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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.

The Order

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

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.

It’s very likely that you’re reading this from your home—even if you’re working. As the coronavirus pandemic continues to spread across the country, many of us are finding that the new normal means not leaving the house, or at least not for work anyway.

How dramatic are the numbers? A Federal Reserve Bank of Dallas report found that of all those employed in May, 35.2% worked entirely from home, compared to just 8.2% in February. Further, a whopping 71.7% of US workers who could work from home did so in May. Some folks who are staying home do so for safety and convenience, while others are required by their employer or the state or local government to remain at home; in Pennsylvania, for example, by Order of the Governor, “Telework Must Continue Where Feasible.”

With big name companies extending work-from-home until the end of the year, next summer, or as an option for a growing number of workers, forever, ad hoc accommodations no longer seem sufficient—on either a personal, or a tax policy level.

Here’s the latest on the sometimes confusing tax aspects of work-from-home, as well as some  practical tips I’ve picked up as a tax lawyer and writer who has long worked from home.

Increasingly, the lines between employees and independent contractors (or freelancers) are becoming blurred. To be clear, you are not self-employed just because you are working from home. If you are receiving a paycheck from an employer, and those wages will be reported to you and to the Internal Revenue Service on a W-2, you are an employee. Working from home is not enough, on its own, to make you an independent contractor receiving a 1099. And while you certainly may receive a Form W-2 and a Form 1099 in the same tax year, you should not receive a Form W-2 and a Form 1099 for the same type of work from the same employer.

Why does it matter? As a result of the Tax Cuts And Jobs Act (TCJA), a.k.a., the Trump tax cuts, for the tax years 2018 through 2025, you cannot deduct home office expenses if you are an employee. There is no hardship exemption or coronavirus waiver. It’s a very bright-line rule: employees who work from home can no longer claim the home office deduction. The reason you are working from home does not matter to the IRS.

However, if you are self-employed – even as a gig worker – you can continue to deduct qualifying home office expenses. (More on that later.)

Clearly, you can’t take home the snack bar. But if you’re missing out on some of your favorite things – like your office chair or your trusty stapler – ask your employer if you can take them home. That can save you (and your employer) money. The TCJA rules apply to all unreimbursed job expenses for employees, not just to your physical home office.  If you’re an employee and your employer doesn’t reimburse costs, your out-of-pocket expenses – from the cost of a new laptop or printer to copy paper to that fancy new ergonomic chair – are not deductible for federal income tax purposes. But if your employer has already spent the money to buy them for you, simply relocating them to your house means everybody wins.

Does your employer offer you a monthly reimbursement for cell phone costs? Is there a stipend for home office expenses available? Is there a discount available for office supplies purchased through a particular vendor? If your costs are going up because you’re working from home, consider your options. Some money-saving measures may already be available through your company’s HR department. If you don’t see what you’re looking for, just ask. An enlightened employer may well find your reasonable requests a lot more economical than finding a replacement for you or finding that without the proper equipment, you’re less productive.

It’s not just the home office deduction that is creating confusion among those working from home. Employees who normally work in an office in one state, but live (and are now working from) another may be facing additional tax-filing complications.

 The messiness of being taxed in multiple states is at least on Congress’ radar; the HEALS Act  proposed by Senate Republicans last month would allow employees who perform employment duties in multiple states to only be subject to income tax in their state of residence and any jurisdiction where the employee is present and working for more than 30 days during the calendar year—or 90 days for frontline health-care workers. (That 90-day provision is designed to protect nurses and doctors from other states who raced to New York in the spring to help out and now worry they’ll owe New York taxes.)  The HEALS  provision would only apply through 2024 and wouldn’t cover professional athletes, professional entertainers, qualified approved film, television or other commercial video production employees, or certain public figures. And even that bill, which is going nowhere, would still allow employees working from home during the pandemic to be taxed in their home state and the state where their normal office is.

Bottom line:  there is currently no national standard for the withholding, filing and payment of state income taxes for employees who work in more than one state or work in one state and live in another.That means you may have tax requirements where you typically work as well as where you live. Usually, you can sort that out via withholding, tax agreements, and credits.

So what if working at home in one state when your company is in another state means that you’re subject to tax in both places? If either state has a physical presence rule (most states do), figuring the split between the two can be confusing. Typically, you may have too much tax withheld from your paycheck for your nonresident state and not enough for your resident state.

For example, if you live in Connecticut  but you normally work in New York, you’ll likely have to file a resident tax return in Connecticut and a nonresident tax return in New York. If you worked in New York all year, it should be relatively easy: only New York withholds taxes and then when you file your Connecticut tax return you get a credit for the taxes paid to New York. But if you worked in New York through March – and then in Connecticut through August – and then back to New York? Not so simple.

And remember the tax credit? To make it work, you have to file in the right order. You first file and report income to the state where you work and then claim the credit on your resident tax return. If you mix up the order, you may end up missing out on the credit and get stuck paying additional state tax, or miss out on a refund you’re otherwise entitled to.

Moreover, that assumes that the states agree on the rules. It gets more complicated when states have differing tax rates and residency rules.

So, you could try to figure it out yourself… but the American Institute of Certified Public Accountants (AICPA) just updated their guidance on state tax filings, and it’s 523 pages long: it’s a lot less stressful to hire a professional. 

I know that I just advised you to hire a tax professional, but you should still be aware now of the basic rules in your state to make sure you don’t get a nasty surprise next April.  During the pandemic, the AICPA developed recommendations that would allow businesses to continue to withhold state income tax from employees based on the employer’s location instead of the employee’s work-from-home location – in other words, under these recommendations, your tax and withholding wouldn’t change at all. To date, 13 states (AL, GA, IL, IN, MA, MD, MN, MS, NE, NJ, PA, RI, and SC) have issued guidance that follows the AICPA’s suggestion on withholding. What that means is that employees in those states should be protected from paying double tax where one state uses the convenience of employer test (like CT, NY, DE, NJ or PA) and the other state uses the physical presence standard (remember, states use different tests). But if you live in a state that has signed on to this recommendation – but work in a state that hasn’t (or vice versa) – you’re out of luck.

