IRS announces Form 1040-X electronic filing options coming this summer; major milestone reached for electronic returns

WASHINGTON- The Internal Revenue Service  announced today that later this summer taxpayers will for the first time be able to file their Form 1040-X, Amended U.S Individual Income Tax Return, electronically using available tax software products.

Making the 1040-X an electronically filed form has been a goal of the IRS for a number of years. It’s also been an ongoing request from the nation’s tax professional community and has been a continuing recommendation from the Internal Revenue Service Advisory Council (IRSAC) and Electronic Tax Administration Advisory Committee (ETAAC).

Currently, taxpayers must mail a completed Form 1040-X to the IRS for processing. The new electronic option allows the IRS to receive amended returns faster while minimizing errors normally associated with manually completing the form. 

“This new process is a major milestone for the IRS, and it follows hard work by people across the agency,” said IRS Commissioner Chuck Rettig. “E-filing has been one of the great success stories of the IRS, and more than 90 percent of taxpayers use it routinely. But the big hurdle that’s been remaining for years is to convert amended returns into this electronic process. Our teams have worked diligently to overcome the unique challenges related to the 1040-X, and we look forward to offering this new service this summer.”

About 3 million Forms 1040-X are filed by taxpayers each year.

The new electronic filing option will provide the IRS with more complete and accurate data in an easily readable format to enable customer service representatives to answer taxpayers’ questions. Taxpayers can still use the "Where's My Amended Return?" online tool to check the status of their electronically-filed 1040-X.

When the electronic filing option becomes available, only tax year 2019 Forms 1040 and 1040-SR returns can be amended electronically. In general, taxpayers will still have the option to submit a paper version of the Form 1040-X and should follow the instructions for preparing and submitting the paper form. Additional enhancements are planned for the future.

“Adding amended returns to the electronic family also complements our partnership with the tax software industry, which continues to work with us to provide better ways to help taxpayers,” said Ken Corbin, Commissioner of the IRS Wage and Investment division. 

Issue Number:    IR-2020-107

Mass DOR May Monthly News

DOR billing temporarily suspended - but payments can still be made

Although DOR temporarily suspended billing and various collection actions as a result of the COVID-19 health emergency, taxpayers can still see the balance due in their account and make partial or full payments. Go to your account on MassTaxConnect, choose the account type and “return payment” to make a credit card payment or have it withdrawn from your bank account. Billing will resume, of course, but we understand that the consequences of this emergency will not disappear for many of you. Make a partial payment if you can’t make a full payment, and wait for your bill to set up a payment plan for any new liability.

1099 changes impact Paid Family and Medical Leave contributions

You probably already know that the IRS wants any nonemployee compensation paid on or after January 1 of this year to be reported on Form 1099-NEC. This is particularly important when figuring out contributions for paid family and medical leave (PFML). The Department of Family and Medical Leave recently determined that any compensation reported on Form 1099-NEC for this year and going forward will not figure into the calculation for PFML contributions. If you made contributions for 2020 compensation that were reported on Form 1099-NEC, you can amend your return for a refund. You’ll find more information about the changes here.

What you should know about collections activity these days

Collections assistance is available these days. Taxpayers or third parties should contact the collector assigned to their particular case with any questions or concerns. If you’re a taxpayer who owes $5,000 or more and you’re uncertain who is assigned to your case, or you have a financial hardship and can’t make payments, call Collections at (617) 887-6400. If you owe less than $5,000 and have questions, call the Contact Center at (617) 887-6367. We are here to help, so whatever your need, don’t delay, act soon.

Can we say it one more time? File and pay electronically!

Wouldn’t it be great if everyone filed and paid electronically? Okay, not just for us, but for everyone involved in the transaction. It’s fast, it’s secure, refunds get issued faster, and no trees are felled.  We could go on but nothing puts this into perspective the way the COVID-19 emergency does when business is being done in such a different way. When you file and pay electronically, it’s automated with no need for human intervention, which means it’s a much faster workflow. No disrespect to our hardworking DOR humans  - they’d recommend electronically filing and paying too.

Got an estate tax transaction?

Again, the walk-in counters are closed but communication is open for estate tax. Corresponding through a MassTaxConnect e-message is a very good option. Calling Estate Tax by phone is another option.  You can reach them at (617) 887-6940.

Audit communication tip

When responding to a Corporate Tax or Pass-through Entity Income Tax Audit, don’t use snail mail. For the fastest result, send an email to the assigned auditor. Just like many organizations now, DOR audit staff is working remotely and mail is not being checked as often as it once was. Electronic communication is the way to go.

Tax practitioners: Protect yourself and your clients from scams

Yes, they are targeting you and posing as possible clients with some sophisticated phishing scams. Be sure to arm yourself ahead of time to be prepared. Take a look at the DOR blog on this subject, which will give you some reasonable steps to take and provide you with more information from the IRS and others. Check it out.

Boat sales tax can be paid online

We need some good news and buying a boat may be in that mix. Yes, the DOR walk-in counters are temporarily closed but a quick trip to Quick Links on MassTaxConnect to file and pay sales or use tax on a boat is probably the fastest way of taking care of it. Happy boating!

Registration opened May 1 for vaping and flavored tobacco license

Last month we let you know that license registration was opening May 1. If you have any issues adding the vaping license because you don’t have the necessary returns due to the COVID-19 emergency, you have options. You can send an e-message through MassTaxConnect after choosing any tobacco account. Be sure to include the business’s DBA name, address and whether it’s an age restricted store (smoke shop, vape shop or smoking bar). You can also call (617) 887-5090. Just a quick note: liquor stores are not considered age-restricted stores for the purpose of this license. Don’t forget, you have to be licensed by June 1 to sell these products. Take a look at our most recent message on the subject or the FAQs for more information.

Are masks taxable?

Yes, the purchase of a mask is taxable. This question may come up these days given the enormous increase in the need for masks. DOR put together a blog to answer the question. Established businesses already know how to collect and pay sales tax and likely know that they need to charge sales tax on face mask transactions. New businesses cropping up in response to the need may not know. New businesses can find some useful startup information and specifics on sales and use tax on the website.

PPP Loan Forgiveness and Expense Deductibility

We have been asked the following question often – “Can a taxpayer deduct the expenses paid with a Paycheck Protection Program loan if the loan is forgiven?”  Now IRS has answered this question by providing Notice 2020-32.

The CARES Act states this forgiveness is not taxable income to the borrower, but the CARES Act does not address the deductibility of the expenses paid by the PPP proceeds.  Thus, IRS has released this Notice to address this question.

Specifically, the Notice clarifies that no deduction is allowed under the Internal Revenue Code for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan.  A “covered loan” is a loan obtained under the PPP which can be forgiven if the loan proceeds are properly used, within 8 weeks, to pay qualified expenses such as:

1) Payroll costs,

2) Interest on mortgage obligations,

3) Rent obligations, and

4) Utility payments.

This “nondeductibility of expenses” is the treatment required by IRC Section 265(a)(1) and Regulation §1.265-1.

This treatment makes sense to us.  It would be illogical (not to say all tax matters are logical) to permit a taxpayer to deduct expenses that the taxpayer, in essence, didn’t pay out of the taxpayer’s own pocket.

Maybe Congress will choose to change the law to let taxpayers deduct expenses that were paid by nontaxable income (i.e., double dipping).  Time will tell.

Notice 2020-32 can be found on our web site (ataxprof.com) under the Tax Pros Newsletters tab, or by going to irs.gov/pub/irs-drop and clicking on n-2020-32.

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