Tax News in a Nutshell - 01.29.21
Updated: Feb 1, 2021
What’s Up in Washington, D.C.
Janet Yellen, Listenin’
Janet Yellen has officially become the first female Treasury secretary and has been busy in her first few days! Yellen announced a listening tour and has begun holding virtual meetings with various department offices, foreign leaders, and small business owners to gain insight on potential areas of improvement.
ERC & PPP Learn How to Coexist
One of the most pressing questions created by recent stimulus legislation is the interplay between PPP forgiveness and the Employee Retention Credit (ERC), as even though now the two can be utilized by the same business, there is no double dipping on wages. This week, two IRS communications were released beginning to address the issues, with more reportedly on the way.
The first confirms that the fourth quarter true-up option to claim the 2020 ERC for a prior quarter is largely unhelpful, as suspected upon reading the legislative text of the Consolidated Appropriations Act, 2021. The IRS explains that taxpayers can use a Q4 Form 941 to catch up any Q2 or Q3 ERC attributable to health expenses as qualified wages not previously claimed, as well as any wages initially claimed with respect to PPP forgiveness that are later denied. Amended payroll filings will still be needed to take advantage of the newly available credit for businesses who initially took the PPP instead of the ERC.
The second piece very vaguely addresses another issue regarding whether wages not counted as payroll costs to receive PPP forgiveness can be counted towards the ERC, to which the IRS says yes.
Despite the recent guidance, questions remain. One area is addressed in a recent AICPA comment letter to the Department of the Treasury and the IRS recommending guidance be provided that states filing a PPP loan forgiveness application “does not constitute an election to forgo the ERC with respect to the amount of wages reported on the application exceeding the amount of wages necessary for loan forgiveness.” This may have part been answered this week, but addressing as suggested by the AICPA could be more helpful.
What’s the Hold Up?
Pursuant to prior guidance, if a borrower’s First Draw loan is under review or questions as to the borrower’s eligibility arise, a Second Draw may be put on hold until such issues are resolved. A procedural notice from the SBA now addresses what steps can be taken to free up the processing of a borrower’s Second Draw in these situations.
The PPP platform will suspend Second Draw applications from borrowers with unresolved First Draw issues, explain the hold code, suggest relevant documentation that may resolve the issue, allow documentation to be submitted, and – after January 27 – automatically move the Second Draw application along in processing once the matter is closed. If a borrower does not believe they are eligible for a First Draw
SBA data through January 24, 2021 on the 2021 relaunch shows over 400,000 loans approved for over $35B in funds. That leaves roughly $249B on the table to be claimed until the March 31 due date.
Party On - SVO Grants Receive FAQs
The SBA released FAQs on the new grant for shuttered venues. Answers largely follow the CAA, but also shed some light on grey areas. Highlights include:
“3. Is an entity that was not in business in 2019 but fully operational on Feb. 29, 2020 eligible to apply?
Yes, if an entity was not in business during 2019 but was fully operational on Feb. 29, 2020, it is eligible to apply if it can show the required level of revenue loss. In situations like this, the SBA will use an alternative method for demonstrating revenue loss based on the approach the Agency is using with the PPP. Firms not in operation in 2019 may qualify for an SVOG if their gross earned revenues for the second, third, or fourth quarter of 2020 demonstrate a reduction of not less than 25% from their gross earned revenues from the first quarter of 2020.”
“6. Can an entity apply for a PPP loan now and decide later on the loan if it did not receive an SVOG? At what stage is a PPP loan considered “received”?
No. Per the Economic Aid Act, as well as how the PPP loan system operates, entities cannot apply for a PPP loan and SVOG at the same time. Entities must make an informed business decision as to which program will most benefit them and apply accordingly. If an applicant is rejected by one program, it will then be eligible to apply for the other.”
In addition, several questions discuss venue eligibility, repeatedly turning to fixed seating and principal business activity requirements. Affiliations with subsidiaries also have a dedicated section, elaborating on how to treat shared expenses and whether all entities in the parent-subsidiary group need to meet program requirements.
Revenue definitions for the SVO are explained as well, and state that earned revenue follows common principals of the accrual method of accounting and does not include donations, sponsorships, governmental assistance, or returns on investments.
The program is still not accepting applications, but the FAQs suggest preparing in advance to ensure those who qualify can have a shot at the funds.
Paid sick and family leave credits under the FFCRA that were extended by the CAA received updated IRS FAQs. Remember - while the credits for paying employees on these types of leave remain through March 31, 2021, the mandate to pay employees during these times expired at the end of 2020.
Forms 2848, Power of Attorney and Declaration of Representative, and 8821, Tax Information Authorization, can now be submitted electronically with e-signature options. Faxed and mailed forms will continue to be accepted.
Notice 2021-05 extends the beginning of construction safe harbor requirement for certain §§45 and 48 qualified facility and energy property projects to within ten years after the year during which the project’s construction began.
Information provided is for educational purposes and attempted humor (if any). Please consult your advisors.