In addition,  a slightly different list of 13 states (AL, GA, IA, IN, MA, MD, MN, MS, ND, NJ, PA, RI, and SC), as well as Washington, D.C. and Philadelphia have followed AICPA’s recommendation that an employee working remotely in a state due to Covid-19 restrictions does not create nexus and apportionment for his or her employer for tax purposes. (In other words, by allowing you to work from home, the employer will not create corporate tax problems for itself in your home state.) 

Some states also have individual reciprocity with other states. For example, Pennsylvania has agreements with IN, MD, NJ, OH, VA and WV. Remember, normally, if you earn income in one state and live in another, you file a tax return in both the state where you live and in the state where you work. However, if you’re lucky enough to live in a state with a reciprocity agreement with the state where you might work, you file and pay only in your home state: you don’t have to pay taxes – or even file – in the state where you work. So, if you live in Pennsylvania but work in Ohio, your employer would withhold tax for Pennsylvania, while Ohio takes a pass. Easy peasy.  

But if you live and work in states that don’t have reciprocity – and haven’t signed onto the AICPA recommendations – you may have to file tax returns (and possibly pay) in both states. You’ll need to know which rules apply to avoid a surprise—and maybe a big bill- at tax time. 

Sure, there may be a day when you want to look back on all of this with fondness, but there’s a more practical reason for keeping good records: you may need to keep track of your day by day working locations for tax reasons. Proving that you were where you claim to be can be handy if you (or your employer) is audited. Plus, keeping a log could keep you from falling prey to the habit of working seven days a week.

Ask now – not later – about withholding. Find out how much is being withheld by your employer for the state where you live (and now work) and whether that will be enough to avoid a tax bill come Tax Day. If not, you may need to make estimated payments to avoid a penalty. 

Warning: If you normally work exclusively from an office in another state, work from home might increase your home state liability for 2020.  But it’s not all gloom and doom: if your home state has a lower tax rate than the rate where your office is located, working at home for much of 2020 could save you taxes. 

The IRS recently issued a reminder to tax professionals who work from home to secure remote locations by using a virtual private network (VPN) to protect against cyber intruders. That’s good advice for anyone who relies on the internet. A VPN provides a secure, encrypted tunnel to transmit data via the internet between a remote user and the company network. VPNs are critical to protecting and securing internet connections. Failure to use VPNs can result in remote takeovers by cyber thieves, giving criminals access to your entire office network.

The loss of the home office deduction for employees has some taxpayers wondering whether it makes sense to quit their day jobs and become self-employed. That’s an individual decision, but if you’re focusing simply on the home office piece,  the numbers probably don’t support that kind of shift. For more to consider when it comes to business-related decisions in light of tax reform, check out this article.

What if you really are self employed—meaning you get a 1099 and not a W-2.  Then you would report the home office deduction on federal form 8829, Expenses for Business Use of Your Home, which is filed along with your Schedule C, Profit or Loss From Your Business, on your 1040.

My home office has undergone a transformation since March. With a full house, I found that I needed more soundproofing, so new carpeting and drapes were a must. I also needed better headphones. Don’t be afraid to spend where practical. The TCJA did not change the home office expense rules for self-employed persons and independent contractors. Those expenses are deductible so long as they otherwise meet the home office deduction criteria.

I’m not just talking about virtual boundaries (like turning off your phone after hours) but actual, real, physical barriers. Being able to shut a door, put up a room divider, or even put on a pair of noise-canceling headphones can be an essential way to create your workspace and signal that you shouldn’t be disturbed.  Moreover, if you’re self-employed and angling for a home office deduction, it’s not only desirable, it’s mandatory: to claim a federal income tax deduction for a home office, you must use a specific area of your home exclusively for your trade or business.

 It doesn’t have to be a separate room (like mine), but it must be a separately identifiable space (like my husband’s desk). You do not meet the requirements if you use the area in question for both business and personal purposes: it must be space that is used solely for business and not, say, an office or desk or computer that is also used by your children for their virtual lessons or to play Fortnite. 

I’ve always had a separate home office and I have a separate phone line for my office, which makes it deductible as a business expense. But if my husband uses our primary phone for business, he’s out of luck: the IRS has consistently taken the position that your primary phone land line is never tax deductible even if you don’t use it for anything else. 

Our internet connection is shared, so, like my utilities, I can’t deduct the whole thing as part of my home office deduction; it must be pro-rated. An upgrade in service to make it faster could also be pro-rated. Also, I can confirm that relying on a stable connection with two teleworkers and three students in virtual school can be challenging at best.  

Even if you – like me – spend time working from home normally, you’re still likely used to seeing a friendly face or two. During the year, I attend conferences and bar functions, meet with clients, and chat with my paralegal. It is, quite frankly, weird to simply stay at home if you’re used to having people around. It helps to have opportunities to meet up – even if it’s virtually – with your colleagues. Take time to engage on social media (I highly recommend #TaxTwitter for those who work in tax) and say yes to virtual events (like a #virtualtaxpro happy hour). Socializing is healthy, and you can learn a lot from your fellow workers who are going through the same thing. We’re all learning as we go.

My hours are very nearly the same as before. I make it a point to get up at the same time every morning and sleep at roughly the same hours each night (though a few late night drops of thousand-plus page coronavirus stimulus bills have admittedly kept me up reading). But normalcy is important to me. It also helps my kids know when it’s okay to ask questions for school or alert me to the fact that Bayern won the Bundesliga.

Let’s talk about audits. I know, they can be scary, but they’re in the news a lot right now, thanks to the New York Times series focusing on President Trump’s taxes. As a result, questions about audits top the list of questions you’re asking. So let’s clear up a few things.

