Monday, October 26, 2020

Last Chance to Register for The Annual Meeting

Our MA/RI Annual Meeting is tomorrow - October 27th, 2020 from 10-11 a.m. The meeting will be held virtually, so if you have not already registered, please take a moment to register now. By registering today, you will ensure you space at the meeting and get the log on information, be able meet the current board and vote for our new directors for the 2021 Calendar Year.

Thank you for your support of our chapter!

Thursday, October 22, 2020

IRS Reminds Tax Professionals to Renew PTINs Now For 2021

WASHINGTON — The Internal Revenue Service reminds the nation's more than 780,000 active tax return preparers to start the upcoming 2021 filing season smoothly by renewing their Preparer Tax Identification Numbers (PTINs) now. All current PTINs will expire December 31, 2020.

"Large segments of the taxpaying public rely on tax return preparers to assist them in complying with their filing and payment obligations," said IRS Return Preparer Director, Carol A. Campbell. "Obtain or renew your PTIN now so you will be prepared to assist when filing season opens."

Anyone who prepares or helps prepare a federal tax return for compensation must have a valid PTIN from the IRS before preparing returns, and they need to include the PTIN as the identifying number on any return filed with the IRS.

Tax preparers must pay a fee of $35.95 to renew or obtain a PTIN for 2021. The PTIN fee is non-refundable.

Tax preparers with a 2020 PTIN should use the online renewal process, which takes about 15 minutes to complete. Form W-12 PDF, along with the instructions PDF, provides a paper option for PTIN applications and renewals. However, the paper form can take four to six weeks to process. Failure to have and use a valid PTIN may result in penalties.

To renew a PTIN online:

  • Follow the prompts to verify information and answer a few questions.

Once completed, users will receive confirmation of their PTIN renewal.

The online system not only allows PTIN renewal, but can also be used by tax preparers to view a summary of the number of filed returns their PTIN has appeared on in the current year, and to receive communications through a secure mailbox from the IRS Return Preparer Office.

First time PTIN applicants can also apply for a PTIN online.

To apply for a PTIN online:

  • Start at
  • Select the "Renew or Register" button and select "Create Account" in the New User box.
  • First time users are issued a temporary password and will be prompted to change their password upon logging in.
  • Select the appropriate "PTIN Sign Up" option once logged in.
  • Follow the prompts to obtain the PTIN online.

Opportunity for non-credentialed tax preparers

The Annual Filing Season Program is a voluntary IRS program intended to encourage non-credentialed tax return preparers to take continuing education courses to increase their knowledge and improve their filing season readiness.

Those who choose to participate must renew their PTIN, complete 18 hours of continuing education from IRS-approved CE providers and consent to adhere to specific obligations in Circular 230 by December 31, 2020. The IRS has a video available on how to sign the Circular 230 consent and print the Record of Completion.

After completing the steps, the return preparer receives an Annual Filing Season Program Record of Completion from the IRS. Program participants are then included in a public directory of return preparers with credentials and select qualifications on the IRS website.

The searchable IRS directory helps taxpayers find preparers in their area who have completed the program or hold professional credentials recognized by the IRS.

Enrolled agent credential

The enrolled agent credential is an elite certification issued by the IRS to tax professionals who demonstrate special competence in federal tax planning, individual and business tax return preparation and representation matters. Enrolled agents have unlimited representation rights, allowing them to represent any client before the IRS on any tax matter.

As non-credentialed return preparers think about next steps in their professional career, the IRS encourages them to consider becoming an enrolled agent.

All enrolled agents, regardless of whether they prepare returns, must renew their PTIN annually in order to maintain their active status.

IR-2020-238, October 20, 2020

Tuesday, October 20, 2020

Paycheck Protection and Other Similar Loan Forgiveness Programs - Mass Tax Implications

William Delaney, EA
Westwood, MA

 What happens if a taxpayer files for “PPP Loan Forgiveness” and is approved.  We know that (as of this moment in time) the forgiven amount is federal taxable income because Congress did not say otherwise (and thereby amend the federal Code). 

