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In May of this year, the Internal Revenue Service (IRS) attempted to retroactively impose rules on stimulus checks being paid out under the CARES Act to incarcerated persons. They did so by posting an FAQ on the IRS website, claiming that, “A Payment made to someone who is incarcerated should be returned to the IRS by following the instructions about repayments.”
As I wrote at the time, there was one problem: there is no such limitation in the CARES Act. Now, it appears that a federal judge agrees.
On September 24, 2020, Judge Phyllis J. Hamilton of the U.S. District Court for the Northern District of California issued an Order (downloads as a PDF) granting a motion for preliminary injunction requiring the U.S. Department of Treasury and the IRS to stop withholding CARES Act stimulus funds on the basis of an incarcerated status. The injunction was filed as part of a class action suit represented by Lieff Cabraser Heimann & Bernstein, LLP, a plaintiffs’ firm with offices in San Francisco, New York, Nashville, and Munich.
Judge Hamilton ruled favor of the plaintiffs, writing:
[P]laintiffs are likely to succeed on the merits of their APA contrary to law claim. The statute mandates distribution of the advance refund to eligible individuals. Incarcerated persons who otherwise qualify for an advance refund are not excluded as an ‘eligible individual.’ The IRS’s decision to exclude incarcerated persons from advance refund payments is likely contrary to law…. Plaintiffs have established they are likely to be irreparably injured without an injunction.
What’s Injunctive Relief?
Courts may issue injunctive relief to either enforce an action, or to stop a party from taking certain actions, if harm is certain to occur otherwise. The idea is to grant relief before trial based on the idea that the person asking for the relief is likely to succeed on the merits at trial, and whether the balance of equities and hardships are in their favor.
The lawsuit alleges that over 1.4 million incarcerated people were affected by the IRS’ position.
A Treasury Department Inspector General (TIGTA) report confirmed that, as of early May 2020, nearly 85,000 incarcerated people were slated to be paid out, totaling $100 million. According to court documents, at the time, the IRS “noted that payments to these populations were allowed because the CARES Act does not prohibit them from receiving a payment.”
A few weeks later, the IRS asked taxpayers to return some of those funds and then, more aggressively, took steps to intercept and retrieve the money. I personally received calls, emails and letters from incarcerated persons and their families, reporting that the checks had been seized.
One recent letter indicated that “the prison officials removed the money from my account without my knowledge or approval and returned it to the IRS.” The prisoner’s question, “Since I’m still a taxpayer, shouldn’t I have still been eligible to receive the stimulus check?”
Improperly holding these checks didn’t just affect those in jail. The letter went on to note that “young guys who were employed prior to their incarceration and have wives and young children out there that were counting on that check in this time of need.”
And even worse? The arbitrary language in the FAQ made it difficult to understand when the rule might apply and under which circumstances. What if you were released in 2020? Would the advance credit apply? The one-size fits all approach doesn’t make since.
It Could Have Been Different.
To be clear, there are some instances where Congress intended to keep those who are incarcerated from benefiting from relief. For example, at CFR §120.110 (Code of Federal Regulations), businesses with “an Associate who is incarcerated, on probation, on parole, or has been indicted for a felony or a crime of moral turpitude” are ineligible for applying for Small Business Administration (SBA) loans. And that’s real authority: the CFR is the codification of the general and permanent rules and regulations published in the Federal Register.
And if that had been the case – that Congress said no to prisoners receiving stimulus checks – you wouldn’t be reading about this lawsuit. But that wasn’t what happened here. There was no such limitation in the CARES Act. The decision to keep funds from prisoners was made by Treasury. It was just written as an FAQ. And that’s not enough.
What Happens Now?
Now, as part of the relief, if you filed a 2018 or 2019 tax return or receive Social Security Benefits or Railroad Retirement Board Benefits, you do not need to file a claim. However, if you did not file a 2018 or 2019 tax return and your income was below $12,200 (or $24,400 if filing jointly) in 2019, then you should register for a check using the IRS non-filer’s tool.
