IRS

Article Dean Dorton

File your forgiveness application at your earliest convenience, but no later than…

File your forgiveness application once you have spent all of your loan proceeds or shortly after the end of your covered period. Proposals for automatic and expedited forgiveness have been plentiful. Remember when the big news was that loans of $150,000 and less would be automatically forgiven? While there may be some prospect for future changes by Congress, those prospects dimmed Thursday night, October 8, 2020, when SBA released a new loan forgiveness application, Form 3508S, for loans of $50,000 and less. But, if you prefer to play the waiting game to see if something better comes down the road, you have time.

How much time do I have?

If you don’t mind making payments on your loan, you have a long time. The law says that a borrower may submit a forgiveness application any time before the loan’s maturity date. This means you have two to five years, depending on your loan term.

However, if you prefer not to make payments on your loan …

You have ten months after the end of your covered period to file your application before any principal and interest payment is due. For example, if you received your PPP loan on April 10, 2020, the 24-week covered period ended on September 24, 2020. As long as you submit your forgiveness application by July 24, 2021, payments will not commence until your lender hears from the SBA.

Once you apply for forgiveness, payments are not required until the SBA determines and remits your loan forgiveness amount to the lender. The lender then has the responsibility to notify you of the amount, if any, not forgiven, and the date and amount the first payment is due.

Also, the SBA released guidance this week, clarifying that lenders must recognize the 10-month deferral period for payments outlined in the June 5, 2020, Flexibility Act, even if the loan originated before June 5, 2020. Also, a pre-Flexibility Act promissory note reflecting a 6-month deferral period does not have to be modified.

On a related note, as described above, SBA released a new loan forgiveness application, Form 3508S, for loans of $50,000 and less. SBA affiliation rules apply when determining eligibility for utilizing the new form. SBA issued instructions and a new Interim Final Rule to go with the new form. Borrowers who received a $50,000 or less loan will not have their forgiveness reduced based on decreases in headcount or salary and wages

Dean Dorton’s COVID-19 Solutions Team is available to answer questions and provide you with assistance on your PPP forgiveness application.

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Learn more about how the Coronavirus is impacting businesses by visiting our COVID-19 Resource page:

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Article Dean Dorton

Over time the IRS has struggled with how best to efficiently conduct audits of partnership income tax returns. Various approaches have been tried. Significant changes have now become effective.  Even though the first partnership tax returns for which the new audit rules will apply will be for 2018 tax returns, not due to be filed until 2019, partnerships will need to deal with a couple of important matters before their 2018 returns are filed.

First, the appointment of a Partnership Representative, a new position, is required. The Partnership Representative will serve as the audit contact and will have the authority to bind the partnership and its partners to audit adjustments. Given the power the Partnership Representative will have under the new rules, careful attention needs to be given regarding whom the partnership designates. The partnership may want to include procedures or contractual limitations on the power of the Partnership Representative in its partnership or operating agreement.

Certain partnerships will be able to elect to “opt-out” of the new rules.  A partnership will qualify for this election if the partnership has (1) 100 or fewer partners and (2) only partners who are individuals, corporations (including S corporations), and estates of deceased partners. Partnerships with trusts (even grantor trusts), other partnerships, or disregarded LLC’s as partners will not qualify for this election. The opt-out election out must be made annually on a timely filed tax return.  For partnerships qualifying to opt-out, we believe that will be the preferred course of action in most cases.

A partnership is required to either disclose the Partnership Representative or make the opt-out election on its 2018 partnership tax return. We strongly encourage persons who manage tax partnerships to address the new rules with their tax professionals before the upcoming tax filing season.

For more information on how Dean Dorton can help you with this, visit the link below:

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Matthew Smith, CPA, CFE
Tax Associate Director
msmith@deandortonstg.wpenginepowered.com • 859.425.7774

Article Dean Dorton

We have received several calls this week about prepaying 2018 property tax by December 31, 2017 in light of the cap on deductibility of those taxes that will be in place for 2018. Kentucky does not have a mechanism to accept these early payments and will not accept them so it becomes a moot point for Kentucky purposes.

However, for those states like New York that are currently accepting prepayment of 2018 property taxes, IRS released (IR-2017-210) yesterday (December 27) which indicates those payments are not deductible in 2017 unless the 2018 taxes are assessed prior to 2018: “A prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not deductible in 2017.”

For those states that allow you to pay your property taxes in installments (California, West Virginia, etc.) that are due in early in 2018 that have already been assessed you should consider prepaying these property taxes by December 31, 2017.

