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PILLA TALKS TAXES - Featured Article(s)
_________________________________________ 

THE $600 STIMULUS CHECKS ARE IN THE MAIL

Are Stimulus Payments Taxable? 

 

The $600 “recovery rebate” checks authorized by the Consolidated Appropriations Act, 2021, have been hitting mailboxes and bank accounts since late December. The second round of economic impact payments (EIP) from the federal government is equal to $600 per person and $1,200 for married couples filing joint tax returns. You get another $600 per child who is your dependent and is under the age of 17. So a family of five gets a second-round government check of $3,000. 

Per the Consolidated Appropriations Act, this payment is in addition to the first round of stimulus checks that went out last spring and summer. 

By now you should have received IRS Notice 1444 or Notice 1444-B. Notice 1444 shows how much you were paid in EIP for the first round, and Notice 1444-B shows how much EIP you were paid in the second round. 

Are the Payments Considered Taxable Income? 

I’ve been asked this question a hundred times in the past few weeks. The short answer is, no, they are not. Rather, they are pre-paid tax credits. That is, it’s like somebody else (the federal government) is paying your taxes for you. This operates just like the Earned Income Tax Credit. It’s in every way a welfare program administered by the IRS. 

If you didn’t get your check, don’t panic. Line 30 on the 2020 Form 1040 allows you to claim the Recovery Rebate Credit directly on the tax return. By claiming the credit on your tax return, you lower the tax you otherwise would have to pay. 

For example, suppose your total 2020 tax liability is $5,000. You didn’t get your first round rebate check of $2,400 (for you and your spouse). In that case, you claim the $2,400 as a credit on Form 1040. That reduces to $2,600 the amount you have to pay to the IRS (assuming no other tax payments were made). 

So whether you got the check in the mail or you claim the credit on your tax return, either way, you get the full benefit of the “free” money. 

Figuring the Credit 

As stated, you will claim the credit in an amount equal to the EIP you were entitled to receive, less the amount you actually did receive. For example, suppose you are married with one child. For the first round of EIP payments, you were entitled to a total of $2,900 ($1,200 per adult and $500 for the dependent child). Suppose you received just $1,200. In that case, you claim a Recovery Rebate Credit on line 30 of Form 1040 in the amount of $1,700 (2,900 – 1,200). 

There is a worksheet in the instructions for Form 1040 that walks you through this process.

 

This is a partial portion of the full February Pilla talks Taxes electronic newsletter. 2021 issue of Pilla Talks Taxes Newsletter.  

 *Subscribers to Pilla Talks Taxes are able to read complete articles as well as the rest of the newsletters 
when they log into their subscription account on their non mobile device.

https://taxhelponline.com/subscriber-login.html

    

I've been reading up on the deferment of Social Security and Medicare. 
Please
tell Dan his article on deferring SS and Medicare was by far the best 
and most complete article on the subject I have seen…Great job!!!   Dave N. CPA, CTRS Fircrest, Washington

LOOKING TO STAY CURRENT ON THE LATEST TAX CHANGES?

Dan Pilla' monthly newsletter, Pilla Talks Taxes, features news stories and developments in federal taxes that effect your pocket book. Each information packed issue shows you how to use little known strategies to cut your taxes, protect yourself from the IRS, exercise important taxpayers' rights and keeps you up to date on the latest trends in Washington on the important subjects of taxes and your rights. You can't afford to miss a single issue!

An email address is needed to recieve this newsletter.  MORE INFO

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ARTICLES FOUND IN THE LATEST 

PILLA TALKS TAXES ISSUE:


February 
2021 

 

GRANTS FOR SHUTTERED VENUE OPERATORS
More Free Money Under the Consolidated Appropriations Act, 2021

 THE $600 STIMULUS CHECKS ARE IN THE MAIL
Are Stimulus Payments Taxable?

 RECOVERY REBATE CREDIT WORKSHEET

BUDGET ESTIMATES FOR INCREASED RECOVERY REBATE CREDITS
Is this really a good idea?

THE INTERNAL REVENUE SERVICE ADVISORY COUNCIL
New Members Named to Panel 

WHO WANTS TO CUT TAXES FOR THE RICH?

 

 

 

 

Missed a prior featured article?

Here are links to some of the favorites:

FIVE THINGS EVERY CITIZEN
NEEDS TO KNOW ABOUT IRS CONTACTS

 

LEVY OF SOCIAL SECURITY BENEFITS

 

HOW LONG DO I KEEP TAX RECORDS?

 

CHANGE IN POLICY ON
ENFORCEMENT OF STRUCTURING LAW

Laws Pertaining to Moving Your Money
from Account to Account

 

WHAT EVERY CITIZEN NEEDS TO KNOW 
ABOUT RETIREMENT FUND DISTRIBUTIONS

The Tax Consequences of Taking Your 401(k) or IRA  

 

"I'M FROM THE IRS... -And You're Going to Jail!"

 

PASSPORTS AND THE IRS
  They Have More in Common Than You Might Think

 

END OF THE YEAR TAX PLANNING
  9 Simple Steps That Can Cut Taxes and Pain

  



MASTER INDEX OF PILLA TALKS TAXES

RESEARCH REPORTS, ARTICLES

Looking for a specific issue or article? 
Single Issues available for download, $15.95 per issue.

