July 2021 / United States

July 28 2021

COVID-19 Pandemic: IRS Extends Tax Relief for 2021 Employer Leave-Based Donations

The US Internal Revenue Service (IRS) has issued Notice 2021-42 to extend the tax relief for 2021 with regard to payments made by employers under leave-based donation programs to aid victims of the COVID-19 pandemic. The IRS has also issued a News Release (IR- 2021-142, 30 June 2021) accompanying the Notice.

Under the leave-based donation programs, initially provided in Notice 2020-46, employees can elect to forego vacation, sick or personal leave in exchange for cash payments that the employer makes to specified charitable organizations. Such payments will not be included in an employee's gross income, and that employers may deduct the payments as a business expense or as a charitable contribution deduction. Employees may not claim a charitable contribution deduction for the value of the foregone leave.

Notice 2020-46 granted the federal income and employment tax treatment for cash payments made to charitable organizations before 1 January 2021.

Notice 2021-42 extends the special tax treatment for cash payments made after 31 December 2020 and before 1 January 2022.

July 28 2021

IRS Concludes 2021 “Dirty Dozen” Tax Scam List

The US Internal Revenue Service (IRS) has concluded its 2021 "Dirty Dozen" tax scam series with a warning against fake charities, immigrant/senior fraud, tax settlement fraud, unscrupulous tax return preparers, and unemployment insurance fraud, as well as promoted abusive arrangements.

In its News Release, dated 30 June 2021 (IR-2021-141), the IRS announced the following five of this year's Dirty Dozen scams:

  • setting up fake charitable organizations to request donations, for which taxpayers cannot claim a tax deduction;
  • impersonating IRS employees to threaten immigrants with limited English proficiency as well as senior citizens, generally over the phone;
  • inappropriately advising unqualified taxpayers with tax debt to file an application for the IRS's tax settlement program (i.e. the Offer in Compromise (OIC) program), while charging excessive fees, often thousands of US dollars;
  • unscrupulously preparing tax returns for other taxpayers with fake information and refusing to sign the tax returns; and
  • applying for state and local unemployment insurance assistance using fake identification information or fake employment and wage records.

Further, in its News Release, dated 1 July 2021 (IR-2021-144), the IRS wrapped up this year's Dirty Dozen list by announcing aggressively marketed abusive arrangements. Such arrangements include:

  • syndicated conservation easements, which generate inflated and unwarranted tax deductions, often by using inflated appraisals of undeveloped land and partnerships devoid of a legitimate business purpose;
  • abusive micro-captive arrangements, which lack many of the attributes of insurance but involve the payment of excessive premiums;
  • potentially abusive use of the Malta - United States Income Tax Agreement (2008), under which US taxpayers take the position that they may contribute appreciated property tax-free to certain Maltese pension plans and that the pension plans can sell the assets and distribute proceeds to the US taxpayers without tax consequences;
  • improper claims of business credits, particularly claims of the research and experimentation credits without participating in, or substantiate, qualified research activities; and
  • improper monetized instalment sales, under which a seller sells appreciated property to an intermediary in exchange for an instalment note that typically provides for payments of interest only, with principal being paid at the end of the term, and results in the seller's improperly delaying gain recognition until the final payment on the instalment note.

Note: The IRS compiles the Dirty Dozen annually, which lists a variety of common scams that taxpayers may encounter during tax filing season and throughout the year.