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    Principal

    Steve assists clients with business and tax planning matters, including business entity formation and ownership transfers, tax and compensation planning (including executive compensation matters), worker classification ...

NewspaperNew guidance from the Oregon Department of Revenue (the “DOR”) with respect to Oregon’s Corporate Activity Tax (“CAT”) was issued yesterday.

Specifically, the DOR announced that: 

    • Certain forgivable federal loans and advances, including Paycheck Protection Program (“PPP”) loans, are excluded from the definition of commercial activity under the CAT;
    • The DOR is scheduling a public hearing to discuss the first set of permanent rules promulgated under the CAT; and
    • The DOR released a draft temporary rule regarding the sourcing of commercial activity for financial institutions.

CakeIn Notice 2020-32, issued yesterday, the IRS emphatically pronounced that taxpayers receiving Paycheck Protection Program (“PPP”) loans do not get to have their cake and eat it too!

As we discussed in a recent blog post, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), signed into law on March 27, 2020, created the PPP under which the Small Business Administration is authorized to make up to $349 billion in forgivable loans to small businesses to enable them to meet payroll costs, benefits, rent and utility payments.  On April 24, 2020, Congress increased the amount of available funds under the PPP to $659 billion when the Paycheck Protection Program and Health Care Enhancement Act was signed into law.

The CARES Act expressly excludes from gross income any amount forgiven under the PPP.  The question left unanswered by the CARES Act is whether the amounts forgiven that were spent by borrowers on otherwise allowable business expenses (i.e., payroll costs, rent, utilities, transportation and interest) are deductible under Code Section 162.

Notice 2020-32 quickly points out to taxpayers and tax advisers – not so fast – there are no free lunches.  In essence, if the loan is forgiven and, as a result of the CARES Act, a taxpayer has no cancellation of debt income as he/she/it would otherwise have under Code Section 61(a)(11), the taxpayer certainly does not get to deduct the business expenses for which it used the forgiven loan proceeds.

WrenchLike other commentators, we have been writing extensively about the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the historic $2.2 trillion relief package enacted last month by lawmakers in the wake of the COVID-19 pandemic.

In a prior post, we provided a summary and analysis of numerous tax provisions of the CARES Act. 

In this post, we expand on our previous coverage of the CARES Act relative to net operating losses (“NOLs”), and provide an overview of new guidance issued by the IRS.

NOTICE 2020-23

Working lateOn April 9, 2020, the U.S. Secretary of the Treasury issued Notice 2020-23.  It greatly expands the tax compliance relief previously granted to taxpayers in response to the COVID-19 pandemic.

Background

On March 13, 2020, President Trump issued an emergency declaration, instructing the U.S. Secretary of the Treasury to relieve taxpayers from certain tax compliance deadlines during these horrific times. 

Code Section 7508A grants Treasury authority to postpone the time to perform certain acts required under the Code for taxpayers affected by a federally declared disaster (as defined in Code Section 165(i)(5)(A)). 

GlassesThe U.S. Department of Labor (the “DOL”) issued, effective April 6, 2020, temporary rules (“Rules”) relative to the Families First Coronavirus Response Act (the “FFCRA”).  The Rules focus on the “Small Employer Exemption” (defined below).  Importantly, the DOL’s guidance answers several questions that have been the topic of debate among many business owners, tax advisors and commentators.

Background

As discussed in prior posts, the FFCRA went into effect on April 1, 2020.  The legislation contains a number of tax provisions that fund the FFCRA’s mandatory paid leave provisions. 

A Succinct Summary of the Key Tax Provisions

CavalryOn March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (colloquially, the “CARES Act” or the “Act”).  The CARES Act is a historic $2.2 trillion relief package enacted by lawmakers in the wake of the COVID-19 pandemic.  The Act is more than 880 pages in length and contains a multitude of provisions, all of which are intended to support individuals and businesses during these horrific times.

We have attempted to provide our readers with a broad overview of the most significant tax provisions of the Act.  If a provision is potentially applicable to a given situation, please read the entire provision of the Act to affirm its application.

CautionYesterday, like other commentators, we reported that, in accordance with its terms, the Families First Coronavirus Response Act (“Act”) is effective on April 2, 2020.  Please be aware, the U.S. Department of Labor (“DOL”) posted on its website a statement that the Act is effective on April 1, 2020.  We assume this is not a premature April Fool’s joke.  Accordingly, since DOL is the agency enforcing the non-tax aspects of the Act, we advise employers to ready themselves for the new law one day earlier than expected.  It is better to be safe than sorry!    

FamilyPresident Trump signed the Families First Coronavirus Response Act (the “Act”) on March 18, 2020.  The Act becomes effective April 2, 2020, and contains a number of tax provisions that fund the Act’s mandatory paid leave provisions. 

This blog post summarizes the Act’s paid leave and associated employer tax-related benefits.  The Act is broad in application, creating complexity.  In general, it applies to employers with fewer than 500 employees.  We have attempted to dissect the Act in bite-sized, easily understandable chunks, removing the complexities whenever possible.

magicianEarlier this week, a local tax practitioner asked us whether it was true that the City of Portland no longer allows depreciation deductions resulting from an election under Section 754 of the Internal Revenue Code of 1986, as amended (the “Code”), for purposes of computing tax under the City of Portland Business License Tax (“BLT”) and the Multnomah County Business Income Tax (“BIT”).  The answer we gave was “yes.”  Of course, the response we received from the practitioner was “why.”  That question is more difficult to answer than the original question.  Nevertheless, we present this blog post to remind tax practitioners of the City’s position on this issue and to discuss the implications of the City’s new position.

Capitol in Salem, OregonWe are taking a break from our multi-post coverage of Opportunity Zones to address a recent, significant piece of Oregon tax legislation. 

On May 16, 2019, Governor Kate Brown signed into law legislation imposing a new “corporate activity tax” (“CAT”) on certain Oregon businesses.  The new law expressly provides that the tax revenue generated from the legislation will be used to fund public school education. 

Although the new tax is called a “corporate” activity tax, it is imposed on individuals, corporations, and numerous other business entities.  The CAT applies for tax years beginning on or after January 1, 2020. 

To help defray the expected increased costs of goods and services purchased from taxpayers subject to the CAT that will assuredly be passed along to consumers, the Oregon Legislative Assembly modestly reduced personal income tax rates at the lower income brackets.

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Larry J. Brant
Editor

Larry J. Brant is a Shareholder in Foster Garvey, a law firm based out of the Pacific Northwest, with offices in Seattle, Washington; Portland, Oregon; Washington, D.C.; New York, New York, Spokane, Washington; and Beijing, China. Mr. Brant practices in the Portland office. His practice focuses on tax, tax controversy and transactions. Mr. Brant is a past Chair of the Oregon State Bar Taxation Section. He was the long-term Chair of the Oregon Tax Institute, and is currently a member of the Board of Directors of the Portland Tax Forum. Mr. Brant has served as an adjunct professor, teaching corporate taxation, at Northwestern School of Law, Lewis and Clark College. He is an Expert Contributor to Thomson Reuters Checkpoint Catalyst. Mr. Brant is a Fellow in the American College of Tax Counsel. He publishes articles on numerous income tax issues, including Taxation of S Corporations, Reasonable Compensation, Circular 230, Worker Classification, IRC § 1031 Exchanges, Choice of Entity, Entity Tax Classification, and State and Local Taxation. Mr. Brant is a frequent lecturer at local, regional and national tax and business conferences for CPAs and attorneys. He was the 2015 Recipient of the Oregon State Bar Tax Section Award of Merit.

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