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Preface
When the 6th Edition of Tax Planning & Compliance for Tax‐Exempt Organizations was released and shipped in early March 2020, news of the COVID‐19 virus was starting to appear in the daily news. 2020 was a year we were challenged with issues without precedence or history including the new virus, a rare derecho storm in Iowa, huge Economic Impact Payment (EIP) payments to aid thousands of citizens, the worst forest fires ever burning in California, Oregon, and Washington State, and a violent storming of the Capital Building in Washington D.C. by supporters of Donald Trump protesting the election of Joe Biden.
A countless number of new tax provisions, government policies and awards emerged after March. The work normally conducted in business offices became virtual work at home or remote locations. As I wrote this preface and prepared the 2021 supplement, news reports of serious COVID outbreaks remind us of the virulence of this virus that is predicted to stay with us for much longer than we wish.
Developments from the period after the text was finalized are presented in this supplement to update the 6th edition so far. I fear this pandemic is giving us an enhanced task of continually staying abreast of new developments and solutions as they emerge on a daily basis.
Jody Blazek
February 1, 2021
CHAPTER 1 Distinguishing Characteristics of Tax‐Exempt Organizations
§ 1.8 Developments Responding to COVID‐19 (a) CARES and SECURE Acts (b) IRS Delays in Tax Payment and Return Due Dates
p. 25. Add new subsection:
§ 1.8 Developments Responding to COVID‐19
Disruption of the normally smooth‐running tax reporting and collection system in the United States due to events surrounding the COVID‐19 pandemic beginning in March 2020 was extensive and in some ways disturbing in retrospect. In a humane way, we turned our attention to distancing and masking and other steps taken to curtail the viral spread.
We were filled with empathy and concern to stop the spread by protecting ourselves and citizens and establishing practices to do so.
(a) CARES and SECURE Acts
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law on March 27. The $2 trillion stimulus bill was intended to provide financial relief to individuals and businesses directly affected by the coronavirus pandemic. Cash payments went to individuals below the income level listed below, along with grants to businesses. Awards of $1,200 per individual or $2,400 per couple plus an additional $500 for each qualifying child were paid. Eligible awardees were those with income below an income phase‐out based on adjusted gross income (AGI) beginning at $75,000 per individual and $150,000 per couple. Qualification was based on the individual's or couple's most recently filed income tax return. If the cash was not needed for immediate short‐term expenses, it could be used to pay down debt, invest in the stock market, or donate to a charity, local business, or a family member who “may need it during this challenging time.”
Extension of Filing Due Dates. The deadline for individuals to file 2019 income tax returns and pay balance of income tax due on April 15 was separately delayed by executive order until July 15. The CARES Act extended the deadline to make an IRA contribution to July 15. This delay plus the CARES Act grants provided immediate cash flow relief for some to take advantage of the extended IRA due date.
The Required Minimum age after which Distributions (RMD) are required was raised.
The first required minimum distribution is now required for the year in which one turns age 72 (70½ if you reach 70½ before January 1, 2020). The first payment deadline was delayed until April 1 of 2020 for anyone who turned 70½ in 2019. If you reach 70½ in 2020, you have to take your first RMD by April 1 of the year after you reach the age of 72. For all subsequent years, including the year in which you were paid the first RMD by April 1, you must take the RMD by December 31 of the year.
Mandatory withdrawals were suspended for 2020. Those who had already taken a 2020 RMD from a retirement account had 60+ days to return the money. The original withdrawal was treated as a rollover to an IRA and not to be treated as a taxable distribution.
SECURE Act. The age requirements were similarly amended by the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) effective on December 20, 2019. For defined contribution plan participants, or Individual Retirement Account (IRA) owners, who die after December 31, 2019, the SECURE Act requires the entire balance of the participant's account be distributed within 10 years. There is an exception for a surviving spouse, a child who has not reached the age of majority, a disabled or chronically ill person, or a person not more than 10 years younger than the employee or IRA account owner. The new 10‐year rule applies regardless of whether the participant dies before, on, or after, the required beginning date, now age 72. Roth IRAs do not require withdrawals until after the death of the owner.
While there is no provision that allows individuals to retroactively put a distribution back into their IRA account, an opportunity to do so was provided. Those who had already taken their 2020 RMD from an IRA had 60 days to return the money. The original withdrawal was treated as a rollover to an IRA and not to be treated as a taxable distribution.
Charitable Contributions. To incentivize additional charitable contributions to those organizations supporting and aiding those most affected by the virus, enhanced donation limitations were included:
Up to $300 of charitable cash contributions can be taken as a deduction against adjusted gross income (AGI), regardless of whether or not the individual itemizes.