On October 5, 2020, the Internal Revenue Service announced that the deadline for non-filers to register for an Economic Impact Payment (EIP) has been extended to November 21, 2020. This extension provides an additional five weeks to apply for an Economic Impact Payment.
Millions of Americans who do not file a tax return have not yet received an Economic Impact Payment. They should use the Non-Filers: Enter Payment Info Here tool on www.IRS.gov
IRS Commissioner Chuck Rettig stated, "We took this step to provide more time for those who have not yet received a payment to register to get their money, including those in low-income and underserved communities. The IRS is deeply involved in processing and programming that overlaps filing seasons. Any further extension beyond November would adversely impact our work on the 2020 and 2021 filing seasons."
The five-week extension will be welcomed by individuals who have not received a payment and do not typically file a tax return. The IRS sent nine million letters in September to people who are in this status and may be eligible for the $1,200 Economic Impact Payments.
Rettig continued, "Time is running out for those who don't normally file a tax return to get their payments. Registration is quick and easy, and we urge everyone to share this information to reach as many people [as possible] before the deadline."
The Non-Filers tool is usually available for individuals with income below $12,200, for married couples with incomes below $24,400 and other persons who are not claimed as a dependent on another return.
The IRS also reminded taxpayers who have filed an extension that their tax return is due on October 15, 2020. An exception to this filing date exists for military members serving in a combat zone. They may file 180 days after departing the combat zone. Some taxpayers in federally-declared disaster areas may also qualify for extensions. Further information on disaster area extensions is available on www.IRS.gov
Those taxpayers who file before October 15 and owe additional tax have several payment options. They can set up a direct payment online from a bank account using their tax software or through the IRS Direct Pay program. A taxpayer may also use a credit card, debit card or digital wallet option. These payment options involve fees to the vendor, but none of these additional costs are paid to the IRS. Finally, a taxpayer may use the Electronic Federal Tax Payment System and pay online or by phone.
Coalition Requests Permanent Remote Notarization
The American Bankers Association and a coalition of other organizations that assist Americans with retirement accounts have requested a permanent remote notarization ruling from the Internal Revenue Service.
In Notice 2020-42, the IRS created temporary relief from the physical presence requirement for spousal consent. This was due to the COVID-19 pandemic. Many seniors are under lockdown or reluctant to be physically present in an advisor's office to sign retirement plan documents.
The Internal Revenue Code requires spousal consent for a number of retirement plan distribution and beneficiary options. The spousal consent may be witnessed by a notary or plan representative. In Notice 2020-42, the IRS permitted remote electronic notarizations by a notary of a state that has appropriate protections. The goal of the state provisions is to create similar safeguards as would be available if the spousal consent is signed in person. The Notice 2020-42 permission expires on December 31, 2020.
The coalition welcomed Notice 2020-42, as a "rapid and flexible response to the COVID-19 pandemic." Many plans operate in states that permit remote notarization. This option has been popular with retirement plan participants and has a variety of consumer safeguards.
Most states have specific safeguards for remote notarization. These include a valid photo ID, a live conference, a transfer of the copy electronically on the date of the signature and an appropriate acknowledgment.
- Valid Photo ID -- The individual who is signing must show a valid photo ID during the audio-video conference. The ID may not be transmitted before or after the conference.
- Live Audio-Video -- The conference must be a live event with direct interaction and may not be pre-recorded.
- Same Day Transfer -- A legible copy of the document must be electronically transmitted to the plan representative on the date of signature.
- Representative Acknowledgment -- The qualified retirement plan representative must send an acknowledgment to the individual that complies with Regulation 1.401(a)-21(c).
The coalition states, "No system can ever completely eliminate fraud, but the use of state-approved remote notarization or the safeguards mentioned above for plan representatives provide at least as robust protection as in-person signatures. We are aware of no evidence that remote notarization has led to an increase in fraud."
