Transcript of Possible PPP Legislation, 1099-B & W-4P on May 27, 20 by Ron Cohen

Update on Possible PPP Legislation

Hello and welcome. This is Ron Cohen. And this is a tax updates podcast. I’m with the firm of Greenstein Rogoff, Olsen and company. My phone number is 510-797-8661. Call anytime we’re happy to talk and chat with anybody a little bit to see if we can help.

This episode we’re going to cover something that just broke last night, the House and Senate seem to be making progress on extensions of time for various things with the PPP loans, payroll Protection Program loans that many clients are struggling with, borrowed, big money amounts of money and but we’ll come back to that.

We’re going to talk a little bit about forms 1099-B that your brokers send you at the end of the year; they sent them back in January. Now for some of our large clients, right, we’re trying to get through all them, often they’re hundred pages, get all their stock trades, get that into the returns, there’s some tricks and traps.

On that I want to talk about, and the IRS put out a little notice yesterday about how to do withholding on pension plans. So, I mentioned that that’s notice 2023. Okay, we do, I don’t know, about 1500-1600 tax turns in this firm. For about 35 people.

We’re here in beautiful Fremont, California about 40 miles south of San Francisco. And we’re always happy to help. Let’s go through some caveats before I get into what I want to talk about today. Take no reliance and anything you hear on this podcast, make sure you validate it. You can call us, you can check with any other tax professional, but please make sure you are completely in alignment with the law, way before you use any tax planning in any transaction, or, put a number on a tax return and file it.  Please validate what you hear if you go forward with any planning.

Plagiarism here is okay. We’re not doing any novels or writing any works of art.  The practice of tax law and tax planning is about thoroughly understanding what the government has to say, on an issue. So, we certainly use all the resources from the Internal Revenue Service, but lots of CPAs and lawyers and Enrolled Agents and other commentators, professors write all kinds of things on the internet. And they provide all the sites, so you can go back and find the statute that supports what they’re saying, and the answer.

The process is always trying to get the best answer for your client, the best answer, the lowest amount of tax, the most creative idea.  Somebody put something on the internet, it’s a free game to be used and we do try to give credit when I am referring to someone else’s work, but don’t think that anything you hear on this podcast is my original thought because it’s probably not.

No politics in this podcast, you can listen day and night to political podcast, I often do for fun. So, we try to stay out of that. Although sometimes political policies drive tax policy, and then it’s good and fair to discuss why the tax law is what it is and how the thoughts behind it came to be.

Alright fourth, I am no cheerleader for the tax law. Not at all. It is tedious, it’s intrusive, it’s boring. Everything has a 15-layer decision tree to get to a $20 deduction. It costs $600 billion a year, it’s been estimated in the United States, for people to prepare, file their taxes, fight with the IRS fight with state tax authorities over those returns way over. That’s more money than a lot of countries have as gross domestic product on this planet. But we just spend that doing our taxes got to be a better way. Got to be a better way.

So, but at the same time in tax practice, when you file a return or give advice, you’re always trying to get an A+, A+, not an A- not an A, not a, B, B+, C, an A+, because that’s what the rules of practice, say. Even when there’s a gray area, you have to try to do what you think is intended by the government, to the extent possible.  There are some gray areas where you can be aggressive, but only within narrow bands. And tax return when you sit down with an auditor better be an A+. And that’s how we approach things, while always advising our clients of all the possible alternatives. There are A+ answers where one answer is a lot less tax than the other. They’re both A+’s, you just have to have support for what you’re doing.

And the tax law has been estimated to be 16,500 pages of statute and relevant rulings and case law. And so, there’s a lot of answers to a lot of questions and you just have to find the one that you feel is principled and ethical. Again, we’re at You can go to our website, see all kinds of information about me and my partners in our firm, and the services we provide.

So, let’s get right into, what I think is the biggest thing I saw this coming in this morning, and this is a Bloomberg article on the internet, as of May 26, I’m going to read this. It is so relevant, it’s only a few pages, and every paragraph has some very pertinent information. Why am I doing that? Because many, many of our clients have gone out and borrowed money on the payroll protection program with the view that the loans were forgivable, right, that no personal guarantees.

