President Trump on March 27 signed the $2 trillion bipartisan Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136). The House approved the historically large emergency relief measure by voice vote just hours before Trump’s signature. The CARES Act cleared the Senate unanimously on March 25, by a 96-to-0 vote.

President Trump on March 27 signed the $2 trillion bipartisan Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136). The House approved the historically large emergency relief measure by voice vote just hours before Trump’s signature. The CARES Act cleared the Senate unanimously on March 25, by a 96-to-0 vote.

Generally, the following individual and business tax-related provisions are included in what lawmakers have dubbed the "phase three" COVID-19 emergency relief package:

• Direct cash payments of up to $1,200 for certain individual taxpayers and $2,400 for certain married couples filing jointly; those amounts would increase by $500 for every eligible child;
• The 10-percent early withdrawal penalty is waived for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes;
• Payments delayed for employer-side payroll taxes;
• The taxable income limit is eliminated for certain net operating losses (NOL) and businesses and individuals can carry back NOLs arising in 2018, 2019, and 2020 to the last five tax years;
• Excess business loss rules suspended under section 461(l);
• Refunds accelerated of previously generated corporate AMT credits;
• Forgivable loans to small businesses that retain their employees throughout this crisis;
• Temporarily enact provisions of the bipartisan Employer Participation in Repayment Act, which would allow employers to contribute up to $5,250 tax-free to help pay down their employees’ student loans; and
• Various technical corrections to the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97), including the so-called retail glitch.

Wolters Kluwer Special Report CARES Act Tax Briefing
Wolters Kluwer provides a detailed discussion of the tax-related provisions under the CARES Act in the "Special Report CARES Act (COVID-19 Economic Stimulus) Tax Briefing" (at https://engagetax.wolterskluwer.com/Cares-Act.pdf).

Let’s Work Together
Treasury Secretary Steven Mnuchin, who spent many late nights in the U.S. Capitol recently participating in bipartisan negotiations on the Senate’s CARES Act, thanked Republican and Democratic leadership in both the Senate and the House for their bipartisanship. "I am pleased that Congress has passed the CARES Act, the largest economic relief package in history for hardworking Americans and businesses that, through no fault of their own, have been adversely impacted by the coronavirus outbreak," Mnuchin said in a March 27 press release. "President Trump is fully committed to ensuring that American workers and businesses have the resources they need. This legislation provides much-needed relief to help our fellow Americans overcome this difficult but temporary challenge."

Phase Four Economic Relief Package
The CARES Act is considered "phase three" of lawmakers’ and the Trump administration’s collaborative response to the COVID-19 pandemic. Meanwhile, lawmakers on both sides of the aisle, including House Ways and Means Committee Chair Richard Neal, D-Mass., have said they want to see a fourth economic relief measure.

"Our work to help Americans during this emergency won’t stop here. Congress must do more to address the significant public health and economic consequences of the coronavirus," Neal said in a March 27 statement. "In a fourth response package, I want to provide any needed additional support to people who have lost their incomes and to affected patients and health care providers. We should take bold action to improve our country’s economic health too," he added. Additionally, Neal said that he would like to see the Earned Income Tax Credit (EITC) and the Child Tax Credit expanded, as well as infrastructure investments to put people back to work and reinvigorate the economy.

Legislative View – Looking Back and Ahead
"From a legislative view, the CARES Act shares the key characteristics that we’ve seen with other emergency legislation, namely bipartisan willingness to forego typical concerns over cost and take action at unusual speed," John Gimigliano, principal-in-charge of federal legislative and regulatory services in the Washington National Tax practice of KPMG LLP, told Wolters Kluwer in a March 27 emailed statement. "Similar dynamics were apparent in other emergency legislation including bills enacted after the attacks of September 11, Hurricane Katrina, and during the financial crisis," Gimigliano added. "But those precedents also show that each of those three characteristics begins to break down with successive legislative attempts. That made quick passage of the CARES Act key and the development of a ‘coronavirus 4’ package something to watch closely."

Lawmakers are continuing talks on a "phase four" economic relief package in response to the COVID-19 global pandemic. To that end, the House’s "CARES 2" package is currently in the works and could see a floor vote as early as this month.

Lawmakers are continuing talks on a "phase four" economic relief package in response to the COVID-19 global pandemic. To that end, the House’s "CARES 2" package is currently in the works and could see a floor vote as early as this month.

"CARES 2"
President Trump signed into law the $2 trillion bipartisan Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-127) on March 27. The CARES Act is known on Capitol Hill as the third phase of legislation aimed to address the national emergency. However, House Speaker Nancy Pelosi, D-Calif., has said that a House floor vote on a "CARES 2" package could happen later in April.

"The acceleration of the coronavirus crisis demands that we continue to legislate," Pelosi said in a "Dear Colleagues" letter sent out to members during the week of April 6. "We must double down on the down-payment we made in the CARES Act by passing a CARES 2 package, which will extend and expand this bipartisan legislation to meet the needs of the American people," she added. According to Pelosi, the CARES 2 package would (1) go further in assisting small businesses (including farmers), (2) extend and strengthen unemployment benefits, and (3) distribute additional direct payments.

"Our communities cannot afford to wait, and we must move quickly," Pelosi wrote. "It is my hope that we will craft this legislation and bring it to the Floor later this month."

Paycheck Protection Program
Meanwhile, the Trump administration is seeking an increase in funding for the CARES Act’s Paycheck Protection Program. Accordingly, several bipartisan lawmakers have called for congressional action to provide the necessary funding needed for small businesses. The administration is reportedly asking for an additional $250 billion for the largely overrun loan program.

"Through this tax break, workers can get back on payrolls and stay there. By working with their bank, small businesses can get eight weeks of cash-flow assistance through 100 percent federally guaranteed loans," House Ways and Means ranking member Kevin Brady, R-Tex., said on April 7. "If the business [including churches] uses the money to maintain payroll, the portion of the loans used for covered payroll costs, interest on mortgage obligations, rent, and utilities would be forgiven."

Likewise, Senate Majority Leader Mitch McConnell, R-Ky., called for swift action on the matter. "Congress needs to act with speed and total focus to provide more money for this uncontroversial bipartisan program," McConnell said on April 7. "I will work with [Treasury] Secretary Steven Mnuchin and [Senate Minority Leader Chuck] Schumer and hope to approve further funding for the Paycheck Protection Program by unanimous consent or voice vote during the next scheduled Senate session on Thursday."

The IRS announced on March 30 that distribution of economic impact payments in response to the coronavirus (COVID-19) pandemic would begin in the next three weeks. On April 1, the Treasury Department clarified that Social Security and Railroad Retirement benefit recipients who are not required to file a federal tax return will not have to file a return in order to receive their economic impact payment.

The IRS announced on March 30 that distribution of economic impact payments in response to the coronavirus (COVID-19) pandemic would begin in the next three weeks. On April 1, the Treasury Department clarified that Social Security and Railroad Retirement benefit recipients who are not required to file a federal tax return will not have to file a return in order to receive their economic impact payment.

Eligibility Based on Returns, Generally
Eligible taxpayers who filed tax returns for either 2019 or 2018 will automatically receive an economic impact payment of up to $1,200 for individuals, $2,400 for married couples, and up to $500 for each qualifying child. The payment amount will be reduced based on adjusted gross income (AGI). The phase-out begins at AGI above $75,000 for single individuals, $150,000 for joint filers, with the payment amount reduced by $5 for each $100 above the thresholds. Single filers with income exceeding $99,000 and $198,000 for joint filers with no children are not eligible.

The IRS will generally base the payment amount on information from:

• the 2019 tax return for taxpayers who have filed their 2019 return; or
• the 2018 tax return for taxpayers who have not yet filed the their 2019 return.

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

These recipients will receive these payments as a direct deposit or by paper check, just as they would normally receive their benefits.

No payments for dependents, currently. Since the IRS would not have information regarding any dependents for these recipients, each person would receive $1,200 per person, without the additional amount for any dependents at this time.

Other Details
The IRS has addressed other common queries related to economic impact payments:

• Calculating and depositing the payment: The IRS will calculate and automatically send the economic impact payment to those eligible. The economic impact payment will be deposited directly into the same banking account reflected on the 2019 tax returns filed by taxpayers.
• Direct deposit information: A web-based portal for individuals is being developed to provide the taxpayers’ banking information to the IRS online, so that they can receive payments immediately as opposed to checks in the mail.
• Taxpayers who have not filed their tax return for 2018 or 2019: The IRS urges taxpayers with an outstanding tax filing obligation for 2018 or 2019 to file sooner to receive an economic impact payment. Taxpayers should include direct deposit banking information on their tax returns.
• Availability of economic impact payments: The IRS states that for those concerned about visiting a tax professional or local community organization in person to get help with a tax return, the economic impact payments will be available throughout the rest of 2020.

