The American Institute of CPAs in a March 31 letter to House of Representatives voiced its “strong support” for a series of tax administration bills passed in recent days.

The American Institute of CPAs in a March 31 letter to House of Representatives voiced its “strong support” for a series of tax administration bills passed in recent days.

The four bills highlighted in the letter include the Electronic Filing and Payment Fairness Act (H.R. 1152), the Internal Revenue Service Math and Taxpayer Help Act (H.R. 998), the Filing Relief for Natural Disasters Act (H.R. 517), and the Disaster Related Extension of Deadlines Act (H.R. 1491).

All four bills passed unanimously.

H.R. 1152 would apply the “mailbox” rule to electronically submitted tax returns and payments. Currently, a paper return or payment is counted as “received” based on the postmark of the envelope, but its electronic equivalent is counted as “received” when the electronic submission arrived or is reviewed. This bill would change all payment and tax form submissions to follow the mailbox rule, regardless of mode of delivery.

“The AICPA has previously recommended this change and thinks it would offer clarity and simplification to the payment and document submission process,” the organization said in the letter.

H.R. 998 “would require notices describing a mathematical or clerical error be made in plain language, and require the Treasury Secretary to provide additional procedures for requesting an abatement of a math or clerical adjustment, including by telephone or in person, among other provisions,” the letter states.

H.R. 517 would allow the IRS to grant federal tax relief once a state governor declares a state of emergency following a natural disaster, which is quicker than waiting for the federal government to declare a state of emergency as directed under current law, which could take weeks after the state disaster declaration. This bill “would also expand the mandatory federal filing extension under section 7508(d) from 60 days to 120 days, providing taxpayers with additional time to file tax returns following a disaster,” the letter notes, adding that increasing the period “would provide taxpayers and tax practitioners much needed relief, even before a disaster strikes.”

H.R. 1491 would extend deadlines for disaster victims to file for a tax refund or tax credit. The legislative solution “granting an automatic extension to the refund or credit lookback period would place taxpayers affected my major disasters on equal footing as taxpayers not impacted by major disasters and would afford greater clarity and certainty to taxpayers and tax practitioners regarding this lookback period,” AICPA said.

Also passed by the House was the National Taxpayer Advocate Enhancement Act (H.R. 997) which, according to a summary of the bill on Congress.gov, “authorizes the National Taxpayer Advocate to appoint legal counsel within the Taxpayer Advocate Service (TAS) to report directly to the National Taxpayer Advocate. The bill also expands the authority of the National Taxpayer Advocate to take personnel actions with respect to local taxpayer advocates (located in each state) to include actions with respect to any employee of TAS.”

Finally, the House passed H.R. 1155, the Recovery of Stolen Checks Act, which would require the Treasury to establish procedures that would allow a taxpayer to elect to receive replacement funds electronically from a physical check that was lost or stolen.

All bills passed unanimously. The passed legislation mirrors some of the provisions included in a discussion draft legislation issued by the Senate Finance Committee in January 2025. A section-by-section summary of the Senate discussion draft legislation can be found here.

AICPA’s tax policy and advocacy comment letters for 2025 can be found here.

By Gregory Twachtman, Washington News Editor

The Tax Court ruled that the value claimed on a taxpayer’s return exceeded the value of a conversation easement by 7,694 percent. The taxpayer was a limited liability company, classified as a TEFRA partnership. The Tax Court used the comparable sales method, as backstopped by the price actually paid to acquire the property.

The Tax Court ruled that the value claimed on a taxpayer’s return exceeded the value of a conversation easement by 7,694 percent. The taxpayer was a limited liability company, classified as a TEFRA partnership. The Tax Court used the comparable sales method, as backstopped by the price actually paid to acquire the property.

The taxpayer was entitled to a charitable contribution deduction based on its fair market value. The easement was granted upon rural land in Alabama. The property was zoned A–1 Agricultural, which permitted agricultural and light residential use only. The property transaction at occurred at arm’s length between a willing seller and a willing buyer.

Rezoning

The taxpayer failed to establish that the highest and best use of the property before the granting of the easement was limestone mining. The taxpayer failed to prove that rezoning to permit mining use was reasonably probable.

Land Value

The taxpayer’s experts erroneously equated the value of raw land with the net present value of a hypothetical limestone business conducted on the land. It would not be profitable to pay the entire projected value of the business.

Penalty Imposed

The claimed value of the easement exceeded the correct value by 7,694 percent. Therefore, the taxpayer was liable for a 40 percent penalty for a gross valuation misstatement under Code Sec. 6662(h).