What are my chances of being audited?

Pretty small, actually. According to Internal Revenue Service (IRS) data, for all returns filed for tax years 2010 through 2018, the agency examined 0.60% of individual returns and 0.97% of all corporation returns. In fiscal year 2019 – the last year for which data is available – the IRS audited 680,543 individual tax returns – or about .4%. That works out to about one out of every 250 taxpayers.

You have better odds of getting into Harvard or meeting your partner on a blind date (yes, really).

Can I get audited even if I didn’t do anything wrong?

Yes, because even though some audits are targeted (more on that in a moment), a handful are random. But even those aren’t truly random: returns may be selected based on a formula where your returns are compared against “norms” for similar returns. If your return looks out of the ordinary, you could be pulled for examination even if your return is ultimately deemed to be flawless.

The good news is that most taxpayers are doing the right thing: the estimated voluntary compliance rate is 83.6%.

Can I avoid an audit even if I did something wrong?

Also yes. Consider the law of averages. Maybe that lucky penny in your pocket. Or being born in the Year of the Rabbit. But mostly, it’s because the IRS is largely lacking resources. The agency’s budget in 2018 was about 20% less than it was in 2010, adjusted for inflation. The IRS has also lost nearly 30,000 full-time job positions over that time period (for context, the IRS currently has about 78,000 on staff). According to the agency, “These losses directly correlate with a steady decline in the number of individual audits during the past nine years.”

Why would I be audited?

Outside of random audits, there are a few common triggers, including:

  • Your third party information forms (like a 1099) don’t match your return;
  • Your expenses appear excessive compared to your income;
  • Your return is sloppy (math and transposition errors); or
  • Your business or rental real estate shows a continuous pattern of losses (the IRS expects you to make money eventually).

(You can find some tips for avoiding those kinds of mistakes here.)

Do I get a pass if my tax return is simple?

Sadly no. In fact, statistically, the working poor – who likely file a very simple return – has an audit rate comparable to the top 1% of taxpayers. As a practical matter, audit returns for lower income taxpayers tend to focus on the Earned Income Tax Credit (EITC).

Is it true that the President gets audited every year?

Yes, the President and the Vice President are audited every year. And they have former President Nixon to thank: mandatory presidential audits date back to the Watergate era. It’s actually an administrative rule, and you’ll find it in the Internal Revenue Manual.

Nixon was audited twice by the IRS, the second time settling with the agency in 1974 and paying $465,000 in back taxes ($2,451,559 in today’s money) after paying almost nothing in taxes over three years. Then Vice President Agnew ending up resigning in 1973 after pleading no contest to a single (felony) charge of tax evasion. As with many criminal tax investigations, the charge was not singular: the plea was in exchange for dropping of charges of political corruption, including allegations that he accepted bribes.

For the sake of clarity, audits for the President and Vice President are contemporaneous. Prior returns are not pulled for mandatory audit: if those are under examination, it’s for something not related to this provision.

Are White House audits just like those for ordinary taxpayers?

Not by a long shot: there are all kinds of quirky procedural changes although the audit techniques are the same. Here are some of the more interesting rules:

  • Copies of the returns are transmitted to the SB/SE, Director, Examination. Currently, that’s Scott Irick.
  • The location of the returns are monitored at all times.
  • The returns are to be kept in an orange folder at all times (nope, I didn’t make that part up).
  • The returns should not be viewed by other IRS employees.
  • The returns should be locked in a secure drawer or cabinet when the examiner is away.
  • The original returns must not be unnecessarily folded or bent, and the edit marks and stamps must be neatly placed on the returns, because they will remain permanent documents in the National Archives.

How does an audit work?

There are two kinds of audits: in-person (face-to-face) and on paper (by mail).

Most folks have heard of in-person audits, but on paper audits are actually much more common: over 80% of audits of individual returns are conducted by mail. That typically starts with a letter requesting information about items on your tax return. If you have too many books or records, or you’d prefer to argue your case in person, you can request an in-person audit.

An in-person audit is sometimes called a field examination. Even though it’s face-to-face, it also begins with a letter. The instructions (what the IRS wants and where the examination will happen) will be in the letter.

How far back can the IRS audit?

The IRS can typically audit returns within three years from the due date of the return or the day you actually filed your tax return, whichever is later: that’s the statute of limitations for most returns. However, if you substantially understate income (generally, by more than 25%), the IRS can audit up to six years of returns.

If you file a false or fraudulent return or are willfully attempting to evade tax, the statute doesn’t run at all, which means you can be audited at any time. Ditto if you fail to file a return.

Do the same kinds of auditors get assigned to my tax return as they would, say Trump or Warren Buffett?

Nope. Unless you’re also wealthy. There is a so-called “Wealth Squad” (which is a lot easier to say than its official name, the “Global High Wealth Industry Group of the IRS Large Business and International Division”) created by the IRS in 2010 to focus audits of high-income/high-wealth taxpayers like Buffett and Trump.

What does the IRS look at in an audit? Can they look at my bank accounts? Business records?

It depends on the audit issue. If it’s a very specific question (for example, justifying health care expenses), then the IRS will generally ask you for specific records (receipts from doctors, prescriptions and the like). If it’s a broader question (for example, substantiating your business income), the IRS might ask to see your bank account or business records.

Once it starts, how long does the IRS have to finish the audit?

The IRS can’t audit your returns forever. If the IRS doesn’t resolve the issue by the end of the statute of limitations, they’re done. That’s true even if the IRS had discussed a tax adjustment with you before the statute had expired.

It feels like you’d always want to wrap up an audit as quickly as possibly, but that’s not always true. Sometimes, there’s an advantage to extending the time. If you think that you might be able to reach a settlement, you might sign the consent to buy a little more time. You might also do it to keep the matter out of court since you have a limited amount of time to file in court after receipt of the notice.

