IRS Updates Allowable Living Expense Standards for 2023 The IRS has updated the Allowable Living Expense (ALE) Standards, effective April 24, 2023.The ALE standards reduce subjectivity when determining what a taxpayer may claim as basic living ...
AZ - Local rate change announced The Arizona Department of Revenue has announced a local transaction privilege tax (TPT) rate change.Show LowEffective July 1, 2023, the city will impose a new Hotel/Motel Additional Tax at a rate of 3...
CA - Tax relief announced for storm victims in Modoc County The IRS has announced tax return filing and payment relief for individuals and businesses in Modoc County affected by the severe winter storms, straight-line winds, flooding, landslides, and mudslides...
CT - FAQs concerning IFTA filing requirements issued Frequently asked questions (FAQs) have been issued to provide guidance for International Fuel Tax Agreement (IFTA) carriers regarding the calculation and reporting of the motor vehicle fuels tax credi...
MI - Guidance provided on industrial processing changes The Michigan Department of Treasury has provided guidance on the expansion of the industrial processing sales tax exemption pursuant to Public Acts 27 and 30 of 2023. Industrial processing includes th...
NJ - Cannabis business deductions and credits allowed New Jersey has decoupled the corporation business tax and gross income tax from the federal provisions that prohibit tax credits and deductions for cannabis businesses. The bill also decouples S corpo...
NY - Cap amount for electronic news services exemption increases The cap amount for the New York sales and use tax exemption for sales and uses of electronic news services that occur from June 1, 2023, to May 31, 2024, increases to $4,441. News Bulletin, New York D...
WASHINGTON—The Internal Revenue Service will be resuming issuing collectionsnotices to taxpayers that were previously suspending during the COVID-19 pandemic, although a date on when they will begin to be sent out has not been set.
WASHINGTON—TheInternal Revenue Servicewill be resuming issuingcollectionsnoticesto taxpayers that were previously suspending during the COVID-19 pandemic, although a date on when they will begin to be sent out has not been set.
"Right now, we are planning for restarting thosenotices,"Darren Guillot, commissioner forcollectionand operation support in theIRSSmall Business/Self Employment Division, said May 5, 2023, during a panel discussion at the ABA May Tax Meeting."We have a very detailed plan."
Guillot assured attendees that the plan does not involve everynoticejust starting up on an unannounced day. Rather, theIRSwill"communicate vigorously"with taxpayers, tax professionals and Congress on the timing of the plans so no one will be caught off guard by their generation.
He also stated that the plan is to stagger the issuance of different types ofnoticesto make sure the agency is not overwhelmed with responses to them.
"Thenoticerestart is really going to be staggered,"Guillot said."We’re going to time it at an appropriate cadence so that we believe we can handle the incoming phone calls that it can generate."
Guillot continued:"We want to also be mindful of the impact that it will have on theIRSIndependent Office of Appeal. Some of thosenoticescome with appeals rights and we want to make sure that we give taxpayers a chance to resolve their issues without the need to have to go to appeal or even get to that stage of thatnotice. So, it will be a staggered process."
In terms of helping to avoid the appeals process and getting taxpayers back into compliance, Guillot offered a scenario of what taxpayers might expect. In the example, if a taxpayer was set to receive a finalNoticeof Intent to Levy right before the pause for the pandemic was instituted,"we’re probably going to give most of those taxpayers a gentle remindernoticeto try and see if they want to comply before we go straight to that finalnotice. That’s good for the taxpayer and it’s good for theIRS. And it’s good for the appellate process as well."
Guillot also said the agency is going to look at the totality of the 500-series ofnoticesand taxpayers and their circumstances to see if there is a more efficient way of communicating and collecting past due amounts from taxpayers.
He also stressed that theIRShas been working with National Taxpayer Advocate Erin Collins and she has offered"input that we’re incorporating and taking into consideration every step of the way."
Collins, who also was on the panel, confirmed that and added that theIRSis"trying to take a very reasonable approach of how to turn it back on,"adding that the staggered approach will also help practitioners and the Taxpayer Advocate Service from being overwhelmed as well as theIRS.
Guillot also mentioned that in the very near future, theIRSwill start generating CP-14notices, which are the statutory duenotices. This is the firstnoticethat a taxpayer will receive at the end of a tax season when there is money that they owe and those will start to be sent out to taxpayers around the end of May.
