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#TaxTwitter has been abuzz about a flurry of notices of intent to levy (CP504) sent to taxpayers this week. The notices appear to have been sent out without regard for individual taxpayers circumstances with tax practitioners reporting receipt by taxpayers previously marked as CNC (currently not collectible), taxpayers with pending offers, and taxpayers who have already resolved liabilities.

Typically, when you receive a notice like this, the best plan is to reach out to the Internal Revenue Service (IRS) even if you aren’t sure that you know. Taxpayers are directed to call the number on the notice (for a CP504, that’s 1.800.829.8374); alternatively, some practitioners opt to dial in to the Practitioner Priority Service (PPS).

I tried both. For two days. More often than not, I received a recording advising that “due to extremely high call volume,” no one could answer. Then, a disconnect.

I finally got a real person this morning after waiting on hold for some time. Unfortunately, they advised that they could not assist because all of the levy notices were above $25,000, which would require a transfer to a different department. I was advised that there is no direct number, so if I was disconnected, I’d have to call back. You can already guess what happened.

Several hours later, I still hadn’t reached a resolution for my clients. I was irritable and I tweeted about it. Again (since I started complaining Tuesday).

I was in good company: many of my fellow tax professionals were also spending hours on hold without being able to resolve their clients’ issues (most of which seem to be related to these forms CP504).

But then I saw responses from two Brians (Brian Wolfe, CPA, and Brian Streig, CPA):

And I was a little embarrassed, to be honest. Because that’s a drum that I normally beat: it’s important to let Congress know when IRS falls down. And it’s just as important to remember that the lack of service has everything to do with a lack of resources: IRS funding has declined by more than 20% since 2010 (you can check out the numbers in graph form from the Tax Policy Center here).

Before you cheer, let me explain why that’s not a good thing. Those cuts affect taxpayer services. It means longer wait times on phones for taxpayers and tax practitioners to resolve tax issues and results in impossibly long delays in opening mail and processing requests. It means that victims of identity theft will wait longer for relief (including refunds). It means that it’s harder to dispute a tax liability. It means that it’s more difficult to resolve disputes and controversies, including Innocent Spouse matters. It means that you may not get a timely tax refund or stimulus check.

And without resources, there’s no incentive for IRS to focus audit efforts on big dollars. As the agency points out, “[t]he typical audits for higher-income taxpayers involve at least three different tax years, often include related entities, and routinely take years to resolve.” By comparison, “audits of low- and moderate-income tax returns take less time to resolve.”

(You can check out audit stats and more in the 2019 IRS Data Book (downloads as a PDF).)

I represent taxpayers on all ends of the income spectrum. And I prefer a well-staffed IRS for every single one of those taxpayers. I want to be able to get information about the process, stop ill-timed collections, and negotiate the best deals for my clients as quickly and efficiently as possible. That’s the best result for all: IRS can close those cases and my clients can sleep at night.

So, that’s why when I saw those tweets, I was taken slightly aback. I constantly advocate for a funded IRS – because that benefits taxpayers and this time, I hadn’t. So, I stopped whining for a bit and like my colleagues, reached out to my Senators and my Representatives.

I was subsequently asked to share my letter, so I am (with some language explaining who I am and where I live/work in their districts redacted or lightly edited) below:

Dear Senator Casey:

My name is Kelly Phillips Erb and I am tax attorney.

I have a good working relationship with the IRS, and was even on the dais at the National Press Club for the Tax Commissioner’s Annual Speech a few years back at the request of then Commissioner John Koskinen. I say that to offer context, since I know that the sense is that tax practitioners are generally adversary to IRS. While I certainly want to protect and advocate for my taxpayers, I also have respect for those at IRS.

That said, the current level of service provided to tax practitioners and taxpayers is appalling. The mail is not being opened and lien and levy notices are being generated, alarming taxpayers that their property may be seized. In some cases, these notices would be administratively barred due to pending Offers, etc., but the IRS is simply not opening the mail.

Checks and wires are being lost and misdirected. Some clients have called in a panic because they are receiving bills for tax liabilities that have already been paid.