There are two kinds of consents: fixed-date and open-ended. A fixed-date consent is exactly what it sounds like: there’s an expiration date. It’s the most common and can be renewed as needed (so long as both sides agree). An open-ended consent keeps the statute running indefinitely: as you can imagine, you don’t see those very often.

If you don’t sign the consent, the IRS can go ahead and issue its findings with a Notice of Deficiency. Once that happens, the clock starts running again on your options which typically mean heading to court if you don’t agree.

Do audits of complicated returns take longer?

Not necessarily. I’ve had taxpayers sail through audits involving multiple years and multiple entities – even with interests in other countries – while more simple returns have been held up for additional questions.

It’s not the size of the return that matters, but typically the focus of the audit and the available documentation. Great documentation almost always wins the day.

What happens when the audit is over?

There are three possible outcomes:

  1. No change (this is the result about 10% of the time, on average);
  2. You agree with the proposed changes and pay what you owe; or
  3. You disagree with the changes and appeal.

Can an audit be criminal?

An IRS audit is a civil matter. But an auditor may be tipped off or on the lookout for indicators, sometimes called “badges of fraud.” Those include hiding assets, not reporting sources of income, claiming business expense deductions for personal expenditures, keeping more than one set of books (yes, I’ve sat through an audit with two sets of books), and submitting false documents.

While there technically isn’t a criminal audit, if an auditor gets the sense that something is criminal, the case can be referred to Criminal Investigations (CI).

It’s important to understand that prosecutions are rare for something simple like failure-to-pay, especially if it’s non-willful. Referrals will typically be made for tax crimes like tax fraud or concealing foreign assets. Related charges may involve other non-tax crimes, like money laundering, public corruption, and wire fraud.

If CI determines that you should be prosecuted, the matter goes to the Department of Justice, Tax Division (for tax investigations) or the U.S. Attorney (for all other investigations). There are only about 3,000 criminal prosecutions each year from CI.

I haven’t seen President Trump’s tax returns. I’m going to start there. No matter how many times I’ve been asked today to offer my “take” on the returns, I can’t give a more honest answer than, “I haven’t seen the returns.”

I have, however, read the very detailed article from the New York Times, which can be found here. I’m not inclined to summarize it for you – you can read it on your own – and I’m not going to do an op-ed on the piece. If you are a regular reader, you’ll know that it’s not my style to play guessing games. But as I continued to be asked about the piece this evening, what did occur to me is that there are a number of issues raised in the piece that can be confusing for ordinary taxpayers like you and me.

So here are some answers to common questions raised by some of the headlines that are sure to come your way this week. I’ll update my answers as the story progresses.

I thought you once said you couldn’t find out anything from a tax return?

That’s what President Trump said in 2016, claiming, “You don’t learn anything from a tax return.”

But that’s not what I said. I wrote just the opposite in 2016, noting that “a tax return is not just a bunch of numbers. It’s a snapshot of your financial life.” Not only do you have a better understanding of where taxable income comes from, but you can also see potential failures in losses and worrisome positions with investments and loans. When it comes to taxpayers who itemize, you can learn about charitable deductions (not simply how much but where it’s distributed), real estate taxes, real estate holdings, and more. You can also glean information about the existence of offshore accounts, household employees, rental properties and more.

I have, however, tweeted that “Tax returns (even officially filed ones) aren’t dispositive when it comes to wealth.” I stand by that. One of the flaws of reviewing tax returns on their own is that they are not a reliable measure of a person’s net worth.

It sounds like Trump’s returns really are under audit. But I thought you agreed that he could not release his tax returns while under audit?

No, if Trump wanted to release his tax returns – even in the middle of an audit – he could. There’s no prohibition against it. Former IRS Commissioner Koskinen agreed that was the case in 2016. Whether it’s a good idea or not is another matter: many tax pros, like me, weren’t so sure that making a tax return public while it’s under audit was a good idea.

It feels like this audit has gone on forever. I understand statute of limitations (sort of), but why would you ever push it off?

The Times said that records show that there is an audit of Trump’s 2009 refund. The refund claim has remained in committee, “unresolved, with the statute of limitations repeatedly pushed forward.”

By statute, the IRS can’t examine your returns forever. There are deadlines and the IRS has to resolve exams and other issues within a certain period of time. If the IRS doesn’t resolve the issue by the end of the period, they’re done. BUT. Sometimes, there’s an advantage to extending the time – but it is generally done by agreement in writing (you may have seen Form 872, Consent to Extend the Time to Assess Tax, before).

If you don’t sign the consent, the IRS can go ahead and issue its findings. Once that happens, the clock starts running again on your options which typically mean – at this point – heading to court if you don’t agree. So, if you think that you might be able to reach a settlement, you might sign the consent to buy a little more time. You might also do it to keep the matter out of court (which could be what’s happening here).

I tried to look it up after reading the story but could not find Line 56 on Form 1040. What is it?

Line 56 – total tax after adjustments but before taking into consideration taxes like self-employment and household employment taxes – existed in 2014. But if you’re looking for it now, you’re out of luck: there is not a Line 56 on IRS Form 1040 for tax years after 2018 because of form revisions due to, among other things, the Tax Cuts and Jobs Act (TCJA).

Okay. Let’s talk tax specifics. First, what is depreciation, really?

Trump has previously touted the benefits of depreciation, suggesting that the losses on his tax returns do not translate into losses in a portfolio. There’s some truth to that because depreciation is a tax and accounting construct: you don’t actually “lose” value each year on property when you depreciate it.

For federal income tax purposes, depreciation is a deduction that allows you to recover the cost or other basis of certain property. It can be tricky but generally, you begin to depreciate your property when you place it in service for the first time. The IRS considers property “placed in service” when it is ready and available for use, not when you actually begin using it. So, for example, if you buy a car for your business, it’s ready and available once it belongs to you, not necessarily the first time you take a ride. You depreciate the cost of the item over its useful life (based on the kind of property) unless an exception applies.