More Information
Even though it currently has a reduced staff in many of its offices, the IRS assures taxpayers that it remains committed to helping eligible individuals receive their payments expeditiously. The IRS urges taxpayers to visit its Coronavirus Tax Relief webpage ( https://www.irs.gov/coronavirus for updated information related to economic impact payments, rather than calling IRS assistors who are helping process 2019 returns.

For the latest information on the economic impact payments, see the IRS’s "Economic impact payments: What you need to know" webpage ( https://www.irs.gov/newsroom/economic-impact-payments-what-you-need-to-know).

The Treasury Department and IRS have provided a notice with additional relief for taxpayers, postponing until July 15, 2020, a variety of tax form filings and payment obligations that are due between April 1, 2020 and July 15, 2020. Associated interest, additions to tax, and penalties for late filing or late payment will be suspended until July 15, 2020. Additional time to perform certain time-sensitive actions during this period is also provided. The notice also postpones due dates with respect to certain government acts and postpones the application date to participate in the Annual Filing Season Program. This notice expands upon the relief provided in Notice 2020-18, I.R.B. 2020-15, 590, and Notice 2020-20, I.R.B. 2020-16, 660.

The Treasury Department and IRS have provided a notice with additional relief for taxpayers, postponing until July 15, 2020, a variety of tax form filings and payment obligations that are due between April 1, 2020 and July 15, 2020. Associated interest, additions to tax, and penalties for late filing or late payment will be suspended until July 15, 2020. Additional time to perform certain time-sensitive actions during this period is also provided. The notice also postpones due dates with respect to certain government acts and postpones the application date to participate in the Annual Filing Season Program. This notice expands upon the relief provided in Notice 2020-18, I.R.B. 2020-15, 590, and Notice 2020-20, I.R.B. 2020-16, 660.

NOTE: The relief is limited to the relief explicitly provided in Notice 2020-18, Notice 2020-20, and Notice 2020-23, and does not apply for any other type of federal tax, any other type of federal tax return, or any other time-sensitive act.

Relief Measures

• Taxpayers Affected by COVID-19 Emergency. Any person (as defined in Code Sec. 7701(a)(1)) with a federal tax payment obligation specified in the notice, or a federal tax return or other form filing obligation specified in the notice, which is due to be performed (originally or pursuant to a valid extension) on or after April 1, 2020, and before July 15, 2020, is affected by the COVID-19 emergency for purposes of the relief.
• Postponement of Due Dates. For an affected taxpayer, the due date for filing specified forms and making specified payments is automatically postponed to July 15, 2020. This relief is automatic: affected taxpayers do not have to call the IRS or file any extension forms, or send letters or other documents to receive this relief. However, affected taxpayers who need additional time to file may choose to file the appropriate extension form by July 15, 2020, to obtain an extension to file their return, but the extension date may not go beyond the original statutory or regulatory extension date.
• Specified Time-Sensitive Actions. Affected taxpayers also have until July 15, 2020, to perform all specified time-sensitive actions listed in either Reg. §301.7508A-1(c)(1)(iv) - (vi) or Rev. Proc. 2018-58, I.R.B. 2018-50, 990, that are due to be performed on or after April 1, 2020, and before July 15, 2020. This includes the time for filing all petitions with the Tax Court, or for review of a decision rendered by the Tax Court, filing a claim for credit or refund of any tax, and bringing suit upon a claim for credit or refund of any tax.
• Certain Government Acts. The notice also provides the IRS with additional time to perform the time-sensitive actions described in Reg. §301.7508A-1(c)(2). Due to the COVID-19 emergency, IRS employees, taxpayers, and other persons may be unable to access documents, systems, or other resources necessary to perform certain time-sensitive actions due to office closures or state and local government executive orders restricting activities.
• Annual Filing Season Program. Under Rev. Proc. 2014-42, I.R.B. 2014-29, 192, applications to participate in the Annual Filing Season Program for the 2020 calendar year must be received by April 15, 2020. The relief postpones the 2020 calendar year application deadline to July 15, 2020.

Specified Forms and Payments
The filing and payment obligations covered by the relief are the following:

• Individual income tax payments and return filings on Form 1040, Form 1040-SR, Form 1040-NR, Form 1040-NR-EZ, Form 1040-PR, and Form 1040-SS.
• Calendar year or fiscal year corporate income tax payments and return filings on Form 1120, Form 1120-C, Form 1120-F, Form 1120-FSC, Form 1120-H, Form 1120-L, Form 1120-ND, Form 1120-PC, Form 1120-POL, Form 1120-REIT, Form 1120-RIC, Form 1120-S, and Form 1120-SF.
• Calendar year or fiscal year partnership return filings on Form 1065 and Form 1066.
• Estate and trust income tax payments and return filings on Form 1041, Form 1041-N, and Form 1041-QFT.
• Estate and generation-skipping transfer tax payments and return filings on Form 706, Form 706-NA, Form 706-A, Form 706-QDT, Form 706-GS(T), Form 706-GS(D), Form 706-GS(D-1), and Form 8971.
• Gift and generation-skipping transfer tax payments and return filings on Form 709 that are due on the date an estate is required to file Form 706 or Form 706-NA.
• Estate tax payments of principal or interest due as a result of an election made under Code Secs. 6166, 6161, or 6163 and annual recertification requirements under Code Sec. 6166.
• Exempt organization business income tax and other payments and return filings on Form 990-T.
• Excise tax payments on investment income and return filings on Form 990-PF and return filings on Form 4720.
• Quarterly estimated income tax payments calculated on or submitted with Form 990-W, Form 1040-ES, Form 1040-ES (NR), Form 1040-ES (PR), Form 1041-ES, and Form 1120-W.
  Notice 2020-18, I.R.B. 2020-15, 590, and Notice 2020-20, I.R.B. 2020-16 are amplified. Rev. Proc. 2014-42, I.R.B. 2014-29, 192, is modified, applicable for calendar year 2020.

synopsisThe Treasury Department and the IRS have released the "Get My Payment" tool to assist Americans in receiving their “economic impact payments” issued under the bipartisan Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136). The free tool went live on April 15, and is located at https://www.irs.gov/coronavirus/get-my-payment.

The Treasury Department and the IRS have released the "Get My Payment" tool to assist Americans in receiving their “economic impact payments” issued under the bipartisan Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136). The free tool went live on April 15, and is located at https://www.irs.gov/coronavirus/get-my-payment.

Get My Payment
The "Get My Payment" tool generally allows consumers to check the status of their payments, and to enter their direct deposit information if the IRS does not already have it.

"Thanks to hard work and long hours by dedicated IRS employees, these payments are going out on schedule, as planned, without delay, to the nation," the IRS said in an April 15 statement emailed to Wolters Kluwer. "The IRS employees are delivering these payments in record time compared to previous stimulus efforts."

Treasury had earlier announced that millions of Americans were already starting to see their economic impact payments. "These payments are being automatically issued to eligible 2019 or 2018 federal tax return filers who received a refund using direct deposit," Treasury said in an April 13 press release.

Non-Filers Option
Americans who did not file a tax return in 2018 or 2019 can use the "Non-Filers: Enter Payment Info Here" option ( https://www.irs.gov/coronavirus/non-filers-enter-payment-info-here) to submit basic personal information to receive their payments.

For those who filed 2018 or 2019 tax returns with direct deposit information or receive Social Security, however, no additional action on their part is needed. These individuals are expected to automatically receive the payment in their bank accounts.

"We are pleased that more than 80 million Americans have already received their Economic Impact Payments by direct deposit in record time," Treasury Secretary Steven Mnuchin said in an April 15 press release. "The free ‘Get My Payment App’ will allow Americans who do not have their direct deposit information on file with the IRS to input it, track the status, and get their money fast."

Status Not Available
Many individuals began voicing complaints on April 15 that the Get My Payment tool was not functional. In response, the IRS on the same day stated: "The Get My Payment site is operating smoothly and effectively. As of mid-day today, more than 6.2 million taxpayers have successfully received their payment status and almost 1.1 million taxpayers have successfully provided banking information, ensuring a direct deposit will be quickly sent. IRS is actively monitoring site volume; if site volume gets too high, users are sent to an online ‘waiting room’ for a brief wait until space becomes available, much like private sector online sites. Media reports saying the tool ‘crashed’ are inaccurate."

The IRS also provided consumers with the following information regarding certain situations in which payment status is deemed unavailable. The IRS listed the following reasons why users may receive the "Status Not Available" notice while using the online tool:

• If you are not eligible for a payment (see IRS.gov on who is eligible and who is not eligible).
• If you are required to file a tax return and have not filed in tax year 2018 or 2019. If you recently filed your return or provided information through Non-Filers: Enter Your Payment Info on IRS.gov. Your payment status will be updated when processing is completed.
• If you are a SSA or RRB Form 1099 recipient, SSI or VA benefit recipient– the IRS is working with your agency to issue your payment; your information is not available in this app yet.

