WASHINGTON — The American Rescue Plan Act of 2021 suspends the requirement that taxpayers increase their tax liability by all or a portion of their excess advance payments of the Premium Tax Credit (excess APTC) for tax year 2020. A taxpayer’s excess APTC is the amount by which the taxpayer’s advance payments of the Premium Tax Credit (APTC) exceed his or her Premium Tax Credit (PTC).     

The Internal Revenue Service announced today that taxpayers with excess APTC for 2020 are not required to file Form 8962, Premium Tax Credit, or report an excess advance Premium Tax Credit repayment on their 2020 Form 1040 or Form 1040-SR, Schedule 2, Line 2, when they file.

Eligible taxpayers may claim a PTC for health insurance coverage in a qualified health plan purchased through a Health Insurance Marketplace. Taxpayers use Form 8962, Premium Tax Credit to figure the amount of their PTC and reconcile it with their APTC. This computation lets taxpayers know whether they must increase their tax liability by all or a portion of their excess APTC, called an excess advance Premium Tax Credit repayment, or may claim a net PTC.

Taxpayers can check with their tax professional or use tax software to figure the amount of allowable PTC and reconcile it with APTC received using the information from Form 1095-A, Health Insurance Marketplace Statement.
 
The process remains unchanged for taxpayers claiming a net PTC for 2020. They must file Form 8962 when they file their 2020 tax return. See the Instructions for Form 8962 for more information. Taxpayers claiming a net PTC should respond to an IRS notice asking for more information to finish processing their tax return.

Taxpayers who have already filed their 2020 tax return and who have excess APTC for 2020 do not need to file an amended tax return or contact the IRS. The IRS will reduce the excess APTC repayment amount to zero with no further action needed by the taxpayer. The IRS will reimburse people who have already repaid any excess advance Premium Tax Credit on their 2020 tax return. Taxpayers who received a letter about a missing Form 8962 should disregard the letter if they have excess APTC for 2020. The IRS will process tax returns without Form 8962 for tax year 2020 by reducing the excess advance premium tax credit repayment amount to zero.

Again, IRS is taking steps to reimburse people who filed Form 8962, reported, and paid an excess advance Premium Tax Credit repayment amount with their 2020 tax return before the recent legislative changes were made. Taxpayers in this situation should not file an amended return solely to get a refund of this amount. The IRS will provide more details on IRS.gov. There is no need to file an amended tax return or contact the IRS. 

As a reminder, this change applies only to reconciling tax year 2020 APTC. Taxpayers who received the benefit of APTC prior to 2020 must file Form 8962 to reconcile their APTC and PTC for the pre-2020 year when they file their federal income tax return even if they otherwise are not required to file a tax return for that year.  The IRS continues to process prior year tax returns and correspond for missing information.  If the IRS sends a letter about a 2019 Form 8962, we need more information from the taxpayer to finish processing their tax return. Taxpayers should respond to the letter so that the IRS can finish processing the tax return and, if applicable, issue any refund the taxpayer may be due.

See the  Form 8962, Premium Tax Credit, and IRS Fact Sheet for more details about the changes related to the PTC for tax year 2020.

WASHINGTON — The Internal Revenue Service is reminding U.S. citizens, resident aliens and any domestic legal entity that the deadline to file their annual Report of Foreign Bank and Financial Accounts (FBAR) is still April 15, 2021.

The extension of the federal income tax filing due date and other tax deadlines for individuals to May 17, 2021, does not affect the FBAR requirement. 

Who must report
The Bank Secrecy Act requires U.S. persons to file a FBAR if they have:

Because of this threshold, the IRS encourages U.S. persons or entities with foreign accounts, even relatively small ones, to check if this filing requirement applies to them.

A U.S. person is a citizen or resident of the United States or any domestic legal entity such as a partnership, corporation, limited liability company, estate or trust.

The 2021 FBAR must be filed electronically with the Financial Crimes Enforcement Network (FinCEN) and is only available through the BSA E-Filing System website. Taxpayers who are unable to e-file their FBAR must call FinCEN at 800-949-2732, from outside the U.S. 703-905-3975.