Contact us to order. 1-800-553-6458

 

 

 

PILLA TALKS TAXES - Prior Featured Article
_________________________________________ 

THE PPP LOAN FORGIVENESS PROCEDURES
The Forms are Now Available

 

On June 17, following the passage of the Paycheck Protection Program (PPP) Flexibility Act (Flexibility Act), the Small Business Administration (SBA) released its updated loan forgiveness application. The form is SBA Form 3508, Loan Forgiveness Application Revised June 16, 2020. The SBA also created a new form, Form 3508EZ, which is a simplified forgiveness application. The forms and instructions, as well as other PPP information from the U.S. Treasury, are available here:  

https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses 

The simplified Form 3508EZ is designed to streamline the process for borrowers. It can be used by:  

  • Sole proprietors, independent contractors and other businesses who had no employees at the time the of loan application and did not include any employees’ salaries in the computation of their loan amount, and  
  • Businesses that did not reduce employee compensation by greater than 25% during the covered period (discussed below) compared to January 1 – March 31, 2020 (excluding employees who received, during any single pay period in 2019, annualized compensation of more than $100,000) and which businesses also meet one of the following criteria:  

1. They did not reduce the number of employees or the average hours per employee between January 1, 2020 and the end of the covered period (subject to certain exceptions), or  

2. They were unable to operate at the same level of business activity as before February 15, 2020, due to compliance with COVID-19 guidance or requirements from Health and Human Services, the CDC, or OSHA. 

See the instructions for the form, available at the above link.
 

When to Apply for Loan Forgiveness  

You may submit a loan forgiveness application any time on or before the maturity date of the loan if you used all of the PPP loan proceeds you received. You can submit the application even before the end of the “covered period.” The covered period is the eight-week or 24-week period of time in which the loan proceeds must be used (discussed more fully later in this article).  

Recall that initially, all PPP funds had to be used within eight weeks from the date of funding. However, the Flexibility Act extended that period to 24 weeks, or December 31, 2020, whichever is the earlier. For PPP loans funded before June 5, 2020, the borrower and lender can agree to use either the eight-week or 24-week period. For PPP loans funded on or after June 5, the 24-week period applies.  

If you do not apply for loan forgiveness within ten months after the last day of the covered period, or if SBA determines that the loan is not eligible for forgiveness (in whole or in part), the PPP loan is no longer deferred. At that point, you must begin making payments. If this occurs, your lender must notify you of the date the first payment is due. You have five years to repay any part of the loan that is not forgiven, per §3(c) the Flexibility Act.  


How to Apply for Loan Forgiveness  

To receive loan forgiveness, you must complete and submit the Loan Forgiveness Application to your lender. The application does not go to the SBA. Your lender may use its own form to facilitate online submissions. Follow the instructions provided by your lender as to the specific manner of submitting the form.  

The lender will review the application and make a decision regarding loan forgiveness. The lender has 60 days from receipt of a complete application to issue a decision to the SBA. If the lender determines that you are entitled to forgiveness of the loan in whole or in part, the lender then submits a request to the SBA for payment of the loan. That is, the SBA reimburses the lender for the loan amount forgiven under law.  

At that point, the SBA may review the application and all supporting documents (discussed below) to ascertain whether forgiveness is appropriate. If it agrees to forgiveness in whole or in part, the SBA then pays the forgiveness amount directly to the lender. This must be done within 90 days after the lender issues its decision to the SBA.  

In applicable cases, the SBA will deduct EIDL Advance Amounts from the forgiveness amount. Recall that you do not get forgives of PPP loans to the extent that you received an Advance Amount (that is, a grant) from the SBA under its EIDL loan program. See: §1110(e)(6) of the CARES Act, discussed in April/May issue of PTT.

 

What if the Loan is Not Forgiven? 

If the SBA determines that you were ineligible for the PPP loan for any reason (including, for example, because you lacked adequate basis for the certifications made in your PPP loan application, as discussed more fully in the next article), the loan will not be forgiven. 

At that point, any portion of the loan that is not forgiven must be repaid on or before the maturity date of the loan. The lender is responsible to notify you of this decision and the date on which your first payment is due. 

*The above is part of an article from the August 2020 issue of Pilla Talks Taxes Newsletter.  The rest of the article covers these important questions:

 

Payroll Costs Eligible for Loan Forgiveness

What is the “Alternative Covered Period?”

Caps on Forgivable Payroll Compensation

Payment of Non-payroll Costs

Potential Reduction of the Forgiveness Amount    

Exemptions for Failure to Restore Employees

        Documents Required
       

Conclusion

Review the loan forgiveness application and instructions carefully. They walk you through the process of computing the forgiveness amount that’s available under your circumstances. If necessary, you can get help from your lender or tax pro to get you through the process. 

 

*Subscribers to Pilla Talks Taxes are able to read complete articles as well as the rest of the newsletter when they log into their subscription account on their non mobile device. https://taxhelponline.com/subscriber-login.html

    

LOOKING TO STAY CURRENT ON THE LATEST TAX CHANGES?