The most frustrating part is that you cannot reach anyone at IRS to resolve these issues. For example, if you call the number on the levy notices (1.800.829.8374) and scroll through the menu, you will eventually hear a message that you cannot reach an agent because of “extremely high call volume.” The line then disconnects.
The Practitioner Priority Service (PPS) is no better. If you can get through (most recently, it took me two days), you will be disconnected.

It’s important to understand that many of these notices are time-sensitive and the inability to reach anyone – by mail or phone – has real consequences. Taxpayers can have their property – including bank accounts – seized. Wages and Social Security payments can be garnished. These are terrible results in the best of times, but are especially difficult in the middle of a pandemic when many people are out of work.

I know that it’s popular to complain about the IRS, but that’s not what I am doing. I am asking you to focus attention on the agency that collects our revenue and keeps the doors open and the lights on in government. Those lost checks are lost opportunities and lost dollars. Inaccurate or late notices are efficient and cost not only taxpayers time and money directly, but also waste government resources. And trying to collect from those who simply do not have the money at this time is not just illogical, it’s cruel.

I ask that you take immediate action:

  • Ask the IRS to stop sending out notices without opening the mail;
  • Insist that more phone and other representatives be made available to taxpayers and practitioners;
  • Direct that levy and other notices receive automatic extensions; and
  • Finally, please adequately fund the IRS.

Thank you for your consideration.

Sincerely,

Kelly Phillips Erb

Hopefully, that gives you some direction/inspiration for your own letters. You’re welcome to use some or all of my language in your own letter (except for my name, of course, because that would just be weird).

And if you’re looking for the best folks to send your letters to, you can find your Representative (with contact info) here. You can find your Senators (with contact info) here.

The Internal Revenue Service (IRS) has announced that more than a dozen new seminars from the 2020 Nationwide Tax Forums are now available on IRS Nationwide Tax Forums Online.

The self-study seminars provide use interactive videos, PowerPoint slides and audio transcripts. Here’s the list of the new courses:

Advocating for Immigrant Taxpayers    
Advocating for Taxpayers with Collection Information Statements    
Be Tax Ready – Understanding Eligibility Rules for EITC, AOTC, CTC and Head of Household Filing Status
Bipartisan Budget Act of 2015’s Centralized Partnership Audit Regime (The)
Charities & Tax-Exempt Organizations Update    
Créditos Reembolsables (In Spanish)
Diligence in Practice before the IRS: Record-Keeping
Federal Ethics for the Tax Professionals: Office of Professional Responsibility (OPR) and Circular 230
Impact of Non-filing and Non-payment
IRS Key Enforcement Issues
Keys to Mastering Due Diligence Requirements and Audits
Keynote Address
Preparation of Form 1040-NR, U.S. Nonresident Alien Income Tax Return
Retirement Plan Distributions, Loans and More
Tax Changes from a Forms Perspective
Tax Cuts and Jobs Act (TCJA) Update: Opportunity Zones
Tax Cuts and Jobs Act (TCJA) Update: Qualified Business Income Deduction
Update from the IRS Independent Office of Appeals

The IRS Nationwide Tax Forums Online is registered with the IRS Return Preparer Office and the National Association of State Boards of Accountancy as a qualified sponsor of continuing education (CE).

Certified Public Accountants (CPAs), Enrolled Agents (EAs) and Annual Filing Season Program (AFSP) participants can earn CE credits by taking the classes. To earn credit, users must create an account, answer review questions throughout the seminar and pass short tests at the end of the seminars. The fee is $29 per class.

You can also audit the courses for free. That means you can watch them, but you will not have access to the review questions or final examination, or receive credit for the seminars.

Days after the Internal Revenue Service (IRS) announced tax relief for victims of victims of the Oregon wildfires and straight-line winds, the IRS has announced similar relief for victims of Hurricane Sally. Those taxpayers who were affected by the storm that began on September 14 now have until January 15, 2021, to file individual and business tax returns and make certain tax payments.

Relief is available for taxpayers in any area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual assistance. Currently, affected taxpayers are those in Baldwin, Escambia and Mobile counties in Alabama.

The extension applies to deadlines – either an original or extended due date – that occurred on or after September 14, 2020, and before January 15, 2021.

