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Tag Archive for IRS Notice

Here’s Who Qualifies For The Employee Business Expense Deduction

qualifies for the employee business expense deduction

Employee business expenses can be deducted as an adjustment to income only for specific employment categories and eligible educators.

Taxpayers can no longer claim unreimbursed employee expenses as miscellaneous itemized deductions, unless they are a qualified employee or an eligible educator. They must complete Form 2106, Employee Business Expenses to take the deduction.

If someone falls into one of these employment categories, they are considered a qualified employee:

  • Armed Forces reservists
  • Qualified performing artists
  • Fee-basis state or local government officials
  • Employees with impairment-related work expenses

No other type of employee is eligible to claim a deduction for unreimbursed employee expenses.

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IRS Extends Economic Impact Payment Registration Deadline For Non-Filers To Nov. 21

IRS Extends Economic Impact Payment Registration Deadline For Non-Filers To Nov. 21

The deadline to register for an Economic Impact Payment using the Non-Filers tool is extended to November 21, 2020.

The IRS urges people who don’t typically file a tax return – and haven’t received an Economic Impact Payment – to register as quickly as possible using the Non-Filers: Enter Info Here tool on IRS.gov. The tool will not be available after November 21.

This additional time is solely for those who haven’t registered or received their EIP and don’t normally file a tax return. For taxpayers who requested an extension of time to file their 2019 tax return, that deadline is Thursday, October 15.

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IRS Issues Final Regulations For Achieving A Better Life Experience Accounts

IRS Issues Final Regulations For Achieving A Better Life Experience Accounts

The Internal Revenue Service posted to IRS.gov final regulations today for Achieving a Better Life Experience (ABLE) accounts.

The regulations issued today finalize two previously issued proposed regulations. The first proposed regulation was published in 2015 after the enactment of the ABLE Act. The second proposed regulation was published in 2019 in response to the Tax Cuts and Jobs Act, which made significant changes to ABLE accounts. 

Eligible individuals may now put more money into their ABLE account and roll money from their qualified tuition programs (529 plans) into their ABLE accounts. Also, certain contributions made to ABLE accounts by low- and moderate-income workers may now qualify for the Saver’s Credit.

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IRS Expands Enforcement Focus On Abusive Micro-Captive Insurance Schemes; Taxpayers Urged To Consult Tax Advisor

IRS Expands Enforcement Focus On Abusive Micro-Captive Insurance Schemes; Taxpayers Urged To Consult Tax Advisor

With the Oct. 15 deadline quickly approaching, the Internal Revenue Service  encouraged taxpayers to consult an independent tax advisor if they participated in a micro-captive insurance transaction.

The IRS encourages any taxpayer who has continued to engage in an abusive micro-captive insurance transaction to not anticipate being able to settle its transaction with the IRS or Chief Counsel on terms more favorable than previously announced settlement offers and that any potential future settlement initiative that the IRS may consider will require additional concessions by the taxpayer.

With this in mind, the IRS encourages taxpayers to consult an independent tax advisor if they participated in a micro-captive insurance transaction. These taxpayers should seriously consider exiting the transaction and not reporting deductions associated with abusive micro-captive insurance transactions, like many other taxpayers did who were contacted by the IRS in March and July 2020.  For those taxpayers that do not exit the transaction and continue taking such deductions, the IRS will disallow tax benefits from transactions that are determined to be abusive and may also require domestic captives to include premium payments in income and assert a withholding liability for foreign captives.  The IRS will also assert penalties, as appropriate, including the strict liability penalty that applies to transactions that lack economic substance.  The IRS Office of Chief Counsel is well prepared to defend these positions in Tax Court. 

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IRS Finalizes Regulations For 100 percent Bonus Depreciation

IRS Finalizes Regulations For 100 percent Bonus Depreciation

The Treasury Department and the Internal Revenue Service released the last set of final regulations implementing the 100% additional first year depreciation deduction that allows businesses to write off the cost of most depreciable business assets in the year they are placed in service by the business.

The 100% additional first year depreciation deduction was created in 2017 by the Tax Cuts and Jobs Act and generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property. Machinery, equipment, computers, appliances and furniture generally qualify.

The deduction applies to qualifying property (including used property) acquired and placed in service after Sept. 27, 2017. The final regulations provide clarifying guidance on the requirements that must be met for property to qualify for the deduction, including used property.

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IRS Reminds Taxpayers And Practitioners Of Expedited Letter Ruling Procedures

IRS Reminds Taxpayers And Practitioners Of Expedited Letter Ruling Procedures

The Internal Revenue Service continues to look for ways to assist taxpayers affected by the COVID-19 pandemic.  As part of that effort, the IRS reminds taxpayers and tax practitioners of the procedures for requesting expedited handling of requests for letter rulings under Rev. Proc. 2020-1, 2020-1 I.R.B. 1 (Jan. 2, 2020).

