US taxation: Taxpayer Relief for tax year 2019 due to Corona virus Pandemic

My telephone continuously rings from clients who pay American taxation for the year 2019 to know the latest developments related to their tax payments whether any tax-related deadlines have happened. America is one of the largest tax-paying natin and that too over decades of disciplined behavior both from the tax payer’s side and the Internal Revenue Service, the treasury wing of American government has cultivated the habit of conducting the most complex tax regime in the simplest way. It is time to write about the latest developments related to tax the year 2019, particularly on the basis of Coronavirus Pandemic and its after-effects.

To start with, the proper web is the learning center:

 https://www.irs.gov/forms-pubs/taxpayer-relief-for-certain-tax-related-deadlines-due-to-coronavirus-pandemic

Additional information for taxpayers: (All information from the above web and hence I may reproduce the instructions directly)

Individuals and Families

• Most federal tax filing and payment deadlines from April 1, 2020, to July 14, 2020, are postponed to July 15, 2020. The postponements are automatic and apply to all taxpayers. One does not need to file other forms or call the IRS to qualify.
• Any person with a Federal tax payment or return (or other filing) due on or after April 1, 2020, and before July 15, 2020, that is described in section III.A of the Notice is eligible for relief under Notice 2020-23.  In addition, any person with a specified time-sensitive act due to being performed during the same period is also eligible for relief.  The specified time-sensitive acts that are postponed until July 15, 2020, including filing a petition with the United States Tax Court (Tax Court), filing for review of a decision rendered by the Tax Court, filing a claim for credit or refund of any tax, bringing suit upon a claim for credit or refund of any tax.
• The term “person” includes any type of taxpayer, such as an individual, a trust, an estate, a corporation, or any type of unincorporated business entity.
• What about F Bar (Fin CEN form 114)? Since 2017, FinCEN has automatically extended the FBAR filing date to October 15.
• What about filing and payment deadlines for business, exempt organizations, or other entities that have to file due dates on May 15, June 15, or some other date besides April 15, postponed? All Federal income tax return filings and payments due on or after April 1, 2020, and before July 15, 2020, are now due on July 15, 2020.
• Do partnerships and S corporations get their due dates for filing of tax/returns also got affected? Notice 2020-23 does not postpone any return filings that were due on March 16, 2020.  If a fiscal year partnership or S-corporation has a return due to being filed on or after April 1, 2020, and before July 15, 2020, that filing requirement has been postponed to July 15, 2020.
• Additionally, Forms 1040-NR and Federal income tax payments due for foreign trusts and estates on or after April 1, 2020, and before July 15, 2020, are now due on July 15, 2020.
• If one is not even able to file the tax return by July 15, 2020, the taxpayer can file form no 4868 electronically before July 15, 2020, but this does not give any permission to postpone payment of taxes overdue since in that case required interest and penalties will apply.

If I have filed the tax return but not the taxes due by April 15, 2020, what to do? Can I avoid interest and penalties on the taxes owed? Let me reply from the IRS web for this question. “To avoid interest and penalties, pay your taxes in full by July 15, 2020.  If you filed Form 1040 or Form 1040-SR, the tax payment amount can be found online 23.  If you filed Form 1040-NR, the tax payment amount can be found online 75.  For a corporation filing a Form 1120, the tax payment amount can be found online 35. For an exempt organization required to file Form 990-T, the tax payment amount can be found online 54.

If you do not pay your taxes by July 15, 2020, you will be subject to interest and penalties from July 16, 2020, until the date of payment.” In simple terms, the postponement of the date for filing of returns to July 15, does not entail postponement of taxes.

So far, we talked about federal tax filing and postponement of deadlines. What about state taxes or filing of returns?

The following web would take care of your requirement.

 https://www.taxadmin.org/state-tax-agencies

Let us worry about routine tax returns and any updates.

Individual taxpayer (1040) instructions 

About your economic impact payment, the following news may gladden you.

“The IRS is committed to helping you get your Economic Impact Payment as soon as possible. The payments also referred to by some as stimulus payments, are automatic for most taxpayers. No further action is needed by taxpayers who filed tax returns in 2018 and 2019 and most seniors and retirees.”

Let us proceed with form 1040 and more.

Form no 1040 

Let the preamble be from the IRS.

“For 2019, you will use Form 1040 or, if you were born before January 2, 1955, you have the option to use new Form 1040-SR. You may only need to ­le Form 1040 or 1040-SR and none of the numbered schedules, Schedules 1 through 3. However, if your return is more complicated (for example, you claim certain deductions or credits or owe additional taxes), you will need to complete one or more of the numbered schedules.”

The following information is for your eyes only since we, CPAs do not give casual advice. Each case of the taxpayer requires careful study, deep analysis and suggests suitable forms and proper usage of software which has lasted a few decades since many of inferior quality or poor customer service or cheaper by market just vanished like thin air.