Ranch Springs, LLC, 164 TC No. 6, Dec. 62,636

State and local housing credit agencies that allocate low-income housing tax credits and states and other issuers of tax-exempt private activity bonds have been provided with a listing of the proper population figures to be used when calculating the 2025:

State and local housing credit agencies that allocate low-income housing tax credits and states and other issuers of tax-exempt private activity bonds have been provided with a listing of the proper population figures to be used when calculating the 2025:

• calendar-year population-based component of the state housing credit ceiling under Code Sec. 42(h)(3)(C)(ii);
• calendar-year private activity bond volume cap under Code Sec. 146; and
• exempt facility bond volume limit under Code Sec. 142(k)(5)

These figures are derived from the estimates of the resident populations of the 50 states, the District of Columbia and Puerto Rico, which were released by the Bureau of the Census on December 19, 2024. The figures for the insular areas of American Samoa, Guam, the Northern Mariana Islands and the U.S. Virgin Islands are the midyear population figures in the U.S. Census Bureau’s International Database.

Notice 2025-18

The value of assets of a qualified terminable interest property (QTIP) trust includible in a decedent's gross estate was not reduced by the amount of a settlement intended to compensate the decedent for undistributed income.

The value of assets of a qualified terminable interest property (QTIP) trust includible in a decedent's gross estate was not reduced by the amount of a settlement intended to compensate the decedent for undistributed income.

The trust property consisted of an interest in a family limited partnership (FLP), which held title to ten rental properties, and cash and marketable securities. To resolve a claim by the decedent's estate that the trustees failed to pay the decedent the full amount of income generated by the FLP, the trust and the decedent's children's trusts agreed to be jointly and severally liable for a settlement payment to her estate. The Tax Court found an estate tax deficiency, rejecting the estate's claim that the trust assets should be reduced by the settlement amount and alternatively, that the settlement claim was deductible from the gross estate as an administration expense (P. Kalikow Est., Dec. 62,167(M), TC Memo. 2023-21).

Trust Not Property of the Estate

The estate presented no support for the argument that the liability affected the fair market value of the trust assets on the decedent's date of death. The trust, according to the court, was a legal entity that was not itself an asset of the estate. Thus, a liability that belonged to the trust but had no impact on the value of the underlying assets did not change the value of the gross estate. Furthermore, the settlement did not burden the trust assets. A hypothetical purchaser of the FLP interest, the largest asset of the trust, would not assume the liability and, therefore, would not regard the liability as affecting the price. When the parties stipulated the value of the FLP interest, the estate was aware of the undistributed income claim. Consequently, the value of the assets included in the gross estate was not diminished by the amount of the undistributed income claim.

Claim Not an Estate Expense

The claim was owed to the estate by the trust to correct the trustees' failure to distribute income from the rental properties during the decedent's lifetime. As such, the claim was property included in the gross estate, not an expense of the estate. The court explained that even though the liability was owed by an entity that held assets included within the taxable estate, the claim itself was not an estate expense. The court did not address the estate's theoretical argument that the estate would be taxed twice on the underlying assets held in the trust and the amount of the settlement because the settlement was part of the decedent's residuary estate, which was distributed to a charity. As a result, the claim was not a deductible administration expense of the estate.

P.B. Kalikow, Est., CA-2

An individual was not entitled to deduct flowthrough loss from the forfeiture of his S Corporation’s portion of funds seized by the U.S. Marshals Service for public policy reasons. The taxpayer pleaded guilty to charges of bribery, fraud and money laundering. Subsequently, the U.S. Marshals Service seized money from several bank accounts held in the taxpayer’s name or his wholly owned corporation. 

An individual was not entitled to deduct flowthrough loss from the forfeiture of his S Corporation’s portion of funds seized by the U.S. Marshals Service for public policy reasons. The taxpayer pleaded guilty to charges of bribery, fraud and money laundering. Subsequently, the U.S. Marshals Service seized money from several bank accounts held in the taxpayer’s name or his wholly owned corporation. The S corporation claimed a loss deduction related to its portion of the asset seizures on its return and the taxpayer reported a corresponding passthrough loss on his return.

However, Courts have uniformly held that loss deductions for forfeitures in connection with a criminal conviction frustrate public policy by reducing the "sting" of the penalty. The taxpayer maintained that the public policy doctrine did not apply here, primarily because the S corporation was never indicted or charged with wrongdoing. However, even if the S corporation was entitled to claim a deduction for the asset seizures, the public policy doctrine barred the taxpayer from reporting his passthrough share. The public policy doctrine was not so rigid or formulaic that it may apply only when the convicted person himself hands over a fine or penalty.

