Tax News & Views Hurricane Extensions and Outdoor Dining Roundup

IRS Delays Tax Deadlines for Parts of Florida Struck by Hurricane - Richard Rubin, Wall Street Journal: "The delayed deadlines include quarterly income-tax payments due Sept. 15 and Jan. 16, 2024. They also apply to taxpayers who received extensions from April to October on their 2022 tax returns. The new deadline is now Feb. 15, 2024."

Those impacted by Idalia qualify for tax relief; Oct. 16 deadline, other dates postponed to Feb. 15 - IRS:

The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA). Currently, 46 of Florida's 67 counties qualify. Individuals and households that reside or have a business in these counties qualify for tax relief, but any area added later to the disaster area will also qualify. The current list of eligible localities is always available on the disaster relief page on IRS.gov.

The tax relief postpones various tax filing and payment deadlines that occurred from Aug. 27, 2023, through Feb. 15, 2024, (postponement period). As a result, affected individuals and businesses will have until Feb. 15, 2024, to file returns and pay any taxes that were originally due during this period.

This means, for example, that the Feb. 15, 2024, deadline will now apply to

Individuals who had a valid extension to file their 2022 return due to run out on Oct. 16, 2023. The IRS noted, however, that because tax payments related to these 2022 returns were due on April 18, 2023, those payments are not eligible for this relief.

Quarterly estimated income tax payments normally due on Sept. 15, 2023, and Jan. 16, 2024.

Quarterly payroll and excise tax returns normally due on Oct. 31, 2023, and Jan. 31.

Calendar-year partnerships and S corporations whose 2022 extensions run out on Sept. 15, 2023.

Calendar-year corporations whose 2022 extensions run out on Oct. 16, 2023.

Calendar-year tax-exempt organizations whose extensions run out on Nov. 15, 2023.

Risk Lands With Clean Energy Project Owners in New Labor Rules - Erin Slowey, Bloomberg:

The proposed rules, released Tuesday, specify that the taxpayer—the company that owns the project and will claim the credit on its returns—will be responsible for documenting that the number of apprentices and wages paid align with the requirements in the rules. But the record keeping often is managed by contractors and subcontractors who hire the workers for the project.

This documentation requirement could create tension during contract negotiations between project owners and contractors vying to get bids, tax professionals told Bloomberg Tax.

Pot Businesses Inch Closer to Tax Relief With HHS Recommendation - Wesley Elmore, Tax Notes ($):

The Department of Health and Human Services has recommended that marijuana be reclassified as a Schedule III drug — a change that, if approved by the Drug Enforcement Administration, would significantly lower the tax burden for cannabis businesses.

...

Marijuana’s Schedule I status also means that even state-legal cannabis businesses are ineligible for some tax benefits. That’s because section 280E denies deductions or credits for the business expenses of any trade or business that “consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act).” However, those businesses may offset their gross receipts by the cost of goods sold when calculating their gross income.

Businesses must electronically file Form 8300, Report of Cash Payments Over $10,000, beginning January 1, 2024 - IRS (my emphasis):

The Internal Revenue Service today announced that starting Jan. 1, 2024, businesses are required to electronically file (e-file) Form 8300, Report of Cash Payments Over $10,000, instead of filing a paper return. This new requirement follows final regulations amending e-filing rules for information returns, including Forms 8300.

Businesses that receive more than $10,000 in cash must report transactions to the U.S. government. Although many cash transactions are legitimate, information reported on Forms 8300 can help combat those who evade taxes, profit from the drug trade, engage in terrorist financing or conduct other criminal activities. The government can often trace money from these illegal activities through payments reported on Forms 8300 that are timely filed, complete and accurate.

The new requirement for e-filing Forms 8300 applies to businesses mandated to e-file certain other information returns, such as Forms 1099 series and Forms W-2. Electronic filing and communication options will be simpler and will make it easier to interact with the IRS. Beginning with calendar year 2024, businesses must e-file all Forms 8300 (and other certain types of information returns required to be filed in a given calendar year) if they're required to file at least 10 information returns other than Form 8300.

IRS Updates Guidance on State Inflation Relief Payments - Kristen Parillo, Tax Notes ($):

The IRS has provided additional guidance to taxpayers regarding the federal tax treatment of inflation relief payments and refunds made by states in 2023, updating earlier guidance on 2022 state payments.

Notice 2023-56, 2023-39 IRB 1, released August 30, follows the IRS’s February 13 announcement that it won’t challenge the federal taxability of payments related to general welfare and disaster relief made by 17 states in 2022. Many states passed legislation that year to issue payments, refunds, or rebates to eligible taxpayers as a way to help them cope with rising prices from high inflation and other consequences of the COVID-19 pandemic.

