Newsletters

To our business clients:

A new 1099 form, 1099-NEC, was created to be used for reporting nonemployee compensation (NEC) for 2020. This form must be filed by February 1, 2021 with the IRS and also provided to the recipient by this date. Most CA businesses will need to send a copy of the new 1099-NEC to the Franchise Tax Board, unless the services weren't performed in CA. The information for the new 1099-NEC was previously reported on the form 1099-MISC.

The form 1099-MISC is still required for other types of payments and information. See below for the specific uses of this form.

Except for the new 1099-MISC, most 1099s are due to the recipient by February1^st, and to the IRS by March 1st . The penalty for each instance of failing to file a correct 1099 form by the due date with the IRS is as follows:

• $50 per form if correctly filed within 30 days of the due date;
• $110 per form if correctly filed after 30 days of the due date but by August 1;
• $270 per form if filed after August 1 or not filed (assuming there was no intentional disregard)
• At least $560 per form with no maximum penalty if due to intentional disregard of the requirements.

A similar additional penalty framework applies if the payee isn’t provided their copy by these deadlines.

California may impose its own penalties when conducting an audit, the most severe of which is for failure to file 1099 forms to independent contractors. In those cases, California can effectively negate the deduction for those expenses by imposition of its penalties.

Federal business tax returns currently contain two questions regarding the filing of 1099 forms. We'll be checking with you about your fulfilment of the 1099 form filing requirements in order to answer those questions correctly.

WHAT IS A 1099 FORM?

A 1099 form is an informational return on which businesses report various sorts of payments they've made to partnerships, sole proprietorships, individuals and certain types of corporations during the calendar year. Some of the most common types of 1099 forms are:

WHO SHOULD WE SEND A 1099 FORM TO?

They should be sent to partnerships, sole proprietorships, limited liability companies (LLC), limited liability partnerships (LLP), and individuals you made payments to in the course of your business. A 1099 should also be sent to any attorney, physician, or a supplier of medical services even if they are a corporation. Any payment on which you take backup withholding for Federal income taxes must be reported on the appropriate Form 1099, regardless of the amount of the payment. This means:

1. Only send 1099s for payments you made related to the operation of your business.                 
2. You don't need to send 1099s for materials or products you purchased.
3. You don't need to send 1099s to corporations (unless it is for medical or legal services). However, the burden to find out if it's a corporation is on you. If the name has "Incorporated", "Inc.", "Corporation", or "Corp." in it, you can assume it's a corporation. Otherwise, you need to ask.
4. You don't need to send 1099s to exempt organizations, retirement trusts, or IRA accounts.

FILING RETURNS WITH THE IRS

If you must file any Form 1098 or 1099 with the IRS and you are filing paper forms, you must send a Form 1096 with each type of form as the transmittal document.

For businesses located in California the government copies need to be mailed to:

Department of the Treasury
Internal Revenue Service Center
Ogden, UT 84201

Businesses who file 250 or more informational returns are required to file electronically through the IRS' FIRE System (Filing Information Returns Electronically). We can help you with this.

CALIFORNIA REPORTING REQUIREMENTS

In most cases, Form 1099-NEC must be submitted to the FTB regardless if you also sent it to the IRS. If you pay a CA resident, or you pay a nonresident to do work in CA, the FTB requires a copy. Use the state boxes at the bottom of the 1099-NEC to show where the services were performed (information for up to two states can go in the state boxes).

If you file other IRS Forms 1099 series, Forms 5498, 1098 and W-2G with the IRS on paper, you are not required to file a paper copy of the same form with the Franchise Tax Board. The IRS will forward the information to them.

When the Federal and State payment amounts differ, you may file information returns directly with the Franchise Tax Board.

WHAT INFORMATION DO YOU NEED FOR THE 1099 FORM?

1. Name and address of whom you paid.

2. The amount you paid them during 2020.

3. Their identification number. For an individual this would be their social security number. For a proprietorship, LLC, partnership, or corporation this would be their employer identification number which is a nine-digit number, usually beginning with "94-" or "77-".

IMPORTANT:   It is extremely important that the name recorded on the 1099 agrees with the name listed on the Social Security Administration's records for the specified identification number. Therefore, in the case where an individual is self-employed, care must be taken to make sure that the proper name is listed on the 1099. Any "dba" name should be listed on the 1099 underneath the individual's legal name which agrees with the Social Security Administration's records.
 

WHAT IF SOMEONE WON'T GIVE US THEIR IDENTIFICATION NUMBER?