Hampton, TC Memo. 2025-32, Dec. 62,642(M)

For 2022, the Social Security wage cap will be $147,000, and Social Security and Supplemental Security Income (SSI) benefits will increase by 5.9 percent. These changes reflect cost-of-living adjustments to account for inflation.

For 2022, the Social Security wage cap will be $147,000, and Social Security and Supplemental Security Income (SSI) benefits will increase by 5.9 percent. These changes reflect cost-of-living adjustments to account for inflation.

Wage Cap for Social Security Tax
The Federal Insurance Contributions Act (FICA) tax on wages is 7.65 percent each for the employee and the employer. FICA tax has two components:

• a 6.2 percent social security tax, also known as old age, survivors, and disability insurance (OASDI); and
• a 1.45 percent Medicare tax, also known as hospital insurance (HI).

For self-employed workers, the Self-Employment tax is 15.3 percent, consisting of:

• a 12.4 percent OASDI tax; and
• a 2.9 percent HI tax.

OASDI tax applies only up to a wage base, which includes most wages and self-employment income up to the annual wage cap.

For 2022, the wage base is $147,000. Thus, OASDI tax applies only to the taxpayer’s first $147,000 in wages or net earnings from self-employment. Taxpayers do not pay any OASDI tax on earnings that exceed $147,000.

There is no wage cap for HI tax.

Maximum Social Security Tax for 2022
For workers who earn $147,000 or more in 2022:

• an employee will pay a total of $9,114 in social security tax ($147,000 x 6.2 percent);
• the employer will pay the same amount; and
• a self-employed worker will pay a total of $18,228 in social security tax ($147,000 x 12.4 percent).

Additional Medicare Tax
Higher-income workers may have to pay an additional Medicare tax of 0.9 percent. This tax applies to wages and self-employment income that exceed:

• $250,000 for married taxpayers who file a joint return;
• $125,000 for married taxpayers who file separate returns; and
• $200,000 for other taxpayers.

The annual wage cap does not affect the additional Medicare tax.

Benefit Increase for 2022
Finally, a cost-of-living adjustment (COLA) will increase social security and SSI benefits for 2022 by 5.9 percent. The COLA is intended to ensure that inflation does not erode the purchasing power of these benefits.

The IRS has reminded employers to check the Work Opportunity Tax Credit available for hiring long-term unemployment recipients and other groups of workers facing significant barriers to employment.

The IRS has reminded employers to check the Work Opportunity Tax Credit available for hiring long-term unemployment recipients and other groups of workers facing significant barriers to employment.

Cash contributions made either to supporting organizations or to establish or maintain a donor advised fund do not qualify. Also, cash contributions carried forward from prior years do not qualify, nor do cash contributions to most private foundations and most cash contributions to charitable remainder trusts.

Subject to certain limits, taxpayers who itemize could generally claim a deduction for charitable contributions made to qualifying charitable organizations. These range from 20 percent to 60 percent of adjusted gross income (AGI) and vary by the type of contribution and type of charitable organization. The law now permits electing individuals to apply an increased limit of up to 100 percent of their AGI, for qualified contributions made during 2021. More information can be found at https://www.irs.gov/forms-pubs/about-publication-526.

The Work Opportunity Tax Credit encourages employers to hire workers certified as members of any of the following targeted groups facing barriers to employment:

• temporary Assistance for Needy Families (TANF) recipients;
• unemployed veterans, including disabled veterans;
• formerly incarcerated individuals;
• designated community residents living in Empowerment Zones or Rural Renewal Counties;
• vocational rehabilitation referrals;
• supplemental Nutrition Assistance Program (SNAP) recipients;
• supplemental Security Income (SSI) recipients;
• long-term family assistance recipients; and
• long-term unemployment recipients.

An employer must first request certification by submitting IRS Form 8850, Pre-screening Notice and Certification Request for the Work Opportunity Credit to their state workforce agency (SWA) to qualify for the credit within 28 days after the eligible worker commences work. However, under a special relief provision, a submission deadline on November 8, 2021, applies to qualified summer youth employees residing in Empowerment Zones and designated community residents residing in Empowerment Zones.