If you cannot register with the IRS online, then you may file a claim on paper and through the mail by following the instructions here.
Remember that the deadline for registering as a non-filer in order to receive your check in 2020 is now November 21, 2020 (it has been extended).
If your stimulus check has already been intercepted or returned, the IRS is supposed to make it right. The court order directs the IRS to automatically re-process these claims by October 24, 2020.
If you do not receive your check or direct deposit shortly after the processing deadline of October 24, 2020, check the IRS Get My Payment tool for an update.
If you do not receive your payment by November 1, 2020, and there’s no update on the IRS website, you can reach out to Lieff Cabaraser by using the form at the bottom of this page.
I’ll update with more information as it becomes available.
Wondering where your stimulus check might be? It may soon be on its way to you.
The Internal Revenue Service (IRS) has announced that about 50,000 individuals whose respective portions of the Economic Impact Payment (EIP, or stimulus check) were diverted to pay their spouse’s past-due child support will finally be getting their share.
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 your 2019 federal income tax return, or in some cases, their 2018 return. You do not need to take any action to get your money. The IRS will automatically issue the portion of the stimulus check that was applied to the other spouse’s debt.
This is consistent – albeit a little later – than was previously announced. The Taxpayer Advocate had advised that a fix was on the way. (You can read what other kinds of stimulus check-related problems the IRS and the Taxpayer Advocate are working on here.)
Generally, you are an injured spouse if your share of your tax refund as shown on your joint return was, or is expected to be, applied against your spouse’s past-due federal debts, state taxes, or child or spousal support payments.
In most states, liabilities (for purposes of tax offset) attributable to an individual remains the obligation of that individual. It doesn’t matter if he or she gets married or gets divorced. However, when a joint return is filed, the tax ID number of the person responsible for the liability may trigger an offset of the entire refund – that’s what happened with the stimulus checks.
Initially, the IRS advised that if you are an Injured Spouse but did not have a Form 8379 for the return used to calculate your stimulus check and your portion was withheld, you need to fax or mail a completed Form 8379 as soon as possible. Now, the IRS says that you do not need to take any action and do not need to submit a Form 8379. There’s no date set just yet for a payment, but the IRS will automatically issue the portion of your stimulus check that was applied to the other spouse’s debt “at a later date.”
The IRS says that taxpayers can otherwise check the status of their Payment by using the Get My Payment tool, available on IRS.gov.
Looking for your interest? The Internal Revenue Service (IRS) will begin sending interest payments to individual taxpayers who timely filed their 2019 federal income tax returns and are due refunds. The IRS pegs that number at about 13.9 million taxpayers.
In June, the IRS announced that if you were entitled to a 2019 tax refund, individual federal income tax refunds issued after April 15 would be paid with interest.
Now, the IRS says that the interest payments, which average about $18, will be made to individual taxpayers who filed a 2019 return by the July 15 deadline and either received a refund in the past three months or will receive a refund. Most interest payments will be issued separately from tax refunds.
In most cases, taxpayers who received their tax refund by direct deposit will have their interest payment direct deposited in the same account. About 12 million of these payments will be direct deposited.
If you don’t receive your interest by direct deposit, you will receive a check. The checks will be notated “INT Amount,” which will identify it as a refund interest payment.
And as I noted in June, these interest payments are taxable. It’s just like any other interest you receive: you must report it on your 2020 federal income tax return that you’ll file in 2021. To help you sort it out, in January 2021, the IRS will send you Form 1099-INT if you receive interest totaling at least $10.
But don’t get too comfortable since this isn’t the norm. Usually, the IRS isn’t required to add interest to refunds on timely-filed refund claims unless they are issued more than 45 days after the return due date. But the deadline was pushed off this year due to the COVID pandemic. Specifically, on March 13, 2020, the President of the United States issued an emergency declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. In other words, the entire country has been declared a disaster area. Where a disaster-related postponement exists, the IRS is required to pay interest as of the original April 15 filing deadline, as long as an individual files a 2019 federal income tax return by the new deadline (in this case, July 15, 2020).
