All you need to know about an expected delay in tax refunds in 2020 due to COVID-19 pandemic

All you need to know about an expected delay in tax refunds in 2020 due to COVID-19 pandemic

All you need to know about an expected delay in tax refunds in 2020 due to COVID-19 pandemic

In response to the outbreak of the pandemic COVID-19, the Federal Government had delayed the deadline for filing Federal tax returns and for tax payment as well. However, it was advised that if you had to receive a refund from the IRS then it would be wise to file the tax returns soon. Due to the coronavirus and the social distancing norms, it was not only difficult for the taxpayers to prepare and file the returns but also for the IRS staff to process the refunds.

In these difficult times, it is always good to have some additional cash and everyone needs this additional amount but the tax refunds for 2020 would be delayed. 

IRS Operations with a reduced workforce

The IRS offices were closed across the entire country and it was operating with limited staff and resources. The most important task which the IRS has been doing in the past two months was the issuing of Coronavirus Stimulus Payment to around 150 million Americans which can be termed as a “mission-critical” function.

Due to the outbreak of the pandemic COVID-19, the IRS had limited the services it was rendering. The live phone help has been suspended and even the Taxpayer Assistance Centers were closed. Still, the official webpage of the IRS says that they have been carrying out the critical functions pro-actively. Specifically, the IRS has been processing Federal tax returns and issuing refunds to the Americans even with limited staff. From 1st June 2020, many IRS staff members would have returned to their offices for performing those tasks which cannot be done from home. These staff members on resuming work would begin with the backlog of work they have which would mainly consist of processing tax returns and issuing refunds to the people.

Method of tax return filing – Reason for delay

According to the IRS, the fastest method by which you can receive your tax returns on time is by filing your tax returns electronically. Most of the taxpayers who would use the e-filing method and would choose Direct Deposit would receive their tax refunds within 21 days of the filing. However, there would be delays in obtaining tax refunds by those taxpayers who would opt for the paper return method.

More than 10% of the American population still uses the paper method for filing their tax returns. The closure of the IRS offices means that IRS would not be able to process those returns which have been mailed in. So, when the processing of returns would be delayed then obtaining a refund would also be delayed.  Currently, it is unclear as to by when the IRS would be resuming the processing of those returns which have been filed by paper.

According to several reports, by 1st May 2020, the IRS had received around 125 million Federal Tax returns and it had processed 113 million tax returns approximately. There has been a 7.2% drop in the refund processing rate of the IRS due to the pandemic COVID-19.  However, the average tax refund this year is $2973 and the IRS says that it does not expect any delay in issuing the outstanding refund requests as well.

Tax Refund Status

Usually, the tax refunds are issued to the taxpayers within less than 21 days of filing the tax returns. You would be able to track the status of your Federal Tax refund on the official website of the IRS after 24 hours of filing the tax returns.

The three important things needed for checking your Federal Tax refund status are

  1. Social Security Number or Taxpayer Identification Number
  2. The exact amount that would be refunded
  3. Your filing status

Other causes for tax refund delays

Apart from the coronavirus, there can be some other reasons which would cause a delay in the process of obtaining tax refunds. In case, you have filed your tax returns too early and have claimed the Earned Income Tax Credit or the Additional Child Tax Credit then you will have to wait longer there might also be a delay if you have filed your federal tax returns either faster or later.Moreover, other causes for delay in obtaining your tax returns could be due to wrong Social Security Number, incorrect bank account number, misspelling of your name, wrong calculations or you have outstanding debts such as back taxes, child support, or Federal Student Loan, etc.

You can keep a tab on your Income-tax refunds by checking your Tax Refund Status regularly and understanding the details associated with tax refunds.

Top #10 things to know about IRS and its working amidst the pandemic

Top #10 things to know about IRS and its working amidst the pandemic

Top #10 things to know about IRS and its working amidst the pandemic

The outbreak of the pandemic COVID-19 has brought a tough time for everyone. With the economic lives of people being hugely affected due to the coronavirus, the US Government has taken various steps for providing relief to the Americans.The Coronavirus Stimulus Package under the CARES Act is one such major step taken by the Federal Government which would be of certain help to the Americans for dealing with financial issues arising due to the pandemic.

