Tax News in a Nutshell - 02.26.21
What’s Up in Washington, D.C.
The American Rescue Plan is moving forward, however likely without the $15/hr minimum wage increase. The provision has been ruled unable to be part of a budget reconciliation bill that would bypass the need for 60 votes in the Senate. But House Speaker Pelosi aims to keep the provision in the House version that will be voted on today, knowing the Senate will then have to draft and pass a version of the relief package without it to continue utilizing budget reconciliation. If that happens, the House would then have to vote on and pass the Senate’s version.
Increasing the minimum wage is a priority for Democrats, though, and this setback will not kill its forward momentum. Several new proposals have surfaced to address the issue and bridge the opposing sides. Senator Josh Hawley (R-MO) introduced an alternative to the minimum wage in his Blue-Collar Bonus proposal. It would provide workers making below the median wage an advance tax credit equal to 50 percent of the difference between the median wage and the worker’s hourly rate. Senator Bernie Sanders (I-VT) offered up his own solution of disallowing tax deductions from large, profitable companies not paying employees at least $15/hr, that Senate Finance Committee Chair Ron Wyden supports. And Senator Mitt Romney (R-UT), along with others, suggested the minimum wage be tied to inflation and gradually rise to $10/hr over time.
Whether any of these proposed amendments are included in a final stimulus bill is yet to be seen.
Don’t Mess with the IRS
Since the TCJA’s elimination of the §199 DPAD deduction, several taxpayers have conducted what the IRS is deeming unreasonable studies to take the deduction on amended returns. “Questionable amended returns and claims for tax benefits in the billions of dollars” have been received, with a majority doing so for the first time, said the IRS. Consulting firms often look for ways to generate revenue after tax law changes, perhaps this was one. If you claimed a DPAD deduction on an amended return, make sure to have proper documentation to support the position to avoid penalties.
House Representatives Larson and Estes introduced a bill to remove the TCJA’s requirement to begin amortizing research expenses in 2022, rather than as an immediate deduction. The bill has bipartisan support and is hoped to join as part of a bigger legislative package later in the year.
President Biden announced several important changes to the PPP this week in an attempt to continue making the program more equitable for smaller businesses:
A two-week exclusive PPP loan application period for sole proprietors and businesses with fewer than 20 employees from February 24 through March 9, 2021.
Sole proprietors, independent contracts, and other self-employed Schedule C filers will see a favorable revision to the maximum funding formula. Official details remain elusive, but sources say the change might incorporate gross income, rather than net, into the calculation in order to increase amounts. It’s also still unclear if those who have already filed will have a chance to submit revised applications.
Allow those with non-fraud felony convictions to now access PPP loans.
Ease restrictions to the PPP for those who were previously disqualified due to student loan debt delinquency.
Clarifying that use of an ITIN will give PPP access for U.S. resident small business owners who are not citizens.
Updated application forms, additional details, and official guidance are said to be coming next week.
SBA data through February 21, 2021 on the 2021 relaunch shows nearly 1.92M loans approved for over $140B in funds. That leaves roughly $144B on the table to be claimed by the current March 31 due date.
Tell all your exes in Texas and Okie friends from Muskogee they did not endure the recent winter storm for nothing. FEMA declared federal disasters for both states as a result, and in turn the IRS granted a federal extension for taxpayers residing in and/or having a business within listed disaster areas (this time it’s every county in both states).
Deadlines falling on or after February 8, 2021 (for Oklahoma) or February 11, 2021 (for Texas) and before June 15, 2021 are postponed through June 15, 2021. This means business returns due March 15 and individual tax returns due April 15 now have a June 15, 2021 filing and payment deadline for those affected. Other due dates falling within those timeframes are pushed back as well, such as the IRA contribution, estimated tax payment, and quarterly payroll deadlines. No action is required to obtain due date relief – it’s provided automatically to taxpayers with an address on file with the IRS that is located in the disaster area. If late filing or payment notices from the IRS are incorrectly received, taxpayers should follow up and have penalties abated.
Remember that unreimbursed losses stemming from a federally declared disaster area can be claimed either on the tax return for the year in which the loss occurred, or on the prior year return. This option allows taxpayers to recoup funds faster than waiting to file a current year return. Therefore, taxpayers who have a disaster loss occurring in 2021 can choose to report the event on the upcoming 2020 filing.
And now we wait to see if the remaining 48 states will see a generalized extension, as more interested parties push to gain clarity on if/when there will be a deadline change. IRS Commissioner Rettig is holding strong claiming everything is fine [insert room on fire gif here] and that there will be no broad penalty relief or deadline extensions despite a late start date, gray areas on multiple parts of new law, thousands of incorrect notices having been sent out, and millions of unprocessed 2019 tax returns.
Pinch of SALT
Curious how states are dealing with the taxation of forgiven PPP proceeds and deductibility of related expenses? The Tax Foundation is tracking and updating just that.
Outcomes depend on a state’s conformity method to federal law and whether a choice to decouple from it is chosen. States are still making changes to address the PPP at this time, so make sure to review the latest guidance before finalizing a return.
Thanks for reading, have a great weekend!
Information provided is for educational purposes and attempted humor, if any, and not to be considered tax advice. Please consult your professional advisers.