The interest provision only applies to individual income tax filers (sorry, businesses).
So how much is coming your way? Interest is paid at the legally prescribed rate that is adjusted quarterly. The rate for the second quarter ending June 30 was 5%, compounded daily. Effective July 1, the rate for the third quarter dropped to 3%, compounded daily. If your payment period spans quarters, a blended rate applies, consisting of the number of days falling in each calendar quarter. It’s not awesome, but better than what many banks are paying.
For many years, the Internal Revenue Service (IRS) has grown to help serve our community and taxpayers. Today, the Criminal Investigation Agency, also known as CI, has been working hard to better our community by tackling tax fraud and other financial crimes. The hard work and efforts of this agency are sometimes overlooked or unknown. This week, Kelly invites Don Fort, the Chief of Criminal Investigation with the IRS to explore the crucial work and educate listeners on how the CI Agency provides a backbone for us, worldwide.
Learn it All Through the Chief of Criminal Investigation Himself
As Don Fort states, “Most crimes are financially driven.” When you start to break down crime, the majority of the cases are related to financial matters. This supports the fact that the CI team always has their hands full, and never stumble upon a shortage of cases. Don has been with the IRS for 29 years now, holding roughly nine leadership positions. If anyone can explain the ins and outs of the IRS, it’s Don. In this episode, Don and Kelly touch base on the organization itself, the cases they face, and the future that lies ahead.
Listen to Kelly and Don discuss more about the IRS and its organization, such as:
- The History on the Intelligence Unit and Criminal Investigation
- Don’s Career path with the IRS and what lead him to Chief
- Don’s successes and special stories that shaped his Career
- The truths about Special Agents and Jurisdictions
- All about the Academy itself
- IRS initiating Cases versus being sought out for them
- The Importance of Notable and Neighborhood Cases
- Don’s most memorable and highlighted achievements with the IRS
- The intensity and timeline of cases
- CI’s Danger behind the scenes
- How the Tax Code impacts the CI Agency
- How to become a part of the IRS or CI team
- Strong staff and worldwide successes with the Agency
- What is next for CI and Don, as he meets retirement
More About Kelly Phillips Erb:
Kelly is the creator and host of the new Taxgirl podcast series. Kelly is a practicing tax attorney with considerable experience and knowledge. She works with taxpayers like you every day. One of the things that she does is help folks out of tax jams, and hopefully, keep others from getting into them.
Kelly’s Website – Taxgirl
Don Fort – LinkedIn
To file or not to file?
That’s the question that has been posed many times over the past week or so with respect to protective claims for refund for 2016 tax returns. Here’s what you need to know.
The Supreme Court of the United States (SCOTUS) is slated to consider California v. Texas this fall. The case will consider three issues:
1. Whether the individual and state plaintiffs in this case have established Article III standing to challenge the minimum coverage provision in Section 5000A(a);
2. Whether reducing the amount specified in Section 5000A(c) to zero rendered the minimum coverage provision unconstitutional; and
3. If so, whether the minimum coverage provision is severable from the rest of the ACA.
The Patient Protection and Affordable Care Act (ACA) established a mandate that individuals carry minimum essential coverage or make a “[s]hared responsibility payment.” In 2012, a challenge to ACA went to SCOTUS, where it was found to be constitutional. Specifically, the Court determined that Congress had the authority to regulate tax and found that the mandate, as written, could be interpreted as a tax, and therefore it was constitutional. You can read a little background on the Act here.
In 2017, Congress set the ACA penalty at zero (which is different, legally, from eliminating the penalty), but otherwise left the Act intact. But that tweak led to the current filing. Some states, with Texas at the helm, have argued that since the penalty for not buying health insurance is now zero, it’s no longer a tax. If there’s no tax, they posit, then Congress doesn’t have the right to regulate it, and the mandate is unconstitutional. And, further, if you can’t separate the mandate from ACA, the rest of the law must be struck down.
Some other states, led by California, disagree with that take.
Since there were competing positions affecting states, the matter went before SCOTUS. SCOTUS refused to fast-track the decision but did agree to hear it. Briefs have been filed, and oral arguments are expected in 2020.
