Congress recently passed—and the President signed into law—the SECURE Act, landmark legislation that may affect how you plan for your retirement. Many of the provisions go into effect in 2020, which means now is the time to consider how these new rules may affect your tax and retirement-planning situation.

Congress recently passed—and the President signed into law—the SECURE Act, landmark legislation that may affect how you plan for your retirement. Many of the provisions go into effect in 2020, which means now is the time to consider how these new rules may affect your tax and retirement-planning situation.

Here is a look at some of the more important elements of the SECURE Act that have an impact on individuals. The changes in the law might provide you and your family with tax-savings opportunities. However, not all of the changes are favorable, and there may be steps you could take to minimize their impact. Please give me a call if you would like to discuss these matters.

Sincerely,

Setting Every Community Up for Retirement Enhancement Act (SECURE Act)

Key provisions affecting individuals:

Repeal of the maximum age for traditional IRA contributions.

Before 2020, traditional IRA contributions were not allowed once the individual attained age 70½. Starting in 2020, the new rules allow an individual of any age to make contributions to a traditional IRA, as long as the individual has compensation, which generally means earned income from wages or self-employment.

Required minimum distribution age raised from 70½ to 72.

Before 2020, retirement plan participants and IRA owners were generally required to begin taking required minimum distributions, or RMDs, from their plan by April 1 of the year following the year they reached age 70½. The age 70½ requirement was first applied in the retirement plan context in the early 1960s and, until recently, had not been adjusted to account for increases in life expectancy.

For distributions required to be made after Dec. 31, 2019, for individuals who attain age 70½ after that date, the age at which individuals must begin taking distributions from their retirement plan or IRA is increased from 70½ to 72.

Partial elimination of stretch IRAs.

For deaths of plan participants or IRA owners occurring before 2020, beneficiaries (both spousal and nonspousal) were generally allowed to stretch out the tax-deferral advantages of the plan or IRA by taking distributions over the beneficiary s life or life expectancy (in the IRA context, this is sometimes referred to as a “stretch IRA”).

However, for deaths of plan participants or IRA owners beginning in 2020 (later for some participants in collectively bargained plans and governmental plans), distributions to most nonspouse beneficiaries are generally required to be distributed within ten years following the plan participant s or IRA owner s death. So, for those beneficiaries, the “stretching” strategy is no longer allowed.

Exceptions to the 10-year rule are allowed for distributions to (1) the surviving spouse of the plan participant or IRA owner; (2) a child of the plan participant or IRA owner who has not reached majority; (3) a chronically ill individual; and (4) any other individual who is not more than ten years younger than the plan participant or IRA owner. Those beneficiaries who qualify under this exception may generally still take their distributions over their life expectancy (as allowed under the rules in effect for deaths occurring before 2020).

Expansion of Section 529 education savings plans to cover registered apprenticeships and distributions to repay certain student loans.

A Section 529 education savings plan (a 529 plan, also known as a qualified tuition program) is a tax-exempt program established and maintained by a state, or one or more eligible educational institutions (public or private). Any person can make nondeductible cash contributions to a 529 plan on behalf of a designated beneficiary. The earnings on the contributions accumulate tax-free. Distributions from a 529 plan are excludable up to the amount of the designated beneficiary's qualified higher education expenses.

Before 2019, qualified higher education expenses didn't include the expenses of registered apprenticeships or student loan repayments.

But for distributions made after Dec. 31, 2018 (the effective date is retroactive), tax-free distributions from 529 plans can be used to pay for fees, books, supplies, and equipment required for the designated beneficiary s participation in an apprenticeship program. In addition, tax-free distributions (up to $10,000) are allowed to pay the principal or interest on a qualified education loan of the designated beneficiary, or a sibling of the designated beneficiary.

Kiddie tax changes for gold star children and others.

In 2017, Congress passed the Tax Cuts and Jobs Act (TCJA, P.L. 115-97), which made changes to the so-called “kiddie tax,” which is a tax on the unearned income of certain children. Before enactment of the TCJA, the net unearned income of a child was taxed at the parents' tax rates if the parents' tax rates were higher than the tax rates of the child.

Under the TCJA, for tax years beginning after Dec. 31, 2017, the taxable income of a child attributable to net unearned income is taxed according to the brackets applicable to trusts and estates. Children to whom the kiddie tax rules apply and who have net unearned income also have a reduced exemption amount under the alternative minimum tax (AMT) rules.

There had been concern that the TCJA changes unfairly increased the tax on certain children, including those who were receiving government payments (i.e., unearned income) because they were survivors of deceased military personnel (“gold star children”), first responders, and emergency medical workers.

The new rules enacted on Dec. 20, 2019, repeal the kiddie tax measures that were added by the TCJA. So, starting in 2020 (with the option to start retroactively in 2018 and/or 2019), the unearned income of children is taxed under the pre-TCJA rules, and not at trust/estate rates. And starting retroactively in 2018, the new rules also eliminate the reduced AMT exemption amount for children to whom the kiddie tax rules apply and who have net unearned income.

Penalty-free retirement plan withdrawals for expenses related to the birth or adoption of a child.

Generally, a distribution from a retirement plan must be included in income. And, unless an exception applies (for example, distributions in case of financial hardship), a distribution before the age of 59-1/2 is subject to a 10% early withdrawal penalty on the amount includible in income.

Starting in 2020, plan distributions (up to $5,000) that are used to pay for expenses related to the birth or adoption of a child are penalty-free. That $5,000 amount applies on an individual basis, so for a married couple, each spouse may receive a penalty-free distribution up to $5,000 for a qualified birth or adoption.

Taxable non-tuition fellowship and stipend payments are treated as compensation for IRA purposes.

Before 2020, stipends and non-tuition fellowship payments received by graduate and postdoctoral students were not treated as compensation for IRA contribution purposes, and so could not be used as the basis for making IRA contributions.

Starting in 2020, the new rules remove that obstacle by permitting taxable non-tuition fellowship and stipend payments to be treated as compensation for IRA contribution purposes. This change will enable these students to begin saving for retirement without delay.

Tax-exempt difficulty-of-care payments are treated as compensation for determining retirement contribution limits.

Many home healthcare workers do not have taxable income because their only compensation comes from “difficulty-of-care” payments that are exempt from taxation. Because those workers do not have taxable income, they were not able to save for retirement in a qualified retirement plan or IRA.

For IRA contributions made after Dec. 20, 2019 (and retroactively starting in 2016 for contributions made to certain qualified retirement plans), the new rules allow home healthcare workers to contribute to a retirement plan or IRA by providing that tax-exempt difficulty-of-care payments are treated as compensation for purposes of calculating the contribution limits to certain qualified plans and IRAs.

