WASHINGTON – The Department of Treasury and Internal Revenue Service today issued guidance implementing the Presidential Memorandum issued on Aug. 8, 2020, allowing employers to defer withholding and payment of the employee’s portion of the Social Security tax if the employee’s wages are below a certain amount.

Notice 2020-65, posted today on IRS.gov, makes relief available for employers and generally applies to wages paid starting Sept. 1, 2020, through Dec. 31, 2020. 
 
The employee Social Security tax deferral may apply to payments of taxable wages to an employee that are less than $4,000 during a bi-weekly pay period, with each pay period considered separately. No deferral is available for any payment to an employee of taxable wages of $4,000 or above for a bi-weekly pay period.

Today’s notice postpones the time for employers to withhold and pay employee Social Security taxes.

Additional tax relief related to the COVID-19 pandemic can be found on IRS.gov.

WASHINGTON – To protect the health of taxpayers and tax professionals, the Internal Revenue Service today announced it will temporarily allow the use of digital signatures on certain forms that cannot be filed electronically.

The change will help to reduce in-person contact and lessen the risk to taxpayers and tax professionals during the COVID-19 pandemic, allowing both groups to work remotely to timely file forms.

“We take the health and safety of the nation’s taxpayers, the tax professional community and our employees very seriously,” said IRS Commissioner Chuck Rettig. “Expanding the use of digital signatures is an important step during COVID-19 to help tax professionals. We understand the importance of digital signatures to the tax community, and we will continue to review our processes to determine where long-term actions can help reduce burden for the tax community, while appropriately balancing that with critical security and protection against identity theft and fraud.”

The Form 1040, U.S. Individual Income Tax Return, already uses an electronic signature when it is filed electronically, either by using a taxpayer self-selected PIN, if self-prepared, or a tax-preparer selected PIN, if using a tax professional. More than 90% of Form 1040s are filed electronically. The IRS recommends all taxpayers consider e-filing forms this year, whenever possible, because of COVID-19.

The below list of forms is available at IRS.gov and through tax professional’s software products. These forms cannot be e-filed and generally are printed and mailed. The IRS will not specify which digital signature product tax professionals must use. There are several commercial products available.

The following forms can be submitted with digital signatures if mailed by or on Dec. 31, 2020:
• Form 3115, Application for Change in Accounting Method;
• Form 8832, Entity Classification Election;
• Form 8802, Application for U.S. Residency Certification;
• Form 1066, U.S. Income Tax Return for Real Estate Mortgage Investment Conduit;
• Form 1120-RIC, U.S. Income Tax Return For Regulated Investment Companies;
• Form 1120-C, U.S. Income Tax Return for Cooperative Associations;
• Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts;
• Form 1120-L, U.S. Life Insurance Company Income Tax Return;
• Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return; and
• Form 8453 series, Form 8878 series, and Form 8879 series regarding IRS e-file Signature Authorization Forms.

The IRS will closely monitor this temporary option for e-signatures and determine if additional steps are needed.

Facts about opportunity zones

The Tax Cuts and Jobs Act included changes for businesses and individuals. One of these is the creation of the Opportunity Zones tax incentive, an economic development tool that allows people to invest in distressed areas.

This incentive’s purpose is to spur economic development and job creation in distressed communities by providing tax benefits to investors. Low income communities and certain contiguous communities qualify as Opportunity Zones if a state, the District of Columbia or a U.S. territory nominated them for that designation and the U.S. Treasury certified that nomination. Following the nomination process, 8,764 communities in all 50 states, the District of Columbia and five U.S. territories were certified as Qualified Opportunity Zones (QOZs). Congress later designated each low-income community in Puerto Rico as a QOZ effective Dec. 22, 2017. The list of each QOZ can be found in IRS Notices 2018-48 and 2019-42.  Further, a visual map of the census tracts designated as QOZs may be found at Opportunity Zones Resources.

