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Estimated reading time: 3 minutes

The Internal Revenue Service (IRS) has announced that tax season will open on Friday, February 12, 2021. Yes, on a Friday.

The IRS will begin accepting paper and electronic tax returns that day. This is about two weeks later than had been expected. The delay allows the IRS time to do additional programming and testing of IRS systems following the December 27 tax law changes – especially those involving a second round of stimulus checks (Economic Impact Payments, or EIPs).

Ways and Means Committee Chairman Richard E. Neal (D-MA) said, about the date, “While I am disappointed that this year’s filing season will begin later than usual, I recognize that the IRS has faced extraordinary challenges throughout the COVID crisis. It’s a relief to know that despite contending with the distribution of two rounds of economic impact payments, facility closures, and other disruptions, the agency will be able to begin accepting returns within the next month. It is also encouraging that the IRS expects taxpayers who file electronically at the beginning of the season and claim refundable tax credits to receive their refunds by the first week of March. I urge taxpayers to complete their returns and file electronically as early as possible.”

The IRS also had a comment. “Planning for the nation’s filing season process is a massive undertaking, and IRS teams have been working non-stop to prepare for this as well as delivering Economic Impact Payments in record time,” said IRS Commissioner Chuck Rettig. “Given the pandemic, this is one of the nation’s most important filing seasons ever. This start date will ensure that people get their needed tax refunds quickly while also making sure they receive any remaining stimulus payments they are eligible for as quickly as possible.”

Every year, taxpayers have questions about early filing. Many software companies and tax professionals will accept tax returns before opening day. That doesn’t mean that your tax return will be filed early. Those software companies and tax professionals will submit returns when IRS systems open. The IRS strongly encourages people to file their tax returns electronically for faster refunds.

Last year’s average tax refund was more than $2,500. More than 150 million tax returns are expected to be filed this year, with the vast majority before the Thursday, April 15 deadline. While there has been extensive discussions among tax professionals about an extension, so far, that’s just talk. According to the IRS, the tax return deadline remains April 15, 2021.

The delayed start date may ease the waiting game for some taxpayers. Remember, as reported in prior years, the law now requires the IRS to hold refunds tied to the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) until February 15 – that’s just a few days after the season opens. Plan accordingly.

Remember that the rule which bars IRS from issuing refunds for taxpayers claiming the Earned Income Tax Credit or the Additional Child Tax Credit before mid-February applies to the entire refund – even the portion not associated with the EITC and ACTC.

And don’t forget that Free File is officially open. If you use Free File, you can do your taxes now. The Free File provider will then submit the return once the IRS officially opens tax season and starts processing tax returns. You can find out more here.

The IRS still anticipates issuing more than nine out of 10 refunds in less than 21 days. Taxpayers can check out Where’s My Refund? on IRS.gov or the IRS2Go phone app for projected deposit dates.

Estimated reading time: 3 minutes

Ready to file your 2020 tax return? The Internal Revenue Service (IRS) hasn’t officially announced the start date to the new season, but the website indicates that Free File is officially open.

Free File is available to taxpayers whose adjusted gross income (AGI) was $72,000 or less in 2020. You can find your AGI by looking at line 11 on Form 1040. The amount includes income less any adjustments (sometimes called above-the-line deductions) and is calculated before claiming the standard or itemized deductions. That means that it applies to most taxpayers.

Even though there’s no official IRS start date published, if you use Free File, you can do your taxes now. The Free File provider will then submit the return once the IRS officially opens tax season and starts processing tax returns.

“As we continue to confront the COVID-19 pandemic, IRS Free File and certain other similar online tax preparation products such as MilTax – Tax Services for the Military offered through the Department of Defense − offers taxpayers a free way to do their taxes from the safety of their own home and claim the tax credits and deductions they are due,” said Chuck Rettig, IRS Commissioner. “We encourage eligible taxpayers to take a look at using Free File, MilTax and similar free online tax preparation products this year, to follow the lead of over 4 million people who took advantage of these free services just last year. An IRS tax refund is often the single largest payment families receive during the year. We know how critical that refund is, especially this year.”

