The Internal Revenue Service (IRS) released its strategic plan to transform and improve its tax services over the next 10 years. The Strategic Operating Plan is made possible through roughly $80 billion in funding over 10 years from the Inflation Reduction Act
Read MoreBloomberg Law / Daily Tax Report reports that New York Officials have already started auditing 2020 returns for teleworkers, which is a little surprising as we are still in a middle of a pandemic and the tax season is still underway. As noted in our previous alert, NYS’s position is that teleworking days are treated as time working in the state, therefore they are still taxed in NYS unless, in general, the employer has a bona fide office in the other state. This is based on 2006 legislation/guidance. This is not without controversy, and we are aware of challenges.
TSBM-06-(5)I provides in part:
For tax years beginning on or after January 1, 2006, it is the Tax Department’s position that in the case of a taxpayer whose assigned or primary office is in New York State, any normal work day spent at the home office will be treated as a day worked outside the state if the taxpayer’s home office is a bona fide employer office (as determined below). Any day spent at the home office that is not a normal work day would be considered a nonworking day. A normal work day means any day that the taxpayer performed the usual duties of his or her job. For this purpose, responding to occasional phone calls or emails, reading professional journals or being available if needed does not constitute performing the usual duties of his or her job.
This guidance provides a multi-prong test in order to determine whether there is a bona fide employer office. Most commuters would not meet this test. A copy of the guidance is attached.
Audits are stressful but we are here to help. Please do not hesitate to contact us should you need assistance.
The Justice Department released a press release noting that a federal court in the Northern District of California entered an order today authorizing the IRS to serve a John Doe summons on Payward Ventures Inc., and Subsidiaries d/b/a Kraken (Kraken) seeking information about U.S. taxpayers who conducted at least the equivalent of $20,000 in transactions in cryptocurrency during the years 2016 to 2020. The IRS is seeking the records of Americans who engaged in business with or through Kraken, a digital currency exchanger headquartered in San Francisco, California.
The IRS Is focused on cryptocurrency tax evasion as cryptocurrency can be used for illicit purposes. If you haven’t reported your income from the sale or exchange of cryptocurrency, you should consider fixing the issue before the IRS goes after you. If you have properly reported your income, you should make sure your books and records are organized in case of IRS audit. As noted previously, the IRS is threatening increased audits for high-net-worth individuals and the new administration is intent on aggressively increasing their budget for audit and compliance.
Although the IRS and Treasury Department have extended the tax filing season, pushing the deadline from April 15 to May 17, 2021, this extension only applies to the 2020 tax return.
This relief does not apply to estimated tax payments due on April 15th. Therefore, you should still continue to make quarterly estimated tax payments by 4/15.
Comment: This can particularly affect self-employed and gig workers or those who receive income not subject to third party withholding. In general, you can avoid penalties by paying 100% of last year’s tax liability.
The above would also apply to state and local taxes.
Should you need assistance, please feel free to contact us.
One question we received recently is whether an employee of a NYS business who lives in NJ is still subject to NYS income taxes even if due to the pandemic they telecommute.
NYS previously provided guidance on this issue, which provides as follows:
My primary office is inside New York State, but I am telecommuting from outside of the state due to the COVID-19 pandemic. Do I owe New York taxes on the income I earn while telecommuting?
If you are a nonresident whose primary office is in New York State, your days telecommuting during the pandemic are considered days worked in the state unless your employer has established a bona fide employer office at your telecommuting location.
There are a number of factors that determine whether your employer has established a bona fide employer office at your telecommuting location. In general, unless your employer specifically acted to establish a bona fide employer office at your telecommuting location, you will continue to owe New York State income tax on income earned while telecommuting.[1]
They also cite TSB-M-06(5)I, which goes into more detail of the “convenience of the employer” test. Therefore, NYS continues to tax this income and employers should continue to withhold. However, we are aware of New York Senate Bill S.8386 and litigation (New Hampshire v. Massachusetts, No. 22O154 (U.S. filed Oct. 19, 2020)) which may affect this issue. Stay tuned.
Please do not hesitate to contact us with any questions.
[1] https://www.tax.ny.gov/pit/file/nonresident-faqs.htm#telecommuting
The IRS has updated their FAQ for virtual currency. FAQ#5 now provides:
Q5. The 2020 Form 1040 asks whether at any time during 2020, I received, sold, sent, exchanged, or otherwise acquired any financial interest in any virtual currency. During 2020, I purchased virtual currency with real currency and had no other virtual currency transactions during the year. Must I answer yes to the Form 1040 question? (3/2/2021).
A5. No. If your only transactions involving virtual currency during 2020 were purchases of virtual currency with real currency, you are not required to answer yes to the Form 1040 question.1
Therefore, you do not need to report virtual currency if you only made a purchase with USD in 2020. However, sales would still need to be reported.
Please do not hesitate to contact us with any questions.
As part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), passed March 27, 2020, certain businesses were eligible for loans which were forgivable under the Paycheck Protection Program (PPP). The loan forgiveness would not be taxable income.
The IRS, in Notice 2020-32, denied the deductibility of expenses attributed to the loan if the loan was, or was expected to be, forgiven, despite Congressional intent to the contrary. The rationale was that there would be a double dip.
The COVID-related Tax Relief Act of 2020, signed into law Dec. 27, 2020, amended the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to provided that no deduction is denied, no tax attribute is reduced, and no basis increase is denied by reason of the exclusion from gross income of the forgiveness. This change applies for taxable years ending after March 27, 2020.
The IRS released Rev. Rul. 2021-2, which overrides the prior Notice.
Please do not hesitate to contact us with any questions.
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