Benefits of investing in opportunity zones

Opportunity Zones offer tax benefits to business or individual investors who can elect to temporarily defer tax on capital gains if they timely invest those gain amounts in a Qualified Opportunity Fund (QOF). Investors can defer tax on the invested gain amounts until the date they sell or exchange the QOF investment, or Dec. 31, 2026, whichever is earlier. 

The length of time the taxpayer holds the QOF investment determines the tax benefits they receive.

• If the investor holds the QOF investment for at least five years, the basis of the QOF investment increases by 10% of the deferred gain.

• If the investor holds the QOF investment for at least seven years, the basis of the QOF investment increases to 15% of the deferred gain. 

• If the investor holds the investment in the QOF for at least 10 years, the investor is eligible to elect to adjust the basis of the QOF investment to its fair market value on the date that the QOF investment is sold or exchanged.  

Deferral of Eligible Gain

• Gains that may be deferred are called “eligible gains.” They include both capital gains and qualified 1231 gains, but only gains that would be recognized for federal income tax purposes before Jan. 1, 2027, and that aren’t from a transaction with a related person. To obtain this deferral, the amount of the eligible gain must be timely invested in a QOF in exchange for an equity interest in the QOF (qualifying investment). Once this is done, taxpayers can claim the deferral on their federal income tax return for the taxable year in which the gain would have been recognized if they had not deferred it.

Taxpayers may make an election to defer the gain, in whole or in part. For additional information, see How To Report an Election To Defer Tax on Eligible Gain Invested in a QOF in the Form 8949 instructions.

Qualified opportunity funds

A QOF is an investment vehicle that files either a partnership or corporate federal income tax return and is organized for the purpose of investing in QOZ property. To become a QOF, an eligible corporation or partnership self-certifies by annually filing Form 8996 with its federal income tax return. See Form 8996 instructions. The return with the Form 8996 must be filed timely, taking extensions into account. An LLC that chooses to be treated either as a partnership or corporation for federal income tax purposes can organize as a QOF.

Qualified opportunity zone property

QOZ property is a QOF’s qualifying ownership interest in a corporation or partnership that operates a QOZ business in a QOZ or certain tangible property of the QOF that is used in a business in the QOZ. To be a qualifying ownership interest in a corporation or partnership, (1) the interest must be acquired after Dec. 31, 2017, solely in exchange for cash; (2) the corporation or partnership must be a QOZ business; and (3) for 90% of the holding period of that interest, the corporation or partnership was a QOZ business. See Form 8996 instructions.

Qualified opportunity zone business property

QOZ business property is tangible property that a QOF acquired by purchase after 2017 and uses in a trade or business and:

 • the original use of the property in the QOZ commenced with the QOF or QOZ business OR the property was substantially improved by the QOF or QOZ business; and

• during 90% of the time the QOF or QOZ business held the property, substantially all (generally at least 70 percent) of the use of the property was in a QOZ.

Leased property may also qualify as QOZ business property. To qualify, the lease must be a market rate lease entered into after Dec. 31, 2017.

Qualified opportunity zone business

Each taxable year, a QOZ business must earn at least 50% of its gross income from business activities within a QOZ. The regulations provide three safe harbors that a business may use to meet this test. These safe harbors take into account any of the following--

• Whether at least half of the aggregate hours of services received by the business were performed in a QOZ;

• Whether at least half of the aggregate amounts that the business paid for services were for services performed in a QOZ; or

• Whether necessary tangible property and necessary business functions to earn the income were located in a QOZ.

Resources:

• Opportunity Zone FAQs
• Opportunity Zone Website
• TD 9889, OZ Final Regulation
• Proposed regulation 115420-18
• Proposed regulation 120186-18
• Revenue Procedure 2018-16
• Revenue Ruling 2018-29  
• Form 8949, Sale and Other Dispositions of Capital Assets
• Form 8996, Qualified Opportunity Fund
• Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments
• Publication 544, Sales and Dispositions of Assets

WASHINGTON — The Internal Revenue Service announced today the opening of the application period for the 2021 Compliance Assurance Process program. The application period runs Sept. 1 to Nov. 13, 2020. The IRS will inform applicants if they’re accepted into the program in February 2021.

