Covid-19 Archives - Pearson & Co., PC

30 May 2023

Covid-19, IRS, News, Tax Credits, Tax Form Guidance, Tax Law Pearson & Co, PC 0 comment

AGGRESSIVE EMPLOYEE RETENTION CREDIT PROMOTERS

Business Owners & Managers Be Careful!

You may be planning to apply for the Employee Retention Credit … tax credit that could add up to a maximum credit of $26,000 per employee. Perhaps you already have done so.

You’re aware of, and perhaps responded to, solicitations by third-party advisers urging business owners to engage them to navigate the shoals of applying for the Employee Retention Credit (ERC). Typically an added inducement is the promise of no up-front fees … just a share of the credit your company receives from the IRS.

In this year’s annual Dirty Dozen summary, the IRS posted the following:

Employee Retention Credit claims

Taxpayers should be aware of aggressive pitches from scammers who promote large refunds related to the Employee Retention Credit (ERC). The warning follows blatant attempts by promoters to con ineligible people to claim the credit. The IRS highlighted these schemes from promoters who have been blasting ads on radio and the internet touting refunds involving Employee Retention Credits. These promotions can be based on inaccurate information related to eligibility for and computation of the credit. Additionally, some of these advertisements exist solely to collect the taxpayer’s personally identifiable information in exchange for false promises. The scammers then use the information to conduct identity theft.

In this article, we offer a summary of the ERC requirements and benefits. Additionally, we’ll share some cautionary thoughts for those of you who are contemplating or have already enlisted the services of a third-party ERC adviser.

What is the ERC?

The ERC is a refundable payroll tax credit rewarding businesses that continued to pay employees while shut down due to the COVID-19 pandemic or had significant declines in gross receipts from March 13, 2020 to Dec. 31, 2021.

The credit may be as much as $5,000 per employee in 2020 and up to $7,000 per employee per quarter (for the first three quarters) in 2021. That could add up to a maximum credit of $26,000 per employee.

Eligible employers can claim the ERC on an original or adjusted employment tax return for a period within those dates.

Employer Eligibility: An employer is eligible for the ERC if it:

Sustained a full or partial suspension of operations limiting commerce, travel or group meetings due to COVID-19 and orders from an appropriate governmental authority or,
Experienced a significant decline in gross receipts during 2020 or a decline in gross receipts during the first three quarters of 2021 or,
Qualified in the third or fourth quarters of 2021 as a recovery startup business.

Click here for more detail on each of the above eligibility requirements.

Filing Deadlines: Employers have until April 15, 2024, to file Form 941-X for the eligible quarters in 2020; and until April 15, 2025, for eligible quarters in 2021.

Note: Wages reported as payroll costs for PPP loan forgiveness or certain other tax credits can’t be claimed for the ERC in any tax period.

Employers … Be Careful!

Third-party advisers are typically new operations put together to capitalize on the preparation of ERC applications for employers. Lack of experience along with aggressive marketing often results in improper advice regarding employer eligibility and computing the amount of credit claimed.

Employers must become aware of the risks associated with engaging third-party promoters. Here are four critical concerns to be addressed:

Often, third-party advisers do not make it clear to employers that they will need to amend their business’s federal income tax return for the corresponding period because any payroll taxes used in the computation of the credit are no longer deductible.
Receipt of the refund from the IRS does not preclude the agency from examining the employment tax return and disallowing the credit. Employers are always responsible for the accuracy of the information reported on their tax returns. Improperly claiming the ERC could result in repayment of the credit, plus penalties and interest.
Employers that have received the ERC may be an audit target given the anticipated expansion of new IRS agent hires.
In the event the IRS disallows the ERC claim, fees paid to third-party companies may not be refundable.

Employers Considering Engaging a Third-party Adviser

Here are performance criteria to help evaluate the value a prospective adviser brings to the strength of your company’s ERC qualifications, filing efforts and subsequent follow-up.

At your request, a legitimate capable adviser will:

Describe its history as tax advisers including whether the practice is exclusively devoted to ERC claims.
Detail their policy to provide audit defense plus refund fees if all or part of the ERC claim does not survive an IRS audit.
Not claim a high IRS audit success rate as the IRS audit program is so new that success claims are meaningless.
Demonstrate a solid understanding of the facts and circumstances of your business operations before the pandemic as well as during each quarter of the pandemic … with special attention to the wage limits during the first three quarters of 2021?
Prepare a written account of the specific state or local governmental orders your business was subject to and a description of the impact of each on your business operations.
Review with you any circumstances pertinent to your ERC claim where the IRS guidance regarding ERC eligibility is unclear and that the adviser’s interpretation may prompt scrutiny by the IRS.
Not present a sense of urgency for you to act by asserting the available funding for ERC claims is fast being depleted. Not so! See above for filing claims deadlines.
Make it clear to you that qualified wages applied in ERC computations are no longer deductible on your business income tax return?