So, what does all of this have to do with your tax return?
It’s possible that SCOTUS could decide that ACA is unconstitutional. That would affect not only the shared responsibility penalty but also the related ACA-taxes, like the net investment income tax (NIIT) and the Medicare surtax. If that happens, some tax professionals believe that it might create an opportunity to recover ACA taxes paid in previous years. And since 2016 is one of those years, there is a limited window to file a protective claim for refund. Specifically, the protective claim must be filed by Tax Day, which for 2020 is July 15, 2020.
Here’s what the IRS says.
Generally, the taxpayer must file their claim for a credit or refund within 3 years after the date they filed their original return or within 2 years after the date they paid the tax, whichever is later.
As a result of COVID-19, the due date to file a protective claim for the tax year 2016 individual income tax returns has been postponed until July 15, 2020. To file a protective claim for the tax year 2016, taxpayers make sure their claim is properly addressed, mailed, and postmarked by July 15, 2020.
According to the IRS, a valid protective claim doesn’t have to list a particular dollar amount or demand an immediate refund. However, a valid protective claim must:
- Be in writing and signed;
- Include your name, address, SSN or ITIN, and other contact information;
- Identify and describe the contingencies affecting the claim;
- Clearly alert the IRS to the essential nature of the claim; and
- Identify the specific year(s) for which a refund is sought.
You can find out more on the IRS website here.
So, all of this has resulted in many folks wondering whether to file a protective claim. Like you, I don’t have a crystal ball. But here’s my take: it’s a very individual decision. Case-by-case. I don’t think a blanket “file a protective claim” works for everyone. For the ACA taxes to disappear for 2016, there has to a perfect storm of facts. Consider this:
- First, SCOTUS has to find the mandate unconstitutional.
- Second, SCOTUS has to rule that the mandate cannot be separated from ACA, making the entire Act unconstitutional.
- Third, if SCOTUS does find ACA unconstitutional, they have to rule that the taxes were unconstitutional for previous years – including 2016. Keep in mind that in 2016, the mandate still existed. So if a zero penalty means that there’s no tax, and thus no ACA, that doesn’t mean that the same result applies to the previous years when the penalty still existed.
Even if all of that falls into place, ACA taxes do not affect all taxpayers. For example, the NIIT and Medicare taxes generally apply to individual taxpayers with an adjusted gross income (AGI) of $250,000 or more for married filing jointly or $200,000 for single taxpayers.
The 3.8% NIIT doesn’t apply to all income. It typically includes interest, dividends, capital gains, rental and royalty income, non-qualified annuities, income from “passive activities” in business, and income from businesses involved in the trading of financial instruments or commodities. For NIIT purposes, capital gains include those not only from stocks and real estate but also gold and crypto. (You can read more here.) The tax is 3.8%, so $10,000 of qualifying income would result in a $380 tax.
And the 0.9% Additional Medicare Tax applies to wages, compensation and self-employment income, but it does not apply to income items included in NIIT. So, using the same numbers, $10,000 in wages would result in $90 of surtax.
So, for most taxpayers, even if all of the stars aligned to eliminate the ACA taxes, the numbers involved could be small and, therefore, possibly not worth the time and expense to file a protective claim. However, if all of the stars aligned to eliminate the ACA taxes, and you are (or represent) a taxpayer that would be significantly affected, it could be worth it.
The bottom line? The question of whether to file a protective claim is personal and is fact and circumstance dependent. If you’re not sure how to proceed, I highly recommend talking with your tax professional.
It’s my annual Taxes from A to Z series! If you’re wondering how to figure basis for cryptocurrency or whether you can claim home office expenses during COVID, you won’t want to miss a single letter.
H is for Head of Household.
I know what you’re thinking: Head of Household is an easy one. That’s because we’re so used to seeing it: one of the first pieces of information you share with the Internal Revenue Service (IRS) is your filing status. Your filing status impacts your tax rates, your qualification for certain tax deductions and credits, and more.