Since its 2003 debut, Free File has served tens of millions of taxpayers. Free File is a public-private partnership between the IRS and Free File Inc. (FFI). Free File has been the center of some controversy in recent years, with allegations that some providers were leading taxpayers to paid services when they should have been directed to the free services. That should be changing: As of last year, tax preparation software companies are prohibited from hiding free filing services from Google or other search results pages. Additionally, if you don’t qualify for an IRS Free File offer after visiting a company’s Free File website, you can head back to the Free File website to find another offer. Each IRS Free File company must provide you information when you don’t qualify, with a link back to the IRS.gov Free File site.

So how does it work? Click over to IRS.gov/freefile to see all Free File options. If you know which software partner you want to use, you can click straight through. Otherwise, you can use a “lookup” tool to help you find the right product.

Not every Free File partner has the same eligibility criteria: it may vary based on income, age, and state residency. However, most companies provide a special offer for active-duty military personnel who earned $72,000 or less regardless of the company’s other eligibility standards.

Additionally, some but not all partners offer free prep and filing for state returns. Check the fine print before you start your return. Any state preparation or non-qualifying fees are required to be disclosed on the company’s Free File landing page.

If you used Free File last year, you should receive an email from the same company product that you used, welcoming you back to Free File. The email should include a link to the company’s Free File online program and explain how to file with the program. You don’t have to use the same company: it’s intended to help you get started if you want to use the same program.

You can only file your current year tax return using IRS Free File. You cannot process a prior year return using IRS Free File.

Free File is typically available through the extension date, which is October 15, 2021.

Estimated reading time: 3 minutes

With all of the last-minute changes to the Tax Code – and those stimulus check reconciliations – it was clear that the Internal Revenue Service (IRS) was going to have to make revisions to tax forms used to file 2020 tax returns (the tax returns that you’ll file in 2021). Most tax professionals expected a delay in getting those forms together, but the IRS has issued a statement confirming that “updates to key federal tax forms and instructions are complete and will be available when Americans begin filing their tax returns.”

Most taxpayers file Form 1040, U.S. Individual Income Tax Return, or Form 1040-SR, U.S. Tax Return for Seniors. Last month, the IRS released the very-probably-unless-Congress-does-something-soon final version of Form 1040 for 2020. There were several notable changes to the form for the tax year 2020: you can read about them here.

The IRS says that those returns are ready, and that they have shared the updates with its software and industry partners. Forms 1040 and 1040-SR and the associated instructions are available now on IRS.gov and are being printed for taxpayers who need a hard copy.

Stimulus Checks

A key change on the returns is the reconciliation for the Economic Impact Payments, or stimulus checks. Those checks are an advance payment of the Recovery Rebate Credit. It’s important to note that:

  • Anyone who didn’t receive the full amount of both stimulus checks should include the amounts they received, before any offsets, when they file. This includes taxpayers who did not receive the proper amount for their dependents.
  • Anyone who received the full amount for both stimulus checks should not include any information about the payments when they file their tax return.
  • The stimulus checks will not reduce the amount of your refund.
  • The stimulus checks are not taxable.

You can read more about stimulus checks here.

Changes To Form 1040

Also new on the returns is the option to use your 2019 income amounts when computing the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC). This is the result of the additional stimulus bill passed in December and significantly impacts those families whose incomes were reduced because of COVID since your credit is typically higher as you earn more money.

And, of course, with Bitcoin riding high, don’t forget about cryptocurrency. A question about cryptocurrency ownership has been moved to the front page of Form 1040. You can find out more about that – and form other changes – here.

IRS Filing Season Start Date

The IRS has not yet announced a start date for the 2021 filing season. Last year, the IRS announced on January 6, 2020, that the filing season would open on January 27, 2020. Most forms W-2 and other tax forms are due to taxpayers by February 1, 2021 (find out more here).