The Internal Revenue Service will use 2018 as the benchmarkyear for determining auditrates as it plans to increase enforcement for those individuals and businesses making more than $400,000 per year.
The Internal Revenue Service will use2018as thebenchmarkyearfor determiningauditratesas it plans to increase enforcement for those individuals and businesses making more than $400,000 peryear.
The agency is"going to be focused completely on … closing the gap,"IRS Commissioner Daniel said April 27, 2023, during ahearingof the House Ways and Means Committee."What that means is theauditrate, the most recentauditrate, we have that’s complete and final is2018. That is theratethat I want to share with the American people. Theauditratewill not go above thatrateforyearsto come because for the next severalyears, at least, we’re going to be focused on work that we’re doing with the highest income filers."
Werfeladded that even if the IRS were to expand itsauditfootprint a fewyearsfrom now,"you’re still not going to get anywhere near that historical average for quite some time. So, I think there can be assurances to the American people that if you earn under $400,000, there’s no new wave ofauditscoming. The probability of you beingauditedbefore the Inflation Reduction Act and after the Inflation Reduction Act are not changed at all."
He also noted that many of the new hires that will be brought in to handle enforcement will focus on the wealthiest individuals and businesses.Werfelsaid that there currently are only 2,600 employees that cover filings of the wealthiest 390,000 filers and that is where many of the enforcement hires will be used.
"We have to up our game if we’re going to effectively assess whether these organizations are paying what they owe,"he testified."So, it’s about hiring. It’s about training. And it’s not just hiring auditors, it’s about hiring economists, scientists, engineers. And when I [say] scientists, I mean data scientists to truly help us strategically figure out where the gaps are so we can close those gaps."
Werfeldid sidestep a question about the potential need for actually increasing the number ofauditsfor those making under $400,000. When asked about a Joint Committee on Taxation report that found that more than 90 percent of unreported income actually came from taxpayers earning less than $400,000, he responded that"there is a lot of mounting evidence that there is significant underreporting or tax gap in the highest income filers. For example, there’s a study that was done by the U.S. Treasury Department that looked at the top one percent of Americans and found that as much as $163 billion of tax dodging, roughly."
And while answering the questions on the need for more personnel to handle theauditsof the wealthy, he did acknowledge that"a big driver"of needing such a large workforce to handle the filings of wealthy taxpayers is due to the complexity of the tax code, in addition to a growing population, a growing economy, and an increasing number of wealthy taxpayers.
Other Topics Covered
Werfel’s testimony covered a wide range of topics, from the size and role of the personnel to be hired to the offering of service that has the IRS fill out tax forms for filers to technology and security upgrade, similar to a round of questions the agency commissioner faced before the Senate Finance Committee in ahearinga week earlier.
He reiterated that a study is expected to arrive mid-May that will report on the feasibility of the IRS offering a service to fill out tax forms for taxpayers.Werfelstressed that if such a service were to be offered, it would be strictly optional and there would be no plans to make using such a service mandatory.
"Our hope and our vision [is] that we will meet taxpayers where they are,"he testified."If they want to file on paper, we’re not thrilled with it, but we’ll be ready for it. If they want the fully digital experience, if they want to work with a third-party servicer, we want to accommodate that."
Werfelalso reiterated a commitment to examine the use of cloud computing as a way to modernize the IRS’s information technology infrastructure.
And he also continued his call for an increase in annual appropriations to compliment the funding provided by the Inflation Reduction Act. He testified that modernization funds were"raided"so that phones could be answered and to prevent service levels from declining while still being able to modernize the agency, more annual funds will need to be appropriated.
The Supreme Court has held that the exception to the notice requirement in Code Sec. 7609(c)(2)(D)(i) does not apply where a delinquenttaxpayer has a legalinterest in accounts or recordssummoned by the IRS under Code Sec. 7602(a). The IRS had entered official assessments against an individual for unpaid taxes and penalties, following which a revenue officer had issued summonses to three banks seeking financial records of several third parties, including the taxpayers. Subsequently, the taxpayers moved to quash the summonses. The District Court concluded that, under Code Sec. 7609(c)(2)(D)(i), no notice was required and that taxpayers, therefore, could not bring a motion to quash.