Dan Pilla' monthly newsletter, Pilla Talks Taxes, features news stories and developments in federal taxes that effect your pocket book. Each information packed issue shows you how to use little known strategies to cut your taxes, protect yourself from the IRS, exercise important taxpayers' rights and keeps you up to date on the latest trends in Washington on the important subjects of taxes and your rights. You can't afford to miss a single issue!

An email address is needed to recieve this newsletter.  MORE INFO

10 issues per year. $99.00 per yr Order Now!

  

ARTICLES FOUND IN THE LATEST 

PILLA TALKS TAXES ISSUE:



August 
2020 

 PPP LOAN FORGIVENESS PROCEDURES

   The Forms are Now Available


        When to Apply for Loan Forgiveness
        How to Apply for Loan Forgiveness
        What if the Loan is Not Forgiven?
        Payroll Costs Eligible for Loan Forgiveness
        What is the “Alternative Covered Period?”
        Caps on Forgivable Payroll Compensation
        Payment of Non-payroll Costs
        Potential Reduction of the Forgiveness Amount
        Exemptions for Failure to Restore Employees
        Documents Required
        Conclusion

 

DEFENDING POTENTIAL PPP AUDITS
    Free Money is Never Free

       ∙ Improper PPP Loans
         Certification that a PPP Loan Was “Necessary”
         The Certification “Safe-Harbor”
         Potential Criminal Penalties
         How Long Must I Keep Records
         Conclusion

 

 

 

Missed a prior featured article?

Here are links to some of the favorites:

FIVE THINGS EVERY CITIZEN
NEEDS TO KNOW ABOUT IRS CONTACTS

 

LEVY OF SOCIAL SECURITY BENEFITS

 

HOW LONG DO I KEEP TAX RECORDS?

 

CHANGE IN POLICY ON
ENFORCEMENT OF STRUCTURING LAW

Laws Pertaining to Moving Your Money
from Account to Account

 

WHAT EVERY CITIZEN NEEDS TO KNOW 
ABOUT RETIREMENT FUND DISTRIBUTIONS

The Tax Consequences of Taking Your 401(k) or IRA  

 

"I'M FROM THE IRS... -And You're Going to Jail!"

 

PASSPORTS AND THE IRS
  They Have More in Common Than You Might Think

 

END OF THE YEAR TAX PLANNING
  9 Simple Steps That Can Cut Taxes and Pain

  



MASTER INDEX OF PILLA TALKS TAXES

RESEARCH REPORTS, ARTICLES

Looking for a specific issue or article? 
Single Issues available for download, $15.95 per issue.

Contact us to order. 1-800-553-6458

 

 

 

PILLA TALKS TAXES - Featured Article
_________________________________________ 

FIFTH CIRCUIT DECLARES "INDIVIDUAL MANDATE" UNCONSTITUTIONAL

What is the Impact of the Decision?

On December 18, the Fifth Circuit Court of Appeals issued its decision in the case of Texas v. United States, Docket No. 1-10011 (5th Cir. Dec. 18, 2019). The decision strikes at a core element of the 2010 Patient Protection and Affordable Care Act (ACA). It held that the so-called “individual mandate” of Code §5000A is unconstitutional. 

Necessary Historical Background 

The ACA was intended to force all Americans to purchase government-approved health insurance, either through private insurance companies or through government-run insurance “Exchanges.” The idea was that by forcing generally healthy individuals and young people (who otherwise might choose not to purchase health insurance) into the medical insurance pool, the cost of insurance would go down overall. 

Of course, we know that didn’t happen. In fact, the opposite occurred. The cost of health insurance actually sky-rocketed due to massive government intervention into the health insurance market. The government now regulates a huge swath of the economy and imposes its will on tens of millions of Americans in the most intimate of all personal of decisions—healthcare decisions. 

Moreover, the cost to the government to provide “free health care” to those who cannot afford insurance is likewise sky-rocketing. For example, the Congressional Budget Office estimated that federal outlays for health insurance subsidies and related spending will rise by about 60% over the next ten years, from $58 billion in 2018 to $91 billion by 2028. CBO, The Budget and Economic Outlook: 2018 to 2028 at 51 (April 2018) (https://tinyurl.com/CBOBudgetEconOutlook-2018-2028). 

What is the “Individual Mandate”? 

One of the key elements of the ACA is the so-called “individual mandate.” The individual mandate—which was the subject of the Fifth Circuit’s analysis—requires individuals to purchase and maintain government-approved health insurance, referred to as “minimum essential coverage.” See: Code §5000A(a). 

If an individual fails to do so, he must pay a penalty to the IRS called a “shared responsibility payment.” Such payment is referred to in the statute specifically and expressly as a “penalty.” See: §5000A(b)(1). 

Certain exceptions are provided under §5000A(e), which are not the subject of this article. 

Attacks on the Constitutionality of the ACA 

Legal attacks against the ACA and the individual mandate started even before the ink was dry on the law. The Supreme Court’s decision in the case of National Federation of Indep. Businesses (NFIB) v. Sebelius, 567 U.S. 519, 538 (2012), constituted the initial culmination of those attacks. The plaintiff in that case challenged the constitutionality of the individual mandate, arguing that Congress had no authority to force people to buy a product or face a government-imposed penalty for failure to do so. The case ended up in the Supreme Court shortly after lower court review. 

In a bizarre opinion written by Chief Justice Roberts, the Court simply changed the language of the statute to support the conclusion that the individual mandate was constitutional. 