The Internal Revenue Service (IRS) has been playing a major role in the implementation of the various tax laws which have been passed recently by the Federal Government. Along with the normal course of operational activities of the IRS associated with filing of tax returns and their processing, it is also working tirelessly towards the determination and distribution of the Stimulus payments to the eligible taxpayers.

Let us have a look at the major 10 things which we should know about the operations and working of the IRS during the outbreak of COVID-19.

a.Information Center for all queries

The official website of the IRS i.e. IRS.gov/coronavirus is the first place where the taxpayers can find answers to all of their queries related to tax returns and stimulus payments.All updates associated with tax returns processing and stimulus package would be posted by the IRS therein this website. The taxpayers should avoid calling up the IRS and check out the IRS.gov/coronavirus website for tax updates amidst the pandemic. 

b.Limited live assistance from IRS

The phone lines of the IRS and the Assistance Centers for taxpayers are to be non-functional for an infinite period.The IRS hotlines including service as well as compliance hotlines such as automated under reporter, collection functions, etc. are not operational for long. Moreover, the IRS has suspended all compliance activities related to tax such as audit and collection till 15th July 2020.So, taxpayers and tax professionals should not worry about missing the tax deadlines. The Local Taxpayer Assistance Centers are also not operational currently. 

c.All audits to be put on hold

The IRS has announced that all new audits have been suspended and would resume only after 15th July 2020. But, it is quite obvious for the taxpayers to expect that the IRS must utilize the audit power it has to prevent the erroneous tax refunds.The IRS would be filing filters that would help in stopping suspicious refunds such as Earned Income Tax Credit Returns, suspected identity theft returns, etc. till the taxpayers would be able to verify the returns.So, this freezing of the refund audits will continue and would be troublesome for taxpayers as they will not be receiving any prompt response from the IRS.Moreover, taxpayers can take advice from the local Taxpayer Advocate Service Office in case of facing any queries due to the withholding of audits and refunds.

d.Temporary respite if a taxpayer owes tax

The IRS has halted the enforcement of any tax collection till 15th July 2020. Moreover, all the pending collection alternatives by the IRS and any offers related to compromises in tax laws are also on hold till 15th July 2020. According to the provisions of the People First Initiative, liens, levies, and any restrictions on passport have also been put on hold.

e.Difficulty in reaching out to the IRS even after COVID-19 is over

The IRS would even have its phone lines and hotlines non-functional after the pandemic is over.After the normal operations start, the resources of the IRS would be occupied with the backlog of tax filing issues and people trying to contact the IRS for other tax filing assistance. However, the IRS would be providing other means such as email or e-fax by which taxpayers would submit their documents.

f.Tax returns are still being processed by the IRS

The stimulus payments are being processed by using the information related to the tax returns of 2019 or 2018. If an individual has not filed his tax returns for 2019 or 2018, then this is the right time to do it now. The returns can be e-filed easily and can get accepted in a day without any inconvenience.

 

g.No requirement of monthly installment agreement payment

 Under the provisions of the “People First Initiative”, the IRS has announced that taxpayers can skip their monthly installment payment during the period of 1st April 2020 to 15th July 2020. This would not be considered as a tax payment default by the IRS.

 

h.Account-related queries can be sorted by IRS transcripts

Taxpayers can obtain their transcripts by creating an IRS account online, review these transcripts and get solutions to any queries related to issues like previous AGI, amount of penalty, amount of estimated tax payments, etc.

i.Any hardship-TAS can be reached

Any taxpayer facing financial hardships and having a hold on their tax refunds can contact their local advocate for suggestions. However, the central TAS hotline would remain closed.

j.Stimulus payment will not be used by IRS tax collectors

The IRS has made it clear that it would not use the stimulus payment of any individual for paying off of any tax debt owed by the individual taxpayer.Hence, the IRS is playing a commendable role in helping the common people in improving their economic lives during this difficult time.

References

https://www.accountingtoday.com/list/10-things-to-know-about-irs-operations-during-the-coronavirus-pandemic

https://taxfoundation.org/coronavirus-tax-tracker-covid19/

 

 

 

Key Take-away from the IRS’ announcement on “cross-border tax guidance related to travel disruptions arising from the COVID-19 emergency”

Key Take-away from the IRS’ announcement on “cross-border tax guidance related to travel disruptions arising from the COVID-19 emergency”

Key Take-away from the IRS’ announcement on “cross-border tax guidance related to travel disruptions arising from the COVID-19 emergency

Due to huge adverse impacts being created by the outbreak of the pandemic COVID-19, social distancing and restrictions on the travel of people residing in the US have been imposed by the US Government.  These restrictions imposed on the travel of the people residing in the US are sure to raise queries on the taxation policies and guidelines.

