e-News for Tax Professonals 2021-08

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Issue Number:  2021-08

Inside This Issue

1. Tax relief for Texas, Oklahoma severe winter storm victims
2. Tax Preparers: Save your clients time, money by using the Online Payment Agreement
3. IRS alert: Improper corporate domestic production activities deduction refund claims
4. A Closer Look: How the IRS protects taxpayers from tax-related identity theft
5. News from the Justice Department’s Tax Division
6. Technical Guidance

Victims of winter storms that began on Feb. 11 in Oklahoma and Texas now have until June 15, 2021, to file various individual and business tax returns and make tax payments.

Visit the IRS disaster relief page for all updates on tax relief for disaster victims.

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Tax return preparers with a valid power of attorney can save their clients time and money by using the IRS Online Payment Agreement (OPA) tool to request a payment plan (installment agreement) on their client’s behalf.

OPA can also be used to apply for an installment agreement for a 2020 Form 1040 balance of up to $50,000 before receiving a bill or notice. The advantages of using OPA include:

• Lower user fees (if applicable) compared to other application methods
• Instant notification of approval
• No need to call or write the IRS
• Expanded hours of system availability, including evenings and weekends

Requests for payment plans submitted through electronic tax software are processed similarly to mailing in a paper Form 9465, Installment Agreement Request. It can take 30 days or longer for the IRS to respond to payment plan requests submitted by mail or through tax software. Generally, tax preparers will save their clients time and money (subject to lower user fees) by using OPA to apply for the same payment plan instead.

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IRS officials issued an alert on amended returns and claims for the Domestic Production Activities Deduction (DPAD). This provision of tax law was repealed as part of the Tax Cuts and Jobs Act for taxable years after Dec. 31, 2017. In the wake of the repeal, the IRS has received a wave of questionable amended returns and claims for tax benefits in the billions of dollars.

“We have no qualms with taxpayers claiming benefits allowed by law,” said Doug O’Donnell, Commissioner, Large Business and International Division. “But a very high percentage of the claims for the now repealed Domestic Production Activities Deduction are not properly supported by those claiming it.”

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The latest issue of “A Closer Look” features Michael Beebe, Director of Return Integrity and Compliance Services, who explains how the IRS and its partners battle identity thieves. “Whether or not you’ve heard of the ‘Security Summit,’ you’ve benefitted from the work this group does. The Security Summit is a partnership between the Internal Revenue Service, state tax agencies and the private-sector tax industry. Together they work to combat a common enemy – identity thieves,” Beebe said.

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The U.S. filed a complaint in the U.S. District Court for the Southern District of Florida seeking to bar three Miami Gardens-area tax return preparers and their businesses and franchises, from owning or operating a tax return preparation business and preparing tax returns for others. The U.S. also simultaneously filed a request for a preliminary injunction that would immediately prohibit defendants from further preparing taxes during the pendency of the suit.

According to the complaint, defendants John L. Gay Jr., Tammi King and Norman G. Williams Jr. manipulated Florida-area taxpayers’ returns — often without taxpayers’ knowledge — to significantly understate their tax liabilities or falsely render them eligible for tax credits. The complaint alleges they did so by fabricating charitable contributions, unreimbursed employee expenses, residential energy credits and head-of-household filing status, as well as by fabricating business income or expenses in order to overstate claims for earned income tax credits. According to the complaint, defendants’ consistent understatement of liabilities and overstatement of refunds has resulted in millions of dollars of lost tax revenue to the United States.

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The White House released a fact sheet on increasing lending to small businesses in need and changes to the Paycheck Protection Program (PPP) to further promote equitable access to relief. The fact sheet announces several changes to the PPP, including a 14-day period, starting Feb. 24, during which only businesses with fewer than 20 employees can apply for relief through the Program and helping sole proprietors, independent contractors and self-employed individuals receive more financial support.

Notice 2021-18 provides for adjustments to the limitation on housing expenses for purposed of section 911 of the Internal Revenue Code. These adjustments are made on the basis of geographic differences in housing costs relative to housing costs in the United States. Further, if the limitation on housing expenses is higher for taxable year 2021 than the adjusted limitations on housing expenses provided in Notice 2020-13, qualified taxpayers may apply the adjusted limitations for taxable year 2021 to their 2020 taxable year. 

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