Last year, FreeFile opened on January 11, 2020. The IRS says that IRS Free File “will open in mid-January” when participating providers begin accepting returns. However, according to the IRS, Free File providers will accept completed tax returns and hold them until they can be filed electronically with the IRS when the tax season opens.

Check back for more information.

The Internal Revenue Service (IRS) has announced that the “Get My Payment” tool is now open. Folks looking for information about their stimulus checks (Economic Impact Payments, or EIPs) can now check the status of both their first and second payments by using the Get My Payment tool, available in English and Spanish only on IRS.gov.

The “Get My Payment” tool will allow you to confirm that:

  • Whether the IRS has sent your second stimulus payment.
  • Whether the IRS sent your first stimulus payment. Not that some people received their first stimulus in partial payments; if you received partial payments, the tool will show only the most recent.
  • Whether to expect your stimulus payment by direct deposit or mail.

According to the IRS, data is updated once per day overnight, so there’s no need to check more than once per day.

The IRS advises folks to use the tool to check on the status of their stimulus payment, but not to call. The IRS phone assistors do not have additional information beyond what’s available on IRS.gov and in the Get My Payment tool. 

This second round of checks is part of the Coronavirus Response and Relief Supplemental Appropriations Act of 2021, passed by Congress last week and signed into law by President Trump on Sunday night.

What If You Have Trouble With The Tool?

To use the Get My Payment tool, you must first verify your identity by answering security questions. If the information you enter does not match IRS records, you will receive an error message. To avoid this:

  • Double-check the information requested;
  • Make sure what you enter is accurate;
  • Try entering your street address in a different way (for example: 123 N Main St instead of 123 North Main St.); and
  • Use the US Postal Service’s ZIP Lookup tool to look up the standard version of your address, and enter it into exactly as it appears on file with the Postal Service.

If your answers do not match the IRS records three times, you’ll be locked out of Get My Payment for security reasons. If that happens, you must wait 24 hours and try again. If you can’t verify your identity, you won’t be able to use Get My Payment. Unfortunately, there’s no fix for that: the IRS says not to not contact them.

However, if you verified your identity and received “Payment Status Not Available,” this means that the IRS cannot determine your eligibility for a payment right now. There are several reasons this could happen, including:

  • You didn’t file either a 2018 or 2019 tax return; or
  • Your recently filed return has not been fully processed.

Again, the IRS says there’s no fix for that and you should not contact them.

Timing Of Checks

As noted earlier, initial direct deposit payments began arriving last week. Paper checks were mailed beginning on Wednesday, December 30.

Direct deposit payments may take several days to post to individual accounts. Some folks may have seen the payments as pending or as provisional payments in accounts before the scheduled payment date of January 4, 2021, which was the official date that funds were available.

If you didn’t receive your earlier stimulus payment by direct deposit, you will likely receive a check or, in some instances, a debit card. If you don’t receive a direct deposit by early January, watch the mail for either a paper check or a debit card. Mailed payments will require more processing and mailing time.

Eligible check recipients who live abroad will have longer wait times for checks as disruptions to air travel and mail delivery in some countries will slow delivery.

Forms Of Payment

The form of payment for the second stimulus check may be different than for the first stimulus check. Some people who received a paper check last time might receive a debit card this time, and some people who received a debit card last time may receive a paper check.

Please watch the mail carefully! Last time, some taxpayers weren’t expecting those debit cards and accidentally tossed them in the trash. If Treasury sends you a debit card, it will be issued by Treasury’s financial agent, MetaBank®, N.A. The card will be sent in a white envelope with the U.S. Department of the Treasury seal. The card has the Visa name on the front of the Card and the issuing bank, MetaBank®, N.A. on the back of the card. More information about these cards is available at EIPcard.com.

Automatic Payment

If you’re eligible to receive this second payment, you don’t need to do anything to receive a stimulus check.

Payments will be automatic for eligible taxpayers who filed a 2019 tax return, those who receive Social Security retirement, survivor or disability benefits (SSDI), Railroad Retirement benefits as well as Supplemental Security Income (SSI) and Veterans Affairs beneficiaries who didn’t file a tax return. (If you’re in this group and you don’t receive a payment for any reason, you can claim your payment when you file a 2020 tax return.)