Reference: Thomson Reuters\Checkpoint

Avoid the Surprise!  In the world of Income tax, 2018 and 2019 saw many changes as a result of the Tax Cuts and Jobs Act (TCJA) that was passed in 2017.  To that end, what follows in this memo is a highlight of the most relevant changes and some recurring “standard” advice around which meaningful year-end planning can occur.

December 2019 Tax Planning Letter

Clients & Friends:

Yes it is that time again. Black Friday sales way before "Black Friday", holiday décor at stores, holiday songs redone for political correctness, holiday party invites and the time for some TAX PLANNING AND YEAR END FINANCIAL REVIEWS. 

Our purpose in this communication is to encourage you to give a little attention to your tax and economic situations. Action taken after New Year's Eve may be too late to impact 2019. 

The 2017 tax reform, which mostly became effective for 2018 tax return filing, gave us some new perspectives on tax filings and the related planning. We are sure a lot of you were surprised when your 2018 individual returns reflected the new increased standard deduction amounts rather than the itemized deductions to which we had all become accustomed. For 2019, those standard deduction amounts are $12,200 for single filers, $18,350 for head of household status and $24,400 for married joint filers. If you are over 65, the standard amounts are increased by $1,650 in the single or head of household status and by $1,300 per person over 65 on a joint return (e.g. the standard deduction for a joint return with both over age 65 is $27,000). 

With the increased standard deduction in place, it gives you the opportunity/incentive to time and manage your deductions including mostly "elective" medical expenses (starting in 2019 medical expenses must exceed 10% of your adjusted gross income (AGI) to be deductible) and charitable contributions. A popular strategy is to bunch these deductions every other year and take advantage of the high standard deductions in the intervening years. A way to "manage" your charitable contributions is to use a donor advised fund (DAF) to make and deduct a large contribution amount in 2019 and pay amounts to your favorite charities in succeeding years from the fund. If the DAF strategy is cumbersome or will not work for you, make two years' worth of donations in 2019 and skip the payments to the charities of your choice in 2020. 

If your itemized deductions still will not meet the standard deduction amount and you are over 70½, consider sending your required minimum distribution (RMD) amount from your IRA account directly to the charity of your choice. You will not have to pay tax on the distribution and "in effect" get the qualified charitable deduction for the payment. This contribution distribution is limited to payments of $100,000 or less. 

Remember, itemized deductions from tax reform limited the TOTAL amount of all personal tax deductions (income and real estate tax) to $10,000, so there is very limited tax planning available in this area and usually no benefit in accelerating the final state estimated tax payments due 1/15/2020. 

Mortgage rates are favorable again. If you are purchasing a home or considering refinancing, remember the new mortgage limit for tax deduction is $750,000. You can, however, refi your old mortgage and apply the $1M limit as long as you do not receive "proceeds" from the refi. 

Last year at this time we warned of surprises because of changes in the federal income tax withholding tables that occurred early in 2018 and left many taxpayers short on their 2018 tax returns. If you were one that owed tax with the 2018 federal return because of this AND did not adjust your tax withholding in 2019, we encourage you to revisit the withholding NOW to avoid or at least be prepared for that unpleasant conversation with us in early 2020 about tax due. We will be happy to assist you in this assessment if needed. We dislike these surprise moments as much as you do! 

A few other tax adjustments we became more knowledgeable and familiar with in the 2018 returns include the new Qualified Business Income (or QBI) deduction under Sec. 199(A) which resulted in a deduction from your taxable income of 20% of your QBI. This deduction which is subject to various complex limitations was beneficial to many with business income on schedule "C" or business income passed through from partnerships or "S" corporations. We also dealt with limitations on business interest deductions under new section 163(j) and the overall limitations on business losses. These changes among others made for a challenging filing season! 

We are a bit "thankful" at this time that Congress has other "issues" to consider and it appears that no further tax "simplification" will occur in 2019! 

As of this writing, the stock market is on a bit of a roll. That means this is a good time to review your portfolio and balance any 2019 gains by selling positions that will result in capital losses. Remember when considering the 2019 gains to factor-in any capital gain distributions from mutual funds that will be reported to you and taxable in 2019. Most mutual funds will post on their websites the approximate amounts of capital gain distributions late in November or early December. 

Recent tax law allows for tax on certain qualified long-term gains to be deferred if they are reinvested in a qualified opportunity fund. If you have significant gains and are interested in this concept, please contact us. 

Do not be reluctant to realize net capital losses in 2019. The losses will offset 2019 gains including mutual fund distributions and the balance can be carried over to offset gains in 2020 and succeeding years! You may also find that 2019 is not a bad year to realize capital gains. Again the market is at an all-time high and you know the maximum capital gain rate is 20% or 23.8% if the net investment income tax applies. One should never feel bad about taking some gains off the table! As always in this area, be sure the economic considerations in any decision outweigh the possible tax benefits or costs. 

While we are talking of your portfolio and if you are charitably inclined, or want to fund the DAF mentioned earlier, giving appreciated securities to a charity is a very effective method of donation. You get a full fair market value deduction for the donated stock or fund held over one year, and do not pay capital gain tax on the gain in the position. 

If you are making gifts to family members it may also be efficient to give long-term appreciated positions. It is possible the donee could sell the stock or fund and take advantage of the ZERO% tax rate on the gain. That rate exists if taxable income is below $39,385 for singles and $52,750 and $78,750 for head of household or joint filers, respectively. If the donee is under age 24, Kiddie tax rules could impact the tax calculation. One last note here, if you have loser positions, DO NOT give them away. Sell the position and take the loss on your return where it is probably more valuable. 

If for some reason you find yourself in a low income tax bracket in 2019 AND have funds in an IRA account, one option to consider is converting all or a portion of that account to a ROTH IRA to take advantage of a low rate in 2019. The future distributions from the ROTH will not be subject to tax as long as it is in place for 5 years. 

While this letter is aimed primarily at our individual filers, those who have or own business entities should consider taking advantage of the very generous depreciation tax breaks and Section 179 deductions for the purchase of equipment and other business property. Some of these deduction limits decrease or phase-out in the future. As a result, investing now may be a wise choice. 

Also consider implementing or enhancing your retirement plans. For example, a solo 401(k) is a particularly popular plan design for a sole proprietor with no employees to take advantage of higher deduction limits. 