You can choose from one of five filing statuses on a federal tax return:
- Married Filing Jointly;
- Married Filing Separately;
- Head of Household; and
- Qualifying Widow(er) With Dependent Child.
Maybe not. One of the things that I have realized this filing season – largely due to the scramble to understand how to qualify for stimulus checks – is that there are many misconceptions about filing status. And Head of Household is at the top of the list.
So, first, the basics. For federal income tax status, marital status is determined by state law as of the last day of the calendar year. If you are married on December 31, you are considered married for the year (married filing jointly or married filing separately). If you’re not married on December 31 because you were never legally married or you were legally separated or divorced according to the laws of your state, you are not married (single, head of household, or qualifying widow(er) with dependent child). It typically doesn’t matter what happens in between.
Most of those filing status options are pretty straightforward. But head of household can be tricky. You can file as head of household IF:
- You are unmarried or considered unmarried on the last day of the year; AND
- You paid more than half the cost of keeping up a home for the year; AND
- A qualifying person lived with you in the home for more than half the year (except for temporary absences, such as school). However, if the qualifying person is your dependent parent, he or she doesn’t have to live with you.
To figure that you, you need some further definitions.
First, you are considered unmarried on the last day of the year if:
- You file a separate tax return; AND
- You paid more than half the cost of keeping up your home for the tax year; AND
- Your spouse didn’t live in your home during the last six months of the tax year (your spouse is considered to have lived in your home even if he or she is temporarily absent due to special circumstances like illness, school or military service); AND
- Your home was the main home of your child, stepchild, or foster child for more than half the year; AND
- You must be able to claim that child as a dependent (unless you qualify for an exception).
And, a qualifying person is:
- A qualifying child (such as a son, daughter, or grandchild who lived with you more than half the year and meets certain other tests) who is either single or is married, but you can claim as a dependent; or
- A qualifying relative who is your father or mother who you can claim as a dependent; or
- A qualifying relative other than your father or mother (such as a grandparent, brother, or sister who meets certain tests) who lived with you more than half the year, and you can claim as a dependent. This may include your child, stepchild, grandchild or other descendant of one of your children (or stepchildren or foster children), son-in-law, daughter-in-law, brother, sister, half brother, half-sister, stepbrother, stepsister, brother-in-law, sister-in-law, parent, stepfather, stepmother, father-in-law, mother-in-law, grandparent, great-grandparent, and, if related by blood, aunt, uncle, niece, or nephew.
For purposes of a qualifying person, the IRS even drew up a table for you. It’s the infamous Table 4 that you’ll see referenced over and over in head of household conversations:
You can view Table 4 in full-size by checking out IRS Pub 501, Dependents, Standard Deduction, and Filing
Information (downloads as a PDF).
But here’s the bit that you need to take away. According to Pub 501, “Any person not described in Table 4 isn’t a qualifying person.”
That seems pretty simple, but many family situations are not terribly simple. So let’s run through some examples that folks are often confused about.
First, spouses. Your spouse is not your dependent. And you must have a qualifying dependent to file as head of household status. So, if you are married without any other dependents, you may not claim head of household status (you would typically opt for married filing jointly). And if you are married but not considered unmarried (yes, I see those double negatives), you typically cannot claim head of household status even if you support other relatives.
What about your significant other? Your significant other may, under some circumstances, qualify as your dependent. However, your significant other is not a qualifying person under the head of household rules because he or she is not related to you.
What about your significant other’s child? Same result. You may be able to claim the child as a dependent, but the child is not a qualifying person for purposes of head of household status because the child is not actually related to you.
What about your own child if you live with your significant other? Finally, a yes. You can file as head of household if you have a qualifying child (or other qualifying person) who lives with you and your significant other so long as the child meets the other criteria.
After re-reading many of your emails, I think the confusion boils down to this one thing: a dependent is not always a qualifying person for purposes of head of household. You have to run through all of the tests.
