Stimulus Checks Incorrectly Sent to Deceased People – What To Do Now?

The recently passed CARES Act included many provisions to provide economic aid, relief and stimulus for America. As a part of the new law many Americans will receive stimulus checks officially called Economic Impact Payments.

US citizens and permanent residents qualify to receive $1,200 for single and head of household filers, and $2,400 for married couple filer, with an adjusted gross income (AGI) up to $75,000 for individuals who file as single or married filing separately, $112,500 for head of household filers, and $150,000 for married couples filing joint returns. Reduced amounts will be sent to those who have a higher AGI. However, those with an AGI over $99,001 for single or married filing jointly, $136,501 for head of household, and $198,001 for married filing jointly, will not receive any money.

Recently, I have received calls from my clients who have received checks from the IRS that are written to family members who have died. And my clients want to know if they can keep the money. The answer is no.

The IRS has been incorrectly sending money to deceased individuals. The stimulus checks are only meant for people who are still alive. If you receive a check from the US Treasury payable to someone who is deceased, then you need to send back the entire payment. The exception is if the check is made to joint filers and a spouse is still alive. Then only a portion of the payment needs to be returned.

If you received a paper check, then write “Void” in the endorsement portion on the back of the check. The IRS requests that you include a note stating that you are returning the check because the person named on the check is deceased. Please do not staple or clip the note to the check, and don’t bend the check. Then send the voided check and note back to the IRS. If you live in Oregon or Washington, the address to use is Fresno IRS, 5045 E. Butler Ave., Fresno, CA 93888.

If you have already cashed the check, then send the IRS a cashiers check or money order for the same amount as deposited. The check should be made payable to the U.S. Treasury. And then on the memo line write 2020EIP and the deceased person’s social security number. Then follow the same procedures as addressed in the previous paragraph.

For more information, please see: https://www.irs.gov/coronavirus/economic-impact-payment-information-center#more

If you have more questions or want to talk about the CARES act or other estate planning issues, contact one of our estate planning attorneys.

Anastasia (Stacie) Yu Meisner is a member of the SYK Estate Planners practice. Her practice focuses on estate planning, mediation, probate, trust and estate administration. In addition, she also works with guardianships and conservatorships, as well as business transactions and formation.

Where’s My Stimulus Check?

The IRS sent out the first wave of stimulus payments this  past week to around 80 million Americans. In order to speed up the process, the IRS has prioritized sending payments to Americans that have previously submitted their direct deposit information with the agency. Those that have not authorized a direct deposit account with the IRS will receive their stimulus payment in paper check form. However, the IRS estimates that it only has the capacity to mail out 5 million checks a week, so many Americans will not receive their payment until likely August or later.

Based on the income level eligibility requirements, at least 90{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} of Americans should qualify for at least some amount of stimulus payment. If you think you should have received your stimulus payment by now, here are several reasons why the IRS has delayed your payment.

Social Security Recipients

For recipients of Social Security and Supplemental Security Income (SSI), the IRS has announced that payments will appear alongside normal monthly benefits. Recipients are not required to file a tax return to receive payment and will receive their stimulus payment in the same format (direct deposit or paper check) of their normally received benefits.

Direct Deposit Not Authorized

Even if you filed your tax return electronically the last two years, the IRS may still not have direct deposit information saved for you. The IRS has only saved direct deposit information for those that have received a federal refund in 2018 and/or 2019. If you owed the IRS in either of those years, your direct deposit information may no longer be stored. The IRS is not using bank account information it used to withdraw from your account if you owed money. To check if you need to submit your direct deposit information, the IRS has set up a web portal for entering that information and checking on the status of your payment.

Change of Filing Status or Bank Account Information

Even if you received a refund and filed electronically, a change of filing status or a change in your direct deposit account could also delay your stimulus payment. For example, if you got married in 2019 and filed married jointly for the first time, or got divorced in 2019, and filed single for the first time in a while, the IRS may no longer have accurate direct deposit information on record. Similarly, if you changed banks or switched account numbers, the IRS will no longer have correct direct deposit information for you. Using the IRS Get My Payment Portal can verify if the IRS needs updated banking information.