This is also a good time to review the designated beneficiaries on your retirement plans and life insurance policies as well as who you may have named as an executor of your will, power of attorney or trustee. Changes due to death or divorce sometimes occur in our lives and these designations go unchanged. These are relatively easy to change when you are in charge and often very difficult or impossible to alter after a disability or death. 

The year end is also a good time to revisit your estate planning and the related documents. Consider taking advantage NOW of the annual gift tax exclusion which is $15,000 per year per donee. As an example, dad and mom can gift as much as $60,000 to son and spouse by December 31 with no gift tax issue or filing requirement. These annual exclusion gifts DO NOT reduce your current lifetime gift/estate tax exemption of $11.4 million for each spouse and is portable. A married couple NOW enjoys a total exclusion of $22.8 million. With these exclusions in place we are not filing very many "taxable" gift or estate tax returns at this time. It is important to remember that these enhanced exclusion amounts are scheduled to sunset in 2026. While that may or may not happen, you may want to take advantage while we know they are available. 

Please keep our firm in mind as you gather with friends and family over the next few months. Our best referrals often come from existing clients who are able to speak highly on our behalf. We greatly appreciate the opportunity to do business with new individuals and businesses each year. 

Reminder: our firm continues to be very involved in estate administration including the preparation and filing of PA Inheritance tax returns and federal estate and gift tax returns. Please do not hesitate to contact us if you unfortunately have a need in these areas. 

One Final Reminder: do not hesitate to contact us to discuss and/or help implement any tax or economic planning or any other matter if you feel we can be of assistance. We are a more valuable asset to you when we have the opportunity in advance to consider and comment on the economic transactions which impact your tax matters. 

Finally, we hope you have a joyous and peaceful Holiday Season and find plentiful reasons to give thanks for 2019 and wish you all the best for a Happy and Healthy 2020!!! 

Thank you for being our clients and friends and allowing our firm to provide your tax and accounting needs. 

Siana Carr O'Connor & Lynam, LLP

Please read about the various changes in payroll withholding and related tax filing requirments for 2020.

The following is a summary of the various changes in payroll withholding and related filing requirements for 2020. As always, if you have any questions on these matters please contact us.

 The Tax Cuts and Jobs Act (TCJA), passed in December 2017, impacted individuals through the introduction of new tax rates and brackets, increased standard deduction, changes to allowable itemized deductions, elimination of personal exemptions, among many other changes.

 Under TCJA, various deductions and certain tax-favored fringe benefits were eliminated or modified. These changes included the suspension of the deductions for moving expenses and certain qualified transportation expenses. The tax-free reimbursement of employment-related moving expenses was suspended. The Act also suspended an employee's deduction for unreimbursed business expenses (previously deductible as a miscellaneous itemized deduction).

 The Act reduced the federal corporate (C-Corp) tax rate to 21%, while also providing a new deduction from pass-through income generated by most S-Corps, Partnerships, Sole Proprietors, etc. These provisions have many business owners reconsidering their current entity structure and evaluating the methods for paying themselves and their employees. Please note that the issues of reasonable compensation to owners, and the classification of workers as employees vs. independent contractors remain the focus of Internal Revenue Service scrutiny. Numerous other provisions exist which may impact your employees, you and/or your business, but a more in-depth analysis of the complete Act is beyond the scope of this newsletter focusing on employment taxes. Please contact our office should you desire a more in-depth explanation of this legislation.

 FEDERAL TAX DEPOSITS

 Most taxpayers are required to make federal tax deposits for payroll taxes, corporate income tax, and back-up withholding electronically through use of the electronic federal tax payment system (EFTPS). Paper coupons are discontinued as the paper coupon system is no longer maintained by the Treasury Department. The primary exception is for employers that have $2,500 or less in quarterly payroll tax liability who may pay this liability when filing the quarterly employment tax return.

 Officers and/or employees of a corporation or partnership can become personally liable for failure to withhold and remit federal employment taxes. If you are using a payroll service to make your deposits, you should ensure that the payments are made timely. Penalties can equal the amount of the tax due (100% penalty). If you are having difficulty paying your employment taxes timely, please call us.

 The net FUTA rate for most Pennsylvania and New Jersey employers is 0.6% for 2019. The 2020 net FUTA tax rates are likely to approximate the same. FUTA tax continues to be assessed on the first $7,000 of wages paid to each worker during a calendar year.

 The Internal Revenue Service’s deadline for submitting government copies of the 2019 Form W-2 to the Social Security Administration is January 31, 2020. This is the same as the deadline to furnish employees with their forms.

 SOCIAL SECURITY & MEDICARE TAXES

 For 2020, the taxable social security wage base limit is $137,700. The employee and employer tax rate for social security is 6.2%. In 2020, all wages are taxable for the Medicare portion of the tax which is 1.45% for both employees and employers. The self-employment tax rate will be 15.3% on the first $137,700 of net earnings.  

 The Patient Protection and Affordable Care Act (ACA) imposes an additional 0.9% Medicare tax on wages, compensation, or self-employment income exceeding the threshold amount $250,000 for married taxpayers filing jointly, $125,000 for married taxpayers filing separately, and $200,000 for other taxpayers. There is no corresponding amount owed by the employer. Employers must withhold Additional Medicare tax from wages it pays to an individual in excess of $200,000 in a calendar year. If individuals anticipate owing more Additional Medicare tax than the amount withheld, they should request additional income tax withholding using Form W-4 and/or should make estimated tax payments. Taxpayers will calculate Additional Medicare tax liabilities on their individual income tax returns (Form 1040), and will apply any Additional Medicare tax withheld against all taxes shown on this return.

 PENNSYLVANIA PERSONAL INCOME TAXES

 The withholding rate remains at 3.07%. The PA Dept. of Revenue no longer provides paper coupon booklets. Instead, employer returns and payments should be filed using three electronic options: Internet, Tele file or third-party software. If you have not yet registered under one of these methods, we encourage you to do so. If you want our help in using these filing methods, please call us. More information can be obtained via the internet at www.revenue.pa.gov and www.etides.state.pa.us. Employers may still file using paper returns and checks, however, we recommend that you switch to the D.O.R. mandated methods.

 PENNSYLVANIA UNEMPLOYMENT COMPENSATION

The first $10,000 of wages paid to each worker in calendar year 2020 is taxed at the employer’s standard rate, as provided by the State. In addition, employers are required to withhold unemployment taxes from employees’ gross wages at a rate of 0.06%. The amount of compensation subject to employee withholding is not limited. Pennsylvania employers are required to electronically file quarterly UC tax and wage reports through the Unemployment Compensation Management System (UCMS). The Department of Labor is no longer mailing paper UC-2 forms to employers. Additional information is available at www.dli.state.pa.us.

