On November 9, 2020, the Internal Revenue Service (IRS) announced a reminder for National EIP Registration Day. The IRS designated November 10 Economic Impact Payment (EIP) Day to encourage all eligible Americans to register prior to the November 21 EIP deadline. Any eligible American who registers prior to November 21 could receive an Economic Impact Payment. The payment is $1,200 for an individual or $2,400 for married couples filing jointly. If there are dependent children, there is an additional $500 payment for each qualified child.
The IRS and partner groups are reaching out to low–income and underserved communities. The IRS sent nine million letters to individuals who potentially qualify for the Economic Impact Payments, but do not file tax returns. The letters urged individuals to use the Non-Filers: Enter Info Here tool on IRS.gov
IRS Commissioner Chuck Rettig stated, "Our partner groups have been vital to our efforts to reach many underserved communities. Already, millions of Americans have successfully used the Non–Filers portal and received their Economic Impact Payment. Registration is quick and easy, and we urge everyone to share this information to reach as many people before time runs out on November 21."
These partner groups have translated EIP publications into 35 different languages. The IRS also has a mounted a multilingual effort on social media.
The Non–Filers tool has been a success. Over 8 million people who normally do not file tax returns have registered for Economic Impact Payments. The Non–Filers tool is designed to assist individuals, who are not claimed as a dependent on another person's return, with incomes under $12,200 and married couples with incomes under $24,400.
The IRS urges the individuals using the Non–Filers tool to select direct deposits to their checking or savings account. Within two weeks of registering on IRS.gov, individuals may track the status of their EIP with the Get My Payment tool on IRS.gov
website also has a helpful frequently asked questions (FAQ) section. It is available on the Economic Impact Payment Information Center section.
IRS Guidance on SALT Deductions for Partnerships and S Corporations
In Notice 2020–75; 2020–49 (November 9, 2020)
, the IRS issued guidance that permits partnerships and Subchapter S corporations to report deductions for state and local taxes.
The Tax Cuts and Jobs Act passed Sec. 164(b)(6) and limited individuals' deductions for state and local taxes (SALT) to $10,000 ($5,000 in the case of a married individual filing a separate return). The limitation applies to payments for "(i) real property taxes; (ii) personal property taxes; (iii) income, war profits, and excess profits taxes; and (iv) general sales taxes."
There was a business interest exception for the SALT deduction limitation. It did not apply to taxes described in Section 164(a)(3) that are "paid and incurred in carrying on a trade or business or an activity described in Section 212."
Congress stated that the Section 164(b)(6) limit with respect to "taxes imposed at the entity level, such as a business tax imposed on passthrough entities that are reflected in a partner's or S corporation shareholder's distributive or pro-rata share of income or loss on a Schedule K–1 (or similar form), will continue to reduce such partner's or shareholder's distributive or pro-rata share of income as under present law."
The Notice recognizes that some jurisdictions are creating a "corresponding or offsetting, owner–level tax benefit, such as a full or partial credit, deduction, or exclusion."
The purpose of the Notice is to explain there will be future regulations that clarify Specified Income Tax Payments will qualify for deduction. The deduction is permitted for a "direct imposition of income tax by a Domestic Jurisdiction."
This deduction is permitted "without regard to whether the imposition of and liability for the income taxes is the result of an election by the entity or whether the partners or shareholders receive a partial or full deduction, exclusion, credit, or other tax benefit that is based on their share of the amount paid by the partnership or S corporation to satisfy its income tax liability under the Domestic Jurisdiction's tax law, and which reduces the partner's or shareholder's own individual income tax liabilities under the Domestic Jurisdiction's tax law."
The proposed regulations apply to Specified Income Tax Payments made on or after November 9, 2020. There also will be an exception in the regulations for certain payments made subject to a law enacted prior to November 9, 2020.
The State of Connecticut has enacted a law that may permit partnerships to receive a state credit workaround. This credit essentially allows a deduction for state and local taxes. Following the publication of Notice 2020–75, it is probable that more states will enact partnership workaround provisions.
Façade Easement Deduction Qualified
In Anthony M. Kissling et ux. v. Commissioner; No. 19857-10; T.C. Memo. 2020-153
(Nov. 12, 2020), the taxpayer had contributed façade easements on three commercial buildings in a historic preservation district. While the local law mandated extensive restrictions on the historic properties, the Tax Court permitted a charitable façade easement deduction.
Real–estate developer Anthony Kissling acquired three properties in the Allentown Historic District of Buffalo, New York. All three buildings were designated as historic properties and therefore qualified for a charitable easement deduction for a façade easement. See Reg. 1.170A–14(d)(1)(iv).
Kissling deeded façade easements to the National Architectural Trust on December 13, 2004. The façade easements covered the exterior of all three buildings and included multiple requirements that created obligations for Kissling. The Trust conducted an annual property inspection and requested modest changes consistent with the easement.
Kissling obtained an appraisal and reported a charitable deduction of $770,310. This amount reflected his 90% share of the $855,900 "before and after" valuation. The Commissioner audited Kissling and denied the deduction. The IRS claimed the easement produced no additional valuation differences due to local law restrictions placed on buildings in the historical district.
Easement charitable deductions are normally based on a "before and after" approach. The valuation may be based upon a comparable sale comparison, income capitalization or replacement cost.
The taxpayer obtained appraisals from Jan Baronholtz, Darrell Lloyd and Kevin Mahoney. The IRS appraiser was Gregory Klauk. Baronholtz initially used a percentage reduction in value of 11% for one property and 12% for the other two. Lloyd used an income capitalization approach. Klauk used an income capitalization method and also a comparable sales approach. Based on the comparable sales approach, Klauk concluded that there was no reduction in value due to the façade easement.
The Tax Court rejected the comparable sale comparison. The comparable properties were not in the historic district and required adjustments of 43.9% to 56.6%. The Klauk comparables were rejected because they were not similar to the easement properties.
Based upon a detailed analysis of the properties and the 8.5% capitalization rate selected by Lloyd, the Tax Court determined the easement values. The Tax Court rejected the capitalization rate by Klauk because it was nearly 3% higher than the national average.
The Tax Court determined that the easement restrictions and historic preservation standards were substantially similar. However, in an avigation easement appraisal by Klauk, he determined that there would be moderate reductions in value and the Tax Court determined similar reductions could occur with a façade easement. Based on the potential increased operating costs due to the façade easement, the Tax Court determined that the valuations by Lloyd were reasonably correct. They reduced the charitable deduction by $97,798 to $672,512 and denied any penalty under Section 6662(a).
Applicable Federal Rate of 0.4% for November -- Rev. Rul. 2020-22; 2020-45 IRB 1 (16 October 2020)
The IRS has announced the Applicable Federal Rate (AFR) for November of 2020. The AFR under Section 7520 for the month of November is 0.4%. The rates for October of 0.4% or September of 0.4% 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.