We also know that the cash, at the time of receipt, was not considered to be taxable income.  It was a bank loan to be repaid, so there was no need to record income, nor were there any restrictions on deducting expenses paid from that income source (how you go about tracing the activity is a question for another day).

Now comes our friendly SBA Administration and we assume that it approves our form 3508 application and forgives $10,000 of that loan!  We are left with the need to remove $10,000 from the liability account on the balance sheet – Bank Loan Payable.  Perhaps it is the entire amount; perhaps not, but the principle is the same.  Leave it to the IRS to gum up the works when they declared (IRS Notice 2020-32) that they would not allow the expense deductions associated with that money.  How do you trace it so that you don’t deduct it.  Rather than subscribe to the Theatre of the Absurd, I suggest that you make a simple bookkeeping entry (assuming the loan forgiveness is NOT taxable)…


Dr.  Bank Loan Payable               $ 10,000

   Cr.  Disallowed Expenses                                $ 10,000


Without the need to specifically identify, the bottom line has been adjusted and taxable income is properly calculated.  End of story?  Ah, not so fast…

What happens in MA???  See MA TIR 20-09 (7/13/20).  You guessed it…we have a different rule!  Since MA follows the federal Code as of 1/1/2005, there is no federal CARES Act.  The PPP program doesn’t exist.  As a result, “…any amount forgiven under §1106 of the (CARES) Act is includible in gross income and subject to tax, and there is no disallowance of deductions…” 

Therefore, the MA bookkeeping entry would be…


Dr. Bank Loan Payable                $  10,000

  Cr. Debt Forgiveness Income                             $ 10,000


Meanwhile, if the Congress does NOT decide to recognize the forgiveness as tax free, your federal bookkeeping entry would be the same as the above MA entry.

So, now we’ve nailed this thing!  Right?  Nope---wrong!  The above rule applies only to personal income tax.  It does not apply to the corporate excise tax, since MA follows the federal Code currently in effect (with exceptions) for purposes of corporate taxation.  The MA rule for forgiveness of corporate debt is…

“…any amount forgiven for a corporate borrower under §1106 of the (CARES) Act would be excluded from Massachusetts gross income, and any deductions disallowed in accordance with IRS Notice 2020-32 would likewise be disallowed for Massachusetts tax purposes.”

Therefore, our corporate bookkeeping entry would be (assuming federal forgiveness)…


Dr.  Bank Loan Payable                 $ 10,000

  Cr.  Disallowed Expense                                   $ 10,000   


Otherwise, the federal recognition of corporate debt forgiveness income would apply as well to the state corporate return and the bookkeeping entry would be…


Dr. Bank Loan Payable                 $ 10,000

  Cr. Debt Forgiveness Income                            $ 10,000


Now we have it, at least until/unless they change it.    

Governor Baker Proposes One-Year Delay for 2020 MA Charitable Contribution Deduction

Gov. Charlie Baker, MA

Included in Governor Baker's recently introduced budget proposal for the current fiscal year is a plan to delay the tax year 2020 allowable MA cash charitable contribution deduction until tax year 2021.  This deduction is allowed for all state taxpayers, even if you do not federally itemize or even file a federal return.  Non-cash contributions (clothing, food, vehicle, etc.) are not allowed.  Since the deduction is mandated under a 2002 addition to state law, the proposed delay needs legislative approval.

Your NATP state chapter shall keep you informed.                

Chapter Meeting Streaming Next Week!

Our MA/RI Annual Meeting will be next week on October 27th, 2020 from 10-11 a.m. The meeting will be held virtually, so if you have not already registered, please take a moment register now. By registering today, you will ensure you space at the meeting and get the log on information, be able meet the current board and vote for our new directors for the 2021 Calendar Year.

Hope to see you all online next week!

Tuesday, October 6, 2020

What To Do When You Contribute $275,000 To A Not-For-Profit Which Has Never Filed For Federal Tax Exempt Status?