This includes individual taxpayers who live in the area, as well as businesses, including tax-exempt organizations, with a principal place of business in the area. Taxpayers who live and work in locations added later to the disaster area, including those in other states, will automatically receive the same filing and payment relief. The current list of eligible localities is always available on the disaster relief page on the IRS website.

Here’s what the relief entails: Most tax filing and payment deadlines that occurred starting on September 14, 2020, will be pushed off until January 15, 2021, to file returns and pay any taxes that were originally due during this period. That includes returns and payments that were originally due during this period, including individual tax returns on extensions which are due on October 15, 2020. Remember, however, that extensions are an extension of the time to file, not the time to pay, so payments for 2019 tax returns are still keyed to the July 15, 2020, due date.

Relief also includes a waiver of late penalties for quarterly estimated income tax payments normally due on September 15, 2020, as well as quarterly federal payroll and excise tax returns normally due on November 2, 2020.
It also includes calendar-year tax-exempt organizations that had a valid extension due to run out on November 16, 2020. Businesses with extensions also have the additional time including, among others, calendar-year corporations whose 2019 extensions run out on October 15, 2020.

Additionally, penalties on payroll and excise tax deposits due on or after September 14 and before September 29, will be abated as long as the deposits are made by September 29, 2020.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. That means that taxpayers do not need to contact the IRS to get this relief. However, if you receive a late filing or late payment penalty notice from the IRS and were entitled to relief, you should call the number on the notice to have the penalty abated.

The IRS will work with any taxpayer who lives outside the disaster area but whose records are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 1.866.562.5227. This includes those workers assisting the relief activities who are affiliated with a recognized government or charitable organization.

Individuals and businesses who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on the return for the year the loss occurred – in this instance, the 2020 return normally filed next year – or the return for the prior year (2019). However, remember that the deduction for personal casualty and theft losses has been repealed for the tax years 2018 through 2025 except for those losses attributable to a federal disaster as declared by the President. That means you need to write the FEMA declaration number – 4563 − for Hurricane Sally on any return claiming a loss. For more on casualty losses after a disaster, click here.

For more details on available tax relief, you can also check out the disaster relief page on IRS.gov.

The Internal Revenue Service (IRS) has announced tax relief for victims of victims of the Oregon wildfires and straight-line winds. Those taxpayers who have been affected by the fires have until January 15, 2021, to file individual and business tax returns and make certain tax payments.

Relief is available for taxpayers in any area designated by the Federal Emergency Management Agency (FEMA) as qualifying for individual assistance. Currently, affected taxpayers are those in Clackamas, Douglas, Jackson, Klamath, Lane, Lincoln, Linn and Marion counties in Oregon.

The extension applies to deadlines – either an original or extended due date – that occurred on or after September 7, 2020, and before January 15, 2021.

This includes individual taxpayers who live in the area, as well as businesses, including tax-exempt organizations, with a principal place of business in the area. Taxpayers who live and work in locations added later to the disaster area, including those in other states, will automatically receive the same filing and payment relief. The current list of eligible localities is always available on the disaster relief page on the IRS website.

Here’s what the relief entails: Most tax filing and payment deadlines that occurred starting on September 7, 2020, will be pushed off until January 15, 2021, to file returns and pay any taxes that were originally due during this period. That includes returns and payments that were originally due during this period, including individual tax returns on extensions which are due on October 15, 2020. Remember, however, that extensions are an extension of the time to file, not the time to pay, so payments for 2019 tax returns are still keyed to the July 15, 2020, due date.

Relief also includes a waiver of late penalties for quarterly estimated income tax payments normally due on September 15, 2020, as well as quarterly federal payroll and excise tax returns normally due on November 2, 2020.

It also includes calendar-year tax-exempt organizations that had a valid extension due to run out on November 16, 2020. Businesses with extensions also have the additional time including, among others, calendar-year corporations whose 2019 extensions run out on October 15, 2020.

Additionally, penalties on payroll and excise tax deposits due on or after September 7 and before September 22, will be abated as long as the deposits are made by September 22, 2020.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. That means that taxpayers do not need to contact the IRS to get this relief. However, if you receive a late filing or late payment penalty notice from the IRS and were entitled to relief, you should call the number on the notice to have the penalty abated.

