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Dear members —
I will lead with my chin, as my dearly departed aunt liked to say when playing the official Kerr family card game, Euchre. We are eight weeks into an abruptly announced work from home requirement for many of us, three weeks into a filing season extension that is itself longer than the original filing season, and in many cases having difficulty coping with the pressures placed upon us. In some cases, relationships are fraying (to be clear, I have on good authority the E@lerts are coping nicely, even if one of them has found 15 additional pounds). In some cases, finances are under stress. In others, we are constantly concerned about health, our own and that of our loved ones.
Coronavirus is a thing, and it seems to me some would like to approach it with a stiff upper lip (I am reminded of Monty Python). What I see from my perch in DC and as a person with the great privilege of serving as EVP, is that our system is under real stress. We have choices, though. We can pull together for our common goal or to paraphrase Yeats, we can spin apart. I noted recently on NAEA's Facebook page (if you are not there, you are missing a great NAEA membership value) how generous most have been in supporting one another, and by extension the larger community. I use my E@lert platform this week to encourage you to continue to build our community, to make NAEA a welcoming, supporting, generous community.
In the end, we have so many opportunities — to learn, to be heroes to our clients, to grow. As we enter our June renewal cycle, I thank you from the bottom of my heart for your continued support of this organization, and for your continued support of one another. We can and must be better together, in a community invested in our continued growth and success.
We will be dark next week; NAEA's board is meeting, virtually, to kick of its new governance year. Directors and officers will be sworn in on Monday morning. Both will be available to members via this link.
Finally, happy Mother's Day to all the mothers in our membership.
Robert Kerr, EA
Executive Vice President
Another Problem Return? Sure, We Would Love One ...
First, over the weekend, we received from the indefatigable Phyllis Jo Kubey, EA, interesting information regarding international filers and Form 3520 (yet another form we had to Google), Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts.
Form 3520 penalties are up sharply on taxpayers with valid extensions. In many cases, IRS is assessing the penalties because preparers are failing to mark box 1K on the form. IRS cannot connect the Form 3520 with its underlying return if the box is not checked.
EAs may call the International IRS phone line and verbally assert their client had a valid extension. You do not have to write or assert reasonable cause.
IRM 22.214.171.124.2 is revised (March 18, 2020). Here is an excerpt from the new policy:
Proof of an approved extension of time to file an income tax return must be considered if Form 3520 was filed within the approved extension period (Form 4868 or Form 7004). Check MFT 68 and/or the income tax module as applicable for timely filing or the presence of a posted or unposted TC 460. Abate penalty if extended due date shown is equal to or greater than the filing date.
REMINDER: This is not reasonable cause; therefore, the taxpayer's request does not have to contain a declaration made under the penalties of perjury nor reviewed and approved by a manager, remove the penalty with PRC 027.
IRS in the Time of Coronavirus
AICPA published a letter challenging IRS’ position in Notice 2020-32, which clarifies no deduction is allowed under the IRC for an expense otherwise deductible if the payment of the expense results in forgiveness of a covered loan pursuant to CARES Act §1106(b). This move has caused much discussion in the NAEA community, and yet no consensus of opinion. In an email earlier today to NYSSEA leaders, EVP Bob Kerr notes:
We've been focusing our efforts on CAF and PPS, on which we're getting closer. We're also concerned by the 75/25 rule for PPP forgiveness and the requirement that it be spent within 8 weeks of the loan.
Further, enough members believe IRS' position is accurate to make it difficult for the association to take any position, which is why we generally don't take positions on issues of this sort. We don't take an issue on the right tax rate for capital gains, a flat rate for all income, how many years back one can take NOLs, whether like-kind exchanges should exist, or conservation easements or ... well I could go on and on.
We take issues generally on tax administration: CAF, Forms 2848 and 8821, e-signatures, minimum standards, tax code stability, a practitioner voice at IRS, etc.
Otherwise, here is a summary of what happened this week:
- The economic impact payment confirmation letters started arriving. In case you have not seen one, here is a redacted example. Gene Steuerle is at the non-partisan Tax Policy Center, and here is his take (disclosure: E@lert would be president of the Gene Steuerle fan club if the competition were not so formidable).
- We had an opportunity to chat with our favorite U.S. Tax Court Judge (that is, if we had a favorite), whom we had invited as a National Conference keynote speaker, to let the jurist know we had cancelled the conference. We learned there were barely enough people in the building to field a basketball team and that while no mail is arriving, some business is happening electronically (electronic briefs and so forth).
- Officially from the Tax Court (hat tip to Bill Nemeth, EA), the U.S. Tax Court building remains closed and all trial sessions through June 30, 2020, are cancelled. Mail sent by standard USPS delivery is being held while the Tax Court building is closed; items sent through a designated delivery service (such as FedEx or UPS) may, however, be returned as undeliverable.
- Notice 2020-23 extends the deadline to file a Tax Court petition and a notice of appeal from a Tax Court decision. If the statutory deadline (E@lert's note: holy cow!) for filing a petition or notice of appeals falls on or after April 1, 2020, and before July 15, 2020, the filing deadline is now extended to July 15, 2020.
- We noted last week Notice 2020-32 also clarifies income associated with the loan forgiveness is excluded from gross income. Peter J. Reilly nails it in Forbes.