Penalties for failure to file an FBAR
Those who don’t file an FBAR when required may be subject to significant civil and criminal penalties that can result in a fine and/or prison. The IRS will not penalize those who properly reported a foreign account on a late-filed FBAR if the IRS determines there was  reasonable cause for late filing.

More details and help available
IRS.gov has several resources available 24 hours a day:

To help avoid delays with tax refunds, taxpayers living abroad should visit Helpful Tips for Effectively Receiving a Tax Refund for Taxpayers Living Abroad on IRS.gov.

WASHINGTON — Internal Revenue Service officials today urged participants in abusive micro-captive insurance arrangements to exit these transactions as soon as possible. The IRS has stepped up examinations of these arrangements and has recently won yet another case in U.S. Tax Court that such arrangements are not eligible for the tax benefits claimed.

On March 10, 2021, the U.S. Tax Court held in Caylor Land & Dev. v. Commissioner, T.C. Memo. 2021-30 (2021), that yet another micro-captive arrangement failed to qualify as insurance for federal tax purposes. This decision follows several earlier Tax Court decisions that also confirmed the IRS’s determinations that certain micro-captive arrangements were not eligible for the claimed federal tax benefits. In Caylor, the Tax Court also sustained the IRS’s determination of accuracy-related penalties and rejected the taxpayer’s claim of reliance on tax advice.

Taxpayers who engaged in abusive micro-captive transactions are once again encouraged to consult an independent tax advisor prior to filing their 2020 tax returns. Taxpayers should consider exiting the transaction and not reporting deductions associated with abusive micro-captive insurance transactions.

“In multiple cases before the courts, judges have held that these ‘fanciful’ and ‘unreasonable’ arrangements don’t add up to insurance in the commonly accepted sense,” said IRS Commissioner Chuck Rettig. “I strongly urge participants in these arrangements to get independent legal advice separate from those who helped steer them into these abusive arrangements.”

In the past several years, the IRS has ratcheted up its efforts to combat abusive micro-captive insurance arrangements. In 2020, the IRS deployed 12 newly formed micro-captive examination teams to substantially increase the examinations of ongoing abusive micro-captive insurance transactions.  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 on foreign captives.  The IRS will continue to assert penalties, as appropriate, including the strict liability penalty that applies to transactions that lack economic substance. 

In Notice 2016-66, the IRS advised that micro-captive insurance transactions have the potential for tax avoidance or evasion. The notice designated transactions that are the same as or substantially similar to transactions that are described in the notice as “Transactions of Interest.” The notice established reporting requirements for those entering into such transactions on or after Nov. 2, 2006 and created disclosure and list maintenance obligations for material advisors.

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.

Today, the IRS published the latest executive column, “A Closer Look,” which features Chief, Independent Office of Appeals, Andy Keyso, discussing what taxpayers can do if they disagree with an IRS audit or collection decision. “I’d like to remind taxpayers that they can have their case reviewed by an Appeals Officer who is independent of the IRS compliance function that made the initial determination in their case.  I’m a big believer in a strong appeals function within the IRS,” said Keyso.  Read more here. Read the Spanish version here.

“A Closer Look” is a column from IRS executives that covers a variety of timely issues of interest to taxpayers and the tax community. It also provides a detailed look at key issues affecting everything from IRS operations and employees to issues involving taxpayers and tax professionals.

Check here for prior posts and new updates.

WASHINGTON – The Internal Revenue Service reminds eligible residents of the U.S. territories that if they receive unemployment compensation payments that are otherwise subject to U.S. income tax, they may be eligible to exclude up to $10,200 per person of unemployment compensation from U.S.  income tax for 2020, following legislation that was passed March 11, 2021. 

Taxpayers with modified adjusted income of less than $150,000 may exclude the first $10,200 of unemployment compensation from their 2020 federal income tax return.  In the case of taxpayers that are married filing jointly, the maximum exclusion would be $10,200 for each spouse for a maximum of $20,400. Taxpayers who filed before the law was passed should not file an amended return.