Current Return Still Processing

Though the IRS extended filing of individual federal returns until July 15, 2020, many Americans still made efforts to file their 2019 returns in line with the normal April 15 due date. Due to the shutdown, the IRS has prioritized processing stimulus payments for Americans and has largely slowed down return processing for the next few weeks. Many service centers across the country have also closed entirely. If the IRS has receipt of your 2019 return but has not processed it yet, this may also delay your stimulus payment.

Non-filers

Millions of lower-income Americans who do not normally meet the income thresholds required for filing will need to also contact the IRS. Through use of a separate web portal entitled Non-Filers: Enter Payment Info Here, non-filers will need to confirm their identities and provide bank account information or address information to receive a stimulus payment.

Watch for Fraud

Remember that the IRS will never call you, email you, or otherwise contact you directly for your sensitive personal information. The IRS web portals will require you to enter information such as your social security number, your routing and bank account numbers, and other personal information. Otherwise this information should not be shared through any other method.

Nicholas Rogers - Attorney

Nicholas D. Rogers joins SYK Estate Planning and Taxation practice with a passion for helping individuals, small business and nonprofits. His practice includes a focus on estate planning, federal and state tax controversy, business formation and planning, as well as trust and estate administration.

COVID-19: Changes in Federal Tax Law You Need to Know

In response to the COVID-19 pandemic, the last few weeks have seen an unprecedented series of legislative actions by Congress, as well as a number of significant administrative actions by the Internal Revenue Service. Here is a brief synopsis of federal tax extensions and changes due to COVID-19.

Federal Filing and Payment Deadlines Extended

Initially, the IRS only offered a payment deadline extension in response to COVID-19. However, after much pressure, the IRS in response has instead provided much more comprehensive relief to mostly taxpayers in the U.S.

All taxpayers refers to: individuals, trusts, estates, (some) partnerships, associations, companies (including LLCs), corporations, nonprofits, and more that have a filing date of April 15, 2020.

  • For all taxpayers who are required to file a federal income tax return and/or submit a federal income tax payment for the 2019 tax year, due on April 15, 2020, the due date for both filing and paying is extended to July 15, 2020. This applies to all taxpayers regardless of the amount of their federal tax obligation.
  • This applies to all filers of Forms 1040, 1040-SR, 1040-NR, 1040-NR-EZ, 1040-PR, 1040-SS, 1041, 1041-N, 1041-QFT, 1120, 1120-C, 1120-F, 1120-FSC, 1120-H, 1120-L, 1120-ND, 1120-PC, 1120-POL, 1120-REIT, 1120-RIC, 1120-SF, 8960 and 8991.
  • For self-employed taxpayers, relief is also provided for making federal estimated income tax payments.
  • The period of April 15, 2020 through July 15, 2020 is considered disregarded for the purposes of calculation of any interest, penalty, or addition to tax for failure to file the income tax returns or pay the income tax owed. Interest, penalties and any additions of tax will begin to accrue again on July 16, 2020.
  • No extension is provided for the payment or deposit of any other type of federal tax- including federal estate and gift tax.
  • Important to note that any taxpayer returns that were due on March 16, 2020, which include Form 1065, 1065-B, Form 1066, and Form 1120-S, are not included in any of the COVID-19 extensions for both filing and payment. However, any timely filed extensions will still extend the due date six months as normal.
  • For fiscal year taxpayers, if their federal income tax return for the fiscal year ending during 2019 is due on April 15, 2020, whether that is the original due date or the extension date, the taxpayer’s filing due date is postponed to July 15, 2020.

For taxpayers that qualify for extension, no additional form is required for the July 15, 2020.  Any additional extension beyond July 15, 2020 will require filing Form 4868 as usually required.

Business Tax Credits

On March 18, 2020, President Trump signed into law the Families First Coronavirus Act which eases compliance burdens on businesses. Additional business credits were then signed into law through the Coronavirus, Aid, Relief and Economic Security Act (CARES) on March 27.