Article Dean Dorton

The Internal Revenue Service warned people to avoid a new phishing scheme that impersonates the IRS and the FBI as part of a ransomware scam to take computer data hostage.

The IRS said: “The scam email uses the emblems of both the IRS and the Federal Bureau of Investigation. It tries to entice users to select a “here” link to download a fake FBI questionnaire. Instead, the link downloads a certain type of malware called ransomware that prevents users from accessing data stored on their device unless they pay money to the scammers.”

“This is a new twist on an old scheme. People should stay vigilant against email scams that try to impersonate the IRS and other agencies that try to lure you into clicking a link or opening an attachment. People with a tax issue won’t get their first contact from the IRS with a threatening email or phone call.”

John Koskinen, IRS Commissioner

Article Dean Dorton

Effective June 9, 2017, Revenue Procedure 2017-34 provides a simplified method whereby certain estates can obtain an extension of time to make an estate tax portability election. The simplified method is only available to estates that are not required to file an estate tax return based on the value of the gross assets in the estate.

History
Each individual is permitted a lifetime exemption (currently $5,490,000) from estate and gift taxes. At death, any unused exemption can be transferred to one’s surviving spouse to be added to the spouse’s own exemption. Simply put, this portability election allows a married couple to transfer nearly $11 million of assets without being subject to estate or gift taxes.

In addition to computing the amount of a decedent’s unused exemption available, the basic requirement for the portability election is that an estate tax return be filed within the time prescribed by law (including extensions). Estate tax returns are typically due nine months after the date of death and estates may obtain an automatic six-month extension. In order to elect portability, estate tax returns must be filed by estates that are not otherwise required to file based on the value of the gross assets in the estate.

Since December 31, 2014, the IRS has issued numerous letter rulings granting extensions of time to elect portability in situations where the decedent’s estate was not otherwise required to file an estate tax return. These requests have placed a significant burden on the IRS; therefore, the simplified method was created to ease this strain.

Requirements
In order for the simplified method to apply, the estate needs to meet the following requirements:

  • Decedent was a U.S. citizen or resident who died after December 31, 2010
  • The estate was not required to file an estate tax return based on the value of the gross estate
  • The estate did not file an estate tax return within the time prescribed

If these conditions are met, the estate will now have until either January 2, 2018 or two years from the decedent’s date of death (whichever occurs later) to file an estate tax return and elect portability.

If you have any questions, contact Faith Crump at fcrump@deandortonstg.wpenginepowered.com or Elizabeth Leatherman at eleatherman@deandortonstg.wpenginepowered.com.

Article Dean Dorton

Last year you may have made significant gifts to your children, grandchildren or other heirs as part of your estate planning strategy. Or perhaps you just wanted to provide loved ones with some helpful financial support. Regardless of the reason for making a gift, it’s important to know under what circumstances you’re required to file a gift tax return.

Some transfers require a return even if you don’t owe tax. And sometimes it’s desirable to file a return even if it isn’t required.

When filing is required

  • Generally, you’ll need to file a gift tax return for 2016 if, during the tax year, you made gifts:
  • That exceeded the $14,000-per-recipient gift tax annual exclusion (other than to your U.S. citizen spouse),
  • That exceeded the $148,000 annual exclusion for gifts to a noncitizen spouse,
  • That you wish to split with your spouse to take advantage of your combined $28,000 annual exclusions,
  • To a Section 529 college savings plan for your child, grandchild or other loved one and wish to accelerate up to five years’ worth of annual exclusions ($70,000) into 2016,
  • Of future interests — such as remainder interests in a trust — regardless of the amount, or
  • Of jointly held or community property.

When filing isn’t required

No return is required if your gifts for the year consist solely of annual exclusion gifts, present interest gifts to a U.S. citizen spouse, qualifying educational or medical expenses paid directly to a school or health care provider, and political or charitable contributions.

If you transferred hard-to-value property, such as artwork or interests in a family-owned business, consider filing a gift tax return even if you’re not required to. Adequate disclosure of the transfer in a return triggers the statute of limitations, generally preventing the IRS from challenging your valuation more than three years after you file.

Meeting the deadline

The gift tax return deadline is the same as the income tax filing deadline. For 2016 returns, it’s April 18, 2017 (or October 16 if you file for an extension). If you owe gift tax, the payment deadline is also April 18, regardless of whether you file for an extension.

Have questions about gift tax and the filing requirements? Contact us to learn more.