Eligible employees must commence work on or after January 1, 2021, and before October 9, 2021, to qualify for the submission deadline. The Work Opportunity Tax Credit is claimed on eligible businesses' federal income tax returns and is usually based on wages paid to qualified workers during the first year of employment. The credit is first figured on Form 5884, Work Opportunity Credit, and then is claimed on Form 3800, General Business Credit.

Under a special rule, employers are permitted to claim the Work Opportunity Tax Credit for hiring qualified veterans, although the credit is not available to tax-exempt organizations for most groups of new hires. Such organizations claim the credit against payroll taxes on Form 5884-C, Work Opportunity Credit for Qualified Tax Exempt Organizations.

The IRS highlighted how expanded tax benefits help both individuals and businesses give to charity before the end of this year.

The IRS highlighted how expanded tax benefits help both individuals and businesses give to charity before the end of this year. The law now permits these taxpayers to claim a limited deduction on their 2021 federal income tax returns for cash contributions made to certain qualifying charitable organizations. These taxpayers, including married individuals filing separate returns, can claim a deduction of up to $300 for cash contributions made to qualifying charities during 2021. The maximum deduction is increased to $600 for married taxpayers filing joint returns. Nearly nine in 10 taxpayers now take the standard deduction and could potentially qualify to claim a limited deduction for cash contributions.

Cash contributions made either to supporting organizations or to establish or maintain a donor advised fund do not qualify. Also, cash contributions carried forward from prior years do not qualify, nor do cash contributions to most private foundations and most cash contributions to charitable remainder trusts.

Subject to certain limits, taxpayers who itemize could generally claim a deduction for charitable contributions made to qualifying charitable organizations. These range from 20 percent to 60 percent of adjusted gross income (AGI) and vary by the type of contribution and type of charitable organization. The law now permits electing individuals to apply an increased limit (Increased Individual Limit), up to 100 percent of their AGI, for qualified contributions made during 2021. More information can be found at https://www.irs.gov/forms-pubs/about-publication-526.

The IRS has reminded taxpayers that the last quarter of 2021 is a good time to check withholding.

The IRS has reminded taxpayers that the last quarter of 2021 is a good time to check withholding. The IRS’s convenient Tax Withholding Estimator (https://www.irs.gov/individuals/tax-withholding-estimator), will help taxpayers determine if they have too much withheld and how to make an adjustment to put more cash into their own pocket now. About 70 percent of taxpayers over withhold their taxes every year, which typically results in a refund. Alternatively, it will help taxpayers see that they should withhold more or make an estimated tax payment to avoid a tax bill when they file their tax return next year.

The following things need to be considered when adjusting withholding for 2021:

• Coronavirus tax relief - Tax help for taxpayers, businesses, tax-exempt organizations, and others, including health plans, affected by coronavirus (COVID-19).
• Disasters such as wildfires and hurricanes – Special tax law provisions may help taxpayers and businesses recover financially from the impact of a disaster, especially when the federal government declares their location to be a major disaster area.
• Job loss – 4128, Tax Impact of Job Loss, explained how this unfortunate circumstance can create new tax issues.
• Workers moving into the gig economy due to the pandemic – The IRS advised people earning income in the gig economy to consider estimated tax payments to avoid a balance or penalties when they file.
• Life changes such as marriage or childbirth – Getting married or having a child are just a couple of life events that can affect your refund or how much you owe.

Taxes are generally paid throughout the year whether from salary withholding, quarterly estimated tax payments, or a combination of both. Taxpayers can pay online, by phone, or from the IRS2Go app. Finally, taxpayers can schedule payments for future dates, which can be useful during filing season, for payment plan payments or for estimated tax payments.

The IRS has released the 2021-2022 special per diem rates. Taxpayers use the per diem rates to substantiate certain expenses incurred while traveling away from home.

The IRS has released the 2021-2022 special per diem rates. Taxpayers use the per diem rates to substantiate certain expenses incurred while traveling away from home. These special per diem rates include:

1. the special transportation industry meal and incidental expenses (M&IE) rates;
2. the rate for the incidental expenses only deduction; and
3. the rates and list of high-cost localities for purposes of the high-low substantiation method.

Transportation Industry Special Per Diem Rates
The special M&IE rates for taxpayers in the transportation industry are:

• $69 for any locality of travel in the continental United States (CONUS); and
• $74 for any locality of travel outside the continental United States (OCONUS).

Incidental Expenses Only Rate
The rate is $5 per day for any CONUS or OCONUS travel for the incidental expenses only deduction.

High-Low Substantiation Method
For purposes of the high-low substantiation method, the 2021-2022 special per diem rates are:

• $296 for travel to any high-cost locality; and
• $202 for travel to any other locality within CONUS.

