The Newport Beach Tax Attorney Blog

U.S. and Switzerland Enter into Competent Authority Arrangement

The competent authorities of Switzerland and the U.S. have entered into the following Competent Authority Arrangement regarding the implementation of the arbitration process provided for in paragraphs 6 and 7 of Article 25 of the Convention between the Swiss Federation and the United States of America for the Avoidance of Double Taxation with Respect to Taxes on Income, signed at Washington on October 2, 1996, as Amended by the Protocols signed on October 2, 1996, and September 23, 2009 (the "Convention") and the exchange of notes accompanying the 2009 Protocol which form an integral part of the Convention.

Arbitration Process

The arbitration process is applicable to cases that the competent authorities of Switzerland and the U.S. have determined are suitable for assistance under the mutual agreement procedure of Article 25 of the Convention in accordance with published guidance. Further, the arbitration process is subject to certain exceptions described in paragraph 4. The published guidance in the case of Switzerland, is the "Factsheet on the mutual agreement procedure" of May 2018 or any amendment or successor provisions thereof, and in the case of the United States is the, Rev. Proc. 2015- 40, IRB 2015-35, 236, or any amendment or successor provisions thereof. This arrangement has been adopted in accordance with paragraphs 6 and 7 of Article 25 of the Convention and subparagraphs a) and q) of paragraph 1 of the Treaty Annexure A. The competent authorities of both contracting states, the presenter of the case and the arbitrators are required to follow the procedures in this arrangement in good faith.

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)

Tax Flash: California Taxpayer Entitled to Abatement of Demand Penalty

A California personal income taxpayer was entitled to an abatement of a demand penalty because the penalty was not properly imposed. Generally, the Franchise Tax Board (FTB) may impose a penalty when a taxpayer does not timely respond to a Demand for Tax Return. Further, the FTB is only allowed to impose a demand penalty if the taxpayer also failed to timely respond to a Request or a Demand for Tax Return for a prior year, and that failure resulted in FTB issuing a Notice of Proposed Assessment (NPA) at any time during the four taxable years preceding the year for which the current Demand is being issued. In this matter, the demand penalty at issue was for the 2014 tax year. However, it was noted that the FTB did not issue an NPA to the taxpayer during 2010, 2011, 2012, or 2013 tax years. Therefore, the requirements under the applicable regulation were not met. Accordingly, the demand penalty was not properly imposed.

Giordano, California Office of Tax Appeals, No. 18053180, June 3, 2020, released August 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. 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 at 949.397-2292.

Newport Beach and Yorba Linda, California

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

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

California US Central District Court Issues New Closure Notice

The United States District Court for the Central District of California announces the following regarding the Court’s operations in light of the Coronavirus (COVID-19) pandemic and the recent surge of COVID-19 cases in the District.

COVID-19 Notice - GO No. 20-09

Access to the Courthouses

Effective immediately, all Courthouses of the Central District of California will be closed to the public, until further notice, and except as set forth below.

All federal Pro Se Clinics in the district are closed.
The Los Angeles and Santa Ana Clinics are providing remote assistance via telephone and/or email. Please contact them for more information:
Los Angeles: (213) 385-2977, Ext. 270 or tinyurl.com/fedproseclinic
Santa Ana: (714) 541-1010, Ext. 222

Court Hearings

All appearances in civil cases will be by telephone or video conference.

Hearings in any criminal matter may proceed in court when the defendant does not consent to appear by telephone or video conference. Members of the public will have access to such proceedings with a limit of 10 people present in the courtroom or in an overflow courtroom at one time at the discretion of the assigned judge.

Criminal bench duty will continue to take place in the Roybal Courthouse in Los Angeles and the Santa Ana Courthouse, by video or telephonic conference with the defendant’s consent and in-court absent consent.

Jury Trials

Until further notice, no jury trials will be conducted in civil cases. However, individual judges, at their discretion, may offer bench trials by video conference in lieu of postponement.

Until further notice, no jury trials will be conducted in criminal cases.