Payments will also be automatic for anyone who successfully registered for the first payment online at IRS.gov using the agency’s Non-Filers tool by November 21, 2020, or who submitted a simplified tax return that has been processed by the IRS.

Who Is Eligible For A Payment?

Eligible individuals will receive checks of up to $600 for individuals ($1200 for married couples) and up to $600 for each qualifying child. The amount of the checks would start to phaseout for those earning more than $75,000 ($150,000 for joint returns and $112,500 for heads of household).

As before, dependents who are 17 and older are not eligible for the child payment. This is important to understand because there had been some discussions about changing the eligibility for dependents: that did not happen.

You can find out more about phaseouts and eligibility here. Additional information is also available on the Internal Revenue Service (IRS) website at IRS.gov/EIP.

Will You Get Anything With Your Payment?

As before, you’ll receive an IRS notice, or letter, after you receive a payment showing the amount of the payment. Keep this for your tax records.

What If You Have Changed Your Address Or Bank Account?

The IRS will use the data already in its systems to send the new payments:

  • If your direct deposit information is on file, you will receive the payment that way.
  • If your direct deposit information is not on file, you will receive the payment as a check or debit card in the mail.

Some payments may have been sent to an account that may be closed or no longer active. By law, the financial institution must return the payment to the IRS, they cannot hold and issue the payment to an individual when the account is no longer active.

The IRS cannot change payment information, including bank account or mailing information. If an eligible taxpayer does not get a payment or it is less than expected, it may be claimed on the 2020 tax return as the Recovery Rebate Credit. Remember, Economic Impact Payments are an advance payment of what will be called the Recovery Rebate Credit on the 2020 Form 1040 or Form 1040-SR.

What If You’re A Non-Filer and Didn’t Register With IRS.gov?

If you’re eligible for a stimulus payment but DO NOT generally file a tax return and you DID NOT register with the using the Non-Filer tool, you won’t receive an automatic payment. You can still claim your payment when you file your 2020 federal income tax return.

What If You Didn’t Receive Your First Stimulus Check?

If you are an eligible individual and you did not receive a stimulus check earlier this year, you will be able to claim it when you file your 2020 taxes in 2021. This is also true if you do not receive your second stimulus check.

If you didn’t receive a check, the IRS urges you to review the eligibility criteria when you file your 2020 taxes; many people, including recent college graduates, may be eligible to claim it. The stimulus checks will be referred to as the Recovery Rebate Credit (RRC) on Form 1040 or Form 1040-SR. You can read more about the Form 1040 for 2020 – including where the RRC can be found – here.

What If Congress Approves Bigger Stimulus Checks?

As for those ongoing discussions to boost the check totals to $2,000 per person? If additional legislation is passed, EIPs that have been issued will be topped up as quickly as possible.

The Internal Revenue Service (IRS) is emphasizing that no action is required by eligible taxpayers for the second round of Economic Impact Payments (EIPs, or stimulus checks). As noted earlier, initial direct deposit payments began arriving as early as last night for some and will continue into next week. Paper checks will begin to be mailed on Wednesday, December 30.

This second round of checks is part of the Coronavirus Response and Relief Supplemental Appropriations Act of 2021, passed by Congress last week and signed into law by President Trump on Sunday night.

Some Americans may see the direct deposit payments as pending or as provisional payments in their accounts before the official payment date of January 4, 2021. At least one bank has suggested that paper checks may be postdated. No matter whether payments are direct deposit or paper checks, they are automatic. There is no magic formula for determining the date that your check arrives. And, the IRS is reminding taxpayers not to contact their financial institutions or the IRS with payment timing questions.

