WASHINGTON — The Internal Revenue Service today issued the 2020 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2020, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 57.5 cents per mile driven for business use, down one half of a cent from the rate for 2019,
• 17 cents per mile driven for medical or moving purposes, down three cents from the rate for 2019, and
• 14 cents per mile driven in service of charitable organizations.

The business mileage rate decreased one half of a cent for business travel driven and three cents for medical and certain moving expense from the rates for 2019. The charitable rate is set by statute and remains unchanged.

It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, except members of the Armed Forces on active duty moving under orders to a permanent change of station. For more details, see Rev. Proc. 2019-46.

The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than five vehicles used simultaneously. These and other limitations are described in section 4.05 of Rev. Proc. 2019-46.

Notice 2020-05, posted today on IRS.gov, contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.  In addition, for employer-provided vehicles, the Notice provides the maximum fair market value of automobiles first made available to employees for personal use in calendar year 2020 for which employers may use the fleet-average valuation rule in § 1.61-21(d)(5)(v) or the vehicle cents-per-mile valuation rule in § 1.61-21(e).

WASHINGTON — The Internal Revenue Service today issued  final regulations providing details about investment in qualified opportunity zones (QOZ).

The final regulations modified and finalized the proposed regulations that were issued on October 28, 2018 and May 1, 2019.

The final regulations provide additional guidance for taxpayers eligible to make an election to temporarily defer the inclusion in gross income of certain eligible gain. The final regulations also address, the ability of such taxpayers’ eligibility to increase the basis in their qualifying investment equal to the fair market value of the investment on the date that it is sold, after holding the equity interest for at least 10 years.

The statute permits the deferral of all or part of a gain that would otherwise be included in income, if corresponding amounts are invested into a qualified opportunity fund (QOF). The gain is deferred until an inclusion event or Dec. 31, 2026, whichever is earlier. The final regulations provide a list of inclusion events.  Further, the final regulations provide guidance to determine the amount of income that must be included at the time of the inclusion event or December 31, 2026. 

The final regulations also address the various requirements that must be met to qualify as a QOF, as well as the requirements an entity must meet to qualify as a QOZ business.  In order to provide clarity, the final regulations have modified the proposed regulations for QOFs and QOZ businesses.  Specifically, the final regulations provide additional guidance on how an entity becomes a QOF or QOZ business, and the requirement that a QOF or QOZ business engage in a trade or business.  The final regulations retain the general approach of the proposed regulations but provide additional guidance and clarity to the rules regarding QOZ business property. 

Related forms, instructions and other information taxpayers need to take advantage of this update will be made available in January 2020.

For more information about this and other TCJA provisions, visit IRS.gov/taxreform.

Notice 2020-03 provides guidance for the 2020 calendar year regarding withholding from periodic payments for pensions, annuities, and certain other deferred income under section 3405(a), including the rules for withholding from periodic payments under section 3405(a) when no withholding certificate has been furnished.

It will appear in IRB: 2020-3 dated Jan. 13, 2020.

WASHINGTON —The Internal Revenue Service today announced that interest rates will remain the same for the calendar quarter beginning Jan. 1, 2020.  The rates will be:  

• 5% for overpayments [4% in the case of a corporation];
• 2.5% for the portion of a corporate overpayment exceeding $10,000;
• 5% for underpayments; and
• 7% for large corporate underpayments. 

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. 

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computed from the federal short-term rate determined during Oct. 2019, to take effect Nov. 1, 2019, based on daily compounding.

Revenue Ruling 2019-28, announcing the rates of interest, is attached and will appear in Internal Revenue Bulletin 2019-52, dated Dec. 23, 2019.

WASHINGTON — The Internal Revenue Service issued final regulations today on the Foreign Tax Credit, a long-standing tax benefit that generally allows individuals and businesses to claim a credit for income taxes paid or accrued to foreign governments.

The Tax Cuts and Jobs Act (TCJA) made major changes to the tax law, including revamping the U.S. international tax system. Specifically, several Foreign Tax Credit provisions were changed, including repeal of section 902, which allowed deemed-paid credits in connection with dividend distributions based on foreign subsidiaries’ cumulative pools of earnings and foreign taxes. TCJA also added two separate limitation categories for foreign branch income and amounts includible under the Global Intangible Low-Taxed Income (GILTI) provisions.

