The Newport Beach Tax Attorney Blog

Employers Can Claim the Employee Retention Credit for 2020 on the 4th Quarter Form 941

The IRS has clarified that, under section 206(c) of the Taxpayer Certainty and Disaster Tax Relief Act of 2020, an employer that is eligible for the employee retention credit (ERC) can claim the ERC even if the employer received a Small Business Interruption Loan under the Paycheck Protection Program (PPP). Accordingly, eligible employers can claim ERS on any qualified wages that are not counted as payroll costs in obtaining PPP loan forgiveness. However, any wages that could count toward eligibility for ERC or PPP loan forgiveness can be applied to wither of these programs, but not both.

Further, if an employer received a PPP loan and included wages paid in the 2nd and/or 3rd quarter of 2020 as payroll costs in support of an application to obtain forgiveness of the loan (rather than claiming ERC for those wages), and the employer's request for forgiveness was denied, the employer could claim the ERC related to those qualified wages on its 4th quarter 2020 Form 941, Employer's Quarterly Federal Tax Return. Additionally, the employer could report on its 4th quarter Form 941 any ERC attributable to health expenses that are qualified wages that it did not include in its 2nd and/or 3rd quarter Form 941. Moreover, employers who chose the 4th quarter procedure must add the ERC attributable to these 2nd and/or 3rd quarter qualified wages and health expenses on line 11c or line 13d (as relevant) of their original 4th quarter Form 941 (along with any other ERC for qualified wages paid in the 4th quarter). Further, employers should:

Include the amount of these qualified wages paid during the 2nd and/or 3rd quarter (excluding health plan expenses) on line 21 of your original 4th quarter Form 941 (along with any qualified wages paid in the 4th quarter).

Enter the same amount on Worksheet 1, Step 3, line 3a.

Include the amount of these health plan expenses from the 2nd and/or 3rd quarter on line 22 of the 4th quarter Form 941 (along with any health expenses for the 4th quarter)

Enter the same amount on Worksheet 1, Step 3, line 3b.

www.wilsontaxlaw.com

Joseph P. Wilson

Wilson Tax Law Group

Wilson Tax Law Group, APLC

(949) 397-2292

Newport Beach Office)

(714) 463-4430

Yorba Linda Office

IRS Highlights Temporary Tax Changes Designed to Help Individuals and Businesses Who Give to Charity

The IRS has highlighted four temporary tax changes which are a part of the Coronavirus Aid, Relief and Economic Security Act (CARES Act). These tax changes have been designed to help individuals and businesses who give to charity before the end of this year.

Individuals who don’t itemize

Individuals who elect to take the standard deduction generally cannot claim a deduction for their charitable contributions. However, the CARES Act permits these individuals to claim a limited deduction on their 2020 federal income tax returns for cash contributions made to certain qualifying charitable organizations and still claim the standard deduction. Under this change, these individuals can claim an "above-the-line" deduction of up to $300 for cash contributions made to qualifying charities during 2020. The maximum above-the-line deduction is $150 for married individuals filing separate returns.

Individuals who itemize

Subject to certain limits, individuals who itemize may claim a deduction for charitable contributions they make to qualifying charitable organizations. These limits generally range from 20-percent to 60-percent of an individual’s adjusted gross income (AGI) and vary by the type of contribution and type of charitable organization. The CARES Act permits electing individuals to apply an increased limit, up to 100-percent of their AGI, for qualified contributions (Increased Individual Limit). The election is made on a contribution-by-contribution basis. Qualified contributions are limited to those made in cash during calendar year 2020 to qualifying charitable organizations. Individuals who would like to take advantage of the Increased Individual Limit must make their elections with their Form 1040, U.S. Individual Income Tax Return, or Form 1040-SR, U.S. Tax Return for Seniors.

Increased Corporate Limit for charitable contributions

The CARES Act has permitted C Corporations to apply an increased limit of 25-percent of taxable income (Increased Corporate Limit) for charitable contributions of cash they make to eligible charities during the 2020 calendar year. The maximum allowable deduction is usually limited to 10-percent of a corporation’s taxable income. C Corporations must elect application of the Increased Corporate Limit on a contribution-by-contribution basis.

Businesses donating food inventory

Businesses donating food inventory that is eligible for the enhanced deduction (for contributions for the care of the ill, needy, and infants) are eligible for increased deduction limits. For contributions made in 2020, the limit for these contribution deductions is increased from 15-percent to 25-percent. For C Corporations, the 25-percent limit is based on their taxable income. For other businesses, including sole proprietorships, partnerships, and S corporations, the limit is based on their aggregate net income for the year from all trades or businesses from which the contributions were made. A special method for computing the enhanced deduction continues to apply, as do food quality standards and other requirements.