Launched in 2005, CAP employs real-time issue resolution, through transparent and cooperative interaction between taxpayers and the IRS, to improve federal tax compliance by resolving issues prior to the filing of a tax return.

To be eligible to apply for CAP, new applicants must:

• Have assets of $10 million or more,
• Be a U.S. publicly traded corporation with a legal requirement to prepare and submit SEC Forms 10-K, 10-Q, and 8-K, and
• Not be under investigation by, or in litigation with, any government agency that would limit the IRS’s access to current tax records.

To be eligible to participate in CAP, taxpayers must adhere to CAP program limits on the number of open years. For 2021, the IRS modified the open-year criteria, updated its requirements for the Tax Control Framework Questionaire and established a limit on the duration of the Bridge phase.

Program details are available on the CAP webpage. A draft of the 2021 CAP Memorandum of Understanding has also been posted on the CAP webpage, and stakeholders can offer any feedback on the MOU by sending it to the CAP Mailbox at lbi.irs.cap.program@IRS.gov by November 13, 2020.

WASHINGTON – The Internal Revenue Service will soon send catch-up Economic Impact Payment checks to about 50,000 individuals whose portion of the EIP was diverted to pay their spouse’s past-due child support.

These catch-up payments are due to be issued in early-to-mid-September. They will be mailed as checks to any eligible spouse who submitted Form 8379, Injured Spouse Allocation, along with their 2019 federal income tax return, or in some cases, their 2018 return. These spouses do not need to take any action to get their money. The IRS will automatically issue the portion of the EIP that was applied to the other spouse's debt.

The IRS is aware that some individuals did not file a Form 8379, Injured Spouse Allocation, and did not receive their portion of the EIP for the same reason above. These individuals also do not need to take any action and do not need to submit a Form 8379. The IRS does not yet have a timeframe but will automatically issue the portion of the EIP that was applied to the other spouse’s debt at a later date. 

Affected taxpayers can check the status of their Payment by using the Get My Payment tool, available only on IRS.gov.

For more information, see the Receiving My Payment section of the Frequently Asked Questions in the  Economic Payment Information Center on IRS.gov.

WASHINGTON — Victims of the California wildfires that began Aug. 14 now have until Dec. 15, 2020 to file various individual and business tax returns and make tax payments, the Internal Revenue Service announced today. 

The IRS is offering this relief to any area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual assistance. Currently this includes Lake, Monterey, Napa, San Mateo, Santa Cruz, Solano, Sonoma and Yolo counties in California, but taxpayers in localities added later to the disaster area will automatically receive the same filing and payment relief. The current list of eligible localities is always available on the disaster relief page on IRS.gov.

The tax relief postpones various tax filing and payment deadlines that occurred starting on Aug. 14, 2020. As a result, affected individuals and businesses will have until Dec. 15, 2020, to file returns and pay any taxes that were originally due during this period. This means individuals who had a valid extension to file their 2019 return due to run out on Oct. 15, 2020, will now have until Dec. 15, 2020, to file. The IRS noted, however, that because tax payments related to these 2019 returns were due on July 15, 2020, those payments are not eligible for this relief. 

The Dec. 15, 2020 deadline also applies to quarterly estimated income tax payments due on Sept. 15, 2020, and the quarterly payroll and excise tax returns normally due on Oct. 31, 2020. It also applies to tax-exempt organizations, operating on a calendar-year basis, that had a valid extension due to run out on Nov. 15, 2020. Businesses with extensions also have the additional time including, among others, calendar-year corporations whose 2019 extensions run out on Oct. 15, 2020.    

In addition, penalties on payroll and excise tax deposits due after Aug. 14 and before Aug. 31, will be abated as long as the deposits are made by Aug. 31, 2020.

