Tax Week in a Nutshell – 5.15.20
This week did not leave us wanting for tax news…well that’s not entirely true. We got plenty of it but not the thing we all have been on pins and needles for (PPP loan forgiveness guidance). Never fear, as soon as I post this article, that guidance will drop (as is tradition). But for now, let’s look at what we do have!
There Goes My HEROES Act – (not sure where it’s going)
The latest round of COVID-19 relief was introduced in the House this week, though many are suggesting it has no legs. Either way, it’s likely some of it may make it into future law in some form, plus it’s good to keep up with what’s being discussed. Catch some of the tax-related highlights here.
PPP Probs and Props
We’re also still waiting and debating on deductibility of PPP forgiveness related expenses. While the tax community understands general no-double-benefit rules, the CARES Act gives an impression of tax-free loan forgiveness. However, cancelling out that notion is Notice 2020-32 from the IRS stating no deduction is allowed for expenses related to such forgiveness. This was opposed by several tax pros and congressional leaders.
Now what? Well, introduced in the Senate last week was S. 3612, a bill that would try to ensure tax-free PPP loan forgiveness. And this week, several more Senators joined in to cosponsor the bill and its short text was finally released which would add the following language to the CARES Act:
“No deduction shall be denied or reduced, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income.”
Even still, there seems to be disagreement within Congress as well. House Ways and Means Ranking Member Rep. Brady indicates there was not congressional consensus on the intent being tax-free forgiveness. So now we wait, some more.
Props (kind of?)
PPP FAQs continue to be posted; here’s what rolled out this week:
#46 explains that while borrowers must certify in good faith their need for the loan, the SBA will not review this self-certification for borrowers who, together with their affiliates, received PPP loans with an original principal amount of less than $2 million.
#47 gives borrowers more time (until May 18th) to consider paying back their PPP loan
Another important development was a new interim final rule on PPP loan increases, important for partnerships who did not initially include partner self-employment income as payroll on an initial application. A previous interim final rule posted on April 14 (well after many businesses submitted applications) clarified partners may not use such income to separately apply for a PPP loan.
To ensure these businesses may obtain their maximum PPP loan, the rule authorizes lenders to increase existing PPP loans to cover this partner compensation. Seasonal employers who may have missed out on funds related to alternate calculation criteria are allowed increases to their PPP loans as well.
And finally, the SBA determined that certain electric cooperatives qualify for a PPP loan even though they are tax-exempt entities under IRC section 501(c)(12). If that’s you – congrats!
Flexibility in Flex Spending Accounts
Notice 2020-33 revises the maximum unused amount cafeteria plan participants can carry over to the next year, which helps the use-it-or-lose-it downside to flex spending accounts.
Notice 2020-29 provides greater flexibility for taxpayers by:
Extending claims periods to apply unused FSA amounts for health or dependent care
Expanding the ability to make mid-year elections for health coverage, health FSAs, and dependent care programs as a result of COVID-19
Apply a temporary exception for telehealth and expanded ability to apply earlier relief for HDHPs to cover COVID-19 expenses
Oh right – a world exists outside of COVID-19! The IRS issued proposed regulations that provide guidance to taxpayers and governments with respect to the deductibility and reporting of fines, penalties and certain other amounts paid to governments.
And final regulations snuck out this week as well! The treatment of certain related-party interests in corporations as stock or indebtedness were discussed in T.D. 9897.
TCJA Not So Passé
Remember when we thought the TCJA was intense? Ha..so naïve were we. The IRS’s Large Business & International (LB&I) division has added a TCJA compliance campaign to its focus list. Their stated goal of the initiative is to “identify transactions, restructuring and technical issues and better understand taxpayer behavior under the new law”. (Spoiler alert, taxpayer behavior has been…confused).
As we know, a lot more has changed since little old tax reform. In response, this campaign will take the CARES Act into consideration as well. All this will be carried out via examinations and soft letters, as well as providing education for taxpayers and IRS staff. May the force be with you.
If I recall correctly, today would normally be the calendar year-end nonprofit deadline. It’s burned into my brain because it was a decent part of my tax life for several years. Plus the first three years of my career in public tax I specialized in both financial institutions AND nonprofit…so my life was crazy a little longer than some of my other tax friends. If that’s you too, I feel your pain – stay strong!
But I digress. Just reminding everyone that in response to the global pandemic, Notice 2020-23 moved several additional federal filing and payment due dates falling on or after April 1, 2020 and before July 15, 2020 to July 15, 2020. This includes nonprofit returns! Hopefully this breathing room helps take the pressure off as other pressing matters continuing to take precedence in the short-term.
The extension is automatic - there’s nothing to do to obtain it other than perhaps say a little gratitude mantra and take a deep breath. If additional time is still needed, a traditional extension form may be filed by July 15 to receive a normal extension. Such extensions will give taxpayers additional time to file but not beyond the normal extended due date.
That's literally all she (me) wrote for this week, and I think we can all agree it's enough.
I was supposed to be on a beautiful beach this week, but that's alright as I know many of us have had to postpone or cancel travel plans. But don't forget to take a break if you can, even for a little while, to step back and remember the big picture. It's easy to get caught up in the chaos; just breathe.
Namaste - Amie K
Material shared is for general information purposes only and not to be considered tax advice. Please contact your tax and business advisers for how this may apply to your unique situation!