Most State Welfare Will Be Free Of Federal Tax, IRS Says - Anna Scott Farrell, Law360 Tax Authority ($):

In order for state payments to qualify as tax-free under the general welfare exclusion outlined in the notice, they must be paid from a government fund and based on the need of the person or family receiving the payment, according to the notice. Payments that represent compensation for services are disqualified, as are payments based on criteria other than need, according to the notice.

...

While state income tax refunds are not taxable for the majority of taxpayers — the 90% who claim the standard deduction — refunds received by taxpayers with itemized deductions must be reported as income "to the extent that the individual received a federal income tax benefit" from the prior deduction, the notice said.

State general welfare payments in 2023 remain federally tax-free - Kay Bell, Don't Mess With Taxes. "Today, the IRS updated that prior guidance, which dealt only with the taxability of state payments made during 2022."

IRS Releases General Guidance on Taxability of Certain 2023 State Payments - Ed Zollars, Current Federal Tax Developments. "The Notice goes on to address the conditions under which state tax refunds may or may not be subject to federal tax. It begins by emphasizing that the classification of a payment as a state tax refund is not determined by the state’s own designation but is instead governed by the specific facts and circumstances of the situation."

FASB Approves Expanded Tax Disclosure Requirements for Companies Despite Opposition - Mark Maurer, Wall Street Journal:

The U.S. accounting standards-setter for companies on Wednesday voted 7-0 to adopt an update that would require both public and private companies to break out the income taxes paid to authorities at the federal, state and foreign levels for the full year in their annual financial reports.

If a particular jurisdiction represented more than 5% of these taxes for the year, businesses will have to identify that jurisdiction and specify the amount in their annual reports.

The change would take effect for 2025 annual reports.

IRS Issues Reminder About Tax-Free Way To Help Employees Pay Student Loans - Kelley Phllips Erb, Forbes. "To qualify, the regulations spell out that an educational assistance program must be in the form of a written benefits plan. While that sounds super formal, it’s no different than the health care, retirement benefits, or commuter plan that your company likely already has in place."

Late-Filed Return Nixes Taxpayer's Claim for Refund of Excess Withholdings - Parker Tax Pro Library. "The Tax Court held that it lacked jurisdiction to order a refund of an overpayment by a taxpayer who did not file an income tax return for 2015 until shortly after receiving notice of deficiency from the IRS in April of 2021. The court found that because the taxpayer failed to file a return before 2021, under Code Sec. 6511(b)(2)(A) the court had jurisdiction to determine a refund of an overpayment of tax paid within two years of the issuance of the notice of deficiency and the statute does not allow the court to give equitable consideration to the taxpayer's personal circumstances."

IRS has two-year plan for move to paperless processing - National Association of Tax Professonals. "The IRS currently receives about 76 million paper tax returns and 125 million pieces of correspondence, notice responses and non-tax forms each year. According to the IRS, there are two primary reasons for the high volumes of paper documents it receives annually: taxpayers can’t submit many forms and correspondence beyond a Form 1040, U.S. Individual Income Tax Return, digitally and the IRS can’t digitally process the paper returns it receives."

Beware TikTok Tax Advice – IRS Tanks a Trust Scheme - Virginia La Torre Jeker, US Tax Talk. "Cutting through to the chase, I will explain it in very simple terms: Taxable income does not magically disappear with trusts. Someone must pay tax on it."

Trends in Base Erosion and Profit Shifting - Adam Michel, Liberty Taxed. "The overall magnitude of income reported in tax havens is relatively small compared to total U.S. corporate income... The mechanisms used to prevent profit shifting usually come with high compliance and other economic costs that may outstrip promises of higher tax revenues, especially if profit shifting is already small and declining."

The Stock and Substance of the OECD Min Tax - Alex Parker, Things of Caesar. "So while everyone has focused on the exact definitions of tax credits and whether they’ll cover popular incentives, it may be that the details behind the substance-based carveout will ultimately determine how much and how often taxpayers will be impacted."

Software development CEO sentenced to two years in prison for tax and conspiracy charges - IRS (Defendant name omitted; emphasis added):

Defendant, of Dublin, Calif., pleaded guilty to the charges on February 21, 2023. In pleading guilty, Defendant admitted that he conspired with his two brothers to engage in a scheme in which they fraudulently obtained over $3.1 million in loans under the Paycheck Protection Program (PPP).

...

