Tax News in a Nutshell - 02.19.21
What’s Up in Washington, D.C.
Democrats maintain their optimism on passing the President’s COVID relief package in the coming weeks via the budget reconciliation process, where less votes are needed in the Senate. The $1.9T package being reviewed weighs in at 591 pages, which should be daunting by most measures, but after the CARES Act and Consolidated Appropriations Act now seems like a walk in the park.
It may not be entirely smooth sailing for the bill, though. The proposed $15 per hour minimum wage is reportedly causing some concern, for one. When budget reconciliation is used to pass legislation, several rules must be met on its content. The Byrd Rule imposes those restrictions and can kick out provisions that don’t fit budgetary guidelines, and right now it’s unclear if the increase to minimum wage will make it through. Opposition to this piece of the bill also exists even among Democrats.
Want to feel a breeze, get a little workout in, and save gas money on your travels? A new 30 percent income tax credit was proposed for those who purchase an electric bike. Check out the details in Tony Nitti’s latest article here.
Carried interest could see a big change if a recently introduced bill gets any action. The Carried Interest Fairness Act aims to tax carried interest at ordinary income tax rates, rather than at preferential capital gains rates, and also subject the compensation to employment taxes. The TCJA attempted to curb abuse of the arrangements by requiring a 3-year holding period, but the latest bill would take it a step further.
Rep. Michael Burgess (R-TX) introduced a bill (H.R. 1040) to provide a flat tax alternative to the current income tax system. Very unlikely to progress, but interesting nonetheless it’s floating around.
The “Stop Corporations and High Earners from Avoiding Taxes and Enforce the Rules Strictly Act” (Stop CHEATERS) was proposed by Rep. Ro Khanna (D-CA) to raise federal revenues by increasing audits and enforcement of tax compliance of high-income individuals having gross income of $1M or more, and large corporations.
*Please remember these are merely proposed bills that may never become law.
Despite continued uncertainties and difficulties brought about by the pandemic, the IRS has held firm they will not be providing broad penalty relief for late payment or filing. However, the AICPA sent a letter to Treasury to request assistance for taxpayers by adjusting the calculation for underpayment and late payment penalties for the 2020 tax year.
Instead of having to pay in the smaller of either 90 percent of tax due for the current year or 100 percent of the prior year (110 percent for AGI over $150k) to avoid an underpayment penalty, the AICPA requests the amount be lowered to 70 percent of current year tax due, or 70 percent of the prior year tax due (90 percent for higher AGI). It’s also requested that the late payment penalty exception be lowered to having paid in 70 percent of taxes owed with an extension request, rather than 90 percent.
The IRS also claims they are in good shape to maintain an April 15 deadline, but at the same time have mentioned potential trouble if a third round of stimulus checks results from the latest proposed legislation…spoiler alert (it will). Being as though that package has a good chance of becoming law, coupled with an overall messy start to the season, my bet is this discussion isn’t over. House Ways and Means Committee members are also urging the IRS to extend the deadline, having sent a letter to the IRS explaining that taxpayers are facing the same challenges as last year and need additional time.
And finally, the IRS would like to apologize for any confusion caused by erroneous CP59 notices altering you to a missing 2019 tax return. That big mail backlog is whittled down, but returns still remain unprocessed despite a timely filing. No need to call the IRS or respond to these notices if you did in fact file your 2019 return on time. A beautiful bouquet of flowers goes a long way in my book when making amends, but I suppose an informal hidden apology in an IRS email will suffice.
SBA data through February 15, 2021 on the 2021 relaunch shows nearly 1.7M loans approved for over $125B in funds. That leaves roughly $159B on the table to be claimed by the current March 31 due date.
While the CAA brought favorable maximum loan calculation changes for many, self-employed farmers and ranchers are still being left out of obtaining a PPP loan due to a narrow interpretation by the SBA. Senator Joni Ernst joined efforts to have this rectified by sending a letter urging the SBA to issue a clarification that all Schedule F filers having self-employment earnings, including those coming from partnerships and LLCs, can use the new alternative calculation that will allow a PPP.
In addition, a separate letter was sent to Treasury, the SBA, and congressional small business committee leaders from several groups of lenders and small business advocates as a request to revise the maximum loan amount for Schedule C filers from a portion of net profit to a portion of gross income. Many small business owners report very little net profit each year after taking expenses into consideration. And, as the letter points out, Schedule F filers saw relief in the latest round of stimulus by allowing a calculation to involve gross, rather than net income. Schedule C filers and their supporters argue they should have the same opportunity for funding.
Also, be aware that revised borrower application forms were released, adding in an optional demographic information section. First Draw Application is found here. Second Draw Application is found here.
As we *still* await the roll-out of the Shuttered Venue Operator (SVO) Grant program, the SBA provided another revision to the FAQs. Changes include explanations on how the grant will work for university-based entities, seasonal programming for museums, whether ticket brokers and resellers qualify for the grant, gross and earned revenue clarifications, and use of grant funds.
Applicable Federal Rates (AFRs) were released for March 2021 and remain extremely low.
Notice 2021-15 implements the recently enacted special rules for health FSAs and dependent care cafeteria plans. The CAA allows 2020 and 2021 unused amounts to be carried over into new plan years and also allows the potential to make mid-year election and funding changes.
Information provided is for educational purposes and attempted humor (if any). Please consult your advisors.