"You can check the app again to see whether there has been an update to your information," the IRS said. "The IRS reminds taxpayers that Get My Payment data is updated once per day, so there’s no need to check back more frequently."

As a result of the retroactive assignment of a 15-year recovery period to qualified improvement property (QIP) placed in service after 2017, QIP generally qualifies for bonus depreciation, and typically at a 100 percent rate. IRS guidance requires taxpayers who previously filed two or more returns using what is now an "incorrect" depreciation period (usually 39 years) to file an accounting method change on Form 3115, Application for Change in Accounting Method, to claim bonus depreciation and/or depreciation based on the 15-year recovery period. The automatic consent procedures apply. If only one return has been filed, a taxpayer may either file Form 3115 or an amended return. No alternatives to filing Form 3115 or an amended return are provided.

As a result of the retroactive assignment of a 15-year recovery period to qualified improvement property (QIP) placed in service after 2017, QIP generally qualifies for bonus depreciation, and typically at a 100 percent rate. IRS guidance requires taxpayers who previously filed two or more returns using what is now an "incorrect" depreciation period (usually 39 years) to file an accounting method change on Form 3115, Application for Change in Accounting Method, to claim bonus depreciation and/or depreciation based on the 15-year recovery period. The automatic consent procedures apply. If only one return has been filed, a taxpayer may either file Form 3115 or an amended return. No alternatives to filing Form 3115 or an amended return are provided.

The guidance also allows taxpayers to make or revoke various elections whether or not directly related to QIP, such as the election out of bonus depreciation. These elections and revocations may be made on an amended return or Form 3115.

The guidance applies to a tax year ending in 2018, 2019, or 2020.

Comment: QIP placed in service in 2018 by a 2017/2018 fiscal-year taxpayer is covered by the guidance, since it applies to tax years ending in 2018.

Amended Return Due Date
When an amended return (including an amended Form 1065, U.S. Return of Partnership Income) is filed for the placed-in-service year to correct the QIP depreciation period and/or claim bonus depreciation, the amended return is due on or before October 15, 2021, but not later than the applicable assessment limitations period. Certain partnerships subject to the centralized audit regime may file an administrative adjustment request (AAR) by October 15, 2021.

Late Elections and Revocations
For a limited time, taxpayers may make a late election or revoke a prior election that was made for depreciable property placed in service during a tax year ending in 2018, 2019, or 2020. The return must have been timely filed and filed before April 17, 2020. These elections and revocations are not limited to QIP. The covered elections are:

• election to use the MACRS alternative depreciation system (ADS) ( Code Sec. 168(g)(7));
• election to claim bonus depreciation on specified plants in the year of planting or grafting ( Code Sec. 168(k)(5));
• election out of bonus depreciation for a class of property ( Code Sec. 168(k)(7)); and
• election to claim bonus depreciation at the 50 percent rate in lieu of the 100 percent rate for all bonus depreciation property placed in service in a tax year that includes September 28, 2017 ( Code Sec. 168(k)(10)).

Generally, making or revoking an election is not considered an accounting method change. However, because of the administrative burden of filing amended returns and AARs, the IRS allows taxpayers to treat the making or revoking of these election as a change in method of accounting with a Code Sec. 481(a) adjustment.

Taxpayers may make or revoke these elections by filing an amended return (including any subsequent affected return) or AAR for the placed-in-service year of the property by October 15, 2021. However, if earlier, the amended return must be filed no later than the expiration of the limitations period for the tax year of the amended return.

For taxpayer choosing not to file an amended return, a Form 3115 to make or revoke these elections must be filed with a timely filed original income tax return (or Form 1065) for the first or second tax year after the tax year in which the property was placed in service, or with a timely filed original income return (or Form 1065) filed on or after April 17, 2020, and on or before October 15, 2021.

Excluded Taxpayers
These procedures do not apply to QIP that was expensed under any provision, including Code Sec. 179 as qualified real property. They also do not apply to an electing real property trade or business or electing farming business that made a late election or withdrew an election related to the business interest deduction limitations ( Code Sec. 163(j)) for the tax year in which QIP was placed in service. (Changes to depreciation affected by the late election or withdrawn election were previously addressed in Rev. Proc. 2020-22.)

Accounting Method Change Lists
Rev. Proc. 2019-43, 2019-48 I.R.B. 1107, which contains all automatic consent accounting method changes, is modified to add new section 6.19 to reflect the rules described in this guidance. Section 6.19 provides that certain "eligibility" rules do not apply. Thus, the automatic procedure will apply even if the change is made in the taxpayer’s last tax year of business or the taxpayer made a change for the same item during any of the five tax years ending with the year of change.

Rev. Proc. 2015-56, 2015-49, I.R.B. 827, relating to the remodel-refresh safe harbor, is also modified to require a taxpayer to substantiate the portion of the property that is qualified improvement property.

The IRS has issued guidance providing administrative relief under the Coronavirus Aid, Relief and Economic Security (CARES) Act ( P.L. 116-136) for taxpayers with net operating losses (NOLs).

The IRS has issued guidance providing administrative relief under the Coronavirus Aid, Relief and Economic Security (CARES) Act ( P.L. 116-136) for taxpayers with net operating losses (NOLs).

The CARES Act provides a five-year carryback for NOLs arising in tax years beginning in 2018, 2019, and 2020. The Tax Cuts and Jobs Act ( P.L. 115-97) had eliminated carryback periods effective for tax years ending after 2017. Some taxpayers have filed 2018 and 2019 returns without using five-year carryback period.

The relief:

• provides procedures for waiving the carryback period in the case of an NOL arising in a tax year beginning after December 31, 2017, and before January 1, 2020; and
• describes how taxpayers with NOLs arising in tax years 2018, 2019, or 2020 can elect to either waive the carryback period for those losses entirely or to exclude from the carryback period for those losses any years in which the taxpayer has an inclusion in income as a result of the Code Sec. 965(a) transition tax.

Six Month Extension for Filing Refund Claims
Taxpayers are granted an extension of time to file refund applications on Form 1045 (individuals, estates, and trusts) or Form 1139 (corporations) with respect to the carryback of an NOL that arose in any tax year that began during calendar year 2018 and that ended on or before June 30, 2019.

2017/2018 Fiscal-Year Taxpayers
Relief is also provided for 2017/2018 fiscal year taxpayer who failed to claim an NOL carryback due to a drafting error in the Tax Cuts and Jobs Act that provided the termination of two-year NOL carryback period applied to NOLs arising in tax years ending after 2017. The CARES Act corrects the effective date error by providing that the termination applies to tax years beginning after 2017. This makes these taxpayers eligible to claim an NOL carryback. The CARES Act allows these taxpayer to file a late application for a tentative refund. An application for a tentative refund is considered timely if filed by July 25, 2020.

The guidance also explains how 2017/2018 fiscal year taxpayer may waive the carryback period, reduce the carryback period (if it is longer than the standard two-year carryback), or revoke an election to waive a carryback period for a tax year that began before January 1, 2018, and ended after December 31, 2017.

Partnerships with NOLs
See the story "BBA Partnerships Can Amend Returns for CARES Benefits" on Rev. Proc. 2020-23, below.

The IRS is allowing taxpayers to file by fax Form 1139, Corporation Application for Tentative Refund, and Form 1045, Application for Tentative Refund, for certain coronavirus relief, a senior IRS official said on April 13. On the same day, the IRS unveiled related procedures for claiming quick refunds of the credit for prior year minimum tax liability of corporations and net operating loss (NOL) deductions ( https://www.irs.gov/newsroom/temporary-procedures-to-fax-certain-forms-1139-and-1045-due-to-covid-19).

The IRS is allowing taxpayers to file by fax Form 1139, Corporation Application for Tentative Refund, and Form 1045, Application for Tentative Refund, for certain coronavirus relief, a senior IRS official said on April 13. On the same day, the IRS unveiled related procedures for claiming quick refunds of the credit for prior year minimum tax liability of corporations and net operating loss (NOL) deductions ( https://www.irs.gov/newsroom/temporary-procedures-to-fax-certain-forms-1139-and-1045-due-to-covid-19).

Forms 1139, 1045
"Starting on April 17, 2020, and until further notice, the IRS will accept eligible refund claims Form 1139 submitted via fax to 844-249-6236 and eligible refund claims Form 1045 submitted via fax to 844-249-6237," the IRS noted in the Coronavirus Tax Relief FAQ posted on its website on April 13. "Before then, these fax numbers will not be operational. We encourage taxpayers to wait until this procedure is available rather than mail their Forms 1139 and 1045 since mail processing is being impacted by the emergency."

In a tailored effort to implement sections 2303 and 2305 under the Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136), the IRS has opened digital transmission of Form 1139 and Form 1045 until further notice. Most notably, only refund claims made under the CARES Act sections 2303 and 2305 are eligible for the temporary procedures.