The coalition cautions the IRS that it should permit the states to set specific remote notarization policies and practices. Audio-video technology that satisfies federal requirements and is consistent with state law rules should be permitted. The states can "adequately protect their citizens with respect to a variety of important documents."
Regulation 1.401(k)-21(d)(6)(iii) states that the Commissioner may approve electronic procedures that are deemed to satisfy the physical presence requirement. The goal of the electronic system procedures is to provide the same safeguards for individuals that would normally be present in a physical presence signing.
The coalition urges the IRS to recognize that social distancing is likely to continue in 2021. Because social distancing will be present in 2021 for many retirees, the remote notarization permission should be made permanent.
The coalition commented, "Regardless of the timing of any vaccine, it is very likely that social distancing practices will continue past the end of 2020, particularly among vulnerable older retirees."
The use of electronic signing and remote signatures for a variety of documents is growing rapidly. Contracts, real estate documents, beneficiary designations and other testamentary documents will be signed remotely in the future.
Religious Medical Groups Claim They Are Not Insurance
On October 7, 2020, the IRS conducted a virtual hearing on proposed rules that potentially change the medical expense deduction. A number of religious medical groups that are involved in sharing costs for medical procedures had strong opinions on the characterization of their organizations.
Katy Talento is a representative of the Alliance of Health Care Sharing Ministries. She strongly opposed a potential Treasury classification of the payments by their members as insurance.
Talento commented, "Our ministries provide a healthcare solution that is fundamentally different from the top-down, bureaucratic, and opaque insurance paradigm." Talento explained that over 30 states have classified the health-sharing ministries as organizations that are not providing insurance.
Some commentators have noted that the health-sharing ministries pay a discounted price for medical care. The concern is that this could lead to financial hardship for members. Talento responded that this was not an organization problem, but individual cases were related to improper pricing and billing practices.
Joel Noble is a representative of Samaritan Ministries International. He agreed with Talento that the ministry should be considered a charity and not an insurance company under state law. Noble commented, "We believe it is of utmost importance that our members understand that we are not insurance."
Emma Will is a representative of the American Lung Association. She expressed concern about the tax treatment of healthcare sharing ministries. Will stated, "This means that those plans are not subject to oversight by state insurance commissioners and there are no patient protections." She continued, "Healthcare sharing ministries confuse consumers, drive enrollment in non-comprehensive coverage and invite fraud."
The proposed regulations by Treasury permit deductions for direct primary care arrangements and some healthcare sharing ministry memberships. The deductions could be for amounts paid for medical care under Section 213(d). Medical deductions are permitted for taxpayers who itemize. There is a medical deduction floor of 7.5% of adjusted gross income in 2020 and 10% of adjusted gross income in 2021.
The hearing also involved discussion of direct primary care arrangements. These are a contract between an individual and a group of primary care physicians. The physicians agree to provide certain medical care for fixed annual or periodic costs. The Association of American Physicians and Surgeons (AAPS) explains that direct primary care is a complementary system with health savings accounts (HSAs).
However, AAPS expressed concern that the proposed rules would treat the private direct primary care arrangements as insurance. AAPS emphasizes that these payments are made for ongoing care and that direct primary care "is not a health plan."
Finally, the National Association of Insurance Commissioners (NAIC) expressed concern about whether or not healthcare sharing ministries should be classified as insurance. The NAIC stated, "They should not be permitted to at once maintain exemption from the laws that regulate insurance and at the same time derive benefits from an IRS classification that conflates them with insurance."
Healthcare is a dynamic field. There will continue to be strong feelings and debate about various healthcare solutions. This debate will include the role of religious medical groups and direct primary care arrangements.
Applicable Federal Rate of 0.4% for October -- Rev. Rul. 2020-20; 2020-41 IRB 1 (16 September 2020)
The IRS has announced the Applicable Federal Rate (AFR) for October of 2020. The AFR under Section 7520 for the month of October is 0.4%. The rates for September of 0.4% or August 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.