WASHINGTON — The Internal Revenue Service today reminded taxpayers that now is the perfect time to review their tax withholding and payments to avoid a surprise when filing next year.

An adjustment or two made now may boost take home pay or allow taxpayers to pay more in the last quarter of 2020 to avoid a surprise tax bill.

Some things to consider that will affect taxes owed in 2020 include:

Pay as you go

Taxes are generally paid throughout the year whether from salary withholding, quarterly estimated tax payments or a combination of both. About 70% of taxpayers, however, over withhold their taxes every year which typically results in a refund. The average refund in 2020 was well over $2,400.

Taxpayers can pay electronically, throughout the year, online, by phone or with a mobile device and the IRS2Go app. They can choose an electronic payment option to schedule estimated tax payments and receive email notifications about their payments.

Taxpayers can also visit IRS.gov/account to view their taxes owed, payment history and key tax return information from their most recent tax return as originally filed and, if they have one, they’ll see details about their payment plan.

Regarding Refunds

IRS reminds people that there are many factors that affect the timing of a refund.  The fastest way to get a tax refund is by filing electronically and choosing Direct Deposit. IRS issues most refunds in less than 21 days, but it’s possible it can take longer.

Tax withholding estimator

The IRS launched an improved Tax Withholding Estimator tool last summer to make it easier for everyone to have the right amount of tax withheld during the year. This is especially important for anyone who faced an unexpected tax bill or a penalty when they filed this year. It’s also an important step for those who made withholding adjustments in 2020, had a major life change or were adversely affected by the pandemic.

The tool offers workers, as well as retirees, self-employed individuals and other taxpayers, a more user-friendly step-by-step tool for effectively tailoring the amount of income tax they have withheld from wages and pension payments.

The tax withholding estimator has several key features for ease of use:

In addition, the new Tax Withholding Estimator makes it easier to enter wages and withholding for each job held by the taxpayer and their spouse, as well as separately entering pensions and other sources of income. At the end of the process, the tool makes specific withholding recommendations for each job and each spouse and clearly explains what the taxpayer should do next.

For more information about taxes, estimated taxes and tax withholding, see IRS Publication 505, Tax Withholding and Estimated Tax at IRS.gov.

Taxpayers should file electronically and request direct deposit for refunds

WASHINGTON – The Internal Revenue Service today reminds taxpayers who filed an extension that the Oct. 15 due date to file their 2019 tax return is near. Taxpayers should file their tax returns on or before the Oct. 15 deadline. For those who still owe, pay as soon as possible to reduce any penalties and interest.

Convenient electronic filing options, including IRS Free File, are still available. Taxpayers and tax professionals should continue to use electronic options to support social distancing and speed the processing of tax returns, refunds and payments.

Although Oct. 15 is the last day for most people to file, some taxpayers may have more time. They include:

Choose direct deposit for refunds
The safest and fastest way for taxpayers to get their refund is to have it electronically deposited into their bank or other financial account. Taxpayers can use direct deposit to deposit their refund into one, two or even three accounts. Direct deposit is much faster than waiting for a paper check to arrive in the mail.

After filing, use the Where's My Refund? tool on IRS.gov or download the IRS2Go mobile app to track the status of a refund.

Pay federal taxes electronically
Taxpayers can make their federal tax payments online, by phone or with their mobile device and the IRS2Go app. When paying federal taxes electronically, taxpayers should remember:

Can’t pay full amount?
Several payment options are available on IRS.gov/payments to help taxpayers who can’t pay in full and some can offer taxpayers smaller penalties. Taxpayers should know:

Economic Impact Payments: Non-Filers can still get one; must act by Nov. 21
Though most Americans − more than 160 million in all − have already received their Economic Impact Payments, the IRS reminds anyone with little or no income who is not required to file a tax return that they may be eligible to receive an Economic Impact Payment.

Available in both English and Spanish, the Non-Filers tool on IRS.gov is designed for people with incomes typically below $24,400 for married couples, and $12,200 for singles. This includes couples and individuals who are experiencing homelessness. People must enter their information by Nov. 21 to get a payment this year.

People can qualify for a payment, even if they don’t work or have no earned income. But low- and moderate-income workers and working families eligible to receive special tax benefits, such as the Earned Income Tax Credit or Child Tax Credit, cannot use this tool. They will need to file a regular return as soon as possible. The IRS will use their tax return information to determine and issue any EIP for which they are eligible.