Generally, under the CARES Act:

• Section 2303 makes several modifications to NOLs, such as requiring a taxpayer with an NOL arising in a tax year beginning in 2018, 2019, or 2020 to carry that loss back to each of the five preceding years unless the taxpayer elects to waive or reduce the carryback; and providing a carryback for a two-year period of NOLs arising during a tax year that began in 2017 and ended during 2018.
• Section 2305 modifies the credit for prior-year minimum tax liability of corporations, including acceleration of the recovery of remaining minimum tax credits of a corporation for its 2019 tax year from its 2021 tax year, and permitting a corporation to elect instead to recover 100 percent of any of its remaining minimum tax credits in its 2018 tax year.

IRS Accepting Yet Not Processing Mail
Similarly, Sunita Lough, deputy commissioner for services and enforcement at the IRS urged taxpayers and practitioners during an April 13 Tax Policy Center (TPC) webinar not to submit Forms 1139 and 1045 related to the CARES Act by mail. Ordinarily, these forms may be filed only via hard copy delivered through the U.S. Postal Service (USPS) or by a private delivery service.

However, the IRS is currently receiving so much mail that the USPS can no longer hold it, according to Lough, adding that the IRS is "literally holding [mail] in trailers until employees can get back to work." Thus, in an effort to "send a signal" that the IRS will implement the CARES Act without access to its mail, it is both allowing and encouraging the fax option, Lough said.

"Only fax Forms 1139 and 1045 specific to the CARES Act," Lough said, adding that any other forms submitted via fax, even Forms 1139 and 1045 unrelated to the CARES Act, will not be processed. Further, the IRS specifically states on its website that any Form 1120X, Amended U.S. Corporation Income Tax Return, that is faxed to the fax numbers noted above will not be accepted for processing.

Pro Tip
"If you are trying to decide between filing Form 1139 and 1120X, it is usually best to file Form 1139 to get a refund," Kirsten Wielobob, principal, Tax Policy and Controversy, Ernst & Young LLP, said on April 10. "It is colloquially referred to as a ‘quickie refund,’" Wielobob said. Generally, the Form 1139 is not subject to joint committee review as the Form 1120X is, which can be filed electronically but can add a layer of complexity. Additionally, Wielobob cautioned that the delays at the IRS could mean filing Form 1139 by paper through the mail is no longer the "quick" option, which appears in line with both the IRS’s cautioning against submitting the form by mail and its newly announced fax option.

The IRS has released guidance on making the following elections for the business interest deduction limitation:

The IRS has released guidance on making the following elections for the business interest deduction limitation:

• the election out of the 50 percent adjusted taxable income (ATI) limitation for tax years beginning in 2019 and 2020 under the Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136);
• the election to use the taxpayer’s ATI for the last tax year beginning in 2019 to calculate the Code Sec. 163(j) limit for the 2020 tax year under the CARES Act; and
  the election out of deducting 50 percent of excess business interest expense (EBIE) for the 2020 tax year without limitation under the CARES Act.

The guidance also provides transition relief to taxpayers making or revoking the election to be an electing real property trade or business or an electing farming trade or business under Code Sec. 163(j)(7).

Business Interest Limit
A taxpayer’s deduction of business interest expenses paid or incurred for any tax year is generally limited to the sum of business interest income, floor plan financing interest, and 30 percent of ATI. The Code Sec. 163(j) limitation is generally increased from 30 percent to 50 percent of a taxpayer’s ATI for any tax year beginning in 2019 and 2020 under the CARES Act.

A taxpayer may elect not to have the increased limitation apply in 2019 or 2020. In addition, a taxpayer may elect for any tax year beginning in 2020 to use its ATI from the 2019 tax year to calculate its Code Sec. 163(j) limitation. The 50 percent ATI limitation does not apply to partnerships for the 2019 tax year. Instead, a partner treats 50 percent of its allocable share of a partnership’s EBIE for 2019 as an interest deduction in the partner’s 2020 tax year without limitation. The remaining 50 percent of such EBIE remains subject to the Code Sec. 163(j) limit applicable to EBIE carried forward at the partner level. A partner may elect out of the 50 percent EBIE rule.

Election Out of 50 Percent ATI
There is no formal election or statement required to the make the election not to apply the 50 percent ATI limit for the 2019 or 2020 tax year. The election is made simply filing a federal income tax return (or Form 1065 in the case of a partnership for 2020) by the due date for the return, including extensions, using the 30 percent ATI limitation. The election may also be made on an amended return or administrative adjustment request (AAR).

The election must be made for each tax year. For a partnership, the election is made by the partnership and not the partners. It is also made by the agent for a consolidated group and for an applicable controlled foreign corporation (CFC) by each controlling domestic shareholder. The taxpayer is granted consent from the IRS to revoke the election by merely filing an amended return and using the 50 percent limit.

Election to Use 2019 ATI in 2020
There is also no formal election or statement required to the make the election to use 2019 ATI to use in the 2020 tax year. The election is made simply filing a federal income tax return (or Form 1065) by the due date for the return for the 2020 tax year, including extensions, using the taxpayer’s 2019 ATI. The 2019 ATI used for the calculation is pro rated if the taxpayer’s 2020 tax year is a short tax year. The election may also be made on an amended return or AAR.

For partnership, the election is made by the partnership and not the partners. It is also made by the agent for a consolidated group and for an applicable CFC by each controlling domestic shareholder. For a CFC group, the election is not effective for any group member unless made for every tax year of a CFC group member for which the election is available.

Election Out of 50 Percent EBIE Rule
There is also no formal election or statement required by a partner in a partnership to make the election out of the 50 percent EBIE rule. A partner makes the election by filing its federal income tax return (or Form 1065) by the due date for the return for the 2020 tax year, including extensions, by not applying the 50 percent EBIE rule in determining the Code Sec. 163(j) limitation. The election may also be made on an amended return or AAR. The partner is granted consent from the IRS to revoke the election by merely filing an amended return, Form 1065, or AAR applying the 50 percent EBIE rule.

Real Property and Farming
The Code Sec. 163(j) limit applies to all taxpayers with business interest except small businesses with meet an average annual gross receipts test. It also does not apply to certain excepted businesses including an electing real property business and an electing farming business.

Under proposed regulations, a taxpayer must make an election for a real property trade or business, or farming business, with respect to each eligible trade business. The election is made by attaching a statement to the taxpayer’s timely filed original tax return (including extensions). A real property trade or business or farming business that elects out of the business interest deduction limit must depreciate certain property using alternative depreciation system (ADS).

In light of the legislative changes, a taxpayer may make the election or revoke an election to be an electing real property trade or business or an electing farming trade or business for the 2018, 2019, or 2020 tax year by filing an amended federal income tax return, amended Form 1065, or amended AAR. The return must include an election statement or withdrawal statement, and any collateral adjustments to taxable income. This include its depreciation of property affected by making a late election or withdrawing the election. The amended federal income tax return, Form 1065, or AAR generally must be filed by October 15, 2021.

The IRS has set forth rules for BBA partnerships to file amended returns to immediately get benefits under the Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136). "BBA partnerships" are those subject to the centralized partnership audit regime established by the Bipartisan Budget Act of 2015 (BBA) ( P.L. 114-74). The procedure allows BBA partnerships the option to file an amended return instead of an Administrative Adjustment Request (AAR) under Code Sec. 6227.

The IRS has set forth rules for BBA partnerships to file amended returns to immediately get benefits under the Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136). "BBA partnerships" are those subject to the centralized partnership audit regime established by the Bipartisan Budget Act of 2015 (BBA) ( P.L. 114-74). The procedure allows BBA partnerships the option to file an amended return instead of an Administrative Adjustment Request (AAR) under Code Sec. 6227.

Amendment Option
BBA partnerships that filed Form 1065, U.S. Return of Partnership Income, and gave all partners Schedules K-1, Partner’s Share of Income, Deductions, Credits, for the tax years beginning in 2018 or 2019 before the IRS issued Rev. Proc. 2020-23 can file amended returns and furnish amended K-1s before September 30, 2020. The amended returns can take into account tax changes brought about by the CARES Act as well as any other tax attributes to which the partnership is entitled by law.

Filing Requirements
To amend a return, a BBA partnership must file a Form 1065, checking the "Amended Return" box and furnish amended Schedules K-1 to partners. The BBA partnership must write "FILED PURSUANT TO REV PROC 2020-23" at the top of the amended return, and attach a statement with each Schedule K-1 sent to its partners with the same notation. The BBA partnership may file electronically or by mail.

There are additional rules for BBA partnerships that are currently under examination for a tax year beginning in 2018 or 2019, or that have previously filed an AAR.

GILTI Regulations
A partnership may continue to apply the rules of Proposed Reg. §1.951A-5 when filing an amended Form 1065 and furnishing amended Schedules K-1 consistent with those proposed regulations. The partnership must notify partners as required by Notice 2019-46, I.R.B. 2019-37, 695.