The following schedules inherit the tax form.

• Schedule 1, Part I
• Schedule 1, Part II
• Schedule 2, Part I
• Schedule 2, Part II
• Schedule 3, Part I
• Schedule 3, Part II

To a sensible and inquisitive mind, for academic purposes, what do these schedules indicate the purpose of usage.

Additional income, such as business or farm income or loss, unemployment compensation, prize or award money, or gambling winnings, student loan interest, self-employment tax, or educator expenses, owing AMT or need to make an excess advance premium tax credit repayment, to owe other taxes, such as self-employment tax, household employment taxes, additional tax on IRAs or other qualified retirement plans and tax-favored accounts, to claim a nonrefundable credit other than the child tax credit or the credit for other dependents, such as the foreign tax credit, education credits, or general business credit, to claim a refundable credit other than the earned income credit, American opportunity credit, or additional child tax credit, such as the net premium tax credit or health coverage tax credit or to have other payments, such as an amount paid with a request for an extension to ­le or excess social security tax withheld.

One can visualize that the need for each schedule is complicated and with the most advanced and updated software with decades of experience, a CPA decodes the mysteries to meet the client’s individual tax needs.

Is there any change in the form 1040?

It is reproduced for information.

https://www.irs.gov/pub/irs-pdf/f1040.pdf

What’s new? (All compiled from 108 pages of IRS booklet;  a huge task) 

Simple facts for your eyes.

• Form 1040-SR, U.S. Tax Return for Seniors, has been introduced for 2019. You can use this form if you were born before January 2, 1955. The form generally mirrors Form 1040. In any case, your CPA will take care of it.
• This year, there are only 3 numbered schedules instead of 6. Details of schedules were input at the beginning.

Some more interesting tidbits.

• In 2018, capital gain or (loss) was reported on Schedule 1 (Form 1040), line 13. In 2019, it will be reported on Form 1040 or 1040-SR, line 6.
• Now about standard deduction. For 2019, the standard deduction amount has been increased for all filers. The amounts are:
• Single or Married filing separately—$12,200
• Married filing jointly or Qualifying widow(er)—$24,400.
• Head of household—$18,350.
• The simplified worksheet for figuring your qualified business income deduction is now Form 8995, Qualified Business Income Deduction Simplified Computation. If you don’t meet the requirements to file Form 8995, use Form 8995-A, Qualified Business Income Deduction.
• The AMT exemption amount is increased to $71,700 ($111,700 if married filing jointly or qualifying widow(er); $55,850 if married filing separately). The income levels at which the AMT exemption begins to phase out have increased to $510,300 ($1,020,600 if married filing jointly or qualifying widow(er)).
• Interesting and for the first time writing about virtual currency: If, in 2019, you engaged in a transaction involving virtual currency you will need to file Schedule 1. See the instructions for Schedule 1 for more information.
• Email address. An optional field for your email address has been added to Forms 1040 and 1040-SR. An invaluable tool for correspondence purposes though IRS never sends communications by emails, for obvious reasons. It has never been hacked in its 200 years history.
• Recent legislation extended certain tax benefits that had expired at the end of 2017. These tax benefits include the following.
• Tuition and fees deduction.
• Deduction for mortgage insurance premiums.
• Nonbusiness energy property credit.
• Alternative fuel vehicle refueling credit.
• Indian employment credit. If you are eligible for one or more of these benefits in 2019, you can claim them on your 2019 return. If you are eligible for one or more of these benefits for the tax year 2018, you will need to file an amended return, Form 1040-X, to claim them.

Let us see the tax slabs for payment of tax due. (for most people, perhaps)

IF your filing status   and at the end of 2019 you were   File if your gross income at least ($)

Let us look at other forms for partnerships, S Corporation, LLCs, nonprofit organizations, etc.

Partnership firm:

Form No. 1065

Form 1065 is an information return used to report the income, gains, losses, deductions, credits, and other information from the operation of a partnership. A partnership doesn’t pay tax on its income but passes through any profits or losses to its partners. Partners must include partnership items on their tax or information returns.

One of the most critically scrutinized and investigated forms for tax purposes, form 1065 needs careful handling at the hands of an experienced CPA. I am reproducing the form for information.

 https://www.irs.gov/pub/irs-pdf/f1065.pdf

Important note for the above form as copied from the IRS web.

“Form 1065 BBA Partnerships Filing Amended Returns for CARES Act Relief For tax years beginning in 2018 or 2019, BBA partnerships which filed Form 1065 and furnished all required Schedules K-1 prior to the issuance of Revenue Procedure 2020-23 may amend those returns by filing Form 1065, checking the “Amended return” box, and furnish corresponding amended Schedules K-1 prior to September 30, 2020. This will allow partnerships and their partners to benefit from the provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, without waiting to file Administrative Adjustment Requests (AARs) for the current year, which would otherwise be required under section 6227. See Revenue Procedure 2020-23 for more information.”