IRS.gov assistance
Taxpayers may find answers to many of their questions using the Interactive Tax Assistant (ITA), a tax law resource that works using a series of questions and responses. IRS.gov has answers for Frequently Asked Questions. The IRS website has tax information in: Spanish (Español); Chinese (中文); Korean (한국어); Russian (Pусский); Vietnamese (Tyng Vied); and Haitian Creole (Kreyòl ayisyen).

WASHINGTON – The Internal Revenue Service announced today that Free File, the IRS-private sector partnership that offers free tax preparation products, scored a record percentage increase in new users as taxpayers turned to free name-brand providers in 2020.

IRS Free File online products marked a 50% increase this year as more than 4.1 million taxpayers used one of the free online partner products. Last year, more than 2.7 million taxpayers used Free File.

Free File remains available through Oct. 15 for those taxpayers who still need to file their 2019 return.

“The IRS has worked with our partners to make important improvements to the Free File program this year, and we are encouraged by the strong increase in usage” said IRS Commissioner Chuck Rettig. “The IRS remains committed to supporting and promoting this free service that benefits so many taxpayers.”

Additionally, 96% of the people who had no filing requirement and who registered for an Economic Impact Payment used an online tool supported by Free File Inc., the consortium representing the tax software providers who partner with the IRS.

Free File Inc. developed the “Non-Filers: Enter Payment Info Here” tool that gave Americans with no filing requirement a free way to get their Economic Impact Payment. More than 7 million non-filers have registered for the payments so far, with more than 6.7 million Non-Filers using the Free File Inc. product. The Non-Filers tool, available on the IRS.gov homepage, remains available through Nov. 21, following the announcement that the deadline for non-filers to register had been extended.

How Free File works

Taxpayers whose adjusted gross income was $69,000 or less in 2019 can choose from multiple online preparation products, in English and Spanish. Taxpayers whose income was higher can opt for Free File Fillable Forms, the electronic version of IRS paper forms.

Here's how taxpayers can use Free File:

In 2003, the IRS and the Free File Alliance, now Free File Inc., a consortium of tax software providers began offering free tax software and free electronic filing to taxpayers. There currently are 10 partners offering free products, including two products in Spanish.

IRS Free File is the main provider of free, electronic tax preparation services for low- to moderate-income Americans and, in aggregate, one of the top e-file providers within the tax industry.

WASHINGTON – The Internal Revenue Service announced today that the deadline to register for an Economic Impact Payment (EIP) is now Nov. 21, 2020. This new date will provide an additional five weeks beyond the original deadline.

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 Nov. 21.

“We took this step to provide more time for those who have not yet received a payment to register to get their money, including those in low-income and underserved communities,” said IRS Commissioner Chuck Rettig. “The IRS is deeply involved in processing and programming that overlaps filing seasons. Any further extension beyond November would adversely impact our work on the 2020 and 2021 filing seasons. The Non-filers portal has been available since the spring and has been used successfully by many millions of Americans.”

Special note: This additional time into November is solely for those who have not 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 date remains Oct. 15.

To support the ongoing EIP effort, many partner groups have been working with the IRS, helping translate and making available in 35 languages IRS information and resources on Economic Impact Payments.

To help spread the word, the IRS sent nearly 9 million letters in September to people who may be eligible for the $1,200 Economic Impact Payments but don’t normally file a tax return. This push encourages people to use the Non-Filers tool on IRS.gov.

“Time is running out for those who don’t normally file a tax return to get their payments,” Rettig added. “Registration is quick and easy, and we urge everyone to share this information to reach as many people before the deadline.”

While most eligible U.S. taxpayers have automatically received their Economic Impact Payment, others who don’t have a filing obligation need to use the Non-Filers tool to register with the IRS to get their money. Typically, this includes people who receive little or no income.

The Non-Filers tool is secure and is based on Free File Fillable Forms, part of the Free File Alliance's offering of free products on IRS.gov.

The Non-Filers tool is designed for people with incomes typically below $24,400 for married couples, and $12,200 for singles who could not be claimed as a dependent by someone else. This includes couples and individuals who are experiencing homelessness.

Anyone using the Non-Filers tool can speed the arrival of their payment by choosing to receive it by direct deposit. Those not choosing this option will get a check.

Beginning two weeks after they register, people can track the status of their payment using the Get My Payment tool, available only on IRS.gov.