The IRS has announced that the employment tax credits for paid qualified sick leave and family leave wages required by the Families First Coronavirus Response Act ( P.L. 116-127) will apply to wages and compensation paid for periods beginning on April 1, 2020, and ending on December 31, 2020. Additionally, days beginning on April 1, 2020, and ending on December 31, 2020, will be taken into account for the credits for paid qualified sick leave and family leave equivalents for certain self-employed individuals as provided by the Act.

The IRS has announced that the employment tax credits for paid qualified sick leave and family leave wages required by the Families First Coronavirus Response Act ( P.L. 116-127) will apply to wages and compensation paid for periods beginning on April 1, 2020, and ending on December 31, 2020. Additionally, days beginning on April 1, 2020, and ending on December 31, 2020, will be taken into account for the credits for paid qualified sick leave and family leave equivalents for certain self-employed individuals as provided by the Act.

Expanded Leaves
The Act’s Division C (Emergency Family and Medical Leave Expansion Act) and Division E (Emergency Paid Sick Leave Act) requires employers with fewer than 500 employees to provide expanded paid family leave and paid sick leave to certain employees. These employees are unable to work or telework due to certain circumstances related to the coronavirus (COVID-19).

Tax Credits for Paid Leave
The Act’s Division G provides payroll tax credits to employers that make the required leave payments to their employees. The Act also provides comparable credits for self-employed individuals carrying on any trade or business under Code Sec. 1402, if the self-employed individual would be entitled to receive paid leave if he or she were an employee of an employer (other than himself or herself).

The refundable tax credits for most employers with fewer than 500 employees apply to qualified sick leave and family leave wages paid for the period from April 1, 2020, to December 31, 2020. Additionally, the self-employment tax credit will be determined based on days occurring during the period beginning on April 1, 2020, and ending on December 31, 2020.

The Treasury Secretary selected the April 1 date in coordination with the U.S. Department of Labor’s determination of the effective date for employers’ compliance with the Emergency Family and Medical Leave Expansion Act and Emergency Paid Sick Leave Act requirements.

The IRS has provided penalty relief for failure to deposit employment taxes under Code Sec. 6656 to employers entitled to the new refundable tax credits provided under the Families First Coronavirus Response Act (Families First Act) ( P.L. 116-127), and the Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136). The relief is provided the extent that the amounts not deposited are equal to or less than the amount of refundable tax credits to which the employer is entitled under the Families First Act and the CARES Act.

The IRS has provided penalty relief for failure to deposit employment taxes under Code Sec. 6656 to employers entitled to the new refundable tax credits provided under the Families First Coronavirus Response Act (Families First Act) ( P.L. 116-127), and the Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136). The relief is provided the extent that the amounts not deposited are equal to or less than the amount of refundable tax credits to which the employer is entitled under the Families First Act and the CARES Act.

The relief applies to deposits of employment taxes reduced in anticipation of the credits for:

• qualified leave wages paid with respect to the period beginning April 1, 2020, and ending December 31, 2020; and
• qualified retention wages paid with respect to the period beginning on March 13, 2020, and ending December 31, 2020.

COVID-19 Refundable Credits
The Families First Act generally requires employers of fewer than 500 employees to provide paid sick leave and expanded family and medical leave, up to specified limits, to employees unable to work or telework due to certain circumstances related to coronavirus disease 2019 (COVID-19). Generally, the Families First Act provides a refundable tax credit against an employer’s share of the Social Security portion of Federal Insurance Contributions Act (FICA) tax and an employer’s share of the Social Security and Medicare portions of the Railroad Retirement Tax Act (RRTA) tax ( "creditable employment taxes") for each calendar quarter. The credit is equal to 100 percent of qualified leave wages paid by the employer, plus qualified health plan expenses with respect to that calendar quarter.

The CARES Act allows certain employers experiencing a full or partial business suspension due to orders from a governmental authority, or a statutorily specified decline in business, due to COVID-19 to claim a refundable tax credit against an employer’s creditable employment taxes. The credit amount is up to 50 percent of the qualified wages (including allocable qualified health expenses), and is limited to $10,000 per employee over all calendar quarters combined.

Employers report these refundable credits on their returns for reporting their liability for FICA tax (or RRTA tax), which for most employers subject to FICA tax is the quarterly Form 941. An employer may claim an advance payment of the refundable tax credits by filing new Form 7200, Advance Payment of Employer Credits Due to COVID-19.

Penalty Relief for Qualified Leave Wages
An employer will not be subject to a penalty for failing to deposit employment taxes relating to qualified leave wages in a calendar quarter if:

• the employer paid qualified leave wages to its employees in the calendar quarter prior to the time of the required deposit;
• the amount of employment taxes that the employer does not timely deposit is less than or equal to the amount of the employer’s anticipated credits under the Families First Act for the calendar quarter as of the time of the required deposit; and
• the employer did not seek payment of an advance credit by filing Form 7200 for the anticipated credits it relied upon to reduce its deposits.

Thus, an employer may reduce, without penalty, the amount of a deposit of employment taxes by the amount of qualified leave wages and qualified health plan expenses paid by the employer in the calendar quarter prior to the required deposit, plus the amount of the employer’s share of Medicare tax on such qualified leave wages, as long as the employer does not also seek an advance credit for the same amount.

The total amount of any reduction in any required deposit may not exceed the total amount of qualified leave wages and qualified health plan expenses and the employer’s share of Medicare tax on the qualified leave wages in the calendar quarter, minus any amount of qualified leave wages, qualified health plan expenses, and employer’s share of Medicare tax that had been previously used (1) to reduce a prior required deposit in the calendar quarter and obtain this relief or (2) to seek payment of an advance credit.

Penalty Relief for Qualified Retention Wages
An eligible employer will not be subject to a penalty for failing to deposit employment taxes relating to qualified retention wages in a calendar quarter if:

• the employer paid qualified retention wages to its employees in the calendar quarter prior to the time of the required deposit;
• the amount of employment taxes that the employer does not timely deposit, reduced by the amount of employment taxes not deposited in anticipation of the credits claimed for qualified leave wages, qualified health plan expenses, and the employer’s share of Medicare tax on the qualified leave wages, is less than or equal to the amount of the employer’s anticipated credits under the CARES Act for the calendar quarter as of the time of the required deposit; and
• the employer did not seek payment of an advance credit by filing Form 7200 for the anticipated credits it relied upon to reduce its deposits.

Thus, after a reduction, if any, of a deposit of employment taxes by the amount of credits anticipated for qualified leave wages, an employer may further reduce, without a penalty, the amount of the deposit of employment taxes by the amount of qualified retention wages paid by the employer in the calendar quarter prior to the required deposit, as long as the employer does not also seek an advance credit for the same amount.

The total amount of any reduction in any required deposit may not exceed the total amount of qualified retention wages in the calendar quarter, minus any amount of qualified retention wages that had been previously used (1) to reduce a prior required deposit in the calendar quarter and obtain this relief or (2) to seek payment of an advance credit.

The IRS recently announced that inflation is increasing many dollar amounts in the Tax Code for 2012.  For taxpayers, the inflation adjustments may help reduce their overall tax liability in 2012.

Inflation adjustments

Many provisions in the Tax Code are required to be adjusted annually for inflation. These include various deductions, exemptions and exclusion amounts.  The tax law also requires that the individual income tax brackets be adjusted annually for inflation.  Low inflation in 2009 and 2010 resulted in many of the provisions experiencing no increases for 2010 and 2011.

Next year is different. In October, the IRS announced that inflation is running at just over 3.8 percent. In response, the IRS adjusted a number of amounts in the Tax Code upward for 2012.

Retirement accounts

401(k) plans. For 2012, the maximum amount an individual can contribute tax-free to a 401(k) plan increases $500 from $16,500 to $17,000.  However, some 401(k) plans limit maximum contributions to levels below the ceiling in the Tax Code.

IRAs. The deduction for taxpayers making contributions to a traditional IRA is phased out for single individuals and heads of households who are covered by a workplace retirement plan and whose modified adjusted gross incomes fall within certain ranges. For 2012, the income phaseout range starts at $58,000 and ends at $68,000, up from $56,000 and $66,000, respectively, for 2011.  For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phaseout range for 2012 starts at $92,000 and ends at $112,000, up from $90,000 and $110,000, respectively, for 2011.  For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out for 2012 if the couple’s income is between $173,000 and $183,000, up from $169,000 and $179,000, respectively, for 2011.

Roth IRAs are subject to similar rules. The AGI limit for maximum Roth IRA contributions for a married couple filing a joint return for 2012 is $173,000, an increase of $4,000 from 2011. The AGI limitation for all other taxpayers (other than married taxpayers filing separate returns) increases from $107,000 for 2011 to $110,000 for 2012.