If someone won't give you their identification number, you're not sure they're giving you the correct number, or you're not sure they're incorporated as they say, then you should send them a W-9 form (available at the IRS website) by certified mail, return receipt requested. The receipt will document your request for their number and help you avoid the penalty for filing a 1099 form without an identification number. If the W-9 form is completed and returned to you, it will take you off the hook for both the accuracy of the identification number used and as to whether they're really a corporation.

WHAT CAN SEEBA & ASSOCIATES DO TO HELP?

Please give us a call if you would like us to help in the preparation of these 1099 forms. We can:

1. Answer your questions regarding the issues discussed above,
2. Prepare 1099 forms for you from information you've gathered, consisting of name, address, identification number, and amount paid in 2020, or
3. Figure the amount you've paid for 2020 from your books and records. Along with the address and identification number supplied by you, we'll prepare the 1099 forms.
4. eFile your 1099 forms via the IRS system.

*         *         *         *         *

IMPORTANT

Please let us know as soon as possible if we can assist you since the 1099s are due by February 1^st.

You should be getting an identification number or completed W-9 form from anyone you pay for services, even if less than $600, before you pay them. Otherwise, you are obligated to withhold 24% of their payment and remit it to the IRS. Please call us if you run into problems where the 24% "backup withholding" may come into effect.

You should also keep in mind that you will need to maintain records of amounts paid to independent contractors as payments are made or contracts are signed in order to comply with the 2021 Employment Development Department reporting requirement for independent contractors.

If you have any questions regarding 1099 filings, feel free to contact us.

To our business clients:

2021 FEDERAL PAYROLL DEPOSIT REQUIREMENTS:

Standard Mileage Rates for 2021

For 2021, the standard rate for business mileage will be 56 cents per mile. The previous rate was 57.5 cents per mile.

The standard rate for the use of a car when providing services to a charitable organization will be remain at 14 cents per mile.

The 2021 standard mileage rate for the use of your car for medical expenses or deductible moving expenses will be 16 cents per mile. The previous rate was 17 cents per mile.

BONUSES- Just a reminder - holiday bonuses are subject to all payroll taxes.

This is true whether the bonus is paid in cash, by check or by a gift card. For income tax withholding, the rates are 25% federal and 10.23% state. If you have a net figure in mind, the gross amount can be calculated as follows:

1. If the employee has not passed the wage limits for SDI ($122,909) or FICA ($137,700), divide the desired net by .5612 to arrive at the gross.
2. If the employee has exceeded the SDI limit only, divide the desired net by .5712 to arrive at the gross.
3. IIf the employee has exceeded both the SDI and FICA limits, divide the desired net by .6332 to arrive at the gross.

Example: You wish to pay Employee A a net bonus of $100.00 -

If the employee has earned $4,000.00 for 2020, they are subject to all taxes. Dividing $100.00 by .5612 (See #1 above) yields a gross of $178.19. Deductions would be:  Federal income tax $44.55 (25%); Social Security $11.05 (6.2%); Medicare $2.58 (1.45%); State income tax $18.23 (10.23%); SDI $1.78 (1%).

The percentages and example shown above pertain to checks dated prior to January 1, 2021. For checks dated after December 31, 2020, you must use the 2021 withholding rates and limits.

AWARDS -As part of a meaningful presentation, employers can give employees awards for length of service or safety achievements of up to $400 per year. In order to be deductible to the employer and non-taxable to the employee, the awards must be made with noncash items. Awards of cash or items readily convertible into cash, such as gift certificates, are subject to payroll taxes, no matter the amount.  Length of Service Awards are deductible to the employer if employees have more than five years of service and have not received such an award in the last four years. Safety Achievement Awards aren't deductible if given to a manager, administrator, clerical employee, or professional, nor if given to more than 10% of the other employees. We recommend that any prizes awarded be documented by corporations in their corporate minutes, although the law doesn't require this.

GIFTS - Business gifts are still limited to $25 to any individual per year. They can be made on a discriminatory basis and can be in cash. These gifts are deductible to the business and non-taxable to the recipient.

Items clearly of an advertising nature that cost $4 or less, such as promotional items, aren’t considered gifts and therefore, aren’t included in calculating the $25 limit for an individual.

In addition, gifts that are considered “de minimis” fringe benefits aren’t restricted by the $25 per recipient limit, and are considered to be made tax-free to the employee. For a gift to be considered as a de minimis fringe benefit the value must be nominal, the accounting for such a gift would be administrative nitpicking, it’s only an occasional gift, and it’s given for the purpose of promoting the health, goodwill, contentment or efficiency of the employees. Some examples of such gifts are holiday turkeys, a Christmas luncheon or party.

