First Week of Filing Season Report Card

Hello again, everybody. Welcome to the blog for February 14 2022. Happy Valentine’s Day. And what we’re going to do this week is to do a first week report card. First week from the standpoint of when I started doing tax returns, which was just this previous Saturday, February 5. For those of you don’t know me, my name is Tom O’Saben, I’m an enrolled agent. I’m the Assistant Director for Professional Education and Outreach for Tax School. I’m also a Fall Tax School instructor, and author and reviewer of our University of Illinois federal tax workbook. I do these blogs every week, do webinars to professional outreach. And looking forward to talking with you today. Since like you, I’ve been a tax practitioner now going on 30 plus years. So my first week report card is that I’m going to give our clients an A, I think our clients are really well informed when they’ve been coming in. And they’re doing a good job of verifying their EIP payments, and their Advanced Child Tax Credits. They are either uploading to our portal their letters, or they’re bringing them in to appointments. You know, I’ve only probably met with about 40 clients so far. But I think that’s a pretty good, at least an early tax season indicator I hope of how things are going. Again, they have their letters, or they’ve uploaded their letters. And when I asked them the question did they verified what in fact, has hit their bank account, they agree. So they’re providing the information. So I give an A plus to our clients on being informed about what they need to bring us. And so we can verify the payments they get. And maybe it’s coming from a direction of they see money on these letters, and maybe they’re concerned about “uh oh, am I going to have to claim this as income” etc. And I only had one case so far, where the client just is absolutely positive that she did not receive her EIP, three payments of $1,400. So in fact, there is a form to correct that – Form 3911 is available. And we’ll talk about that next.
So if you go and take a look at a Form 3911, I’m going to give you a resource to go to in just a moment, you submit one Form 3911 for each missing payment. So if you have a client who says I didn’t get anything, I didn’t get my EIP payment, I didn’t receive Advanced Child Tax Credit, although I was supposed to, in that circumstance, you would expect the client would be submitting two separate forms. The instructions tell us that at the top of the form, the client should write EIP Three, for example, if that’s in fact, what they’re looking for. And then in section two, check box eight, then mail in the form and wait, I don’t have any idea how long processing could take. So there’s an IRS resource, I give it to you here, it’s not a hyperlink, you’d have to copy and paste it. There’s Q&A on the EIP Three payments again, for those clients who have not received their payments or even if they have, you know, an online app access account, and you go in via your Tax Pro account. I would say that, you know, if the client is adamant that nothing has hit their bank account, then I think we’re stuck with filing the Form 3911. But so far with me, knock on wood, only been one instance where the client, like I said, is adamant that they did not receive the payment. So A Plus to our clients bringing information we’re looking for.

So far, at least in our world software isn’t isn’t updated. I just ran into a situation the other night where I have someone who in 2020 had taken a COVID related distribution from a qualified plan and elected on their 2020 Return to spread out the inclusion in income over three years. 2020 was handled just perfectly. Here in 2021, haven’t found a place to get it into at least our software yet that we use in our firm. So that’s why I say we’re desperately seeking the Form 8915 F. Now I’m going to give you a suggestion here that you don’t fix it yourself. When I was having the Zoom appointment with the client, I found a place to go ahead and put in this year’s amount that needs to be allocated to 2021. And then when I went to go ahead and complete the return,it was gone. Maybe we got a software update or something. But at least from the standpoint of giving the client an idea of where they stand, I did include it in income. So what I’m seeing on our Facebook Group and what some of you are doing and I did the same thing is I added another distribution into our retirement section on our software and showed it as this year’s allocation of last year’s amount. Now that’s fine for giving the client an idea where they stand, but I’m not ready to submit that thing electronically because of the fact that we need this Form 8915 F. We really, really need that form to be there, I want to do a little highlight around that. And then we erase it. Get that, get that 8915 F or wait for your software to update before you submit the returns. Remember how the IRS thinks the IRS always thinks in tunnel vision, if there’s a form for it, it needs to be there. Just by the fact of you including the income on the return, and not waiting for that 8915. F like Frank to be out, doesn’t mean we have dealt with the issue. We’ll have to probably answer IRS correspondence. If you’re in such a hurry to go ahead and get the return file. So don’t, don’t fix it yourself. And be sure when you’re meeting with your clients to ask them did they put any of the money back in their plan. Remember, if we had those COVID 19 related distributions in 2020, which made COVID 19 rise to the level of being a national disaster, they have the opportunity for three years to put some or all of that money back, then we would need to go back and amend probably the earliest return 2020 to get them their tax back that they paid on that money. So be sure and ask. I did the same thing. So I’m thinking about what I face in tax season just like you. And here’s the IRS resource for the questions on that 8915. F. But you know, the interesting thing, when you click on it, you get the instructions for the 2018 8915. So I think we’re just going to have to wait. That’s probably what our software providers are waiting for as well.
So the big thing that’s come out in the last week, and actually since January 29, is this K2K3 issue. And let me just explain to you in a nutshell. And I’d also suggest if you’re not a member of our Facebook Group, that you go to the Tax School Facebook Group, I I didn’t put a link in here. But I think you’d go ahead and Google it to get that. And here’s the situation that it appears that the instructions in the creation of the Form K2 or Schedule K2 that go with K1s, for Partnerships and S Corps, they were really created to address any foreign activity that the Partnership or S Corporation might have had. Now, the issue that’s come out of the instructions is that even though the Partnership or S Corporation might not have any of this activity, the Partnership or S Corporation, according to the instructions, is required to make inquiry of the individual partner or shareholder if they have any foreign activity. And if they do, then the Partnership or S Corp is required to provide the K2K3 information, or they could be subject to penalty. So the first thing I’m thinking is, and we’re going to give you a link to a video from Bob Jennings at tax speaker, we’re using it with their permission, thank you to the group, I think it’s a really, really informative video. And I agree with what they’re having to say, Realize it isn’t substantial authority, but nonetheless, it’s out there. So the first thing I I’m going to suggest you do is if we can avoid filing the Form 1116. Now I for many years have filed 1116s for all of my clients, and I’m talking about the ones that will have a brokerage statement where they’ve had $8 $10, maybe $100, of foreign tax so they can get credit for it. Well, you find it, I’m going to give you a link to the instructions, that the 1116 isn’t required if the amount of foreign tax, for example, paid through the brokerage account is $300, or less, or $600 or less for a married couple. So I think one band aid we might have is that maybe we need to file less Form 1116s. Then even if the client does have K1 information coming from an S Corporation or Partnership, then they wouldn’t have to receive a K2 or K3 or have the Partnership or S Corp be subject to penalty.

