Monday, November 22, 2021

What Is An FAQ And Should We Care??

On May 6, 2020, the Internal Revenue Service published an FAQ which included, in

William Delaney, EA
Westwood, MA

Q&A 15, a position (with no particular reason noted or cited) which stated that individuals who were incarcerated were not eligible to receive EIP payment(s) under the CARES Act. If you will recall, there was an uproar when the public learned that the database used for issuing payments included criminals who were incarcerated. The IRS moved to demand a return of the payments.


What didn’t make the headlines in the same way was an Action, filed on behalf of those who were being denied an EIP as a result of the FAQ – Scholl v. Mnuchin, USDC ND CA, Case No. 4:20-cv-05309 (10/14/20).


The plaintiffs argued that the FAQ was incorrect, and that they had been harmed by

denial of an EIP payment. The Service argued that an FAQ is an informal publication

found on the agency’s web page, and that it was not subject to judicial review under the

federal Administrative Procedures Act (APA) since it was neither a final decision nor an

interpretation of law.


The Court looked to the conditions which must exist under the APA which would allow

the judiciary to take a look and it found that there are two requirements…

“First – the action must mark the consummation of the agency’s decision-making

process…Second – the action must be one by which the rights or obligations have been

determined, or from which legal consequences will flow.” Cited as authority: US Army

Corps of Engineers v. Hawkes Co, 136 S.Ct. 1807 (2016).


Did the guidelines, as laid out by the US Supreme Court in Hawkes, allow the Court in

Scholl to take a look? Here is what the Court determined…

The FAQ took the unequivocal position that incarcerated individuals were not eligible for

an EIP payment. (First requirement met)


The CARES Act requires the government to issue EIP payments to individuals who

meet the criteria specified by Congress (in the Act). By denying the incarcerated

individuals an EIP payment, and by relying on the FAQ as their authority for so doing

(no particular reason noted of cited), the government denied the payments to a specific

segment of the population. (Second requirement met)


Yes, the Court did have standing under the APA to review the FAQ and its attendant

consequences. “Accordingly, the court finds that the IRS’s determination that

incarcerated individuals are ineligible for an EIP is a final agency action.”


The eventual outcome in this case is not important to our discussion. What is important

is that the IRS went beyond where the typical FAQ is supposed to go, and turned it into

a “final agency action” as opposed to “…restatements of existing law and filing

procedures…” and not interpretations of statute or procedures. See IRS homepage

(1996) wherein the IRS posted FAQs on a web page for the first time.


FAQs, as we know them and notwithstanding the Scholl circumstances outlined above,

are not intended to be binding (final) guidance. According to the Internal Revenue

Manual (IRM) – see IRM §10.7.2.4 (1/10/18) “…FAQs that appear on IRS.gov but that

have not been published in the (Internal Revenue) Bulletin are not legal authority and

should not be used to sustain a position unless the items (e.g. FAQs) explicitly indicate

otherwise or the IRS indicates otherwise by press release or by notice or announcement

published in the Bulletin.”


This brings us back to what an FAQ is intended to be – guidance but not authority.

However, now comes the Internal Revenue Service [IR 2021-202 (10/12/21)] to tell us

that FAQs which we relied upon because they were posted on the IRS web site (but not

in the Internal Revenue Bulletin) will not result in the imposition of a negligence or other

accuracy related penalties if the “alternative to guidance published in the Bulletin” turns

out to be incorrect. This slightly upgrades the IRS FAQ. However, the IRS has again

reiterated that “FAQs typically provide responses to general inquiries rather than

applying the law to taxpayer-specific facts…FAQs that have not been published in the

Bulletin will not be relied on, used, or cited as precedents by Service personnel in the

disposition of cases.”


What to take home from this reading---An FAQ is not authority; it is a cannot be relied

upon opinion as to what the law allows. Unfortunately, it has become more and more

the only “resource” available in certain tax situations because the IRS is unable to

devote the time needed to prepare more formal and authoritative guidance. Now we

have been given some protection from accuracy and negligence penalties if we FAQ

information in our practice and that information turns out to be less than accurate.

Thursday, October 21, 2021

 



As was mentioned at our seminar class last week, the IRS now requires all e-filers to have a Data Security Plan.


