Tax Nutshell - A Final Bow
Updated: Aug 13, 2020
Alright, I’m done gallivanting around various rivers and mountains and also now have electricity restored that was blown out across the Midwest from a “derecho”. Fun fact: derecho in Spanish can mean straight, and the term in weather is a horrible storm that blows your stuff straight over – wind gusts were over 100mph in certain places!
The consequence of any break away from work, especially in tax, is the likely chance of being inundated with a laundry list of missed guidance, news, and emails. Well it’s been over three weeks since my last tax nutshell and rest assured, we have a lot to cover. Let’s check out the highlights!
What’s Up in Washington D.C.
COVID Relief Legislation
The Senate finally released a handful of bills in late July, together referred to as the HEALS Act, which is intended as their proposed next round of COVID-19 relief. The Senate Finance Committee’s bill text can be found here and the section by section summary here. The PPP related bill is found here with section by section summary here.
Recall the House introduced and passed the HEROES Act in May as their continued COVID-19 relief proposal, which is significantly more expensive. Needless to say, negotiations could be going better and it would seem things have somewhat stalled at the moment. The Senate itself hasn’t passed their legislative package yet and Senate democrats, including SFC Ranking Member Ron Wyden, are not supportive of the unemployment proposals within.
Even though Senator Grassley seemed adamant PPP forgiveness-related expenses should be tax deductible, legislation to ensure such treatment was not included in the SFC COVID-19 relief bill. However, S. 3612, the Small Business Expense Protection Act of 2020, continues to gain bipartisan cosponsors.
Additional discussions and proposals have surfaced so it would seem we’ll need to sit tight and see where it goes from here as both House and Senate are reportedly on-call for a coronavirus bill vote.
President Trump issued four orders last Saturday, August 8th: temporarily deferring certain payroll taxes, continuing student loan payment relief, providing assistance to renters and homeowners, and expanded unemployment.
Deferring Payroll Tax
President Trump directed the Secretary of the Treasury to use authority under §7508A to defer the 6.2% employee payroll tax on wages paid from 9/1/2020 through 12/31/20 for employees with wages or compensation less than $4,000 (pre-tax) per biweekly pay period.
The memorandum directs Treasury to issue guidance for implementation and explore avenues, including legislation, to eliminate the obligation to repay the deferred taxes. Treasury Secretary Mnuchin is reported as saying the deferral will not be mandatory.
Recall that the CARES Act gives the option to defer the employer side of the Social Security tax through the end of the year, with repayment in 2021 and 2022.
Senators Ted Cruz and Martha McSally introduced the CREATE JOBS Act that would eliminate the 100% bonus depreciation phaseout scheduled to begin in 2023, allow businesses to continue deducing research and development expenses, and implement a neutral cost recovery system. The Tax Foundation has a nice summary here.
In a recent press briefing, Trump shared a long-term goal of terminating the payroll tax that funds social security if he is reelected as President:
“If I’m victorious on November 3rd, I plan to forgive these taxes and make permanent cuts to the payroll tax. So I’m going to make them all permanent. Now, Joe Biden and the Democrats may not want that. They don’t want that because they’re adding $3 trillion in taxes. So they’ll have the option of raising everybody’s taxes and taking this away. But if I win, I may extend and terminate. In other words, I’ll extend it beyond the end of the year and terminate the tax. And so, we’ll see what happens. Biden probably won’t be doing that; you’ll have to ask him. I don’t think he knows what he’s doing.”
The comments made by the President have been confusing at best but he later reassured that Social Security would not be impacted, that lost funds could potentially come from the general fund.
Trump has also floated the idea of cutting the capital gains tax, which he stated “would create a lot more jobs”.
Biden Picks a VP
Democratic presidential candidate Joe Biden has selected Kamala Harris to be his running mate this Fall. Take a look at tax policy stances the two share and also how they differ in this great summary.
Here’s Biden vs Trump on tax policy as well, while you’re at it!
§951A GILITI and subpart F final regulations regarding income subject to a high rate of foreign tax were released and proposed rules on aspects of the GILTI high-tax exclusion and conforming them with Subpart F were also issued. Additional final regulations are still needed on portions of the 2019 proposed regulations and will be released separately.
Weighing in at 575 pages, final §163(j) regulations are out, as well as 285 pages of proposed regulations. An IRS FAQ regarding the aggregation rules under §448(c)(2) that apply to the §163(j) small business exception and Notice 2020-59, which creates a safe harbor allowing taxpayers who manage or operate a qualified residential living facility to be treated as a real property trade or business (RPTB) for the purposes of qualifying as an electing RPTB, round out the recent limitations on business interest expense deduction guidance. I'll give you $100 if you get through all of that material without dozing off! (all monetary offers in this blog are null and void)
Proposed regulations update simplified tax accounting rules for small business accounting methods.
Temporary and proposed regulations were issued regarding the recapture of excess employment tax credits under the FFCRA and CARES Act.
The IRS announced a temporary procedure to fax the duplicate copy of automatic consent Forms 3115, Application for Change in Accounting Method, beginning July 31, 2020 to 844-249-8134. The original Form 3115 must also be filed with the tax return.
§1061 carried interest proposed regulations were released. TCJA introduced this section, which requires partnership interest derived from the performance of investment services (carried interest) to be held for more than three years to be treated as long-term capital gains upon sale.
New PPP FAQs continue to be added on PPP loan forgiveness including owner compensation clarifications, the interaction with EIDLs, how third party fees affect the SBA’s guarantee of PPP loans or SBA’s payment of fees to lenders, and that vision and dental payments count as group health expenses.
New PPP Interim Final Rule on the appeals of SBA PPP loan review decisions for borrowers wholly or partially denied forgiveness.
Notice 2020-61 provides guidance on the special rules relating to funding of single-employer defined pension plans, and related benefit limitations, under the CARES Act.
Notice 2020-62 modifies the two safe harbor explanations that may be used to satisfy requirements to provide certain information to eligible rollover distribution recipients to include the SECURE and CARES Acts.
Final regulations discuss the §164(b)(6) SALT cap workaround of payments to charitable entities in return for state and local tax (SALT) credits and provide business and individual payment safe harbors. 2019 proposed regulations are adopted with clarifications.
Draft Schedule SE, Self-Employment Tax (Form 1040), shows how the CARES Act self-employment tax deferral would work.
The National Taxpayer Advocate (NTA) blog announced beginning August 10th, 2020, TAS can assist some taxpayers with missing Economic Impact Payments (EIPs). Issues including not receiving the qualifying child portion, injured spouse, joint returns with incarcerated spouses, math errors, and identity theft may be able to be resolved before waiting to file a return in April.
A very warm and sincere thank you to those who have read my tax blog over the last two years! This may very well be the last tax nutshell, at least on this platform. Follow me on Twitter to see where my overly enthusiastic and sarcastic tax writing ends up next! It probably won’t be as cheeky as I have had the luxury of being in my own space, but don’t worry – I’ll try to keep it fun!
Onto the next adventure!
Information provided in this post is for educational purposes only and not to be relied upon as tax or business advice. Please reach out to your tax and business advisors to review your unique set of facts.