Payroll Sick Leave Credit

The Emergency Paid Sick Leave Act (EPSLA) requires private employers with fewer than 500 employees to provide 80 hours of paid sick time to employees who are unable to work for virus-related reasons (certain exceptions may apply to less than 50-employee businesses). The pay is up to $511 per day with a $5,110 overall limit for each employee directly affected by the virus and up to $200 per day with a $2,000 overall limit for an employee providing care for someone with the virus.

The employer is allowed to receive a tax credit against their 6.2{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} of the Social Security (OASDI) payroll tax (commonly known as the Railroad Retirement tax). This credit amount tracks to the per-employee limits described above. This credit can also be increased by both the amount of expenses in connection with a qualified health plan if the expenses are excludible from employee income, and the employer’s share of the payroll Medicare hospital tax imposed on any payments required under the EPSLA. Any credit amounts earned in excess of the 6.2{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} Railroad Retirement tax are refundable. The credit applies to wages paid in a period beginning no later than April 2, 2020, and ending on December 31, 2020.

Self-Employed Sick Leave Credit

Self-employed persons also qualify for a sick leave credit.  The credit treats the self-employed person as both the employer and employee for credit purposes. The $5,110 and $2,000 limits as described above in EPSLA, also apply here unless the self-employed person has insufficient self-employment income based on a formula. The credit applies to wages paid in a period beginning no later than April 2, 2020, and ending on December 31, 2020.

Payroll Family Leave Credit

The Emergency Family and Medical Leave Expansion Act (EFMLEA) requires employers with fewer than 500 employees to provide both paid and unpaid leave. This leave occurs when an employee must take care of a minor child due to a COVID-19 related emergency. The first 10 days can be unpaid, but then paid leave is required, based on the employee’s pay rate and pay hours. The leave cannot exceed $200 a day or $10,000 total per employee.

The corresponding tax credit functions substantially similar to the payroll tax credit described above. The credit is against the same 6.2{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} Railroad Retirement Tax, and tracks to the $200 and $10,000 dollars employee limits described above.

Self-Employed Family Leave Credit

The Act also provided the self-employed a similar refundable income tax credit for family leave. The self-employed person is treated as both employer and employee for purposes of the credit. The credit is subject to a $10,000 limit, and may be reduced if there is insufficient self-employment income determined by formula.

Wage Exemption

Any wages paid as required sick leave payments for either EPSLA or EFMLEA are not considered wages for purposes of the employer’s 6.2{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} portion of the payroll tax, again often referred to as the Railroad Retirement Tax.

Employee Retention Credit for Employers

For eligible employers who have their operations fully or partially suspended as a result of government order, or who have experienced a greater than 50{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} reduction in quarterly receipts, measured on a year-over-year basis, the provision provides a refundable payroll tax credit for 50{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} of wages to certain employees. Employers receiving Small Business Interruption Loans do not qualify for the credit. The qualifying wages depend on whether the employer has an average number of full-time employees in 2019 of 100 or fewer, if so, all employee wages are eligible.  If over 100 full-time employees, only the wages of furloughed employees or faced a reduction of hours as a result of employer’s closure or reduced gross receipts are eligible for the credit.

Other Changes in the Federal Tax Code

Recovery Rebates for Individuals

The CARES Act provides individuals with a refundable credit against income taxes they owe for the 2020 tax year equal to $1,200 ($2,400 for joint filers), not to exceed the tax liability for the year. Any taxpayer that has qualifying income (earned income, social security, and/or pension income), taxable income greater than zero, and gross income greater than the standard deduction, then the taxpayer is entitled to a refundable credit of at least $600 ($1,200 for joint filers), plus $500 per qualifying child. The phase-out begins at $75,000 ($150,000 for joint filers).

Payroll Tax Deferment

The CARES Act also allows employers and self-employed individuals to defer paying the employer portion of certain payroll taxes through the end of 2020. Half of the deferred amount of payroll taxes will be due December 31, 2021, and the remaining half will be due December 31, 2022. Any taxpayer receiving a Small Business Act Loan are excluded from this deferral program.