As set forth in Rev. Proc. 2020-1, the IRS ordinarily processes requests for letter rulings in the order that they were received.  A taxpayer with a compelling need to have a request processed more quickly may request expedited handling.  The request for expedited handling must be made in writing, preferably in a separate letter submitted with the letter ruling request.  Requests for expedited handling are granted at the discretion of the IRS and typically involve a factor outside of the taxpayer’s control that creates a real business need to obtain a letter ruling before a certain date in order to avoid serious business consequences.  Requests for expedited handling should be submitted as promptly as possible after the taxpayer has become aware of the deadline or compelling business need. 

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IRS Updates LB&I Examination Directive On Credit For Increasing Research Activities

IRS Updates LB&I Examination Directive On Credit For Increasing Research Activities

The IRS has revised guidance for examiners in the Large Business & International division (LB&I) reviewing the amounts claimed for the tax credit for increasing research activities.

The guidance to auditors issued today modifies a directive issued in 2017. The credit for increasing research activities (Internal Revenue Code § 41) enables taxpayers to receive a tax credit for qualified research activities (QREs).

Independently determining the correct amount of this research credit claimed by large corporate taxpayers can be resource intensive for those taxpayers and IRS examiners. This revised directive provides an efficient methodology for determining QREs for these taxpayers that meet the requirements of the updated directive.

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Final Regulations On Business Interest Expense Deduction Limitation Published In The Federal Register

Final Regulations On Business Interest Expense Deduction Limitation Published In The Federal Register

The final regulations for the business interest expense deduction limitation published in the Federal Register today. The final regulations vary slightly from the document released on IRS.gov on July 28, 2020.

The Treasury Department and the IRS released a version of the final regulations on the business interest expense deduction limitation on IRS.gov on July 28, 2020. The version released on IRS.gov contains a disclaimer that the document had been submitted to the Office of the Federal Register for publication, and notes that the version of the final regulations may vary slightly from the document published in the Federal Register.

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IRS To Mail Special Letter To Estimated 9 Million Non-Filers, Urging Them To Claim Economic Impact Payment By Oct. 15

IRS To Mail Special Letter To Estimated 9 Million Non-Filers, Urging Them To Claim Economic Impact Payment By Oct. 15

Later this month, the Internal Revenue Service will start mailing letters to roughly 9 million Americans who typically don’t file federal income tax returns who may be eligible for, but have not registered to claim, an Economic Impact Payment. 

The letters will urge recipients to register at IRS.gov by Oct. 15 in order to receive their payment by the end of the year. Individuals can receive up to $1,200, and married couples can receive up to $2,400. People with qualifying children under age 17 at the end of 2019 can get up to an additional $500 for each qualifying child.

The letters are being sent to people who haven’t filed a return for either 2018 or 2019. Based on an internal analysis, these are people who don’t typically have a tax return filing requirement because they appear to have very low incomes, based on Forms W-2, 1099s and other third-party statements available to the IRS. But many in this group are still eligible to receive an Economic Impact Payment.

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IRS Launches BBA Centralized Partnership Audit Webpage

IRS Launches BBA Centralized Partnership Audit Webpage

The IRS announces the launch of the Bi-Partisan Budget Act (BBA) Centralized Partnership Audit Regime webpage.

The Centralized Partnership Audit Regime replaces the Tax Equity and Fiscal Responsibility Act (TEFRA) and the electing large partnership rules. The centralized partnership audit regime, or BBA, is generally effective for tax years beginning January 2018. Under the BBA, the IRS generally assesses and collects any understatement of tax (called an imputed underpayment) at the partnership level.

A partnership is subject to BBA unless it is an eligible partnership and makes an annual election out of BBA on a timely filed Form 1065. An eligible partnership is one with 100 or fewer partners, all of whom are either individuals, C corporations, foreign entities that would be treated as a C corporation if it were domestic, S corporations or estates of deceased partners.

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Earning Side Income: Is it A Hobby Or A Business?

Earning Side Income: Is it A Hobby Or A Business?

Whether it’s something they’ve been doing for years or something they just started to make extra money, taxpayers must report income earned from hobbies in 2020 on next year’s tax return.

What the difference between a hobby and a business? A business operates to make a profit. People engage in a hobby for sport or recreation, not to make a profit.

Here are nine things taxpayers must consider when determining if an activity is a hobby or a business:

  • Whether the activity is carried out in a businesslike manner and the taxpayer maintains complete and accurate books and records.
  • Whether the time and effort the taxpayer puts into the activity show they intend to make it profitable.
  • Whether they depend on income from the activity for their livelihood.
  • Whether any losses are due to circumstances beyond the taxpayer’s control or are normal for the startup phase of their type of business.
  • Whether they change methods of operation to improve profitability.
  • Whether the taxpayer and their advisors have the knowledge needed to carry out the activity as a successful business.
  • Whether the taxpayer was successful in making a profit in similar activities in the past.
  • Whether the activity makes a profit in some years and how much profit it makes.
  • Whether the taxpayers can expect to make a future profit from the appreciation of the assets used in the activity.

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