Yes, Payments Are Automatic

Payments will be automatic for eligible taxpayers who filed a 2019 tax return, those who receive Social Security retirement, survivor or disability benefits (SSDI), Railroad Retirement benefits as well as Supplemental Security Income (SSI) and Veterans Affairs beneficiaries who didn’t file a tax return. (If you’re in this group and you don’t receive a payment for any reason, you can claim your payment when you file a 2020 tax return.)

Payments will also be automatic for anyone who successfully registered for the first payment online at IRS.gov using the agency’s Non-Filers tool by November 21, 2020, or who submitted a simplified tax return that has been processed by the IRS.

Who Is Eligible?

Eligible individuals will receive checks of up to $600 for individuals ($1200 for married couples) and up to $600 for each qualifying child. The amount of the checks would start to phaseout for those earning more than $75,000 ($150,000 for joint returns and $112,500 for heads of household).

As before, dependents who are 17 and older are not eligible for the child payment. This is important to understand because there had been some discussions about changing the eligibility for dependents: that did not happen.

You can find out more about phaseouts and eligibility here. Additional information is also available on the Internal Revenue Service (IRS) website at IRS.gov/EIP.

How Will You Get Paid?

As with the first round of stimulus checks, most folks will receive payment by direct deposit. Social Security and other beneficiaries who received the first round of stimulus checks via Direct Express will receive this second payment the same way.

If you didn’t receive your earlier stimulus payment by direct deposit, you will likely receive a check or, in some instances, a debit card. If you don’t receive a direct deposit by early January, watch the mail for either a paper check or a debit card.

That said, the IRS notes that the form of payment for the second stimulus check may be different than for the first stimulus check. Some people who received a paper check last time might receive a debit card this time, and some people who received a debit card last time may receive a paper check.

What About Those Debit Cards?

Watch the mail carefully! Last time, some taxpayers weren’t expecting them and accidentally tossed them in the trash.

If Treasury sends you a debit card, it will be issued by Treasury’s financial agent, MetaBank®, N.A. The card will be sent in a white envelope with the U.S. Department of the Treasury seal. The card has the VisaV name on the front of the Card and the issuing bank, MetaBank®, N.A. on the back of the card.

Information included with the card will explain that this is your Economic Impact Payment or stimulus payment. More information about these cards is available at EIPcard.com.

Will You Get Anything With Your Payment?

As before, you’ll receive an IRS notice, or letter, after you receive a payment showing the amount of the payment. Keep this for your tax records.

What If You Have Changed Your Address Or Bank Account?

The IRS will use the data already in its systems to send the new payments:

  • If your direct deposit information is on file, you will receive the payment that way.
  • If your direct deposit information is not on file, you will receive the payment as a check or debit card in the mail.

What If You’re A Non-Filer and Didn’t Register With IRS.gov?

If you’re eligible for a stimulus payment but DO NOT generally file a tax return and you DID NOT register with the using the Non-Filer tool, you won’t receive an automatic payment. You can still claim your payment when you file your 2020 federal income tax return.

What If You Didn’t Receive Your First Stimulus Check?

If you are an eligible individual and you did not receive a stimulus check earlier this year, you will be able to claim it when you file your 2020 taxes in 2021. This is also true if you do not receive your second stimulus check.

If you didn’t receive a check, the IRS urges you to review the eligibility criteria when you file your 2020 taxes; many people, including recent college graduates, may be eligible to claim it. The stimulus checks will be referred to as the Recovery Rebate Credit (RRC) on Form 1040 or Form 1040-SR. You can read more about the Form 1040 for 2020 – including where the RRC can be found – here.

“Throughout this challenging year, the IRS has worked around the clock to provide Economic Impact Payments and critical taxpayer services to the American people,” said IRS Commissioner Chuck Rettig. “We are working swiftly to distribute this second round of payments as quickly as possible. This work continues throughout the holidays and into the new year as we prepare for the upcoming filing season. We urge everyone to visit IRS.gov in the coming days for the latest information on these payments and for important information and assistance with filing their 2021 taxes.”

Can You Check The Status Of Your Payment?