The amount treated as paid for meals is:

• $74 for travel to any high-cost locality; and
• $64 for travel to any other locality within CONUS.

Instead of the meal and incidental expenses only substantiation method, taxpayers may use:

• $74 for travel to any high-cost locality; and
• $64 for travel to any other locality within CONUS.

Taxpayers using the high-low method must comply with Rev. Proc. 2019-48, I.R.B. 2019-51, 1390. That procedure provides the rules for using a per diem rate to substantiate the amount of ordinary and necessary business expenses paid or incurred while traveling away from home.

The IRS and the Treasury Department have issued guidance to employers about reporting the amount of qualified sick and family leave wages paid to employees for leave taken in 2021 on Form W-2, Wage and Tax Statement.

The IRS and the Treasury Department have issued guidance to employers about reporting the amount of qualified sick and family leave wages paid to employees for leave taken in 2021 on Form W-2, Wage and Tax Statement. Further, the notice provides guidance under recent legislation, including: the Families First Coronavirus Response Act (FFCRA) ( P.L. 116-127), as amended by the COVID-Related Tax Relief Act of 2020 (Division N of P.L. 116-260) and the American Rescue Plan Act of 2021 ( P.L. 117-2). Employers are required to report these amounts to employees either on Form W-2, Box 14, or in a separate statement provided with the Form W-2. The wage amount that the notice requires employers to report on Form W-2 will provide employees who are also self-employed with the information necessary to determine the amount of any sick and family leave equivalent credits they may claim in their self-employed capacities.

Reporting Requirements
The guidance requires eligible employers to report to employees the amount of qualified sick leave wages and qualified family leave wages paid to the employees under (i) sections 7001 or 7003 of the Families First Act for leave provided during the period beginning January 1, 2021, through March 31, 2021, and (ii) Code Secs. 3131 and 3132 for leave provided during the period beginning April 1, 2021, through September 30, 2021. Moreover, eligible employers have separate reporting requirements for (i) leave provided to employees during the period beginning January 1, 2021, through March 31, 2021, under the Families First Act; and (ii) leave provided to employees during the period beginning April 1, 2021, through September 30, 2021, under Code Secs. 3131 and 3132.

Specific Reporting Instructions
Qualified leave wages paid in 2021 under the Families First Act and Code Secs. 3131 and 3132 are to be reported in Box 1 of Form W-2. To the extent that qualified leave wages are social security wages or Medicare wages, they must also be included in Box 3 (up to the social security wage base) and Box 5, respectively.

In addition to the regular reporting requirements, employers must report the following types and amounts of the wages that were paid, with each amount separately reported either in Box 14 of Form W-2 or on a separate statement to the employee:

• the total amount of qualified sick leave wages paid for reasons described in paragraphs (1), (2), or (3) of section 5102(a) of the Emergency Paid Sick Leave Act (EPSLA) with respect to leave provided to employees during the period beginning on January 1, 2021, through March 31, 2021 (sick leave wages subject to the $511 per day limit);
• the total amount of qualified sick leave wages paid for reasons described in paragraphs (4), (5), or (6) of section 5102(a) of EPSLA with respect to leave provided to employees during the period beginning on January 1, 2021, through March 31, 2021 (sick leave wages subject to the $200 per day limit);
• the total amount of qualified family leave wages paid to the employee under the Emergency Family and Medical Leave Expansion Act (EFMLEA) with respect to leave provided to employees during the period beginning on January 1, 2021, through March 31, 2021;
• the total amount of qualified sick leave wages paid for reasons described in paragraphs (1), (2), or (3) of section 5102(a) of section 5102(a) of EPSLA with respect to leave provided to employees during the period beginning on April 1, 2021, through September 30, 2021;
• the total amount of qualified sick leave wages paid for reasons described in paragraphs (4), (5), or (6) of section 5102(a) of EPSLA with respect to leave provided to employees during the period beginning on April 1, 2021, through September 30, 2021;
• the total amount of qualified family leave wages paid to the employee under EFMLEA with respect to leave provided to employees during the period beginning on April 1, 2021, through September 30, 2021.

Model Language for Employee Instructions
As part of the Instructions for Employee, under the instructions for Box 14, for the Forms W-2, or in a separate statement sent to the employee, the employer may provide additional information about qualified sick leave wages and qualified family leave wages, and explain that these wages may limit the amount of the qualified sick leave equivalent or qualified family leave equivalent credits to which the employee may be entitled with respect to any self-employment income. The guidance provides model language for employee instructions.