Here’s how it works. Let’s say you bought commercial property for $1 million in 2000. You don’t generally get to claim the deduction in year 1 even if you paid cash for the entire thing. Instead, you have to depreciate the property over its useful life (in this case, that’s 39 years) – which means that you deduct a little bit every year until its useful life is over.

And when you sell or otherwise transfer depreciated property, you may have to recover the depreciation, which can drive up your tax bill. It can be complicated.

This is why the Times noted that “Depreciation, though, is not a magic wand…” It doesn’t simply create losses out of thin air. You can read more about depreciation here.

Okay, got it. Now, how does cancellation of debt income work?

According to the Times, Trump failed to pay back at least $287 million since 2010. Normally, a failure to pay back that kind of debt would result in a taxable event.

If you have cancellation of debt for less than the amount you owe, the amount of the canceled debt is considered income and may be taxable unless an exclusion applies. The most common exclusions include bankruptcy, insolvency, and qualified principal residence indebtedness.

If you don’t qualify for an exclusion, you typically have to report the income and pay the tax in the year of the forgiveness.

The Times claims that Trump was able to offset some of the income with losses, and extend paying tax by taking advantage of a provision under an Obama-era bailout that allowed income from canceled debt to be deferred over a period of time.

And in a few words, how do business losses work?

That’s a tall order. But here’s the gist: business losses are sometimes called net operating losses (NOL). An NOL generally results when your tax deductions exceed your taxable income. If that number is negative in one year – but has been positive in other years resulting in tax payable – that doesn’t quite seem fair. The NOL exists so that you can balance that inequity. In other words, you can use the loss in one year to lower your taxable income and reduce your tax burden in another year.

(Don’t confuse capital losses with an NOL: they are not the same thing.)

Under existing tax laws, if you have an NOL, you first carry back the entire NOL amount for a number of years and if you still have an NOL remaining after you carry those losses back, you can carry the losses forward. You can also opt not to carry back an NOL and only carry it forward for up to 20 years. A carry forward means that you can apply the loss towards your income in a future year.

NOLs can be tricky (you can read more here), and it’s not unusual for the rules to change during an economic crunch.

According to the Times, Trump claimed huge business losses — a total of $1.4 billion from his core businesses for 2008 and 2009. Before the bailout, those losses could only be carried back two years. But the bailout extended the look back to four years: the Times says that allowed Trump to recover taxes he paid when The Apprentice was profitable. That resulted in a large refund: that’s the issue that allegedly resulted in the refund audit.

So what happened with the refund?

If you pay too much in tax, you may be entitled to a refund – but you already know that.

That’s simply what the Trump camp claims happened here. But the Times piece seems to suggest that it’s more complex: by piling on losses (the legitimacy of which may be in question), he was able to generate a tax refund of $72.9 million (tax paid for 2005 through 2008, plus interest).

Ok, I get the refund bit. Then why was there an audit?

By law, refunds of more than $2 million for individuals ($5 million for corporations) require approval from the IRS, and a report is sent to the Joint Committee on Taxation. That can result in an audit: that’s what apparently happened here.

I’ve literally never heard of abandonment when it comes to taxes. What is it?

Abandonment occurs when a taxpayer deliberately gives up ownership of property (including interest in a partnership). The IRS looks at a few factors when considering whether property has been abandoned, including ownership before abandonment, if there is intent to abandon, and actual steps to abandonment.

The Times believes that Trump may not have abandoned his ownership in his Atlantic City casinos, generating losses. He walked away from them in 2009, telling the Securities and Exchange Commission that he was “hereby abandoning” his stake.

If a loss is considered an abandonment loss, then it’s generally deductible as an ordinary loss: that means the full value of the loss can be deductible. That’s huge.

But instead, if it’s considered a sale or exchange – meaning that you got something back in exchange for walking away – it’s treated as a capital loss. Those losses are limited to $3,000. Trump reportedly received an interest in a new company after the conclusion of the bankruptcy of the company he claimed to have abandoned.

Trump’s abandonment losses for 2009 – which resulted in the refund – were reportedly $700 million. To quote Jon Lovitz’ character, Ernie Capadino, in A League of Their Own: This would be more, wouldn’t it?

Ok, now explain to me the difference between the tax treatment of a home and an investment property.

That’s a pretty easy one: you generally cannot fully deduct expenses associated with maintaining your home, while you can with an investment property. Good examples of limited deductions include real estate taxes and mortgages, which are capped for homes (but not typically for investment properties).

The Times suggests that Eric Trump has characterized the Seven Springs property as a “home base” in a Forbes article. Do you know what they are talking about?

To be honest, I didn’t. But I found the article for you. It’s here.

Can you really write off hairdressing expenses?

Maybe.

You can’t deduct an expense just because it’s desirable or makes you look more professional: that applies to hairstyles, makeup, accessories, and more.

The same is generally true for uniforms and costumes (believe it or not, this post referencing ABBA’s costumes remains one of my most popular to this day).

To claim a deduction for business expenses, section 162 of the Tax Code requires that the expense is “ordinary and necessary.” According to the IRS, an ordinary expense is one that is common and accepted in your trade or business. The IRS defines a necessary expense as “one that is helpful and appropriate for your trade or business.” (You can read more about business expenses here.)

As a tax attorney, I can’t claim that hairdressing expenses – even if I need to look professional inside of a courtroom – are ordinary and necessary. But could someone who appears on television? Maybe. But only for the television/appearance bits – not for personal comfort or other unrelated business use.

(Note that any unreimbursed job expenses for employees have been eliminated for the tax years 2018-2025 as a result of the TCJA, but business expenses remain deductible for the self-employed and businesses.)

Can you write off lawyer’s fees?

The same rules generally apply to hairdressing expenses as legal expenses. Yes, for real. Legal expenses must also be ordinary and necessary in your trade or business to be deductible.

