The IRS has continued to clarify how the unemployment benefits exclusion from income for 2020 under the American Rescue Plan Act works in community property states, now explaining the impact when the spouses file a joint return, as well as the impact of returns when filing married filing separate.[1]

In Notice 2021-31[1] the IRS provided a series of questions and answers related to the COBRA Premium Assistance program enacted as part of the American Rescue Plan Act (ARPA).

The IRS has published the annual inflation adjusted amounts that apply to high deductible health plans (HDHPs) and health saving accounts (HSAs) for 2022.[1]

The IRS announced this week that the agency is beginning to issue refund checks to taxpayers who filed tax returns treating unemployment compensation as taxable in cases that Congress later made nontaxable in the American Rescue Plan of 2021 (ARPA).[1]

In Announcement 2021-10 the IRS provided that qualified opportunity zone (QOZ) boundaries will not be changed due to the recently completed census.[1]

Since QOZs are based on census tracts, there were some concerns expressed about how the new census would impact QOZs. The IRS has now stated there will be no changes to QOZ boundaries due to the results of the 2020 Census.

Tax Notes Today reported that Sharyn Fisk, director of the IRS Office of Professional Responsibility, told participants in the American Bar Association Section of Taxation virtual meeting that the IRS expects to open up a fully electronic system for filing Powers of Attorney with the agency by July.[1]

Advisers have found a number of IRS processes to have slowed dramatically due to operational issues at the IRS during the pandemic. This slowdown has impacted how quickly the IRS is able to process and record power of attorneys authorizing CPAs, EAs and attorneys to deal with the IRS on behalf of taxpayers

In Chief Counsel Advice 202117012[1] the IRS looks at issues surrounding the deduction of expenses related to the use of aircraft by a sole proprietor. Specifically, the ruling looks at whether the taxpayer uses:

• The primary purpose test found at Reg. §1.62-2(b) or

• The allocation methods found at Reg. §1.274-10(e)

The IRS won a victory in its attempt to obtain information related to virtual currency transactions from exchanges in the case of In re Tax Liabilities of John Does.[1]

The IRS has sought to serve a “John Doe” summons to Payward Ventures Inc. d/b/a/ Kraken and its subsidiaries for information related to customers of the exchange. The Court initially balked at the request, asking the IRS to show cause why the petition to serve the summons should not be denied for being overly broad.[2]

The IRS responded by narrowing the scope of the request and providing additional information to justify the items remaining as requested information. The Court allowed the IRS to move forward at this point to serve the summons, though the exchange or customers are still allowed to file additional arguments regarding the validity of the request.[3]

In Chief Counsel Advice 202118009[1] the IRS addresses the question of whether tax dividends received by a shareholder who is also employed by the C corporation is subject to the net investment income tax, as well as if the answer changes if the corporation is closely held.

President Biden released a fact sheet on his just proposed changes to the tax system early on April 28.[1] We’ve seen quite a bit of discussion in the popular, financial and tax press about items in this proposal since its release, so we’ll summarize some of the key items here.

The 15-page document details more than just tax proposals, with the major tax proposals that have gotten a lot of notice found on the last two pages of the fact sheet. Some other tax-related items are found elsewhere in the document.

In the case of Plentywood Drug Inc. et al. v. Commissioner, TC Memo 2021-45,[1] the IRS and the taxpayer were disputing whether rents paid by a C corporation to its shareholders were excessive. While the Tax Court did not agree with the IRS’s determination of what amount was reasonable, the Court did find a portion of the rent paid was above a reasonable amount and denied that amount of the deduction.

The IRS has updated its online FAQ[1] on the unemployment compensation exclusion for 2020 and its application in community property states.

State law generally determines ownership of property and income, thus defining what is each spouse’s income when filing separate returns. In a community property state, community income (which is the default income in a community property state) is considered to be equally the income of each spouse, even if the income arises from the services of one spouse to the exclusion of the other.

The IRS has once again extended its special relief for the temporary use of e-signatures on specified tax documents in Memorandum NHQ-10-0421-0002[1], now providing that digital signatures may be used beyond the June 30, 2021 expiration of the prior memorandum.

Sometimes the IRS decides to make an announcement about what might appear to be a “new” development that really is just reminding taxpayers of items that were already part of the law. Such is the case with IRS News Release IR-2021-90[1] that discussed a tax credit available to subsidize employers who provide paid leave to employees receiving a COVID-19 vaccine or who take time off due to a reaction to the vaccine.

In this case the President decided to emphasize these credits in a speech on Wednesday[2] and many headlines implied that the program had just been created by the President. In reality, the President was simply emphasizing the changes made to the credit for paid sick leave (now found at IRC §3131) and qualified family leave wages (now found at IRC §3132) by the American Rescue Plan Act of 2021.

The IRS has provided relief for some taxpayers who filed returns for tax years ending on or after March 26, 2020 and on or before December 31, 2020 who did not deduct expenses paid with PPP loan proceeds in Revenue Procedure 2021-20.[1] Those taxpayers may now worry that they will have to amend their already filed tax returns or face the loss of a deduction for those expenses that were retroactively allowed as a deduction by the COVID-related Tax Relief Act that was enacted on December 27, 2020.

The IRS has now admitted, via a QuickAlert[1] sent the afternoon of April 22, 2021, that there has been a delay in processing payments requested via Modernized e-File.

Many advisers began getting calls beginning on April 16 from clients concerned that payments scheduled to have been withdrawn from their accounts on April 15 had not been withdrawn. Reports on CPA society discussion forums and on TaxTwitter made it clear that this was not an isolated problem, impacting individuals all across the country.

In PLR202114001[1] the IRS ruled that most of the costs incurred by a male couple wishing to have a child were not deductible medical expenses.

The question involves IRC §213 which allows a deduction for medical care of the taxpayer and dependents of the taxpayer. Specifically, the ruling looks at the definition of such care found at IRC §213(d)(1)(A) which reads:

(d) Definitions

For purposes of this section—

(1) The term “medical care” means amounts paid—

(A) for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body,…

A question that many professionals had after the IRS announced the formal extension of time to file calendar year Forms 1040 in Notice 2021-21 was the impact of that extension on using a Form 4868 to extend both the income tax and gift tax return for 2020. In an update to the What’s New page for estate and gift taxes on the IRS website, the IRS provided information on this issue.[1]

The IRS states that a six-month extension of time to file the Form 709 otherwise due on April 15, 2021 can be obtained by:

• Filing Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return (or, in limited cases, Form 2350, Application for Extension of Time to File U.S. Income Tax Return) on or before April 15, 2021 which will extend the due date for both the income tax and gift tax return; or

• Filing Form 8892, Application for Automatic Extension of Time to File Form 709 and/or Payment of Gift/Generation-Skipping Transfer Tax on or before April 15, 2021.[2]

The IRS has now clarified how it will handle overpayments on 2020 individual tax returns applied to 2021 income taxes in a post on the IRS website.[1] We had covered pre-existing guidance in a prior article released on April 6, 2021.[2]

As we discussed in that article, the IRS was entering a bit of uncharted territory since we hadn’t before faced a due date that had been moved back from the original due date by the agency itself, while leaving the next year’s estimate date untouched. Luckily, the IRS did not take the most heavy-handed approach possible, though they took quite a bit of time deciding to clarify the issue.