Compliments of our speaker, John Sheeley, EA, we have been offered a free 1 CE on-demand program which takes tax pros through the process.


https://taxpracticepro.teachable.com/p/practical-guide-to-writing-your-data-security-plan-1-irs-ce


Please send John a THANK YOU if you have a moment - john@taxpracticepro.com

Bitcoin Miners Look to Nuclear Power

William Delaney, EA
Westwood, MA


At our recent federal tax seminar, one of the topics had to do with what are bitcoins

and other similar "currency" and how are these transactions reported and taxed.  What

we didn't discuss, but what might be of interest to everyone, are the following excerpts

from an article (titled as above) in the Wall Street Journal dated 9/27/2021 (page B9)...


"Mining bitcoin is an energy-intensive process.  To unlock more of the currency, miners

must solve mathematical puzzles that become increasingly complex, which means they

require more computing power---and electricity...The way to boost the odds of figuring out

the puzzle is to put more machines to work."


"Talen Energy Corp. has entered into a joint venture with bitcoin-mining company 

TeraWulf Inc., which has started land development for a mining facility the size of four

football fields next to its (Talen Energy's) Pennsylvania nuclear plant...We are building

demand adjacent to the existing nuclear plant."


"For bitcoin miners, the partnership allows them to promote projects as having an

environmentally friendly source of power.  'That was the big difference for us,' said

Maxim Serezhin, chief executive at Standard Power, which is building a

nuclear-powered bitcoin-mining facility at a former paper mill in Coshocton, Ohio."


Who knew that nuclear power was environmentally friendly?  This was news to your

editor as he read the WSJ article.  But, what do I know about anything, I'm over age 35?

Tuesday, October 5, 2021

Penalty for Failure to Deposit Deferred Taxes Really Hurts

Mary Mellem, EA

A part of the Covid relief provisions permitted employers to defer the deposit of the matching Social Security taxes applicable to payroll during most of the 2020 calendar years.  The provision requires the employers to deposit ½ of these deferred taxes by December 31, 2021; and the other ½ of these deferred taxed by December 31, 2022.

 

Now IRS Office of Chief Counsel has released PMTA 2021-07:  Penalty for Failure to Deposit Taxes Deferred Under CARES Act Section 2302(a)(2).

 

Briefly this PMTA states the failure of the taxpayer to make the full deposits timely will cause the taxpayer to be subject to the normal “failure-to-deposit” penalties.  The penalties will apply from the date the deposit would have NORMALLY been due if the deferral had not taken place under the normal deposit rules.

 

The failure to deposit 100% of the deferred taxes by their applicable date (½ by 12/31/21, and ½ by 12/31/22) means the entire deferred taxes were required to be deposited by their original deposit dates as if the deferral did not take place.

 

For example - Taxpayer A is a monthly depositor.  Taxpayer deferred $10,000 of applicable taxes.  Taxpayer paid $4,900 by December 31, 2021, instead of the required $5,000.  RESULTS -

 

Taxpayer A did NOT deposit the required ½ of these taxes by December 31, 2021.  Taxpayer A is in default of the provisions of the deferral option.  Therefore, Taxpayer A is subject to penalties for failure to deposit.  Deferred taxes from March 2020 that were due April 15, 2020, are now subject to the failure-to-deposit penalty for not being deposited by April 15, 2020.  And for not depositing the April 2020 taxes by May 15, 2020, the April deferred taxes are now subject to the failure-to-deposit penalty for not being deposited by May 15, 2020.  Etc.  In other words, the penalty will apply to every amount that was deferred.

 

This same result applies if the any of the second ½ of the deferral is not deposited by December 31, 2022; the entire deferred amounts are deemed due on their original deposit dates and are subject to penalties for not being made timely, going back to the original dates.

 

This is a reason some employers may want to pay the first ½ of the deferred taxes soon, instead of waiting until December 31, 2021.  And some may want to pay the second ½ of the deferred taxes as soon as they have the funds available instead of waiting until December 31, 2022.  Missing the deadline by any amount could make the taxpayer subject to serious failure-to-deposit penalties on the ENTIRE deferred taxes.