I know that some of you may have your finger on the email button, ready to send me emails to the contrary. That may be because some websites do claim that your significant other or significant other’s child is a qualifying person for purposes of head of household. But that’s not correct. The IRS confirms as much in Pub 501 (the link is above at the chart), with the following examples:
Example 3. Your girlfriend lived with you all year. Even though she may be your qualifying relative if the gross income and support tests (explained later) are met, she isn’t your qualifying person for head of household purposes because she isn’t related to you in one of the ways listed under Relatives who don’t have to live with you .
Example 4. The facts are the same as in Example 3 except your girlfriend’s 10-year-old son also lived with you all year. He isn’t your qualifying child and, because he is your girlfriend’s qualifying child, he isn’t your qualifying relative (see Not a Qualifying Child Test , later). As a result, he isn’t your qualifying person for head of household purposes.
It’s confusing – so much so that the IRS requires preparers to complete a form confirming that they’ve performed due diligence for head of household filing status. It’s Form 8867, Paid Preparer’s Due Diligence Checklist (downloads as a PDF). The penalty per failure to be diligent is $530 for returns or claims for refund filed in 2020.
If you’re still not sure whether you qualify as head of household, you may want to try the IRS’ interactive filing status tool. You can find it here.
You can find the rest of the series here:
It’s my annual Taxes from A to Z series! If you’re wondering how to figure basis for cryptocurrency or whether you can claim home office expenses during COVID, you won’t want to miss a single letter.
F is for FTE.
FTE is one of those terms that many folks had never heard of before the Paycheck Protection Program (PPP). But FTE did exist. In the pre-PPP world, FTE (full-time equivalent) means the hours worked by an employer on a full-time basis. And before COVID-19 and Small Business Administration (SBA) loans, FTE was typically a measure of how part-time employees compared to full-time employees for the sake of, among other things, determining payroll efficiency.
The PPP uses FTEs as a metric to compute loan forgiveness. Specifically, one of the loan forgiveness conditions is proving that you maintained the same number of FTEs during the 24-week PPP period as you did before COVID-19. The actual number of employees may not be the same as it was pre-COVID-19 (due to turnover, different levels of hiring, etc.), but the FTE needs to remain the same.
Treasury defines an FTE as an employee who works at least 40 hours per week. So, 40 is your benchmark with some exceptions:
- Overtime doesn’t count: if you work 80 hours per week, you don’t count as two FTE. You’re still just one FTE.
- Part-time hours do count, however. To figure your FTE for part-time workers, add up their average hours, and divide by 40. So, if you have five employees who each work 12 hours per week, that’s 60 hours. Those folks don’t count as five employees: they count as 1.5 FTE (60/40=1.5).
- To get your overall FTE, you would add your full-time FTE (that’s typically the easy part) to your part-time FTE.
Here’s a quick example:
Let’s say that you have four employees who work 40 hours or more, and the same five part-time employees as above. For PPP purposes, you don’t have nine employees: you have 5.5 FTE (four full-time FTE + 1.5 part-time FTE).
If that math is too complicated, you can use fixed numbers of 1.0 for full-time employees and .5 for everyone else. However, if you opt for the simple version, you have to use it consistently throughout PPP (no mixing calculations).
If you reduce salaries or wages, but not hours, you may still have to reduce FTE. The quick and dirty rule is this: calculate the average annual salary or hourly wages during the covered period and divide it by the average annual salary or hourly wages of the look-back period. If that number is more than .75, there is no salary or hourly wage reduction. If it’s less, then you may need to reduce FTE (or see if you qualify for a safe harbor).
Why does all of this matter? It goes back to PPP loan forgiveness. If you reduce the number of FTEs during the covered period, your loan forgiveness piece will be reduced proportionately.
There are some exceptions to the reduction, as you’ve no doubt heard. Most notably, if you offer to rehire an employee (in writing) and the employee was fired for cause, turned your offer down completely, or asked for a reduction in hours, you may be able to exclude them in your calculations. As with all tax and financial matters, keep excellent records to support these positions.
There are also some safe harbors. If you weren’t allowed to operate because of COVID-19 related restrictions or if you were able to restore your FTE to pre-COVID levels by the end of the year, you may still qualify for forgiveness.