First, the Individual Mandate is Unconstitutional 

The NFIB decision clearly states that reviewing the “penalty” language of §5000A in its “most straightforward reading” was in fact a command “to purchase insurance,” and as such, it “would have rendered it unconstitutional.” The Court stated that such a power could not have been justified under the Constitution’s Commerce Clause because it would have done more than “regulate commerce . . . among the several states.” U.S. Const. art. I, § 8, cl. 3. Rather, it would have compelled people to enter into commerce in the first place, something that was never intended by the Constitution. See: NFIB, 567 U.S. at 557–58. 

Chief Justice Roberts opined that concluding otherwise would empower the government to compel Americans into all kinds of behavior that the government thinks is beneficial for them, including, for example, “compelling them to purchase broccoli.” See NFIB, 567 U.S. at 558 (Roberts, C.J.).

 For similar reasons, the Chief Justice concluded that this command to purchase insurance could not be sustained under the Constitution’s Necessary and Proper clause. The individual mandate was not “proper” because it expanded federal power, “vest[ing] Congress with the extraordinary ability to create the necessary predicate to the exercise of” its interstate commerce clause powers. Id. at 560. The “joint dissent” issued by Justices Scalia, Kennedy, Thomas, and Alito reached the same conclusions on both the Interstate Commerce clause and Necessary and Proper clause questions. NFIB at 65060 (joint dissent).

 Both Justice Roberts in the Opinion of the Court and the dissenters agreed that a reading of the Commerce Clause to include a power to create commerce would make a Leviathan of the federal government, “everywhere extending the sphere of its activity and drawing all power into its impetuous vortex.” NFIB, at 554 (Roberts, C.J.) The Chief Justice was quoting The Federalist No. 48, written by James  Madison.

 Justice Scalia, writing for the joint dissenters, likewise stated that such a broad, expansive reading of the Commerce Clause would render that provision a “fount of unlimited power.” NFIB at 653. And, quoting Alexander Hamilton writing in The Federalist No. 33, Justice Scalia declared the government would become a “hideous monster whose devouring jaws . . . spare neither sex nor age, nor high nor low, nor sacred nor profane.” 

It’s Unconstitutional. But Wait. It’s Constitutional! 

So how, in light of the harsh criticism from the various justices, was it possible to in fact find that the individual mandate is indeed constitutional? The answer: Chief Justice Roberts simply changed the language of the statute. 

Rather than giving the law its “most straightforward reading,” using its plain and simple terms, as imposing a “penalty” for not purchasing insurance, he altered it to hold that it was merely a “tax” on the “decision” to not purchase insurance—terms that are simply not found in the statute. 

He then justified the statutory contortion by saying, “The question is not whether that is the most natural interpretation of the mandate, but only whether it is a ‘fairly possible’ one.” NFIB, at 562; citations omitted. 

So Much for the Integrity of the Supreme Court

In the NFIB arguments, the Federal government asserted that the mandate could be read not as a “command” to buy insurance, but rather as an option to purchase insurance. That is to say, one had the free choice to buy insurance or pay a “tax.” And if it was indeed a voluntary choice on the part of the taxpayer to buy insurance or merely pay a tax, the provision would be found to be constitutional. 

Chief Justice Roberts bought that argument. He then strained mightily to conclude that §5000A could be read as a legitimate exercise of Congress’s taxing power, rather than a penalty, which the statute plainly says it is. He pointed to four reasons justifying his conclusion. It is worthy to note that this portion of Roberts’ Opinion was joined by no other Justice of the Court. That is, Justice Roberts was standing alone on this ground. 

First, Roberts reasoned that the shared-responsibility payment reflected “the essential feature of any tax: It produce[d] at least some revenue for the Government.” NFIB at 564. Second, he pointed out that the shared-responsibility payment was “paid into the Treasury by taxpayers when they file their tax returns.” Id. at 563. Third, he observed that the amount owed under the ACA was “determined by such familiar factors as taxable income, number of dependents, and joint filing status.” Id. Fourth and finally, he said “[t]he requirement to pay [was] found in the Internal Revenue Code and enforced by the IRS, which . . . collect[ed] it in the same manner as taxes.” Id. at 563–64. 

Given all this, and regardless of the fact that the statute uses the word “penalty” in the context of not purchasing insurance, the Court ruled that it is indeed a tax on the voluntary decision to not buy insurance in the first place. Roberts concluded that “[t]he Federal Government does have the power to impose a tax on those without health insurance.” Id. at 575. As such, under the Constitution’s taxing authority (Art I, sec. 8), the individual mandate is in fact constitutional. 

First, It Was Unconstitutional. But Then It was Constitutional. Now, It’s Unconstitutional Again! 

So if the Supreme Court’s NFIB decision held the individual mandate to be constitutional (even though a plain reading of the statute would render it unconstitutional), how can the Fifth Circuit (a lower court) now hold that it is indeed unconstitutional? 

The answer: fundamental circumstances have changed. 

As part of the Tax Cuts and Jobs Act (TCJA), signed into law by President Trump in December 2017, Congress amended §5000A as to the “shared responsibility payment” amount. Specifically, the amount a person must pay for failing to comply with the individual mandate is figured as the “lesser” of “zero percent” of one’s household income or “$0.” This amendment is effective January 2019. Pub. L. No. 115- 97, § 11081, see also Code §5000A(c). 