Deductibility of Interest Expenses Temporarily Increased

The Cares Act temporarily and retroactively increases the limitation of the deductibility of interest expense under Code Sec. 163(j)(1) from 30{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} to 50{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} for tax years 2019 and 2020.

Temporary Repeal of Taxable Income Limitation for Net Operating Losses (NOLs)

The Cares Act temporarily removes the taxable income limitation to allow an NOL to fully offset income. This will apply to the 2018, 2019 and 2020 tax years, allowing taxpayers to file amended returns and receive refunds for those that qualify.

Net Operating Loss (NOL) Rule Changes

Any losses arising in 2018, 2019, and 2020 can be carried back to the five preceding years. For any NOLs arising in tax years before 2021, those carrybacks may offset 100 percent of income for the prior 5 years. An amended return may be filed to claim the benefit back to the 2013 tax year.

Cancellation of Indebtedness Income

For small businesses that receive certain loans from the government under the CARES act, any such forgiveness of the loan granted to these taxpayers shall not be considered income.

More Changes Likely to Come

As the situation develops, we will continue to document additional changes made at the federal level.

Michael D. Walker is a business, tax and estate planning attorney who has worked with individuals and small to medium-sized businesses for nearly 30 years. A careful listener, Michael skillfully guides his clients to meet the wide variety of legal challenges they face in our current complex world.

Nicholas Rogers - Attorney

 

Nicholas D. Rogers joins SYK Estate Planning and Taxation practice with a passion for helping individuals, small business and nonprofits. His practice includes a focus on estate planning, federal and state tax controversy, business formation and planning, as well as trust and estate administration.

Extension: 90 Day Extension to Pay Taxes

Treasury Secretary Mnuchin announced today that individual taxpayers will now get a 90 day extension of time (through what Excel tells me is Tuesday, July 14, 2020) to pay 2019 income taxes, up to $1 million owed. Corporate filers will get the same period of time to pay up to $10 million in taxes owed.  During the period of time from April through July 14, taxpayers will not be subject to additional interest and penalties on amounts due for 2019. Individuals and businesses will still have to file their income tax returns by April 15, unless they file a request for extension. As usual, if taxpayers are getting a refund, they may not want to extend the deadline to file their income taxes. Secretary Mnuchin said that the delay will free $300 billion of liquidity in the economy.

The Oregon Department of Revenue earlier stated that it will automatically connect to the extended filing and payment dates for individuals. The IRS has not yet ruled on whether it will extend the deadline for 2020 first quarter estimated tax payments. This extension is in addition to the proposed $850 billion stimulus package that is before the Senate.

For more information, see Bloomburg’s article on this.

Valerie Sasaki specializes in jurisdictional tax consulting, working closely with Fortune 50 companies involved in audits before the Oregon or Washington Departments of Revenue. She also works with business owners on tax, business, and estate planning issues in Oregon or Southwest Washington.

Think about 2018 Taxes Now!

We’ve had a lot of questions from clients about the impact of the Tax Cuts and Jobs act on normal, working Americans. IRS did a clumsy job with implementation, although in their defense the TCJA probably raised more questions than it answered. Also, one of the most surprising effects will be felt by taxpayers who live in high tax jurisdictions and who itemize their deductions.

A combination of factors may mean a higher bill.

Three things are conspiring against us to create a perfect storm of annoyance and large tax payments.

  • First, IRS came out with new withholding tables that may have significantly under-withheld for a large part of 2018. The General Accounting Office says this snafu will have an impact on approximately 73{45ef85514356201a9665f05d22c09675e96dde607afc20c57d108fe109b047b6} of US taxpayers.
  • Second, Oregon is a jurisdiction with a relatively high personal income tax rate. In 2018, you can only deduct $10,000 state tax (income plus property) on your income tax return if you itemize. So, if you pay $8,000 in state income tax and have $5,000 in property taxes, you can’t deduct the full $13,000 on your Federal schedule A. You can only deduct $10,000.
  • Finally, many of us did not adjust our exemptions on Form W-9 after the TCJA passed. While some folks will not be itemizing their deductions this year, due to the increase in the standard deduction, the combination of the first two factors may mean that you have a stiff bill to pay on April 15 (and not a moment sooner!!!!!).