 PENNSYLVANIA ELECTRONIC FILING REQUIREMENT

             Employers who file 10 or more W-2 forms with the Department are now required to file those forms electronically. Employers should visit e-TIDES, the Department’s online system for business taxes, at www.etides.state.pa.us to file their Annual Withholding Reconciliation Statement (REV-1667). The REV-1667 must be filed by January 31, 2020. Copies of the Individual Wage Statement (W-2) must also be filed electronically with the form REV-1667.

             The PA Department of Revenue has expanded the EFW2 and CSV format specifications to include corrections for filing the W-2/1099 information for tax year 2019. Corrected W-2/1099 information can only be submitted for original filings done through e-TIDES.

             Additional information regarding the electronic filing requirement is available through the Department’s Business Taxes e-Services Center by accessing its website www.revenue.pa.gov or calling 717-787-8326.

 PHILADELPHIA CITY WAGE TAX

 Employers must withhold city wage taxes for residents at the rate of 3.8712% (.038712) and nonresidents who work in the city at the rate of 3.4481% (.034481). Every Pennsylvania employer who employs a Philadelphia resident must register with the Philadelphia City Revenue Commissioner and withhold the city wage tax. Please note that Philadelphia commonly changes these rates in July each year.

 LOCAL PAYROLL TAXES

PA Act 32 - Local Earned Income Tax Law

 The Pennsylvania law known as “Act 32” requires every business that employs individuals who work within Pennsylvania, either at a worksite or from their homes to withhold the applicable local earned income tax amount from employees’ wages and to remit this timely to the appropriate tax collection agency. The employer must withhold the greater of the employee’s resident tax rate for where they live or nonresident tax rate for where they work. Each employee must complete a Residency Certification Form, to identify the proper subdivision where they live and work. Additional information regarding Act 32 is available through the PA Department of Community and Economic Development by accessing its website www.dced.PA.gov or calling 1-866-466-3972.

Philadelphia is not regulated by Act 32, so the present system administered by the Philadelphia Department of Revenue remains in effect.

 Local Services Tax (LST)                                                          

 The Local Services Tax (LST) allows local governments to levy a tax of $10 to $52 per employee per year. If the locality levies a tax of $10, then the employer should withhold the tax from the first paycheck of the employee unless the employee qualifies for an exemption. The LST exempts employees who make less than $12,000 annually from the tax. The LST also exempts disabled veterans and reservists who are called to active duty at any time during the year from the tax. The employer must obtain and retain exemption certificates from such employees to document the non-withholding exemption. The LST (if more than $10) is not collected at one time, but must be withheld pro rata during the year with each payroll.

 NEW HIRE REPORTING

Federal regulation mandates all employers to report information about any new employee within 20 days of their hire date. Penalties for noncompliance can be up to $500 per employee. Mandatory information to report for all Pennsylvania employers includes: employee’s name, address, social security number, date of birth and hire date, also employer’s name, address, federal identification number, contact and phone number. Employers may report their new hire information by either manual or electronic means. Multi-state employers must report employees either by magnetic tape or electronically. Additional information can be obtained at www.cwds.pa.gov or call 1-888-PAHIRES.

 RETIREMENT PLANS

 *     The limitation on the exclusion for elective deferrals under 401(k) and other plans is increased from $19,000 in 2019 to $19,500 in 2020. Taxpayers who are age 50 and older (during 2020) can make an additional catch-up contribution in the amount of $6,500 in 2020.

 *     401(k) and 403(b) plans may offer qualified Roth contributions that allow employees to elect to make all or a portion of their 401(k) contributions on an after-tax basis. Similar to Roth IRA’s, earnings grow tax free and, in most circumstances, distributions are free from tax when withdrawn. Your plan documents must explicitly allow designated Roth contributions.

 *     The annual compensation limit taken into account for qualified plan purposes is increased from $280,000 in 2019 to $285,000 in 2020.

 *     The maximum annual amount of salary reduction contributions to a SIMPLE retirement plan is increased from $13,000 in 2019 to $13,500 in 2020. Taxpayers who are age 50 and older (during 2020) can make an additional contribution of $3,000 in 2020.

 *     The limitation on the annual benefit under a defined benefit plan is increased from $225,000 in 2019 to $230,000 in 2020. The limitation for defined contribution plans is increased from $56,000 in 2019 to $57,000 in 2020.

 *     The amount used to identify highly compensated employees for non-discrimination testing purposes is increased from $125,000 in 2019 to $130,000 in 2020.

 MINIMUM WAGE RATE

            The minimum wage rate for Pennsylvania is currently set at $7.25 per hour. A proposal to raise the minimum wage by $2.25 over the next three years is advancing in the state legislature.

 STANDARD MILEAGE RATES

 The standard mileage rate for business automobile usage is 57½ cents per mile in 2020, down from 58 cents per mile in 2019. The optional mileage allowance deduction may be used for both leased and purchased autos. If you elect the standard mileage rate for a leased auto, that method must be used for the entire lease period of that auto.

 NON-CASH FRINGE BENEFITS

 As noted above, the Tax Cuts and Jobs Act modifies or eliminates the tax-favored treatment of certain fringe benefits such as moving expenses. The rules regarding the taxation and reporting of other fringe benefits still apply. Taxable fringe benefits include the following: the cost of nondiscriminatory group-term life insurance provided to employees in excess of $50,000; personal use of an employer provided vehicle; the cost of life insurance (other than group-term) provided to employees where the employee may determine the beneficiary; and discriminatory payments to key employees under educational assistance plans, self-insured medical reimbursement plans, dependent care assistance programs and group legal service plans.

 1099 REPORTING

             Report on Form 1099-MISC payments made in the course of your business. Personal payments are not reportable. Form 1099-MISC must be issued to persons and unincorporated entities (including partnerships and LLCs not taxed as corporations) receiving at least $600 for: 1) services rendered other than as an employee; 2) rent; 3) prizes; 4) medical and health care payments; or 5) other payments. Form 1099-MISC is not required to be filed for payments for merchandise, payments made via credit card, nor most payments to corporations, subject to some exceptions. You must also file Form 1099-MISC for each person from whom you have withheld any federal income tax under the backup withholding rules regardless of the amount of payment. In addition, use Form 1099-MISC to report that you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment. Form 1099-INT should be filed to report interest payments of at least $10.