Self-Employment Tax Reporting
If taxpayers have self-employment income in addition to wages paid by an employer, and they intend to claim any qualified sick leave or qualified family leave equivalent credits, they must report the qualified sick leave or qualified family leave wages on Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, included with their income tax return. The self-employed taxpayer may have to reduce (but not below zero) any qualified sick leave or qualified family leave equivalent amounts by these qualified leave wages.

The IRS has issued temporary and proposed regulations that authorize the assessment of any erroneous refund of the COVID-19 employment tax credits which were added by the American Rescue Plan Act of 2021 ( P.L. 117-2). These credits for certain wages paid by employers are:

The IRS has issued temporary and proposed regulations that authorize the assessment of any erroneous refund of the COVID-19 employment tax credits which were added by the American Rescue Plan Act of 2021 ( P.L. 117-2). These credits for certain wages paid by employers are:

• the Credit for Paid Sick Leave under Code Sec. 3131,
• the Credit for Paid Family Leave under Code Sec. 3132, and
• the Employee Retention Credit under Code Sec. 3134.

The text of the temporary regulations also serves as the text of the proposed regulations.

The temporary regulations apply to all credits under Code Secs. 3131 and 3132, including any increases to the credits under Code Sec. 3133, credited or refunded on or after April 1, 2021, including advanced refunds, as well as all credits under Code Sec. 3134 that are credited or refunded on or after July 1, 2021, including advanced refunds.

Erroneous Refunds
These credits are taken against the employer's share of Medicare tax imposed under Code Sec. 3111(b) and the attributable Railroad Retirement Tax Act tax imposed under Code Sec. 3221(a). If the amount of the credits exceeds these taxes for any calendar quarter, then the excess must be treated as an overpayment to be refunded or credited under Code Secs. 6402(a) and 6413(b). Any credits claimed that exceed the amount to which the employer is entitled, and that are actually credited or refunded by the IRS, are considered to be erroneous refunds of these credits.

If a small eligible employer specified in Code Sec. 3134(j)(2) receives excess advance payments of the credit, then the tax imposed under Code Sec. 3111(b) (or the attributable Code Sec. 3221(a) tax) for the calendar quarter are increased by the excess amount.

The temporary regulations provide that erroneous refunds of these credits are treated as underpayments of the taxes imposed under Code Sec. 3111(b) (and the attributable Code Sec. 3221(a) tax). The temporary regulations authorize the IRS to assess any credits erroneously credited, paid, or refunded in excess of the amount allowed as if those amounts were the applicable taxes, subject to assessment and administrative collection procedures. This allows the IRS to prevent the avoidance of the purposes of the limitations under the credit provisions, and to recover the erroneous refund amounts efficiently, while also preserving administrative protections afforded to taxpayers with respect to contesting their tax liabilities under the Code and avoiding unnecessary costs and burdens associated with litigation.

These assessment and administrative collection procedures do not replace the existing recapture methods, but instead represent an alternative method available to the IRS.

Any amount of the credits for qualified leave wages and certain collectively bargained contributions under Code Secs. 3131 and 3132, plus any amount of credits for qualified health plan expenses under Code Secs. 3131(d) and 3132(d), and including any increases in these credits under Code Sec. 3133, and any amount of the employee retention credit for qualified wages under Code Sec. 3134 that are erroneously refunded or credited to an employer must be treated as underpayments of the employer’s share of the applicable Medicare tax by the employer, and may be administratively assessed and collected in the same manner as the taxes. The temporary regulations provide that the determination of any amount of credits erroneously refunded must take into account any credit amounts advanced to an employer under the process established by the IRS.

In certain situations, third-party payors claim tax credits on behalf of their common law employer clients. The temporary regulations address this by providing that employers against which an erroneous refund of credits may be assessed as an underpayment include persons treated as the employer under Code Secs. 3401(d), 3504, and 3511, consistent with their liability for the employment taxes against which the credits applied.

Effective Date; Request for Comments
The temporary regulations are effective on the date they are published in the Federal Register.

A public hearing on the proposed regulations will be scheduled if requested in writing by any person who timely submits electronic or written comments. Written or electronic comments and requests for a public hearing must be received by the date that is 60 days after the proposed regulations are published in the Federal Register.

The IRS has announced the launch of two new online tools to help families verify, manage and monitor monthly payments of child tax credits under the American Rescue Plan Act (ARP) ( P.L. 117-2). These are in addition to the Non-filer Sign-up tool announced last week, which helps families register for child tax credits. The tools are both available through the Update Portal at https://www.irs.gov/credits-deductions/child-tax-credit-update-portal.