The Supreme Court has held that the exception to the notice requirement inCode Sec. 7609(c)(2)(D)(i)does not apply where adelinquenttaxpayerhas alegalinterestin accounts orrecordssummonedby theIRSunderCode Sec. 7602(a). TheIRShad entered official assessments against an individual for unpaid taxes and penalties, following which a revenue officer had issued summonses to three banks seeking financialrecordsof several third parties, including thetaxpayers. Subsequently, thetaxpayersmoved to quash the summonses. The District Court concluded that, underCode Sec. 7609(c)(2)(D)(i), no notice was required and thattaxpayers, therefore, could not bring a motion to quash. The Court of Appeals also affirmed, finding that the summonses fell within the exception inCode Sec. 7609(c)(2)(D)(i)to the general notice requirement.
Exceptions to Notice Requirement
Thetaxpayersargued that the exception to the notice requirement inCode Sec. 7609(c)(2)(D)(i)applies only if thedelinquenttaxpayerhas alegalinterestin the accounts orrecordssummonedby theIRS. However, the statute does not mentionlegalinterestand does not require that ataxpayermaintain such aninterestfor the exception to apply. Further, thetaxpayers’ arguments in support of their proposedlegalinteresttest, failed. Thetaxpayersfirst contended that the phrase"in aid of the collection"would not be accomplished by summons unless it was targeted at an account containing assets that theIRScan collect to satisfy thetaxpayers’ liability. However, a summons might not itself revealtaxpayerassets that can be collected but it might help theIRSfind such assets.
Thetaxpayers’ second argument that ifCode Sec. 7609(c)(2)(D)(i)is read to exempt every summons from notice that would help theIRScollect an"assessment"against adelinquenttaxpayer, there would be no work left for the second exception to notice, found inCode Sec. 7609(c)(2)(D)(ii). However, clause (i) applies upon an assessment, while clause (ii) applies upon a finding of liability. In addition, clause (i) concernsdelinquenttaxpayers, while clause (ii) concerns transferees or fiduciaries. As a result, clause (ii) permits theIRSto issue unnoticed summonses to aid its collection from transferees or fiduciaries before it makes an official assessment of liability. Consequently,Code Sec. 7609(c)(2)(D)(i)does not require that ataxpayermaintain alegalinterestinrecordssummonedby theIRS.
An IRSnotice provides interim guidance describing rules that the IRS intends to include in proposedregulations regarding the domesticcontentbonuscredit requirements for:
AnIRSnoticeprovides interim guidance describing rules that theIRSintends to include inproposedregulationsregarding thedomesticcontentbonuscreditrequirements for:
--theCode Sec. 45electricity productiontax credit,
--the newCode Sec. 45Yclean electricity productioncredit,
Thenoticealso provides a safe harbor regarding the classification of certaincomponentsin representative types of qualified facilities,energyprojects, orenergystorage technologies. Finally, itdescribesrecordkeeping and certification requirements for thedomesticcontentbonuscredit.
Taxpayer Reliance
Taxpayers may rely on thenoticefor any qualified facility,energyproject, orenergystorage technology the construction of which begins before the date that is 90 days after the date of publication of the forthcomingproposedregulationsin theFederal Register.
TheIRSintends to propose that theproposedregswill apply to tax years ending after May 12, 2023.
DomesticContentBonusRequirements
Thenoticedefinesseveralterms that are relevant to thedomesticcontentbonuscredit, including manufactured, manufactured product, manufacturing process, mined and produced. In addition, thenoticeextendsdomesticcontenttest to retrofitted projects that satisfy the 80/20 rule for new and used property.
Thenoticealso provides detailed rules for satisfying the requirement that at least 40 percent (or 20 percent for an offshore wind facility) of steel, iron or manufactured productcomponentsare produced in the United States. In particular, thenoticeprovides an Adjusted Percentage Rule for determining whether manufactured productcomponentsare produced in the U.S.
Safe Harbor for Classifying ProductComponents
The safe harbor applies to a variety of projectcomponents. A table list thecomponents, the project that might use eachcomponent, and assigns eachcomponentto either the steel/iron category or the manufactured product category.
The table is not exhaustive. In addition,componentslisted in the table must still meet the relevant statutory requirements for the particularcreditto be eligible for thedomesticcontentbonuscredit.