Believe it or not, even fees paid to a criminal defense lawyer may be deductible. While lawyers and judges have quarreled about the details over the years – even carving out public policy exceptions – the rule stands that if the action otherwise meets the criteria for a valid business expense, it’s deductible.

There is, however, one notable exception: no deduction is allowed for legal expenses incurred in purely personal litigation.

Can you explain why the “20 PERCENT SOLUTION” is even an issue?

Again, I haven’t seen the returns and I can’t speak to the validity or appropriateness of the consultancy payments. But what caught my eye – and I’m sure other tax professionals as well – is the alleged consistency of the size of the payments (20%) no matter the transaction. There may be a valid reason for such a thing and that’s an example of where additional documentation is key.

One of the things that I tell my clients is that your records should always support your deductions: rounding or guessing isn’t enough. And that’s especially the case when those numbers indicate a pattern. Numbers that look too good to be true are almost always a red flag. The IRS knows as well as you do that your office phone bill isn’t always $100, and your office cleaners don’t earn 10% of your monthly receipts.

Is it a crime for the New York Times to have the returns?

I’ve been asked this a lot. Some taxpayers believe that their tax returns are private… which is only partially true.

No Internal Revenue Service (IRS) employee has the right to simply browse through taxpayer records: it’s against the law to inspect tax returns without being authorized to do so. Congress, saying that it “views any unauthorized inspection of tax return information as a very serious offense,” passed the Taxpayer Browsing Protection Act of 1997 (Public Law No. 105-35), which made such an inspection a crime.

And the Internal Revenue Code mandates, in section 6103, that “returns and return information shall be confidential” except when otherwise specifically authorized.

Under section 7213 of the Tax Code, unauthorized willful disclosure of any return or return information by a federal employee (and certain other persons) is a felony; and under section 7431 of the Tax Code, civil damages may also be appropriate for willful of negligent violations, depending on the circumstances. In addition, if convicted of such a crime, a federal employee can be suspended or fired. But those rules apply to federal employees, not private citizens. A private citizen – like a spouse and or an ex-spouse – may legally have access to a taxpayer’s tax return. And, once your tax return information is disclosed to a third party, that information is no longer protected under federal tax laws.

According to the Times, the paper “obtained tax-return data extending over more than two decades for Mr. Trump and the hundreds of companies that make up his business organization, including detailed information from his first two years in office.” The Times declined to provide the records for review to a lawyer for the Trump Organization “in order to protect its sources.”

So, I don’t know if they obtained the records legally, but simply having someone else’s tax or financial information isn’t a crime.

(Updated to add: The Times separately posted an Editor’s Note confirming that the returns were obtained legally. You can read it here.)

What else should we be on the lookout for?

It can be fun to play armchair (tax) detective, but as you read through articles this week, do me two favors:

  1. Be thoughtful about what you’re reading. Rely on trusted sources, and where possible, match tax items to code sections or court cases. Don’t assume something is true just because your favorite pundit says so.
  2. Be patient, but not necessarily dismissive. Again, the Times claims to have the returns: most other tax writers, like me, do not. So we’re relying on what we believe to be good information – and it’s not everything. But that doesn’t mean that you should dismiss it all out of hand. The Times raises some valid questions that shouldn’t be ignored. As I read through the article – and your questions – I’m reminded of something that departing IRS-CI Chief Don Fort used to stress: voluntary compliance is the basis of our tax system, and no one is above the law.

The new per diem numbers are now out – a little earlier than normal. It’s important to note that they are not effective until October 1, 2020. These numbers are to be used for per diem allowances paid to any employee on or after October 1, 2020, for travel away from home.

The Internal Revenue Service (IRS) allows the use of per diem (that’s Latin meaning “for each day” – remember, lawyers love Latin) rates to make reimbursements easier for employers and employees. Per diem rates are a fixed amount paid to employees to compensate for lodging, meals, and incidental expenses incurred when traveling on business rather than using actual expenses. 

Here’s How Per Diem Typically Works

A per diem rate can be used by an employer to reimburse employees for combined lodging and meal costs, or meal costs alone. Per diem payments are not part of the employee’s wages for tax purposes so long as the payments are equal to, or less than the federal per diem rate, and the employee provides an expense report. If the employee doesn’t provide a complete expense report, the payments will be taxable to the employee. Similarly, any payments which are more than the per diem rate will also be taxable.

Reimbursed & Unreimbursed Expenses

The reimbursement piece is key. Remember that unreimbursed job expenses are currently not deductible. The Tax Cuts and Jobs Act (TCJA) eliminated unreimbursed job expenses and miscellaneous itemized deductions subject to the 2% floor for the tax years 2018 through 2025. Those expenses include unreimbursed travel and mileage.

That also means that the business standard mileage rate (you’ll find the 2020 rate here) cannot be used to deduct unreimbursed employee travel expenses for the 2018 through 2025 tax years. The IRS has clarified, however, that members of a reserve component of the Armed Forces of the United States, state or local government officials paid on a fee basis, and certain performing artists may still deduct unreimbursed employee travel expenses as an adjustment to income on the front page of the 1040; in other words, those folks can continue to use the business standard mileage rate. For details, check out Notice 2018-42 (downloads as a PDF).

Self-Employed Taxpayers

What about self-employed taxpayers? The TCJA didn’t change deductions for self-employed taxpayers (those that file a Schedule C). Self-employed taxpayers can still deduct business-related expenses. However, the per diem rates aren’t as useful for the self-employed because they can only use the per diem rates for meal costs. Realistically, that means that self-employed taxpayers must continue to keep excellent records and use exact numbers.

The New Numbers

As of October 1, 2020, the special meals and incidental expenses (M&IE) per diem rates for taxpayers in the transportation industry are $66 for any locality of travel in the continental United States and $71 for any locality of travel outside the continental United States; those rates are the same as they were last year. The per diem rate for meals & incidental expenses includes all meals, room service, laundry, dry cleaning, and pressing of clothing, and fees and tips for persons who provide services, such as food servers and luggage handlers.

