Washington Hotline – August 11, 2020


Washington Hotline

IRS to Distribute $500 Dependent Stimulus Payments

The IRS has announced that it will begin to distribute $500 Economic Impact Payments (EIPs) to approximately 365,000 individuals. These individuals are Non-Filers who registered prior to May 17, but did not receive $500 dependent EIPs due to an IRS software problem.

IRS Commissioner Charles Rettig testified before the Senate Finance Committee on June 30. He stated that an IRS software problem caused the failure to make the $500 dependent payment to the 365,000 individuals.

The Stimulus Payment FAQ on IRS.gov has a series of questions designed to help Non–Filers.

FAQ 49 explains that Non–Filers who are not required to file an income tax return and do not receive Social Security, Disability, Supplemental Security Income, Veterans Benefits or Railroad Retirement Benefits must use the tool. “The IRS won’t have the information necessary to issue you an Economic Impact Payment –– unless you provide some basic information for yourself, your spouse, and any qualifying children under 17. Entering your bank account information will allow the IRS to deposit your payment directly in your account. Otherwise, your Payment will be mailed to you.”

The FAQs note that a number of individuals were not required to file and used the Non-Filer tool to receive their stimulus payments. As stated in FAQ 53, some individuals received a $1,200 or $2,400 Economic Impact Payment, but did not receive the $500 EIP for each qualifying child.

FAQ 53 states, “The IRS will automatically issue the additional $500 EIP per qualifying child to affected individuals in early August for those who used the Non–Filers tool before May 17, 2020. Direct deposit payments are scheduled for August 5, 2020, and paper checks or debit cards are scheduled to be mailed August 7, 2020.”

If you did not receive the additional $500 stimulus payment and qualify to receive the additional amount, you can go to IRS.gov and use the Get My Payment tool to check on the status of your EIP.

As the FAQ notes, if you received an EIP by direct deposit, the additional payment will be deposited to your bank account. If you did not have your EIP deposited to your bank account, a paper check will be mailed to you.

Editor’s Note: The Phase IV Stimulus Bill being negotiated by House and Senate leaders is expected to include a second round of stimulus payments to individuals. These payments should be made in September or October.

Professional Advisors Must Use VPNs

In IR–2020–176, the Service discussed the importance of virtual private networks (VPNs) for professional advisors. The letter states, “A VPN provides a secure, encrypted tunnel to transmit data between a remote user via the Internet and the company network. As teleworking or working from home continues during the coronavirus, VPNs are critical to protecting and securing internet connections.”

The use of VPNs by professional advisors who telework is strongly recommended by the IRS Security Summit. IRS Commissioner Chuck Rettig stated, “For firms expanding teleworking options during this time, a virtual private network is a must have. We continue to see tax pros fall victim to attacks every week. These networks are something you cannot afford to go without. The risk is real. Taking steps now can protect your clients and protect your businesses.”

A VPN is essential to protect your data. If you are not using a VPN and a cyberthief gains access to your home computer, he or she may also have access to your business network.

The Service recommends you contact a cybersecurity expert for a recommendation on a VPN. If you do not have the advice of an outside expert, you may search the internet for “Best VPNs” to find a vendor. It is helpful to read reviews of various VPN vendors.

The Service reminds professional advisors that you should never click on a “pop–up” ad or respond to an email advertising a security product. These strategies are a favorite way for fraudsters to place malware on your computer. Do an independent search and go directly to the website of the VPN vendor.

The Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency (CISA) offers several best-practice guidelines.

Your VPNs, network devices and computers should always be updated with the latest software patches. Train your employees to be aware that fraudsters are increasing their email phishing attempts. A cybersecurity consultant should periodically review your network logs, recognize attacks and be prepared to respond to any incident.

It is strongly recommended that the login for a VPN include two–factor authentication. A password and a digital code texted to your phone must both be entered to create the VPN connection. Passwords should have 10 to 14 characters with a combination of an uppercase character, lower case characters, numbers and symbols.

IRS Publication 5293, Data Security Resource Guide for Tax Professionals, is a helpful reference and available on IRS.gov.

Higher Education Group Seeks COVID – 19 Credits

President Ted Mitchell of the American Council on Education (ACE) sent a letter on August 3, 2020 to House Ways and Means Committee Chairman Richard Neal (D-MA), Senate Finance Committee Chairman Charles Grassley (R-IA) and the ranking members of both committees. Mitchell spoke on behalf of the American Council on Education and 20 other associations.

These associations urge Congress in the forthcoming COVID–19 Stimulus Bill IV to make “public and private nonprofit colleges and universities eligible for the paid sick and family leave refundable tax credit created in the Families First Coronavirus Response Act, and to make public institutions eligible for the refundable employee retention tax credit created by the CARES Act. In addition, we urge you to make public institutions eligible for the safe and healthy workplace tax credit included in the American Workers, Families, and Employer’s Assistance Act.”

Mitchell noted that colleges and universities are facing “unprecedented challenges” due to the COVID–19 pandemic. Colleges and universities have spent millions purchasing personal protection equipment, updating their cleaning supplies and methods, de–densifying campuses and establishing testing plans. ACE estimates “that colleges and universities will spend approximately $74 billion on these costs as they prepare for the fall semester.”

The House of Representatives has passed the Health and Economic Recovery, Omnibus Emergency Solutions (HEROES) Act. The House and Senate are currently negotiating over a fourth COVID-19 stimulus bill that could be passed in August or September 2020.

Colleges and universities are subject to the mandate of the Family and Medical Leave Act (FMLA) to provide 2 weeks of paid sick leave and up to 10 weeks of partially paid FMLA leave to employees. The HEROES Act expanded the mandate for paid leave to employers of 500 or more employees. This covers many private colleges and universities, but they have been excluded from eligibility for the tax credit.

The employees of colleges and universities could generate costs per institution of $3 million to $200 million for this paid leave. The HEROES act included public educational institutions, but excluded large private nonprofit colleges from this tax credit. Mitchell states, “We strongly urge the Congress to simply expand access to the paid sick and FMLA refundable tax credit to all public and private nonprofit institutions in the Phase IV COVID–19 legislation.”

A second credit under the CARES Act is a payroll tax credit of up to 50% of $10,000 in wages paid to each employee. Mitchell urges Congress to enact this employee retention tax credit and make it applicable to all public and private nonprofit colleges and universities.

Third, the American Workers, Families and Employers Assistance Act creates a refundable payroll tax credit that could cover COVID–19 testing, personal protection equipment and cleaning supplies. The letter requests that the Phase IV COVID–19 legislation extend this credit to both public and private nonprofit educational institutions.

Applicable Federal Rate of 0.4% for August — Rev. Rul. 2020-15; 2020-32 IRB 1 (16 July 2020)

The IRS has announced the Applicable Federal Rate (AFR) for August of 2020. The AFR under Section 7520 for the month of August is 0.4%. The rates for July of 0.6% or June of 0.6% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2020, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.