UPDATE as of MARCH 23, 2019 — The IRS has issued further relief for underpayment of estimated taxes, by lowering the prior relief (below, noted at 85%) to only 80%. See new post here.

National Association of Tax Professionals sent out an important bulletin yesterday highlighting a big announcement from the IRS:

The IRS announced that it is waiving the estimated tax penalty for many taxpayers whose 2018 federal income tax withholding and estimated tax payments fell short of their total tax liability for the year.

The IRS is generally waiving the penalty for any taxpayer who paid at least 85 percent of their total tax liability during the year through federal income tax withholding, quarterly estimated tax payments or a combination of the two. The usual percentage threshold is 90 percent to avoid a penalty.

This relief is designed to help taxpayers who were unable to properly adjust their withholding and estimated tax payments to reflect an array of changes under the TCJA.

This was followed up today by an article in the Journal of Accountancy with further details:

Under Sec. 6654(d)(1)(B), the required annual income tax payment an individual taxpayers is required to make is the lesser of (1) 90% of the tax shown on the return for the tax year or (2) 100% of the tax shown on the taxpayer’s return for the preceding tax year (110% if the individual’s adjusted gross income on the previous year’s return exceeded $150,000). Sec. 6654(a) imposes an addition to tax for failure to make a sufficient and timely payment of estimated income tax. The IRS, however, is entitled to waive the addition to tax in certain unusual circumstances if its imposition would be against equity and good conscience.

Accordingly, under Sec. 6654(e)(3)(A), the IRS is waiving the Sec. 6654 addition to tax for failure to make estimated income tax payments for the 2018 tax year otherwise required to be made on or before Jan. 15, 2019, for any individual taxpayer whose total withholding and estimated tax payments made on or before Jan. 15, 2019, equal or exceed 85% of the tax shown on that individual’s 2018 return. To request the waiver, an individual taxpayer must file Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, with his or her 2018 income tax return. The taxpayer should check the waiver box in Part II, box A, of the form and include the statement “85% waiver” on the return.

The IRS Notice (2019-11) provides further details and explanation.

To clarify — it looks like this relief is not going to help those who have seriously underpaid estimated taxes, to the extent that they are under the newly-adjusted 85% rule. This relief merely adjusts the rule down from a 90%-threshold by 5%, and is intended to assist taxpayers who made the effort to withhold and pay estimates accurately, but could not due to the confusing changes in the new tax law and the less-than-perfect job the new W-4 form does in assisting with calculations (we’re not criticizing the IRS on this one — the new law is too complex to allow for any single form to work for all taxpayers). We still recommend the following:

1. If you run a business, work with your accountant to close the books each quarter and have them calculate estimated tax payments for you; we offer this service to all of our bookkeeping and accounting clients, even if we do not prepare taxes for them.
2. If you are a W-2 employee — especially if you have other sources of income — please use the “paycheck checkup” we highlighted in an August blog post. It is much more accurate than the W-4 form.
3. If it turns out you’ve underpaid for 2018, make sure to adjust your payroll withholding and estimated taxes as soon as possible for 2019.

Source: Some individual taxpayers get relief from underpayment penalty – Journal of Accountancy

Big news from the IRS today!

IR-2019-01, January 7, 2019

WASHINGTON ― Despite the government shutdown, the Internal Revenue Service today confirmed that it will process tax returns beginning January 28, 2019 and provide refunds to taxpayers as scheduled.

“We are committed to ensuring that taxpayers receive their refunds notwithstanding the government shutdown. I appreciate the hard work of the employees and their commitment to the taxpayers during this period,” said IRS Commissioner Chuck Rettig.

Congress directed the payment of all tax refunds through a permanent, indefinite appropriation (31 U.S.C. 1324), and the IRS has consistently been of the view that it has authority to pay refunds despite a lapse in annual appropriations. Although in 2011 the Office of Management and Budget (OMB) directed the IRS not to pay refunds during a lapse, OMB has reviewed the relevant law at Treasury’s request and concluded that IRS may pay tax refunds during a lapse.

The IRS will be recalling a significant portion of its workforce, currently furloughed as part of the government shutdown, to work. Additional details for the IRS filing season will be included in an updated FY2019 Lapsed Appropriations Contingency Plan to be released publicly in the coming days.

“IRS employees have been hard at work over the past year to implement the biggest tax law changes the nation has seen in more than 30 years,” said Rettig.

As in past years, the IRS will begin accepting and processing individual tax returns once the filing season begins. For taxpayers who usually file early in the year and have all of the needed documentation, there is no need to wait to file. They should file when they are ready to submit a complete and accurate tax return.

The filing deadline to submit 2018 tax returns is Monday, April 15, 2019 for most taxpayers. Because of the Patriots’ Day holiday on April 15 in Maine and Massachusetts and the Emancipation Day holiday on April 16 in the District of Columbia, taxpayers who live in Maine or Massachusetts have until April 17, 2019 to file their returns.

Software companies and tax professionals will be accepting and preparing tax returns before Jan. 28 and then will submit the returns when the IRS systems open later this month. The IRS strongly encourages people to file their tax returns electronically to minimize errors and for faster refunds.

Source: IRS Confirms Tax Filing Season to Begin January 28 | Internal Revenue Service

A large number of IRS employees have been furloughed at a pretty inopportune time. The unusually-complex and rushed tax law changes are already pushing tax season’s opening day into the future (no date yet announced, and it’s already January 4th), and the government shutdown is making it worse.

The IRS has listed a series of activities that will continue to be conducted on a limited or intermittent basis. Per the NATP, those that directly affect tax preparers and our clients include:

• Completion and testing of the upcoming Filing Year programs
• Processing of returns with payments
• Processing remittances including payment perfection
• Processing disaster relief transcripts
• Design and printing of tax forms

The following activities will be furloughed and will NOT be conducted:

• Issuing refunds
• Processing non-disaster relief transcripts, income verification express service/return and income verification services
• Processing 1040X, amended returns
• All audit functions, examination of returns and processing of non-electronic tax returns that do not include remittances
• Non-automated collections
• Legal counsel
• Taxpayer services such as responding to taxpayer questions (call sites)

This short, interesting article from MarketWatch outlines some of the unfortunate results of furloughing so many IRS employees: 3 unfortunate ways the government shutdown will impact you – MarketWatch