 The filing deadline for Form 1099-MISC to report non-employee compensation in Box 7 and the related Form 1096 is January 31, 2020. For all other reported payments, file Form 1099 by February 28, 2020. The forms generally should be provided to recipients by January 31, 2020. Penalties for late filing, non-filing, or filing incorrect information range from $50 per information return to the greater of $550 or 10% of the aggregate dollar amount of the items required to be reported correctly. In certain instances, these penalties may be higher. Should you require our assistance in preparing these forms, please submit all information to us as soon as possible to allow for timely filing and to avoid the assessment of significant penalties. We recommend that you collect names, addresses and taxpayer identification numbers for every payee and vendor with whom you transact business. Forms W-9 should be used for this purpose and may be obtained via the internet at www.irs.gov or from our website.

             Companies paying non-employee compensation for Pennsylvania based work must submit copies of federal forms 1099-MISC to the Pennsylvania Department of Revenue at the same time they are due to the Internal Revenue Service. Payors of $5,000 or more for Pennsylvania-sourced work to nonresident individuals or to disregarded entities owned by nonresident individuals are required to withhold Pennsylvania personal income tax from such payments at a rate of 3.07%. Similarly, a business making rent or royalty payments exceeding $5,000 to nonresidents with regard to Pennsylvania property is required to withhold Pennsylvania personal income tax on such payments. These new withholding rules require electronically filed copies of IRS Form 1099-MISC with the Pennsylvania Department of Revenue, as well as quarterly withholding returns and annual reconciliations.

             Rental property owners may benefit from the Qualified Business Income (QBI) Deduction under Sec. 199A of the Tax Cuts and Jobs Act. The 20% QBI deduction is available only for activities that qualify as a trade or business. The regulations are complex in determining whether a rental real estate activity qualifies as a trade or business for purposes of this deduction. The issuance of Forms 1099-MISC, where applicable, may be helpful in establishing this trade or business motive.

 The issue of whether workers should be classified as employees or as independent contractors remains the focus of Internal Revenue Service scrutiny. In determining appropriate worker classification, businesses must weigh a variety of factors. Some will dictate in favor of employee status while others will be indicative of independent contractor status. No single factor establishes the outcome, and all must be carefully considered within the context of the relationship. Improper reporting of workers can result in a requirement to pay back taxes plus interest and punitive penalties. Additional guidance with regard to this complex and important determination may be found at www.irs.gov (search “worker classification”). Should you have any questions, please call us.

 HEALTH FLEXIBLE SPENDING ARRANGEMENT

 The maximum salary reduction contribution to a health flexible spending arrangement (health FSA) is $2,750 for 2020. Any salary reductions in excess of this amount will be subject to tax on distributions from the health FSA.

 THE PATIENT PROTECTION AND AFFORDABLE CARE ACT (ACA)

Beginning in 2019, the TCJA eliminates the individual mandate imposing a penalty on those individuals failing to have health insurance coverage required under ACA; however, other provisions of the ACA are still in effect. Generally, ACA requires employers with at least 50 full-time equivalent employees (FTE) to provide health coverage, or risk paying a penalty. ACA also requires employers and insurers to report certain information to the Internal Revenue Service.

 In addition, ACA requires certain employers to report on Form W-2 the aggregate cost of applicable employer sponsored health coverage paid during the calendar year. The aggregate reportable cost is reported on Form W-2 in Box 12, using Code DD. Pending further guidance from the IRS, transition relief of this disclosure requirement may apply to certain small employers who issue less than 250 W-2 Forms each year. A detailed analysis for implementing these provisions is beyond the scope of this newsletter, but please contact us if further guidance is needed in regard to the Affordable Care Act.

 EMPLOYEE BUSINESS EXPENSE REIMBURSEMENTS

 If an employee is reimbursed for business expenses under an “accountable plan”, the reimbursements are not treated as taxable income to the employee. An accountable plan must require the employee to: 1) substantiate the nature and amount of the expenses, and 2) repay to the employer any reimbursements in excess of the business expenses incurred. Please contact us if you need assistance in designing an accountable plan.

 ANNUAL LEASE VALUE AMOUNTS FOR PERSONAL USE OF COMPANY CARS

 The “Annual Lease Value” (ALV) table, as issued by the Internal Revenue Service (www.irs.gov), shows the annual value to employees for the personal use of a company car. This ALV amount of the auto is includible in the employee’s income, unless the car is used exclusively for business purposes. If the car is used partly for personal driving, a percentage of the ALV (based on the percentage of personal use) is reported on the employee’s W-2. Note that the ALV does not change each year. Instead, it is treated as constant for each of the first four years of use. If the company car is still in use after four years, it is revalued at the beginning of the fifth year, and the ALV based on this new fair market value is used for the next four years of employee use. The ALV includes the value of auto insurance, registration fees and repairs paid by the company. It does not include the cost of fuel. If the company pays for fuel, the cost consumed in personal driving is additional W-2 income to the employee. A standard rate of 5½ cents per mile (based on 2019 rates) may be used in computing income attributable to personal fuel costs paid by the employer.

 OVERTIME UPDATE

             The U.S. Department of Labor has finalized a rule expanding overtime pay eligibility for certain American workers. This rule increases the minimum salary requirement to be considered exempt from overtime under the Fair Labor Standards Act and is scheduled to take effect on January 1, 2020. Please contact us for the specifics of these regulations.

DISCLOSURE

 The above synopses are brief reviews of general payroll tax issues. They are not intended to be complete explanations or to provide tax advice for specific fact patterns. Please discuss any decision concerning specific situations with a tax advisor qualified on such issues.

The IRS has released the 2021-2022 special per diem rates. Taxpayers use the per diem rates to substantiate certain expenses incurred while traveling away from home.

The IRS has released the 2021-2022 special per diem rates. Taxpayers use the per diem rates to substantiate certain expenses incurred while traveling away from home. These special per diem rates include:

1. the special transportation industry meal and incidental expenses (M&IE) rates;
2. the rate for the incidental expenses only deduction; and
3. the rates and list of high-cost localities for purposes of the high-low substantiation method.

Transportation Industry Special Per Diem Rates
The special M&IE rates for taxpayers in the transportation industry are:

• $69 for any locality of travel in the continental United States (CONUS); and
• $74 for any locality of travel outside the continental United States (OCONUS).

Incidental Expenses Only Rate
The rate is $5 per day for any CONUS or OCONUS travel for the incidental expenses only deduction.

High-Low Substantiation Method
For purposes of the high-low substantiation method, the 2021-2022 special per diem rates are:

• $296 for travel to any high-cost locality; and
• $202 for travel to any other locality within CONUS.

The amount treated as paid for meals is:

• $74 for travel to any high-cost locality; and
• $64 for travel to any other locality within CONUS.

