Retirement Plan Participants Can Now Sign Elections Remotely

Retirement Plan Participants Can Now Sign Elections Remotely

The Internal Revenue Service is temporarily allowing taxpayers who participate in certain retirement plans—or their beneficiaries—to make participant elections electronically.

Normally, signatures of the individual making the election have to be witnessed in the physical presence of a plan representative or notary public. This requirement extends to those making a spousal consent, in order to satisfy “the physical presence requirement.”

The IRS says it has issued guidance that allows remote signature in cases where security procedures are in place:

Notice 2020-42 (PDF) provides participants, beneficiaries, and administrators of qualified retirement plans and other tax-favored retirement arrangements with temporary relief from the physical presence requirement for any participant election (1) witnessed by a notary public in a state that permits remote notarization, or (2) witnessed by a plan representative using certain safeguards,” an IRS statement reads.

The new guidance accommodates local shutdowns and social distancing practices and is intended to facilitate payments of COVID-19-related distributions, as well as plan loans to qualified participants, when permitted by the CARES Act.

What is the new IRS guidance for electronic participant elections from retirement plans?

The IRS guidance says in the case of a participant election witnessed by a notary public during calendar year 2020, the taxpayer can use an electronic system to make the remote notarization if it is carried out via live audio-video technology that satisfies requirements of participant elections and is consistent with state law pertaining to notary publics.

Cases involving participant elections witnessed by a plan representative are also given the green light for electronic signing, provided the system uses the same live audio-video technology. But the IRS says there are other requirements to be met as well in this second case:   

  1. The individual must be effectively able to access the electronic medium used to make the participant election;
  2. The electronic system must be reasonably designed to preclude any person other than the appropriate individual from making the participant election;
  3. The electronic system must provide the individual making the election with a reasonable opportunity to review, confirm, modify, or rescind the terms of the election before it becomes effective; and
  4. The individual making the election, within a reasonable time, must receive confirmation of the election through either a written paper document or an electronic medium under a system that satisfies the applicable notice requirements.

For additional information, check out the web page on tax relief for those affected by the COVID-19 pandemic on IRS.gov.

Source: IR-2020-110

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What Did Tax Pros Say About Virtual Tax Forums?

What Did Tax Pros Say About Virtual Tax Forums?

The Internal Revenue Service recently announced more than two dozen upcoming webinars that will replace the in-person IRS Nationwide Tax Forum events. Since the tax industry has become accustomed to making its way to host cities for the past 30 years, we wanted to see what tax pros thought about the change.

To find out, we posed a question to Facebook:

Disappointed there won’t be in-person IRS forums this year?

Plan to attend a webinar?

Let us know in the comments.

Replies ranged from gutted to optimistic, but the majority of our extremely small sample size—12 comments in total—were predictably somewhere in the middle.

Did tax professionals like the Tax Forums changing to a webinar format?

Many tax pros seemed interested in attending the upcoming Tax Forum webinars. “I’ve never attended in person because I can’t justify the cost (travel costs are too high), so I’d be interested the online series,” began one reply before asking about the logistics of the new online program. “I hope, though, that they can give us the agenda before the discount period ends! What are the exact days and times? What are the topics? If it’s going to be spread out over 4 weeks I need to be able to mark my calendar accordingly.”

While some promised to “be online taking notes” or hoped they could “learn more than in class,” others were sad to miss out on a Tax Forum tradition: “I will miss stopping by the Drake booth and picking up this year’s pen!” Obviously, not everyone is happy about the latest change forced on the tax industry by social distancing requirements.

According to one respondent, the IRS made a hasty decision when it canceled in-person events for the rest of 2020: “I am upset at this. I had registered for Orlando—this is all too much this early.” Another mourned her tax office’s summer plans: “Geeze … there goes our girls vacation!”

How do I sign up for an IRS National Tax Forums webinar?

Tax professionals can get more information and sign up for IRS National Tax Forum webinars on IRSTaxForum.com. Conveniently, the IRS said that those who registered for in-person webinars can either “transfer their registration to the virtual format at no additional cost” or simply get a refund. Those who want to attend one of the webinars can take advantage of “Early Bird” pricing:

  • $240 per person before June 15 at 5:00 p.m. EST
  • $289 per person from June 16 onward

The agency also noted that there is an additional $10 discount for members of certain industry organizations who sign up by the June 15 deadline:

  • American Bar Association (ABA) Section of Taxation
  • American Institute of Certified Public Accountants (AICPA)
  • National Association of Enrolled Agents (NAEA)
  • National Association of Tax Professionals (NATP)
  • National Society of Accountants (NSA)
  • National Society of Tax Professionals (NSTP)
  • Low Income Taxpayer Clinics (LITC)
  • Volunteer Income Tax Assistance Program (VITA)

Remember, the first event will be held from July 21 through August 20, and webinars will be live streamed on Tuesdays, Wednesdays, and Thursdays during that four-week period.

What do you think about the IRS National Tax Forums going virtual? Let us know in the comments!