As before, the IRS will make the status of first and second payments available on the Get My Payment tool, available in English and Spanish on IRS.gov. You’ll need to be patient: the tool currently offline because it’s being updated with new information. The IRS anticipates it will be available in a few days.

Once the tool is back online, you can check the status of your check. According to the IRS, the data is updated once per day, overnight, so there’s no need to check more often.

What If Congress Approves Bigger Stimulus Checks?

As for those ongoing discussions to boost the check totals to $2,000 per person? If additional legislation is passed, EIPs that have been issued will be topped up as quickly as possible.

Estimated reading time: 1 minute

Need an EIN? You’ll have to wait a few days to apply for an EIN online. The IRS has announced that the service is temporarily unavailable:

This service will be unavailable from approximately 5 p.m. Eastern time on Wednesday, Dec 23, 2020, until approximately 7 a.m. Eastern time on Monday, January 4, 2021, due to planned maintenance. We apologize for any inconvenience.

As with the temporary unavailability of the online installment agreement, this is part of planned maintenance. The service is usually available Monday to Friday, 7 a.m. to 10 p.m. Eastern Standard Time.

If you owe the Internal Revenue Service (IRS), you may be able to apply for a payment plan online to pay off your balance over time – but not right now. The IRS has scheduled a planned outage for the service.

The website currently says:

This service will be unavailable from approximately 12 a.m. (midnight) Eastern time on Wednesday, December 23, 2020, until approximately 7 a.m. Eastern time on Monday, Jan. 11, 2021, due to planned maintenance. We apologize for any inconvenience.

Once the service is back up, you can check out the site to see if you qualify to apply online:

  • You may qualify for a long-term payment plan (installment agreement) if you owe $50,000 or less in combined tax, penalties and interest, and filed all required returns.
  • You may qualify for a short-term payment plan if you owe less than $100,000 in combined tax, penalties and interest.

The best part? Once you apply, you will find out immediately whether your payment plan has been approved.

You can find out more about installment agreements here.

Estimated reading time: 3 minutes

The Internal Revenue Service (IRS) has issued its 2021 standard mileage rates. Beginning on January 1, 2021, the standard mileage rates for the use of a car, van, pickup, or panel truck will be:

  • 56 cents per mile for business miles driven (down from 57.5 cents in 2020)
  • 16 cents per mile driven for medical or moving purposes (down from 17 cents in 2020)
  • 14 cents per mile driven in service of charitable organizations (currently fixed by Congress)

You can find these official rates and more in IRS Notice 2021-02 (downloads as a PDF).

If you’re wondering about the difference in the rates for business and medical or moving purposes, there is a reason. The standard mileage rate for business is calculated by using an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas, and oil. In contrast, the rate for medical and moving purposes is based just on the variable costs.

As for the charitable mileage rate? If you feel like it always looks the same, it has: by statute, it is not indexed for inflation or otherwise adjusted (it’s been 14 cents per mile since the Clinton era).

Standard mileage rates are used to calculate the amount of a deductible business, moving, medical, or charitable expense (miles driven times the applicable rate). To use the rates, simply multiply the standard mileage rates by the number of miles traveled.

If you use your car for more than one use, you’ll want to keep appropriate records and back out the cost of personal travel. You may also use more than one rate on your tax return. Let’s say, for example, that you drive 20,000 miles in 2021. Of those miles, 10,000 are for personal use, 2,000 are for charitable purposes, and 8,000 are for medical purposes. You would calculate your deduction as follows:

10,000 personal miles x 0 = 0

2,000 charitable miles x .14 = $280

8,000 medical miles x .17 = $1,360

In this example, your total deductible mileage related expenses would be $1,640, plus any related charges such as parking fees and tolls. You would report your charitable and medical mileage deductions on the applicable lines on Schedule A. Keep in mind that medical miles are still subject to the floor for medical expenses: fortunately, Congress just lowered the threshold to 7.5% permanently (it was slated to go back up to 10% otherwise).

What about business mileage? Following tax reform, taxpayers can no longer claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. That deduction was eliminated from Schedule A alongside similar deductions like the home office deduction. This does not affect any deductions that are correctly claimed on a Schedule C for the self-employed, freelancers, and independent contractors.