Certification and Substantiation
Finally, thenoticeexplains that a taxpayer that claims thedomesticcontentbonuscreditmust certify that a project meets thedomesticcontentrequirement as of the date the project is placed in service. The taxpayer must also satisfy the general income tax recordkeeping requirements to substantiate thecredit.
A taxpayer certifies a project by submitting aDomesticContentCertification Statement to theIRScertifying that any steel, iron or manufactured product that is subject to thedomesticcontenttest was produced in the U.S. The taxpayer must attach the statement to the form that reports thecredit. The taxpayer must continue to attach the form to the relevantcreditform for subsequent tax years.
A married couple’s petition for redetermination of an income tax deficiency was untimely where they electronicallyfiled their petition from the central timezone but after the due date in the eastern timezone, where the Tax Court is located. Accordingly, the taxpayers’ case was dismissed for lack of jurisdiction.
A married couple’spetitionfor redetermination of an incometaxdeficiency was untimely where theyelectronicallyfiledtheirpetitionfrom the centraltimezonebut after theduedate in the easterntimezone, where theTax Courtis located. Accordingly, the taxpayers’ case was dismissed for lack of jurisdiction.
The deadline for the taxpayers to file apetitionin theTax Courtwas July 18, 2022. The taxpayers were living in Alabama when theyelectronicallyfiledtheirpetition. At thetimeof filing, theTax Court's electronic case management system (DAWSON) automatically applied a cover sheet to theirpetition. The cover sheet showed that thecourtelectronicallyreceived thepetitionat 12:05 a.m. easterntimeon July 19, 2022, andfiledit the same day. However, when theTax Courtreceived thepetition, it was 11:05 p.m. centraltimeon July 18, 2022, in Alabama.
ElectronicallyFiledPetition
The taxpayers’petitionwas untimely because it wasfiledafter theduedate underCode Sec. 6213(a).Tax CourtRule 22(d) dictates that the last day of a period for electronic filing ends at 11:59 p.m. easterntime, theTax Court’s localtimezone. Further, the timely mailing rule underCode Sec. 7502(a)applies only to documents that are delivered by U.S. mail or a designated delivery service, not to anelectronicallyfiledpetition.
Internal Revenue Service Commissioner Daniel Werfel said changes are coming to addressracialdisparities among those who get audited annually.
Internal Revenue Service Commissioner DanielWerfelsaid changes are coming toaddressracialdisparitiesamong those who getauditedannually.
"I will stay laser-focused on this to ensure that we identify and implement changes prior to the next tax filing season,"Werfelstated in a May 15, 2023,letterto Senate Finance Committee Chairman Ron Wyden (D-Ore.).
The issue ofracialdisparitieswas raised duringWerfel’s confirmation hearing an in subsequent hearings before Congress after taking over as commissioner in the wake of astudyissued by Stanford University that found that African American taxpayers areauditedat three to five times the rate of other taxpayers.
The IRS"is committed to enforcing tax laws in a manner that is fair and impartial,"Werfelwrote in the letter."When evidence of unfair treatment is presented, we must take immediate actions toaddressit."
He emphasized that the agency does not and"will not consider race as part of our case selection andauditprocesses."
He noted that the Stanford study suggested that theauditswere triggered by taxpayers claiming the Earned Income Tax Credit.
"We are deeply concerned by these findings and committed to doing the work to understand andaddressany disparate impact of the actions we take,"he wrote, adding that the agency has been studying the issue since he has taken over as commissioner and that the work is ongoing.Werfelsuggested that initial findings of IRS research into the issue"support the conclusion that Black taxpayers may beauditedat higher rates than would be expected given their share of the population."
Werfeladded that elements in the Inflation Reduction Act Strategic Operating Plan include commitments to"conducting research to understand any systemic bias in compliance strategies and treatment. … The ongoing evaluation of our EITCauditselection algorithms is the topmost priority within this larger body of work, and we are committed to transparency regarding our research findings as the work matures."
The American Institute of CPAs expressed support for legislation pending in the Senate that would redefine when electronic payments to the Internal Revenue Service are considered timely.
The American Institute of CPAs expressed support forlegislationpending in the Senate that would redefine when electronic payments to the Internal Revenue Service are considered timely.