Sources: IR-2020-100; The Drake Software Facebook Page

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TIGTA Finds Lapse in High-Income Nonfiler Audits

TIGTA Finds Lapse in High-Income Nonfiler Audits

A new audit says the Internal Revenue Service hasn’t been doing enough to collect taxes owed by the wealthiest group of taxpayers. As a consequence, the billions of dollars they owe have gone uncollected.

The audit was done by the Treasury Inspector General for Tax Administration (TIGTA) because previous audits had shown “serious lapses” in the IRS approach to nonfilers. This audit looked specifically at whether the IRS is effectively addressing high-income nonfilers and if the agency’s new nonfiler strategy includes wealthy nonfilers.

All this is important because nonfilers of all income levels mean higher taxes for those of us who do file. This passage in the TIGTA report tries to put it into perspective: “The gross Tax Gap is the estimated difference between the amount of tax that taxpayers should pay and the amount paid voluntarily and on time.  The average annual gross Tax Gap is estimated to be $441 billion for Tax Years 2011 through 2013, and approximately $39 billion (9%) is due to nonfilers, taxpayers who do not timely file a required tax return and timely pay the tax due for such delinquent returns.”

The IRS admits that high-income nonfilers, while being fewer in number, contribute to the majority of the nonfiler Tax Gap.

What did the audit find?

The Inspector General’s audit looked at the inventory of nonfilers for tax years 2014 through 2016. The study identified over 879,000 high-income nonfilers—those who made more than $100,000 per year—who didn’t satisfy their filing requirements. Added together these nonfilers owed $45.7 billion.

Of the 879,000 nonfilers identified, the audit says the IRS didn’t work on 369,180 of the cases, which carried a cumulative value of nearly $21 billion. Of those 369,180 cases, most of them—326,579—were not put into inventory so they could be worked on by the IRS. More than 42,000 cases were taken out of inventory without ever being worked.

The remaining 510,235 high-income nonfiler cases are still sitting in the IRS inventory, but likely will not be worked due to declining IRS resources. The agency has already removed more than 37,000 high-income nonfiler cases from its inventory, leaving $3.2 billion in owed taxes uncollected.

What are TIGTA’s recommendations?

While the IRS has a new nonfiler strategy that appears to take a more strategic view of nonfiling, the strategy has yet to be implemented by the agency and is still in testing.

The audit report also finds fault with IRS policy that allows high-income nonfilers to slip through the cracks.

“Due to the policy on working single tax year cases without regard to how many returns have not been filed by a taxpayer, the IRS is missing out on opportunities to bring repeat high-income nonfilers back into compliance.

The audit makes seven recommendations, including:

  • Designate a senior management official with appropriate resources and specific nonfiler duties to address nonfilers;
  • Not pausing the nonfiler program;
  • Working multiple tax year cases;
  • Not removing high-income nonfiler cases from the inventory without resolution.

The IRS disagreed with putting the nonfiler program under its own management structure, but partially agreed with four recommendations and fully agreed to two others.

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IRS Unveils Proposed Regulations for Carbon Capture Credits

IRS Unveils Proposed Regulations for Carbon Capture Credits

The Internal Revenue Service and the Treasury Department have issued proposed regulations to help businesses navigate new carbon capture credits.

The proposed regulations provide guidance on two new credits for carbon oxide that is captured using equipment originally placed in service on or after Feb. 9, 2018, and allows up to:

  • $50 per metric ton of qualified carbon oxide for permanent sequestration, and
  • up to $35 for Enhanced Oil Recovery purposes.

Neither of these new credits limits the number of metric tons of qualified carbon oxide that can be captured. Before the new legislation, carbon capture was limited to a total of 75 million metric tons of qualified carbon oxide captured.

The new law, which was passed in 2018, also widened the definition of what qualifies for the credit to “qualified carbon oxide,” which is a broader term than the original “qualified carbon dioxide.”

In addition, the new proposed regulations attempt to address issues raised by taxpayers on a number of fronts, including: procedures to determine adequate security measures for the geological storage of qualified carbon oxide, exceptions to the general rule for determining who the credit is attributable to, procedures for a taxpayer to make an election to allow third-party taxpayers to claim the credit, standards for measuring utilization of qualified carbon oxide, and rules for credit recapture.

Early IRS guidance has been revisited.

The IRS issued Notice 2019-32 in 2018, after passage of the Bipartisan Budget Agreement. The agency requested comments from taxpayers on the changes made to the carbon capture credit.

The IRS says it has carefully considered the comments, and is issuing these new proposed regulations in order to provide more clarity.

Other guidance was issued earlier this year on the definition of “beginning of construction,” and providing a safe harbor for partnerships.

In Notice 2020-12, the IRS provides guidance to help businesses determine when construction has begun on a qualified facility or on carbon capture equipment that could be eligible for the credits. Notice 2020-12 was issued so that taxpayers didn’t have to request a private letter ruling in these areas.

Revenue Procedure 2020-12 outlines the IRS safe harbor for the allocation rules for carbon capture partnerships. These are similar to the safe harbors developed for partnerships that receive the wind energy tax credits for production and rehabilitation. The safe harbor simplifies the application of carbon capture credit rules to partnerships that are able to claim the credit.

