Notice 2021-24 amplifies the guidance in Notice 2020-22, 2020-17 I.R.B. 664, which provides for penalty relief under section 6656 of the Code for an employer’s failure to timely deposit Employment Taxes with the IRS.  This notice provides relief from section 6656 for employers required to pay qualified sick leave wages and qualified family leave wages, and qualified health plan expenses allocable to these wages, mandated by the Families First Coronavirus Response Act, as amended by the COVID-related Tax Relief Act of 2020, and the American Rescue Plan Act of 2021 (American Rescue Plan Act).  This notice also provides relief from section 6656 for certain employers subject to a full or partial closure order due to COVID-19 or experiencing a statutorily specified decline in business under the Coronavirus Aid, Relief, and Economic Security Act, as amended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act.  Finally, this notice provides relief from section 6656 for certain employers for which COBRA continuation coverage premiums were not paid by assistance eligible individuals for such coverage by reason of section 9501(a)(1) of the American Rescue Plan Act.  This relief ensures that such employers may pay qualified sick leave wages and qualified family leave wages, qualified wages, and COBRA continuation coverage premiums using Employment Taxes that would otherwise be required to be deposited without incurring a failure to deposit penalty.

Notice 2021-24 will be in IRB: 2021-18, dated 05/03/2021.

IRS YouTube Video:
Do Your Taxes for Free with Free File - English |Spanish

WASHINGTON – The Internal Revenue Service today urged low- and moderate-income individuals and families, especially those who don’t normally file a tax return, to use IRS Free File  to prepare their own federal tax return, e-file it and get a refund – all for free.

This year’s federal tax filing deadline for individuals has been postponed to May 17 from April 15.

Free File offers free access to brand-name tax software to anyone who makes $72,000 or less. Already this year, more than 2.96 million individuals and couples have used this online service to file returns and get their share of these valuable benefits.

Available only at IRS.gov, Free File offers people experiencing homelessness, students who are now on their own, low-and moderate-income families and others a fast and easy way to access these benefits. All anyone needs to reach Free File is access to a computer or similar device. No computer? No problem. IRS Free File products support mobile phone access too.

Never has Free File been as important as it is right now. The IRS delivered two rounds of Economic Impact Payments to eligible people. The first payment was up to $1,200 per person and $500 per qualifying child. The second payment was up to $600 per eligible person and $600 per qualifying child.

People who did not receive the full amount of the first or second payments can claim the additional amount they are due as the Recovery Rebate Credit when they file their 2020 tax return.

And that’s where Free File comes in. It’s a free way to claim the full amount of tax benefits, including the Recovery Rebate Credit, and ensure that eligible people get their refund. See the special section on IRS.gov - Claiming the 2020 Recovery Rebate Credit if you aren’t required to file a tax return – for more information. Look for a Free File product with “no minimum income” and file electronically and choose direct deposit.

Free File is also a great way to take advantage of two other tax benefits that help workers and families --the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC). Under a special COVID-related rule, people who were laid off during part or all of 2020 will often still qualify for these benefits. That’s because if they worked during 2019, they can choose to use their 2019 earned income to figure these credits, as long as it was higher than it was in 2020.

Through Free File, leading tax software providers make their online products available for free as part of a 19-year partnership with the IRS. There are nine products in English and one in Spanish. Visit IRS.gov/FreeFile for details. In addition, MilTax, available free through the Department of Defense, offers a similar online tax-preparation service to members of the military.

Because Free File returns are filed electronically, the service offers everyone a great way to get their money quickly. This is especially true for anyone who chooses to have their refund deposited directly into a savings or checking account.

The IRS urges everyone to consider taking advantage of the speed and convenience of Free File. This includes:

For a closer look at how Free File can help people get all available tax benefits, visit IRS.gov/closerlook.

For those who are not comfortable doing their own return, IRS-trained community volunteers offer tax help at more than 11,000 tax help sites, nationwide. To find the nearest site, visit IRS.gov/Volunteers, or call 800-906-9887.

Notice 2021-27 sets forth updates on the corporate bond monthly yield curve, the corresponding spot segment rates for April 2021 used under § 417(e)(3)(D), the 24-month average segment rates applicable for April 2021, and the 30-year Treasury rates, as reflected by the application of § 430(h)(2)(C)(iv).  In addition, it contains 24-month average segment rates for January 2020 through April 2021 determined under § 430(h)(2)(C)(iv) reflecting the modifications made by § 9706(a) of the American Rescue Plan Act of 2021. 

Notice 2021-27 will be in IRB:   2021-18, dated May 3, 2021.

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.