If in fact, we have a small amount that we’re just wanting to get the foreign tax credit, you’ll see the link in a little bit that’ll take you to the instructions. And in our software, there’s actually a place to say that the taxpayer is exempt from filing the Form 1116 – still get the credit – we don’t need the forum. So I think that would eliminate the need for that K2 information to be coming because I’m I’m guessing that the IRS match to all of this is going to be where the individual taxpayer files a Form 1116 And they have also K1 information coming in. But if they have a requirement to file an 1116, you could look at the requirement and the attachment, then again, the K2 or K3is going to be needed or that entity could be subject to penalty for not providing this information.
So here’s the resources I want to talk about. Here’s the filing requirements for Form 1116. You can go ahead and copy and paste the link in, take a look at it on Google. This is coming from irs.gov. I will also mentioned to you who prepare Entity returns being our Partnerships and S Corporations, and you’re wondering about compliance with this, there’s actually potential relief. It’s an IRS notice 2021-39. And I’ve attached the link here that you can also look at, to take a look at section three of the notice which talks about penalty relief. And it really gets into the idea of due diligence, if you’ve made good effort to try to comply with the law. And there’s a safe harbor for 2021 returns where penalties wouldn’t apply.

I had also mentioned that there’s a Bob Jennings video from Tax Speaker. I think they do a really, really good job of explaining exactly what I’m saying, step by step, line by line. And again, it is on our Facebook Group. So you can google Tax Group or University of Illinois Tax School Facebook. You can you can join. It doesn’t cost anything. And I actually have three pieces that I put in this last week into the Facebook Group. First, I talked about the safe harbor from penalties. So that will give you maybe a little bit of breathing room. While we look at this a little bit further. Then the idea that maybe about 99% of our clients, which is also what Bob Jenning says in his video, won’t be subject to these rules. And in fact, we can avoid it altogether by not using the Form 1116 if it’s not required. We’re not obfuscating the law; it’s not required. And then finally talking again about the idea of when the K2 or K3 information might be provided. And I don’t know that I disagree with tax speaker Bob Jennings on this when he said for those clients who are going to have to have that information, they’re probably facing an extension. So the early tax season grade that I will give is I’ll give our I’m going to give our clients an A. I’m going to give the IRS a C in that we’re not getting updated forms yet. And I’m going to give them an F on this K2K3 thing because of all of the stuff to have to deal with – imagine this coming out coming out now. So all we can say is hopefully we’ll get some additional guidance and maybe some additional relief. But what we will do at Tax School is we will always keep you informed. As soon as we get a chance to go ahead and dive into what we’re looking at. And when there’s other resources that we can direct you towards, we will direct you to them, Realize we’ll always give you the caveat that if we don’t have substantial authority, we’re going to indicate that what you’re looking at may not be substantial authority, but giving you a chance to look a little bit further. Hang in there. We’ve got about nine weeks left of tax season as far as I know right now, April 18 hasn’t been changed unless you have clients who are or you are in a disaster area.
And traditional disaster area, not one under COVID-19. So for now, for all of us here at the University of Illinois Tax School. This is Tom O’Saben saying we’ll say goodbye for just a while