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February 2020

Meals and Entertainment Expenses Under Section 274

On Feb. 24, 2020, the IRS issued proposed regulations relating to meals and entertainment expenses under the 2017 Tax Cuts and Jobs Act (TCJA). The proposed regs substantially follow Notice 2018-76, although there is clarification in many areas. For instance, there is an expansion of the definition of a business contact as “…person with whom the taxpayer could reasonably expect to engage or deal in the active conduct of the taxpayer’s trade or business…” which now includes employees. The proposed regs also clarify the person to whom the limitation applies if food or beverage expenses are paid by one person in connection with the performance of services for another person.  

 

Please see the proposed regs for a better understanding of this area of the law. Comments are due by April 13.

https://www.federalregister.gov/documents/2020/02/26/2020-03723/meals-and-entertainment-expenses-under-section-274

https://www.irs.gov/pub/irs-drop/n-18-76.pdf

 


Deadline for Small Businesses Electing to File Payroll Tax Form Annually

Generally, employers must file Form 941, Employer’s Quarterly Federal Tax Return. However, the IRS has simplified rules so small employers with an annual Form 941 tax liability with Social Security, Medicare and withheld federal income tax of less than $1,000 can elect to file Form 944, Employer’s Annual Federal Tax Return, by Jan. 31, of the following year.

 

To be effective for 2020, a written request to change to an annual filing must be postmarked by March 15, 2020 (Department of the Treasury, Internal Revenue Service, Ogden, UT 84201-0038) or request by phone to 800-829-4933 by April 1, 2020.

https://www.irs.gov/businesses/small-businesses-self-employed/certain-taxpayers-may-now-file-their-employment-taxes-annually


Should an RA or RO Provide Supervisor’s Contact Information?

When dealing with IRS revenue agents (RA) or revenue officers (RO), tax professionals sometimes encounter situations where they need to elevate an issue to a supervisory level in order to properly represent their client. Reasons may include:

  • Non-responsiveness by an RA or RO,
  • Emergency to avoid threatened action by an RA or RO, or
  • To appeal an RA’s or RO’s failure to properly consider the facts, inappropriate application of the law or IRS procedures necessitating review by their group manager or even that group manager’s supervisor.

 

The Internal Revenue Manual (IRM) provides IRS employees with guidance about if and when a supervisor’s contact information should be shared with the taxpayer or representative. This is helpful for practitioners to know as well.

 

In Examination, IRM 4.10.1.2.2.2 indicates that an RA must provide the taxpayer with their group manager’s name and contact information during the initial conversation. In Collections, IRM 5.1.10.3.2 indicates that an RO is required to provide their group manager’s name only upon request. Tax professionals should consider obtaining and keeping information (including telephone and fax numbers) regarding first and second level supervisors at the earliest opportunity and by affirmative request for the RA or RO, even before there is need to use the contact information, if only because it may be more difficult to get when the need arises.

https://www.irs.gov/irm/part4/irm_04-010-001#idm140629978443616

https://www.irs.gov/irm/part5/irm_05-001-010#idm139664246496160

 


ICs Working in California May Now Be Employees

By James C. Counts II, CPA

 

California presumes all workers are employees unless you can prove otherwise, as of Jan. 1, 2020, under a new California law, known as AB5. This new law is California’s fix to the gig economy. It is presumed that all workers are employees unless the company can document the requirements that the worker is qualified to be treated as an independent contractor (IC). It does not matter if the hiring entity is located either in or out of California but does the individual work in California.

 

Generally, workers must meet a three-part test, the Dynamex ABC test, to determine an employee or IC classification. To satisfy the test, the business must be able to prove that the worker:

  1. is free from the company’s control,
  2. performs work outside the company's primary business, and
  3. is regularly engaged in the industry.

To meet many of the exemptions from the ABC test in AB5, conditions in Borello’s multifactor test must then be met.

 

A company is not required to document before hiring a worker as meeting one of the many exemptions to qualify as an IC. However, prudence says a hiring entity should document IC qualifications before hiring them.

 

Entities should also document ICs hired prior to Jan. 1, 2020. An individual who does not qualify as an IC should be reclassified as an employee for California proposes. This does not automatically say they will be an employee for IRS purposes or even in your state.

 

California AB5 http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201920200AB5&firstNav=tracking  

 

California Supreme Court decision in Dynamex Operations West, Inc. v. Superior Court of Los Angeles (2018) 4 Cal.5th 903

https://law.justia.com/cases/california/supreme-court/2018/s222732.html    

 

California Supreme Court decision in S. G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341

https://law.justia.com/cases/california/supreme-court/3d/48/341.html

 

About the author

James C. Counts II, CPA, is a member of the California CPA Society, Committee on Taxation and is the liaison to the California Employment Development Department for the Society.