Additionally, the TCJA changed how taxable income is calculated for purposes of the Foreign Tax Credit limitation by disregarding certain expenses and repealing the use of the fair market value method for allocating interest expense. 

Finally, the TCJA made systemic changes to U.S. taxation of international income that impact the Foreign Tax Credit calculation. These systemic changes include the introduction of a participation exemption through a dividends received deduction for certain dividends in section 245A and the introduction of GILTI, which subjects to current U.S. taxation foreign earnings that would have been deferred under previous law, albeit at a lower tax rate and subject to extra Foreign Tax Credit restrictions. 

The IRS also issued Proposed Regulations today relating to the allocation and apportionment of deductions and creditable foreign taxes, foreign tax redeterminations, availability of Foreign Tax Credits under the Transition Tax, and the application of the Foreign Tax Credit limitation to consolidated groups.

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

WASHINGTON — The Internal Revenue Service today issued guidance for business travelers, updated to include changes resulting from the Tax Cuts and Jobs Act (TCJA). 

Revenue Procedure 2019-48, posted today on IRS.gov, updates the rules for using per diem rates to substantiate the amount of ordinary and necessary business expenses paid or incurred while traveling away from home.  Taxpayers are not required to use a method described in this revenue procedure and may instead substantiate actual allowable expenses provided they maintain adequate records.

Although TCJA suspended the miscellaneous itemized deduction that employees could take for non-reimbursed business expenses, self-employed individuals and certain employees, such as Armed Forces reservists, fee-basis state or local government officials, eligible educators, and qualified performing artists, that deduct unreimbursed expenses for travel away from home may still use per diem rates for meals and incidental expenses, or incidental expenses only.

The revenue procedure makes clear that TCJA amended prior rules to disallow a deduction for expenses for entertainment, amusement, or recreation paid or incurred after Dec. 31, 2017.  Otherwise allowable meal expenses remain deductible if the food and beverages are purchased separately from the entertainment, or if the cost of the food and beverages is stated separately from the cost of the entertainment.

The IRS annually issues guidance providing updated per diem rates; Notice 2019-55 provides the rates that have been in effect since Oct. 1, 2019.

Related items:

• IRS Publication 535, Business Expenses
• IRS Publication 463, Travel, Gift, and Car Expenses

WASHINGTON – The IRS today reminded tax professionals to review their e-Services account to ensure all contact information is accurate and to add or remove users. Reviewing e-Services information is just one of the tasks tax pros should complete now to get ready for 2020.

Here’s a to-do list for the rest of 2019:

Update e-Services information
E-Services offers a suite of tools to assist tax pros. These tools include the e-file application, the Transcript Delivery System (TDS) and a secure mailbox. New e-Services users must first register and verify their identities using Secure Access authentication.

Principals, principal consents or authorized responsible officials/delegated users must update the e-file application to ensure that all contact information is accurate. Individuals no longer associated with the firm must be removed from the application.

New delegated users must be added to the e-file application. Firms that will need to use the e-Services TDS should ensure the appropriate people are approved on the application to avoid any delays in accessing client transcripts.

Firms opening new offices where electronic transmissions will occur also must submit new e-file applications. E-file providers should review Publication 3112, IRS e-file Application and Participation, to determine additional actions they should take.

The IRS reminds tax pros that the Electronic Filing Identification Number (EFIN) is not transferrable and cannot be sold, rented, leased, or provided with software purchased. It can only be obtained from the IRS. Providers who sell, transfer or close their business operations must notify the IRS within 30 days.

Renew PTINs
Anyone who prepares or helps prepare tax returns for compensation must have a Preparer Tax Identification Number (PTIN) and renew it each year. Tax preparers have until Dec. 31, 2019, to renew or register for PTINs for the 2020 filing season. Anyone who is an enrolled agent must also have a PTIN and renew it annually.

Update power of attorney/third-party authorization records
Tax pros who have existing power of attorney or third-party authorization (Forms 2848 and 8821) for clients should review those records. If the taxpayer is no longer a client, tax professionals should submit revocations to end the authorization. They can follow the revocation instructions outlined in Publication 947, Practice Before the IRS and Power of Attorney. This will help safeguard taxpayer records.
 