Employers Who Already Engaged a Third-party Adviser and Filed an ERC Claim

If you now have second thoughts about the advice that led up to your ERC claim filing, your best next step is to seek counsel from an independent tax adviser to review the merits of your claim and the adequacy of your documentation.

If your independent review results in the recommendation to amend or withdraw your ERC filing (Form 941-X), you may be able to sidestep interest and penalties … along with the time, expense and stress of an IRS audit.

Alternatively, if your independent review delivers written opinion that your claim has a solid foundation based on relevant ERC tax law … at the very least you will be able to demonstrate your intent to honestly pursue support of your claim with appropriate facts.

Have Immediate Questions or Concerns?

Pearson & Co stand ready to help as needed. A phone call or email is all it takes.
We’ll respond promptly.

20 Jul 2022

Covid-19, IRS, News, Tax Law, Uncategorized Pearson & Co, PC 0 comment

AVOID TAX SCAM VICTIMHOOD

IRS Annual List of Tax Scams –Taxpayers Beware in 2022!

Compiled annually for more than 20 years, the Dirty Dozen lists a variety of common scams that taxpayers can encounter anytime. The IRS identifies problematic transactions through taxpayer examinations, promoter investigations, whistleblower claims, data analytics, document matching, and marketing material review.

The objective of the agency is to raise awareness of threats by fraudsters to steal money and personal information from honest taxpayers.

The IRS warns taxpayers to be aware of these scams aimed at fleecing innocent victims. This year’s list is divided into five groups outlined below. The IRS reminds taxpayers to watch out for and avoid advertised schemes, many of which are now promoted online, that promise tax savings that are too good to be true and will cause taxpayers to legally compromise themselves.

“Taxpayers should stop and think twice before including these questionable arrangements on their tax returns,” said IRS Commissioner Chuck Rettig. “Taxpayers are legally responsible for what’s on their return, not a promoter making promises and charging high fees. Taxpayers can help stop these arrangements by relying on reputable tax professionals they know they can trust.”

Note: The following is not intended as a complete description of each scam … just a heads-up to alert taxpayers when solicited to engage in certain tax avoidance schemes. Click here for in-depth detail.

1) Potentially Abusive Relationships

The 2022 Dirty Dozen begins with four abusive transactions that involve charitable remainder annuity trusts, Maltese individual retirement arrangements, foreign captive insurance, and monetized installment sales.

Use of Charitable Remainder Annuity Trust (CRAT) to Eliminate Taxable Gain.
Maltese (or Other Foreign) Pension Arrangements Misusing Treaty.
Puerto Rican and Other Foreign Captive Insurance.
Monetized Installment Sales.

2) Pandemic-related Scams

Taxpayers are still at risk from criminals who continue to use the COVID-19 pandemic to steal people’s money. Taxpayers should be alert to potential fake emails, phone calls or texts seeking your personal information. Note: The IRS will never initiate contact with taxpayers via email about a tax bill or refund.

Likely alerts to scams:

Tax refund frauds;
Unemployment fraud resulting in inaccurate filing of 1099-G forms
Fake employment offers
Fake charities seeking contributions.

3) Offer In-compromise “Mills”

Offer in Compromise or OIC “mills,” typically appear in local advertising heralding how they can settle a person’s tax debt for a fraction of what’s owed … for a fee of course. Often, the reality is that taxpayers could have worked directly with the IRS at no additional cost.

4) Suspicious Communications

Suspicious communications are crafted to trick or scare the recipient to respond before thinking … referred to as “phishing”. Phishing is the fraudulent practice of sending communications purporting to be from reputable companies to induce individuals to reveal sensitive personal financial information, money, passwords, Social Security numbers and more. The fraudsters’ intent is to use this information to file false tax returns and tap into financial accounts, among other schemes.

Four common phishing communication vehicles are:

emails
social media posts
phone calls
text messages

5) Spear Phishing Attacks

Spear phishing frauds are known to target specific individuals as well as distinct groups. As described in 4) above, the bad guys’ intent is to steal taxpayer data and identities to file fraudulent tax returns for refunds. Virtually any type of business or organization may be subject to a tailored spear phishing attack. Again, be highly skeptical of communications requesting your financial or personal information.