Saver’s credit.  The Code Sec. 25B credit rewards eligible individuals with a tax credit for contributing to a retirement plan or an IRA.  For 2012, the AGI limit for the “saver’s credit” increases for single individuals to $28,750, an increase of $500 from 2011. The AGI limit for married couples filing joint returns increases from $56,500 for 2011 to $57,500 for 2012.

Individual income tax brackets

Inflation also impacts the individual income tax rate brackets (which are 10, 15, 25, 28, 33, and 35 percent, respectively, for 2011 and 2012).  Indexing of the income tax rate brackets effectively lowers tax bills by including more of an individual’s income in lower brackets.

More inflation adjustments

Standard deduction. Taxpayers who elect not to itemize deductions use the standard deduction amount. The standard deduction increases by $500 for married couples filing a joint return from $11,400 for 2011 to $11,900 for 2012.   The standard deduction for single individuals increases from $5,700 for 2011 to $5,950 for 2012.

Personal exemption.  Taxpayers may claim a personal exemption deduction (and an exemption deduction for each person they claim as a dependent). The amount of the personal exemption and the dependency exemption increases from $3,700 for 2011 to $3,800 for 2012.  The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (2010 Tax Relief Act) repealed the personal exemption phaseout for higher income taxpayers for 2011 and 2012.

Estate tax.  The 2010 Tax Relief Act provided that the basic exclusion amount for determining the amount of the unified credit against estate tax for estates of decedents dying after December 31, 2009 is $5 million. The $5 million amount is adjusted for inflation for tax years beginning after December 31, 2011. For 2012, the inflation-adjusted amount is $5,120,000.

Gift tax exclusion.  For 2012, you can give up to $13,000 to any person without incurring gift tax. Married couples can gift up to $26,000 tax-free to any person. There is no limit on the number of individuals you can make the $13,000 ($26,000) gift. The $13,000 and $26,000 amounts are unchanged from 2011.

If you have any questions about these or other inflation adjustments, please contact our office.

Charitable contributions traditionally peak at the end of the year-end. While tax savings may not be your prime motivator for making a gift to charity, your donation could help your tax bottom-line for 2015. As with many tax incentives, the rules for tax-deductible charitable contributions are complex, especially the rules for substantiating your donation. Also important to keep in mind are some enhanced charitable giving incentives scheduled to expire at the end of 2015.

Year-end charitable giving can benefit your 2015 tax bottom-line

Charitable contributions traditionally peak at the end of the year-end. While tax savings may not be your prime motivator for making a gift to charity, your donation could help your tax bottom-line for 2015. As with many tax incentives, the rules for tax-deductible charitable contributions are complex, especially the rules for substantiating your donation. Also important to keep in mind are some enhanced charitable giving incentives scheduled to expire at the end of 2015.

Tips

The IRS has posted tips for deducting charitable contributions on its website. The tips are a good refresher of the fundamental rules for deducting charitable contributions:

• To be tax-deductible, a contribution must be made to a qualified organization.
• To deduct a charitable contribution, you must file Form 1040 and itemize deductions on Schedule A.
• If you receive a benefit because of your contribution such as merchandise, tickets to a ball game or other goods and services, then you can deduct only the amount that exceeds the fair market value of the benefit received.
• Donations of clothing and household items must generally be in good used condition or better to be tax-deductible.
• Special rules apply to donations of motor vehicles.
• Many donations must be substantiated; the substantiation rules vary for different donations.

Qualified organizations

Some individuals are surprised to learn that their donation is not tax-deductible because the recipient is not a qualified charitable organization. Generally, churches, temples, synagogues, mosques, and other religious organizations are qualified charitable organizations. Nonprofit community service, educational, and health organizations are also generally qualified charitable organizations. Special rules apply to foreign charities. If you have any questions whether the organization is a qualified charitable organization, please contact our office.

Substantiation rules

Unless a charitable contribution is properly substantiated, the IRS may deny your deduction.

Regardless of the amount, to deduct a contribution of cash, check, or other monetary gift, you must maintain a bank record, payroll deduction records or a written communication from the organization containing the name of the organization, the date of the contribution and amount of the contribution. Remember, this rule applies to all cash contributions, even contributions of small monetary amounts. The IRS will not accept certain personal records. For example, you cannot substantiate a contribution by reference to a diary or notes made at the time of the donation.

In recent years, text message donations have grown in popularity. For text message donations, a telephone bill will meet the record-keeping requirement if it shows the name of the receiving organization, the date of the contribution, and the amount given.

To claim a deduction for contributions of cash or property equaling $250 or more you must have a bank record, payroll deduction records or a written acknowledgment from the qualified organization showing the amount of the cash and a description of any property contributed, and whether the organization provided any goods or services in exchange for the gift.

One document may satisfy both the written communication requirement for monetary gifts and the written acknowledgement requirement for all contributions of $250 or more. If your total deduction for all noncash contributions for the year is over $500, you must complete and attach IRS Form 8283, Noncash Charitable Contributions, to your return.

Additional rules apply for donations valued at more than $5,000. These donations generally require an appraisal and you must advise the IRS of that appraisal by filing a special form.

Expiring provisions

Under current law, certain IRA owners can directly transfer tax-free, up to $100,000 annually from the IRA to a qualified charitable organization. The benefit is limited. The IRA owner must be age 70 ½ or older. Additionally, the contribution does not qualify for the deduction for charitable donations. To qualify, the IRA funds must be contributed directly by the IRA trustee to the qualified charitable organization. You can also take advantage of this tax incentive if you itemize or do not itemize deductions.

Unless extended, this incentive will have officially expired after December 31, 2014. It is unclear if Congress will extend the incentive retroactively for 2015 or beyond. If you are considering a charitable contribution from your IRA, please contact our office so we can review the rules in detail.

Several other enhanced charitable giving incentives will no longer be available for the 2015 tax year and beyond. They include special rules for contributions of food inventory.

Clothing and household items

Cleaning out your closet can help generate year-end tax savings. However, not all charitable contributions of clothing and household items are deductible. Generally, clothing and household items donated to a charitable organization must be in good used or better condition. Other rules also apply to donations of clothing and household items. Properly valuing the items to withstand any IRS examination is also important.

Motor vehicles and other types of donations

The tax deduction for a motor vehicle, boat or airplane donated to charity is fraught with complexity. The substantiation requirements depend on the amount of your claimed deduction. If you are considering donating a motor vehicle, boat or airplane to charity, please contact our office so we can help you navigate the substantiation rules to maximize your tax benefits.

The rules for donations of conservation easements, intellectual property and other items likewise require expert planning. Otherwise, you could miss the tax benefit.

Limitations

The Tax Code includes a number of provisions limiting tax-deductible contributions. Limitations may be based on the individual’s income, the type of donation and the nature of the recipient organization. Our office can describe how these limitations may impact you.

As in past years, a provision known as the limitation on itemized deductions applied to higher-income individuals. This provision reduces the total amount of a higher-income individual's allowable deductions; however, some deductions are not impacted. For purposes of the limitation on itemized deduction, a taxpayer's total, itemized deductions do not include deductions for medical expenses, investment interest expenses, casualty or theft losses, and allowable wagering losses; charitable deductions do count, however.

If you have any questions about the mechanics of tax-deductible charitable contributions, please contact our office.

Under a flexible spending arrangement (FSA), an amount is credited to an account that is used to reimburse an employee, generally, for health care or dependent care expenses. The employer must maintain the FSA. Amounts may be contributed to the account under an employee salary reduction agreement or through employer contributions.

Use-it or lose-it

The general rule is that no contribution or benefit from an FSA may be carried over to a subsequent plan year. Unused benefits or contributions remaining at the end of the plan year (or at the end of a grace period) are forfeited. This is known as the “use it or lose it” rule. The plan cannot pay the unused benefits back to the employee, and cannot carry over the unused benefits to the following calendar year.

Example. An employer maintains a cafeteria plan with a health FSA. The plan does not have a grace period. Arthur, an employee, contributes $250 a month to the FSA, or a total of $3,000 for the calendar year. At the end of the year (December 31), Arthur has incurred medical expenses of only $1,200 and makes claims for those expenses. He has $1,800 of unused benefits. Under the “use it or lose it” rule, Arthur forfeits the $1,800. 

Grace period

Because the “use it or lose it” rule seemed harsh, the IRS gave employers the option to provide a grace period at the end of the calendar year. The grace period may extend for 2½ months, but must not extend beyond the 15^th day of the third month following the end of the plan year. Medical expenses incurred during the grace period may be reimbursed using contributions from the previous year.

Example. Beulah contributes $3,000 to her health FSA for 2010. The FSA is on January 1 through December 31 calendar year.  On December 31, 2010, Beulah has $1,800 of unused contributions. Her employer provides a grace period through March 15, 2011. On January 20, 2011, Beulah incurs $1,500 of additional medical expenses. Because these expenses were incurred during the grace period, Beulah can be reimbursed the $1,500 from her 2010 contributions. On March 15, 2011, she has $300 of unused benefits from 2010 and forfeits this amount.