Instead of the meal and incidental expenses only substantiation method, taxpayers may use:

• $74 for travel to any high-cost locality; and
• $64 for travel to any other locality within CONUS.

Taxpayers using the high-low method must comply with Rev. Proc. 2019-48, I.R.B. 2019-51, 1390. That procedure provides the rules for using a per diem rate to substantiate the amount of ordinary and necessary business expenses paid or incurred while traveling away from home.

The IRS and the Treasury Department have issued guidance to employers about reporting the amount of qualified sick and family leave wages paid to employees for leave taken in 2021 on Form W-2, Wage and Tax Statement.

The IRS and the Treasury Department have issued guidance to employers about reporting the amount of qualified sick and family leave wages paid to employees for leave taken in 2021 on Form W-2, Wage and Tax Statement. Further, the notice provides guidance under recent legislation, including: the Families First Coronavirus Response Act (FFCRA) ( P.L. 116-127), as amended by the COVID-Related Tax Relief Act of 2020 (Division N of P.L. 116-260) and the American Rescue Plan Act of 2021 ( P.L. 117-2). Employers are required to report these amounts to employees either on Form W-2, Box 14, or in a separate statement provided with the Form W-2. The wage amount that the notice requires employers to report on Form W-2 will provide employees who are also self-employed with the information necessary to determine the amount of any sick and family leave equivalent credits they may claim in their self-employed capacities.

Reporting Requirements
The guidance requires eligible employers to report to employees the amount of qualified sick leave wages and qualified family leave wages paid to the employees under (i) sections 7001 or 7003 of the Families First Act for leave provided during the period beginning January 1, 2021, through March 31, 2021, and (ii) Code Secs. 3131 and 3132 for leave provided during the period beginning April 1, 2021, through September 30, 2021. Moreover, eligible employers have separate reporting requirements for (i) leave provided to employees during the period beginning January 1, 2021, through March 31, 2021, under the Families First Act; and (ii) leave provided to employees during the period beginning April 1, 2021, through September 30, 2021, under Code Secs. 3131 and 3132.

Specific Reporting Instructions
Qualified leave wages paid in 2021 under the Families First Act and Code Secs. 3131 and 3132 are to be reported in Box 1 of Form W-2. To the extent that qualified leave wages are social security wages or Medicare wages, they must also be included in Box 3 (up to the social security wage base) and Box 5, respectively.

In addition to the regular reporting requirements, employers must report the following types and amounts of the wages that were paid, with each amount separately reported either in Box 14 of Form W-2 or on a separate statement to the employee:

• the total amount of qualified sick leave wages paid for reasons described in paragraphs (1), (2), or (3) of section 5102(a) of the Emergency Paid Sick Leave Act (EPSLA) with respect to leave provided to employees during the period beginning on January 1, 2021, through March 31, 2021 (sick leave wages subject to the $511 per day limit);
• the total amount of qualified sick leave wages paid for reasons described in paragraphs (4), (5), or (6) of section 5102(a) of EPSLA with respect to leave provided to employees during the period beginning on January 1, 2021, through March 31, 2021 (sick leave wages subject to the $200 per day limit);
• the total amount of qualified family leave wages paid to the employee under the Emergency Family and Medical Leave Expansion Act (EFMLEA) with respect to leave provided to employees during the period beginning on January 1, 2021, through March 31, 2021;
• the total amount of qualified sick leave wages paid for reasons described in paragraphs (1), (2), or (3) of section 5102(a) of section 5102(a) of EPSLA with respect to leave provided to employees during the period beginning on April 1, 2021, through September 30, 2021;
• the total amount of qualified sick leave wages paid for reasons described in paragraphs (4), (5), or (6) of section 5102(a) of EPSLA with respect to leave provided to employees during the period beginning on April 1, 2021, through September 30, 2021;
• the total amount of qualified family leave wages paid to the employee under EFMLEA with respect to leave provided to employees during the period beginning on April 1, 2021, through September 30, 2021.

Model Language for Employee Instructions
As part of the Instructions for Employee, under the instructions for Box 14, for the Forms W-2, or in a separate statement sent to the employee, the employer may provide additional information about qualified sick leave wages and qualified family leave wages, and explain that these wages may limit the amount of the qualified sick leave equivalent or qualified family leave equivalent credits to which the employee may be entitled with respect to any self-employment income. The guidance provides model language for employee instructions.

Self-Employment Tax Reporting
If taxpayers have self-employment income in addition to wages paid by an employer, and they intend to claim any qualified sick leave or qualified family leave equivalent credits, they must report the qualified sick leave or qualified family leave wages on Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, included with their income tax return. The self-employed taxpayer may have to reduce (but not below zero) any qualified sick leave or qualified family leave equivalent amounts by these qualified leave wages.

The IRS has issued temporary and proposed regulations that authorize the assessment of any erroneous refund of the COVID-19 employment tax credits which were added by the American Rescue Plan Act of 2021 ( P.L. 117-2). These credits for certain wages paid by employers are:

The IRS has issued temporary and proposed regulations that authorize the assessment of any erroneous refund of the COVID-19 employment tax credits which were added by the American Rescue Plan Act of 2021 ( P.L. 117-2). These credits for certain wages paid by employers are:

• the Credit for Paid Sick Leave under Code Sec. 3131,
• the Credit for Paid Family Leave under Code Sec. 3132, and
• the Employee Retention Credit under Code Sec. 3134.

The text of the temporary regulations also serves as the text of the proposed regulations.

The temporary regulations apply to all credits under Code Secs. 3131 and 3132, including any increases to the credits under Code Sec. 3133, credited or refunded on or after April 1, 2021, including advanced refunds, as well as all credits under Code Sec. 3134 that are credited or refunded on or after July 1, 2021, including advanced refunds.

Erroneous Refunds
These credits are taken against the employer's share of Medicare tax imposed under Code Sec. 3111(b) and the attributable Railroad Retirement Tax Act tax imposed under Code Sec. 3221(a). If the amount of the credits exceeds these taxes for any calendar quarter, then the excess must be treated as an overpayment to be refunded or credited under Code Secs. 6402(a) and 6413(b). Any credits claimed that exceed the amount to which the employer is entitled, and that are actually credited or refunded by the IRS, are considered to be erroneous refunds of these credits.

If a small eligible employer specified in Code Sec. 3134(j)(2) receives excess advance payments of the credit, then the tax imposed under Code Sec. 3111(b) (or the attributable Code Sec. 3221(a) tax) for the calendar quarter are increased by the excess amount.