Collectively, Defendant and his brothers submitted at least twelve PPP loan applications on behalf of their seven companies. The applications sometimes were virtually identical. The applications resulted in the approval and funding of nine loans totaling over $3.1 million in PPP funds. Upon receipt of the PPP loan funds, Defendant redirected significant amounts to himself and his family members instead of using the funds for payroll and other authorized business expenses under the program.

This taxpayer took some actions with payroll taxes that practically invited the IRS agents to visit him:

Defendant also admitted to willfully failing to account for and pay over employment taxes that his company, Neelinfo, Inc., had withheld from the pay of its employees, incurring an employment tax liability of over $2 million over the course of five years (from 2014 through 2018). Defendant acknowledged that he used a payroll service company to process Neelinfo's employee payroll and track its employment tax obligations. Every quarter, the payroll service company provided Neelinfo with a prepared Form 941 that reflected the taxes withheld from Neelinfo's employees, which Neelinfo was required to pay over to the IRS. Despite receiving these prepared tax forms each quarter, Defendant did not file them with the IRS, nor did he pay over any employment taxes on behalf of Neelinfo, while still causing Neelinfo to make thousands of dollars in other expenditures. At the end of each year, the payroll service also provided Neelinfo with its employees' Forms W-2, which were used by the employees to file their personal income taxes. However, due to Defendant's failure to file any employment tax forms or pay over Neelinfo's employment taxes as required, some of Neelinfo's employees were subject to audits and inspection by the IRS after filing income tax returns based on income that Neelinfo never reported.

If a bunch of your employees claim withholding from W-2s you provide them, but then you never give the IRS the money you withheld from the employees, the IRS notices that.

Dine al fresco. It's Eat Outside Day!

Those impacted by Idalia qualify for tax relief; Oct. 16 deadline, other dates postponed to Feb. 15 - IRS:

The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA). Currently, 46 of Florida's 67 counties qualify. Individuals and households that reside or have a business in these counties qualify for tax relief, but any area added later to the disaster area will also qualify. The current list of eligible localities is always available on the disaster relief page on IRS.gov.

The tax relief postpones various tax filing and payment deadlines that occurred from Aug. 27, 2023, through Feb. 15, 2024, (postponement period). As a result, affected individuals and businesses will have until Feb. 15, 2024, to file returns and pay any taxes that were originally due during this period.

This means, for example, that the Feb. 15, 2024, deadline will now apply to

Individuals who had a valid extension to file their 2022 return due to run out on Oct. 16, 2023. The IRS noted, however, that because tax payments related to these 2022 returns were due on April 18, 2023, those payments are not eligible for this relief.

Quarterly estimated income tax payments normally due on Sept. 15, 2023, and Jan. 16, 2024.

Quarterly payroll and excise tax returns normally due on Oct. 31, 2023, and Jan. 31.

Calendar-year partnerships and S corporations whose 2022 extensions run out on Sept. 15, 2023.

Calendar-year corporations whose 2022 extensions run out on Oct. 16, 2023.

Calendar-year tax-exempt organizations whose extensions run out on Nov. 15, 2023.

Risk Lands With Clean Energy Project Owners in New Labor Rules - Erin Slowey, Bloomberg:

The proposed rules, released Tuesday, specify that the taxpayer—the company that owns the project and will claim the credit on its returns—will be responsible for documenting that the number of apprentices and wages paid align with the requirements in the rules. But the record keeping often is managed by contractors and subcontractors who hire the workers for the project.

This documentation requirement could create tension during contract negotiations between project owners and contractors vying to get bids, tax professionals told Bloomberg Tax.

Pot Businesses Inch Closer to Tax Relief With HHS Recommendation - Wesley Elmore, Tax Notes ($):

The Department of Health and Human Services has recommended that marijuana be reclassified as a Schedule III drug — a change that, if approved by the Drug Enforcement Administration, would significantly lower the tax burden for cannabis businesses.

...

Marijuana’s Schedule I status also means that even state-legal cannabis businesses are ineligible for some tax benefits. That’s because section 280E denies deductions or credits for the business expenses of any trade or business that “consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act).” However, those businesses may offset their gross receipts by the cost of goods sold when calculating their gross income.

Businesses must electronically file Form 8300, Report of Cash Payments Over $10,000, beginning January 1, 2024 - IRS (my emphasis):

The Internal Revenue Service today announced that starting Jan. 1, 2024, businesses are required to electronically file (e-file) Form 8300, Report of Cash Payments Over $10,000, instead of filing a paper return. This new requirement follows final regulations amending e-filing rules for information returns, including Forms 8300.