The IRS disaster relief page has details on other returns, payments and tax-related actions qualifying for the additional time.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Therefore, taxpayers do not need to contact the agency to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227 . This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2020 return normally filed next year), or the return for the prior year (2019). Be sure to write the FEMA declaration number – 4558 − for California on any return claiming a loss. See Publication 547 for details.

The tax relief is part of a coordinated federal response to the damage caused by wildfires and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov.

WASHINGTON — Victims of the Aug. 10 derecho storm that affected parts of Iowa now have until Dec. 15, 2020, to file various individual and business tax returns and make tax payments, the Internal Revenue Service announced today. 

The IRS is offering this relief to any area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual assistance. Currently this includes Linn County in Iowa, but taxpayers in localities added later to the disaster area will automatically receive the same filing and payment relief. The current list of eligible localities is always available on the disaster relief page on IRS.gov. 

The tax relief postpones various tax filing and payment deadlines that occurred starting on Aug. 10, 2020. As a result, affected individuals and businesses will have until Dec. 15, 2020, to file returns and pay any taxes that were originally due during this period. This means individuals who had a valid extension to file their 2019 return due to run out on Oct. 15, 2020, will now have until Dec. 15, 2020, to file. The IRS noted, however, that because tax payments related to these 2019 returns were due on July 15, 2020, those payments are not eligible for this relief. 

The Dec. 15, 2020 deadline also applies to quarterly estimated income tax payments due on Sept. 15, 2020, and the quarterly payroll and excise tax returns normally due on Oct. 31, 2020. It also applies to tax-exempt organizations, operating on a calendar-year basis, that had a valid extension due to run out on Nov. 15, 2020. Businesses with extensions also have the additional time including, among others, calendar-year corporations whose 2019 extensions run out on Oct. 15, 2020.    

In addition, penalties on payroll and excise tax deposits due after Aug. 10 and before Aug. 25, will be abated as long as the deposits are made by Aug. 25, 2020.

The IRS disaster relief page has details on other returns, payments and tax-related actions qualifying for the additional time.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Therefore, taxpayers do not need to contact the agency to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227 . This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2020 return normally filed next year), or the return for the prior year (2019). Be sure to write the FEMA declaration number – 4557 for Iowa − on any return claiming a loss. See Publication 547 for details.

The tax relief is part of a coordinated federal response to the damage caused by severe storms and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov.

WASHINGTON —The Internal Revenue Service reminds people to create or maintain an emergency preparedness plan. A well-thought-out plan is a critical component for surviving natural disasters. Taxpayers, whether individuals, organizations or businesses, should take time now to create or update their emergency plans. 

A solid plan includes securing and duplicating essential documents, creating lists of property and knowing where to find information once a disaster has occurred. 

Secure key documents and make copies 

Taxpayers should place original documents such as tax returns, birth certificates, deeds, titles and insurance policies inside waterproof containers in a secure space. Duplicates of these documents should be kept with a trusted person outside the area of the taxpayer. Scanning them for backup storage on electronic media such as a flash drive is another option that provides security and portability. 

Document valuables and equipment 

Current photos or videos of a home or business’s contents can help support claims for insurance or tax benefits after a disaster. All property, especially expensive and high value items, should be recorded. The IRS disaster-loss workbooks in Publication 584 can help individuals and businesses compile lists of belongings or business equipment. 

Employers should check fiduciary bonds 

Employers who use payroll service providers should ask the provider if it has a fiduciary bond in place. The bond could protect the employer in the event of default by the payroll service provider. The IRS reminds employers to carefully choose their payroll service providers. 

Rebuilding documents 

Reconstructing records after a disaster may be required for tax purposes, getting federal assistance or insurance reimbursement. Those who have lost some or all their records during a disaster can visit IRS’s Reconstructing Records webpage as one of their first steps. 

IRS stands ready 

Taxpayers whose address of record is identified by the IRS as qualifying for disaster tax relief will automatically receive an extension to file and interest and payment relief for most tax returns and there is no need to call the IRS to request this relief. The IRS lists the relief available and areas qualifying for relief on the Around the Nation website. Taxpayers impacted by a disaster with tax-related questions can contact the IRS at 866-562-5227 to speak with an IRS specialist trained to handle disaster-related issues. 

