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IRS to waive $1B in penalties

IRS to waive $1B in penalties for back taxes owed

Nearly 5M people, firms will be eligible for relief.

ASSOCIATED PRESS

WASHINGTON – The IRS said Tuesday it is going to waive penalty fees for people who failed to pay back taxes that total less than $100,000 per year for tax years 2020 and 2021.

Nearly 5 million people, businesses and tax-exempt organizations – most making under $400,000 per year – will be eligible for the relief starting this week, which totals about $1 billion, the agency said.

The IRS temporarily suspended mailing automated reminders to pay overdue tax bills during the pandemic, beginning in February 2022, and agency leadership says the pause in automated reminders is a reason behind the decision to forgive the failure-to-pay penalties.

“Due to the unprecedented effects of the COVID-19 pandemic, these reminders would have normally been issued as a follow up after the initial notice,” the IRS said in a statement.

“Although these reminder notices were suspended, the failure-to-pay penalty continues to accrue for taxpayers who did not fully pay their bills in response to the initial balance due notice.”

While the IRS plans to resume sending out normal collection notices, the Tuesday announcement is meant as one-time relief based on the unprecedented interruption caused by the pandemic, IRS officials said.

Taxpayers are eligible for automatic relief if they filed a Form 1040, 1041, 1120 series or Form 990-T tax return for years 2020 or 2021, owe less than $100,000 per year in back taxes, and received an initial balance-due notice between Feb. 5, 2022 and Dec. 7, 2023.

If people paid the failure-to-pay penalty, they will get a refund, Werfel said on a call with reporters. “People need to know the IRS is on their side,” he said.

IRS Announces Delay in Form 1099-K Reporting Threshold

Issue Number:    IR-2023-221

Inside This Issue

IRS announces delay in Form 1099-K reporting threshold for third-party platform payments for 2023; plans for a threshold of $5,000 in 2024 to phase in implementation.

WASHINGTON — Following feedback from taxpayers, tax professionals and payment processors and to reduce taxpayer confusion, the Internal Revenue Service today released Notice 2023-74 announcing a delay of the new $600 Form 1099-K reporting threshold for third-party settlement organizations for calendar year 2023.

As the IRS continues to work to implement the new law, the agency will treat 2023 as an additional transition year. This will reduce the potential confusion caused by the distribution of an estimated 44 million Forms 1099-K sent to many taxpayers who wouldn’t expect one and may not have a tax obligation. As a result, reporting will not be required unless the taxpayer receives over $20,000 and has more than 200 transactions in 2023.

Given the complexity of the new provision, the large number of individual taxpayers affected and the need for stakeholders to have certainty with enough lead time, the IRS is planning for a threshold of $5,000 for tax year 2024 as part of a phase-in to implement the $600 reporting threshold enacted under the American Rescue Plan (ARP).

Following feedback from the tax community, the IRS is also looking to make updates to the Form 1040 and related schedules for 2024 that would make the reporting process easier for taxpayers. Changes to the Form 1040 series – the core tax form for more than 150 million taxpayers – are complex and take time; delaying changes to tax year 2024 allows for additional feedback.

“We spent many months gathering feedback from third-party groups and others, and it became increasingly clear we need additional time to effectively implement the new reporting requirements,” said IRS Commissioner Danny Werfel. “Taking this phased-in approach is the right thing to do for the purposes of tax administration, and it prevents unnecessary confusion as we continue to look at changes to the Form 1040. It’s clear that an additional delay for tax year 2023 will avoid problems for taxpayers, tax professionals and others in this area.”

The ARP required third party settlement organizations (TPSOs), which include popular payment apps and online marketplaces, to report payments of more than $600 for the sale of goods and services on a Form 1099-K starting in 2022. These forms would go to the IRS and to taxpayers and would help taxpayers fill out their tax returns. Before the ARP, the reporting requirement applied only to the sale of goods and services involving more than 200 transactions per year totaling over $20,000.

The IRS temporarily delayed the new requirement last year.

Reporting requirements do not apply to personal transactions such as birthday or holiday gifts, sharing the cost of a car ride or meal, or paying a family member or another for a household bill. These payments are not taxable and should not be reported on Form 1099-K.

However, the casual sale of goods and services, including selling used personal items like clothing, furniture and other household items for a loss, could generate a Form 1099-K for many people, even if the seller has no tax liability from those sales.

This complexity in distinguishing between these types of transactions factored into the IRS decision to delay the reporting requirements an additional year and to plan for a threshold of $5,000 for 2024 in order to phase in implementation. The IRS invites feedback on the threshold of $5,000 for tax year 2024 and other elements of the reporting requirement, including how best to focus reporting on taxable transactions.

