Question: James has found himself with both a business and a nonbusiness bad debt. His business bad debt was from his guitar repair business, where credit he extended to Brian in 2018 became uncollectible in 2022. When James tells his accountant, Quinn, about his bad debt, Quinn remembers §6511, the code section explaining the statute of limitations for amending returns. Can this code section help James remedy his bad debt?

Answer: Yes, it can. In §6511(d), Quinn notes that because of the difficulties in pinpointing the year a loan becomes wholly worthless, the normal three-year statute of limitations for filing amended returns does not apply to bad debt losses. Instead, a seven-year statute of limitations generally applies for refunds due to such losses.

This special seven-year statute applies only to bad debts (business and nonbusiness) and worthless securities [§6511(d)]. Any other items on an affected prior-year return will be subject to the normal three-year statute of limitations.

Quinn can therefore amend James’ returns in respect to the bad debts, even though the standard statute of limitations timeframe is passed.

Work-life referral (WLR) programs provided by some employers can be excluded from employee compensation for income tax purposes and are not subject to payroll taxes because they are de minimis fringe benefits, according to recent IRS guidance. These plans are often included in employee assistance programs (EAPs) and are generally restricted to informational and referral consultations that assist with identifying, contacting and negotiating with life-management resources to solve personal, work or family issues.

WLR programs may be available to a large portion of an employer’s employees, but the IRS said they are intended to be used infrequently in situations where an employee is facing a challenge the program is designed to address. The agency noted §132 provides that gross income does not include any fringe benefit that qualifies as a de minimis fringe, defined as any property or service with a value that is so small as to make accounting for it unreasonable or administratively impracticable.

Additionally, the IRS noted that, for the purposes of the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA), and sections of the tax code addressing federal income tax withholding, the term “wages” does not apply when it is reasonable to believe the employee will be allowed to exclude the benefit under §132.

What are WLR programs?

WLR programs help employees complete paperwork and basic administrative tasks that direct them to the appropriate providers of necessary life-management resources. The programs work with subject matter specialists trained to help employees navigate work-life challenges involving access to and eligibility for government and employer- and government-provided benefits related to child care, elder care and health care. They also assist with legal and financial issues.

More specifically, WLR services offer employees guidance, support, information, and referrals in connection with, for example:

• Identifying appropriate education, care and medical service providers
• Choosing a child or dependent care program
• Navigating eligibility for government benefits, including Veterans Administration benefits
• Evaluating and using paid leave programs offered through employer or a state or locality
• Locating home services professionals who specialize in adapting a home for a family member with special care needs
• Navigating the medical system, including private insurance and public programs utilizing available medical travel benefits
• Connecting the employee with local retirement and financial planning professionals

The programs often rely on third-party providers that charge employers a monthly fee based on the number of eligible employees, regardless of how many actually utilize their WLR services.

Retirement planning includes tax planning. It’s important you understand how to use IRA contributions and distributions to help clients tax plan. This knowledge allows you to minimize clients’ tax liabilities and ensure compliance with IRS regulations, making it essential for any well-rounded tax pro managing clients’ retirement savings.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.   

Q: For the backdoor Roth, does the rollover have to be in the same year?

A: No, however, if there are earnings, then part of the rolled-over amount will be taxable.

Q: Are children required to have earned income to contribute to a Roth IRA?

A: Yes, anyone who wants to contribute to an IRA or Roth IRA must have earned income.

Q: Are qualified charitable deductions (QCDs) deductible on Schedule A?

A: No, they are not deductible since the required minimum distribution (RMD) used as the QCD is not included in income.

Q: Is Schedule C (Form 1040), Profit or Loss from Business (Sole Proprietorship), and Schedule F (Form 1040), Profit or Loss From Farming, income considered earned income for IRA purposes?

A: Yes, self-employment income is considered earned income.

To learn more about IRAs, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial at natptax.com/explore.