A taxpayer impacted by a disaster outside of a federally declared disaster area may qualify for disaster relief. This includes taxpayers who are not physically located in a disaster area, but whose records necessary to meet a filing or payment deadline postponed during the relief period are in a covered disaster area. Taxpayers located outside of a federally declared disaster area must self-identify to receive relief by calling 866-562-5227 . 

Find complete disaster assistance and emergency relief details for both individuals and businesses on IRS.gov. 

Related items:

For more information about National Preparedness Month, visit Ready.gov/September.

WASHINGTON — The Internal Revenue Service today issued a memorandum that provides interim guidance to the agency’s compliance staff on requests to designate issues for litigation.

Designation of issues for litigation, a decision that is made with the Office of Chief Counsel, limits a taxpayer’s opportunity to administratively resolve their case with the IRS Independent Office of Appeals. Disputes between the IRS and taxpayers over designated issues must be resolved through litigation. The IRS took this step to update and clarify its designation procedures as part of its implementation of the Taxpayer First Act (TFA) enacted in July 2019.

The IRS’s approach of judiciously designating issues for litigation balances the need to soundly administer the tax law while recognizing the important role of Appeals in resolving tax controversies without litigation.  The designation of issues for litigation has been and remains infrequent. The IRS recently submitted its first TFA annual report indicating that no issues have been designated for litigation.  For perspective, the Office of Chief Counsel annually litigates between 25,000 and 30,000 cases in the United States Tax Court, many of them involving small dollar amounts and pro se litigants. 

The process of designating an issue is exhaustive. It involves several written notices and opportunities for the taxpayer to avoid designation and is subject to the highest level of oversight within the IRS and Chief Counsel. It also includes the opportunity to personally meet with the Chief Counsel to make a case against designation. The TFA codifies this framework and high level of oversight. It also sets forth the specific elements for the written notice required to be provided to the taxpayer and grants taxpayers the right to administratively appeal designation determinations.

The designation procedures set out in the memorandum will be incorporated into the Internal Revenue Manual, and corresponding changes will be made to the Chief Counsel Directive Manual.  This ensures that IRS and Chief Counsel employees adhere to the designation procedures and comply with the TFA provisions.  As part of the IRS’s ongoing implementation of the TFA with public input, comments on today’s release may be sent to TFAO@irs.gov.

WASHINGTON — The Internal Revenue Service today reminds IRA owners, beneficiaries or workplace retirement plan participants who received a Required Minimum Distribution (RMD) this year that they have until Aug. 31 to rollover or repay the distribution to avoid paying taxes.

The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, waives RMDs during 2020 for IRAs and retirement plans, including for beneficiaries with inherited accounts. This waiver includes RMDs for individuals who turned age 70 ½ in 2019 and took their first RMD in 2020. Roth IRAs don’t require withdrawals until after the death of the owner. 

Individuals who took RMDs in 2020, including those who turned 70 ½ during 2019, have the option of returning the distribution to their account or other qualified plan.

Since the RMD rule is suspended, RMDs taken in 2020 are considered eligible for rollover. Therefore, RMDs can be rolled over to another IRA, another qualified retirement plan, or returned to the original plan by Aug. 31, to avoid paying taxes on that distribution.

IRS Notice 2020-51 also provides that the one rollover per 12-month period limitation and the restriction on rollovers to inherited IRAs don’t apply to this repayment.

The CARES Act provisions apply to most retirement plans, including traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k) plans, 403(b) plans, 457(b) plans, profit sharing plans and other defined contribution plans. The RMD suspension doesn’t apply to qualified defined benefit plans.

Where can I find more information?

More information on the CARES Act and retirement plans, including FAQs, can be found on the Coronavirus-related relief for retirement plans and IRAs questions and answers page.