The IRS will work with any taxpayer who lives outside the disaster area but whose records are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 1.866.562.5227. This includes those workers assisting the relief activities who are affiliated with a recognized government or charitable organization.

Individuals and businesses who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on the return for the year the loss occurred – in this instance, the 2020 return normally filed next year – or the return for the prior year (2019). However, remember that the deduction for personal casualty and theft losses has been repealed for the tax years 2018 through 2025 except for those losses attributable to a federal disaster as declared by the President. That means you need to write the FEMA declaration number – 4562 − for the wildfires in Oregon on any return claiming a loss. For more on casualty losses after a disaster, click here.

For more details on available tax relief, you can also check out the disaster relief page on IRS.gov.

It doesn’t feel like it could be September already, but it is. And you know what that means: estimated payments are now due. The deadline for making your third quarter estimated tax payments for 2020 is September 15.

Who Needs To Make Estimated Payments?

Generally, you should make estimated tax payments if you are not subject to withholding. Realistically, this means that folks who rely on income reported on a Form 1099 (like self-employment income, interest, dividends, and retirement income) are most likely to be responsible for estimated tax. If you’re self-employed, a gig economy worker, a retiree with a pension or other income, or a partner in a partnership or LLC, this likely applies to you.

You will need to make estimated payments if you:

  1. You expect to owe at least $1000 in tax for the 2020 tax year after subtracting your withholding and credits.
  2. You expect your withholding and credits to be less than the smaller of 90% of the tax to be shown on your 2020 tax return or 100% of the tax shown on your 2019 tax return.

Who Might Get A Break?

Those are the general rules. However, special rules apply to some groups of taxpayers, like farmers, fishermen, and victims of natural disasters, those who recently became disabled, recent retirees and those who receive income unevenly during the year. You can find out more in Publication 505, Tax Withholding and Estimated Tax (downloads as a PDF).

How Can You Make a Payment?

To figure the amount of your estimated tax, you can use form Form 1040-ES, Estimated Tax for Individuals (downloads as a PDF).

You can write a check or IRS pay electronically. You can schedule tax payments up to 30 days in advance with Direct Pay or up to 365 days in advance with the Electronic Federal Tax Payment System (EFTPS).

What Happens If You Don’t Make Your Payment On Time?

Don’t be too casual about your payments. If you do not pay enough tax by the due date for each quarter, you may be charged a penalty even if you are due a refund when you file your income tax return (nice, huh?).

If you are subject to a penalty for not making enough estimated tax payments throughout the year, you can figure the penalty by using federal form 2210 (downloads as a PDF).

A good example of when a form 2210 comes in handy is when your income is uneven throughout the year; for example, instead of receiving a regular paycheck every other week, the bulk of your income comes in summer due to seasonal employment. When this happens, your estimated tax payment is figured at the end of each period based on a reasonable estimate of your income, deductions, and other items from the beginning of the tax year through the end of the period. While this method can save you from unwanted penalties, it can also be tricky.

You will not file form 2210 with your return unless the instructions on the form say as much. Typical situations that would require the filing of Form 2210 include a request for a waiver of part or the entire penalty. There is an exception to this rule for weather-related issues: if you lived in a federally declared disaster area and were granted a break on making estimated payments, you do not have to do anything special and you do not need to file form 2210. The IRS will automatically identify taxpayers located in a covered disaster area and will apply the appropriate penalty relief. If you still owe a penalty after the waiver is applied, the IRS will send you a bill.

What If You Screw Up?

If you miss a payment, there’s no need to panic. Just pay when you can. The penalty is worth, roughly, the unpaid interest on the estimated payment.

What’s Next?

Your fourth estimated tax payment for 2020 is due January 15, 2021.

James (Jim) Robnett has been selected as the next Deputy Chief of CI. Robnett will be responsible for overseeing a worldwide staff of nearly 2,900 CI employees, including approximately 2,000 special agents in 21 Field Offices and 11 foreign countries, who investigate crimes involving tax, money laundering, public corruption, cyber, ID theft, narcotics and terrorist-financing.