In a May 3, 2023, letter to Sen. Marsha Blackburn (R-Tenn.) and Sen. Catherine Cortez Masto (D-Nev.), theAICPAapplauded the legislators for The Electronic Communication UniformityAct(S. 1338), which would treat electronic payments made to the IRS as timely at the point they are submitted, not at the point they are processed, which is how they are currently treated. The move would make the treatment similar to physically mailed payments, which are considered timely based on the post mark indicating when they are mailed, not when the payment physically arrives at the IRS or when the agency processes it.
S. 1338 was introduced by Sen. Blackburn on April 27, 2023. At press time, Sen. Cortez Masto is the only co-sponsor to the bill.
The bill adopts a recommendation included by the National Taxpayer Advocate in the annual so-called"Purple Book"of legislative recommendations made to Congress by the NTA. The Purple Book notes that IRS does not have the authority to apply themailboxrule to electronic payments and it would need anactof Congress to make the change.
"Your bill would provide welcome relief and solve a problem that taxpayers have been faced with, i.e., incurring penalties through no fault of their own because they believed their filings or payments were timely submitted through an electronic platform,"theAICPAletter states. Thislegislationwould provide equity by treating similarly situated taxpayers similarly. It would also improve tax administration by eliminating IRS notices assessing unnecessary penalties when the taxpayer or practitioner electronically submits a tax return by the deadline regardless of when the IRS processes it.
Tax policy and comment letters submitted to the government can be foundhere.
WASHINGTON—The Inflation Reduction ActStrategicOperatingPlanwas designed to be alivingdocument, an Internal Revenue Service official said.
Theplan, which outlines how the IRSplansto spend the additional nearly $80 billion in supplemental funds allocated to it in the Inflation Reduction Act, was written to be a"livingdocument. It’s not meant to be something static that stays on the shelf and never gets updated, and just becomes an historic relic,"Bridget Roberts, head of the IRS Transformation and Strategy Office, said May 5, 2023, at the ABA May Tax Meeting.
WASHINGTON—The Inflation Reduction ActStrategicOperatingPlanwas designed to be alivingdocument, an Internal Revenue Service official said.
Theplan, which outlines how the IRSplansto spend the additional nearly $80 billion in supplemental funds allocated to it in the Inflation Reduction Act, was written to be a"livingdocument. It’s not meant to be something static that stays on the shelf and never gets updated, and just becomes an historic relic,"Bridget Roberts, head of the IRS Transformation and Strategy Office, said May 5, 2023, at the ABA May Tax Meeting.
Roberts also described theplanas a tool to help bring the agency together and more unified in its mission.
"We intentionally wrote theplanto sort of break down some of those institutional silos,"she said."So, we didn’t write it based on business unit or function."
She framed the development of theplana"cross-functional, cross-agency effort,"adding that it"wasn’t like, ‘here’s how we’re going to change wage and investment or large business.’ It was, ‘here’s how we’re going to change service and enforcement and technology. And those pieces touch everything."
Roberts also highlighted the need for better data analytics across the agency, something that the SOP emphasizes particularly as it beings to ramp up enforcement activities to help close the tax gap.
"We are never going to be able to hire at a level that you can audit everybody,"she said."So, the ability to use data and analytics to really focus our resources on where we think there is true noncompliance,"rather than conducting audits that result in no changes."That’s not helpful for taxpayers. That’s not helpful for the IRS."
The IRS Independent Office of Appeals, in coordination with the National Taxpayer Advocate, has invited publicfeedback on how it can improve conference options for taxpayers and representatives who are not located near an Appeals office, encourage participation of taxpayers with limited English proficiency and ensure accessibility by persons with disabilities. Taxpayers can send their comments to ap.taxpayer.experience@irs.gov by July 10, 2023.
TheIRSIndependent Office ofAppeals, in coordination with the National Taxpayer Advocate, has invitedpublicfeedbackon how it can improve conference options for taxpayers and representatives who are not located near anAppealsoffice, encourage participation of taxpayers with limited English proficiency and ensure accessibility by persons with disabilities. Taxpayers can send their comments toap.taxpayer.experience@irs.govby July 10, 2023.