The Court has adopted gating criteria that will be used to inform when the Court resumes jury trials, which is Phase 3 of the Court’s Plan for Phased Resumption of Court Operations. The gating criteria is designed to determine local COVID-19 exposure risks based on 14-day trends of facility exposure, community spread, and community restrictions.

Filing Information

The intake sections in each courthouse will be closed to the public. To post a bond or submit an emergency, time-sensitive filing such as a temporary restraining order, call the following telephone numbers:
Los Angeles – (213) 894-8288
Riverside – (951) 328-4450
Santa Ana – (714) 338-3958 or (714) 338-4760

All criminal duty matters handled by a district judge shall be filed in the appropriate division.

All magistrate judge criminal bench duty matters shall be filed in the Edward R. Roybal Federal Building and United States Courthouse in Los Angeles and Santa Ana Courthouse.

All criminal document duty matters handled by a magistrate judge shall be filed electronically.

For all other intake and records questions, call the following telephone numbers:
Los Angeles Civil Intake – (213) 894-3535
Los Angeles Criminal Intake – (213) 894-8288
Riverside Civil and Criminal Intake – (951) 328-4450
Santa Ana Civil Intake – (714) 338-2886
Santa Ana Criminal Intake – (714) 338-4786
Archival records requests are suspended because the Federal Records Center is closed.

The court’s CM/ECF system is available 24/7 for electronic filing of documents.

Unrepresented litigants who cannot electronically file their documents and attorneys who are required to manually file documents pursuant to the local rules must mail their filings to the Clerk of Court at 255 E. Temple Street, Suite TS-134, Los Angeles, CA 90012-3332.

Non-paper physical exhibits or other exhibits exempted from electronically filing shall be sent via U.S. Mail or other commercial delivery to the Clerk of Court at the above address.

Mandatory Chambers Copies

Until further notice, all district judges and magistrate judges do not require mandatory chambers copies during the pandemic.

Any judge can require a chambers copy in a particular case if desired. The chambers copy shall be mailed to the judge via Fed Ex. Chambers copy cannot be hand-delivered to the courthouse.

The Court continues to monitor the COVID-19 pandemic as it evolves and will provide updates concerning the Court’s operations as adjustments are made.

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)

CARES Act Provides Favorable Tax Treatment for Withdrawals from Retirement Plans and IRAs

Individuals and businesses should know that the Coronavirus Aid, Relief, and Economic Security (CARES) Act provides favorable tax treatment for withdrawals from retirement plans and Individual Retirement Accounts (IRAs). Under the CARES Act, individuals eligible for coronavirus-related relief may be able to withdraw up to $100,000 from IRAs or workplace retirement plans before December 31, 2020, if their plans allow. In addition to IRAs, this relief applies to 401(k) plans, 403(b) plans, profit-sharing plans and others.

Individuals eligible to take coronavirus-related withdrawals may also, until September 22, 2020, be able to borrow as much as $100,000 (up from $50,000) from a workplace retirement plan, if their plan allows. Loans are not available from an IRA. For eligible individuals, plan administrators can suspend, for up to one year, plan loan repayments due on or after March 27, 2020, and before January 1, 2021. A suspended loan is subject to interest during the suspension period, and the term of the loan may be extended to account for the suspension period.

In addition, to be eligible for COVID-19 relief, coronavirus-related withdrawals or loans can only be made to an individual if:

The individual is diagnosed with COVID-19 by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetics Act);

The individual’s spouse or dependent is diagnosed with COVID-19 by such a test; or

The individual, their spouse or a member of the individual’s household experiences adverse financial consequences as a result of: (1) being quarantined, furloughed or laid off, having work hours reduced, being unable to work due to lack of childcare, having a reduction in pay (or self-employment income), or having a job offer rescinded or start date for a job delayed, due to COVID-19; or (2) closing or reducing hours of a business owned or operated by the individual, the individual’s spouse, or a member of the individual’s household, due to COVID-19.

Individuals and businesses can learn more about these provisions by contacting a tax professional for assistance. 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)

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 Â½. 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)