Robnett is currently the Director of Field Operations (DFO), Southern Area within IRS Criminal Investigation (CI). In this role, he was responsible for planning, developing, implementing, monitoring, and evaluating criminal investigation programs in the Southern Area, where he is responsible for overseeing all criminal investigations for five field offices, the IRS-CI’s national Treasury Tax and Trade Bureau program and the East Coast Cyber Crime Unit.

Robnett began his IRS career in 1986 as a Revenue Agent and quickly moved into the leadership ranks and held has held positions of increasing responsibility. He entered the Senior Executive Service in 2017, and shortly after he was appointed to serve as the Chicago Field Office Special Agent in Charge and subsequently Special Agent in Charge of the New York Field Office.

Jim Lee, Incoming Chief of CI, said, about the announcement, “Jim brings decades of experience to this new role and is the right person to fill this critical position for CI. He has a proven track record of leadership throughout his career with CI, is a mentor to many and will be a great partner to continue to advance the CI mission in the years to come. I look forward to working with him and the rest of the CI leadership team.”

(Lee was recently named to the position after Chief Fort announced that he was stepping down. You can read more about Lee here.)

Robnett responded to the news by stating, “I’m extremely humbled and energized by the opportunity to become the next Deputy Chief of IRS-CI.  While filling this new role was not in my sites when I started my career as a revenue agent years ago, it is certainly the byproduct of the many opportunities I have had to work with the best and brightest the IRS and CI has to offer throughout my career.”

He continued, “I’ve challenged myself in every job I have had to build a team that is successful and brings out the best in everyone—today is the culmination of the work of many. While I am coming to this new job during the final years of my career, the responsibility to mentor and lead the next generation of CI leaders energizes me like no other opportunity.  I look forward to working closely with the Chief and Commissioner and am grateful for the trust they have in me to succeed.”

To learn more about the work of IRS-CI, check out my interview with outgoing IRS-CI Chief Don Fort.

Got questions about Opportunity Zones? The Internal Revenue Service (IRS) is offering a free webinar designed to give an overview of Opportunity Zones and related tax benefits for investors.

As part of the Tax Cuts and Jobs Act (TCJA), new investments in some economically-distressed areas may be eligible for preferential tax treatment. To qualify, areas must be nominated by the state and certified by the Secretary of the U.S. Treasury. These areas – called Opportunity Zones – exist in all 50 states, the District of Columbia and five U.S. territories.

Capital gains are typically favorable for investors, but when it comes to certain investments related to Opportunity Zones, they’re really advantageous. And the longer that you can hold onto an investment, the better. But you have to meet all of the criteria to qualify for the benefits.

Unfortunately, taxpayers have found that the rules for Opportunity Zones can be complicated. As a result, the IRS continues to offer guidance, like this webinar.

The 75-minute webinar is free and will take place on Thursday, September 3 at 2 p.m. (Eastern Time)

The webinar is open to investors, tax professionals, government agencies and anyone else interested in the tax rules that affect Opportunity Zones. While the webinar is free for everyone, you still have to register in advance to attend.

Topics will include:

  • Investor reporting elections
  • Annual investor reporting requirements
  • Impact of disaster relief on Opportunity Zones
  • Live question and answer session

Hearing impaired? No problem. The IRS notes that the webinar will be closed captioned for viewers who are deaf or hearing impaired.

For more on opportunity zones, check out this article.

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On August 8, 2020, President Trump issued a directive to the Department of Treasury to allow for the deferral of payroll taxes for the period of September 1, 2020, through December 31, 2020. Details were scarce, but a few days later, Treasury Secretary Steven Mnuchin suggested to Fox Business’ Maria Bartiromo that the deferral would be voluntary

Today, the Department of Treasury and Internal Revenue Service (IRS) finally issued official guidance for taxpayers. For many, it raised more questions than answers.

First, a little context and background. 

The President’s Order called for a deferral of the employee’s share of Social Security taxes for the time period beginning September 1, 2020, through December 31, 2020, for certain workers. Specifically, the deferral is restricted to “any employee the amount of whose wages or compensation, as applicable, payable during any bi-weekly pay period generally is less than $4,000, calculated on a pre-tax basis, or the equivalent amount concerning other pay periods.” That generally works out to a restriction on those making more than $100,000 annually.