The loans are forgivable if you spend them on qualifying expenses, mostly payroll, some rent some utilities with some limitations, you have to sign a certification.  In the last couple episodes, we covered some issues about people who took the money and really relying on that certification. And then they had to figure out how to give the money back and so forth. But you have to follow the rules. It’s really a great thing in this terrible, terrible calamity that we’re going through with the virus, as people are struggling to not lay off people and keep their companies alive. Well, last week the small business administration came out with the application for forgiveness.

So here, you’ve done everything, I won’t go through the long thing. You’ve heard my little rant from prior episodes, you got your money, and then there’s an eight week fuse that you have to spend the money on qualified expenses, right? And then you’re doing that, so that following the statute in the CARES Act, which is just today, two months old.  That’s kind of a good thing, kind of a bad thing. And you had to spend the money fast enough. And then you have to, about a week ago, the IRS put out an application to file to get your loan forgiven. You went through all the hassle of applying for a loan, it’s kind of like applying for a mortgage, it’s no fun. And the SBA approved it, your bank approved it and money showed up in your account. Now you’ve spent the money on qualifying expenses, or maybe you haven’t, and that we’ll talk about in a minute. And you want that loan off your books.

You want the government to say I promised you I’d forget, I would forgive it, you filed the right paperwork, and now you are blessed, your forgiven.  And no more correspondence with the Small Business Administration on this point. And you owe them nothing, interest stops accruing, end of story and that that’s a good thing.

Wow! The application they came up with was 11 pages long, 11 pages! And then there’s instructions, and the instructions are written as if you have a master’s in taxation and you understand all this technical jargon and you also have a master’s degree in accounting. And you understand things like cutoff rules and bank reconciliations, and so forth. It’s something you can look at our prior episode, we, and it’s been largely covered in the press as well.  People have been going nuts in the last five days.  Here they read through this and being practical say okay, well, how am I going to do this, how am I going to get this done?

And I always go to the example of Phil, the Barber. Phil the Barber, greatest guy, cuts my hair you know has five or six guys in his barber shop.  It’s one of those retro barber shops, so you go in there and it seems like you’re in the 1950s.  And there’s some magazines in there but we won’t get into that right, it’s for, it’s for mostly guys right? But Phil is a really nice guy you know, no college degree hard working, good American right, runs his own business. He can’t figure this out, he can’t file, he can’t fill out that application, Phil’s a great guy, can’t do it. Can’t do, it too many words, too many questions, too many what if this, what if that, let’s go through the 50 step decision tree, get out your Excel spreadsheet, figure out whether the check was paid on this date or that date for expensing? He can’t do it, can’t do it. Phil’s just a decent guy, decent American, right, he just can’t do it.

So, then you get more sophisticated companies, right? Some even have some internal accounting staff. We’re getting phone calls here at the firm, right? Can’t do it. You know, we can run our QuickBooks. We can balance our checking account, but I’ve tried to read what this thing says, and I can’t do it. Ron, you know, do you guys do it? Can you help us out? To which the answer is yes, a little self-promotion there, and if you need some help with that, please give us a call. We are trying to assist people with filling out these applications.

And then Friday night, this Friday before Memorial Day weekend, people at the small business administration in Washington put out a five or six page, maybe it’s 16 pages, you know, of clarifications. So, you have the application, then you have the instructions, and now you have the first round of clarifications of the instructions.  With the promise at the end of it that there will be more clarifications to the clarifications of the instructions.  This is unbelievable! Phil, Phil the barber can’t figure this out, right.  What’s he going to do? And I don’t mean that facetiously at all, I mean, the vast majority of the takers on these loans are not people with internal accountants and in house lawyers and who are good in Excel and can come up with the- fill out all the little numbers and the charts and graphs they want in this application. Ridiculous!

Nobody! Nobody road tested this thing to say, you know, you’re sending money to Phil. How’s Phil supposed to get this forgiven? Not to beat up on Phil, right? So, the phone calls and letters have been flying into Washington with both parties. And I’m going to read from this Bloomberg article, Hoyer, which is Steny Hoyer, the majority leader in the house. You may recall speaker Nancy Pelosi is the Speaker of the House. But Steny Hoyer is a congressman who leads, he leads the majority there. So, you actually, you know, you have two leaders, you have the speaker and you have the majority leader in the house, Steny Hoyer.

