Tax News In A Nutshell - 1.11.21
What’s Up in Washington, D.C.
After being temporarily evacuated mid-session due to rioters wreaking havoc on the Capitol building, an undeterred Congress worked late into the night on January 6th to confirm Joe Biden as the 46th President of the United States. Georgia Senate runoff races on January 5th also resulted in Democratic victories, giving the Senate a slim 51-50 margin of control when figuring in Vice President Kamala Harris as the tie breaking vote.
An additional round of stimulus is already being discussed, however, even one dissent from Senate Democrats would make passage impossible without Republican buy-in. The same is true for any broad tax reform in the future as well.
PPP – Back In the High Life Again
All the PPP doors the SBA closed a couple times will open up again. The SBA announced Friday morning that the PPP will reopen beginning on Monday, January 11th. To give underserved and minority business owners a first chance at the $284B, community financial institutions will be the only lenders able to make First Draw PPP loans on Monday. Second Draw PPP loans will begin on Wednesday, January 13th. The programs will open up on a broad basis to larger lenders “shortly thereafter” with applications able to be submitted through March 31, 2021.
PPP guidance implementing changes from the Consolidated Appropriations Act (CAA) was released last Wednesday, with new application forms released Friday evening.
The IFR on PPP amendments utilizes a Q&A format that attempts to consolidate First Draw PPP loan guidance regarding recent program amendments, eligibility, repayment, loan terms, forgiveness, and applications. It also discusses which PPP borrowers can reapply or request on increase in their First Draw PPP loans, which includes:
A partnership that did not include any compensation for its partners in the initial loan request,
Seasonal employers eligible for a higher maximum loan amount as a result of the CAA,
Borrowers who returned PPP loan proceeds but are eligible,
Borrowers who did not accept the full loan amount for which they were approved.
The IFR on Second Draw PPP Loans implements provisions from the CAA, such as the requirements that borrowers must have no more than 300 employees, show a 25 percent or greater reduction in gross receipts between comparable 2020 and 2019 quarters, and have used or plan to use the full amount of their first draw PPP loan by the expected date of disbursement of the second draw PPP loan.
Items in the IFR on second draw loans that are new or were not clear in the CAA itself include:
An annual test (rather than a quarter test) comparing all of 2020 with 2019 can be used by businesses in operation during all of 2019 to prove a 25 percent or greater decline in gross receipts.
Gross receipts are defined to include all revenue in accordance with the entity’s tax accounting method (including affiliate receipts), with the exception of:
First draw PPP loan proceeds
Net capital gains or losses
Taxes collected and remitted to a taxing authority if included in gross income (i.e. sales tax)
Amounts collected for another by a travel, real estate, or advertising agent, conference management service provider, freight forwarder, or customs broker.
A $4M combined loan maximum for single corporate group structures.
Loan applications for $150,000 or less do not require revenue reduction substantiation; it will, however, be required upon applying for loan forgiveness.
Applications to apply can be found here for a First Draw PPP loan and here for Second Draw PPP loans.
Reminder that receipt of a PPP loan after December 27, 2020 precludes a borrower from obtaining a Shuttered Venue Operator grant from the SBA and obtaining the grant will disallow access to the PPP after that date as well. Also be aware that the Employee Retention Credit (ERC) and the PPP are no longer mutually exclusive programs, though the same wages cannot be used for both.
Rev. Rul. 2021-2 implements the PPP deductibility change from the Consolidated Appropriations Act, 2021. Expenses paid for with forgiven PPP funds are now tax-deductible for all borrowers, even those who have already applied for forgiveness. The ruling also obsoletes Notice 2020-32 and Rev. Rul. 2020-27 that are now no longer appropriate IRS positions thanks to new legislation.
Additional final §163(j) regulations were released, making a few changes from the proposed regulations including limiting ATI reductions in the year of disposition if there was no benefit from the depreciation addback to ATI, correcting consolidated group calculations, favorable modifications for CFCs, and a clarification that partners may elect out of the 50 percent EBIE rule on a partnership by partnership basis.
Section 1061 carried interest rules that require a 3-year holding period for long term capital gains treatment were finalized. Changes from the proposed regulations include an acknowledgement that private equity and hedge funds are different and provide a revised and simplified rule for capital interest allocations, but no separate set of rules for the two groups. Other changes involve unrealized API gains and losses, lookthrough rules for API dispositions, and API transfers to related parties. More guidance is likely.
E-filing is now available and required for Form 1024-A, Application for Recognition of Exemption under Section 501(c)(4). Paper versions will still be able to be submitted until April 5th, 2021.
Section 45Q carbon oxide sequestration credits received guidance and discuss adequate security measures, who receives the credit, equipment definitions, and measurement standards.
Under Notice 2021-7, employers and employees using the automobile lease valuation rule to value personal use of employer-provided autos can use the vehicle cents-per-mile valuation rule instead beginning March 13, 2020 if certain requirements are met. In 2021, they may also revert to the automobile lease valuation rule or continue using the vehicle cents-per-mile rule.
That's all for this week and I'm positive it's enough! Have a good one.
Information provided is for educational purposes and attempted humor. Please consult your advisors.