Lee B

Another headscratcher will be timing differences. If payroll expenses are paid in 2020 and your loan is forgiven in 2021, how do you handle the situation. I predict a lot of business returns being put on extension to avoid amending the 2020 tax return.

yes

Generally speaking an error or a math mistake is an one-off. When the socalled "error" is repeated over multiple years, that creates a method. If it was my client, I would definitely file the 3115.

Copied from FTB Notice 2000-8 "If a California taxpayer 1) cannot rely on a federally approved request for permission to change an accounting period or method, 2) desires to obtain a change different from the federal change, or 3) desires a change for California tax purposes only, a federal Form 3115, Application for Change in Accounting Method, or federal Form 1128, Application to Adopt, Change, or Retain a Tax Year, should be completed and submitted to the Franchise Tax Board by the due date specified in California law or, if none is specified, by the due date for a federal change request if a federal change request had been submitted to the Internal Revenue Service for that change. The federal forms must be completed using appropriate California tax information and not with federal tax information, except that the Federal Employer Identification Number (FEIN) should be used in the FEIN field. The California Corporate Number (CCN) must also be included on the top of the first page of the form. Due account should be made for differences in federal and California law. For example, Line 18 of the federal Form 3115 refers to a "User Fee." California does not charge a user fee for submitting the change request. Any references on the forms and in the forms' instructions to the Internal Revenue Code should be read as referring to the Internal Revenue Code, as applicable for California purposes, or the specific Revenue and Taxation Code section, if any, that conforms to that federal provision. A cover letter must be attached to the front of the federal Form 3115 or Form 1128, clearly indicating that a "Change in Accounting Period" or a "Change in Accounting Method" is being requested. The name of the taxpayer requesting the change and the taxpayer's California Corporate Number must be included in the cover letter. The appropriate federal form and cover letter should be sent to: Franchise Tax Board Change in Accounting Periods and Methods Coordinator P.O. Box 1998 Sacramento, CA 95812 The Franchise Tax Board will acknowledge receipt of the request within 30 days. After the request has been reviewed, the Franchise Tax Board's Change in Accounting Periods and Methods Coordinator will notify the requestor, in writing, whether the request for an accounting period or method change has been approved or denied." Assuming this Notice is still current, you can in fact file a 3115 for CA only.

If it was a C Corp, then the due date was extended. However if it was S Corp due on March 15th and no extension was filed, then I would expect that there is a penalty due.

Use the worksheet in Pub 523 starting at page 11. Just took a online CPE class last week that covered this topic. It gets kind of convoluted. Really glad I never had to do one these!

Since you mention retained earnings, I assume you are referring to a C or S Corp? What you have is a Book - Tax Difference which is a Schedule M-1 adjustment for an expense recorded on the books which is not a tax deduction. There is no book entry needed.

Good Question, can you do a 3115 for CA only?

I will have to admit, this is a different approach and it would avoid the late filing fees and penalties on the federal and state quarterly reports. However the taxpayer is an employee, not an independent contractor.

If amending 2018 and 2019 would make more than a de minimus change to any partner's tax liability, then I would amend. or consider whether a 3115 would be appropriate. If,not, then I would fix it going forward.

Copied from Accounting Today: "Previously, taxpayers mailed a paper duplicate copy of Form 3115 to the IRS and filed the original Form 3115 with their tax return. Under the new temporary procedure, starting Friday, July 31, the IRS will accept the duplicate copy of Form 3115 via fax to (844) 249-8134. The change will apply only to taxpayers who are asking for consent to make a change in accounting method under the automatic change procedure. This temporary procedure will be in effect until further notice. “Taxpayers will still need to submit two copies of the Form 3115 to the IRS,” the IRS said on its website Wednesday. “Taxpayers must continue to file Form 3115 with their tax return (including extensions). However, instead of mailing the duplicate paper copy of Form 3115 to the IRS in Ogden, Utah, taxpayers can now fax it to (844) 249-8134.” The cover sheet of the fax should include the following information: Subject: Form 3115 Sender's name, title, phone number, address Taxpayer's name Date Number of pages faxed (including cover sheet) The IRS cautioned that taxpayers should not include sensitive information on the cover sheet, such as an Employer Identification Number or Social Security number. The IRS won’t provide a confirmation or receipt of the fax. It advised taxpayers to check their fax transmission log to verify that all the Form 3115 pages have been sent."

They want to call their funds loans but in reality they have made capital contributions, which for tax purposes is the better way to go.

In the past when I have had clients with similar issues, I have always focused on getting the clients into compliance going forward. I have done some scrambling prior to January 31st to clean up the prior year. Perhaps I have been fortunate, since not amending prior years has never bitten my clients and me in the butt.

Since the SBA announced that August 10th will the first day they will accept Forgiveness applications, the SBA hasn't done any audits yet. So far the cases that I have read about the people getting caught were doing things so outrageous and obvious that perhaps they were tripped up by SBA post loan approval screening procedures of some kind.

Copied from IRS eNews: "Individuals and businesses may take advantage of temporary changes this year involving charitable contributions. Individuals may deduct qualified contributions of up to 100 percent of their adjusted gross income in 2020, while a corporation may deduct qualified contributions of up to 25 percent of its taxable income. Contributions that exceed that amount can carry over to the next tax year. For 2020, a special rule is also in effect allowing enhanced deductions by businesses for contributions of food inventory for the care of the ill, needy or infants."