So, the articles says Hoyer says house and senate close to PPP loan extension. Again, Bloomberg here. House Majority Leader, Steny Hoyer, said the House and Senate would, should be able to quickly agree on changes to the Small Business administration’s popular Paycheck Protection Program to give loan recipients more flexibility in using the funds.  And then when we talked about this, many times, you’re on an eight-week fuse, so here’s going back to the article: The house is poised to pass a bill on Thursday. I’m recording this on Wednesday, so that tomorrow, Tomorrow!

That would extend the current eight-week period during which businesses must use funds to have loans forgiven to 24 weeks. So, let me say that clearer. It was eight weeks now they’re going to extend it to 24 weeks, right? And a lot of us have been hemming and hawing about this because we said oh, you know, with the shutdown was going to be two, three weeks to flatten the curve and so forth. Again, not getting political. And here we are. And like the 72nd day of the shutdown, in some parts of the country it’s starting to lighten up. Some parts of California it’s starting to lighten up, lighten up not so much here in Alameda County, in beautiful downtown Fremont, but where we have high hopes things will loosen up soon.

So, the house is poised to pass a bill on Thursday that would extend the current eight-week period during which business must use funds to have the loans forgiven to 24 weeks or December 31. That’s a good thing. Thank you, that’s a good thing, takes all that pressure off. Clients are just trying to survive, right? They don’t need an eight-week headache.

So, go, you know, that’s three times 24 or all the way to December 31, whichever comes sooner. It would let businesses repay loans over five years instead of two. That’s if you don’t qualify for the forgiveness and scrap the rule. This is a big one, scrapped the rule that no more than 25% of the proceeds can be spent on expenses. That’s actually a misprint. They, what they meant was 75% had to be spent on payroll 25% could be spent on other things, rent, mortgage interest, utilities…

And then, in the guidance they issued last Friday, said no worries, here’s the algebraic formula for figuring out whether you have met the 25% test.  And I sent it out to my clients, isn’t this ridiculous? Here’s what it says, and here’s what it means, you know, I tried to break down the algebra into simple, you know, division and multiplication. I provided that to people. But it looks like they may make that go away because now, you can use 100% on both payroll and expenses. Again, people are just trying to survive, and we didn’t think it would go on this long.

Moving on here. The house also plans to take up a bill to increase transparency in the program. Well, not sure what that means. A similar measure with bipartisan support in the Senate would extend the deadline to apply for a loan to the end of the year, from June 30. So, if you were still thinking about getting one of these loans, and you know, June 30 is coming up, today is May 27. More time and double the eight-week period during which businesses must use the funds to have them forgiven. But so, let’s be clear, right, in the house bill, they’re going to three times that, go from eight weeks to 24 weeks. And the Senate Bill it was, they’re going to go from eight weeks to 16 weeks. But they’re negotiating right now to come up with what’s the right answer.  Hopefully, in my view, it’ll be as long as possible. What the heck, people are just trying to survive, right?

Here’s Mr. Hoyer, what we think is, there’s a general consensus both in the House and Senate that the timeframe that was set was too short, duh.  Unfortunately, Hoyer told reporters (he didn’t say duh, I did), the timing matters. The timing matters because the first companies that received loans after the PPP program opened on April 3, will be in the eight-week loan forgiveness periods. They will begin to expire at the end of this week. And in early June, right? So, it depends when you first got your money deposited in your bank, the eight-week period starts to click away, you’re on a short fuse, and make it 24 weeks, makes it till December 31. This is a calamity, right? Why are we picking nits on little bits like that?

Hopefully, they’ll come to a reasonable conclusion with the negotiates.  And Senate leaders have asked lawmakers in the chamber to give unanimous consent to the Senate’s version. That means we just all stand up and say yea or nay, and unanimous means nobody says nay. Or, they all say nay, which they wouldn’t. So, they all say Yay, everybody agrees to unanimous consent, then we don’t have to have all the senators come in and individually vote one at a time, and just make it unanimous.

There’re technical ways to do that and just move this along. We’ve seen in our history and we’ve seen with some of the COVID bills, where you can take an absolutely phenomenal 1800-page bill, even more than that, and pass it in minutes if it’s unanimous. Where everywhere otherwise, just to call the roll, takes two hours, right?  In the Senate and the House uses a computerized voting system, but they will spend 20 to 30 minutes just doing a vote in the House.  Anyway, if it’s unanimous, everything moves along very quickly, which would also allow borrowers to use proceeds for personal protective equipment and investments for reopening while ensuring that lenders aren’t held liable for the certification and documentation borrowers provided during the loan process.