The IRS and the Treasury Department of the US have together issued tax guidelines which would help provide some relief to those people/businesses which have been impacted by these travel restrictions imposed due to COVID-19.

The major highlights of this tax guidance can be listed below.

  1. Revenue Procedure 2020-20
  2. Revenue Procedure 2020-27
  3. An FAQ

The Highlights Of This Tax Guidance

1.Revenue Procedure 2020-20

The Revenue Procedure 2020-20 provides the guidance that under specific circumstances up to a period of 60 consecutive calendar days of presence in the US due to travel disruptions caused because of COVID-19 would not be counted for determination of the US Tax Residency and for other purposes such as qualification for tax treaty benefits for income obtained from the personal services that have been performed in the US.

a.The pandemic COVID-19 has affected the travel plans of many foreign travelers who had planned to leave the US. Even though foreign travelers who test negative for COVID-19 are not being able to leave the US due to cancelation of flights, border closures, and other disruptions.

b.An alien individual would be considered as a US resident for a year under the substantial presence test in the calendar year if

  • The individual has been present in the US on at least 31 days during the tested calendar year.
  • The sum of the number of days of presence in the tested calendar year plus one-third of the number of days of presence in the previous calendar year plus one-sixth of the number of days of presence in the second preceding calendar year equal to 103 days or more. 

c.Medical condition exception means an alien individual would not be considered as present in the US on those days when he intended to leave the US but was not able to do so due to serious medical condition which arose when the person was in the US.

d.Those individuals who are claiming the Medical Condition Exception need to file the Form 8843, Statement for Exempt Individuals and Individuals with a Medical Condition for filing Form 1040-NR. However, under certain circumstances, the need for timely file Form 8843 might be not taken into consideration.

e.The COVID-19 emergency would be considered as a Medical Condition Exception while determining his eligibility for treaty benefits and revenue procedures. For revenue procedure, an individual would be considered to have intended to leave the country unless he has applied for becoming a resident of the US. Also, for obtaining treaty benefits an individual would be presumed to be unable to leave the country during the period of COVID-19.

2.Revenue Procedure 2020-27

The IRS and the Department of Treasury have provided a waiver of the time requirements for revenue procedure and eligibility for treaty benefits. This Revenue procedure provides the qualification for being excluded from gross income under the IRC Section 911 and would not be impacted because of the days spent away from a foreign nation due to COVID-19.

a.A qualified individual can elect to exclude from the gross income of the individual’s foreign earned income and the housing cost amount.

b.The IRS and the Treasury Department have determined that the COVID-19 is an emergency. For IRC Section 911, an individual who had left China on/ after 1st December 2019, or any other foreign nation on/after 1st February 2020, but on/ before 15th July 2020, would be considered as a qualified individual concerning the period during which he was present in, or was a bona fide resident of, that foreign nation if the individual can establish an expectation that he would have met the requirements of the IRC Section 911 for COVID-19 emergency.

c.To qualify for relief for the revenue procedure, an individual must have been physically present, in the foreign nation on/ before the applicable date specified for this revenue procedure. An individual who was physically present or in China after 1st December 2019 or another foreign nation after 1st February 2020 would not be eligible to use this revenue procedure.

d.Individuals trying to qualify for the section 911 foreign earned income exclusion as they have been expected to be present in a foreign country for 330 days for the outbreak of COVID-19 and have met the other 4 requirements for qualification may use any 12 months to meet the qualified individual requirement.

3.FAQ

FAQ specifies that specific business activities which are conducted by foreign corporations or by a non-resident alien will not be considered in the 60 consecutive calendar days for determination if the individual or the business is engaged in some US business or has a permanent establishment in the US only if those business activities would not have been conducted in the US due to the travel disruptions caused due to COVID-19.

Hence, these tax guidelines framed by the IRS are also being continuously monitored by the IRS and the Treasury Department. Taxpayers can visit the IRS website and obtain further information related to this.

