Extensions—and the Interplay Between the Pandemic Filing Relief and the Texas Winter Storm Relief

David Donnelly, CPA-Houston

Background:

• The pandemic extension only provides for relief to May 17 for Form 1040. No other returns were provided relief.

• The Texas (and Oklahoma) winter storm extension provided relief to June 15 for all returns. However, the IRS has not updated its systems to accept e-filed extensions for the Texas winter storm disaster.

Analysis:

• For taxpayers who qualify for the Texas relief, returns other than Forms 1040 that were not extended by their normal due date (March 15 for S Corps and Form 1065, April 15 for Forms 1120 and 1041), may be extended by filing a paper extension by the June 15 date.

• For Forms 1040 that qualify for the Texas relief, the return can be extended via e-file through May 17; after that, since the IRS has not updated its systems for the Texas winter storm relief, a paper extension can be filed through June 15. 

Comments:

• Taxpayers who do not reside in Texas but qualify for the Texas relief (since their tax records are in Texas) must call the IRS phone number to notify the IRS that they qualify. Presumably, their tax professionals can also call this number; however, some IRS personnel will only provide the relief if there is a POA on file. The number, according to Form 2210, is 866-562-5227.

• The IRS is processing anything they receive via mail extremely slowly. 
  • Practitioners should e-file as many Form 1040 extensions as possible by the end of the e-filing period on May 17.  
  • For returns that are extended on paper filing, be prepared to correspond with the IRS should penalties be assessed.

We have heard word, unofficially and not from an IRS source, that the IRS is working on this issue and may make an announcement this week. Of course, that information is way overdue for our tax professional community.

PPP Loans Discontinued

The Paycheck Protection Program (PPP) that has provided $780 billion in forgivable loans was expected to be effective through the end of May but depleted most of its funding for most borrowers on May 4. Generally, no new PPP loans can be granted. There are a few exceptions:

• $8 billion of the PPP funding has been reserved for lending to businesses run by women, minorities and other underserved communities,
• Loan applications that were submitted by May 4 but not yet processed will be honored, and
• Two new grants will permit loans to restaurants and live-event businesses.

SBA stops accepting new PPP applications from most lenders as general funds run out - Journal of Accountancy

Updated List of Forms the IRS will Temporarily Allow Digital Signatures That Cannot be E-Filed

As of April 29, 2021, the IRS will temporarily allow digital signatures on certain forms that cannot be filed electronically. The forms must be postmarked from Aug. 28, 2020, through Dec. 31, 2021:

• Form 11-C, Occupational Tax and Registration Return for Wagering
• Form 637, Application for Registration (for Certain Excise Tax Activities)
• Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return
• Form 706-A, U.S. Additional Estate Tax Return
• Form 706-GS(D), Generation-Skipping Transfer Tax Return for Distributions
• Form 706-GS(D-1), Notification of Distribution from a Generation-Skipping Trust
• Form 706-GS(T), Generation-Skipping Transfer Tax Return for Terminations
• Form 706-QDT, U.S. Estate Tax Return for Qualified Domestic Trusts
• Form 706 Schedule R-1, Generation-Skipping Transfer Tax
• Form 706-NA, U.S. Estate (and Generation-Skipping Transfer) Tax Return
• Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return
• Form 730, Monthly Tax Return for Wagers
• Form 1066, U.S. Income Tax Return for Real Estate Mortgage Investment Conduit
• Form 1120-C, U.S. Income Tax Return for Cooperative Associations
• Form 1120-FSC, U.S. Income Tax Return of a Foreign Sales Corporation
• Form 1120-H, U.S. Income Tax Return for Homeowners Associations
• Form 1120-IC DISC, Interest Charge Domestic International Sales – Corporation Return
• Form 1120-L, U.S. Life Insurance Company Income Tax Return
• Form 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons
• Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return
• Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts
• Form 1120-RIC, U.S. Income Tax Return for Regulated Investment Companies
• Form 1128, Application to Adopt, Change or Retain a Tax Year
• Form 2678, Employer/Payer Appointment of Agent
• Form 3115, Application for Change in Accounting Method
• Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts
• Form 3520-A, Annual Information Return of Foreign Trust with a U.S. Owner
• Form 4421, Declaration – Executor’s Commissions and Attorney’s Fees
• Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes
• Form 8038, Information Return for Tax-Exempt Private Activity Bond Issues
• Form 8038-G, Information Return for Tax-Exempt Governmental Bonds
• Form 8038-GC Information Return for Small Tax-Exempt Governmental Bond Issues, Leases, and Installment Sales
• Form 8283, Noncash Charitable Contributions
• Form 8453 series, Form 8878 series, and Form 8879 series regarding IRS e-file Signature Authorization Forms
• Form 8802, Application for U.S. Residency Certification
• Form 8832, Entity Classification Election
• Form 8971, Information Regarding Beneficiaries Acquiring Property from a Decedent
• Form 8973, Certified Professional Employer Organization/Customer Reporting Agreement
• Elections made pursuant to Internal Revenue Code section 83(b)