That gets back to gee, did some people lie? Did they really say they needed the money when they didn’t need the money? And then there’s been these threats, that they’re going to be referred to the Criminal Investigation Division.  And they’re just trying to say, no, no, no, no, let’s back off.  Only the really extreme cases where like a multibillion-dollar company clearly didn’t need the money goes and does one of these loans. The certification says you can’t do that. Again, that’s a lawyer thing. I’m going to leave that alone.

Moving on here, senators aren’t in town this week but have a pro forma session scheduled for Thursday, during which it would pass the bill, if there are no objections. Otherwise, the Senate could take up the House passed measure next week, right? It goes back and forth, there’s going to be differences they get ironed out. And isn’t that wonderful in a pro forma session? Three guys can be in the Senate, you don’t need a quorum, I might be wrong about that. And as long as no one objects, you can pass a multi, multi-billion-dollar bill, just nobody can object.

If one person objects, and Rand Paul is famous for this, and a number of cases where everybody was okay, and Rand Paul would say I object, and that means they got to go back to the committees. They’ve got to have a person by person vote where everybody’s going to be, you know, reported in the press to say I voted yes or no. No, you just can’t hide behind a unanimous vote. Rand Paul is famous for that. But I think he’s on board with this because again, these are technical timing issues.

And not any real, now there’s really not any politics. The politics is all that it’s not moved too fast. This thing’s gone on way longer than anybody thought. And now we’re trying to put lipstick on a pig and make it work, right? Get it, get it sorted out, so it’s not so painful for, Phil, my friend the barber, right, because right now it’s intolerable.

Moving on here, a senate GOP aide, sorry, Senate GOP aide, said action in the Senate is being held up because some senators want to attach other provisions to the legislation and may try to do the same to the house bill once it comes over. Senate leaders have some hope the deadline for the businesses under the existing law will create a sense of urgency that would end those efforts. In other words, to turn the bill into a Christmas tree bill, and that’s a pejorative, that they use, not me. Well, let’s put everything that everybody wants on it to get it past.

Our congressman here in the 17th District, California, when bills come up, he always likes to say we should attach Medicare for all onto this bill. Well, what is Medicare for all has to do with this issue or that issue? Well, he, he just likes to keep bringing up and try to attach it again, a little bit political there. But hopefully those kinds of Christmas tree acts of amendments will not occur, and we can get this done and make it easier for Phil and everybody else. Simplify the application process, give everyone more time, hopefully, so they’ll come together.

Hoyer said that He thought the differences in the measures could be easily reconciled. Well, that’s good, because that’s what you guys are paid to do, you sit up there in Washington, think big thoughts, and, so now do something reasonable. There’s not much different in terms of weeks, eight weeks, he said, this is Steny Hoyer.

Okay. This is really getting interesting here after the initial round of 349 billion in funding for TPP was exhausted in just 13 days. Remember, that seems like it was forever ago, it was just a little over, you know, the Cures Act is two months old. That was shortly after the cares Act was passed on April 16. Excuse me, it’s right in the article. So, the Cures Act was passed March 27, at as I recall.  By April 16, the $349 billion was gone!

And then there was another tranche of 320 billion, you know, a billion here a billion there. This is this is real money right, would also be depleted in a matter of days when the program relaunched on April 27. Last month.  But the pace of loan approvals has slowed dramatically. That was surprising to me. That was surprising to me. It’s almost like ventilators, right? Everybody needs them, but now you provide them… Okay, I won’t get too political. And there’s still more than 100 billion remaining in the second round of funding. So, there’s money waiting to be had and people aren’t asking for it based on totals from the Small Business Administration released on May 23. That was like three, four days ago, right?

And this is from Bloomberg. In fact, the net amount of loan dollars approved has declined, with new approvals being offset by cancellations, especially from businesses returning loans. So, the net outflow into the economy is actually a reversal. It’s not a net. It’s a net declined because why? Because some companies, some big ones, Kind of lied a little bit on their certifications. And then their lawyers came out saying I really can’t do that give the money back. So, they gave the money back.