To be clear, no deferral is available for any payment to an employee of taxable wages of $4,000 or above for a bi-weekly pay period. It’s not deferral “up to” that amount with no relief for the overages. Rather, the deferral only applies to workers under the income threshold.

You can read the entire Order here.

For those qualifying workers, the deferral applies to the employee’s portion of Social Security taxes. You may think of your payroll taxes as one lump sum, but the non-income tax bits are actually two separate taxes. Together, Social Security and Medicare taxes are known as FICA (Federal Insurance Contributions Act) taxes and are taken right out of your paycheck. If you’re employed, you pay Social Security tax (6.2%) and Medicare tax (1.45%) as the employee, subject to certain limits. The deferral would apply to the Social Security portion of employee wages only.

Employers are also subject to payroll taxes. But under the CARES Act, employers can already elect to defer the deposit and payment of the employer’s portion of Social Security taxes. The deferral applies to deposits and payments of the employer’s share of Social Security tax that would otherwise be required to be made during the period beginning on March 27, 2020, and ending December 31, 2020, with half being due on December 31, 2021, and the remainder due on December 31, 2022. The CARES Act-related relief also applies to self-employed persons (keep that in mind towards the end).

The IRS has now released Notice 2020-65 (downloads as a PDF), which is ostensibly intended to shed some light on how the deferral will work. In this tax professional’s opinion, it does not.

Let’s start with what is clear.

The Notice begins: On August 8, 2020, the President of the United States issued a Presidential Memorandum directing the Secretary of the Treasury (Secretary) to use his authority pursuant to section 7508A of the Internal Revenue Code (Code) to defer the withholding, deposit, and payment of certain payroll tax obligations.

You can find the legalese bits in section 7508A here. But basically, that section of the Code allows the President to postpone the collection of the tax during a national disaster. 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 response to the ongoing Coronavirus Disease 2019 (COVID-19) pandemic (Emergency Declaration). In other words, everywhere in the United States currently qualifies as a disaster.

But it’s important to understand that section 7508A only allows the President to defer collecting the tax. It does not allow for forgiveness. That’s critical because while folks (including me) assumed that the “payroll tax cuts” initially touted were really cuts – like those we’ve seen before – these are not the same. However, these do not have a blessing from Congress, and there is no reduction or cut: it’s just a deferral.

That context is so important because of the next part of the Notice. The Notice makes it clear that this is the obligation of “employers that are required to withhold and pay the employee share of social security tax under section 3102(a) or the railroad retirement tax equivalent under section 3202(a).

Further, “[t]he deposit obligation for employee social security tax does not arise until the tax is withheld.” That’s a fancy way of saying that so long as the employer isn’t withholding any tax on behalf of the employees, the employer doesn’t have to make a deposit to the feds (payroll taxes are typically deposited on a particular schedule) during the deferral period. The employer doesn’t have to start making deposits until the deferral is no longer in place. Specifically, the Notice postpones those deposits “until the period beginning on January 1, 2021, and ending on April 30, 2021.”

So far, most of this is expected. The tax is postponed for a certain period, and then it must be repaid. That’s deferral in a nutshell.

So what’s the thing that caught many by surprise? It’s this: The Notice defines Affected Taxpayers not as employees, but as employers. Here’s why that matters.

The Notice states that “An Affected Taxpayer must withhold and pay the total Applicable Taxes that the Affected Taxpayer deferred under this notice ratably from wages and compensation paid between January 1, 2021 and April 30, 2021 or interest, penalties, and additions to tax will begin to accrue on May 1, 2021, with respect to any unpaid Applicable Taxes.

That’s the repayment obligation. And what it says is that the employer must recover those taxes from employees over a few months – or interest, penalties, and additions to tax will become due. Ouch, right?

And what if the employee balks at repayment? According to the Notice, that doesn’t matter. It makes clear that “Taxpayer may make arrangements to otherwise collect the total Applicable Taxes from the employee.

But what if the employee leaves the company? What if the employee doesn’t make enough money to ratably pay back the tax? The Notice doesn’t address what happens in those circumstances, but it would appear that the obligation to make those payments remains with the employer.

