Tax News In a Nutshell - 12.14.20
What’s Up in Washington, D.C.
After a confusing week of stimulus discussions, a one-week spending bill was signed just in time to avert a federal government shutdown on December 11th. The short-term punt was due to the COVID-19 relief package slated to be attached to a finalized spending bill, now due by December 18th.
The “908 coalition”, a bipartisan group of lawmakers who drafted a version of the next stimulus proposal, released a more detailed framework of their plan, while Treasury Secretary Mnuchin joined in offering House Speaker Pelosi a $916B package on behalf of the White House. Main points of contention between those bills and Senate Majority Leader McConnell’s plan revolve around coronavirus-related liability protection for businesses/entities, state funding, and expanded unemployment benefits.
Stimulus checks and PPP deductibility are being closely watched by onlookers as well. And with a second round of direct payments to individuals not making it into two of the main proposals, a standalone stimulus bill was also introduced. Will they make a deal? What will be in it? The answer has become no one’s favorite…we’ll have to wait and see.
AICPA Comment Letters
The AICPA has been busy sending comment letters to the IRS and Treasury, including a request for pandemic-related penalty relief through the “creation of an expedited and streamlined reasonable cause penalty abatement process to taxpayers affected by the Coronavirus pandemic that eliminates the need for written requests.” The suggestion has the backing of other six other organizations (and likely most tax practitioners and taxpayers) as well, despite IRS Commissioner Charles Rettig’s statement that there would be no blanket penalty relief approach.
Other comment letters included a request for expansion and extension of e-signature relief and suggestions to Draft Form 1065, U.S. Return of Partnership Income, and Draft Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc., and Related Instructions.
Form 1040 for 2020 has been finalized, looking similar to the draft form previously released. It’s not quite back to the two-pager we were used to pre-2018, but closer. There are still three schedules for 2020 that may be required as attachments, but we’ll see significant changes nonetheless including:
The virtual currency question being moved front and center to the top of Form 1040, page 1
The above-the-line deduction for up to $300 in qualifying charitable contributions for non-itemizers
Calculation of the Recovery Rebate Credit stemming from Economic Income Payments
Deferrals and credits stemming from the CARES Act and FFCRA
Instructions for Form 1040 are still in draft status, but were revised and re-posted last week as well.
Qualified transportation and commuting fringe benefit rules were finalized, modifying the definition of parking spaces usable by the general public, providing leeway for using any reasonable means to calculate number of inventory/unusable spaces, and adjusting the definition of the peak demand period in determining the primary use of a parking space in response to COVID-19.
The SBA provided guidance regarding tax issues relating to the payments made on behalf of borrowers under Section 1112 of the CARES Act that covered six months of payments that small businesses owed on 7(a), 504, and Microloans. Form 1099-MISC will be furnished to borrowers and included into taxable income.
The draft 2020 Form 990-T instructions indicate mandatory electronic filing beginning in February 2021.
Guidance regarding portions of the SECURE Act was released giving thirteen Q&As on automatic enrollment caps and safe harbor plan requirements. Regulations on these topics are forthcoming.
Final regulations on loans from retirement accounts were released, granting additional time for plan administrators to implement program systems and procedures. The final regulations will apply to plan loan offset amounts, including qualified plan loan offset amounts, treated as distributed on or after January 1, 2021.
Employers claiming the Work Opportunity Tax Credit (WOTC) are provided transition relief by extending the 28-day deadline for certain employers to request certification that an employee hired between 2018 and 2020 is a member of a targeted group qualifying for the credit.
Taxpayers who attached Form 8996, Qualified Opportunity Fund, to their return may be receiving Letter 6250 from the IRS advising them of additional steps needed to meet annual self-certification requirements. Letter 6251 may be received by QOF investors to notify them of potential errors in reporting eligible gain deferrals.
Case of the Mondays
The Associated General Contractors of America, Inc. (AGC), a construction trade group, is suing the SBA and the United States Office of Management and Budget (OMB) over the Loan Necessity Questionnaire aimed at certain PPP borrowers.
The lawsuit declares:
“The Questionnaire does not ask borrowers to describe the status of their operations and the attendant business anxieties that they were experiencing at that time [of the application].”…”This contradiction is deeply troubling to many borrowers because their success or failure over the balance of 2020 could not possibly have been knowable in those early days of the pandemic when the economy was headed into a tailspin.”
AGC requests the Court to declare the Questionnaire as developed and published through an unlawful process, that the questions are “arbitrary and capricious” and that it denies borrowers of due process. Request is made to have the Questionnaire available for public comment for at least 30 days, and to subsequently adopt (subject to OMB approval) a revised Questionnaire.
Associated General Contractors of America Inc. v. U.S. Small Business Administration
Unrelated? PPP FAQs were updated to discuss Forms 3509 and 3510, Loan Necessity Questionnaire, that are being provided to borrowers of $2 million or more of PPP loan. FAQ #53 reassures borrowers that a request to complete the form doesn’t necessarily mean the SBA is challenging the certification that a borrower had economic uncertainty necessitating the loan.
The FAQ emphasizes, “A request to complete the Loan Necessity Questionnaire does not mean that SBA is challenging a borrower’s certification that is required by the CARES Act.”
It should be another interesting week coming up, so stay tuned and have a good one!
Information provided is for educational purposes and attempted humor, not to be construed as tax advice. Contact your advisers for how your unique situation may be impacted.