Tax News in a Nutshell - 03.12.21
What’s Up in Washington, D.C.
Stimulus Deal Squeaks By
President Biden signed the American Rescue Plan Act (ARPA) into law Thursday, March, 11, 2021 adding $1.9T of stimulus relief to a staggering $5.5T total since the pandemic’s initial wave hit one year ago. The ARPA passed Congress along party lines, using a process known as budget reconciliation that requires less votes to pass in the Senate. One House Democrat voted in opposition.
This package makes SEVEN pieces of legislation in a year that we’ve painstakingly dug through in attempts to memorize and apply countless new provisions to help individuals and businesses struggling to endure the global pandemic that has taken 500,000 American lives. A look at the chart below shows the cost breakdown of each relief-related package.
*The Paycheck Protection Program Flexibility Act which made favorable changes to the PPP was enacted June 5, 2020 but has no CBO cost estimate available that I found.
Much like its predecessors, the ARPA contains several tax and business-related provisions, including:
$1,400 stimulus payments to eligible individuals, now including dependents age 17 and over.
Tax-free unemployment benefits up to $10,200 for 2020 for those with AGI less than $150,000.
Expanded Child Tax Credit and Child and Dependent Care Credit for 2021 only.
Increased Earned Income Tax Credit for those with no children.
Increased tax-free employer provided dependent care assistance to employees.
Extension of the Employee Retention Credit (ERC) through the end of 2021, with enhancements for startups and severely financially distressed employers.
Extension of the FFCRA paid sick and family leave credits through September 30, 2021, with a reset of days for the paid sick days after March 31, 2021, expansion of eligible reasons giving rise to the paid leave, and an increase to allowable wages for paid family leave.
COBRA subsidies for premiums paid beginning on April 1, 2021 and ending September 30, 2021, with a refundable tax credit available to employers equal to premium amounts not paid by COBRA recipients.
Extended unemployment benefits and enhanced premium tax credit and cost-sharing reductions.
Shuttered Venue Operator grant recipients may now also receive a PPP loan (PPP loan amount will reduce any SVO grant awarded).
New tax-free grant program for restaurants and bars.
Extends the section 461(l) excess business loss limitation for non-corporate taxpayers by one year into 2026 – one of the few unfavorable provisions within the bill, aside from the repeal of the section 864(f) election to use worldwide interest expense apportionment.
Though the minimum wage increase from $7.25 to $15 per hour was initially included in the bill, it was removed in order to continue utilizing the budget reconciliation process. But, the issue remains top of mind for congressional democrats and it may see its way into future legislation.
The Paycheck Protection Program received an additional $7.25 billion in funding from the ARPA and was expanded to include additional nonprofits, but the Act did not extend the current March 31, 2021 application due date. With just weeks left to apply and billions remaining on the table, it’s possible the date will be extended but not certain.
The PPP Extension Act of 2021 would extend the application due date to May 31, 2021 and allow an additional 30 days for the SBA to process applications submitted before that date. The bipartisan bill will reportedly have a vote in the House of Representatives next week but could get held up in the Senate.
SBA data through March 7, 2021 on the 2021 relaunch shows over 2.4M loans approved for nearly $165B in funds. That leaves roughly $126B on the table to be claimed by the current March 31 due date.
The Shuttered Venue Operators (SVO) grant program is chugging along slowly with additional information available for those patiently awaiting for the doors to open. To whet our appetite, the SBA offered up an eligibility chart that breaks down the program rules in general and for the different eligible business types, a preliminary application checklist outlining a laundry list required documents that will be needed to support grant eligibility, and revised FAQs as of March 5, 2021.
Even though several organizations and members of Congress are demanding the IRS extend the 2021 filing season, IRS Commissioner Charles Rettig is still holding firm to a traditional April 15 due date. No worries though, Form 1040-X, Amended U.S. Individual Income Tax Return, can now be e-filed for 2020! Something tells me we’re going to need it.
Taxpayers unlucky enough to have dealt with recent severe storms are seeing filing deadline relief, however. Louisiana now joins Texas and Oklahoma in having a June 15 extended Federal due date. 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, quarterly payroll deadlines, and other time-sensitive acts described in Treas. Reg. § 301.7508A-1(c)(1) and Rev. Proc. 2018-58. Aside from deadline extensions, other disaster-related relief is available, such as section 165(i) which allows unreimbursed losses stemming from a federally declared disaster area to be claimed either on the tax return for the year in which the loss occurred, or on the prior year return.
Case of the Fridays
A taxpayer’s 2011 business expenses were disallowed not once, but twice upon IRS review, and ultimately a third time by the Tax Court. When expenses originally claimed on the taxpayer’s Schedule C were disallowed, he attempted to move them to Form 2106, Employee Business Expenses, on an amended return that was not accepted by the IRS.
When asked in Court what the expenses related to, the taxpayer confidently stated they were for travelling between his home and workplace, clearly not understanding that commuting expenses are nondeductible personal expenses under §262(a). As for the remaining meal and “other” expenses, he was unable to provide receipts or other substantiation required under §6001.
He could have saved a lot of time and effort by asking a qualified tax pro how this might turn out before making the trip to Tax Court!
Lesson: Make sure you actually have a business if filing Schedule C, understand which expenses are deductible, and be able to back them up if the IRS comes knocking.
Mathews v. Commissioner, T.C. Memo. 2021-28
Now that what we believe to be the last major COVID-related stimulus bill is signed, sealed, and in process to be delivered, perhaps we can get back to some sense of normalcy in the tax world. But President Biden's campaign promises and other congressional tax proposals floating around might suggest otherwise, so we'll take a small breather but still be on our toes for the coming years, no doubt!
If anything, it's been a wild time to be in tax...it's no summer of 2013 (my girls will know what this means), but wild enough for tax people.
Thanks for reading - have a great weekend!
Information provided is for educational purposes and attempted humor (if any). Please consult your advisors.