The rate for incidental expenses only remains $5 per day, no matter the location. Incidental expenses include fees and tips paid at lodging, including porters and hotel staff. Transportation between where you sleep or work and where you eat, as well as the cost of filing travel vouchers and paying employer-sponsored charge card billings, are no longer included in incidental expenses. If you want to snag a break for those, and you use the per diem rates, you may request that your employer reimburse you.

That’s good advice across the board: If you previously deducted those unreimbursed job expenses and can no longer do so under the TCJA, ask your employer about potential reimbursements.

Of course, since the cost of travel can vary depending on where – and when – you’re going, there are special rates for certain destinations. For purposes of the high-low substantiation method, the per diem rates are $292 for travel to any high-cost locality and $198 for travel to any other locality within the continental United States. The meals & incidental expenses only per diem for travel to those destinations remain $71 for travel to a high-cost locality and $60 for travel to any other locality within the continental United States.

You can find the list of high-cost localities for all or part of the calendar year – including the applicable rates – in the most recent IRS notice. There are, however, a few noteworthy changes, including:

  • The following localities have been added to the list of high-cost localities: Los Angeles, California; San Diego, California; Gulf Breeze, Florida; Kennebunk/Kittery/Sanford, Maine; and Virginia Beach, Virginia.
  • The following localities have been removed from the list of high-cost localities: Midland/Odessa, Texas, and Pecos, Texas.
  • The following localities have changed the portion of the year in which they are high-cost localities (meaning that seasonal rates apply): Sedona, Arizona; Monterey, California; Santa Barbara, California; District of Columbia (see also Maryland and Virginia; Naples, Florida; Jekyll Island/Brunswick, Georgia; Boston/Cambridge, Massachusetts; Philadelphia, Pennsylvania; Jamestown/Middletown/Newport, Rhode Island; and Charleston, South Carolina.

Resources

You can find the entire list, together with other per diem information, in Notice 2020-71 (downloads as a PDF).

To find the federal government per diem rates by locality name or zip code, head over to the General Services Administration (GSA) website.

Did you file for an extension for your 2019 federal income tax return? If so, you have about a month remaining to file: the deadline to file your federal income tax return on extension is on or before October 15, 2020.

October 15 is the same deadline to file a federal income tax return on extension in any normal year. But since this year has been anything but normal, some taxpayers may not be aware of the due date.

2020 Wasn’t A Normal Year

The Internal Revenue Service (IRS) gives you six months from the due date to get your tax return in – and still be timely – if you for an extension. If you do the quick math for individuals, that’s April 15 + six months = October 15.

But here’s where it gets tricky. This year, because of COVID, the due date was July 15, not April 15. But the request for extension starts ticking from the original due date (that’s April 15) and not the revised due date (that’s July 15). That means that all individuals must file their federal income tax returns on extension on or before October 15 even if you made the request to extend in July. Got it?

Automatic Extension Of Time To File

Some taxpayers are entitled to an automatic extension of time to file without having to do anything. That includes:

  • Members of the military and others serving in combat zones or hazardous zone areas generally have until at least 180 days after they leave the zone to file returns and pay any taxes due.
  • Taxpayers affected by natural disasters may have extra time. For more details, check the disaster relief page on the IRS website.

Consider Filing & Paying Electronically

The IRS recommends that taxpayers and tax professionals file electronically, when possible, to support social distancing and speed the processing of tax returns, refunds and payments. Electronic filing options, including IRS Free File, remain available.

You should also consider paying electronically. I am still receiving reports from taxpayers who have mailed checks to the IRS that remain uncashed. The IRS has acknowledged that this is a problem, noting last month that “If a taxpayer mailed a check (either with or without a tax return), it may still be unopened in the backlog of mail the IRS is processing due to COVID-19.”

And if you’ve already mailed your payment, it will eventually be posted. The IRS says that “Any payments will be posted as the date we received them rather than the date the agency processed them.” Whatever you do, don’t cancel your original check. Just because it hasn’t been cashed or credited doesn’t mean that it has gone missing: it’s likely just temporarily diverted.

With that history, it should be clear that the fastest way to get your payment acknowledged this go round is to pay electronically. You can schedule your federal tax payments through the October 15 due date. There are a variety of ways to pay including by wire, electronic funds withdrawal from a bank account, IRS Direct Pay, or with a credit card, debit card or digital wallet option through a payment processor. You can find out more about paying your tax bill in 2020 here.

Expecting A Tax Refund?

If you’re expecting a refund, the IRS encourages taxpayers to use direct deposit. Direct deposit is faster than waiting for a paper check to arrive in the mail. If you need to check on your refund, you can use the Where’s My Refund? tool on the IRS website.

Forgot To File For Extension?

While it’s always a relief to have your tax return over and done with by the due date, it’s not the end of the world if that doesn’t happen. Even if you did not request an extension and have not filed your 2019 tax return, you should file and pay as possible to reduce any penalties and interest that might be due.

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. 

(You can find out more about Injured Spouse here and you can download Form 8379 here).

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 withheldyou 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.

Feeling overwhelmed and not sure how to handle those overdue notices from the Internal Revenue Service (IRS)? You aren’t the only one. Taxpayers have been complaining about the receipt of notices showing a balance due with impossible deadlines.

How many notices went out? According to the Taxpayer Advocate, during the pandemic-related shutdown, the IRS generated more than 20 million notices; however, these notices were not mailed to taxpayers. So, the IRS started mailing them out.

Simultaneously, in June, the estimated backlog of unopened IRS mail stood at 11 million. That means that taxpayer checks remained uncashed.

The IRS recently noted that “If a taxpayer mailed a check (either with or without a tax return), it may still be unopened in the backlog of mail the IRS is processing due to COVID-19.”