“The IRS will use this additional time to continue carefully crafting a way forward to minimize burden,” Werfel said. “We want to make this as easy as possible for taxpayers. We will work to make the new reporting requirements easier for them, and we’ll work closely with third-party groups, tax professionals and others to find the smoothest path to ensure compliance with the law. This is consistent with our Strategic Operating Plan. The IRS is focused on meeting taxpayers where they are and helping them get it right the first time.”

Expanded information reporting, which will occur as the result of the change in thresholds for Form 1099-K, is important because it increases tax compliance and can reduce burden on taxpayers seeking to follow the law. The IRS believes that expansion must be managed carefully to help ensure that Forms 1099-K are issued only to taxpayers who should receive them. In addition, it’s important that taxpayers understand what to do as a result of this reporting, and that tax professionals and software providers have the information they need to assist taxpayers.

 

Kristen Matkowsky, CPA

Gold Gerstein group LLC a South Jersey CPA firm with an office located in Moorestown New Jersey is pleased to announce that Kristen Matkowsky, CPA will assume the position of Manager effective September 1, 2020.

Kristen has been with the firm for 12 years and specializes in tax, accounting and business valuation/litigation support services. Kristen has attained the QuickBooks Online ProAdvisor Certification and heads up the Small Biz Guru division.

IRS Tax Deadline Extensions

IRS extends more tax deadlines to cover individuals, trusts, estates corporations and others

To help taxpayers, the Department of Treasury and the Internal Revenue Service announced today that Notice 2020-23 extends additional key tax deadlines for individuals and businesses.

Last month, the IRS announced that taxpayers generally have until July 15, 2020, to file and pay federal income taxes originally due on April 15. No late-filing penalty, late-payment penalty or interest will be due.

Today’s notice expands this relief to additional returns, tax payments and other actions. As a result, the extensions generally now apply to all taxpayers that have a filing or payment deadline falling on or after April 1, 2020, and before July 15, 2020. Individuals, trusts, estates, corporations and other non-corporate tax filers qualify for the extra time. This means that anyone, including Americans who live and work abroad, can now wait until July 15 to file their 2019 federal income tax return and pay any tax due.

Extension of time to file beyond July 15

Individual taxpayers who need additional time to file beyond the July 15 deadline can request an extension to Oct. 15, 2020, by filing Form 4868 through their tax professional, tax software or using the Free File link on IRS.gov. Businesses who need additional time must file Form 7004. An extension to file is not an extension to pay any taxes owed. Taxpayers requesting additional time to file should estimate their tax liability and pay any taxes owed by the July 15, 2020, deadline to avoid additional interest and penalties.

Estimated Tax Payments

Besides the April 15 estimated tax payment previously extended, today’s notice also extends relief to estimated tax payments due June 15, 2020. This means that any individual or corporation that has a quarterly estimated tax payment due on or after April 1, 2020, and before July 15, 2020, can wait until July 15 to make that payment, without penalty.

Coronavirus Aid Relief and Economic Security (CARES) Act

Coronavirus Aid Relief and Economic Security Act (CARES Act) Paycheck Protection Program Information:

In addition to the expansion of the Economic Injury Disaster Loan (EIDL) Program enacted in earlier Coronavirus relief legislation the federal government has, through the passage of the CARES Act, expanded the Small Business Administration (SBA)’s 7(a) Loan Program and created the Paycheck Protection Program (PPP). Between February 15, 2020 and June 30, 2020, the new law allows the SBA to provide a total of $350 billion in loans to eligible small businesses. A direct comparison of the two programs can be seen below this overview.

Eligible small businesses include most businesses, not-for-profits, veteran’s organizations, and tribal organizations with 500 or fewer employees. The purpose of these loans is to help pay operational costs such as payroll, rent, health benefits, insurance premiums, utilities, etc. Loan amounts can be forgivable, subject to certain conditions, and the forgiven amounts, for federal tax purposes, are excludable from gross income. The following is an overview of the new Paycheck Protection Program.

Loans made under the Paycheck Protection Program will have a maximum interest rate of 4% and a maximum loan amount of the lesser of $10 million or 2.5 times the average total monthly monthly payroll costs for the one-year period before the loan is made, or for seasonal employers, the average monthly payroll costs for the 12 weeks beginning either on February 15, 2019, or from March 1, 2019 to June 30, 2019.

 

These loans will require no collateral or personal guarantee and the lender will have no recourse against any individual, shareholder, member, or partner of an eligible loan recipient for non-payment as long as the business uses the loan proceeds only for authorized purposes.

As part of the application process a good-faith certification must be made stating that the loan is needed to continue operations during the COVID-19 emergency; proceeds will be used to retain workers and maintain payroll or make mortgage, lease, and utility payments; the applicant does not have any other application pending under this program for the same purpose; and from February 15, 2020 until December 31, 2020, the applicant has not received duplicative amounts under this program.