What To Do When You Contribute $275,000 To A Not-For-Profit Which Has Never Filed For Federal Tax Exempt Status? That's A Lot of Money To Leave On The Table, So The Taxpayer Got Creative....

William Delaney, EA
Westwood, MA
Waterfront Fashion Week, Inc. was organized in KY as a nonstock, nonprofit corporation on May 8, 2012.  At all relevant times, Clinton Deckard was Waterfront’s President and one of its three Directors.  Although state chartered as a not-for-profit, the corporation never applied for federal tax-exempt status.

During its existence, Waterfront produced an event for the benefit of another KY nonprofit corporation; the event lost money; Waterfront made no “cash charitable contribution” to the other nonprofit.  Apparently, this was the full extent of Waterfront’s charitable activity in KY.  It was mostly funded by Mr. Deckard’s $275,000 “contribution” made sometime in August 2012.

The corporation was administratively dissolved on Sept. 28, 2013 for failure to file its 2013 annual report.  Waterfront subsequently filed a reinstatement application, which was accepted.  On Sept. 30, 2014, the corporation was again administratively dissolved because it failed to file an annual report.  (KY apparently is a quick draw state; neither MA nor RI would react so quickly).

Now for the really creative part of this narrative (believe me, you cannot make this up---it really happened).  On Oct. 28, 2014 (almost one month after the administrative dissolution), Waterfront filed a Form 2553 (S corporation election) with the IRS, retroactive to May 8, 2012.  Mr. Clinton Deckard signed the form as President of the corporation and also as its 100% shareholder (give that man a prize for hutzpah).

On Jan. 13, 2015, Waterfront filed forms 1120S for stub year 2012 and calendar year 2013, reporting operating losses of $277,967 and $3,239 respectively.  As its sole shareholder, Mr. Deckard received a Schedule K-1 on which these non-passive operating losses were passed-through to him; the losses were claimed on his federal Schedule E and deducted against his federal 1040 income.  So, now he had recovered his $275,000 “contribution” to the corporation!  Great tax planning, except for one little thing…the IRS came calling and issued, not surprisingly, a notice of deficiency.

Oh, but it gets better.  Now for the counter argument that the IRS (how can it be) is not correct…

The IRS asserted that the S election was invalid and that Mr. Deckard was not a shareholder in Waterfront (how dare they challenge his sworn affidavit).  So, how did Mr. Deckard defend himself against the notice of deficiency?  Read on…

He first argued substance over form (one of your editor’s favorite themes, but one which doesn’t work in this context).  Mr. Deckard “…asserts that he intended Waterfront to be a for-profit entity and ‘objectively operated’ it ‘consistently with it being a for-profit entity that he owned entirely’”…and that he was “mistakenly unaware of these formalities of corporate law” so he treated the corporation as if he were “the sole owner in every practical sense.”

The U.S. Supreme Court, when confronted with a somewhat similar argument, stated:  “While a taxpayer is free to organize his affairs as he chooses, nevertheless, once having done so, he must accept the tax consequences of his choice, whether contemplated or not.”  Comm. v. Nat’l Alfalfa Dehydrating & Milling Co, 417 US 134, 149 (1974).

OK, there goes one asserted position, so let’s try another…lack of tax-exempt status.

“Petitioner (i.e. Deckard) suggests that because Waterfront never gained tax-exempt status (which it never sought), it should be regarded as a for-profit corporation.  For-profit corporations have shareholders,” which somehow circumvents the fact that Waterfront is [was, because it has been administratively dissolved] a nonstock KY corporation.

Problem is that Deckard is right, in part.  Waterfront is a filer of a federal 1120, but not because it is now a stock corporation.  Instead, this is a default filing when you fail to obtain tax-exempt status.  So, why cannot an 1120 filer elect S corporation status?  Because that is an election made by the shareholders, of which there are none, Mr. Deckard’s assertion notwithstanding.  Under the KY statute, as is the case with most states, a not-for-profit corporation does not have shareholders, owners, and/or capital stock.  Clinton Deckard v. Comm. of Revenue, 155 T.C. No. 8, 9/17/2020.