Notice 2020-76 extends the due dates under sections 6055 and 6056 from January 31, 2021, to March 2, 2021, for insurers, self-insuring employers, applicable large employers, and certain other providers of minimum essential coverage to furnish to individuals the 2020 Form 1095-B, Health Coverage, and the 2020 Form 1095-C, Employer-Provided Health Insurance Offer and Coverage.  Additionally, this notice provides that the IRS will not impose a penalty under section 6722 for failures to furnish a Form 1095-B to responsible individuals and also provides a final extension of transitional good-faith relief from section 6721 and 6722 penalties to the 2020 information reporting requirements under sections 6055 and 6056.

Notice 2020-76 will be in IRB: 2020-43, dated 10/19/20.

WASHINGTON – As the Internal Revenue Service continues combatting abusive syndicated conservation easements, the agency today released additional information to help address questions related to the ongoing settlement initiative.

Today the Internal Revenue Service Chief Counsel released Chief Counsel Notice 2021-001 (CC Notice), which contains information regarding Chief Counsel’s settlement initiative for certain pending Tax Court cases involving abusive syndicated conservation easement transactions described in IRS Notice 2017-10 (“SCE transactions. Prior coverage of the settlement initiative can be found in IRS news release IR-2020-196.

The IRS encourages investors to seek independent professional assistance with understanding the settlement terms and CC Notice, and to help them assess their hazards of litigation. Investors would be well advised to obtain counsel from competent, independent advisers not related to or recommended by the SCE transaction promoter.

As previously noted in IR-2020-196 the IRS has been very successful in litigating SCE transactions.  While some promoters have attempted to distinguish the decided cases, claiming that their transactions are “different” and do not suffer the same flaws, the IRS has many grounds for disallowing the tax benefits claimed from these abusive transactions. The IRS will soon publish updates to the Conservation Easement Audit Technique Guide, which will set out new arguments that taxpayers can expect the IRS to make in cases involving SCE transactions.

The CC Notice reflects the IRS’s continuing efforts to combat abusive SCE transactions.  Notably, the newly established Office of Fraud Enforcement and the National Fraud Counsel are coordinating with examining agents and Chief Counsel attorneys to canvas cases for additional fraud considerations, which might include assertion of the 75% civil fraud penalty, or where applicable, referrals to Criminal Investigation.   

The CC Notice also responds to a recurring question raised by several groups of partners that have approached IRS Chief Counsel seeking to resolve their cases. The Chief Counsel settlement initiative requires that the partnership that engaged in the SCE transaction and all its partners agree to settle on the offered terms. Those terms include a complete disallowance of the claimed charitable contribution deductions and penalties, although some partners may deduct their cost of investing in the partnership. The CC Notice explains that, in rare cases, Chief Counsel may permit less than all the partners to settle on these terms.

In most cases, however, the IRS will require settling groups of less than all partners to pay an additional 5% penalty, reflecting the lost efficiencies of the IRS having to proceed with the partnership case. The IRS and Chief Counsel encourage partners who want to settle to work with the other partners to reach a full resolution of the case. The CC Notice also indicates that the IRS will settle with individual partners (or groups of individual partners) only when they own a significant percentage of the partnership and they cooperate with Chief Counsel, which may include providing evidence that Chief Counsel might use to support its contentions in the litigation. The CC Notice provides that partners or groups of partners interested in resolving their cases on these terms have 30 days from the date of this Notice to elect to settle.

The CC Notice also explains that Chief Counsel may consider making the same offer to newly filed cases in Tax Court. Chief Counsel will consider a variety of factors in deciding whether to extend the offer, including whether the partnership fully cooperated with the IRS during the audit.

Finally, the CC Notice answers numerous procedural questions related to the settlement terms.  

WASHINGTON — 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.

ABLE accounts are designed to help people with disabilities and their families save and pay for disability-related expenses. Though contributions are not deductible, distributions, including earnings, are tax-free to the designated beneficiary if used to pay qualified disability expenses. These expenses can include housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology and personal support services and other disability-related expenses.

The final regulation addresses many comments received on the 2015 and 2019 proposed regulations. Specifically, they provide guidance on the gift and generation-skipping transfer tax consequences of contributions to an ABLE account, as well as on the federal income, gift, and estate tax consequences of distributions from, and changes in the designated beneficiary of, an ABLE account. 

Also, before Jan. 1, 2026, funds are allowed to be rolled over from a designated beneficiary’s 529 plan to an ABLE account for the same beneficiary or a family member. The regulations provide that rollovers from 529 plans, together with any contributions made to the designated beneficiary’s ABLE account (other than certain permitted contributions of the designated beneficiary’s compensation) cannot exceed the annual ABLE contribution limit.