 Practically, only your CPA will handle the amended return or other related materials. Just for academic purposes, I have enclosed the above message.

Form 1065 is a 5-page document consisting of main form 1065, followed by Schedule B, Schedule K, Schedule L, Schedule M1, and Schedule M2.

Another popular tax entity in the U.S.A., is S Corporation whose form is 1120 S.

I enclose a copy of 1120s as under:

U.S. Income Tax Return for an S Corporation

https://www.irs.gov/pub/irs-pdf/f1120s.pdf

Form No. 1120 is also enclosed for reference purposes.

In response to the COVID-19 pandemic, the IRS has taken many actions.

One significant change postponed the deadline to take certain actions. If the deadline for these actions fell on or after April 1, 2020, through July 14, 2020, the deadline has been extended to July 15, 2020. This includes, but is not limited to, the following.

• Filing forms (and schedules, returns, and other forms filed as attachments to those forms) and the payment of income tax (including self-employment tax) associated with the forms. This includes the following.

1. Forms 1040, 1040-SR, 1040-NR, 1040-NR-EZ, 1040-PR, and 1040-SS.

2. Forms 1120, 1120-C, 1120-F, 1120-FSC, 1120-H, 1120-L, 1120-ND, 1120-PC, 1120-POL, 1120-REIT, 1120-RIC, 1120-S, and 1120-SF.

3. Forms 1041, 1041-N, and 1041-QFT.

4. Form 990-T.

• Filing others forms, and as permitted by guidance, the payment of certain taxes associated with those forms. Please see Notice 2020-23 (PDF) for a complete explanation of the relief given to form the forms listed below.

1. Forms 706, 706-NA, 706-A, 706-QDT, 706-GS(T), 706-GS(D), and 706-GS(D-1).

2. Form 8971 (including Schedule A).

3. Form 709.

4. Form 1065.

5. Form 1066.

6. Forms 990, 990-EZ, 990-PF, and 990-BL.

7. Form 4720.

• Making estimated income tax payments.
• Filing Forms 4868, 4868-SP, 2350, 2350-SP, 4786, 7004, 8868, or 8892 to request an extension of time to file a return.
• Contributing to an individual retirement account (IRA).
• Contributing to a health savings account (HSA).
• Contributing to an Archer medical savings account (Archer MSA).
• Contributing to a Coverdell education savings account (Coverdell ESA).
• Repaying a mistaken 2019 HSA distribution.
• Reporting and paying the 10% additional tax due on amounts includible in gross income from a distribution from an IRA or workplace-based retirement plan in 2019.
• Making section 965(h) installment payment.

U.S. Corporation Income Tax Return, popularly known as 1120 is enclosed from irs.gov web.

https://www.irs.gov/pub/irs-pdf/f1120.pdf

What’s New

 Increase in penalty for failure to file. For returns due after 2019, the minimum penalty for failure to file a return that is more than 60 days late has increased to the smaller of the tax due or $435.

Disaster relief for charitable contributions. The 10% limit on the deduction for charitable contributions does not apply to contributions made after December 31, 2017, and before February 19, 2020, to certain charitable organizations for relief in qualified disaster areas.

Tax-exempt organizations, nonexempt charitable trusts, and section 527 political organizations file Form 990 to provide the IRS with the information required by section 6033.

Form is reproduced for information please. (Form 990, Return of Organization Exempt From Income Tax)

https://www.irs.gov/pub/irs-pdf/f990.pdf

Let me share some information about the above form. This form of entity has been most widely abused by taxpayers resulting in the cancellation of thousands of licenses by the IRS. It is sincerely advised that only a CPA needs to file this form to avoid later investigation by IRS authorities and also I request these entities to indulge in genuine nonprofit activities exhaustively explained by IRS in their instructions on Form 990.

“A tax-exempt organization must file an annual information return or notice with the IRS unless an exception applies. Annual information returns include Form 990, Form 990-EZ, and Form 990-PF. Form 990-N (e-Postcard) is an annual notice. Form 990 is the IRS’s primary tool for gathering information about tax-exempt organizations, educating organizations about tax law requirements, and promoting compliance. Organizations also use Form 990 to share information with the public about their programs. Additionally, most states rely on Form 990 to perform charitable and other regulatory oversight and to satisfy state income tax filing requirements for organizations claiming exemption from state income tax.”

Conclusion

With many of my clients asking me frequent questions on the filing of tax returns to tax authorities in the U.S.A., particularly after the onset of Coronavirus, this article has been written containing the latest instructions from the Internal Revenue Service, U.S.A., the income tax wing of the Federal Government there. Even in spite of huge virus cases in the U.S.A., IRS continued to do its best for its taxpayers with constrained human resources. Let me appreciate them for their great services.