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WildfiresWhen we thought times were bad enough with the COVID-19 pandemic and widespread social unrest in our country, the West Coast, including the Pacific Northwest, was struck with unprecedented wildfires and massive windstorms, taking lives, destroying property and rendering the air quality throughout the region unhealthy.  On September 16 and 17, the Internal Revenue Service announced good news for many taxpayers residing in Oregon. 

In News Release OR-2020-23 and News Release IR-2020-215, the IRS announced that, due to the wildfires and windstorms striking Oregon, the deadline for certain Oregonians to file returns and make tax payments will be extended to January 15, 2021.

Shot clockMore than six months into the coronavirus pandemic, and approximately four months since the IRS issued Notice 2020-32, it is looking increasingly likely that taxpayers will not be permitted to deduct business expenses funded with Paycheck Protection Program (“PPP”) loan proceeds that are ultimately forgiven.  It is terribly late in the game not to have finality on the issue, especially with the third quarter 2020 estimated tax payments due on September 15 (next week).     

Background

As we previously discussed, PPP loans authorized by the CARES Act may be forgivable, in whole or in part, if taxpayers use the proceeds for qualifying expenses (namely, payroll, benefits, mortgage interest, rent, and utilities).  Unlike other debt that is forgiven, PPP loan amounts forgiven pursuant to the CARES Act do not constitute cancellation of debt income.

Swimming poolOn August 8, 2020, President Trump issued an executive order, directing the U.S. Treasury to grant employers the ability to defer the withholding, deposit and payment of certain payroll taxes as further COVID-19 tax relief.  The deferral applies only to the employee portion of Social Security taxes and Railroad Retirement taxes (i.e., 6.2 percent of wages) required to be withheld and paid under Internal Revenue Code (“Code”) Sections 3101(a) and 3201(a) from September 1, 2020 to December 31, 2020. 

PRACTICE ALERT:  The deferral does not apply to required employee Medicare tax withholdings under Code Section 3101(b) (either the standard 1.45 percent on all wages or the additional 0.9 percent tax on wages in excess of $200,000).  Further, the deferral is not available for the employer’s share of Social Security (6.2 percent) or Medicare (1.45 percent) taxes.

IRS NOTICE 2020-65

On August 28, 2020, the IRS issued Notice 2020-65, providing guidance relative to the president’s executive order.  It provides answers to several important questions.

Notice 2020-65 defines employers required to withhold and pay Social Security and Railroad Retirement taxes as “Affected Taxpayers.”  It goes on to provide that the due date for withholding and payment of the employee portion of Social Security taxes and Railroad Retirement taxes for the period September 1, 2020 to December 31, 2020 is postponed until the period commencing January 1, 2021 through April 30, 2021. 

PiperAs most people are aware, the 2019 income tax filing and payment deadlines for all taxpayers who file and pay their federal income taxes on April 15, 2020, were automatically extended until July 15, 2020.  This relief is automatic and generally applies to all individual, trust and corporation tax returns.  Additionally, this relief extends to estimated tax payments for tax year 2020 that were due on April 15, 2020.

People First Initiative

Additionally, the People First Initiative offered taxpayers who owed taxes some further relief.  IRS Commissioner Chuck Rettig stated relative to the People First Initiative:

Golf teeThe Coronavirus Aid, Relief, and Economic Security (“CARES”) Act waives the requirement that taxpayers take required minimum distributions (“RMDs”) for 2020 from IRAs, 401(k) plans and other defined contribution plans.  Taxpayers who already took 2020 RMDs may be able to return them to their retirement plans or IRAs and avoid paying income tax on the distributions.  The timing, however, is critical.

Notice 2020-51, issued by the IRS last week, provides needed clarity about this provision of the CARES Act.

Rubik's CubeThe Small Business Administration (“SBA”) continues its quest to provide guidance relative to the Paycheck Protection Program (“PPP”) enacted as part of the CARES Act and the Paycheck Protection Program Flexibility Act of 2020 (“PPPFA”) enacted by Congress to provide clarification and remove some of the rigidity surrounding the PPP.   