There is no limit on gifts made to corporations or partnerships.

So that the reporting for this fringe benefit is not so burdensome, the IRS allows employers to include the personal use of business-owned cars during November and December in the following year's W-2s. This means that W-2s for 2021 need to include the value of the personal use of the vehicles from

November 1, 2020 to October 31, 2021 and that this value can be calculated now. Those clients using computerized payroll systems which prepare W-2s will have to inform the system of this fringe benefit value which needs to be included in payroll before the end of December.

The following information should serve to remind you of how to calculate the value of the personal use of business-owned cars for W-2 purposes and how to withhold taxes on it:

1. For non-office/shareholders: If commuting is the only personal use of a business-owned car allowed by an employer, then the employer would need to include $3 a day in the employee's wages to recognize the value of the commute, plus 5.5 cents/mile for the fuel provided by the employer.

2. For officers and shareholders: The personal use of a business-owned vehicle must be included in their W-2. The formula for computing the value of their personal use is as follows:
    

   1. Annual lease value based on the IRS table (see attached table) prorated for the number of months the vehicle was used from November 2020-October 2021.
   2. Times this value by the personal use percentage determined from mileage records maintained throughout the year which list business and personal miles driven.
   3. Then add the lesser of the actual cost, or 5.5 cents/mile, for gasoline provided by employer that was used for personal travel
   4. Next subtract any reimbursement that the employer receives from employee.
   5. The result is the value of the personal use of the business-owned vehicle to be included in employee's W-2 compensation.
       

                                                                                   or                                      
                                                                 (A x B) + (C - D) = E

3. It is possible to avoid income tax withholding on the value of the personal use of an employer-provided vehicle. However, early action was required in order to avoid withholding income tax for 2021. The employer must have notified the employee in writing by January 31, 2021 or within 30 days after receiving the vehicle during the year, in order to avoid income tax withholding on this fringe benefit. If the employee is not notified of the withholding election by the specified dates, the employer must withhold income taxes on the value included in the W-2. For 2020, the employee must be notified in writing by January 31, 2022 or within 30 days of receiving the vehicle, in order to avoid 2022 withholding on this fringe benefit.

4. Even though an employer can avoid withholding income tax on the value of the personal use of a vehicle (as described in item 3 above), the Social Security tax (FICA), the Medicare tax, and State Disability Insurance (SDI) must be withheld on the value included in the W-2. However, there are some choices available on the timing of these withholdings. The employer is given the option of calculating and withholding these taxes on a pay period, quarterly, semi-annual, or annual basis. As stated previously, the annual period would run from November through October, which means that the employer could wait until the end of October to figure the taxes to be withheld. If the employee will reach the maximum Social Security wages for the year by that time, without considering the fringe benefit, only Medicare tax withholding would be necessary.

Please feel free to contact us if you need help in calculating the value of the personal usage of business-owned cars, but remember it must be done soon and included on the 2021 W-2 forms.

 Click here to view the Business Car Usage

With certain key exceptions, employers must pay nonunion, non-exempt employees (who are not working an alternative workweek schedule) at least time and one-half pay for: *Hours worked in excess of eight hours in one day, *Hours worked in excess of 40 hours in one workweek, and *The first eight hours worked on the seventh day of work in a given workweek.

In addition, employers must pay employees at least double time for any hours worked in excess of 12 hours in one day and hours worked in excess of eight hours on any seventh day of a workweek.

Under the new law compensatory time off in lieu of payment for hours worked by non-exempt employees in excess of the normal workday and workweek (as described above) is no longer permissible

Exceptions

Employees, who on July 1, 1999, were voluntarily working an alternate workweek schedule (adopted without an employee election), may continue to work that schedule, of not more than 10 hours work a day, and continue to be exempt from the overtime rules if the employer approves a written request by the employee to continue to work that schedule. In addition, employees may elect, by two-thirds vote, to work an alternative workweek of up to 10-hour work days within a 40-hour workweek without being subject to the overtime rules.

Personal Time Off

Employees may make up lost time due to a personal obligation by giving a signed, written request to an employer to make up the work. Please note however that, if an employer approves an employee's written request to make up work time that is lost as a result of a personal obligation, the hours of that makeup work time, if performed in the same workweek in which the time was lost, should not be counted toward computing the total number of hours worked in a day for purposes of the overtime pay requirements. The only exception would be in the case of an employee who works more than 11 hours in one day or 40 hours in one workweek.