The IRS has announced the launch of two new online tools to help families verify, manage and monitor monthly payments of child tax credits under the American Rescue Plan Act (ARP) (P.L. 117-2). These are in addition to the Non-filer Sign-up tool announced last week, which helps families register for child tax credits. The tools are both available through the Update Portal at https://www.irs.gov/credits-deductions/child-tax-credit-update-portal.

The Treasury and IRS have urged taxpayers to use a special online tool to determine eligibility for the Child Tax Credit (CTC) and the special monthly advance payments beginning on July 15. The new CTC Eligibility Assistant is interactive and easy to use. It is particularly useful to those who do not normally file a federal tax return and have not yet filed either a 2019 or 2020 return.

"This new tool provides an important first step to help people understand if they qualify for the CTC, which is especially important for those who don’t normally file a tax return," said IRS Commissioner Chuck Rettig. "The eligibility assistant works in concert with other features on IRS.gov to help people receive this important credit. The IRS is working hard to deliver the expanded Child Tax Credit, and we will be rolling out additional help for taxpayers in the near future. Where possible, please help us help others by distributing CTC information in your communities," he added.

The CTC Eligibility Assistant does not request any personally-identifiable information for any family member. The tool can be found at https://www.irs.gov/credits-deductions/advance-child-tax-credit-eligibility-assistant.

In addition to verification of their eligibility, the Update Portal allows a taxpayer to unenroll from receiving monthly payments, in order to receive a lump sum. The tool can be found at https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021. The unenroll feature is helpful to families that no longer qualify for the child tax credit or believe they will not qualify when they file their 2021 return. This could happen if:

• their income in 2021 is too high to qualify for the credit;
• someone else (an ex-spouse or another family member, for example) qualifies to claim their child or children as dependents in 2021; or
• their main home was outside of the United States for more than half of 2021.

Further, future versions and new features of the tool are planned for the summer and fall. These updates will allow taxpayers to view their payment history, adjust bank account information or mailing addresses. In general, these payments will go to families who:

• filed either a 2019 or 2020 federal income tax return;
• used the Non-Filers tool register for an Economic Impact Payment; or
• registered for the advance child tax credit using the new Non-filer Sign-up tool.

Next, eligible families will receive advance payments, either by direct deposit or check. Each payment will be up to $300 per month for each child under age six and up to $250 per month for each child ages six through 17. Filing soon will ensure that the IRS has taxpayers’ most current bank account information and key details about qualifying family members. This includes individuals who do not normally file tax returns, including families experiencing homelessness and individuals in undeserved groups.

The IRS also announced pertinent child tax credit changes. The ARP raised the maximum child tax credit to $3,600 for children under the age of six and to $3,000 per child for children ages six through 17. Finally, the IRS urged community groups, non-profits, associations, education organizations and taxpayers with connections to individuals with children to share this critical information about the child tax credit as well as other important benefits.

Individuals may use two special procedures to file returns for 2020 that allow them to receive advance payments of the 2021 child credit and the 2021 Recovery Rebate Credit.

Individuals may use two special procedures to file returns for 2020 that allow them to receive advance payments of the 2021 child credit and the 2021 Recovery Rebate Credit. Under the procedures:

• individuals who are not required to file returns for 2020 can use a simplified federal income tax return filing procedure; and
• individuals with zero adjusted gross income (AGI) for 2020 can file electronic returns by entering "$1" in several fields.

Simplified Return Procedures

Individuals may file simplified 2020 returns electronically or on paper if they have not filed and are not required to file 2020 returns. The simplified procedures apply to Forms 1040, 1040-SR and 1040-NR.

The individual should write "Rev. Proc. 2021-24" at the top of a paper return. The procedure includes detailed instructions for providing identification, income and direct deposit information.

Zero AGI

Many filing systems for electronic returns will not accept returns that report zero AGI. To file an electronic return, in addition to all other information required to be entered on Form 1040, Form 1040-SR, or Form 1040-NR, an individual with no AGI should report:

• $1 as taxable interest on line 2b of the form;
• $1 as total income on line 9 of the form; and
• $1 as AGI on line 11 of the form.

Filers of Form 1040-NR with no AGI should also report $1 as itemized deductions on lines 7 and 8 of Schedule A (Form 1040-NR) and line 12 of Form 1040-NR.