The PPP legislation and much of the guidance PPP borrowers have received to date is fraught with complexity and inconsistency.   The SBA is doing its best, as Paul McCartney and John Lennon expressed in their hit song We Can Work It Out, to help PPP borrowers get through these trying times: 

Try to see it my way
Only time will tell if I am right or I am wrong
While you see it your way
There’s a chance that we might fall apart before too long
We can work it out
We can work it out

In that vein, the SBA recently issued interim final rules (“IFRs”) focused on PPP loan forgiveness.  Additionally, last week the SBA published a revised PPP loan forgiveness application (“Form 3508”), and a new short-form forgiveness application (“Form 3508EZ”).

Slow road signUp until this past Wednesday, the Paycheck Protection Program (“PPP”) loan forgiveness application issued by the Small Business Administration (“SBA”) had not been updated since May.  New guidance was issued in the interim (and anyone who has been following this area knows that guidance is constantly evolving).  Most taxpayers have some breathing room before they must file their forgiveness applications; so, it may behoove them to wait to file their applications until they digest the most recent guidance.

Flashing lightI previously reported that the Paycheck Protection Program (“PPP”) loan program appeared to have been extended to December 31, 2020.  Unfortunately, the U.S. Small Business Administration (“SBA”) quashed that dream.  While Congress extended the “covered period” to December 31, 2020, it did not extend the life of the PPP to that date.  The SBA recently made that clear when it announced that the extension of the covered period “should not be construed as to permit the SBA to continue accepting applications for [PPP] loans after June 30, 2020.”  So, the PPP application deadline remains June 30, 2020; borrowers in need of a PPP loan only have until the end of this month to submit their applications.  While funds may remain available ($130 billion according to a recent government announcement), borrowers need to hurry up and get their applications submitted to lenders.  Time is of the essence.  To avoid any problems with application submissions, borrowers are wise to submit their applications well in advance of the June 30 deadline.  According to Murphy’s Law, if something can go wrong, it will.  So, applications should be made as soon as possible.  Don’t wait until the last minute.

SignatureAs I previously reported, the Paycheck Protection Program Flexibility Act of 2020 (“PPPFA”) was jointly introduced in the U.S. House of Representatives (“House”) by Representative Chip Roy, a Republican from Texas and Representative Dean Phillips, a Democrat from Minnesota.  By a nearly unanimous vote, the PPPFA was passed in the House on May 28, 2020.  As anticipated, the legislation was promptly introduced in the U.S. Senate (“Senate”), where (without amendment) it was unanimously passed on June 3, 2020 by a voice vote.  President Trump signed the PPPFA into law today.

This is especially good news for businesses that have been shut down and/or otherwise severely financially impaired by the COVID-19 pandemic.  The PPPFA changes the landscape relative to loans received by businesses under the Paycheck Protection Program (“PPP”) that was enacted as part of the CARES Act.  The PPPFA, at least for some PPP loan borrowers, may not bring glee and joy!  The law contains some provisions that could be detrimental to some businesses.

Digital technologyIn News Release 2020-107, issued Thursday, May 28, 2020, the IRS announced that taxpayers will soon be able to electronically file Form 1040-X, Amended U.S. Individual Income Tax Return.  This is welcome news for taxpayers and tax practitioners!

Background

According to the IRS, more than 90 percent of individual taxpayers electronically file their U.S. Federal Income Tax Returns (Form 1040) each year.  Likewise, approximately three million amended U.S. Federal Income Tax Returns (Form 1040-X) are filed each year.

Currently, a large number of tax forms may be filed electronically, including U.S. Federal Income Tax Forms 1040, 1065, 1120 and 1120S.  Additionally, taxpayers may electronically amend U.S. Federal Income Tax Forms 1065, 1120 and 1120S.  They may not, however, amend U.S. Federal Income Tax Form 1040 (Form 1040-X) electronically.  

Despite repeated pleas by tax practitioners for the ability to file Form 1040-X electronically, the IRS has not been able to accommodate practitioners.  That is about to change! 

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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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