But more to the point, which I think is really a terrible crisis is, well, well-meaning companies who absolutely needed the money, absolutely no question about it, borrowed the money, went through the whole process. First of all, their first bank said, we don’t have any more money. So, they went to three different banks, and they finally found one to give them the money. And they went through the process, and they got the SBA approval with the magic number. And they did the DocuSign process and just like a mortgage, right, you finally get, boom, the money hits their thing and they said, now watch, you’ve got eight weeks to spend this 75% on payroll 25% on some other things, and if you don’t, it’s not forgiven.

And so people said, well, wait a minute, the county health commissioner is banning my employees from coming to work. So, and I out of good management, fired these people. Why? Not to be mean, but so that they could run down to the Employment Development Department for unemployment insurance and start claiming unemployment benefits. I’m a good guy, right? I don’t want to hold this up. I’m not going to keep them kind of employed and maybe cut their hours and, and no, no, no, just let them go, right?

Let him go, in fact, the unemployment insurance is so good, because it got bumped up by $600 a week, and that some people are hesitating coming back to work when they’re being called back to work. Because the unemployment insurance is more than they were making when they had to be in the regular job. And that’s well documented. It’s all in the press. And I have personal knowledge that a couple of employers have had to pay bonuses to employees because the attendance, you know, there was the attendance problem, the absenteeism. They said, well, I got a number more weeks on this unemployment for free. I love you. You asked me to come back. But I’ll come back. I’ll come back just, just I’m getting paid more for watching Netflix at home and you know, I’m a good.  I’m not saying anybody isn’t a good person, they’re making a rational economic decision, right?  So, companies have paid bonuses just to get the people to come back to overcome the excess unemployment comp.

Okay, well, we all talked about it as it was happening in the CARES Act.  A number of senators warned that would happen, it did happen, nothing we can do now. But where my point was with this is companies are being caught in a bind, where they can’t get the employees back to pay salary. And they can’t pay the salary, so that they meet the eight week test to get all the PPP money, distributed out 75% in payroll, and so they’re talking to their accountants, they’re talking to the lawyer, they’re talking to the banker, and they say, Oh, my God, the only way to stay out of trouble, I don’t want to keep this loan. It’s the only way to stay out of trouble.  And then there’s a certification problem, even if you can’t if you can’t spend it, because you said you couldn’t spend it, so they’re giving the money back.

So, now we’re seeing this terrible phenomenon where the money is not coming out of the government, it net, you know, some loans are being made, but the net, net, is it’s an inflow back to the government, exactly what nobody wanted. This is a catastrophe, I mean, I mean, they’re going to write this up in the textbooks for students to read for the next thousand years about how not to handle a dilemma.  And I don’t, I’m not talking about Trump and I’m not talking about the democrats, I’m talking about everybody should say, you know, if you want to get money out, get money out.  But don’t put so many levers on it, pull backs and claw back provisions.  So that somebody who wants to be honest and ethical has to look in the mirror and say I spent three weeks trying to get that money from the bank, it showed up, and now because of the health department, I can’t hire people.  Or I can’t, even if I hire them, they won’t show up. I’m not going to spend the money in time, let me give some of that money back.

Okay so now, riddle me this. So, you’ve gone through that you sent the money back, I’m going to ask a question I don’t know the answer to.  You sent the money back and then the House and Senate and the President sign a bill, saying it’s not eight weeks now it’s 24 weeks or whatever it is from when you got the money to December 31. Do you call the bank and say give me back the money? I don’t know. I don’t know. I don’t know. And then again, in terms of efficiency, streamline this is a disaster. I mean, people I’m sure having heart attacks, anxiety I would. I have the money I don’t have the money.  People, and then while this is going on, I can state as a fact that 200,000 companies in the US have declared bankruptcy in the last 60 days, which means basically game over. There’s no game there. It’s over. It’s over.

So yes, give your money back. I mean, now that I think about it as I’m rambling here, sure. I declare bankruptcy, so part of the bankruptcy cleanup is they give the money back, right? Because you don’t want to have this liability hanging over your head to the bank when you’re, when you’re ending the enterprise. just horrible. I hope you follow it all that this is this is not being handled well, by both parties, by the government in general.