Exceptions

There are other exceptions to the prohibition against deferred compensation within the operation of an FSA. A cafeteria plan is permitted, but not required, to reimburse employees for orthodontia services before the services are provided, even if the services will be provided over a period of two years or longer. The employee must be required to pay in advance to receive the services. 

Another exception is provided for durable medical equipment that has a useful life extending beyond the health FSA’s period of coverage (the calendar year, plus any grace period). For example, a health FSA is permitted to reimburse the cost of a wheelchair for an employee.

If you have any questions on setting up an FSA, whether as an employer or an employee, and which benefits must be covered and which are optional, please do not hesitate to call this office.

Job-hunting expenses are generally deductible as long as you are not searching for a job in a new field. This tax benefit can be particularly useful in a tough job market. It does not matter whether your job hunt is successful, or whether you are employed or unemployed when you are looking.

Expenses directly connected with a job search are deductible as a miscellaneous itemized deduction. You can deduct job-hunting expenses if the amount of all your so-called miscellaneous itemized deductions exceeds two percent of your adjusted gross income. However, if you claim the standard deduction, you cannot deduct job-hunting expenses. Therefore, as a practical matter for many job seekers, job hunting expenses do not materialize as a tax deduction.

For those who are able to use job seeking expenses as a deduction, it can be difficult to determine what a new field is. A professional photographer who pursues a job in the retail industry clearly is searching in a new field and cannot deduct any of his or her job-hunting expenses. But there are exceptions. The IRS has allowed persons who retired from the military to search for jobs in new fields and claim their job-hunting expenses. Taking a temporary job while searching for permanent employment in your current field will not be considered a job change that disqualifies your job-hunting expenses.

Persons entering the job market for the first time, such as college students, and persons who have been out of the job market for a long period of time, such as parents of young children, cannot deduct their job-hunting expenses. However, a college student who worked in a particular field while in school may be able to deduct job-hunting expenses.

Deductible expenses include typing, printing and mailing a resume. Long-distance phone calls are also deductible. You can deduct travel costs for going on a job search or an interview, including air transportation, railroad, or car expenses. The standard rate for car expenses for business is 55 cents per mile for 2012. Amounts you pay to a job counselor, employment agency or job referral service are all deductible.

It is important to keep records of your costs. While your individual expenses may not be substantial, your total expenses can add up to a significant amount.

2011 year end tax planning for individuals lacks some of the drama of recent years but can be no less rewarding.  Last year, individual taxpayers were facing looming tax increases as the calendar changed from 2010 to 2011; particularly, increased tax rates on wages, interest and other ordinary income, and higher rates on long-term capital gains and qualified dividends.

Thanks to legislation enacted at the end of 2010, tax rates are stable for 2011 and 2012, although the uncertainty will return as 2013 approaches, as political pressure in Washington builds to do something quickly for the economy. Ordinary income tax rates for individuals currently are 10, 15, 25, 28, 33 and 35 percent; capital gains rates are zero and 15 percent.

President Obama has proposed to preserve these tax rates for taxpayers with income below $200,000 (individuals) and $250,000 (married couples filing jointly) and to raise the rates for taxpayers in these higher-income brackets. If Congress is gridlocked and takes no action, everybody’s rates will rise, but again, not until 2013.

Expiring tax breaks

Unfortunately, not all is quiet on the tax front despite no dramatic rate changes until 2013. There are some specific tax provisions that will terminate at the end of 2011, unless Congress and the President agree to extend them. These include the tuition and fees above-the-line deduction for high education expenses, which can be as high as $4,000. Another expiring provision is the deduction for mortgage insurance premiums, which covers premiums paid for qualified mortgage insurance.

Several other benefits (“extenders”) are also scheduled to expire after 2011:

• The state and local sales tax deduction;
• The classroom expense deduction for teachers;
• Nonbusiness energy credits;
• The exclusion for distributions of up to $100,000 from an IRA to charity;
• A higher deduction limit for charitable contributions of appreciated property for conservation purposes.

Retirement accounts

An old standby that makes sense from year-to-year is maximizing contributions to an IRA. The contribution is deductible up to $5,000 ($6,000 for taxpayers over 50), depending on some specific taxpayer income levels and circumstances. Taxpayers in a 401(k) plan can reduce their income by contributing to their employer plan, for which the limit in 2011 is $16,500.

In 2010, it was particularly important to consider whether to convert a traditional IRA to a Roth IRA, because the income realized on conversion could be recognized over two years. While a conversion continues to be worthwhile to consider (because distributions from a Roth IRA are not taxable), there are no longer any special break to defer a portion of the income from the conversion.

 Alternative minimum tax

The AMT has been “patched” for 2011. The exemptions have been temporarily increased from the normal statutory levels to the “patched” levels:

• From $33,750 to $48,450 for single individuals;
• From $45,000 to  $74,450 for married couples filing jointly and surviving spouses; and
• From $22,500 to $37,335 for married couples filing separately.

The amounts return to the “normal levels” of $33,750/$45,000/$22,500, respectively, in 2012 unless Congress takes action to maintain the patch. Elimination of the AMT is a goal of long-term tax reform, but the loss of revenue has been considered too high in the past. Without  the “patch,” the Congressional Budget Office estimates that an additional 20 million middle-class taxpayers would suddenly become subject to an AMT once designed only for millionaires.

While planning for the AMT is difficult, taxpayers may want to consider realizing AMT income, such as capital gains, in 2011, when the patch is higher, rather than in 2012.

Conclusion

Taxpayers can take advantage of 2011 provisions to realize last-minute tax benefits. Some of these benefits may not be available in 2012.  It is worthwhile to look at these planning opportunities as part of an overall year-year financial strategy.

Many tax benefits for business will either expire at the end of 2011 or become less valuable after 2011. Two of the most important benefits are bonus depreciation and Code Sec. 179 expensing. Both apply to investments in tangible property that can be depreciated. Other sunsetting opportunities might also be considered.

Bonus depreciation

Bonus depreciation is 100 percent for 2011. A business can write-off, in the first year, the entire cost of its investment in new depreciable property. Under current law, bonus depreciation will decrease to 50 percent in 2012 and will terminate after 2012. (These deadlines are extended one year for certain transportation property and property with a longer production period). President Obama has proposed to extend 100 percent bonus depreciation through 2012. Normally, this would have a good chance of being approved, but with the focus on deficit reduction and the linking of tax benefits to tax increases, it is not at all clear what will happen.

So, if a business has income in 2011 and plans to invest in depreciable property, it is worthwhile to consider making that investment in 2011, while the available write-off is at its highest. Under normal depreciation rules, a business will still be able to claim accelerated write-offs, but this may be 50 percent or less of the cost of the property, with the balance written-off over several years, instead of all in one year.

Planning for bonus depreciation is important because the property must satisfy placed-in-service and acquisition date requirements. Property is placed in service when it is in a condition or state of readiness on a regular ongoing basis for a specifically assigned function in a trade or business. The acquisition date rules may vary. For 2011, property is acquired when the taxpayer incurs or pays its cost. This could occur when the property is delivered, but it could also be when title to the property passes. For 2012, property is acquired when the taxpayer takes physical possession of the property.

Code Sec. 179 expensing

Code Sec. 179 expensing (first-year writeoff) has been around for awhile, but at higher amounts more recently. While there is no limit on bonus depreciation, expensing is limited to a statutory amount. For 2011, this amount is $500,000. It is scheduled to drop to $125,000 in 2012 and to $25,000 after 2012 (adjusted for inflation). Moreover, the cap is reduced for the amount of total investment in Code Sec. 179 property. The phaseout threshold is $2 million for 2011, dropping to $500,000 for 2012 and $200,000 for 2013 and subsequent years. For businesses who want to invest in depreciable property, the payoff is definitely greater in 2011. Taxpayers taking advantage of expensing should write off assets that would otherwise have the longest recovery periods.

Other 2011 benefits

Some other important benefits expire at the end of 2011 or become less valuable. A significant benefit in 2011 is the 100 percent exclusion for small business stock. After 2012, the normal exclusion rate will drop to 50 percent, although it has been 75 percent in recent years. The exclusion is based on the year the stock is acquired; the stock must be held for five years before sold and satisfy other requirements.

Another important benefit is the 20 percent research credit. The credit has been extended one year at a time for a long period, so it is likely to be extended again. Nevertheless, until Congress acts, there is some uncertainty for research expenses incurred after 2011.

Conclusion

To maximize the benefits of 2011 year-end tax planning, a business must be proactive in determining what upcoming capital investments might be accelerated into this year and what investments become cost effective because of the immediate tax benefits that they offer. Some business-related tax benefits will be less valuable after 2011; for others, it is not clear what Congress and the administration will do in terms of surprising taxpayers with a year-end tax bill. Please contact this office if you have any questions over how year-end tax strategies that begin now and continue through December can help maximize tax benefits for your business.

