Larry's Tax Law

The Consolidated Appropriations Act, 2021

In a bipartisan effort, H.R. 133-116th Congress: Consolidated Appropriations Act, 2021 (the "Consolidated Appropriations Act, 2021") overwhelmingly passed both the House and the Senate on December 21, 2020.  It is now on President Trump's desk awaiting his signature.   

The Consolidated Appropriations Act, 2021, which spans almost 6,000 pages, once signed into law, will bring holiday cheer to many.  The new law includes a huge variety of provisions aimed at assisting individuals and businesses during this time of need.  One provision in particular is aimed at curing a wrong created by the Internal Revenue Service ("IRS") in Notice 2020-32.  

Introduction

On November 2, 2015, the Bipartisan Budget Act (“Act”) was signed into law by President Barack Obama.  One of the many provisions of the Act significantly impacted: (i) the manner in which entities taxed as partnerships are audited by the Internal Revenue Service (“IRS”); and (ii) who is required to pay the tax resulting from any corresponding audit adjustments.  The new rules sprung into life for tax years beginning after December 31, 2017. 

In the wake of the coronavirus pandemic, companies in wide-ranging industries across the country have unprecedented numbers of employees working from remote locations.  In a prior post, we discussed numerous issues that may arise from this new normal of teleworking, including tax, labor and employment, liability, and business registration implications. 

In this post, we drill down a bit further with respect to employers’ state tax reporting and payment obligations that may result from having employees working remotely in states other than where the employers maintain physical offices.  This is especially relevant in metropolitan areas that straddle multiple states, like here in Portland, Oregon.

When 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.

More 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.

Earlier this year, the Idaho Supreme Court, in Noell Industries, Inc. v. Idaho State Tax Comm’n, --- P.3d ---- (2020), ruled that gain from the sale of membership interests in a limited liability company that had business operations in Idaho by a taxpayer domiciled outside of Idaho was not business income.  As a result, the gain was not taxable in Idaho.

The court, in a 3-2 decision, upheld the district court’s reversal of the Idaho Tax Commission’s determination to tax the income.  The sharks were circling the taxpayer, ready to attack, but the majority of the justices on the Idaho Supreme Court intervened, saving the taxpayer from a savage death (or at least a boatload of taxes).

During the first special session of 2020, the Oregon legislature passed House Bill 4212 (“HB 4212”).  Governor Kate Brown (the “Governor”) signed HB 4212 into law on June 30, 2020. 

HB 4212 extends the time periods that apply to court proceedings, including those in the Oregon Tax Court (“Tax Court”), to provide relief to litigants who may be impacted by the COVID-19 pandemic.

On July 21, 2020, the Chief Justice of the Oregon Supreme Court (the “Chief Justice”) issued Order No. 20-027 (the “Order”) to facilitate the implementation of HB 4212.  In this post, we address the impact that HB 4212 and the Order may have on Tax Court cases.

Taxpayers with cases pending in either the magistrate or regular division of the Tax Court may be able to utilize these extended time periods.  Additionally, taxpayers may still have the ability to initiate or continue Tax Court proceedings if they missed the time period for doing so originally, including appealing adverse determinations to the magistrate division, regular division, or even the Oregon Supreme Court.

The 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.

The 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”).

Up 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.