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Covering Your Assets: Random thoughts on recent IRS updates (Voices)

Mike Bosma

Covering Your Assets

Michael Bosma
Courtesy photo

IRS guidance allowing e-signatures eases compliance burdens

In an internal memo on Aug. 27, the IRS identified various forms for which it will temporarily allow required signatures in electronic or digital form.

The forms are fileable only on paper but otherwise require a handwritten signature. This is good news for the taxpayers scrambling to keep their business afloat, and meet the respective Sept. 15, 2020, and Oct. 15, 2020, deadlines.

The authorization is effective for forms mailed to the IRS on or after Aug. 28 through Dec. 31, 2020.

You can view the internal memo here. The forms covered are:

  • Form 3115, Application for Change in Accounting Method;
  • Form 8802, Application for U.S. Residency Certification;
  • Form 8832, Entity Classification Election;
  • Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax Return;
  • Form 1120-RIC, U.S. Income Tax Return for Regulated Investment Companies;
  • Form 1120-C, U.S. Income Tax Return for Cooperative Associations;
  • Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts;
  • Form 1120-L, U.S. Life Insurance Company Income Tax Return;
  • Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return; and
  • Form 8453 series, Form 8878 series, and Form 8879 series regarding IRS e-file signature authorization forms.

The Aug. 27 memo acknowledged that it does not cover all forms that cannot be e-filed but said that electronic or digital signatures pose a risk to tax administration.

It did not further specify the extent or nature of that risk but said the policy limits it to an acceptable level under the circumstances.

And the IRS said it will evaluate the effects and implications for future signing requirements.

Tools to help non-filers receive economic impact payments

The IRS has provided tools for tax practitioners (details here) to use to reach out to certain taxpayers who do not normally file tax returns and are eligible to receive economic impact payments. 

Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, eligible individuals can receive an economic impact payment (or recovery rebate) of up to $1,200 for individuals or $2,400 for married couples.

Parents also receive $500 for each qualifying child. However, individuals who did not file a tax return for 2018 or 2019 may not have received a payment even if they were eligible.

To help practitioners reach out to these individuals to inform them about their eligibility for the payments, the IRS has created e-posters, ready-to-use articles, a toolkit and other resources that can be downloaded and shared. The aim is to let eligible individuals know that they can go to the IRS’s Non-Filers tool (go here) until Oct. 15.

Furthermore, IR-2020-203, issued Sept. 8, 2020, states that the IRS will mail out 9 million notices to non-filers to encourage them to file to get their Economic Impact Payment.

Interest rates remain basically unchanged

In IR-2020-202, issued Sept. 3, 2020, the IRS announced that interest rates will remain the same for the calendar quarter beginning October 1, 2020. The rates will be:

  • 3% for overpayments (2% in the case of a corporation);
  • 0.5% for the portion of a corporate overpayment exceeding $10,000;
  • 3% percent for underpayments; and
  • 5% percent for large corporate underpayments.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Revenue Ruling 2020-16 (go here) lists the September Applicable Federal Rates. The rates are as follows:

  • Short term AFR (less than 3 years): .14%
  • Mid term AFR (3 to 9 years): .35%
  • Long term AFR (more than 9 years): 1.00%

Generally, this is the minimum amount of interest that is required to be charged. For example, let’s assumed that you borrowed $100,000 from your S Corporation in December 2018. The AFR was 2.76%. You would be required to pay $2,760 of interest on the debt.

Assuming the top marginal rate of 40.8% (37% income tax plus 3.8% Net Investment Income Tax) you would pay $1,126 in tax on the interest income. If you were able to repay the loan, and re-borrow it at the September rates, the interest would only by $140 and the tax would be $57 — a savings of $1,069!

The above mentioned topics are general in nature.  Please consult your CPA to finds out how they apply to your specific situation.

Michael Bosma, CPA, is Principal-in-Charge of the Reno office of CliftonLarsonAllen LLP. His NNBW column, “Covering Your Assets,” focuses on effective planning strategies for every business owner. He’s also the host of “Bosma on Business,” which airs Saturdays at 10 a.m. on Newstalk 780 KOH. Reach him for comment at mike.bosma@claconnect.com.