Tax News in A Nutshell - 11.9.20
What’s Up in Washington, D.C.
Oh, not much…
Four days after Election Day, former Vice President Joe Biden was projected as the next President of the United States. President Trump has contested the results in several states, with lawsuits filed, so the official results may take a little longer. Also, while the Dems have maintained control of the House, the Senate is still up for grabs and the reason resides with Georgia. The state has two Senate seats on the line and the races are so close, they ended up resulting in two runoff elections in early January.
What does that mean? Don’t worry, you’re not alone in asking! Just like tax law, each state has its own election laws as well. Georgia requires a congressional candidate to win the election with a majority of the vote. If the winning candidate doesn’t receive at least 50 percent of the vote, a special runoff election will subsequently take place. Neither Senate race in Georgia has a 50-percent-or-greater winner at this time, meaning two runoff elections will be coming to determine the winners.
Why is this so important? Of the 100 possible Senate seats, Democrats currently have 48 for the coming term, with 48 also currently won by Republicans. That leaves four still open, with NC and AK races leaning Republican, giving the GOP 50. And now it’s clear why the nation’s focus will be on the outcome of Georgia’s runoff elections. If both Senate seats are taken by Democrats, they will have the majority when figuring in Vice President Kamala Harris as the tie-breaking vote. But if Republicans retain even one of those seats, they maintain control and a split Congress remains for the foreseeable future.
This means more potential gridlock and makes it unlikely that Biden will be able to implement his proposed significant tax increases on the wealthy. But if the Dems win the Senate, they’ll be in a position to use budget reconciliation to implement desired changes without any Republican support. This term should sound familiar; it was used by the Republicans in 2017 to enact the biggest tax reform bill we’d seen in 30 years – the Tax Cuts and Jobs Act.
Check out Tony’s latest Forbes piece here discussing what a Biden presidency could mean for your tax bill. As with anything tax and life – it depends, so stay tuned!
PPP Sends Questionnaires and Gets Questioned
It would appear the Loan Necessity Questionnaires we’ve been discussing are legitimate, at least for now. The AICPA reports the “forms 3509 and 3510 will be available only through lenders and will not be published on the SBA site.” Affected borrowers currently have 10 business days to return to the lender a completed questionnaire and required supporting documents; it’s uncertain if that timeline is flexible. More guidance on these forms is forthcoming.
The SBA isn’t the only one doing the questioning though, a federal judge has ordered the SBA to release names of all PPP (and EIDL) borrowers and loan amounts in order to review the SBA’s administration of the program. Larger PPP loan data was previously released by the SBA for loans exceeding $150,000, but the SBA has repeatedly hesitated then and now, claiming revealing such information would violate borrower privacy. The judge points out the PPP application’s disclaimer that borrower information could be released upon FOIA request and that transparency should trump privacy protection in this case.
The elections this year have a big impact, including the next stimulus. Negotiations have repeatedly failed due to disagreements on cost and content. Now that the election is winding down, there is speculation the next relief bill will not be finalized until after the January Senate runoff elections even though both sides continue discussions. Republicans are sticking to their lower cost, targeted approach, with Democrats holding firm on a larger package.
Revenue Ruling 2020-23 discusses termination of certain 403(b) retirement plans and that distributed portions may escape gross income until paid. Notice 2020-80 requests comments on the application of annuity and spousal rights provisions related to distributions described in the Revenue Ruling.
Revenue Procedure 2020-50 allows taxpayers to make a late election, or revoke an election, related to bonus depreciation on assets placed in service after September 27, 2017.
Life expectancy and distribution period tables for determining RMDs were updated in final regulations. Beginning in 2022, amounts should be lower for those taking required minimum distributions from retirement accounts thanks to the tables generally reflecting longer life expectancies.
Pinch of SALT
Several state and local ballot measures were on the line in addition to the major elections. Highlights of the outcomes include:
Four states’ voters decided to legalize and heavily tax recreational marijuana. Arizona, New Jersey, Montana, and South Dakota join eleven other states already doing the same.
Illinois voters rejected the move from a flat income tax to a graduated structure.
San Francisco will create an additional gross receipts tax for businesses where the highest management salary is over 100x the median salary.
Colorado approved the retroactive reduction of the income tax rate from 4.63 percent to 4.55 percent for both individual and corporate taxpayers.
St. Louis voted to levy an additional property tax of $60 per $100,000 of assessed value to fund early childhood services.
Licensed racetracks in Nebraska will see a 20 percent tax on gross annual gambling revenue.
Credit to the Tax Foundation for tracking all of the measures here!
Case of the Mondays
Not a case today, but a ruling! The IRS grants an extension of time to file a §754 election in PLR-107595-20.
An LLC intended to make a §754 election on its timely filed partnership return, but inadvertently failed to make a valid election with the return. The taxpayer claims it acted reasonably and in good faith and requested an extension of time to make the election.
The purpose of a §754 election is to align inside basis of the partnership and outside basis of the partner when transactions or events occur resulting in disparity between the two. When a §754 election is in place, the basis of partnership property is adjusted for property distributions under §734 and transfers of a partnership interest in §743. Such transfers and distributions trigger an adjustment for the year of the §754 election and all subsequent taxable years.
For the election to be valid, a written statement must be filed with the partnership return for the taxable year of transfer or distribution and filed by the extended due date. An extension of time to make the election can be granted when the taxpayer provides evidence to establish the taxpayer acted reasonably and in good faith and that the extension will not prejudice the interests of the Government.
If granted, the election should be made and filed along with a copy of the IRS letter granting relief. In addition, the taxpayer should adjust the basis of partnership property as if the §754 election had been in place, reflecting any additional depreciation that would have been allowable regardless of whether the statutory period of limitations has expired. Partners also must adjust the basis of their interests in the partnership to reflect what the basis would be had the election been timely filed, reducing basis for the amount of §754 depreciation that would have been allowable.
The IRS reviewed the LLC’s facts and granted a 120-day extension from the date of the letter to make a §754 election for its desired taxable year that had passed.
So, if you meant to make an election but failed to timely do so, know that an extension may be available!
That's all for this week and I'm certain it's enough!
Information provided is for educational purposes only and not to be used as tax advice!