Last year, in response to the COVID-19 pandemic, Congress passed legislation providing eligible individuals with two new types of pandemic-related unemployment compensation, which are subject to the same U.S. tax rules that apply to other unemployment compensation:

The $10,200 exclusion applies to these new types of unemployment compensation for U.S. income tax purposes.

The IRS also notes that for U.S. income tax purposes, unemployment compensation is generally considered sourced where the taxpayer performed the underlying services. For guidance on the U.S. income taxation of residents of the U.S. territories, see Publication 570, Tax Guide for Individuals with Income from U.S. Possessions.

The U.S. territories are American Samoa, the Commonwealth of the Northern Mariana Islands, Guam, the Commonwealth of Puerto Rico, and the U.S. Virgin Islands.

U.S. territory residents should contact their territory tax department with questions relating to the taxation of COVID-related unemployment compensation at the territory level.

WASHINGTON – The Internal Revenue Service today announced several key leadership appointments as work continues implementing major provisions of the Taxpayer First Act.

Douglas O’Donnell will serve as the new IRS Deputy Commissioner, Services and Enforcement. Among other leadership changes, Sunita Lough will be returning to serve as the IRS Commissioner of the Tax Exempt and Government Entities Division (TEGE).

These leadership changes are part of a larger effort underway at the IRS to continue work on the Taxpayer First Act, which includes work to reimagine the agency’s tax administration and work to improve taxpayer service and enforcement.

"I am proud of the dedicated and nimble leadership of the IRS, along with all the employees," said IRS Commissioner Chuck Rettig. "As we emerge from the pandemic, our strong leadership team is making some changes to take on the important challenges ahead. Taxpayers need to see the IRS renewing the fight each day for the highest possible service and tax compliance."

Sunita Lough has served as the IRS Deputy Commissioner, Services and Enforcement, since September 2019. She is returning to her prior position as Commissioner of TEGE, a role she previously held from 2014 to 2019.

"I am eternally grateful to Sunita for her experience, steady leadership and support during the pandemic, which tested every aspect of the IRS, and I am proud to say we have come through the crisis so far with high marks," Rettig said. "Most of her time as deputy commissioner was during the pandemic, and she has overcome every challenge."

Lough has worked for the IRS for nearly 27 years, holding many key leadership roles. She served as the Executive Project Lead for the Tax Reform Implementation Office, effectively spearheading the successful delivery and implementation of the Tax Cuts and Jobs Act, the biggest tax reform legislation in 30 years.

"Helping to lead this agency during the pandemic has been one of the most gratifying things I've done during my career, and I am very grateful to everyone at the IRS,” Lough said. “I’m excited to return to TE/GE as we work to assure our commitment to strengthening the oversight and services within the TE/GE community. I also look forward to assisting and supporting the new Deputy Commissioner, Services and Enforcement.”

O’Donnell has been the Commissioner of the Large Business and International Division of the IRS (LB&I) since 2015, where he also served as the U.S. Competent Authority.

“Having long worked closely with Sunita, I’m looking forward to taking on the broader role as Deputy Commissioner,” O’Donnell said. “We have an exceptionally strong IRS leadership team, and I am hopeful we can continue our efforts to earn the trust and respect of every American. Our employees have worked hard during the unprecedented pandemic to assist the people of our country and, rest assured, we will continue to do so.”

O’Donnell began his career at the IRS as a revenue agent in 1986. Since then, he has held several key positions. He received the Presidential Rank Award for Meritorious Executive in 2010.

Nikole Flax will take over as Commissioner of LB&I after serving as Deputy Commissioner of the division since 2017. She has held many key roles at the IRS including IRS Chief of Staff and Assistant Deputy Commissioner for Services and Enforcement, among others.

"I am excited to lead the agency’s monumental task of overseeing the most complicated noncompliance tax issues, both domestic and international, and continuing to work with employees and taxpayers to improve tax administration,” Flax said.