References

  1. https://www.irs.gov/newsroom/treasury-irs-announce-cross-border-tax-guidance-related-to-travel-disruptions-arising-from-the-covid-19-emergency
  2. https://www.orbitax.com/news/archive.php/U.S.-Treasury-and-IRS-Issue-Cr-41872

 

 

All you need to know about the relaxed e-filing rules amidst COVID-19 pandemic

All you need to know about the relaxed e-filing rules amidst COVID-19 pandemic

All you need to know about the relaxed e-filing rules amidst COVID-19 pandemic

With the impact of the pandemic COVID-19 becoming worse for the Americans, the Government has imposed lockdowns and has been asking people to stay indoors. In such situations, the IRS has also taken certain effective measures to alleviate the distress of the common people. One of the major initiatives taken by the IRS for providing some relief to the people is by the extension of the tax return filing and the tax payment deadline due to 15th April 2020 up to 15th July 2020.

Another important step taken by the IRS amidst the outbreak of the COVID-19 is the relaxation in the rules related to e-filing. The IRS has allowed its employees to accept the documents related to tax by email which can be accompanied by the images of signatures.

IRS announces relaxed e-filing rules 

IRS announces relaxed e-filing rules 

On 27th March 2020, the Treasury Department had announced that the IRS has made temporary provisions for allowing its employees to accept images of signatures and digital signatures in case of determination/collection of taxes. Earlier, the IRS employees were not allowed for accepting any tax-related documents from taxpayers by email; however, the IRS has granted permission for accepting documents and also transmitting documents to taxpayers by email/secure messaging system. This has made it easier for both IRS employees and the taxpayers also to process their requests without any physical contact.

Major security threats due to relaxed e-filing rules

Major security threats due to relaxed e-filing rules

Many tax experts have highlighted their worries about a wide range of security threats that can arise due to the relaxed e-filing rules introduced by the IRS.

  1. Transmitting sensitive data via e-mails has been considered as non-complaint according to several industry standards. If this relaxation by the IRS is considered as normal, then it would lead to an increase in the number of cyber-crimes.
  2. When a taxpayer sends an attachment through the email, the attachment gets saved on the servers of the IRS and is not encrypted. As a result of this, anyone who has access to the emails can get hold of the information easily. This poses to be a big security risk.

 However, in these difficult times when it is not advisable to come to offices, it is necessary to have some type of concessions which would make it easier for tax professionals to do their work from home.  The IRS has made it necessary for the taxpayers to attach a cover letter which would be considered as a form of consent from the taxpayer. This will act as an acknowledgment that the taxpayer knows about sharing his data, the consequences and the responsibility of any liability are upon him.  

Sending data securely to the IRS

1.To have knowledge about where the data is and is being handled by whom

Taxpayers should try and acquire some knowledge about where and how their sensitive data is being stored. They must check with their accountant on where their data is being stored, who has access to their data, and what kind of backup is being utilized for their data.

2.To know about encryption

Encryption is the primary method by which data can be kept secure. Two major types of encryption would be used by the accountant or IRS for keeping data safe i.e. 256-bit AES and SSL/TLS. The 256-bit AES is used in banks whereas the SSL/TLS form of encryption is used by standard internet. Taxpayers must ensure that their tax preparers are using those applications which make use of these two encryption techniques.

3.Utilization of multifactor authentication

Mostly, secure systems use multiple levels of authentication so that malicious parties would not be able to get hold of the data. For instance, if the malicious party gets the password they will not be able to get the data as there would be another level of authentication such as fingerprint authentication. So, the system by which taxpayers are sharing their data must have different levels of authentication such as passwords and then code generated on phone or by the taxpayer’s fingerprint.

4.Avoid sharing sensitive data over emails

Tax experts advise that even though sending data by email is the most common method and have some level of encryption, it cannot be trusted completely. Rather, by encrypted file-sharing system secure connections can be created between the machine and the server where the data is being stored. By using these encrypted file-sharing systems, sensitive data transfer can be done without any threat by a taxpayer and his accountant.

Hence, relaxed e-filing rules by the IRS have made the tax return filing process convenient for both IRS employees and the taxpayers. However, the implementation of secure methods for data transfer would prevent the occurrence of scams and losses.

References

https://www.cnbc.com/2020/04/07/irs-relaxed-e-filing-rules-during-covid-19-poses-big-security-risks.html