 

The loan proceeds can be used to pay:

  • payroll costs such as salary, wages, commissions, etc.; paid leave; severance payments; payments for group health benefits; retirement benefits; state and local payroll taxes; and compensation to sole proprietors or independent contractors up to $100,000 in 1 year, prorated for the covered
  • Group health care benefits during periods of paid sick, medical, or family leave, and insurance
  • Payments of interest on mortgage
  • Rent or lease payments.
  • Utilities
  • Interest on other obligations incurred before February 15, 2020

Payments made in the eight-week period after the loan origination date for covered payroll costs, interest payments on mortgages, rent, and utilities will be forgiven. However, forgiveness amounts will be reduced for any employee cuts. The formula for forgiveness reduction based on employee cuts is:

  • The maximum available forgiveness under the rules described above multiplied by:
  • Average number of full-time equivalent employees (FTEEs) per month during the covered period divided by:

One of the following:

  • Average number of FTEEs per month employed from February 15, 2019 to June 30, 2019; or
  • Average number of FTEEs per month employed from January 1, 2020 until February 29,

Forgiveness is also reduced by an amount equal to any reduction in the total salary or wages of any employee during the covered period that is more than 25% of their compensation during their most recent full quarter of employment before February 15, 2020. This reduction applies only to employees who did not receive during any single pay period during 2019 a salary or wages at an annualized rate of over $100,000.

If you have already reduced your number of employees or reduced your employees’ wages, there is relief from these forgiveness reduction penalties for employers who rehire employees or make up for wage reductions by June 30, 2020.

 

For any amount of the loan that is not forgiven payments will be deferred for a period of at least six months and up to one year. There are also no penalties for early repayment of any amount of the loan not forgiven.

Participation in this loan program can make you ineligible for the employee retention credit and other credits being made available to businesses but does not disqualify you from applying for an EIDL to help cover other expenses not covered by this loan.

This program will be administered through the SBA’s network of approved lender banks. If you have a relationship with an SBA lender already, we recommend reaching out to them as they will have a list of materials they are requiring for consideration for these loans. For more information, assistance in applying for this or other loan and grant programs, or if you have any other questions please contact either the partner or accountant with whom you work.

Additional relief programs for businesses that are too large to benefit from the expanded SBA loan programs will be made available shortly, the CARES Act provided for the development of a program to provide low interest loans to businesses with 500-10,000 employees. As details of these additional programs become available, we will share them with you.

Gold Gerstein Group, LLC

SBA Economic Injury Disaster Loan (EIDL)

Paycheck Protection Program (CARES Act) (PPP)

What Businesses are Eligible?
Small Businesses, Small Agricultural Cooperatives, Aquaculture Businesses, Most Private Non-Profit Organizations Small businesses, Not-For-Profits, Veterans’ Organizations, and Tribal businesses with less than 500 employees.
Who are the Loans Administered Through?
Small Business Administration Directly SBA Authorized Lender
Are Applications Currently Available?
Yes No but anticipated to be available April 6th or before
What is the Loan Application Deadline?
Varies by state but generally December 2020 June 30, 2020
What is the Maximum Interest Rate?
For Profit Businesses 3.75%, Non-Profit Organizations 2.75% 4%
What is the Maximum Loan Amount?
$2,000,000 $10,000,000 (Capped at 2.5 times borrower’s average monthly payroll costs, defined below)
What is the Maximum Repayment Term?
Up to 30 years Up to 10 years
Are There any Collateral Requirements?
Yes None
Is a Personal Guarantee Required?
Yes, for certain loans No
How Long are Payments Deferred?
One year Six months to one year
Is There a Penalty for Pre-Payment?
No No
What can I Use the Loan Proceeds for?
Employee salaries and wages, paid medical or sick leave, insurance premiums, mortgage, rent, or utility payments Payroll costs; Group health benefits during periods of paid sick, medical, or family leave, and insurance premiums; Payments of interest on mortgage obligations; Rent or lease payments; Utilities; Interest on obligations incurred before February 15, 2020
What Amount of the Loan is Forgivable?
None Payments made in the eight-week period after the loan origination date for covered payroll costs, interest payments on mortgages, rent, and utilities will be forgiven. Forgiveness amounts will be reduced for any employee cuts and for reductions in employee salaries.
Can the Businesses Still Qualify for the Employee Retention Credit?
Yes No
Payroll costs are defined as compensation to employees such as salary, wages, commissions, etc.; paid leave; severance payments; payments for group health benefits; retirement benefits; state and local payroll taxes; and compensation to sole proprietors or independent contractors up to $100,000  per year, prorated for the covered period.
For a more detailed explanation please reach out to the Gold Gerstein Group LLC partner or accountant with whom you work.

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