 

HOW DO EMPLOYERS MAKE THE REQUIRED PAYMENTS?  Here is the information found on irs.gov when we typed “deferral of reemployment tax deposits” in the SEARCH box:

“Q&A 29. How can an employer pay the deferred amount of the employer's share of Social Security tax it owes before the applicable date by which the deferred amount of the employer's share of Social Security tax must be deposited and paid? (added July 30, 2020)

 

The employer may pay the amount it owes electronically using EFTPS, by credit or debit card, or by a check or money order. The preferred method of payment is EFTPS. If an employer is using EFTPS, in order to pay the deferred amount, an employer that files Form 941 should select Form 941, the calendar quarter in 2020 to which its payment relates and payment due on an IRS notice in EFTPS. An employer that files annual returns, like the Form 943, 944, or CT-1, should select the return and 2020 tax year to make a payment.

 

For example, if an employer that files Form 941 wants to pay $300 of its deferred employer's share of Social Security tax, $100 of which is attributable to the second calendar quarter of 2020, and the other $200 of which is attributable to the third calendar quarter of 2020, the employer must make two payments through EFTPS. Each payment should be made for the calendar quarter to which the deferral is attributable, and the entry in EFTPS must reflect it as a payment due on an IRS notice. Thus, the employer would pay $100 for the second calendar quarter of 2020 using EFTPS and select payment due on an IRS notice in EFTPS while doing so and would also separately pay $200 for the third calendar quarter of 2020 using EFTPS and make the same selection.

 

For more information, visit EFTPS.gov, or call 800-555-4477 or 800-733-4829 (TDD).”

 

 

This text has been shared courtesy of:  David & Mary Mellem, EAs & Ashwaubenon Tax Professionals, 920-496-1065 (920-496-9111).

Thursday, September 16, 2021

 

2021 Annual Meeting & Seminar

Massachusetts / Rhode Island NATP Chapter Annual Meeting & Educational Seminar October 16th 2021







Join the Massachusetts / Rhode Island NATP Chapter on Saturday, October 16th 2021 for our Annual Meeting & Educational Seminar. This all day event will be held at the Southbridge Hotel & Conference Center. We are offering both in-person and virtual option via webinar. Registration details are below, and is handled online by National. Take a look at the details on our speaker and topics provided in this great Continuing Education  opportunity including continental breakfast, snacks, lunch, vendors and great networking opportunities (In-Person). This seminar is limited to the First 100 Registrants!


  • For online registration FOR IN PERSON MEETING, click here.
  • For online registration FOR VIRTUAL MEETING, click here.
  • To register by phone, fax or mail, click for the registration form.
  • After October 14th, please print the form (see link above) and register at the door.

Registration 7:00 am to 8:00 am (Continental Breakfast Included)
Education 8:00 am to 6:00 pm (Webinar Log-in 7:55 am)
Annual Meeting Prior to Lunch (Lunch Included)

CE Credits -
9 Federal Tax Law Topics FOR IN-PERSON Attendees Only


Speaker - John Sheeley, EA


Topics:

  • Schedule E-Beyond the Basics: Deciding which activities belong on a Schedule E or another Schedule like C, F or even line 21. Analyze appropriateness of IRC 121.
  • Crowd Funding: Raising funds for charitable purposes, business start-ups and medical funds and how to report them.
  • Data Security in the Tax Office: Best practices as suggested by industry and the IRS Security Summit.
  • S Corps: Options and misconceptions.
  • Taxation of Crypto Currencies: Overview of IRS related position on reporting and examination and how to complete due diligence.




Chester, New York based John Sheeley, EA began his career in the tax industry in 1987, passing the IRS special enrollment exam in 1995. His career includes 13 years as a multi-unit franchisee of a national tax firm and 5 years as a tax manager at a regional CPA firm in New York. A National Tax Practice Institute fellow, John completed his undergraduate education at the State University of New York at Oswego.

John formed his current tax services firm in 2008, with a focus on the tax and representation needs of U.S. citizens living abroad, and non‐resident alien entrepreneurs and entertainers living and working in the United States. The Firm prepares the occasional cannabis industry and crypto currency tax return.

John is also the founder of Tax Practice Pro, Inc, a national continuing education provider. His current teaching focus centers on taxation of legal marijuana businesses, problems of S corps, and taxation of non-resident aliens and those living abroad. He can be reached at john@taxpracticepro.com