Holly Paz replaces Flax as Deputy Commissioner of LB&I. She is leaving her current role at LB&I as the Director of the Pass-Through Entities Practice Area, which supports all of LB&I with S Corporation and Partnership Specialty teams and the Ogden TEFRA Unit. She has held other key roles at the IRS including serving as the Director of Corporate Issues and Credits in LB&I’s Enterprise Activities Practice Area, among others.

Edward Killen has been serving as Acting Commissioner of TE/GE and will return to the role of Deputy Commissioner of TE/GE. Prior to joining TEGE, Killen has held several leadership positions including the IRS Chief Privacy Officer and Senior Advisor to the IRS Deputy Commissioner of Operations Support, among others.

"These are all exemplary leaders, who have a demonstrated ability to work together, communicate effectively inside and outside the IRS as well as organize cross-functional teams to take on our biggest compliance challenges," Rettig added.

Businesses can temporarily deduct 100% beginning Jan. 1, 2021

WASHINGTON – The Treasury Department and the Internal Revenue Service today issued Notice 2021-25 providing guidance under the Taxpayer Certainty and Disaster Relief Act of 2020. The Act added a temporary exception to the 50% limit on the amount that businesses may deduct for food or beverages. The temporary exception allows a 100% deduction for food or beverages from restaurants.

Beginning Jan. 1, 2021, through Dec. 31, 2022, businesses can claim 100% of their food or beverage expenses paid to restaurants as long as the business owner (or an employee of the business) is present when food or beverages are provided and the expense is not lavish or extravagant under the circumstances.

Where can businesses get food and beverages and claim 100%?

Under the temporary provision, restaurants include businesses that prepare and sell food or beverages to retail customers for immediate on-premises and/or off-premises consumption.  However, restaurants do not include businesses that primarily sell pre-packaged goods not for immediate consumption, such as grocery stores and convenience stores. 

Additionally, an employer may not treat certain employer-operated eating facilities as restaurants, even if these facilities are operated by a third party under contract with the employer.

More information for business seeking coronavirus related tax relief can be found at IRS.gov.

Notice 2021-25 provides guidance regarding the temporary 100-percent deduction for expenses that are paid or incurred in 2021 and 2022, for food or beverages provided by a restaurant.  In particular, the notice explains when the temporary 100-percent deduction applies and when the 50-percent limitation continues to apply for purposes of § 274 of the Internal Revenue Code.

Notice 2021-25 will be in IRB: 2021-17, dated 04/26/2021.

WASHINGTON –The Internal Revenue Service today reminded self-employed individuals, retirees, investors, businesses, corporations and others who pay their taxes quarterly that the payment for the first quarter of 2021 is due Thursday, April 15, 2021.

The extension to May 17, 2021 for individuals to file their 2020 federal income taxes does not apply to estimated tax payments. The 2021 Form 1040-ES, Estimated Tax for Individuals, can help taxpayers estimate their first quarterly tax payment.

Income taxes are pay-as-you-go. This means, by law, taxes must be paid as income is earned or received during the year. Most people pay their taxes through withholding from paychecks, pension payments, Social Security benefits or certain other government payments including unemployment compensation.

Most often, those who are self-employed or in the sharing economy need to make estimated tax payments. Similarly, investors, retirees and others often need to make these payments because a substantial portion of their income is not subject to withholding. Other income generally not subject to withholding includes interest, dividends, capital gains, alimony and rental income. Paying quarterly estimated taxes will usually lessen and may even eliminate any penalties.

Exceptions to the penalty and special rules apply to some groups of taxpayers, such as farmers, fishermen, casualty and disaster victims, those who recently became disabled, recent retirees and those who receive income unevenly during the year. See Form 2210, Underpayment of Estimated Tax by Individuals, Estates and Trusts, and its instructions for more information.

How to pay estimated taxes

Form 1040-ES, Estimated Tax for Individuals, includes instructions to help taxpayers figure their estimated taxes. They can also visit IRS.gov/payments to pay electronically. The fastest and easiest ways to make an estimated tax payment is by using IRS Direct Pay, the IRS2Go app or the Treasury Department’s Electronic Federal Tax Payment System (EFTPS). For information on other payment options, visit IRS.gov/payments. If paying by check, taxpayers should be sure to make the check payable to the “United States Treasury.”
 