Returns Must Be Accurate

Simplified returns and zero-AGI electronic returns are federal income tax returns for all purposes. Thus, the individual must properly sign the return under penalties of perjury. The returns must also provide accurate information. However, the IRS will not challenge the accuracy of income items reported by taxpayers using these special procedures.

Individuals Who Filed 2020 Returns

Individuals who have already filed their 2020 returns do not have to do anything further to:

• receive advance child credit payments for an eligible child shown on that return;
• receive a third-round Economic Impact Payment (EIP) for the 2021 recovery rebate credit that is attributable to a dependent shown on that return; or
• claim a previously claimed 2020 recovery rebate credit and additional 2020 recovery rebate credit for themselves and for each eligible qualifying child.

Similarly, an individual who filed a federal income tax return for 2019, including by entering information in the "Non-Filers: Enter Information Here" tool on the IRS website, also do not need to file any additional forms of contact the IRS in order to receive advance child credit payments for a qualifying child shown on that return. An individual who did not receive EIPs for the full amount of the 2020 Recovery Rebate Credits may claim them by filing a 2020 federal income tax return.

U.S. Territory Residents

The simplified return and zero-AGI procedures do not apply to residents of American Samoa, Guam, the Commonwealth of the Northern Mariana Islands, the Commonwealth of Puerto Rico, or the U.S. Virgin Islands.

• Residents of Puerto Rico may be eligible to claim the child tax credit from the IRS under procedures to be announced at a later date, but they are not eligible to receive advance child tax credit payments.
• Residents of other U.S. territories should contact their local territory tax agency for additional information about the child tax credit and advance child tax credit payments, third-round economic impact payments, the 2020 recovery rebate credit, and the additional 2020 recovery rebate credit.

The IRS has reminded employers that under the American Rescue Plan Act of 2021 (ARP) ( P.L. 117-2), small and midsize employers and certain government employers are entitled to claim refundable tax credits that reimburse them for the cost of providing paid sick and family leave to their employees due to COVID-19. This includes leave taken by employees to receive or recover from COVID-19 vaccinations.

The IRS has reminded employers that under the American Rescue Plan Act of 2021 (ARP) ( P.L. 117-2), small and midsize employers and certain government employers are entitled to claim refundable tax credits that reimburse them for the cost of providing paid sick and family leave to their employees due to COVID-19. This includes leave taken by employees to receive or recover from COVID-19 vaccinations.

ARP tax credits are available to eligible employers that pay sick and family for leave from April 1, 2021, through September 30, 2021. Under the Act, eligible employers include any business, including tax-exempt organizations with fewer than 500 employees who are not able to work or telework due to reasons related to COVID-19, including needing to recover from any injury, disability, illness or condition related to the vaccinations.

The IRS has informed taxpayers that the paid leave credits under the ARP are tax credits against the employer’s share of the Medicare tax. The tax credits are refundable, and the employer is entitled to payment of the full amount of credits if it exceeds the employer’s share of the Medicare tax. The tax credit for paid sick leave wages is equal to the sick leave wages paid for COVID-19 related reasons, for up to two weeks at 100 percent of the employee’s regular rate of pay. Further, the tax credit for paid family leave wages is equal to the family leave wages paid for up to twelve weeks, at 2/3rds of the employee’s regular rate of pay. Importantly, the amount of these tax credits increases according to allocable health plan expenses and contributions for certain collectively bargained benefits, as well as the employer’s share of social security and Medicare taxes paid on the wages.

Eligible employers are recommended to report their total paid sick and family leave wages, health plan expenses and collectively bargained contributions, including their share of social security and Medicare taxes on the paid leave wages for each quarter on their federal employment tax return. Form 941, Employer’s Quarterly Federal Tax Return, can be used to report income tax and social security and Medicare taxes withheld from employee wages.

Further, in anticipation of claiming the credits on the Form 941, eligible employers can retain the federal employment taxes that they otherwise would have deposited, including federal income tax withheld, the employees’ share of social security, Medicare taxes and their share of social security and Medicare taxes with respect to all employees up to the amount of credit for which they are eligible. If, however, an eligible employer does not have enough federal employment taxes set aside for deposit to cover amounts provided as paid sick and family leave wages, the eligible employer may request an advance of the credits by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19. The eligible employer will then have to account for the amounts received as an advance when they file Form 941, Employer's Quarterly Federal Tax Return, for the relevant quarter. Finally, self-employed individuals may claim comparable tax credits on their individual Form 1040, U.S. Individual Income Tax Return.