We also wanted to encourage folks to reach out to their CPA early this year. Get your organizers completed and shoe box of receipts assembled early and to your tax preparer. We have heard from our friends who prepare personal income tax returns that the complexity of the 2018 tax season will mean that some shops don’t have enough people to do the work. If you wait too long, you may end up doing your return yourself! (I may be the only one out there who finds that entertaining).

Valerie Sasaki specializes in jurisdictional tax consulting, working closely with Fortune 50 companies involved in audits before the Oregon or Washington Departments of Revenue. She also works with business owners on tax, business, and estate planning issues in Oregon or Southwest Washington.

Grounded: Delinquent Tax U.S. & International Travel

Delinquent tax debt can now potentially ground U.S. taxpayers from international travel

Starting this year, The Internal Revenue Service (IRS) and U.S. State Department have teamed up in a manner that may affect the future travel plans of certain taxpayers that owe a large amount of money to the Treasury. In late 2015, President Obama signed the Fixing America’s Surface Transportation Act (FAST Act) to address long-term funding for surface transportation infrastructure planning and investment. Embedded deep in the law is Section 32101, which requires the IRS under § 7345 of the Internal Revenue Code (IRC), to notify the State Department of taxpayers certified to have “seriously delinquent tax debt”. Upon certification from the IRS, the State Department is then required to deny a passport application for such individuals and also potentially revoke or limit passports already issued to said taxpayers.

The IRS issued Notice 2018-01 on January 16, 2018 to explain the criteria for which taxpayers qualify and how they plan to enforce the new law.  Under § 7345(b)(1), a “seriously delinquent tax debt” is an unpaid legally enforceable, and assessed federal tax liability of an individual, greater than $51,000, subject to inflation and for which:

  • A notice of lien has been filed under IRC § 6323 and the Collection Due Process (CDP) hearing rights under IRC § 6320 have been exhausted or lapsed; or
  • A levy has been made under IRC § 6331.

The IRS calculates this $51,000 federal tax liability threshold based on an aggregate of the total amount of all current tax liabilities for all taxable years. Even if a taxpayer does not owe over $51,000 for one year, they could still end up targeted under IRC § 7345 if the total federal tax they owe across all years exceeds $51,000. This figure also includes any penalties and interest, which can accumulate rather quickly.

Taxpayers that qualify as having “seriously delinquent tax debt” but have entered into alternative arrangements with the IRS to pay should not be too concerned. IRC § 7345(b)(2) provides exceptions to taxpayers that have agreed to:

(1) An IRS-approved installment agreement,

(2) An offer in compromise accepted by the IRS,

(3) A settlement agreement with the Department of Justice, or has

(4) A pending due process hearing or,

(5) Requested innocent spouse relief

Taxpayers in Currently Not Collectible (CNC) status, in a bankruptcy proceeding or are currently in the process of obtaining one of the five exceptions also are excluded.

Before denying a passport, the State Department will first wait 90 days after receiving certification from the IRS about a taxpayer’s seriously delinquent tax debt. This time allows the taxpayer to try to resolve any erroneous certification issues, pay the full tax debt, or enter into one of the above alternative payment arrangements with the IRS. Meeting any of those requirements will require the IRS to reverse the certification within 30 days and provide notification to the State Department as soon as reasonably possible.

Most surprising to note, however, is that the IRS is not required to notify the taxpayer that they plan to certify their tax debt to the State Department. A taxpayer will likely only find out about the certification after it has already happened. The Taxpayer Advocate Service (TAS), an independent office within the Internal Revenue Service that represents the interests of taxpayers, has wholly criticized this process, citing the potential of infringing on Constitutional due process protections because the taxpayer does not have the option to contest the certification before taking place. They also question whether 90 days is enough time for taxpayers to resolve their tax liabilities, likely because taxpayers with seriously delinquent tax debt over $51,000 have more complicated issues that cannot always be resolved quickly.