- File under "this just in": IRS just (like right now) posted two FAQs in response to Higher Education Emergency Relief and Emergency Financial Aid Grants under the CARES Act. Emergency financial aid grants are not includable in gross income and deductions paid with the grant do not qualify for education deductions or credits.
- IRS updated on April 4th FAQs for coronavirus related relief for retirement plans and IRAs.
- Meanwhile, in what will be music to the ears of many EAs, Monte Jackel penned a guest blog post at Procedurally Taxing on the proper role of FAQs. While E@lert understands completely the concern — FAQs are not really guidance — the practical issue is that absent FAQs, how is IRS going to provide taxpayers and practitioners with timely interpretations of tax administration issues? We end up pining for the academic perfect in a world that does not support it.
- IRS retooled its Settlement Days in response to COVID-19, and allows unrepresented taxpayers to settle their cases virtually. NAEA has always confirmed taxpayers have the right to represent themselves or be represented by a Circular 230 practitioner. Let us just say E@lert believes in the adage that the attorney who represents himself has an idiot for a client.
- No change since last week: ACS reopened for IMF taxpayers, and some assistors are accepting faxed Forms 2848. To the best of our knowledge, POAs are not being posted to CAF and transcripts will be placed in e-Services secure mailboxes (SOR) only. All CAF fax lines are down and all PPS phone lines are out of service.
- IRS's mission critical functions announcement answers two key levy release questions.
- E@lert begs each of you: ACS availability is still limited, so please do not call with non-urgent issues or with non-collection issues.
Thoughts on Decedents and EIP
Treasury Secretary Stephen Mnuchin last week insisted EIP payments to the deceased must be returned. Former National Taxpayer Advocate Nina Olson (and do not let the "former" part of her title distract you, Nina still swings a large stick) has a different opinion, published in the San Francisco Chronicle:
In an emailed statement, Treasury Secretary Steven Mnuchin said, "You're not supposed to keep that payment. We're checking the databases, but there could be a scenario where we missed something, and yes, the heirs should be returning that money."
Experts are not sure they legally have to.
"It's not clear whether making a payment to the deceased person is erroneous under the law," said Nina Olson, former IRS national taxpayer advocate and is now executive director of the Center for Taxpayer Rights. And even if it is, getting that money back would be no easy task.
"Saying heirs should be returning that money is not legal guidance. It is not the legal position of the IRS," Olson said.
We are fascinated by the issue and went to NAEA's Member Community (a.k.a. WebBoard) for opinions, particularly given we do not see on what basis IRS can demand repayment, and other procedural issues, including how a closed estate would cash a check and what enforcement stick IRS could deploy to compel payment.
David Fogel, EA, CPA, USTCP, provides his usual chapter and verse detailed explanation, in which he concludes, "unless and until Congress changes the law, checks issued under this statute to an eligible individual who dies during 2018 are proper. The same applies to an eligible individual who died during 2019, or who died during 2020 but before IRS made the determination to issue [EIP]."
And Frank Degen, EA, USTCP, gets in the Wayback Machine and reminds us of the 2008 stimulus payments, which were based on 2007 returns. IRS' 2008 FAQs take a different position than Treasury and IRS take today.
Through NAEA's relationship with Wolters Kluwer, you have the ability to find in one place state tax filing relief. Once you log in through NAEA's website, you will see "Coronavirus/COVID-19 Pandemic," and immediately beneath that, you will have access to a document that updates in real time.
Aside from our own resources, you may want to consider the following:
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Everything but the Kitchen Sink
Since last we spoke, we have learned J. Crew has filed for bankruptcy (and here the E@lert household thought it spent enough to support the entire enterprise) and speaking of retail therapy, how a monthly allowance saves someone's marriage. Here is how you can find out how cheap the gasoline you cannot use is, and why so many airplanes are flying nearly empty.
E@lert has been streaming classic country on YouTube: You find out who your friends are. And we are reading the coronavirus panic is contagious in the Harvard Business Review.
Otherwise, please consider this list of tax-related items, curated for America's Tax Experts®:
- File under "worth repeating": An eagle-eyed National Tax Practice (NTPI) instructor noticed a memorandum from Fred Schindler, Director, Headquarters Collection SB/SE, in which he provides IRM 5.1.10 temporary COVID-19 Pandemic collection relief.
- The first, but not the last, fraudsters find themselves facing illegal PPP loan charges. NAEA's Legislative Counsel, Jeff Trinca, and EVP Bob Kerr, EA, warned in their maiden "View from DC" webinar this would happen ...
- Say it is not so: A recent CNBC headline from @DARLA_MERCADO states, "White House weighs pushing tax deadline back to Sept. 15." As if that is not horrific enough, the article later holds out a variety of options, including December 31. E@lert's response: We. Just. Cannot.
- Congressional Research Service has compiled a helpful reference page with all of CRS' COVID-19 research products.
- The follow-up letters on the EIC payments started arriving early this week, and many, including the former National Taxpayer Advocate, are not amused.
- Secretary Mnuchin is warning some U.S. firms could face criminal liability over coronavirus loans, and that every loan over $2 million will be subject to a Treasury audit (E@lert wonders why he reveals the hurdle — which is generally not done, for obvious, we hope, reasons).
"The truth is incontrovertible. Malice may attack it. Ignorance may deride it. But in the end, there it is."
— Winston Churchill (1874 – 1965), English statesman
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NAEA E@lert | Volume 2: Issue 9
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