Publication 505, Tax Withholding and Estimated Tax, has additional details, including worksheets and examples, that can be especially helpful to those who have dividend or capital gain income, owe alternative minimum tax or self-employment tax, or have other special situations.

IRS.gov assistance 24/7

Tax help is available 24/7 on IRS.gov. The IRS website offers a variety of online tools to help taxpayers answer common tax questions. For example, taxpayers can search the Interactive Tax Assistant, Tax Topics, Frequently Asked Questions, and Tax Trails to get answers to common questions.

The IRS is continuing to expand ways to communicate to taxpayers who prefer to get information in other languages. The IRS has posted translated tax resources in 20 other languages on IRS.gov. For more information, see “We Speak Your Language.” 

Social Security and other beneficiaries bring total to more than 156 million payments; VA beneficiaries’ payments to be disbursed on April 14

WASHINGTON — Today, the Internal Revenue Service, the U.S. Department of the Treasury, and the Bureau of the Fiscal Service announced they are disbursing more than 25 million payments in the fourth batch of Economic Impact Payments from the American Rescue Plan.

Today’s announcement brings the total disbursed so far to more than 156 million payments, with a total value of approximately $372 billion, since these payments began rolling out to Americans in batches, as announced on March 12. 

The fourth batch of payments began processing on Friday, April 2, with an official payment date of April 7, with some people receiving direct payments in their accounts earlier as provisional or pending deposits. Here is additional information on this batch of payments:

Additional  information is available on the first three batches of Economic Impact Payments from the American Rescue Plan, which began processing on March 26, March 19, and March 12.

No action is needed by most people to obtain this round of Economic Impact Payments. People can check the Get My Payment tool on IRS.gov on to see if the their payment has been scheduled.

Payments to non-filer VA beneficiaries will be disbursed on April 14

The IRS continues to review data received from Veterans Affairs (VA), which covers veterans and their beneficiaries who receive Compensation and Pension (C&P) benefit payments who don’t normally file a tax return.

If no additional issues arise, the IRS expects to begin processing these VA payment files at the end of this week. Because the majority of these payments will be disbursed electronically, they would be received on the official payment date of April 14. The IRS projects VA beneficiary payment information would be available in the Get My Payment tool this weekend, April 10-11.

Payments continue to be made rapidly and effectively

The IRS and Treasury are disbursing Economic Impact Payments authorized by the American Rescue Plan quickly and successfully, while improving on previous rounds of payments.

Special reminder for those who don't normally file a tax return

Some federal benefits recipients may need to file a 2020 tax return, even if they don't usually file, to provide information the IRS needs to send payments for a qualified dependent. Eligible individuals in this group should file a 2020 tax return to be considered for an additional payment for their qualified dependent as quickly as possible.

People who don't normally file a tax return and don't receive federal benefits may qualify for these Economic Impact Payments. This includes those experiencing homelessness, the rural poor, and others. Individuals who didn't get a first or second round Economic Impact Payment or got less than the full amounts may be eligible for the 2020 Recovery Rebate Credit, but they’ll need to file a 2020 tax return. See the special section on IRS.gov: Claiming the 2020 Recovery Rebate Credit if you aren't required to file a tax return.

Free tax return preparation is available for qualifying people.

The IRS reminds taxpayers that the income levels in this new round of Economic Impact Payments have changed. This means that some people won't be eligible for the third payment even if they received a first or second Economic Impact Payment or claimed a 2020 Recovery Rebate Credit. Payments will begin to be reduced for individuals making $75,000 or above in Adjusted Gross Income ($150,000 for married filing jointly). The payments end at $80,000 for individuals ($160,000 for married filing jointly); people with Adjusted Gross Incomes above these levels are ineligible for a payment.

Individuals can check the Get My Payment tool on IRS.gov to see the payment status of these payments. Additional information on Economic Impact Payments is available on IRS.gov.