SourceIR-2020-108

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IRS Announces E-File Support for Form 1040-X

IRS Announces E-File Support for Form 1040-X

When can I e-file a Form 1040-X?

If you would prefer to electronically file the stack of Forms 1040-X sitting on your desk, the Internal Revenue Service has some good news. The IRS will be working with the tax software industry and developers, like Drake Software, to meet the agency’s “later this summer” target launch date. And, it turns out, this has been in the works for a while.

“Making the 1040-X an electronically filed form has been a goal of the IRS for a number of years,” the IRS said in the release. “It’s also been an ongoing request from the nation’s tax professional community and has been a continuing recommendation from the Internal Revenue Service Advisory Council (IRSAC) and Electronic Tax Administration Advisory Committee (ETAAC).”

Aside from speeding up the process of filing an amended return, the IRS noted that being able to e-file the 1040-X should result in improved customer service: “The new electronic filing option will provide the IRS with more complete and accurate data in an easily readable format to enable customer service representatives to answer taxpayers’ questions.”

That said, the IRS has an important caveat: e-File will initially only be available for tax year 2019 Forms 1040 and 1040-SR. Taxpayers amending different or older Forms 1040 will still need to put pen to paper.

Will you be able to e-file all state amended returns?

We asked the Drake Software State Tax Development Division if any states were going to add support for amended e-file next year. “I haven’t yet heard if any states will be adding amended e-file for the upcoming year, though many already do,” explained Rod Smith, one of Drake Software’s State Development Managers. “With most states allowing unlinked returns—meaning there is no corresponding accepted federal return ‘linked’ to the state return—the federal 1040-X not being e-fileable is not necessarily a hinderance for them from a technical standpoint.”

State Development Managers Lacey Crowe, Casey Schulte, and Ramona Hodor echoed Rod’s sentiments, citing around two dozen states that already supported amended e-file, like California, New York, North Carolina, Ohio, and Virginia. While the team had not yet heard about more states joining the list next filing season, Rod noted that states—in general—had been steadily adding support for amended e-file.

Source: IR-2020-107

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IRS Issues Guidance on Renewable Energy Projects, Retirement Withholding

IRS Issues Guidance on Renewable Energy Projects, Retirement Withholding

The Internal Revenue Service has issued rules and guidance covering two disparate tax areas: renewable energy and retirement payments.

New rules give relief for taxpayers developing renewable energy projects and producing energy through renewable means. The IRS also issued proposed regulations that update the tax withholding rules for periodic retirement and annuity payments made after Dec. 31, 2020.

There will be a bigger window on renewable energy.

The new relief measures help not only those who develop renewable energy projects but those who use renewable strategies to produce electricity. The acceptable sources include wind, biomass, landfill gas, trash, and hydropower. There’s also a safe harbor for taxpayers using solar panels, fuel cells, micro-turbines and combined heat-and-power systems.

This latest guidance is spelled out in Notice 2020-41.

The IRS admits that the effects of the COVID-19 pandemic has caused delays in the supply chain for the components that are needed to complete renewable energy projects that would otherwise be eligible for important tax credits.

For certain projects that began construction in 2016 or 2017, Notice 2020-41 adds an extra year to the four-year “Continuity Safe Harbor” provided in existing guidance. If these projects are placed in service within five years construction will be considered to be continuous. 

Notice 2020-41 also provides a measure of comfort for those taxpayers who started construction and incurred at least 5% of the project costs and made payments for services or property that was expected to be delivered within 3 1/2 months.  the IRS now considers these taxpayers to be considered “incurred” under economic performance rules.

The notice says if the services or property are received by Oct. 15, 2020, the taxpayer’s expectations at the time of the 2019 payment are considered reasonable.

IRS documents say these changes were all made necessary by the pandemic.

“Extending the Continuity Safe Harbor and providing a 3½ Month Safe Harbor will provide flexibility for taxpayers to satisfy the beginning of construction requirements and limit the impact of COVID-19-related delays on the ability to claim tax credits,” the IRS writes.

What are the new rules for payments?

Accounting Today reports that the IRS and the Treasury Department have also proposed new regulations updating income tax withholding rules for periodic retirement and annuity payments made after Dec. 31, 2020.

The rules for withholding on these kinds of payments were set up for change by the Tax Cuts and Jobs Act in 2017.

Before that time, if no withholding certificate was in effect for a taxpayer’s periodic retirement and annuity payments, withholding was determined by treating the taxpayer as a married individual claiming three withholding exemptions.

The 2017 tax reform measure changed that, saying instead that when no certificate was present, rules set out by Treasury would be the determining factor. But that hasn’t been as simple as it sounds.

The IRS issued Notice 2020-3 earlier this year that basically said the default rate of withholding on periodic payments with no certificate present would continue to be based on that of a married taxpayer with three exemptions.

Now, Accounting Today reports, this new proposal means another iteration of regulations will once again be coming from the IRS and Treasury for 2021 and beyond. The rules and procedures will hopefully determine the default rate of withholding on periodic payments when a taxpayer has no withholding certificate.

Accounting Today, though, advises that more rule changes may yet be on the horizon. Most of the individual tax provisions of the Tax Cuts and Jobs Act will expire in 2025.

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