e-News for Tax Professionals 2020-40

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Issue Number:  2020-40

Inside This Issue

1. Details available on settlements in syndicated conservation easement transaction initiative
2. Redesigned IRS.gov page helps people closing a business
3. Final regulations issued on meals and entertainment deduction
4. IRS expands enforcement focus on abusive micro-captive insurance schemes
5. Final regulations issued on income tax withholding on certain periodic retirement and annuity payments
6. News from the Justice Department’s Tax Division
7. Technical Guidance

The Internal Revenue Service this week released Notice 2021-001, containing information on Chief Counsel's settlement initiative for certain pending Tax Court cases involving abusive syndicated conservation easement transactions. Prior coverage of the settlement initiative can be found in IRS news release IR-2020-196.

The IRS encourages investors to seek independent professional assistance with the settlement terms to help them assess their hazards of litigation. Investors are advised to obtain counsel from competent, independent advisers not related to or recommended by the transaction promoter.

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The IRS has launched a redesigned webpage to help business owners navigate federal tax steps when closing a business.

"The IRS realizes small businesses and self-employed individuals are facing challenges in their personal and business lives during these uncertain times,” said Eric Hylton, Commissioner, Small Business/Self-Employed Division. “Closing a business is a difficult decision and we want to help ease the burden for people making this tough choice. We redesigned the closing a business page on IRS.gov to help businesses comply with final tax responsibilities.”

The information includes what forms to file and how to report revenue received in the final year of business and expenses incurred before closure.

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The Internal Revenue Service issued final regulations PDF this week on the business expense deduction for meals and entertainment.
The 2017 Tax Cuts and Jobs Act generally eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation. However, taxpayers may still deduct business expenses related to food and beverages if certain requirements are met.

These final regulations address the disallowance of the deduction for expenditures related to entertainment, amusement or recreation activities, including the applicability of certain exceptions to this disallowance. They also provide guidance to determine whether an activity is considered entertainment. The final regulations also address the limitation on the deduction of food and beverage expenses.

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With the Oct. 15 filing deadline approaching, the Internal Revenue Service this week encouraged taxpayers to consult an independent tax advisor if they participated in a micro-captive insurance transaction. Taxpayers who have continued to engage in abusive micro-captive insurance transactions should not anticipate being able to settle transactions with the IRS on terms more favorable than previously announced settlement offers.

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The Treasury Department and the IRS issued final regulations updating the federal income tax withholding rules for certain periodic retirement and annuity payments made after Dec. 31, 2020. The final regulation provides guidance for 2021 and future calendar years and specifies that the Treasury Department and the IRS will provide the rules and procedures for determining the default rate of withholding on periodic payments in applicable forms, instructions, publications and other guidance.

In July 2020, the IRS released a draft of a redesigned 2021 Form W-4P and instructions intended to align with the redesigned Form W-4, Employee's Withholding Certificate. The draft 2021 Form W-4P also proposed a new default rate of withholding on periodic payments that begin after Dec. 31, 2020. Based on comments received on the draft Form W-4P, regarding the time required by payors to implement the new form and a new default rate of withholding, the IRS will postpone issuance of the redesigned form. Instead, the 2021 Form W-4P will be similar to the 2020 Form W-4P.

The IRS also intends to provide in the instructions to the 2021 Form W-4P and related publications that the default rate of withholding on periodic payments will continue to be determined by treating the taxpayer as a married individual claiming three withholding allowances.
The Treasury and IRS will continue working closely with the tax community on the redesign of Form W 4P, with the intention of making the withholding system more accurate and transparent for taxpayers. For more information about this and other TCJA provisions, visit IRS.gov/taxreform.

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A former Gulfport, Miss., tax return preparer was sentenced to 46 months in prison for aiding and assisting in the preparation of false returns. According to court documents, Alvin Mays owned and operated City Tax Service, a return preparation business in the Gulfport area. From 2012 through 2017, Mays prepared – and trained his employees to prepare – false tax returns. To fraudulently inflate client refunds, the returns claimed false education credits and losses from fictitious business. Mays charged his clients exorbitant preparation fees, and he caused a tax loss to the United States of more than $900,000. In addition to the imprisonment term, Mays was ordered to serve one year of supervised release and to pay $321,605 in restitution to the United States.

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The Department of the Treasury and the IRS posted final regulations on IRS.gov on the source of income from sales of inventory produced within the U.S. and sold without the U.S. or vice versa. The guidance also contains new rules for determining the source of income from sales of personal property (including inventory) by nonresidents that are attributable to an office or other fixed place of business that the nonresident maintains in the U.S. These regulations also modify certain rules for determining whether foreign source income is effectively connected with the conduct of a trade or business within the U.S. Updates on this and other TCJA provisions can be found on the Tax Reform page of IRS.gov.

TD 9925 contains final regulations that provide guidance under section 274 of the Internal Revenue Code regarding certain recent amendments
made to that section. Specifically, the final regulations address the elimination of the deduction under section 274 for expenditures related to entertainment, amusement, or recreation activities, and provide guidance to determine whether an activity is of a type generally considered to be entertainment. The final regulations also address the limitation on the deduction of food and beverage expenses under section 274(k) and (n), including the applicability of the exceptions under section 274(e)(2), (3), (4), (7), (8), and (9). The final regulations affect taxpayers who pay or incur expenses for meals or entertainment.

Notice 2020-70 modifies Notice 2011-26 (2011-17 I.R.B. 720) to generally remove Form 1040-NR, U.S. Nonresident Alien Income Tax Return, from the list of returns that are administratively exempt from the electronic filing requirement imposed on specified tax return preparers by section 6011(e)(3) and to provide the circumstances under which the Form 1040-NR remains subject to the exemption. 

The IRS released final regulations for Achieving a Better Life Experience (ABLE) accounts.

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