Similarly, most taxpayers can no longer claim a deduction for moving expenses. However, an exception applies to members of the Armed Forces on active duty moving under orders to a permanent change of station. 

If these rates don’t adequately reflect your costs, you have the option of deducting actual expenses rather than using the standard mileage rates—though admittedly, that’s a lot more work.

One more thing: these are the rates for the 2021 tax year for the return you’ll file in 2022. You’ll use the 2020 standard mileage rates for the tax return that you’ll submit in 2021.

The Internal Revenue Service (IRS) has issued final regulations relating to section 1031 like-kind exchanges.

1031 Like-Kind Requirements

We call them 1031 like-kind exchanges because the rules are found at section 1031 of the Tax Code (clever, I know). The provision allows you to defer tax on gain if – and it’s a big if – you participate in a qualifying like-kind exchange that meets some pretty specific requirements:

  • The property to be exchanged must have been held for productive use in a trade or business or for investment (and must be exchanged for a property similarly held). Personal residences or vacation homes for personal use won’t qualify.
  • The property doesn’t have to be real estate (though it typically is). It cannot be: stock in trade or other property held primarily for sale; stocks, bonds, or notes; other securities or evidences of indebtedness or interest; interests in a partnership; certificates of trust or beneficial interests; or choses in action (but see below changes under the TCJA).
  • The exchange does not have to be exclusively for like-kind property. It can include like-kind property and other sources of compensation such as cash. However, to the extent that you receive property that doesn’t qualify as like-kind, you may trigger some taxable gain (in other words, you can have gain and deferral in the same year).
  • The properties must be similar. Generally, that means that it needs to be of the same nature, character or class (real estate to real estate, for example). The rules for personal property exchange are a bit more restrictive (my favorite example of this is that livestock of different sexes are not property of a like-kind).
  • The property to be exchanged must be clearly identified within 45 days from the date you sell the original property.
  • The deal must be completed (meaning you have to be in control of the replacement property) no later than 180 days after the earlier of the original sale or the due date of the income tax return for the tax year in which the original property was sold.

Some tricky rules and restrictions apply to basis and other limitations. You can find out more here.

Changes Under The TCJA

The rules have been settled for awhile, but the Tax Cuts and Jobs Act (TCJA) limited like-kind exchange treatment to exchanges of real property.

Specifically, as of January 1, 2018, exchanges of personal or intangible property such as vehicles, artwork, collectibles, patents, and other intellectual property generally do not qualify as tax-deferred like-kind exchanges. Also, like-kind exchange treatment applies only to exchanges of real property held for use in a trade or business or for investment. That means that exchange of real property held primarily for sale (common in real estate heavy businesses) does not qualify as a like-kind exchange.

IRS 2020 Final Regulations

Under the final regulations, real property includes land and generally anything permanently built on or attached to land. That would include, for example, permanently affixed items such as gas lines, cooling units, and piping (without regard to whether those items comprise part of an income-generating structure). The rule is that machinery and equipment will be characterized as real property if they comprise an inherently permanent structure, a structural component, or are real property under the State or local law test.

It also generally means property that is characterized as real property under applicable state or local law. An example in the regulations included “shares in a mutual ditch, reservoir, or irrigation company described in section 501(c)(12)(A) [of the Code]if at the time of the exchange such shares have been recognized by the highest court or statute of the State in which the company is organized as constituting or representing real property or an interest in real property.” That language was originally included in a Conference Report and the premise – to include property characterized as real property under state and local law – incorporated into the regulations.

And, now, certain intangible property related to real property, such as leaseholds or easements, qualifies as real property under section 1031.

Form 8824, Like-Kind Exchanges

As before, to report a like-kind exchange, taxpayers must file Form 8824, Like-Kind Exchanges, with your tax return for the year you transfer property as part of a like-kind exchange. The final regulations do not change the due date or reporting information.

You can download the final regulations here.

#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.

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