Take a look at this report of a recent spear phishing email sent to tax preparers. The IRS logo was prominently displayed along with a variety of subject lines such as “Action Required: Your account has now been put on hold”. The objective of the communication was to steal tax professionals’ software preparation credentials. Unwary recipients who clicked on a link were sent to a website requesting the tax preparer’s account credentials thus revealing sensitive client information.

If any of the foregoing seems unclear as to how it applies to your specific circumstances, please keep in mind that Pearson & Co. will help.
Give us a call or drop an email. We’ll respond immediately.

17 Mar 2021

Covid-19, News, Tax Credits, Tax Law Pearson & Co, PC 0 comment

IRS REMAINS “SWAMPED”

IRS REMAINS “SWAMPED”
Still Working on 2019 Tax Returns

In the January issue of The Pearson Perspective we addressed the lament voiced by many 2019 taxpayers … “Where’s My Refund?” Taxpayer frustrations are largely due to pandemic related moves by the IRS to defer tax deadlines as well as changes in penalties and interest for late-filers. These attempts to reduce taxpayer stress became subject to the wrath of “unintended consequences”.

The COVID-19 pandemic upended the tax season last year with continuing after-effects today for millions of people. The Internal Revenue Service reported in mid-February that it had yet to process 6.7 million individual income tax returns for 2019.

With the backlog of 2019 tax filings, there is considerable pressure to extend the 2021 tax filing season until July 15 as the pandemic continues to impose a “titanic strain on the agency” … as expressed by House Ways and Means Committee chairman Richard E. Neal, D-Massachusetts, and Oversight Subcommittee chairman Bill Pascrell, Jr., D-New Jersey. Likewise, recent requests have been filed by AICPA and National Association of Tax Professionals that the IRS extend the 2021 income tax filing season.

Last year the tax-filing deadline was revised to July 15 from the usual April 15 date. So far this year, the IRS says there are no plans to extend tax-filing deadline beyond April 15.

We’ll keep you up to date as changes may occur.

HOW WILL THE AMERICAN RESCUE PLAN HELP YOU?”
Working Americans Will Receive Direct Payments

Both the House and Senate passed the American Rescue Plan and presented it to President Biden for his signature of approval. He responded promptly, and the new law is now effective.

Reportedly, there is a high level of cooperation between the Treasury and IRS to ensure payments are issued beginning this month. Additionally, the IRS and Bureau of Fiscal Service are acknowledging “lessons learned” from delays in previous rounds of pandemic related payments to increase the number of households that will

receive electronic payments. That will accelerate receipt of checks by taxpayers rather than awaiting delivery via USPS.

What Might This Mean for a Typical American Family

Here’s a quick rundown on what to expect about direct payments under the American Rescue Plan.
As a frame of reference, take a look at this example of what direct payments under the American Rescue Plan can mean for a typical family of four, with kids in school aged 8 and 5 and parents with a combined income of $75,000 a year.

$5,600 in direct payments … $1,400 for each parent and child.
The expanded Child Tax Credit will add $2,600 more in tax credits than before.
In this case, $8,200 more in the pockets of this family as they weather the pandemic storm.

Additionally, the bill has significant financial provisions to reopen schools safely, accelerate availability of coronavirus vaccinations and help those who have lost their jobs due to C-19 shutdowns.

What to Expect in Receiving Your Payment

If you have already filed your income tax return for 2020, the IRS will use that information to determine eligibility and size of payments.
If you have not yet filed for 2020, the IRS will review records from 2019 to determine eligibility and size of payment.
The IRS will send payments electronically to taxpayers for which it has direct deposit or bank account information.
Paper checks or debit cards will be forwarded via USPS to taxpayers for which the IRS has no bank account information.

PPP LOAN FORGIVENESS FOR VIRGINIA SMALL BUSINESSES
Conformity, Reconciliation and Tax Relief

On Monday, March 15, 2021, Governor Ralph Northam signed legislation to conform the Virginia tax code to the U.S. Internal Revenue Code from December 31, 2019, to December 31, 2020. The key provision relating to small businesses and PPP tax treatment is …Virginia will allow a deduction of up to $100,000 for tax year 2020.

Until this clarification, small business owners were faced with the prospect of paying state income tax on a portion of PPP loans. This was triggered by the initial reaction of Virginia lawmakers that loan proceeds used for valid business expenses were not deductible in determining state income taxes.