Businesses that receive more than $10,000 in cash must report transactions to the U.S. government. Although many cash transactions are legitimate, information reported on Forms 8300 can help combat those who evade taxes, profit from the drug trade, engage in terrorist financing or conduct other criminal activities. The government can often trace money from these illegal activities through payments reported on Forms 8300 that are timely filed, complete and accurate.

The new requirement for e-filing Forms 8300 applies to businesses mandated to e-file certain other information returns, such as Forms 1099 series and Forms W-2. Electronic filing and communication options will be simpler and will make it easier to interact with the IRS. Beginning with calendar year 2024, businesses must e-file all Forms 8300 (and other certain types of information returns required to be filed in a given calendar year) if they're required to file at least 10 information returns other than Form 8300.

IRS Updates Guidance on State Inflation Relief Payments - Kristen Parillo, Tax Notes ($):

The IRS has provided additional guidance to taxpayers regarding the federal tax treatment of inflation relief payments and refunds made by states in 2023, updating earlier guidance on 2022 state payments.

Notice 2023-56, 2023-39 IRB 1, released August 30, follows the IRS’s February 13 announcement that it won’t challenge the federal taxability of payments related to general welfare and disaster relief made by 17 states in 2022. Many states passed legislation that year to issue payments, refunds, or rebates to eligible taxpayers as a way to help them cope with rising prices from high inflation and other consequences of the COVID-19 pandemic.

Most State Welfare Will Be Free Of Federal Tax, IRS Says - Anna Scott Farrell, Law360 Tax Authority ($):

In order for state payments to qualify as tax-free under the general welfare exclusion outlined in the notice, they must be paid from a government fund and based on the need of the person or family receiving the payment, according to the notice. Payments that represent compensation for services are disqualified, as are payments based on criteria other than need, according to the notice.

...

While state income tax refunds are not taxable for the majority of taxpayers — the 90% who claim the standard deduction — refunds received by taxpayers with itemized deductions must be reported as income "to the extent that the individual received a federal income tax benefit" from the prior deduction, the notice said.

FASB Approves Expanded Tax Disclosure Requirements for Companies Despite Opposition - Mark Maurer, Wall Street Journal:

The U.S. accounting standards-setter for companies on Wednesday voted 7-0 to adopt an update that would require both public and private companies to break out the income taxes paid to authorities at the federal, state and foreign levels for the full year in their annual financial reports.

If a particular jurisdiction represented more than 5% of these taxes for the year, businesses will have to identify that jurisdiction and specify the amount in their annual reports.

The change would take effect for 2025 annual reports.

Software development CEO sentenced to two years in prison for tax and conspiracy charges - IRS (Defendant name omitted; emphasis added):

Defendant, of Dublin, Calif., pleaded guilty to the charges on February 21, 2023. In pleading guilty, Defendant admitted that he conspired with his two brothers to engage in a scheme in which they fraudulently obtained over $3.1 million in loans under the Paycheck Protection Program (PPP).

...

Collectively, Defendant and his brothers submitted at least twelve PPP loan applications on behalf of their seven companies. The applications sometimes were virtually identical. The applications resulted in the approval and funding of nine loans totaling over $3.1 million in PPP funds. Upon receipt of the PPP loan funds, Defendant redirected significant amounts to himself and his family members instead of using the funds for payroll and other authorized business expenses under the program.

This taxpayer took some actions with payroll taxes that practically invited the IRS agents to visit him:

Defendant also admitted to willfully failing to account for and pay over employment taxes that his company, Neelinfo, Inc., had withheld from the pay of its employees, incurring an employment tax liability of over $2 million over the course of five years (from 2014 through 2018). Defendant acknowledged that he used a payroll service company to process Neelinfo's employee payroll and track its employment tax obligations. Every quarter, the payroll service company provided Neelinfo with a prepared Form 941 that reflected the taxes withheld from Neelinfo's employees, which Neelinfo was required to pay over to the IRS. Despite receiving these prepared tax forms each quarter, Defendant did not file them with the IRS, nor did he pay over any employment taxes on behalf of Neelinfo, while still causing Neelinfo to make thousands of dollars in other expenditures. At the end of each year, the payroll service also provided Neelinfo with its employees' Forms W-2, which were used by the employees to file their personal income taxes. However, due to Defendant's failure to file any employment tax forms or pay over Neelinfo's employment taxes as required, some of Neelinfo's employees were subject to audits and inspection by the IRS after filing income tax returns based on income that Neelinfo never reported.

If a bunch of your employees claim withholding from W-2s you provide them, but then you never give the IRS the money you withheld from the employees, the IRS notices that.

Dine al fresco. It's Eat Outside Day!

Tax News & Views Hurricane Extensions and Outdoor Dining Roundup

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