The temporary regulations provide that erroneous refunds of these credits are treated as underpayments of the taxes imposed under Code Sec. 3111(b) (and the attributable Code Sec. 3221(a) tax). The temporary regulations authorize the IRS to assess any credits erroneously credited, paid, or refunded in excess of the amount allowed as if those amounts were the applicable taxes, subject to assessment and administrative collection procedures. This allows the IRS to prevent the avoidance of the purposes of the limitations under the credit provisions, and to recover the erroneous refund amounts efficiently, while also preserving administrative protections afforded to taxpayers with respect to contesting their tax liabilities under the Code and avoiding unnecessary costs and burdens associated with litigation.

These assessment and administrative collection procedures do not replace the existing recapture methods, but instead represent an alternative method available to the IRS.

Any amount of the credits for qualified leave wages and certain collectively bargained contributions under Code Secs. 3131 and 3132, plus any amount of credits for qualified health plan expenses under Code Secs. 3131(d) and 3132(d), and including any increases in these credits under Code Sec. 3133, and any amount of the employee retention credit for qualified wages under Code Sec. 3134 that are erroneously refunded or credited to an employer must be treated as underpayments of the employer’s share of the applicable Medicare tax by the employer, and may be administratively assessed and collected in the same manner as the taxes. The temporary regulations provide that the determination of any amount of credits erroneously refunded must take into account any credit amounts advanced to an employer under the process established by the IRS.

In certain situations, third-party payors claim tax credits on behalf of their common law employer clients. The temporary regulations address this by providing that employers against which an erroneous refund of credits may be assessed as an underpayment include persons treated as the employer under Code Secs. 3401(d), 3504, and 3511, consistent with their liability for the employment taxes against which the credits applied.

Effective Date; Request for Comments
The temporary regulations are effective on the date they are published in the Federal Register.

A public hearing on the proposed regulations will be scheduled if requested in writing by any person who timely submits electronic or written comments. Written or electronic comments and requests for a public hearing must be received by the date that is 60 days after the proposed regulations are published in the Federal Register.

The IRS has announced that it intends to defer until 2023 the applicability of certain final regulations under Code Sec. 1446(a) and (f) relating to withholding of tax on foreign partners’ share of effectively connected income.

Withholding Provisions on Transfers of Interests in Publicly Traded Partnerships Deferred
The amendments will defer the applicability date to January 1, 2023, for certain provisions relating to (1) withholding under Code Sec. 1446(f) on transfers of interests in publicly traded partnerships ( "PTP interests"); (2) withholding under Code Sec. 1446(a) on distributions made with respect to PTP interests; and (3) withholding under Code Sec. 1446(f)(4) by partnerships on distributions to transferees.

Code Sec. 864(c)(8) generally provides that gain or loss derived by a foreign person on the sale or exchange of an interest in a partnership engaged in a U.S. trade or business is treated as effectively connected gain or loss and, therefore, is subject to U.S. tax. Code Sec. 1446(f)(1) generally requires a transferee of an interest in a partnership to withhold 10 percent of the amount realized if any portion of the gain on the disposition would be treated under Code Sec. 864(c)(8) as effectively connected with the conduct of a trade or business within the United States. Code Sec. 1446(f)(4) provides that if a transferee fails to withhold on the disposition as required under Code Sec. 1446(f)(1), the partnership must withhold on distributions to the transferee.

Taxpayers May Rely on Deferral Prior to Amendments
The final foreign partner withholding regulations were published on November 30, 2020, in T.D. 9926, I.R.B. 2020-51, 1602, and the provisions whose applicability dates the amendments will defer generally would have applied to transfers and distributions that occur on or after January 1, 2022. Taxpayers may rely on the deferrals announced in the notice prior to amendments being issued.

The IRS has reminded taxpayers to file their 2020 tax returns by the upcoming October 15, 2021 due date. Taxpayers must file on or before the extension deadline to avoid the penalty for filing late if they request an extension. Tax returns can still be filed through electronic filing options, such as the IRS Free File.

The IRS has reminded taxpayers to file their 2020 tax returns by the upcoming October 15, 2021 due date. Taxpayers must file on or before the extension deadline to avoid the penalty for filing late if they request an extension. Tax returns can still be filed through electronic filing options, such as the IRS Free File.

However, the following taxpayers may have more time to file their returns:

• members of the military and others serving in a combat zone as they have 180 days after they leave the combat zone to file returns and pay any taxes due, and
• taxpayers in federally declared disaster areas who already had valid extensions.

Taxpayers are usually not penalized for failure to file if a refund is due. However, people risk losing the refund if they wait too long to file and claim a refund. Taxpayers can avoid additional penalties and interest by filing the 2020 return as soon as possible and paying any taxes owed.

Taxpayers must remember the following while paying federal taxes electronically:

• electronic payment options are the best way to make a tax payment,
• payment can be made when taxpayers file electronically using tax software online,
• IRS Direct Pay permits taxpayers to directly pay online from a checking or savings account for free and to schedule payments up to 365 days in advance,
• taxpayers can pay with a credit card, debit card or digital wallet option through a payment processor, which would charge a fee for the transfer,
• the IRS2Go app provides mobile-friendly payment options, including Direct Pay and debit or credit card payments on mobile devices, and
• payment can be made conveniently using the Electronic Federal Tax Payment System Voice Response System.

Further, taxpayers can see the following information while preparing their tax return or following up on balances or notices through their online account:

• adjusted gross income,
• economic impact payment amounts,
• estimated tax payment amounts,
• amount owed for any past years, updated for the current calendar day,
• payment history and any scheduled or pending payments,
• payment plan details,
• digital copies of select notices from the IRS, and
• approve or reject authorization requests from tax professional

Direct Deposit for Refunds
Taxpayers must file electronically and have their refund electronically deposited into their bank or other financial accounts for safe and quick refund receipt. Taxpayers can use direct deposit to deposit their refund into one or more accounts or purchase U.S. Savings Bonds. People can visit the FDIC website or the National Credit Union Association to use their Credit Union Locator Tool for information on opening an online bank or credit union account if they do not have a bank account. Further, veterans can use the Veterans Benefits Banking Program (VBBP) to access financial services at participating banks.

Monthly Advance Child Tax Credit Payments
The IRS is using previous year tax information, 2019 for most, for determination of the credit amount for those eligible and on extension for their 2020 tax returns. People who request an extension must file as soon as possible if they experience a significant change like the birth of a child in 2020. The IRS can calculate the credit based on the 2020 return and pay it out in total over the remaining months in 2021 once that return is processed.