The agency strongly urges against calling the IRS. “Due to high call volumes, the IRS suggests waiting to contact the agency about any unprocessed paper payments still pending,” said the IRS. “See www.irs.gov/payments for options to make payments other than by mail.”

In an attempt at fairness … not an excuse … the deferments in tax deadlines along with changes in penalties and interest for late-filers has put a tremendous strain on IRS resources. Procedures that have been in place and functioning are now either scrapped or subject to major revisions.

Couple that with the major pressures on IT to deliver software updates to accommodate the revised dates and details for taxpayer compliance. And then there is the human resource-based issues that require substantial re-training.

Conformity, Reconciliation & Tax Relief

In the context of the debate over PPP tax treatment by the state of Virginia, conformity and reconciliation refer to maintaining the usual posture by Virginia … tax treatment of businesses that mirror federal rules. That deliberation came to a head with the passage by the General Assembly of HB 1935 and SB 1146… both now signed into law by Governor Northam.
At the risk of being repetitious …the key provision relating to small businesses and PPP tax treatment is …
Virginia will allow a deduction of up to $100,000 for tax year 2020.

If any of the foregoing seems unclear as to how it applies to your specific circumstances, please keep in mind that Pearson & Co. will help. Give us a call or drop an email. We’ll respond immediately!

19 Jan 2021

Covid-19, News, Tax Credits, Tax Law Pearson & Co, PC 0 comment

WAIT … HURRY UP … WAIT

WAIT … HURRY UP … WAIT
The Tale of 2019 Tax Returns … Gridlock!

We all know the frustrations induced by unintended consequences … especially when it impacts our pocketbooks. Well that’s the backdrop to the current stress experienced by many taxpayers who continue to lament – “Where’s my refund?!”

Some recent history, causes for delays, and what the current remedial landscape looks like.

In response to the COVID-19 pandemic, the IRS granted deferments in tax deadlines as well as changes in penalties and interest for late-filers. These concessions were intended to reduce taxpayer stress … already strained by the pandemic. While there may be taxpayers who have benefited from the above moves, our phone and email communications are rife with frustration, confusion and sometimes a touch of panic.

By the IRS’s own admission … they are swamped!

In their words, We’re open and processing mail, tax returns, payments, refunds and correspondence. However, COVID-19 continues to cause delays in some of our services. Our service delays include:

Live phone support
Processing tax returns filed on paper
Answering mail from taxpayers
Reviewing tax returns, even for returns filed electronically

The problem stems, of course, from COVID-19. In the spring of 2020, most of the federal government along with many private companies initiated pandemic protocols. That means most IRS offices were closed and work usually handled at those facilities went undone.

IRS office closures did not deter delivery of tax returns by the USPS. However, the later-than-usual arrival of returns this year was not due to the Postal Service. Instead, the filing deadline was extended until July 15 due to the pandemic. Millions of folks waited until then to mail their forms.

Trailers were set up outside IRS workplaces as receptacles for taxpayer mail. IRS employees who returned to address the tax season were met with the proverbial “drinking from a fire hose” metaphor as they sorted through and processed existing mail while the daily deluge of correspondence continued unabated.

The amount of unopened tax mail at one point was nearly 13 million. The IRS said that as of last Thanksgiving, the backlog has been trimmed to 7.1 million unprocessed individual tax returns and 2.3 million unprocessed business returns.

The unfortunate and unintended consequences for taxpayers have been that the IRS continues to send payment demand notices to taxpayers whose correspondence and payments remain unopened … but who have already made the payments that the IRS deems to be due.

Here’s the experience suffered by one of our clients … who will remain anonymous, of course. This taxpayer electronically filed the 2019 tax return in April 2020 with money owed to the IRS. The payment was made well before the July 15th deadline. As of this writing, this compliant taxpayer’s check sits in a trailer while enduring notices that the amount due was not paid in a timely manner. The fear is the next step by the IRS will be to issue an “intent to levy” notice, even though the taxpayer was in compliance.

The IRS admits to being short on staff, many if not most agents remain furloughed. for opening the mail, plus dealing with the overwhelming volume of phone calls from taxpayers. Phone calls to the agency can leave the taxpayer on “hold” sometimes for hours. Important clarification requests go unanswered with the taxpayer left without knowing what to do next to remain in compliance.

What’s a Taxpayer to Do?

The IRS initiated a short-term fix for taxpayer checks caught in the backlog of unopened mail. As detailed on the IRS webpage … pending check payments and payment notices will be posted as of the date received rather than the date when they are processed by the IRS. Note: To avoid penalties and interest, the IRS strongly advises taxpayers not to stop payment on their checks with their bank and ensure availability of funds, as the IRS will eventually get around to processing them.