Since this part of my A to Z series, this post is meant to be a quick primer. It’s not intended to be exhaustive. Entire articles have been written on the calculations alone (not to mention the safe harbors), and that doesn’t even include the numerous changes and clarifications from Treasury… You get the point. If you have specific questions, be sure to check with your tax professional.
You can find the rest of the series here:
The Internal Revenue Service (IRS) has announced that it will begin opening its Taxpayer Assistance Centers (TACs) to the public in phases beginning today, Monday, June 29, 2020.
Those taxpayers seeking in-person assistance at a TAC will need to make an appointment. To do so, you. must call 1.844.545.5640.
Appointments will be available if people need assistance for authentication of identity and document validation related to tax return filing or application for an Individual Taxpayer Identification Number (ITIN); Sailing Clearances required for foreign travel by resident and non-resident aliens leaving the United States; assistance with Economic Impact Payment Issues; and cash payments.
For an up-to-date listing of TAC locations as they open, click over to Contact Your Local IRS Office.
If you have questions that you hope to have answered over the phone, keep in mind that IRS live phone assistance remains limited. For Economic Impact Payment (EIP, or stimulus questions), call 800.919.9835 (that’s an automated number followed by a live person).
For other issues, please visit Let Us Help You on the IRS web site to find the phone number for the office best equipped to address your specific concerns.
Will he or won’t he?
That’s the question on the minds of taxpayers and tax professionals alike as Treasury Secretary Steven Mnuchin continues to mull extending the tax filing deadline for 2020. As it currently stands, the 2019 tax filing deadline remains July 15, 2020.
Last year, the Internal Revenue Service (IRS) received and processed nearly 156 million returns. About 137 million were received before the filing deadline. The remainder – about 10% – were filed with an extension. That’s in keeping with the usual expectations for extended returns.
Despite the extraordinary circumstances surrounding this tax season, the IRS has already received nearly 137 million returns in 2020 – but that number on its own is a bit misleading. That number includes tax returns that were filed to obtain Economic Impact Payments (EIPs, or stimulus checks) by those who would not usually file. Still, numbers in previous weeks have tracked at a higher rate than expected, and a few million more taxpayers could likely file before the July 15, 2020, deadline, bringing us level(ish) with 2019.
Mnuchin noted as much on Tuesday, telling those watching the Bloomberg Invest Global forum that most Americans have already filed their returns, nearly a month ahead of the deadline.
“I’m pleased to report that returns filed are only down 10 percent year-over-year, and refunds are down only 10 percent,” Mnuchin said. “The majority of those people that needed to get refunds got them.
As a result, the IRS has not made plans to extend the July 15 filing deadline. However, Mnuchin hasn’t ruled out the possibility, saying, “It’s something I’m thinking about.” He said that he would continue to consider the idea as the date approaches.
Many tax professionals wish that the decision would happen a lot more quickly. Offices in some states – like Pennsylvania – are just now re-opening, while others remain shut as the coronavirus numbers continue to climb. Some taxpayers have not been able to meet with preparers and will likely require extensions if the filing date is not extended.
Additionally, other taxpayers could not get to the IRS’s Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs before the pandemic. The VITA program offers free tax help to people who generally make $56,000 or less, persons with disabilities, and limited English-speaking taxpayers who need help preparing their own tax returns. The TCE program offers free tax assistance for those 60 years of age and older.
Those VITA and TCE offices closed in spring. The website now advises that those programs are closed indefinitely.
That means that low-income taxpayers and seniors may not have access to free tax preparation at all. In the current climate, those same taxpayers may also not be prepared to pay for tax preparation even if they could find an available tax preparer: many tax preparers that I’ve spoken with this tax season declare that they are busier now more than ever.
But those busy tax preparers aren’t all on board for extending the season, noting that it will simply make an already long tax season longer. And, extending the season to October could mean that the lead-in to the 2021 tax season becomes even more difficult.
There’s no perfect decision, but one thing is sure: taxpayers and tax professionals would rather know the outcome sooner than later. Stay tuned.