Okay, so as I was reading, but the pace of loan approvals have slowed dramatically, and they’re still more than 100 billion remaining from the second round of funding, based on the totals from the Small Business Administration through May 23. I already read that, in fact, the net amount of loan dollars approved has declined. That’s the total cumulative balance of loans out there has declined with new approvals being offset by cancellations especially from businesses returning loans.  I’ve just spent five minutes about why the heck would that be the case the net amount of loans approved was 511.2 billion through May 23. About 2 billion less than the 513.3 billion processed on May 16. So, the amounts of loans, PPP loans, out there in the world on May 6 23rd, are less than the amount that were out in the world on May 16. Exactly what you don’t want to see happen when you’re running an emergency rescue program.  Unbelievable!

Even as the net number of loans increased by 8,500 during that time, according to SBA reports, so, whether you’re a large business with a big number, small business with little number, overall you want the net to be growing, growing. We provided this money to go out, please take it, please have it forgiven. Please pay your people, please keep them employed. Please do what you can no, no, I give up. I give up. I’m almost getting tearful. Frankly, it’s terrible. It’s a horrible thing that’s happening, then that amount has declined by 20 billion since May 8, according to calculations by Bloomberg News.

All right, well, that’s about all I can take of that. We will have in the show notes, the information all with a Bloomberg article, like we’ve had in the show notes for prior editions of this podcast leading up to this.  And I sure as heck hope, the Senate and the House meet and come together, and give them as much time as they need, to make this application as easy as it can possibly be, you know, this is an emergency. And this is what happens when bureaucrats get involved. They make everything, everything go bad.


Update on The Form 1099-B

Okay, so then quickly moving on, we’re going to talk about forms 1099-B, completely changing gears here. So, you have an account at Merrill Lynch or Morgan Stanley or Vanguard or E-trade, whatever. And you get this thing around January 31, and it is your consolidated 1099-B. So, in the old days, you get a little 1099 form in the mail for interest, and one for dividends, and then maybe a different one for stock trades. So, years ago, they said, that’s ridiculous, let’s, let these brokerage firms who spend a lot of money you know, putting these systems together, to report a copy of this to the IRS and a copy of it to the taxpayer, right? So, you have to put it in your tax return; the IRS matches it up, makes sure you reported all your interest, dividends, capital gains and various other things.   So that system worked pretty good until sometime in the bush administration, they passed the qualified dividend.

And the problem with the qualified dividend is, a lot of math has to be done.  A lot of books, the books have to be closed. And you don’t know on December 31, whether a dividend is a qualified dividend, based on a number of different rules and the holding period you had in the stock, and I can’t go through all that here. But the brokers, so the accommodation they came up with is, okay, we will send everybody the first preliminary 1099 by the end of January, as we’re required to do with a big warning across top saying; :Hey, this may change!”, this may change.  Alright, so why is it that may change? Because, again, the calculation of whether a dividend is qualified or not takes time, it can’t be resolved in 30 days. And by time you got it on December 31, you know, they had to mail it on January 20, right?  So they only had 20 days! So, they said okay, we’re going to fire out a draft, and then we’ll give you a revision.

All right, so you’re one of the wonderful folks and I love them right, it keeps us busy in February. You want to rush to your CPA or Enrolled Agent or whatever tax preparer you want, so that return is done by February 3, you want that return done by February 3. So you get your 1099-B in the mail, and you put it with all your other papers, you run your CPA say, Give me my tax turn in a week, right? And I go, Well, wait a minute, this 1099 says, this is just the first version, I have to wait for the final version. Because your qualified dividends may change, may change. And that issue rose up about about 10 years ago, and we had a long slow down, slow down! So, especially for big rich people with huge portfolios. You know, we’d call the broker and say, well, when do you Merrill Lynch, think you’re going to have the final number?

Now you’re dealing with your stock brokerage person, man or woman, lovely person, wonderful, smart, beautiful about investments, knows how to do this. They don’t know, they don’t know! These numbers are being crunched way in the back room and some big building in New York. And they’re being fed data updated every day from all these public companies. And usually I say, it’ll be okay, by March 15, if you haven’t gotten a revision from us, you can consider that final. right? Well, so I’m just a happy CPA, hey, well now maybe wait a minute, a normal year, not this year, we have till July 15, but in a normal year, the original due date for return is April 15. So, you’re telling me to wait to finish your return, and now until March 15, that puts everybody on a 30-day window!