IRS approves temporary use of e-signatures for certain forms | Internal Revenue Service

IRS Operations During COVID-19: Mission-critical functions continue | Internal Revenue Service

Delays in IRS’ Response Time

Tom Ochsenschlager, CPA, JD

A Washington Post article cited a discussion regarding delayed IRS responses with Erin M. Collins, the national taxpayer advocate for the independent Taxpayer Advocate Service of the IRS.

Collins indicated the response problems have been exacerbated due to the backlog of returns that require manual processing (apparently due to the reduction in active employees attributable to the COVID restraints) and the daunting task of issuing millions of stimulus payments. The following are some of the statistics Collins provided related to the correspondence backlog: 

• Only one out of every 50 calls to IRS customer service has gotten through;
• There has been a 300% increase in calls to the IRS’ Accounts Management help line;
• The IRS has answered just 2% of the more than 70 million calls to the 1040 help line;
• The IRS has identified 29 million returns for manual processing;
• 8 million 1040 returns were in suspense due to the recovery rebate credit or the earned income tax credit; and
• 7 million 1040s are being held up due to processing or identification errors.

Collins made it clear that the IRS is suffering from limited resources, ergo, they need increased funding.

NTA Blog: 2021 Filing Season Bumps in the Road: Part I - Taxpayer Advocate Service (irs.gov)

Federal Tax Return Extension Issues for Texas Practitioners

If you did not file extensions at March 15 or April 15, you may be required to file them by paper. Extensions can still be e-filed for individual returns up through May 17, but as it stands right now, these will not be available for e-file after May 17. This is because the IRS has not programmed the disaster area ZIP codes into its system with a June 15 due date.

We have reached out to our IRS stakeholder liaison and asked that the IRS remedy this. The issue is being elevated, so hopefully it will be resolved. Our IRS contact has indicated that any incorrect penalties will be reversed if you are in the disaster area or have self-certified for the disaster. Whether the reversal is automatic has yet to be determined.

For now, if you need to get an extension filed for some reason, you should send a paper extension. Consider a notation at the top “Federally declared disaster area – filed under Section 7508A.”

We will keep you updated on any changes to this issue.

 

Employee Retention Credit Update

In accordance with the American Rescue Plan Act (ARPA) passed in March of 2021, Notice 2021-23 expands the benefits of the “employee retention credit” (ERC) for 2021.

The ERC available to an employer is claimed as a credit against the employer’s share of Social Security tax. There is also a refundable portion of this credit that can help offset other portions of the employer’s payroll tax liability.

Generally, the ERC is available to employers whose business gross receipts in 2020 and 2021 were at least 50% or 20%, respectively, less per qualified quarter for the same period in 2019 or that fully or partially suspended its operations due to government-imposed restrictions related to COVID-19. For 2021, eligibility can also be made for a quarter based on the gross receipts’ comparison for the previous quarter. As an example, a business may choose to qualify for the first quarter of 2021 based on a comparison of the fourth quarter 2020 gross receipts with the fourth quarter 2019 gross receipts.

Under prior law and IRS guidance, the employer (or any member of its controlled group) was not eligible for the ERC if it received a Paycheck Protection Program (PPP) loan. The new guidance, in accordance with the ARPA, retroactively revokes this limitation. However, limitations on the credit are imposed to the extent wages were used to qualify for forgiveness of a PPP loan.

The maximum credit amounts are:

• For 2020, the lesser of $5,000 or 50% of the first $10,000 of “qualified” wages per employee.
• For 2021, the ARPA increased the credit to the lesser of $7,000 or 70% of the first $10,000 per employee in each quarter of the year not to exceed $28,000 per employee per year.

The definition of “qualified” wages:

• For small employers, wages and expenses paid to qualified health plan expenses for all employees:
  • For qualification in 2020, a small employer is defined as having had 100 or fewer full-time employees in 2019 and 500 or fewer in 2021 to qualify in that year. Full-time employees are defined as those averaging 30 hours of service per week or 130 hours of service per month.
• For large employers, only the wages paid to a qualified health plan on behalf of an employee for periods the employee was not actively employed.