However, it is important to note that the individual mandate is still on the books as an affirmative duty for all Americans. It still consists of the same three fundamental components it always featured, which are:

1. Subsection (a) prescribes that certain individuals “shall . . . ensure” that they and their dependents are “covered under minimum essential coverage.” Code §5000A(a). 

2. Subsection (b) “impose[s] . . . a penalty” called a “[s]hared responsibility payment” on those who fail to ensure they have minimum essential coverage. Code §5000A(b). 

3. Subsection (c) sets the amount of that payment. 

All Congress did through the TCJA was change the amount of the penalty in subsection (c) to zero dollars. See: Code §5000A(c). 

Along Comes the Fifth Circuit in Texas v. United States 

The Fifth Circuit points out in its decision that the four essential elements of §5000A, which, in the opinion of Chief Justice Roberts, made it a “tax” rather than a penalty, were fundamentally changed by the TCJA amendment. Specifically, the Fifth Circuit pointed out: 

The four central attributes that once saved the statute because it could be read as a tax no longer exist. Most fundamentally, the provision no longer yields the “essential feature of any tax” because it does not produce “at least some revenue for the Government.” Id. at 564. Because the provision no longer produces revenue, it necessarily lacks the three other characteristics that once rendered the provision a tax. The shared-responsibility payment is no longer “paid into the Treasury by taxpayer[s] when they file their tax returns” because the payment is no longer paid by anyone. Id. at 563 (alteration in original and internal quotation marks omitted). The payment amount is no longer “determined by such familiar factors as taxable income, number of dependents, and joint filing status.” Id. The amount is zero for everyone, without regard to any of these factors. The IRS no longer collects the payment “in the same manner as taxes” because the IRS cannot collect it at all. Id. at 563–64 (internal quotation marks omitted). Texas v. United States, Slip Op. at 38. 

Because the provision no longer yields any revenue, it cannot be saved by Chief Justice Roberts’ legal gymnastics holding that it is a “tax.” In light of that, the Fifth Circuit declared: 

The proper application of NFIB to the new version of the statute is to interpret it according to what Chief Justice Roberts—and four other Justices of the Court—said was the “most straightforward” reading of that provision: a command to purchase insurance. NFIB at 562 (Roberts, C.J.). As the district court properly observed, “the only reading available is the most natural one.” Under that reading, the individual mandate is unconstitutional because, under NFIB, it finds no constitutional footing in either the Interstate Commerce Clause or the Necessary and Proper Clause. Id. at 546–61 (Roberts, C.J.); id. at 650–60 (joint dissent). Id. at 39.

 The Fifth Circuit went on in its analysis to reject various other, equally strained, arguments offered by the various states that intervened in the case to save the statute. One such argument is that the mandate “does not even need constitutional justification because it is merely a suggestion, not binding legislative action.” Id. at 40. 

The Fifth Circuit recognized this for the fraud that it is. It pointed out that the Supreme Court in NFIB “already held that the ‘most straightforward’ reading of the individual mandate—which emphatically demands that individuals ‘shall’ buy insurance, 26 U.S.C. § 5000A(a)—is a command to purchase health insurance.” Id. at 41. Apart from the “tax” twist put on the law by Chief Justice Roberts, such a mandate was ruled unconstitutional under any other provision. 

The Fifth Circuit concluded: 

Now that the shared responsibility payment has been zeroed out, the only logical conclusion under NFIB is to read the individual mandate as a command. . . . It is an individual mandate, not an individual suggestion. Id. at 41; emphasis in original. 

As a stand-alone command to purchase a product in the market place, without the essential elements of a “tax” attached to it, is it unconstitutional. This reading is consistent with Chief Justice Roberts’ reasoning in NFIB in the first place. 

Is the ACA Now Dead? 

The next question, and where there seems to be a great deal of confusion in the news, is what does the Fifth Circuit’s decision do to the entirety of the ACA? Recall that the individual mandate is just one small part of a very large, highly invasive healthcare reform law. Is the entire law now considered unconstitutional because one component was declared so? 

The short answer is no, because of the legal doctrine of “severability.” If other elements of the ACA are “inseverable from the individual mandate,” those elements would likewise be deemed unconstitutional. Id. at 44. If any separate element of the law can stand alone without the individual mandate, such element would be considered constitutional in its own right. 

The Fifth Circuit remanded the case to the district court to undertake the process of answering that complicated question. 

Thus, there is substantially more litigation in the offing to reach a final conclusion. In the meantime, there is no “penalty” for not having individual health insurance.

This is  an article from the December 2019 issue of Pilla Talks Taxes Newsletter. Subscribers to Pilla Talks Taxes are able to read complete articles as well as the rest of the newsletter when they log into their subscription account on their non mobile device. http://taxhelponline.com/subscriber-login.html 

      

LOOKING TO STAY CURRENT ON THE LATEST TAX CHANGES?

Dan Pilla' monthly newsletter, Pilla Talks Taxes, features news stories and developments in federal taxes that effect your pocket book. Each information packed issue shows you how to use little known strategies to cut your taxes, protect yourself from the IRS, exercise important taxpayers' rights and keeps you up to date on the latest trends in Washington on the important subjects of taxes and your rights. You can't afford to miss a single issue!