All businesses are required to report independent contractors, to whom they will be issuing a 1099-MISC form, to the California Employment Development Department. The information provided will be forwarded to state and local child support agencies to help in their efforts to locate parents who are delinquent in their child support obligations.

The information must be reported to the EDD, using form DE 542 ("Report of Independent Contractors"), within twenty days of either entering a contract for $600 or more, or the date during the calendar year when total payments to the independent contractor reach $600. Form DE 542 requests the independent contractors' full name, social security number, address and the contract dates and amounts. You may obtain forms by calling the Employment Development Department at (916) 657-0529, accessing the EDD web site at www.edd.ca.gov, or contacting our office.

Only individuals working as independent contractors are to be reported. Thus, you don't need to report corporations or partnerships which you pay for services provided to your business. However, you must report all independent contractors you hire for $600 or more, regardless of whether the independent contractor lives or works in California or another state. You only need to report an independent contractor one time per each calendar year that you contract or pay the contractor $600 or more.

The completed DE 542 forms can be either mailed or faxed to the Employment Development Department. The mailing address is:Employment Development Department PO Box 997350 MIC 96 Sacramento, CA 95899-7350 And the fax number is: (916) 319-4410

The EDD may assess a $24 penalty for each failure to comply with the reporting requirements within the required time frame. Also, a penalty of $490 may be assessed for the failure to report the required information due to an agreement between you and the independent contractor to disregard the filing requirements.

California's state-run college saving program, Golden State Scholarshare Trust allows parents and others to put aside tax-deferred money for college.

Plan Features

Money that participants (parents, grandparents, businesses, etc.) contribute to the Scholarshare Trust will grow while in the participant's account and be tax free for federal and California purposes upon disbursement to the beneficiary's school of choice. The funds disbursed can cover room and board, as well as tuition fees, books, supplies and equipment required for enrollment or attendance at a "qualified institution" (defined below). The participant retains ownership of his/her deposits in the trust until disbursement, at which time ownership is transferred to the beneficiary (student). Interest earnings disbursed from the trust are not included in the beneficiary's gross income (while attending college).

Qualified Institutions

Neither the beneficiary nor the participant will have to choose a college when opening a Scholarshare account. However, the type of college the beneficiary plans to attend will affect the maximum contribution allowed, i.e., community college, state university, private institution, etc. The student may use the funds to attend any qualified institution. A qualified institution is one that offers credit toward:

A bachelor's degree; An associate's degree; A graduate level or professional degree; and Another recognized post-secondary credential. Certain proprietary and post-secondary vocational schools are also eligible institutions.

At the time the beneficiary enrolls in college, the Scholarshare Program will transfer payments from the participant's Scholarshare account directly to the college to pay the beneficiary's qualified expenses.

Transferability

If the beneficiary dies or does not attend college, the contributor has the option of canceling the account or changing the beneficiary. Cancellation results in a refund equal to the then-current market value less a penalty of no less than 10 percent of the earnings. The penalty is waived in the event of the beneficiary's death.

Without cause and before the beneficiary's admission to college, the contributor may change the beneficiary designation to relatives of the original beneficiary or relatives of the beneficiary's spouse, including the contributor if the contributor is a relative of the original beneficiary or a relative of the original beneficiary's spouse.

Income Tax Issues

There are no income tax deductions to the contributor for placing funds into a Scholarshare program. Taxation is avoided on the earnings. Amounts paid for tuition will also be eligible for both the HOPE credit and Lifetime Learning credit, subject to the rules that regularly apply to each of those credits.

Gift Tax Issues

For gift tax purposes, deposits are completed gifts of present interests to the designated beneficiary and therefore qualify for the annual gift tax and generation-skipping transfer tax exclusion of $15,000 per year per donee as indexed. They do not qualify as excludable education expenses under the gift tax rules which allow education expenses to be paid in addition to the $15,000 annual exclusion. If the deposit exceeds the annual exclusion amount, the contributor may elect to take the balance into account ratably over a five-year period on their gift tax return.

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.

Every year, Americans donate billions of dollars to charity. Many donations are in cash. Others take the form of clothing and household items. With all this money involved, it's inevitable that some abuses occur. The new Pension Protection Act cracks down on abuses by requiring that all donations of clothing and household items be in "good used condition or better."

Good used or better condition

The new law does not define good or better condition. For guidance, you can look to the standards that many charities already have in place. Many charities will not accept your donations of clothing or household items unless they are in good or better condition.