Additionally, the ARPA extended the qualification for credit to colleges, universities, hospitals and entities that provide medical care.

How to claim the employee retention credit for the first half of 2021 (journalofaccountancy.com)

N-2021-23 (irs.gov)

FAQs: Employee Retention Credit under the CARES Act | Internal Revenue Service (irs.gov)

Several IRS Payment P.O. Boxes Closing in 2022

The IRS is closing several individual payment post office boxes (or lockbox addresses) in San Francisco, CA, and Hartford, CT, areas beginning Jan. 1, 2022. Payments are currently being forwarded to Louisville, KY, and Cincinnati, OH, through Dec. 31, 2021. However, payments mailed to these closed payment locations after Jan. 1, 2022, will be returned to sender.

To help ensure timely receipt, the IRS encourages practitioners and taxpayers to avoid mailing to these closing addresses as there could be mail delays. Please check Where to File for active addresses before mailing your payments. If you receive an IRS payment letter, send your payment to the address located in the letter.

IRS Lockbox Addresses for 2021

Administration Considering Tax Increases

As discussed in our Nov. 20 blog, the Biden Administration is considering increasing taxes. Whether that will be accomplished is, of course, speculative. But given that the Democrats have a majority in the House and Senate, we are experiencing a historically high federal deficit and President Joe Biden is proposing a sweeping two-part “infrastructure, climate and jobs” plan estimated at $3 trillion, a tax increase is perhaps a bit more likely now.

To pay for this infrastructure package, the following are likely to be the proposed federal tax changes:

• Raise the corporate tax rate from 21 to 28%,
• End subsidies for fossil fuel companies,
• Require multinational corporations to pay the U.S. tax rate rather than the lower rate paid by their foreign subsidiaries,
• Increase the top individual income tax rate from 37 to 39.6%,
• For taxpayers reporting more than $1 million in taxable income, their capital gains would be subject to the 39.6% rate, and
• An increase in taxes for appreciated assets passed through an estate.

While obviously controversial, the plan does not necessarily need Republican support to become law.

Biden Announces Huge Infrastructure Plan to 'Win the Future'

Biden Wants to Pay for Infrastructure Plan With 15 Years of Corporate Taxes

PPP Deadline Extended

On March 30, President Joe Biden signed into law the PPP Extension Act of 2021, H.R. 1799 extending until May 31, 2021, the application deadline to participate in the “Second Draw” Payroll Protection Program loans.

The lender financial institution should have the appropriate forms for the application. The list of approved lenders is available online with the Small Business Administration’s lender match tool. Accounting firms can also prepare and process applications using the CPA.com CPA Business Funding Portal.

Generally, the Second Draw maximum amount is equal to 2.5x the average monthly 2019 or 2020 payroll costs up to $2 million. For businesses in the Accommodation and Food Services sector, the 2.5x average monthly payroll is increased to 3.5x (based on NAICS 72 classification).

It is important to remember that the PPP loans can be forgiven if the employee and compensation amount are maintained and at least 60% of the proceeds are spent on payroll costs. The borrower must apply through the financial institution that managed the loan for the forgiveness within 10 months after the final day of the covered period.

Biden signs PPP deadline extension into law - Journal of Accountancy

Paycheck Protection Program (sba.gov)

Second Draw PPP loan (sba.gov)

Federal Tax Filing Relief

IR-2021-59, issued in response to the continuing pandemic, extends the filing due date for all individual returns (1040 forms), regardless of residence of the taxpayer, and payment of any balance due with the return until May 17. It is important to note that this extension does not apply to estimated tax payments, nor to any other type of return other than Form 1040.

For residents of Texas, IRS Publication 2194 "Disaster Resource Guide" provides a longer extension to file returns and make payments, until June 15, for individuals and businesses located in areas identified by the Federal Emergency Management Agency as a winter storm disaster area. These areas in Texas are identified at Texas Severe Winter Storms (DR-4586-TX) | FEMA.gov. This extension also applies to individuals and businesses not necessarily located in a disaster area that utilize a tax preparer located in a disaster area.

Many states have provided relief similar to the pandemic and winter storm relief. The following is the relief offered by Texas and states adjacent to Texas:

• Texas has extended its franchise tax deadline from May 15 to June 15.
• Oklahoma has extended the due dates for individual and business returns and first quarter estimated payments to June 15.
• Louisiana extended individual, corporate, franchise, fiduciary and partnership returns and payments to June 15.
• New Mexico extended its deadline for filing and payment of personal income taxes to May 17. The state tax exemption does not apply to business tax returns or estimated payments.