An email address is needed to recieve this newsletter.  MORE INFO

10 issues per year. $99.00 per yr Order Now!

  

ARTICLES FOUND IN THE LATEST 

PILLA TALKS TAXES ISSUES:

December 2019

FIFTH CIRCUIT DECLARES “INDIVIDUAL MANDATE” UNCONSTITUTIONAL
What Is the Impact of the Decision?

 

SMALL BUSINESS OWNERS BEWARE
According to the IRS, You are a Tax Cheat!

 

IRS MUST PROVE PROPER MAILING
Update on Recent Tax Court Decisions
By Scott MacPherson 

 

 

 

Missed a prior featured article?

Here are links to some of the favorites:

FIVE THINGS EVERY CITIZEN
NEEDS TO KNOW ABOUT IRS CONTACTS

 

LEVY OF SOCIAL SECURITY BENEFITS

 

HOW LONG DO I KEEP TAX RECORDS?

 

CHANGE IN POLICY ON
ENFORCEMENT OF STRUCTURING LAW

Laws Pertaining to Moving Your Money
from Account to Account

 

WHAT EVERY CITIZEN NEEDS TO KNOW 
ABOUT RETIREMENT FUND DISTRIBUTIONS

The Tax Consequences of Taking Your 401(k) or IRA  

 

"I'M FROM THE IRS... -And You're Going to Jail!"

 

PASSPORTS AND THE IRS
  They Have More in Common Than You Might Think

 

END OF THE YEAR TAX PLANNING
  9 Simple Steps That Can Cut Taxes and Pain

  



MASTER INDEX OF PILLA TALKS TAXES

RESEARCH REPORTS, ARTICLES

Looking for a specific issue or article? 
Single Issues available for download, $15.95 per issue.

Contact us to order. 1-800-553-6458

 

 

 

PILLA TALKS TAXES - Featured Article
_________________________________________ 

IRS GRANTS MORE FILING AND PAYMENT RELIEF

Important Updates 

 

In the March 2020 issue of PTT, I featured an article entitled, “Sorting Out the Tax Filing and Payment Deadlines.” In it I addressed at length the IRS’s notice dated March 20, 2020, which is Notice 2020-18. That notice explains that the IRS extended filing and payment deadlines for personal income taxes. There were limits to the extensions, as explained in that article. 

On April 9, 2020, the Treasury issued another order expanding the return filing and the tax payment deadlines, along with other deadlines. That notice is IRS Notice 2020-23, April 9, 2020. I address here the combined effect of both notices. 

 

The Filing and Payment Extensions per Notices 2020-18 and 2020-23

The tax return filing and tax payment extension to July 15, 2020 is expanded. Per Notice 2020-23, the automatic extension (no application or communication with the IRS is required) applies to all of the following: 

·  Form 1040 – personal income tax

·  Form 1120 – corporate income tax

·  Form 1065 – partnership income tax

·  Form 1041 – estate and trust income tax                             

·  Forms 706 and 709 – estate and gift tax returns

·  Form 8971 – Information regarding beneficiaries

·  Form 990-T – Excise taxes on exempt organization business income

·  Form 990-PF – Return of private foundation

·  Form 990-W – ES payments on exempt organization business income

·  Estate tax payments 

·  Excise tax payments on private foundation 

·  Estimated (ES) payments for individuals on Form 1040 

·  ES payments on self-employment income

·  ES payments for estates and trusts 

·  ES payments for corporations

 

Notice 2020-23 is clear that all existing extension procedures still apply. That is to say, Form 4868 provides an automatic extension of six months to file Form 1040. In my March article, I maintained that the 4868 filing extension gets six months from the newly prescribed date (July 15) in which to file the return. That would push the extended filing date to January 15, 2021. 

This position is supported by the plain language of Treasury Regulation §1.6081-4(a). This is the authority for a filing extension. It allows for a six-month extension from “the date prescribed for filing the return.” The regulation does not state or use April 15 as the starting point of the six-month extension. Rather, it refers only to the “date prescribed” for filing. Given the president’s disaster declaration, the “prescribed date” is now July 15. The six-month extension pushes the filing date to January 15, 2021. 

However correct I might be in this analysis (which is quite simple), the IRS takes a different view. The IRS states unequivocally in Notice 2020-23, §III.B, that the extended filing date per Form 4868 is October 15, 2020. The IRS cites no legal authority for its position. Notice 2020-23 is also clear (and correctly so) that Form 4868 does not extend the time for paying the taxes. Under the relief authorized by the IRS in Notices 2020-18 and 2020-23, the deadline for paying the tax is July 15, 2020. 

However, true to its historical pattern, the IRS does not say one word about the payment extension available by filing Form 1127, Application for Extension of Time to Pay, which extension is available by operation of code §6161(a). The IRS has lied about this fact for all of the 40-plus years I’ve been in this business and they continue to do. See the March issue for a full analysis of the right to request a filing extension. 

So the question is, does a Form 4868 filing extension get you to October 15 (as maintained by the IRS) to file the return, or does Treasury Regulation §1.6081-4(a) apply to get you to January 15, 2021? 