Appealsresolve federal tax disputes through conferences, wherein anappealsofficer will engage with taxpayers in a way that is fair and impartial to taxpayers as well as the government to discuss potential settlements. Additionally, taxpayers can resolve their disputes by mail or secure messaging. Although, conferences are offered by telephone, video, the mode of meeting withAppealsis completely decided by the taxpayer. Recently,appealsexpandedaccesstovideo conferencingto meet taxpayer needs during the COVID-19 pandemic. Further, taxpayers and representatives who prefer to meet withAppealsin person have the option to do so as,appealshas a presence in over 60 offices across 40 states where they can host in-person conferences.
The IRS has released the annual inflation adjustments for 2021 for the income tax rate tables, and for over 50 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation.
The IRS has released the annual inflation adjustments for 2021 for the income tax rate tables, and for over 50 other tax provisions. The IRS makes these cost-of-living adjustments (COLAs) each year to reflect inflation.
2021 Income Tax Brackets For 2021, the highest income tax bracket of 37 percent applies when taxable income hits:
$628,300 for married individuals filing jointly and surviving spouses,
$523,600 for single individuals and heads of households,
$314,150 for married individuals filing separately, and
$13,050 for estates and trusts.
2021 Standard Deduction The standard deduction for 2021 is:
$25,100 for married individuals filing jointly and surviving spouses,
$18,800 for heads of households, and
$12,550 for single individuals and married individuals filing separately.
The standard deduction for a dependent is limited to the greater of:
$1,100 or
the sum of $350 plus the dependent’s earned income.
Individuals who are blind or at least 65 years old get an additional standard deduction of:
$1,350 for married taxpayers and surviving spouses, or
$1,700 for other taxpayers.
AMT Exemption for 2021 The alternative minimum tax (AMT) exemption for 2021 is:
$114,600 for married individuals filing jointly and surviving spouses,
$73,600 for single individuals and heads of households,
$57,300 for married individuals filing separately, and
$25,700 for estates and trusts.
The exemption amounts begin to phase out when alternative minimum taxable income (AMTI) exceeds:
$1,047,200 for married individuals filing jointly and surviving spouses,
$523,600 for single individuals, heads of households, and married individuals filing separately, and
$85,650 for estates and trusts.
Expensing Section 179 Property in 2021 For tax years beginning in 2021, taxpayers can expense up to $1,050,000 in Code Sec. 179 property. However, this dollar limit is reduced when the Section 179 property placed in service during the year exceeds $2,620,000.
Estate and Gift Tax Adjustments for 2021 The following inflation adjustments apply to federal estate and gift taxes in 2021:
the gift tax exclusion is $15,000 per donee, or $159,000 for gifts to spouses who are not U.S. citizens;
the federal estate tax exclusion is $11,700,000; and
the maximum reduction for real property under the special valuation method is $1,190,000.
2021 Inflation Adjustments for Other Tax Items
The maximum foreign earned income exclusion amount in 2021 is $108,700.
The IRS also provided inflation-adjusted amounts for the:
adoption credit,
lifetime learning credit,
earned income credit,
excludable interest on U.S. savings bonds used for education,
various penalties, and
many other provisions.
Effective Date These inflation adjustments generally apply to tax years beginning in 2021, so they affect most returns that will be filed in 2022. However, some specified figures apply to transactions or events in calendar year 2021.
The IRS has released the 2021 cost-of-living adjustments (COLAs) for pension plan dollar limitations and other retirement-related provisions.
The IRS has released the 2021 cost-of-living adjustments (COLAs) for pension plan dollar limitations and other retirement-related provisions.
Key Unchanged Amounts The 2021 contribution limit remains unchanged at $19,500 for employees who take part in:
401(k) plans,
403(b) plans,
most 457 plans, and
the federal government’s Thrift Savings Plan
The catch-up contribution limit for employees aged 50 and over who participate in these plans also remains unchanged at $6,500.
The limitation for SIMPLE retirement accounts is unchanged at $13,500.
For individual retirement arrangements (IRAs), the limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment, and so remains $1,000.
IRAs and Roth IRAs The income ranges for determining eligibility to make deductible contributions to traditional IRAs and to contribute to Roth IRAs have increased for 2021.
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. The deduction phases out if the taxpayer or his or her spouse takes part in a retirement plan at work. The deduction phase out depends on the taxpayer's filing status and income.
For single taxpayers covered by a workplace retirement plan, the 2021 phase-out range is $66,000 to $76,000, up from $65,000 to $75,000 for 2020.