Taxpayers may be eligible for two payments of half the credit in 2021 if they file and have their 2020 return processed on or before November 1, 2021. Similarly, people may be eligible for one payment if they file and have their return processed on or before November 29, 2021. The IRS has encouraged taxpayers to file electronically for quick processing of returns and to avoid delays.

Claiming Missing Stimulus Payments
To claim missing stimulus payments, eligible people must file a 2020 tax return or use the Child Tax Credit Non-filer Sign-up Tool soon, even if they usually do not file. The IRS will also automatically evaluate the taxpayer’s eligibility for the third economic impact payment when the 2020 return is processed. It will continue to issue eligible taxpayers their third economic impact payment and plus-up payments through the end of 2021.

The IRS has reminded taxpayers to develop emergency preparedness plans due to the upcoming hurricane season and the ongoing threat of wildfires in some parts of the country. September is declared as the National Preparedness Month.

The IRS has reminded taxpayers to develop emergency preparedness plans due to the upcoming hurricane season and the ongoing threat of wildfires in some parts of the country. September is declared as the National Preparedness Month.

Further, the IRS advised taxpayers to:

• secure critical documents such as tax returns, birth certificates, deeds, titles and insurance policies inside waterproof containers in a secure space;
• duplicate and scan key documents for backup storage on electronic media such as a flash drive, CD or in the cloud, which provide security and easy portability;
• record all property, especially expensive and high value items. The IRS disaster-loss workbooks in Publication 584 and Publication 584-B can help individuals and businesses compile lists of belongings or business equipment;
• employers who use payroll service providers should check payroll service provider’s fiduciary bonds as they could protect the employer in the event of default by the provider;
• employers should create an Electronic Federal Tax Payment System account at EFTPS.gov to monitor their payroll tax deposits and receive email alerts; and
• reconstruct records after a disaster for tax purposes, getting federal assistance or insurance reimbursement. Further, taxpayers who have lost some or all their records during a disaster can visit the IRS's Reconstructing Records webpage.

In addition, taxpayers residing in a federally declared disaster can check for the available disaster tax relief on the IRS Tax Relief in Disaster Situations webpage or Around the Nation on IRS.gov. The IRS automatically identifies taxpayers located in the covered disaster area and applies filing and payment relief. Taxpayers impacted by a disaster can contact the IRS at 866-562-5227 to speak with an IRS specialist trained to handle disaster-related issues. Further, taxpayers impacted by a disaster outside of a federally declared disaster area may qualify for disaster relief. This includes taxpayers who are not physically located in a disaster area but their records essential for filing or payment deadlines postponed during the relief period are located in a covered disaster area.

The IRS has emphasized the importance of correctly determining whether the individuals providing services to businesses were employees or independent contractors.

The IRS has emphasized the importance of correctly determining whether the individuals providing services to businesses were employees or independent contractors. Generally, an employee performs services that businesses control. Independent contractors offer their services to the public. Businesses have a right to control the details of the services performed.

The classification depends on the:

• company’s behavioral Control on what the worker does and how the job is performed;
• business’ direct or control the financial and business aspects of the worker; and
• relationship of the Parties ascertained by written contracts or employee type benefits.

Misclassification of Workers
Businesses could be held liable for employment taxes if an employee is misclassified without a reasonable basis.

Workers can use Form 8919, Uncollected Social Security and Medicare Tax on Wages, to figure and report their share of uncollected taxes due on their compensation if they believe they have been improperly classified as independent contractors

Voluntary Classification Settlement Program
Taxpayers can reclassify their workers as employees for future tax periods for eligible taxpayers that agree to treat their workers as employees through the Voluntary Classification Settlement Program. Taxpayers must fulfill eligibility requirements, apply by filing Form 8952, Application for Voluntary Classification Settlement Program, and enter into a closing agreement with the IRS.

Self-employed individuals must file an annual tax return and pay estimated tax quarterly. They pay self-employment tax (Social Security and Medicare tax) and income tax. If self-employed individuals use part of business home, they may claim the home office deduction.

Gig Economy
Taxpayers must report gig economy income on a tax return even if the income is part-time, temporary or side work; not reported on a Form 1099-K, 1099-MISC, W-2 or other income statements; or paid in any form, including cash, property, goods or virtual currency.

The IRS has allowed taxpayers to use electronic or digital signatures on certain paper forms they cannot file electronically.

The IRS has allowed taxpayers to use electronic or digital signatures on certain paper forms they cannot file electronically. The Service has balanced the e-signature option with critical security and protection needed against identity theft and fraud. The IRS will accept a wide range of electronic signatures. Acceptable electronic signature methods include:

• a typed name typed on a signature block;
• a scanned or digitized image of a handwritten signature that’s attached to an electronic record;
• a handwritten signature input onto an electronic signature pad;
• a handwritten signature, mark or command input on a display screen with a stylus device; and
• a signature created by a third-party software.

Moreover, the IRS will accept images of signatures (scanned or photographed) including common file types supported by Microsoft 365 such as tiff, jpg, jpeg, pdf, Microsoft Office Suite, or Zip.

The IRS has allowed taxpayers and representatives to use electronic or digital signatures on paper forms, which they cannot file using IRS e-file, including for example:

• 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 and other forms in the 706 series;
• 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 and other forms in the 1120 series;
• Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts; and
• Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner.

The Tax Court had jurisdiction to determine the appropriate relief available to an individual who sought innocent spouse relief for two tax years at issue. Initially, the taxpayer submitted a request for innocent spouse relief for one tax year, which the IRS denied in a final determination.

The Tax Court had jurisdiction to determine the appropriate relief available to an individual who sought innocent spouse relief for two tax years at issue. Initially, the taxpayer submitted a request for innocent spouse relief for one tax year, which the IRS denied in a final determination. Subsequently, the taxpayer filed an untimely petition for Tax Court review which was dismissed for lack of jurisdiction. Later, the taxpayer submitted a request for innocent spouse relief for an additional tax year at issue (two tax years). The IRS issued a final determination denying relief as to both years on the merits. The Tax Court held it had jurisdiction to hear the case even though the IRS previously denied relief for one year and argued that the year was included in the notice by mistake.

Notice Is Evaluated on its Face
The Tax Court has jurisdiction to review a final determination denying innocent spouse relief. The Tax Court concluded that when evaluating whether a notice serves as the predicate for jurisdiction, it generally does not look beyond the face of the notice unless its text is ambiguous or inconsistent. In this case, the notice unambiguously denied relief for two years. The court also stated that nothing in the law or regulations prohibits the Commissioner from issuing more than one final determination as to a given tax year. Thus, the notice could be a final determination conferring jurisdiction, even though there had been a prior final determination.