I mean, all my, I for myself, I do about 150 individual returns, right? Most of them go on extension for all kinds of reasons. But you’re going to squeeze my practice down to 30 days between March 15 and April 15? Well, so the brokers say, with a straight face, don’t work, finish all the other parts of the return. And you know, when we zip this out in the mail, to the client and now you know, they’ll put it on their website. He doesn’t have to wait for the mail. He’ll zip you a PDF. And then you can finish the return. Yes, but, but, in terms of physical volume, and me actually getting some sleep, right? I can’t do a huge percentage of my returns in a 30-day window. It’s impossible, right with lots going on, lots of things to think about. And they said, well, that’s the way it is. You just have to wait out.

So, I tell client, well, you might have to go on extension, because that’s not my fault, right? You were supposed to have, the government says you’re supposed to have your 1099-B by January 31. But that was only the preliminary one, so they have to wait yup. I’ve had, I’ve had clients get updates that a 1099 B’s in early April. I’ve had them get 1099-B revisions, after we thought we were safe to file the return, meaning that the return needs to be amended.  Now, thank goodness most of the time, when you look at it, it’s about $5 or $10 different.  So, all this waiting and delay about a $5 or $10, and this is on big accounts, right? This is not a small portfolio, so we go, we’ll forget that, we’re not going to amend for $10. So, so you know, and it’ll be okay. The IRS literally doesn’t care about that kind of change in the income either, that’s my personal opinion.

So that’s, that’s the major problem with the 1099-Bs, is they delay your ability to complete and file return.  Now, now these things go on for 40 pages, and you have all your stock trades that go to Schedule D, you have all your interest and dividends that go to Schedule B. You may have foreign tax credits because some offshore withholding taxes were paid on dividends that came from like Nestle. Lots of people own Nestle. It’s a Swiss company, you get a dividend from Nestle of $100 they took out $5 of Swiss tax. So, you have to report the whole hundred dollars and then take credit for the $5 of Swiss tax.  Well, we can do that, and that’s all identified in 1099-B.

The biggest thing to move through this, the biggest thing that is a problem is state taxation. Because you may have municipal bond interest, like there’s a rule with California, that if you have a mutual fund with California municipal bonds, if that municipal, most of the brokerage firms and the other municipal mutual funds that do this, they know this rule, right? So if they call something the California Municipal Long-Term, whatever, all the bonds are California because the rule says if the fund is less than, or, if the fund is more than 80%, California bonds, you can treat the whole thing is tax exempt. And what do I mean by that? So, let’s say there’s a new jersey bond in this California tax exempt bond. Technically, you’re supposed to carve out the interest related to the New Jersey bond, that’s taxable in California.  Where California will give you a tax exemption only on the California interest.  And all that’s in pages and pages of the 1099-B. So if the fund is more than 80%, California, you can consider it 100%, California because everybody’s brain explode.

So look, I can’t carve out, you know, little bits, so usually, these funds are very good at making sure if they’re called California tax exempt. They all, New York has a similar rule, other states have similar rules. So all this, so the problem is, well, you have a municipal bond fund, but it’s in all kinds of different states. Then you got to turn to the page on the 1099-B that says, well, this fund is 40%, California, and 20%, New Jersey, and 30%. New York.  And you then, you have to as a California resident, you have to figure okay, well, I’m exempt on the California State percentage, as tax free income, but California is going to tax me on the New York and New Jersey percentage, right? And so you can get into these elaborate calculations.  All that information is in the 1099-B and you got to very diligently go through there if you’re getting into some municipal bond stuff with regard to tax free bonds in your brokerage account. So that takes some analysis. Now, I will say I will I will be reasonable you see. You know, if this is all about the allocation of $500, I do they care, right?  I will report that I will take that California Tax Free, and you know $15 of it as New Jersey interest just do they care, right? I’m not going to I’m not going to do the work is nobody wants you to and it’s all okay. But that, that’s the problem with 1099-Bs.

As we’re finishing up here, 1, they come as a preliminary version, and then 2, a second revision, and sometimes I’ve been seen a third revision, because of the qualified dividends or some information float up wrong, late.  You then have to make sure you got your foreign tax credits right, there are other issues that I’m not boring you with. And then you have to make sure you have gotten your tax-exempt income, right based on where these municipal bonds are from there’s also an alternative minimum tax issue which I’m not going to bore you with too hard on specified productivity bonds. I’m sorry, I can’t remember the name but there’s another issue there where that’s treated differently for AMT purposes, alternative minimum tax, than regular tax.