Review security safeguards
All paid tax preparers, regardless of firm size, must have written information security plans as required by the Federal Trade Commission. IRS Publication 4557, Safeguarding Taxpayer Data, offers an overview of basic security measures and information about the FTC’s Safeguards Rule.

Now also is a good time for tax professionals to hire a cybersecurity expert to review office digital safeguards. At a minimum, tax pros should perform a “deep scan” for viruses on all digital devices. Other security tips are available at Taxes-Security-Together Checklist. Tax pros should protect both their PTIN and EFIN from theft.

Review Practitioner Priority Service options
The Practitioner Priority Service (PPS) is any tax pro’s first point of contact for account-related issues. Before calling, they should be sure to review the PPS page. Faster solutions are often available on IRS.gov. The quickest way to obtain a client’s transcripts is by using IRS e-Services and the Transcript Delivery System. After registering for e-Services, tax pros can receive account transcripts, wage and income documents, tax return transcripts, and verification of non-filing letters online. 

Tax pros must verify their identity before PPS representatives can provide help. This process includes providing their Social Security number and date of birth. If a tax pro has a client in the room, they should consider having them step out or, alternatively, ask the client to make an oral disclosure authorization or oral tax information authorization to the IRS representative.

Identify the local Stakeholder Liaison
The IRS has specialists nationwide who can help tax pros who suffer a security breach that effects their clients. When a data theft occurs, contact the local IRS Stakeholder Liaison immediately.

Register for e-News for Tax Professionals and subscribe for quick alerts
The IRS offers multiple registration-based list-services to assist tax professionals. For a weekly roundup of news releases and guidance, register for e-News for Tax Professionals or other IRS subscriptions. There also are social media platforms just for tax professionals. Subscribe for quick alerts to keep up to date on events that affect authorized IRS e-file providers, transmitters and software developers.

WASHINGTON — The Internal Revenue Service today issued guidance for taxpayers with certain deductible expenses to reflect changes resulting from the Tax Cuts and Jobs Act (TCJA).

Revenue Procedure 2019-46, posted today on IRS.gov, updates the rules for using the optional standard mileage rates in computing the deductible costs of operating an automobile for business, charitable, medical or moving expense purposes.

The guidance also provides rules to substantiate the amount of an employee's ordinary and necessary travel expenses reimbursed by an employer using the optional standard mileage rates. Taxpayers are not required to use a method described in this revenue procedure and may instead substantiate actual allowable expenses provided they maintain adequate records.

The TCJA suspended the miscellaneous itemized deduction for most employees with unreimbursed business expenses, including the costs of operating an automobile for business purposes. However, self-employed individuals and certain employees, such as Armed Forces reservists, qualifying state or local government officials, educators and performing artists, may continue to deduct unreimbursed business expenses during the suspension.

The TCJA also suspended the deduction for moving expenses. However, this suspension does not apply to a member of the Armed Forces on active duty who moves pursuant to a military order and incident to a permanent change of station. 

WASHINGTON — The Internal Revenue Service today announced the tax year 2020 annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes. Revenue Procedure 2019-44 provides details about these annual adjustments.

The tax law change covered in the revenue procedure was added by the Taxpayer First Act of 2019, which increased the failure to file penalty to $330 for returns due after the end of 2019. The new penalty will be adjusted for inflation beginning with tax year 2021.

The tax year 2020 adjustments generally are used on tax returns filed in 2021.

The tax items for tax year 2020 of greatest interest to most taxpayers include the following dollar amounts:

• The standard deduction for married filing jointly rises to $24,800 for tax year 2020, up $400 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $12,400 in for 2020, up $200, and for heads of households, the standard deduction will be $18,650 for tax year 2020, up $300.
• The personal exemption for tax year 2020 remains at 0, as it was for 2019, this elimination of the personal exemption was a provision in the Tax Cuts and Jobs Act.
• Marginal Rates: For tax year 2020, the top tax rate
  remains 37% for individual single taxpayers with
  incomes greater than $518,400 ($622,050 for married
  couples filing jointly).
  The other rates are:
  35%, for incomes over $207,350
  ($414,700 for married couples
  filing jointly);
  32% for incomes over $163,300
  ($326,600 for married couples filing jointly);
  24% for incomes over $85,525 ($171,050 for married
  couples filing jointly);
  22% for incomes over $40,125 ($80,250 for married
  couples filing jointly);
  12% for incomes over $9,875
  ($19,750 for married couples filing jointly).
  The lowest rate is 10% for incomes of single individuals
  with incomes of $9,875 or less ($19,750 for married
  couples filing jointly).
• For 2020, as in 2019 and 2018, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act.
• The Alternative Minimum Tax exemption amount for tax year 2020 is $72,900 and begins to phase out at $518,400 ($113,400 for married couples filing jointly for whom the exemption begins to phase out at $1,036,800).The 2019 exemption amount was $71,700 and began to phase out at $510,300 ($111,700, for married couples filing jointly for whom the exemption began to phase out at $1,020,600).
• The tax year 2020 maximum Earned Income Credit amount is $6,660 for qualifying taxpayers who have three or more qualifying children, up from a total of $6,557 for tax year 2019. The revenue procedure contains a table providing maximum credit amounts for other categories, income thresholds and phase-outs.
• For tax year 2020, the monthly limitation for the qualified transportation fringe benefit is $270, as is the monthly limitation for qualified parking, up from $265 for tax year 2019.
• For the taxable years beginning in 2020, the dollar limitation for employee salary reductions for contributions to health flexible spending arrangements is $2,750, up $50 from the limit for 2019.
• For tax year 2020, participants who have self-only coverage in a Medical Savings Account, the plan must have an annual deductible that is not less than $2,350, the same as for tax year 2019; but not more than $3,550, an increase of $50 from tax year 2019. For self-only coverage, the maximum out-of-pocket expense amount is $4,750, up $100 from 2019. For tax year 2020, participants with family coverage, the floor for the annual deductible is $4,750, up from $4,650 in 2019; however, the deductible cannot be more than $7,100, up $100 from the limit for tax year 2019. For family coverage, the out-of-pocket expense limit is $8,650 for tax year 2020, an increase of $100 from tax year 2019.
• For tax year 2020, the adjusted gross income amount used by joint filers to determine the reduction in the Lifetime Learning Credit is $118,000, up from $116,000 for tax year 2019.
• For tax year 2020, the foreign earned income exclusion is $107,600 up from $105,900 for tax year 2019.
• Estates of decedents who die during 2020 have a basic exclusion amount of $11,580,000, up from a total of $11,400,000 for estates of decedents who died in 2019.
• The annual exclusion for gifts is $15,000 for calendar year 2020, as it was for calendar year 2019.
• The maximum credit allowed for adoptions for tax year 2020 is the amount of qualified adoption expenses up to $14,300, up from $14,080 for 2019.

WASHINGTON — The Internal Revenue Service today announced that employees in 401(k) plans will be able to contribute up to $19,500 next year.

The IRS announced this and other changes in Notice 2019-59, posted today on IRS.gov. This guidance provides cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2020.

Highlights of changes for 2020

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $19,000 to $19,500.

The catch-up contribution limit for employees aged 50 and over who participate in these plans is increased from $6,000 to $6,500.

The limitation regarding SIMPLE retirement accounts for 2020 is increased to $13,500, up from $13,000 for 2019.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the Saver’s Credit all increased for 2020.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or his or her spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor his or her spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2020:

• For single taxpayers covered by a workplace retirement plan, the phase-out range is $65,000 to $75,000, up from $64,000 to $74,000.
• For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $104,000 to $124,000, up from $103,000 to $123,000.
• 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 if the couple’s income is between $196,000 and $206,000, up from $193,000 and $203,000.
• For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income phase-out range for taxpayers making contributions to a Roth IRA is $124,000 to $139,000 for singles and heads of household, up from $122,000 to $137,000. For married couples filing jointly, the income phase-out range is $196,000 to $206,000, up from $193,000 to $203,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $65,000 for married couples filing jointly, up from $64,000; $48,750 for heads of household, up from $48,000; and $32,500 for singles and married individuals filing separately, up from $32,000.

Key limit remains unchanged

The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

Details on these and other retirement-related cost-of-living adjustments for 2020 are in Notice 2019-59, available on IRS.gov.