Finally, these regulations provide guidance on the recordkeeping and reporting requirements of a qualified ABLE program.

For more information about ABLE accounts and other tax reform changes visit the Tax Reform page of IRS.gov.

WASHINGTON – With the Oct. 15th filing deadline quickly approaching, the Internal Revenue Service today 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 claiming deductions associated with abusive micro-captive insurance transactions, just 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 related to foreign captives. The IRS will also assert penalties, as appropriate, including the strict liability penalty that applies to transactions that lack economic substance under sections 7701(o) and 6662(i).  The IRS Office of Chief Counsel will continue to litigate these abusive transactions in Tax Court. 

"The IRS enforcement efforts will continue on these abusive transactions,” IRS Commissioner Chuck Rettig said. “Any future settlement terms will only get worse, not better. The IRS has never been better positioned in its quest to eradicate abusive transactions following the stand-up of a dedicated promoter office, a new Fraud Enforcement Office, enhanced service-wide coordination with Criminal Investigation and the Office of Professional Responsibility, and our advanced data analytics and mining capabilities. Taxpayers are strongly encouraged to use this opportunity to put this behind them and get into compliance.”

Abusive micro-captives have been a concern to the IRS for several years. The transactions first appeared on the IRS "Dirty Dozen" list of tax scams in 2014 and remain a priority enforcement issue for the IRS. In 2016, the Department of Treasury and IRS issued Notice 2016-66 (PDF), which identified certain micro-captive transactions as having the potential for tax avoidance and evasion.  In March and July 2020, IRS issued letters to taxpayers who participated in a Notice 2016-66 transaction alerting them that IRS enforcement activity in this area will be expanding significantly and providing them with the opportunity to tell the IRS if they’ve discontinued their participation in this transaction before the IRS initiates examinations.  Early responses indicate that a significant number of taxpayers who participated in these transactions have exited the transaction. 

This summer, the IRS issued a new round of section 6112 letters to material advisors who filed with the IRS pursuant to Notice 2016-66. In addition, the IRS has deployed 12 newly formed micro-captive examination teams to substantially increase the examinations of ongoing abusive micro-captive insurance transactions.

Also, as part of IRS’s continued focus in this area, the IRS has become aware of variations of the abusive micro-captive insurance transactions.  Examples of these variations include certain Puerto Rico and offshore captive insurance arrangements that do not involve section 831(b) elections.

These variations appear to be designed and marketed with the express intent of avoiding reporting under Notice 2016-66 and yet perpetuating in some cases the same or similar abusive elements as abusive micro-captive insurance transactions.  The IRS is aware of these abusive transactions and is actively working to counter their proliferation.  The IRS cautions taxpayers that, to the extent they engage in variations of abusive micro-captive transactions that are substantially similar to Notice 2016-66, they must be disclosed.  Otherwise, the IRS will impose penalties for the failure to disclose.

Notice 2020-70 modifies Notice 2011-26 (2011-17 I.R.B. 720) to generally remove Form 1040-NR, U.S. Nonresident Alien Income Tax Return, from the list of returns that are administratively exempt from the electronic filing requirement imposed on specified tax return preparers by section 6011(e)(3) and to provide the circumstances under which the Form 1040-NR remains subject to the exemption.  This notice also provides that future updates to the list of returns in Notice 2011-26 that are administratively exempt from the electronic filing requirement due to IRS e-file limitations will be set forth in IRS Publication 4164, Modernized e-File (MeF) Guide for Software Developers and Transmitters.  This notice applies to taxable years ending on or after December 31, 2020.

Notice 2020-70 will be in IRB:  2020-43, dated 10/19/2020.

WASHINGTON — The Internal Revenue Service issued final regulations on the business expense deduction for meals and entertainment following changes made by the Tax Cuts and Jobs Act (TCJA).

The 2017 TCJA generally eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation. However, taxpayers may still deduct business expenses related to food and beverages if certain requirements are met.

These final regulations address the disallowance of the deduction for expenditures related to entertainment, amusement or recreation activities, including the applicability of certain exceptions to this disallowance.  They also provide guidance to determine whether an activity is considered entertainment.  The final regulations also address the limitation on the deduction of food and beverage expenses.

Updates on the implementation of the TCJA can be found on the Tax Reform page of IRS.gov.