I believe the regulation is plain and simple, and I believe the IRS is simply wrong. But as a wise man once said, “Why take the chance?” All failure to file penalties are avoided by simply filing the return by July 15, or if extended by Form 4868, by October 15. 

That said, if you cannot pay by then, you must follow the procedures I lay out in the March issue. 

The Filing and Payment Options at a Glance

The key differences between the policies expressed in IRS Notices 2020-18 and 2020-23, and the IRS’s longstanding filing and payment extension rules, are explained below.      

·  The filing deadline for all income tax returns is automatically extended to July 15, and no application is necessary;

·  A further filing extension is available by submitting Form 4868 by the July 15 deadline; pushes deadline to October 15;

·  Businesses can use Form 7004 to get more time to file beyond the July 15 deadline;

· The tax payment deadline is automatically extended to July 15; no application is necessary and no cap on the amount of tax owed applies;

·  A further extension is available by submitting Form 1127 by the July 15 deadline, but Notices 2020-18 and 2020-23 are silent on this extension;

· Interest and penalties are automatically waived through July 15;

· Penalties for failure to file and failure to pay are waived at least through October 15 if Form 4868 is timely filed, and if the IRS grants additional time to pay per a timely filed Form 1127; 

· Interest (but not penalties) applies to taxes not paid by July 15, even if additional time is granted per Form 1127; 

· You lose the option for the additional filing and payment options if you don’t file Form 4868 (or Form 7004 for businesses), or Form 1127 on or before July 15; and 

· The payment extension applies to estimated payments due by self-employed persons.

 

Note that Notice 2020-18 covers only federal income tax return filings and tax payments, including self-employment tax payments and estimated payments owed by self-employed persons up to July 15. Notice 2020-23 covers corporation, partnership and other returns per the above list.

 

The above is a part of an article from the April-May 2020 issue of Pilla Talks Taxes Newsletter. Subscribers to Pilla Talks Taxes are able to read complete articles as well as the rest of the newsletter when they log into their subscription account on their non mobile device. https://taxhelponline.com/subscriber-login.html


For more on how extending your filing and payment options on your 2019 taxes, check out my video: 

URGENT! IRS EXTENDS APRIL 15th DEADLINE! 

       

LOOKING TO STAY CURRENT ON THE LATEST TAX CHANGES?

Dan Pilla' monthly newsletter, Pilla Talks Taxes, features news stories and developments in federal taxes that effect your pocket book. Each information packed issue shows you how to use little known strategies to cut your taxes, protect yourself from the IRS, exercise important taxpayers' rights and keeps you up to date on the latest trends in Washington on the important subjects of taxes and your rights. You can't afford to miss a single issue!

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ARTICLES FOUND IN THE  

PILLA TALKS TAXES ISSUE:

April - May 2020 

 

UNDERSTANDING THE CORONAVIRUS AID,
RELIEF, AND ECONOMIC SECURITY ACT

    Critical Help for Individuals and Businesses 

ECONOMIC IMPACT PAYMENTS  
    The Centerpiece of CARES 

THE PAYCHECK PROTECTION PROGRAM
    Guaranteed and Forgivable Federal Loans

PAYCHECK PROTECTION PROGRAM FORM    

IRS GRANTS MORE FILING AND PAYMENT RELIEF 
    Important Updates to Last Month's Newsletter

ECONOMIC INJURY DISASTER LOANS  
   $10,000 Credit is Available

RETIREMENT ACCOUNT DISTRIBUTIONS  CARES
  Act Relaxes Certain Rules

EMPLOYMENT TAX PAYMENT RELIEF
  Payment Relief Provided Under CARES

THE EMPLOYEE RETENTION CREDIT  
  Refundable Credit on Employment Taxes

EMPLOYEE MEDICAL AND SICK LEAVE CREDITS    
  More COVID-19 Business Credits

DISASTER BENEFITS FOR EMPLOYERS  
  How Pre-CARES Law Helps

 

 

 

Missed a prior featured article?

Here are links to some of the favorites:

FIVE THINGS EVERY CITIZEN
NEEDS TO KNOW ABOUT IRS CONTACTS

 

LEVY OF SOCIAL SECURITY BENEFITS

 

HOW LONG DO I KEEP TAX RECORDS?

 

CHANGE IN POLICY ON
ENFORCEMENT OF STRUCTURING LAW

Laws Pertaining to Moving Your Money
from Account to Account

 

WHAT EVERY CITIZEN NEEDS TO KNOW 
ABOUT RETIREMENT FUND DISTRIBUTIONS

The Tax Consequences of Taking Your 401(k) or IRA  

 

"I'M FROM THE IRS... -And You're Going to Jail!"

 

PASSPORTS AND THE IRS
  They Have More in Common Than You Might Think

 

END OF THE YEAR TAX PLANNING
  9 Simple Steps That Can Cut Taxes and Pain

  



MASTER INDEX OF PILLA TALKS TAXES

RESEARCH REPORTS, ARTICLES

Looking for a specific issue or article? 
Single Issues available for download, $15.95 per issue.