Did the $300,000 in Dividends reduce Retained Earning down to zero ? If this is a C Corp, I don't understand the $200,000 to Capital Gains unless the IRS is saying that the $200,000 constitutes a sale of the owners stock, in which case it's capital gains to the owner, not to the C Corp. In a situation like this, the IRS usually would split the $500,00 between salary and dividends, not to capital gains?

Based on your post it's kind of unclear whether this is a C Corp or an S Corp?

The Treasury Secretary and the head of the SBA testified during a House committee hearing this week. According to various commentators, the following things are under active consideration: 1. Adding more money to the $103 Billion left in the PPP Loan Program and another extension of the application deadline. 2. Allowing borrowers to receive a second PPP Loan if their business has suffered a significant revenue decline. 3. The Treasury Secretary was receptive to the "automatic forgiveness" ( See my earlier post ) of PPP Loans under $150,000.

I made a $ 100 donation with my credit card to a charity last year plus they asked for additional $ 4 to cover their processing costs, which I paid. The official receipt that I received was for $ 104. IMHO, this charity received $ 104, which is revenue that needs to be recorded.

The reality is that the IRS is short staffed, underfunded and running ancient computer systems that don't talk to each other. Outsourcing stuff like this to third party vendors will only accelerate in the future.

There is so much wrong with this situation. First the guaranteed payments have to go directly to the client and spouse, upon which they owe SE tax. Second, reasonable compensation has to be paid by the S Corp. The amount of any legitimate QBI deduction available to these clients is minimal! This is a tax avoidance scheme gone totally wrong!

I really glad you recovered. My neighbor who lives across the street from me who is in her late 60s came down with covid 19 at the beginning of March. Her doctor told her that she wasn't quite sick enough to be in the hospital. She told me that it was by far the sickest she had ever been. She had very similar symptoms to yours, however it took her 5 weeks to recover.

It sounds similar to NBA players having to file tax returns in every state in which they play a game.

No free slurpys, say it isn't so

Copied from Accounting Today: Despite COVID-19, the Internal Revenue Service is continuing forward with moving 1099-MISC Box 7, “Non-Employee Compensation” to a new form, the 1099-NEC. This is effective starting this tax year, 2020, meaning that in January 2021, organizations will file this new form. The 1099-NEC is straightforward: Box 1 is for non-employee compensation and Box 4 is for federal withholding for that contract employee. To put it simply, income that the company used to report in 1099-MISC Box 7 will now be reported in 1099-NEC Box 1. State tax withheld, payer state ID number and state income is reported in Boxes 5, 6 and 7 on the 1099-NEC. ASC 842, IFRS 16, and GASB 87: The dramatic impact of the new lease accounting standards To comply companies and public entities will need to overhaul the information collected and how it is gathered and stored. SPONSOR CONTENT FROM And that's it: Those are the only boxes on the 1099-NEC. Who gets it According to the IRS, the people for whom an organization should use the new 1099-NEC are those with at least $600 in: Services performed by someone who is not an employee (including parts and materials) (Box 1); Cash payments for fish (or other aquatic life) that the company purchases from anyone engaged in the trade or business of catching fish (Box 1); Payments to an attorney (Box 1). The term "attorney" includes a law firm or other provider of legal services. Attorneys' fees of $600 or more paid in the course of the organization’s trade or business are reportable in Box 1 of Form 1099-NEC, under Section 6041A(a)(1); or, Each person from whom the company has withheld any federal income tax (report in Box 4) under the backup withholding rules, regardless of the amount of the payment. The new 1099-MISC All of the other income typically reported on a 1099-MISC will stay on that form, though Boxes 7 through 17 on the 1099-MISC have been shuffled. Box 1, “Rents,” and Box 3, “Other Income,” remain the same. More information on the MISC and NEC are on the IRS web site: www.irs.gov/instructions/i1099msc. Most accounting software likely does not yet support a "1099-NEC" flag for vendors, nor does it produce a 1099-NEC report. If a company has vendors that use 1099-MISC Boxes 1 or 3, they may want to consider inserting a “Display Name” flag such as "Vendor Name 1 - NEC" and "Vendor Name 2 - MISC," so that in January they can easily download the 1099-MISC CSV file and separate out the vendors who will go to the 1099-NEC. APIs that connect accounting software to 1099-NEC software may or may not be updated by January, so we suggest reaching out to the organization’s 1099 software tech support and ensuring that they have a plan for mapping vendors into the proper form. Other issues State requirements. Individual state filing requirements are as yet unknown. All of us in the 1099 world have our fingers crossed that the IRS will make the 1099-NEC part of the Combined Federal/State program. This decision is still in flux; and according to the IRS, will be made by late August. We anticipate new state 1099-NEC requirements arriving late in the year, making for a hectic January. Corrections for a prior-year 1099-MISC. So what if a company has to correct a Box 7 amount on a 2019 1099-MISC and the new 1099-MISC Box 7 no longer exists? The IRS says corrections to 1099-MISC box 7 for tax years 2019 and earlier will remain on the old 1099-MISC form. Due dates. The due date for 1099-NEC is Feb. 1, 2021, to both the IRS and to recipients. The new 1099-MISC due date is pushed back to March 31, 2021, for IRS e-filing, since it no longer contains Box 7. It is still due to recipients on Feb. 1, 2021.