxpayers in many ways including loading malicious software on their computers and utilizing victim information to file fraudulent tax returns.

If you receive letters, calls, emails, or other communications from individuals claiming to be from the IRS and offering coronavirus stimulus payments in exchange for personal financial information, an advance fee, or charge of any kind, including the purchase of gift cards, please do not respond. These are scams. Please contact TIGTA so these scammers can be identified and stopped.

Inspector General George offered the following tips to taxpayers:
• The IRS is not going to contact you by telephone to ask you for your personal identification or financial information in order to provide you with an economic impact payment.
• The IRS will never contact you and ask you to make any kind of payment using an iTunes card, gift card, prepaid debit card, money order, or wire transfer.
• The IRS will never request personal or financial information by e-mail, text messages, letters, or any social media.
• If you receive a call from someone claiming to be from the IRS asking for your personal identification or financial information in exchange for an economic impact payment, take the following action:
o Hang up.
o If you owe Federal taxes, or think you might owe taxes, call the IRS at 1-800-829-1040. IRS employees can help you with your payment questions.
o If you do not owe taxes, report suspicious communications on TIGTA’s website at www.TIGTA.gov, and follow the prompts to report IRS-related coronavirus scams.

Inspector General George encourages taxpayers to be alert to phone and e-mail scams that use the IRS name and logo. Forward suspected scam e-mails to phishing@irs.gov. Do not open any attachments or click on any links in those e-mails. Also, be aware of other unrelated scams (such as saying you are a lottery or sweepstakes winner) and solicitations (such as debt relief offers) that fraudulently claim to be from the IRS.

Wilson Tax Law Group endorses tax relief efforts being sought to assist those communities, industries, businesses and individuals negatively affected by the outbreak. However, clients and businesses need to be on high alert for those using the pandemic as means to prey on people who are vulnerable, sick and/or financial distressed.    If you or your business has concerns or questions about a particular tax relief program, the former IRS attorneys at Wilson Tax Law Group are available to assist and can be reached at 949-397-2292.

Tax Alert: Coronavirus Relief Payment Scams Spreading

Press Release
April 7, 2020
Newport Beach California

TIGTA 2020-2 Release

The Treasury Inspector General for Tax Administration (TIGTA) today urged taxpayers to be on high alert for potential scams related to government assistance to taxpayers impacted by the coronavirus.  “The Coronavirus Aid, Relief, and Economic Security Act authorizes payments to taxpayers to offset the economic impact of the coronavirus,” said J. Russell George, the Treasury Inspector General for Tax Administration. “Previous government assistance efforts have been used by crooks and scammers who see this as an opportunity to defraud taxpayers in every way possible.”

Since 2013, TIGTA has investigated scams in which individuals impersonate Internal Revenue Service (IRS) officials in order to obtain personally identifiable information from unsuspecting taxpayers or to coerce them into making payments to clear up alleged unpaid tax debt.
TIGTA has also investigated phishing attempts in which taxpayers receive scam e-mails claiming to be from the IRS. Scammers use phishing e-mail and text messages to victimize taxpayers in many ways including loading malicious software on their computers and utilizing victim information to file fraudulent tax returns.

If you receive letters, calls, emails, or other communications from individuals claiming to be from the IRS and offering coronavirus stimulus payments in exchange for personal financial information, an advance fee, or charge of any kind, including the purchase of gift cards, please do not respond. These are scams. Please contact TIGTA so these scammers can be identified and stopped.

Inspector General George offered the following tips to taxpayers:
• The IRS is not going to contact you by telephone to ask you for your personal identification or financial information in order to provide you with an economic impact payment.
• The IRS will never contact you and ask you to make any kind of payment using an iTunes card, gift card, prepaid debit card, money order, or wire transfer.
• The IRS will never request personal or financial information by e-mail, text messages, letters, or any social media.
• If you receive a call from someone claiming to be from the IRS asking for your personal identification or financial information in exchange for an economic impact payment, take the following action:
o Hang up.
o If you owe Federal taxes, or think you might owe taxes, call the IRS at 1-800-829-1040. IRS employees can help you with your payment questions.
o If you do not owe taxes, report suspicious communications on TIGTA’s website at www.TIGTA.gov, and follow the prompts to report IRS-related coronavirus scams.

Inspector General George encourages taxpayers to be alert to phone and e-mail scams that use the IRS name and logo. Forward suspected scam e-mails to phishing@irs.gov. Do not open any attachments or click on any links in those e-mails. Also, be aware of other unrelated scams (such as saying you are a lottery or sweepstakes winner) and solicitations (such as debt relief offers) that fraudulently claim to be from the IRS.

Wilson Tax Law Group endorses tax relief efforts being sought to assist those communities, industries, businesses and individuals negatively affected by the outbreak. However, clients and businesses need to be on high alert for those using the pandemic as means to prey on people who are vulnerable, sick and/or financial distressed.    If you or your business has concerns or questions about a particular tax relief program, the former IRS attorneys at Wilson Tax Law Group are available to assist and can be reached at 949-397-2292.

California Tax Relief: Defer up to $50K Sales and Use Tax

In recent news, California Governor Gavin Newsom has announced that the California Department of Tax and Fee Administration (CDTFA) is allowing small businesses to defer payment of sales and use taxes of up to $50,000, for up to 12 months. This is in addition to the issuance on March 30, 2020, of the governor’s Executive Order that provides relief for small businesses on taxes and fees administered by the CDTFA.



Payment Plan Available for Small Businesses


Effective April 2, 2020, small business taxpayers can take a 12-month, interest-free, payment plan for up to $50,000 of sales and use tax liability. "Small business taxpayers" are those with less than $5 million in taxable annual sales.



Payment Plan Requests


Payment plan requests can be made through the CDTFA’s online services system at https://onlineservices.cdtfa.ca.gov/ in the coming months.


Wilson Tax Law Group endorses any tax relief efforts being sought to assist those communities, industries, businesses and individuals negatively affected by the outbreak. Although tax relief doesn’t solve the problem it helps mitigate the financial fallout. If you or your business has comments or concerns or require professional and diligent legal tax help, contact the Wilson Tax Law Group at 949-397-2292.

Recent Federal Court Decision: Texas Top Cop Shop, Inc., et al. v. Garland, et al.

Our clients should be aware of a recent ruling in Texas Top Cop Shop, Inc., et al. v. Garland, et al., Case No. 4:24-cv-478 (E.D. Tex. ), wh...