(NB: After I posted this, there was a lively discussion on Twitter with some tax professionals disagreeing with this interpretation, but the fact that there is not clarity or consensus on this issue is telling.)

It’s also not evident how this will be reported for tax purposes. I assume we’re going to see a revamped version of Form 941 (that’s a payroll tax form). But is it opt-in? Opt-out? Tellingly, the Notice did not reference Treasury Secretary Mnuchin’s “optional” language. 

And if you’re scratching your head because you feel like something else is missing, you’re right: the Notice does not address Social Security tax for self-employed persons. I had noted on Twitter – after the Order was released – that section 3101(a) was tied to employment-related taxes only, and not self-employment taxes (that’s typically found at section 1401). I assumed, as did many tax professionals, that we’d find out that was simply an oversight. That appears not to be the case: the portion of self-employment tax not covered by the CARES Act is not eligible for deferral under the Order.

There are so many unanswered questions. With just days to go before the deferral period begins – that’s Tuesday – I don’t see how this will actually roll out on time. If employers were looking for clear direction from Treasury and the IRS, this is not it.

Did you recently receive a penalty notice for your payroll tax deposit even though you remitted the correct amount?

You’re not alone. The Internal Revenue Service (IRS) has announced that a “small population of employers” may have received notice that they were being assessed a failure to deposit penalty – even though the penalty doesn’t apply.

Here’s how that happened.

As part of the FFCR Act (Families First Coronavirus Response Act), businesses with fewer than 500 employees (including some self-employed persons) are entitled to refundable tax credits. The credits are intended to mitigate the costs of providing qualified sick leave wages and qualified family leave wages paid to employees when an employee cannot work during the COVID pandemic. 

Additionally, under the CARES Act (Coronavirus Aid, Relief, and Economic Security Act), employers also had an opportunity to claim the new employee retention credit (ERC). The ERC provides a refundable credit to employers, no matter the size of the business, for keeping employees on the payroll. The amount of the credit is 50% of qualifying wages paid up to $10,000 per employee for all quarters. 

In both cases, a business that’s entitled to receive the credit could reduce their required deposits of payroll taxes by the amount of the credit. That credit is reported (and reconciled) on Form 941 – the same form that businesses use to report and remit payroll taxes. 

In May of 2020, the IRS released Notice 2020-22 (downloads as a PDF) to confirm that employers claiming the new tax credits may reduce their deposits throughout the tax period up to the amount of the credit. Specifically, Section 3 of the Notice provided relief from the failure to deposit penalty imposed by section 6656 of the Internal Revenue Code (Code) for an employer’s failure to timely deposit payroll taxes “to the extent that the amounts not deposited are equal to or less than the amount of refundable tax credits to which the employer is entitled under the Families First Act and the CARES Act.” The Notice applied to qualified sick leave wages and qualified family leave wages paid during the period beginning April 1, 2020, and ending December 31, 2020, and employee retention wages paid during the period beginning on March 13, 2020, and ending December 31, 2020.

Sounds great, right? But since the schedules of liabilities on Form 941 didn’t always match the reduction in deposits for every pay date, the IRS processes flagged some returns. The IRS issued a failure to deposit penalty on the difference in the reported liabilities and the reduced deposits even though those reductions were appropriate. The IRS notified the affected businesses by sending a CP161 notice.

The result? Panicked business owners and taxpayers. And you know why: payroll taxes are serious stuff. Failure to remit them can, in some instances, result not only in penalties but personal liability for business owners (and in extreme cases, criminal penalty). You don’t want to be on the receiving end of these notices.

If you’re one of the affected businesses, the IRS advises that you don’t have to do anything, stating, “The IRS is taking actions to identify these employer accounts and correct them as soon as possible. Employers that have recently received these notices do not need to take additional actions at this time.”

Payroll companies, like Paychex, in receipt of the notices are advising their customers the same way.

In the meantime, the IRS says that it’s taking steps to stop this from happening in the future. For more information on the credits, you can check out the IRS FAQs here.

And if you’re thinking you’ve read this story before, it’s but not the same… Yes, I did just post on notices that were sent out when tax might not be due. This story isn’t about those notices – that’s a different mistake. And yes, it’s shaping up to be a long tax year.