In addition, the IRS has reminded both individuals and businesses that special recordkeeping rules apply to any taxpayer claiming a charitable contribution deduction. For donations of property, additional recordkeeping rules may apply, including filing a Form 8283, Noncash Charitable Contributions, and obtaining a qualified appraisal. The Service has requested taxpayers to see Publication 526, Charitable Contributions, for additional details on how to apply the percentage limits described above and a description of the recordkeeping rules for substantiating gifts to charity.

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)

The IRS is adding a cryptocurrency question to Form 1040 for 2020

Many Bitcoin owners have adopted a “Play dumb and hope for the best” strategy when it comes to taxes. But now that strategy—never a great idea at the best of times—is riskier than ever in light of a proposed change to next year’s tax forms.

The Internal Revenue Service revealed the change in a preview of the Form 1040 that every American uses to file his or her federal income tax. Now, right at the top of the form, below the address line, is a new yes or no question that asks if the filer has acquired an interest in virtual currency:

The proposed IRS change comes as the agency continues to ramp up scrutiny of Bitcoin and other cryptocurrencies. In some cases, the focus of the IRS has been criminal activity involving digital currency, while in others the agency has sought to identify those who fail to report profits from trading.

While millions of Americans own cryptocurrency accounts, a relatively small portion of them have reported income from them. In a lawsuit with cryptocurrency giant Coinbase, for instance, the IRS testified that only 807 individuals reported Bitcoin-related transactions in 2015.

In the past three years, Coinbase and other exchanges have provided more tax reporting tools, but the number of filers remains relatively small. The owner of a firm specializing in crypto taxes told the Wall Street Journal that he estimates fewer than 150,000 crypto owners filed returns last year.

According to the Journal, which first reported the new IRS form, the change to the 1040 amounts to laying “a trap” for those who would feign ignorance of the reporting requirements—and is similar to the approach the agency took to forcing Americans to disclose overseas income.

The aggressive new tactic by the IRS is likely to irk many in the cryptocurrency industry given that current tax rules consider any sale or purchase involving crypto—such as buying a cup of coffee with Bitcoin—to be a taxable event. The industry has lobbied for an exemption for transactions under $200, but the agency has said any such changes to its rules must come from an act of Congress. And while the industry has been increasing its influence in Washington, D.C., it still faces hostility from lawmakers and from the White House.

Barring any changes, the virtual currency question will appear on next year’s next forms. In 2019, the IRS did include a cryptocurrency question, but only on a form for additional income known as Schedule 1 that many Americans don’t use.

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 Warns Tax Professionals About Cybercriminals Seeking to Exploit COVID- 19 Fears

The IRS has warned tax professionals that they face additional challenges from cybercriminals seeking to exploit COVID-19 fears. The Service urges taxpayers and tax professionals to use anti-virus, firewalls and multi-factor authentication systems. In addition, the IRS has highlighted that taxpayers and tax professionals must back up sensitive files, encrypt data and use a Virtual Private Network (VPN).

Additional Information

The IRS has urged taxpayers and tax professionals to review Publication 5293, Data Security Resource Guide for Tax Professionals. The publication provides a compilation of data theft information available on IRS.gov, including the reporting processes.

Publication 5293, Data Security Resource Guide for Tax Professionals

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)

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Property Tax: Assessment Appeals Deadline Extended and Remote Hearings Allowed

For California property tax purposes, effective September 29, 2020, the two-year deadline by which a county board is required to render a final determination on a property tax assessment appeal qualified application is extended until March 31, 2021. For these purposes, a "qualified application" means a pending application for reduction in assessment of property taxes that is timely filed with the county board and has a two-year deadline occurring from March 4, 2020, and before March 31, 2021. Additionally, the law allows the county boards to hear appeals remotely. Remotely conducted hearings include the use of video, audio, and telephonic means for remote appearances; the electronic exchange and authentication of documentary evidence; e-filing and e-service; the use of remote interpreting; and the use of remote reporting and electronic recording to make the official record of an action or proceeding.

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 Reminds Certain Foreign Account Holders of 2019 FBAR Filing Extension

The IRS reminded U.S. citizens, entities and resident aliens with a foreign bank or financial account that they have until October 31, 2020, to file their 2019 Report of Foreign Bank and Financial Accounts (FBAR). FBAR filers impacted by the California Wildfires, the Iowa Derecho, Hurricane Laura, the Oregon Wildfires and Hurricane Sally continue to have until December 31, 2020, to file their FBARs. The IRS coordinated the extension with the Financial Crimes Enforcement Network (FinCEN) for this year only to filers for 2019 FBARs. The filing requirement applies to anyone who had an interest in, or signature or other authority, over foreign financial accounts whose aggregate value exceeded $10,000 at any time during calendar year 2019. The FBAR, FinCEN Form 114, is only available through the BSA E-Filing System website.

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)