For married couples filing jointly, when the spouse making the contribution takes part in a workplace retirement plan, the 2021 phase-out range is $105,000 to $125,000, up from $104,000 to $124,000 for 2020.
For an IRA contributor who is not covered by a workplace retirement plan but who is married to someone who is covered, the 2021 phase out range is between $198,000 and $208,000, up from $196,000 and $206,000 for 2020.
For a married individual who is covered by a workplace plan and is filing a separate return, the phase-out range is not subject to an annual COLA and remains $0 to $10,000.
The 2021 income phase-out ranges for Roth IRA contributions are:
$125,000 to $140,000 for singles and heads of household (up from $124,000 to $139,000 in 2020),
$198,000 to $208,000 for married filing jointly (up from $196,000 to $206,000 in 2020), and
$0 to $10,000 for married filing separately.
Saver’s Credit The income limit for low- and moderate-income workers to claim the Saver's Credit under Code Sec. 25B has also increased for 2021:
$66,000 for married couples filing jointly (up from $65,000 in 2020),
$49,500 for heads of household (up from $48,750 in 2020), and
$33,000 for singles and married filing separately (up from $32,500 in 2020).
The IRS has provided guidance to taxpayers that want to apply either Reg. §1.168(k)-2 and Reg. §1.1502-68, or want to rely on proposed regulations under NPRM REG-106808-19.
The IRS has provided guidance to taxpayers that want to apply either Reg. §1.168(k)-2 and Reg. §1.1502-68, or want to rely on proposed regulations under NPRM REG-106808-19, for:
certain depreciable property acquired and placed in service after September 27, 2017, by the taxpayer during its tax years ending on or after September 28, 2017, and before the taxpayer's first tax year that begins on or after January 1, 2021;
certain plants planted or grafted after September 27, 2017, by the taxpayer during its tax years ending on or after September 28, 2017, and before the taxpayer's first tax year that begins on or after January 1, 2021; and
components acquired or self-constructed after September 27, 2017, of certain larger self-constructed property and placed in service by the taxpayer during its tax years ending on or after September 28, 2017, and before the taxpayer's first tax year that begins on or after January 1, 2021.
Rev. Proc. 2020-25, 2020-19 I.R.B. 785, and Rev. Proc. 2019-43, 2019-48 I.R.B. 1107, are modified.
Change in Accounting Method The guidance applies to taxpayers who are changing their method of accounting for depreciable property that includes:
components described in Reg. §1.168(k)-2(c) or NPRM REG-106808-19 where the component election has already been made; and
specified plants for which the Code Sec. 168(k)(5) election has been made and that are planted, or grafted to a plant that was previously planted, after September 27, 2017, during the taxpayer’s 2017, 2018, 2019, or 2020 tax year.
This guidance does not apply to property or a plant:
that is impacted by a late election, or withdrawn election under Code Sec. 163(j)(7) after November 16, 2020, pursuant to Rev. Proc. 2020-22;
for which the taxpayer is changing from deducting the cost or other basis of such property as an expense to capitalizing and depreciating the cost or other basis, or vice versa; or
that the taxpayer does not own at the beginning of the year of change, with some exceptions.
In addition, this guidance cannot be used to make a late election, or revoke an election, under Code Sec. 168, Code Sec. 179, or Reg. §1.1502-68.
Taxpayers have a choice of applying the 2020 final regulations under T.D. 9916, the previous final regulations under T.D. 9874, or both the final regulations under NPRM REG-106808-19. However, once a taxpayer applies Reg. §1.168(k)-2 and Reg. §1.1502-68, the taxpayer must apply Reg. §1.168(k)-2 and Reg. §1.1502-68 to all subsequent tax years.
Automatic Extensions of Time Applicable taxpayers may make a late Code Sec. 168(k)(5) election, a late Code Sec. 168(k)(7) election, a late Code Sec. 168(k)(10) election, a late component election, a late designated transaction election, or a late proposed component election, by filing either:
an amended Form 1065 for the placed-in-service year of the property, or for the planting year of the specified plant, as applicable, on or before December 31, 2021; or
a Form 3115 with the taxpayer’s timely filed original Federal income tax return or Form 1065 for the taxpayer’s first or second tax year succeeding the tax year in which the taxpayer placed in service the property or the planting year of the specified plant, or, if later, the taxpayer’s timely filed original Federal income tax return or Form 1065 that is filed on or after November 6, 2020, and on or before December 31, 2021.