The combination of unopened mail and past-due notices has heightened anxiety and tempers.

On August 19, 2020, House Ways and Means Committee Chairman Richard E. Neal (D-MA) sent a letter to the IRS demanding that the notices stop.

“These notices impose unnecessary stress on taxpayers who, upon receipt, must contact the IRS for assistance,” Neal wrote. “This is particularly troubling at a time when the IRS is telling taxpayers who need to call the agency ‘to expect long waits due to limited staffing.’ Taxpayers reaching out for assistance on the telephone must hope someone can answer their call and that all payments they have made have been opened, processed, and indicated on their account. Certainly, any additional correspondence generated by these notices can prove difficult for the IRS to handle and cause significant delays for taxpayers seeking fair resolution.”

You can read the letter here (downloads as a PDF).

The IRS has now announced that they have suspended the mailing of three notices:

  1. the CP501 (typically, a balance due);
  2. the CP503 (you still have an unpaid balance and the IRS hasn’t heard from you); and
  3. the CP504 (you still have an unpaid balance, you REALLY haven’t responded, and the IRS intends to levy).

These follow-up notices are typically automatically sent to taxpayers who do not respond to an initial notice of balance due (called a CP14). However, these automatic follow-up notices will be temporarily stopped until the backlog of mail is reduced.

There is no current deadline to resume the follow-up notices. The IRS says that it will make the determination as the backlog is cleared.

As for those unopened checks? They will be posted and credited on the date the IRS received them – rather than the date the agency opened and processed them. 

That means that you should not cancel your original check. Just because it hasn’t been cashed or credited doesn’t mean that it has gone missing: it’s likely only temporarily diverted.

And, don’t spend that money. Assume that the IRS will cash your check any day now. While the IRS is providing relief from bad check penalties for dishonored checks the agency received between March 1 and July 15 due to delays in this IRS processing, interest and penalties may still apply. 

Finally, save yourself some time and energy and don’t call. The IRS says it will make things right (eventually), so there’s no need to call, file a second return, or cancel any outstanding checks. 

If you have any questions about your next steps, reach out to your tax professional. But if you get a notice this week from the IRS, be prepared to cut the agency some slack. Some taxpayers and tax professionals may still receive these notices during the next few weeks due to notices that are already in the mail.

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.

Still missing your $500 per child stimulus check? You’re not the only one. In response to complaints that check recipients are still missing out, the Internal Revenue Service (IRS) is reopening the registration period for some folks who didn’t receive those $500 per child payments earlier this year. 

In March of this year, the CARES Act was signed into law. A key feature of the law was individual checks for families of $1,200 per adult – or $2,400 for married couples filing jointly – and an additional $500 per child. Checks were based on 2018 or 2019 tax return filings (whichever you filed last). But that created a problem for those folks who didn’t usually file a tax return: how would they get their stimulus checks? In April of 2020, the IRS announced a new web tool to make that happen.

Payments to folks who receive Social Security retirement, survivor or disability benefits, Supplemental Security Income (SSI), Railroad Retirement benefits, and Veterans Affairs Compensation and Pension (C&P) benefits and did not file a tax return in 2018 or 2019 were supposed to be automatic. Those folks initially did not need to register since the IRS worked with the respective agencies (like Social Security Administration and Veterans Affairs) to push out those checks.

However, many of those checks did not include the $500 per child payments. To fix that problem, the IRS urges those federal benefit recipients to use the Non-Filers tool starting August 15 through September 30. 

This doesn’t apply to everyone:

  • If you receive Social Security, SSI, Department of Veterans Affairs and Railroad Retirement Board beneficiaries and you have already used the Non-Filers tool to provide information about your qualifying children, no further action is needed. The IRS will automatically make a payment in October.
  • If you receive Social Security, SSI, Department of Veterans Affairs and Railroad Retirement Board beneficiaries and you do not have qualifying children, no further action is needed. 

But if you receive Social Security, SSI, Department of Veterans Affairs and Railroad Retirement Board beneficiaries and you have not already used the Non-Filers tool to provide information about your children, you need to act now. If you register within the window, you should receive your “catch-up payment” of $500 per eligible child by mid-October. If you don’t register by the September 30 deadline, you’ll have to wait until 2021 and claim the $500 as a credit on your 2020 return.

There’s another deadline that non-filers should also be aware of: October 15. Millions of low-income people and others who aren’t required to file a tax return may still be eligible for a stimulus check. Those folks can register for a payment by using the Non-Filers tool on the IRS website. Some non-filers might have overlooked registration because of confusion related to an early version of the CARES Act. In the March version initially proposed in the Senate, taxpayers needed to be working or receiving Social Security or pension income to qualify for a check. However, the final version of the CARES Act – the one that is now law – does not require earned income, nor the filing of a tax return to qualify for a check.

The Non-Filers tool will remain available through the summer and fall. However, to receive your payment by the end of the year, you must register by October 15. 

The Non-Filers tool is available in both English and Spanish and is targeted to people with incomes typically below $24,400 for married couples, and $12,200 for singles. 

However, if you are eligible to receive special tax benefits, such as the Earned Income Tax Credit or Child Tax Credit, you cannot use this tool. That’s because to claim those credits, you have to file a tax return. That means that you’re not a non-filer and will need to file a regular return by using IRS Free File or by another method.

Again, keep in mind that the Non-Filer tool is only for those who do not have a tax filing obligation. If you’re simply looking for information, use Get My Payment to check on your payment status.

As earlier, if you miss the deadline, you’ll have to wait until 2021 and claim the $500 as a credit on your 2020 return.

A recent oversight report confirmed that the IRS correctly computed the amount due for 98% of the stimulus checks issued. But some issues are still popping up. The IRS is also working to solve other common stimulus check problems. If you haven’t received your check – or it’s the wrong amount – check this article for what to do.

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