Oh, so the tax preparers, first of all, please, please get the 1099 to tax preparer as quick as possible. So he can very slowly, competently go through it, get, make sure he’s covered all these issues, get it right and then even if he’s done that, or she’s done that, still may have to go; “Hey, you got to go on extension, because we don’t know if this is the final version”.  And you’ll call your broker and your broker doesn’t know if it’s the final version because it’s being dealt with by some magician in some big office building in New York who has the great big computer system and is waiting, you know, for all the little bits to come in. That’s, I wish they would come up with some elegant thing saying, you know, if it’s not there by February, (this is Ron Cohen rule) right, forget about it, all the knots, if it’s not there by February 15, forget about it, that’s it!

If there’s any true up put it in the next year, rather than making hundreds and thousands of people go, I can prepare a cat Wait, I gotta wait. It’s not the final number. And you don’t know if it’s off by $10 or $10,000. Right? You don’t know you just don’t know until it shows up and you can call your broker and he doesn’t know either because things are bouncing around. So bad system, not elegant right making make it February 15. If there’s an error, pick it up next year. And that’s the end of it, but Another bureaucratic hassle that we deal with this every year, every year. So we went through the PPP loans, and hopefully some legislation to make it better for everybody. And then we went through 1099-B’s, I didn’t make it to notice 2020-23 I can say this very quickly, right? My producer here will not beat me up. If I take another two minutes.


Update on The Form 2020-3, W-4P

Thank you very much, sir. So, the IRS put out a ruling saying that everything’s the same as it used to be if you have a pension. And let’s say you’re getting it from Vanguard, and Vanguard sends you in paper, or electronically, fill out this form W-4P, because you got to tell us how much you want to withhold from this pension payment. A lot of people say nothing, yeah, you can do that. Or you say oh, withhold this amount, and claim so many exemptions and whatever. Well, the forms have changed under the 2017 Act. And then 2017 Act said; “Hey, we’re going to change the forms. We leave it up to the Secretary of Treasury to use his discretion to figure out how to give you W-4P for your pension withholding”.

So, it took the Secretary of Treasury from December in 2017 until May of 2020. Because they have to get their five coffee breaks and then three vacations in every year. And they finally came out with this beautiful ruling, again, notice 2020-3 that says; “You know, it is what it was before. It’s the same now”. And what that rule was, was that if you did not give them your W-4P, you had withholding applied as if, as if you were married with a couple of dependents. It was a default rule. And so yeah, married person claiming three withholding allowances.  So, that’s what it was before. And the secretaries finally got around, the Secretary Treasury, and saying it still will be that way in the future now.  This is all ignoring the practical reality, the practical reality is Vanguard or Merrill Lynch or whoever your pension company is, says we are not sending you any money until you fill out the W4-P, no money. You either have to tell us what you want on withholding, or you want to tell us, you know, how many exemptions or whatever you want. But you have to send us back the W-4P or we send you nothing.

So this default rule saying, if you don’t send back the W-4P, the default is that you’re married with three withholding allowances literally applies to no one and they took three years to come up with confirming a rule that applies to no one.  Another, another, great success for the Internal Revenue Service. Leave that at that.

So okay, there we go. We covered PPP loans recovered 1099-Bs, and we covered notice 2020-3 again, that’s in the show notes. You can read that if you Get into those kinds of technical issues that really means nothing to tax form preparers all this has to be dealt with the 2020-3 between the pension recipient and the administrator of that pension, but a bit to know there.

Alright, so stay safe. What crazy times, I can barely keep up. We are trying to help people with their PPP loans. And it’s a complete moving target, which is really, really sad, it this affects hundreds and hundreds of thousands of companies. And they’re making it a complete morass and nosebleed as if you had nothing better to do while you’re trying to survive. But to watch for the latest update from the Treasury Department, you have no time. Can’t do it. Phil, the Barbara can’t do it, amongst others. So again, stay safe. Thank you for listening. We’ll be back next week. Bye, Bye now

For more information about tax implications of PPP loans or tax services for family offices or the ultra-affluent, please contact your GROCO tax advisor or visit or email

For more Ron Cohen podcasts please go to or Google; “Tax Updates with Ron Cohen on SoundCloud”.

This transcript was created electronically and may contain errors that do not represent the words intended by the speaker, some parts may have been edited for concision and clarity but no part should be relied upon for legal, tax, business or any type of actionable advice of any kind.

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