Contact us to order. 1-800-553-6458

 

 

 

PILLA TALKS TAXES - Featured Article
_________________________________________ 

CALIFORNIA REACTS TO WAYFAIR

ESTABLISHES NEW USE TAX COLLECTION REQUIREMENTS
FOR REMOTE SELLERS

by Daniel J Pilla  

 

California Governor Gavin Newsom recently signed a law that reacts to the Supreme Court’s 2018 decision in South Dakota v. Wayfair, Inc., 138 S. Ct. 2080. That decision dismantled the long-standing “physical presence” test for determining whether the various states had the right to assess and collect sales taxes against a remote retailer—that is, a seller with no presence in the state seeking to assess the tax. The physical presence test required a seller to have an actual presence of some kind within the state, such as sales people, a warehouse, a phone center, a show floor, etc., before that state could impose sales taxes. 

The Supreme Court trashed the physical presence test in favor of what is called the “nexus” test. The nexus test suggests that any connection between the seller and the state can trip liability for the tax. The flood gates have opened as states around the nation are passing laws to impose taxes on remote sellers. This is so important that I include a chapter in my new book, Dan Pilla’s Small Business Tax Guide, to address this issue. My chapter on Wayfair-related state sales tax laws details four different ways that the various states are claiming “nexus,” and thus imposing taxes on remote sellers. 

California’s law requires out-of-state retailers with no physical presence in California to collect use tax if, during the preceding or current calendar year, the total combined sales of tangible personal property for delivery in California by the retailer and all persons related to the retailer exceed $500,000. The law also requires all retailers, whether located inside or outside of California, to collect and pay the district use tax on all sales made for delivery in any district that imposes a district tax. This requirement attaches if, during the preceding or current calendar year, the total combined sales of tangible personal property in California, or for delivery in California by the retailer and all persons related to the retailer, exceed $500,000. 

In other words, any retailer whose total sales of tangible personal property in California, including sales for resale, exceed the $500,000 threshold is considered “engaged in business” in every district in California that imposes a district tax. As such, the retailer is now required to collect the district use tax on taxable sales made for delivery in every taxing district, regardless of the amount of the retailer’s sales to any individual district. 

This requirement was effective as of April 1, 2019. The new district use tax collection requirement was effective as of April 25, 2019. For more information, California has a link on its website explaining the law. See the “Special Notice, New Use Tax Collection Requirements for Remote Sellers and New District Use Tax Collection Requirements for All Retailers,” at:

www.cdtfa.ca.gov/formspubs/l632.pdf 

A second guide entitled, “Use Tax Collection Requirements Based on Sales into California Due to the Wayfair Decision,” is available at: www.cdtfa.ca.gov/industry/wayfair.htm

This is just one more reason everyone in business needs my new book, Dan Pilla’s Small Business Tax Guide. 

This is  an article from the August 2019 issue of Pilla Talks Taxes Newsletter. Subscribers to Pilla Talks Taxes are able to read complete articles as well as the rest of the newsletter when they log into their subscription account on their non mobile device. http://taxhelponline.com/subscriber-login.html 

      

LOOKING TO STAY CURRENT ON THE LATEST TAX CHANGES?

Dan Pilla' monthly newsletter, Pilla Talks Taxes, features news stories and developments in federal taxes that effect your pocket book. Each information packed issue shows you how to use little known strategies to cut your taxes, protect yourself from the IRS, exercise important taxpayers' rights and keeps you up to date on the latest trends in Washington on the important subjects of taxes and your rights. You can't afford to miss a single issue!

An email address is needed to recieve this newsletter.  MORE INFO

10 issues per year. $99.00 per yr Order Now!

  

ARTICLES FOUND IN 

PILLA TALKS TAXES ISSUE:

AUGUST 2019

THE TAXPAYER FIRST ACT AND
THE “
NEW” INDEPENDENT OFFICE OF APPEALS

      What Does it Mean?

CALIFORNIA REACTS TO WAYFAIR

      Establishes New Use Tax Collection Requirements
for Remote Sellers

THE KEY TO THE VALIDITY OF IRS LIENS

     “First in Time is First in Line” by Scott MacPherson

LET’S NOT FORGET THERE’S A REASON
FOR KEEPING TAX RETURNS PRIVATE

     by Lawrence Gibbs   

 

 

 

Missed a prior featured article?

Here are links to some of the favorites:

FIVE THINGS EVERY CITIZEN
NEEDS TO KNOW ABOUT IRS CONTACTS

 

LEVY OF SOCIAL SECURITY BENEFITS

 

HOW LONG DO I KEEP TAX RECORDS?

 

CHANGE IN POLICY ON
ENFORCEMENT OF STRUCTURING LAW

Laws Pertaining to Moving Your Money
from Account to Account

 

WHAT EVERY CITIZEN NEEDS TO KNOW 
ABOUT RETIREMENT FUND DISTRIBUTIONS

The Tax Consequences of Taking Your 401(k) or IRA  

 

"I'M FROM THE IRS... -And You're Going to Jail!"

 

PASSPORTS AND THE IRS
  They Have More in Common Than You Might Think

 

END OF THE YEAR TAX PLANNING
  9 Simple Steps That Can Cut Taxes and Pain

  



MASTER INDEX OF PILLA TALKS TAXES

RESEARCH REPORTS, ARTICLES

Looking for a specific issue or article? 
Single Issues available for download, $15.95 per issue.

Contact us to order. 1-800-553-6458

 

 

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