Effective Date This guidance is effective on November 6, 2020.
The IRS has adopted previously issued proposed regulations ( REG-106808-19) dealing with the 100 percent bonus depreciation deduction. In addition, some clarifying changes have been made to previously issued final regulations ( T.D. 9874). Changes to the proposed and earlier final regulations are largely in response to various comments submitted by practitioners, and generally relate to:
The IRS has adopted previously issued proposed regulations ( REG-106808-19) dealing with the 100 percent bonus depreciation deduction. In addition, some clarifying changes have been made to previously issued final regulations ( T.D. 9874). Changes to the proposed and earlier final regulations are largely in response to various comments submitted by practitioners, and generally relate to:
the definition of qualified used property;
the election to claim bonus depreciation on components acquired or self-constructed after September 27, 2017, for larger self-constructed property for which manufacture, construction, or production began before September 28, 2017;
application of the mid-quarter convention;
clarifications to the definition of qualified improvement property, predecessor, and class of property; and
clarifications to the rules for consolidated groups The rules for consolidated groups have also been moved from Proposed Reg. §1.168(k)-2(b)(3)(v) to new Reg. §1.1502-68.
Used Property The 2019 final regulations provide that in determining whether the taxpayer or a predecessor had a depreciation interest in property prior to its acquisition, only the five calendar years immediately prior to the current placed-in-service year are considered. The latest IRS regulations clarify that the five calendar years immediately prior to the current calendar year in which the property is placed in service by the taxpayer, and the portion of such current calendar year before the placed-in-service date of the property without taking into account the applicable convention, are taken into account. In addition, the five-year look-back period applies separately to the taxpayer and a predecessor.
Furthermore, if the taxpayer or a predecessor, or both, have not been in existence during the entire look-back period, then only the portion of the look-back period during which the taxpayer or a predecessor, or both, have been in existence is taken into account.
Expanded Component Election The prior regulations allow taxpayers to election to claim 100 percent bonus depreciation on components of certain larger constructed property that qualifies for bonus depreciation if the construction of the larger property began before September 28, 2017. The components must be acquired or constructed after September 27, 2017, and the larger property must be placed in service before 2020 (2021 in the case of property with a longer construction period). The final regulations remove the 2020/2021 cutoff date. In addition, the final regulations provide that eligible larger self-constructed property also includes property that is constructed for a taxpayer under a written contract that is not binding and that is entered into prior to construction for use in the taxpayer’s trade or business. The definition of a larger constructed property is also clarified.
Qualified Improvement Property The 15-year recovery period for qualified improvement property applies only to improvements "made by the taxpayer." The final regulations clarify that an improvement is considered made by a taxpayer if the property is constructed for the taxpayer. However, qualified improvement property received by a transferee taxpayer in a nonrecognition transaction described in Code Sec. 168(i)(7) is not eligible for bonus depreciation.
Mid-Quarter Convention The final regulations clarify that depreciable basis is not reduced by the amount of bonus deduction in determining whether the mid-quarter convention applies.
Binding Contracts Generally, property acquired pursuant to a binding contract entered into after September 27, 2017, does not qualify for bonus depreciation at the 100 percent rate. The final regulations clarify that a contract for a sale of stock of a corporation that is treated as an asset sale as the result of a Code Sec. 336(e) election made for a disposition described in Reg. §1.336-2(b)(1) is a binding contract if enforceable under state law.
Floor Plan Financing The IRS intends to issue guidance relating to transition relief for taxpayers with a trade or business with floor plan financing indebtedness that want to revoke elections not to claim bonus depreciation for property placed in service during 2018.
The IRS will not allow a taxpayer to limit the amount of its otherwise deductible floor plan interest in order to qualify for bonus depreciation. However, guidance will address transition relief for the 2018 tax year for taxpayers that treated Code Sec. 168(j)(1) as providing an option for a business with floor plan financing indebtedness to include or exclude its floor plan financing interest expense in determining the amount allowed as a deduction for business interest expense for the tax year.
Effective Date In general, the regulations apply to property acquired after September 27, 2017, and placed in service during or after a tax years that begins on or after January 1, 2021. However, they may be relied on for earlier tax years.