Clothing cannot be torn, soiled or stained. It must be clean and wearable. Many charities will reject a shirt with a torn collar or a jacket with a large tear in a sleeve. As one charity spokesperson summed it up, "Don't donate anything you wouldn't want to wear yourself." 

Household items include furniture, furnishings, electronics, appliances, and linens, and similar items.  Food, paintings, antiques, art, jewelry and collectibles are not household items. Household items must be in working condition. For example, a DVD player that does not work is not in good used or better condition. You can still donate it (if the charity will accept it) but you cannot claim a tax deduction. Household items, particularly furnishings and linens, must be clean and useable. 

The new law authorizes the IRS to deny a deduction for the contribution of a clothing or household item that has minimal monetary value. At the top of this list you can expect to find socks and undergarments, which have had inflated values for years.

Fair market value

You generally can deduct the fair market value of your donation. Unless your donation is new - for example, a blouse that has never been worn - its fair market value is not what you paid for it. Just like when you drive a new car off the dealer's lot, a new item loses value once you wear or use it.  Therefore, its value is less than what you paid for it.  

If you're not sure about an item's value, a reputable charity can help you determine its fair market value. Our office can also help you value your donations of used clothing and household items.

Get a receipt

Generally, you must obtain a receipt for your gift. If obtaining a receipt is impracticable, for example, you drop off clothing at a self-service donation center, you must maintain reliable written information about the contribution, such as the type and value of the property.

Charitable contributions of property of $250 or more must be substantiated by obtaining a contemporaneous written acknowledgement from the charity including an estimate of the value of the items. If your deduction for noncash contributions is greater than $500, you must attach Form 8283 to your tax return. Special rules apply if you are claiming a deduction of more than $5,000.

Exception

In some cases, the new rules about good used or better condition do not apply. The restrictions do not apply if a deduction of more than $500 is claimed for the single clothing or household item and the taxpayer includes an appraisal with his or her return.

If you have any questions about the new charitable contribution rules for donations of clothing and household items, give our office a call. The new rules apply to contributions made after August 17, 2006.

Probably one of the more difficult decisions you will have to make as a consumer is whether to buy or lease your auto. Knowing the advantages and disadvantages of buying vs. leasing a new car or truck before you get to the car dealership can ease the decision-making process and may alleviate unpleasant surprises later.

Probably one of the more difficult decisions you will have to make as a consumer is whether to buy or lease your auto. Knowing the advantages and disadvantages of buying vs. leasing a new car or truck before you get to the car dealership can ease the decision-making process and may alleviate unpleasant surprises later.

Nearly one-third of all new vehicles (and up to 75% of all new luxury cars) are leased rather than purchased. But the decision to lease or buy must ultimately be made on an individual level, taking into consideration each person's facts and circumstances.

Buying

Advantages.

• You own the car at the end of the loan term.
• Lower insurance premiums.
• No mileage limitations.

Disadvantages.

• Higher upfront costs.
• Higher monthly payments.
• Buyer bears risk of future value decrease.

Leasing

Advantages.

• Lower upfront costs.
• Lower monthly payments.
• Lessor assumes risk of future value decrease.
• Greater purchasing power.
• Potential additional income tax benefits.
• Ease of disposition.

Disadvantages.

• You do not own the car at the end of the lease term, although you may have the option to purchase at that time.
• Higher insurance premiums.
• Potential early lease termination charges.
• Possible additional costs for abnormal wear & tear (determined by lessor).
• Extra charges for mileage in excess of mileage specified in your lease contract.

Before you make the decision whether to lease or buy your next vehicle, it makes sense to ask yourself the following questions:

How long do I plan to keep the vehicle? If you want to keep the car or truck longer than the term of the lease, you may be better off purchasing the vehicle as purchase contracts usually result in a lower overall cost of ownership.

How much am I going to drive the vehicle? If you are an outside salesperson and you drive 30,000 miles per year, any benefits you may have gained upfront by leasing will surely be lost in the end to excess mileage charges. Most lease contracts include mileage of between 12,000-15,000 per year - any miles driven in excess of the limit are subject to some pretty hefty charges.

How expensive of a vehicle do I want? If you can really only afford monthly payments on a Honda Civic but you've got your eye on a Lexus, you may want to consider leasing. Leasing usually results in lower upfront fees in the form of lower down payments and deferred sales tax, in addition to lower monthly payments. This combination can make it easier for you to get into the car of your dreams.

If you have any questions about the tax ramifications regarding buying vs. leasing an automobile or would like some additional information when making your decision, please contact the office.