If you filed electronically, you should be among those who https://www.irs.gov/advocate/local-taxpayer-advocate receive their refunds first, according to the IRS. You can check the status of your refund here.

If you’re still waiting for your federal return and suspect a problem, the IRS suggests you contact your local IRS and make an appointment for a face-to-face meeting. You can also contact your local tax advocate through the IRS’s website or call the IRS at 800-829-1040 Monday through Friday from 7 a.m. until 7 p.m.

If any of the foregoing seems unclear as to how it applies to your specific circumstances, please keep in mind that Pearson & Co. will help. Give us a call or drop an email. We’ll respond immediately

13 Aug 2020

Covid-19, News Pearson & Co, PC 0 comment

PANDEMIC STIMULUS PACKAGE 2

PANDEMIC STIMULUS PACKAGE 2
We Don’t Know What We Don’t Know!

stimulus

Nearly every American has been directly affected by the original $2.2- trillion stimulus package provided for earlier this year as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The financial relief terms and benefits expired and are awaiting further Congressional action.

CARES Act Financial Relief

Here’s a summary of the key provisions of the CARES Act that delivered significant economic assistance to many:

Individuals

One-time payment: of $1,200 per taxpayer plus $500 for each qualifying child
Unemployment Benefits: Unemployment insurance expanded if job loss is due to COVID-19. Once regular state benefits expire, eligible recipients may collect up to an additional 13 weeks of benefits plus an additional $600 per week which expired on July 31.
Evictions: Tenants in federally-backed housing granted 120 days of eviction relief to July 25, 2020.

Note: This eviction moratorium does not relieve tenants the obligation to pay rent.

Businesses

The Paycheck Protection Program (“PPP”): Authorizes forgivable loans to small businesses to pay their employees during the COVID-19 crisis.

Note: Provisions of the PPP were revised on June 5, 2020, by the Paycheck Protection Program Flexibility Act (PPPFA) in response to complaints about the original bill. Click here for a review of the major provisions of the PPPFA.

Employee Retention Credit: Designed to encourage businesses to keep employees on their payroll.
Paid Sick Leave Credit & Family Leave Credit: Small and midsize employers can claim two new refundable payroll tax credits … paid sick leave credit and the paid family leave credit. Each fully reimburses eligible employers for the cost of providing COVID-19 related leave to their employees … and to make that repayment immediate.
Evictions: Financially strapped apartment landlords with government-backed mortgages can avoid foreclosure if they don’t evict tenants. The order applies to the Fannie Mae and Freddie Mac mortgage companies, which will extend mortgage forbearance to any landlord “negatively affected by the coronavirus national emergency,” according to the Federal Housing Finance Agency.

Congress Stalled … President Acts

Both Democrat and Republican lawmakers have proposed extensions to major provisions of the CARE Act. The Democrat proposal is embodied in a bill called HEROES. The Republican version is the HEALS Act.

However, after considerable negotiations, Congress adjourned having been unable to reach agreement on a bi-partisan compromise to reestablish much needed monetary aid to both individuals and businesses.

One day after coronavirus relief negotiations fell apart in Congress, President Donald Trump signed multiple executive actions intended to help people struggling financially due to the coronavirus pandemic. There are four major provisions of the executive order:

Suspension of payroll taxes;
Federal unemployment payments of $400 a week (a $200 cut from the previous $600)
Deferrals on student loan payments through the end of the year
Efforts to minimize evictions at federal housing.

Notably: The order does not include another round of stimulus payments.

Both Republicans and Democrats have indicated they are in favor of another round of stimulus payments. Since the decision on a second stimulus was excluded from Trump’s order, it would have to be stand-alone legislation passed by Congress or part of a broader-based compromise bill.

There will likely be delaying actions initiated to prevent President Trump’s executive orders to be implemented. That said, there is much discussion that the president’s executive action may motivate Democrat and Republican leaders to reconvene and agree on extensions to most, if not all, of the CARES Act provisions.

Summary

So, while we don’t know what we don’t know … this is an election year and taxpayers of every stripe are under significant financial stress. Our inclination is to anticipate Congressional resolution sooner rather than later.

IRS REMAINS “SWAMPED” Still Working on 2019 Tax Returns

HOW WILL THE AMERICAN RESCUE PLAN HELP YOU?” Working Americans Will Receive Direct Payments