Domestic travelers may also want to pay attention to whether their home state is in compliance with the REAL ID Act. This federal law passed during the Bush Administration established new federal standards for state driver’s licenses and ID cards that can be accepted by the federal government for “official purposes”, including boarding commercially operated airline flights. As of the last few years, the Department of Homeland Security has ramped up implementation of the new requirements and currently full enforcement will begin tentatively on October 1, 2020. Theoretically, if a taxpayer’s driver’s license or ID card did not meet the new federal standards, they may be required to show alternative identification that meets the new requirements. The only form of identification that currently meets the REAL ID standards for many taxpayers is a U.S. Passport. Currently, all 50 states are either in compliance or have been granted extensions but many states have passed resolutions against implementing identification cards in compliance with REAL ID.

Valerie Sasaki specializes in jurisdictional tax consulting, working closely with Fortune 50 companies involved in audits before the Oregon or Washington Departments of Revenue. She also works with business owners on tax, business, and estate planning issues in Oregon or Southwest Washington.

Stick or Carrot? New IRS Program Allows Reclassification of Independent Contractors

A newly-announced IRS program allows businesses to prospectively reclassify independent contractors as employees, and in doing so, may allow some businesses to avoid certain tax penalties which could possibly exceed 40% of the reclassified worker’s compensation for the prior 3 years. However, the program, dubbed the Voluntary Classification Settlement Program or “VCSP”, does have its drawbacks.

To be initial eligible to participate in the VCSP, the taxpayer must:

  • Have consistently treated the workers (or class of certain workers) as non-employees;
  • Have filed all appropriate 1099s for the workers;
  • Not be currently under audit with the IRS, the Department of Labor, or a state-level agency regarding the classification of the workers in question; and
  • Complete the IRS’ form to apply for the VCSP benefits.

If eligible and the IRS accepts the taxpayers application, the taxpayer must prospectively agree to treat the class of workers to be reclassified as employees. Under the VCSP, the taxpayer: (1) will pay 10% of the employment tax liability that may be due for the most recent tax year; (2) will not be liable for any interest or penalties; (3) will not be subject to an employment tax audit for prior years with respect to the reclassified workers; and (4) will agree to extend the statute of limitations on employment taxes for the three years after the VCSP program begins.

The VCSP is not for everyone. Often, a business’ classification of a worker as an independent contractor is appropriate and entirely supported by federal and state law. In such instances, it would not be appropriate for a business to reclassify a worker as an employee, and doing so would unnecessarily increase the business’ costs and taxes. However, if a business determines that it may have inappropriately classified workers as independent contractors in the past but is fearful of the significant tax penalties if it changes the workers’ employment classification, the VCSP may offer a significant benefit.

The bottom line – we recommend a careful analysis of independent contractors in light of the parameters of existing law in order to determine whether a worker should be classified as an employee or independent contractor.

One final caveat – the VCSP is a federal program only. If a business has exposure to state-level taxes, the VCSP will offer no relief.
 

IRS Extends Deadline for Disclosing Hidden Account

On September 21, 2009, the IRS announced a one-time extension of the special voluntary disclosure program to October 15, 2009.  Until this announcement the program was set to close on September 23, 2009.

Taxpayers who elect to participate in this program and disclose hidden accounts will have to pay taxes, interest and some penalties.  Taxpayers who don’t participate are likelty to face harsher civil penalties and possible criminal prosecution.

Some taxpayers have accounts over which they have signature authority but no financial interest, or a financial interest in a foreign commingled fund.  The deadline for these taxpayers has been extended to June 30, 2010. 

There are two reporting requirements for each year that have to be met.  One is the amended federal income tax return and the other is Report of Foreign Bank and Financial Accounts (Form TD F 90-22.1) which must also be filed.  Unless all foreign bank accounts have a combined value of less than $10,000, this report is an annual requirement in addition to the federal income tax return.

If you have offshore accounts of any kind, you should take this opportunity to review your tax returns for 2003 through 2008 and any reports that you have filed to determine whether or not you are fully compliant. 

The IRS also announced that there would be no further extensions.