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Tax Developments & Insights | March 2021

Nelson Suit
Nelson Suit
Tax Compliance Officer

In the aftermath of winter storms hitting Texas and neighbouring states in February, the IRS extended the tax return filing deadline for two months for residents in Texas and other areas where FEMA has made a disaster declaration. Other IRS guidance announcements include a notice for lenders to correct certain Forms 1099-MISC for subsidised pandemic relief payments and an update to the Qualified Intermediary FAQs. 

In other news, SIFMA submitted a letter to the IRS requesting an extension to the effective date of regulations governing broker withholding on PTP sales and certain other changes to the regulations. We also learned that you could pay your taxes in bitcoin, well, in the Swiss Canton of Zug.

  1. The IRS extends filing deadlines for residents of Texas, Oklahoma and other areas affected by February storms, thus impacting timing of IRA contributions for these residents and potentially broker reporting of such contributions.
  2. The IRS also issued guidance requiring lenders to correct Forms 1099-MISC for pandemic relief-related payments and updated FAQs for Qualified Intermediaries.
  3. SIFMA argues for a one-year extension of effective date of the broker PTP withholding regulations from 1 January 2022 to 1 January 2023 and certain additional changes to the final regulations.

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1. Extension of tax filing deadlines

In a news release issued on 22 February 2021 (IR-2021-43), the IRS extended individual tax filing deadlines for residents in Texas hit by the winter storms. The usual 15 April deadline is now extended to 15 June 2021.

IRA contributions for 2020 can also be made by such residents by 15 June. Once again, as it did last year when pandemic-relief guidance extended filing deadlines nationally, this raises the question as to whether there would also be an extension to the deadline for financial institutions’ filing of corresponding Forms 5498 to report the contributions. Forms 5498 generally have a deadline of 31 May.

Similar filing extension relief is to be provided to residents and businesses in other areas that were affected by the storms and where FEMA has made a disaster declaration. A 25 February 2021 news release includes Oklahoma in this category.

At the same time, there has been some pressure on the IRS to provide a broader national filing extension for all taxpayers due to the continuing impact of COVID-19 and a delayed start to the IRS tax filing season. AICPA sent a letter to the IRS requesting a national extension for all taxpayers filing returns from 15 April to 15 June.

At a 23 February 2021 Congressional hearing, IRS Commissioner Charles Rettig indicated that the IRS was not inclined to grant a national extension, but that it remained something under consideration. If there is an extension, banks and brokers will need to monitor guidance for deadlines for filing corresponding Forms 5498 to report IRA contributions.

Last year, due to the pandemic-related filing extensions, the deadline for filing Forms 5498 was extended until 31 August 2020.

2. Lenders required to correct Forms 1099-MISC for CARES Act payments

Until the IRS issued Notice 2021-6 in January, it remained somewhat unclear whether lenders were required to file Forms 1099-MISC to borrowers where, under pandemic-relief legislation, subsidised loan-related payments were made on their behalf. The Notice stated that Forms 1099-MISC in such a case was not required because the amounts were not includible in income.

In Announcement 2021-2 issued in February, the IRS supplemented its January notice by requiring lenders that filed Forms 1099-MISC for such payments to file corrected Forms 1099-MISC that would remove such payment amounts.

3. SIFMA comments on broker PTP withholding regulations

In a letter dated 24 February 2021, SIFMA submitted to the IRS certain comments related to the final section 1446(f) regulations impacting broker withholding on publicly traded partnership (PTP) sales by non-U.S. persons.

The letter argued for a deferral of the current 1 January 2022 effective date for these PTP withholding regulations. The request was for a one-year extension or at least six months. SIFMA argued that the final regulations presented novel issues and new forms and statements that will require additional time for financial institutions to address.

In particular, time is needed to properly assess requirements and to design and implement systems and process changes that would accommodate required gross proceeds withholding for non-U.S. accounts.

Among other issues raised by the letter were issues concerning reliance on qualified notice 10 percent exception estimates, using an “eyeball” test for certain U.S.-exempt recipients, and the scope of the final regulations.

In particular, the letter proposes possible presumptions when applying the regulations to non-U.S. PTPs and requests clarification of rules in relation to securities lending transactions involving PTPs.

4. QI periodic review waivers

The IRS updated FAQs 1 and 9 in the Certifications and Periodic Reviews section of the Qualified Intermediary (QI) FAQs on its website. The updates to the FAQs largely pertain to QIs that are also Qualified Derivatives Dealers (QDDs) seeking a periodic review waiver for non-QDD activities.

The updated FAQs provide more specific guidance on how a QI that is also a QDD is to apply for a waiver of periodic review. The FAQs detail how a QI should answer specific systems-generated questions on the QI portal. FAQ 9 provides guidance on the selection of the review year, including in case of a waiver application.

These updates follow IRS clarifications last year in the FAQs that QIs that are QDDs are required to submit periodic certifications and may also be allowed to apply for a periodic review waiver for non-QDD activities if they otherwise met waiver requirements.

5. Paying taxes with bitcoin or ether in Zug

While some nations such as India are reported to be taking actions to ban or restrict cryptocurrencies like bitcoin, a few jurisdictions have embraced it. Nowhere more so than in Zug it seems.

It is reported that the Swiss Canton of Zug is allowing residents to pay taxes in either bitcoin or ether. To minimise price fluctuation risk for the government, the payments are reportedly converted to Swiss francs on receipt.

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