Autumn 2011 in Washington, D.C. is expected to be a season of contentious debates over tax reform, and at the heart of the debate is the amount of taxes paid by higher-income individuals.  President Obama wants Congress to raise taxes on higher-income individuals to help reduce the federal government’s budget deficit and to pay for a jobs program.  Many lawmakers, especially Republicans, are opposed to any tax increases. The two sides appear far apart but the need to cut the nation’s deficit could encourage compromise.

Bush-era tax cuts

In 2001, Congress enacted the Economic Growth and Tax Reconciliation Act (EGTRRA), which set in motion a gradual decrease in the individual marginal income tax rates and the federal estate tax, along with marriage penalty relief, the introduction of a new 10 percent tax bracket and more.  The Jobs and Growth Tax Act of 2003 accelerated the reductions in the individual tax rates and also reduced capital gains and dividend tax rates (currently taxed at 15 percent for taxpayers in tax brackets above 15 percent and at zero percent for or all other taxpayers).  All of these tax cuts are collectively known as the Bush-era tax cuts.

In 2010, Congress passed, and President Obama signed, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act. The 2010 Tax Relief Act extended the Bush-era tax cuts through the end of 2012. The extension proved especially valuable for higher-income taxpayers.  Without the extension, the top two individual income tax rates would have risen from 33 and 35 percent to 36 and 39.6 percent, respectively, after December 31, 2010.

White House proposals

President Obama released a Deficit Reduction Plan on September 19 and proposed to allow the Bush-era tax cuts to expire for higher-income taxpayers and to return the federal estate tax to its 2009 parameters.  The White House broadly defines higher-income taxpayers for purposes of the Bush-era tax cuts as individuals with annual incomes over $200,000 and families with annual incomes over $250,000.

The President’s Deficit Reduction Plan would:

--Allow the Bush-era high-income tax cuts to expire

--Return the federal estate tax to its 2009 levels

--Reduce the value of itemized deductions and other tax preferences to 28 percent for families with incomes over $250,000

All of these changes would apparently take place after 2012.

Keep in mind that if Congress does nothing before 2013, the Bush-era tax cuts are scheduled to automatically expire after 2012. Tax rates would not only rise for higher-income individuals but for all taxpayers.  The federal estate tax would return to its pre-EGTRRA levels (with some minor modifications) and capital gains/dividends would be taxed at much less taxpayer-friendly rates than under current law.

Additionally, higher-income individuals will pay more in taxes after 2012 because of existing laws. An additional 0.9 percent Medicare tax on wages and self-employment income and a 3.8 percent Medicare contribution tax on unearned income are scheduled to take effect after 2012 for higher-income taxpayers.

Buffett Rule

President Obama has asked Congress to enact legislation to provide that no household making over $1 million annually should pay a smaller share of its income in taxes than middle-income families. President Obama calls this tax treatment, the “Buffett Rule” after billionaire investor Warren Buffett, who said that his effective tax rate is lower than the tax rate of his secretary.

The White House has been deliberately vague on the mechanics of the Buffet Rule. In his Deficit Reduction Plan, President Obama said that the Buffett Rule would be enacted as part of overall tax reform, which increases the progressivity of the Tax Code. 

The Buffett Rule could take the shape of increased taxes on capital gains and dividends.  Higher-income individuals typically have a significant portion of their income from investment activity. The Buffett Rule could also reform the alternative minimum tax (AMT). The AMT was originally enacted to prevent very wealthy taxpayers from avoiding taxes. Because the AMT was not indexed for inflation, and for other reasons, the AMT has encroached on middle income taxpayers.

Payroll tax cuts

The 2010 Tax Relief Act enacted a temporary payroll tax holiday. The employee-share of OASDI taxes is reduced from 6.2 percent to 4.2 percent for calendar year 2011 up to the Social Security wage base ($106,800 for 2011). An individual with earnings at or above $106,800 in 2011 receives a $2,136 tax benefit. Self-employed individuals receive a comparable tax benefit.  Under current law, the payroll tax holiday ends after December 31, 2011 and the employee-share of OASDI taxes is scheduled to revert to 6.2 percent.

President Obama has proposed to extend and enhance the payroll tax cut for calendar year 2012.  The employee-share of OASDI taxes for 2012 would be reduced from 6.2 percent to 3.1 percent, under the President’s proposal.

The President’s proposal has a reasonably good chance of being enacted.  Taxpayers have become accustomed to the two percent reduction in effect for 2011. Moreover, lawmakers are reluctant to raise taxes in an election year.  However, opponents of any extension question its impact on the long-term health of Social Security.

If you have any questions about the proposals being debated in Washington, please contact our office.

Adoptive parents may be eligible for federal tax incentives. The Tax Code includes an adoption tax credit to help defray the costs of an adoption.  Recent changes to the adoption tax credit make it very valuable.

Temporary increase

In 2010, Congress temporarily increased the dollar limitation for the adoption tax credit (and the income exclusion for employer-provided adoption expenses) by $1,000 (from $12,170 to $13,170 for 2010 and indexed for inflation for tax years beginning after December 31, 2010). Congress also made the adoption tax credit refundable for 2010 and 2011. These enhancements, however, are scheduled to expire after December 31, 2011 unless Congress extends them.

Your income is another factor to take into account. You may not receive the full amount of the adoption tax credit for 2010 if your modified adjusted gross income (MAGI) is $182,520 or more. The adoption tax credit is completely phased out if your MAGI is $222,520 or more. These amounts may be adjusted for inflation by the IRS in 2011.  Additionally, to prevent double benefits, the adoption tax credit is coordinated with the exclusion for employer-provided adoption assistance

Qualified expenses

A number of adoption-related expenses may qualify for the tax credit. These expenses include, but are not limited to, reasonable and necessary adoption fees, travel expenses, fees paid to attorneys, and court costs.  The IRS has identified on its website some expenses that are excluded, such as expenses related to the adoption of the child of a taxpayer’s spouse, the costs of a surrogate parenting arrangement, and expenses that violate state or federal law.  Additionally, expenses related to a foreign adoption qualify only if the taxpayer actually adopts the child.  That rule is different if a domestic adoption is unsuccessful.

Eligible child

An eligible child for purposes of the adoption tax credit is an individual who has not attained the age of 18 at the time of the adoption, or is physically or mentally incapable of caring for himself or herself. A child has special-needs if the child otherwise meets the definition of eligible child, the child is a U.S. citizen or resident, a state determines that the child cannot or should not be returned to his or her parent's home, and  a state determines that the child probably will not be adopted unless assistance is provided. 

Form 8839

Taxpayers file Form 8839, Qualified Adoption Expenses, to claim the adoption tax credit.  At this time, Form 8839 cannot be filed electronically; it must be filed on paper because the IRS requires you to attach supporting documentation.

The IRS requires different documents if the adoption is foreign or domestic, final or not final, and if the adoption is of a child with special needs. The IRS has issued special safe harbor rules for certain foreign adoptions. The home country of the child may be included in the safe harbors which streamline some of the documentation requirements.

The IRS recommends that taxpayers keep the following records: Receipts for qualified adoption expenses, final decree, certificate or order of adoption, home study by an authorized placement agency, child placement agreements or court orders, and determination of special needs status by a State or the District of Columbia.

Processing Form 8839 can take some time. One of the most common mistakes taxpayers make is failing to attach supporting documents.   After the IRS conducts an initial review of Form 8839, it notifies taxpayers explaining any additional steps they need to take, such as providing certain documentation to establish whether they are eligible for the credit.

If you have any questions about the adoption tax credit, please contact our office.

Long-term care premiums are deductible up to certain amounts as itemized medical expense deductions. The amount is based upon your age. Unfortunately, most taxpayers do not have enough other medical expense deductions to exceed the non-deductible portion equal to the first 7 1/2 percent of adjusted gross income (10 percent if you are subject to alternative minimum tax (AMT)). Furthermore, more taxpayers now take the standard deduction rather than itemize, making even those medical expenses useless as a tax deduction.

A tax bill has been before Congress for several years now to allow long-term care premiums to be deductible "above the line," that is, by anyone irrespective of whether you itemize. The impetus behind this recommendation is that encouraging individuals to fund their own eventual eldercare is preferable to having federal Medicare payments to so. So far, however, Congress has not brought the matter to a vote. Some state income tax laws already allow such an above-the-line deduction.

Long-term care premiums. Long-term care insurance premiums are deductible in figuring itemized medical expense deductions up to the following amounts:

- Age 40 or younger: $290 in 2007; $310 in 2008;

- Over 40 but not older than 50: $550 in 2007; $580 in 2008;

- Over 50 but not older than 60: $1,110 in 2007; $1,150 in 2008;

- Over 60 but not older than 70: $2,950 in 2007; $3,080 in 2008; and

- Over 70: $3,680 in 2007; $3,850 in 2008.