revision date: 3/24/2020 covid-19 tax related issues · clientwhys.com 5 covid-19 tax related...

Course Number CPE0420 Revision Date: 3/24/2020

COVID-19 Tax Related Issues

After completing this course, the student will be able to apply the filing changes and tax law changes resulting from the COVID-19 pandemic,

including Notice 2020-18 tax filing changes, the Families First Coronavirus Response Act and the CARES Act focusing on the tax related issues of that

legislation.

Continuing Education Credit: 1-Hr

Study Level: Intermediate Prerequisites: Basic Understanding of Tax Preparation Author: Lee T. Reams, EA Reviewer: Marcia Salter, EA

Copyright 2020

This material is designed to provide the experienced tax professional with theory and practical knowledge for a variety of problems encountered in preparing individual income tax returns. Special emphasis is given to the latest tax law changes, court cases, IRS rulings and regulations. The text incorporates examples and problems to illustrate points that have a practical application of law. This material is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service and assumes no liability whatsoever in conjunction with its use. Tax laws are continually changing and are subject to differing interpretations. You are cautioned to do additional research before acting on information contained in this course.


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TABLE OF CONTENTS Filing, Payment & Actions Deadlines (Notice 2020-18) 5

Filing Due Date Postponement 5 Payment Due Date Postponement: 5 Extensions 6 Late Filing and Late Payment Penalties 6 Other Filings 6

Other Issues Not Included in Notice 2020-18 6 2019 IRA Contributions 6 Distributions of Excess Retirement Plan Contributions 6 2019 HSA & Archer MSA Contributions 6 Cancelling Direct Withdrawals 7 Estimated Tax Payments 7 Underpayment Penalties 7

High Deductible Health Plans 7 Family First Corona Virus Response Act 8 Emergency Paid Sick Leave 8 Child Care Leave 9 Social Security Payroll Tax Credit 10 People First Imitative 11 Existing Installment Agreements 11 Offers in Compromise 12 Field Collection Activities 12

Automated Liens & Levies 12 Passport Certifications 12 Private Debt Collection 12 Field, Office and Correspondence Audits 12 EITC & Wage Verification Reviews 13 Independent Office of Appeals 13 Statute of Limitations 13

CARES Act 14 2020 Recovery Rebates for Individuals 14 Coronavirus-Related Retirement Funds Distributions 15 Qualified Retirement Plan Loans 16 Minimum Required Distribution (RMD) Waiver 17 Above-the-Line Charitable Contribution 17 Limits on 2020 Charitable Contributions 17 Employer Payment of student loans 18 Delay of Payment of Employer Payroll Taxes 18 Modification for NOLs 18 Qualified Improvement Property Glitch 19 Limitation on Losses for TP other than Corps 19 Corp Credit for Prior Year Minimum Tax Liability 20 Modification of Limitation on Business Interest 20 Telehealth and HSAs 20 Reimbursement of Feminine Hygiene Products 21

Addendum

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ADDENDUM When preparing this course, the information related the Employee Retention Credit

was inadvertently omitted.

Employee Retention Credit (Act Sec 2301) Eligible Employers:

• Business Operations Curtailed: Eligible employers are employers who were carrying on a trade or business during 2020 and for which the operation of that business is fully or partially suspended due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to the COVID-19 outbreak.

• Gross Receipts Declined 50%: Employers that have gross receipts that are less than 50% of their gross receipts for the same quarter in the prior year are also eligible, until their gross receipts exceed 80% of their gross receipts for the same calendar quarter in the prior year. (Act Sec. 2301(c)(2))

CAUTION: An employer who secures an SBA Paycheck Protection Loan created by the CARES Act is ineligible for the employer retention credit. The reason for that is a Paycheck Protection Loan can be forgiven for wages paid during an 8-week period thereby leading to double dipping on CARES Act benefits.

Credit: The credit is refundable payroll tax credit and is 50% of qualified wages, up a maximum wage of $10,000. (Act Sec. 2301(a)). No credit is available with respect to an employee for any period for which the employer is allowed a Work Opportunity Credit with respect to the employee. (Act Sec. 2301(h)(1))

Application Period: For wages paid or incurred between March 13 and December 31 of 2020.

Credit Application: The credit is applied against payroll taxes.

Qualified Wages (Includes health benefits):

• 100 or fewer Employees: All wages paid or incurred qualify for the credit.

• More than 100 Employees: Only for wages paid or incurred to employees who are not providing services due to the suspension of the business or a drop in gross receipts.

Wages do not include amounts taken into account for purposes of the payroll credits, for required paid sick leave or required paid family leave in the Families First Coronavirus Act. In other words, no double dipping.

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FILING, PAYMENT & ACTIONS DEADLINES Notice 2020-18

BACKGROUND: On March 18, 2020, the IRS issued Notice 2020-17 which postponed the due date for certain Federal income tax payments from April 15, 2020 until July 15, 2020. Since then the IRS issued Notice 2020-18 which effectively supersedes Notice 2020-17. DETAILS OF NOTICE 2020-18: Filing Due Date Postponement:

• For filing 2019 federal income returns due April 15, 2020 the due date is postponed to July 15, 2020.

• This applies to any 2019 federal income tax returns due April 15, 2020: Thus, it applies to:

o 2019 individual 1040 and 1040-SR tax returns o 2019 trust and estate 1041 returns o 2019 partnership returns with a fiscal year ending January 31, 2020. o 2019 calendar year corporation returns o 2019 association returns (Forms1120-C and 1120-H)

CAUTION: This postponement does not include the 1120-S or 1065 returns which were due on March 16. Nor does it include FBAR filings. However, FBARs have an automatic extension to October 15 which effectively makes October 15, 2020 the FBAR due date.

In addition, there is no extension of the statute of limitations for 2016. Those returns or claims for refund must be filed by April 15, 2020. (Reference IRS COVID-19 Webpage Q&A #22).

Payment Due Date Postponement: • Any payments that would have been due on April 15, 2020 for the returns

listed above are also postponed to July 15, 2020. This includes self-employment tax.

• Also postponed is the payment of the first 2020 estimated tax installment (Forms 1040-ES, 1041-ES, 1120-W). Notice 2020-18 does not postpone the June 15 estimated tax payments (or even address this issue), so for now the June 15th installment needs to be paid timely.

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• There is no limit on the amount of the payment that can be postponed. Previous guidance in Notice 2020-17 included limits. But 2020-18 supersedes that notice and there are no limits.

• The payment postponement also applies to any retirement plan or IRA early withdrawal penalties incurred in 2019. (Reference IRS COVID-19 Webpage Q&A #18)

Extensions – Notice 2020-18 states that affected taxpayers do not have to file Forms 4868 or 7004 to extend to the July 15 due date. If more time is required after that the 4868 or 7004 extensions can be used to extend the due date until October 15, 2020. The request must be filed by July 15, 2020, and to avoid interest and penalties when filing after July 15, 2020, the anticipated tax due must be paid with the extension request. (Reference IRS COVID-19 Webpage Q&A #12)

Late Filing and Late Payment Penalties – No late filing or late payment penalties will apply during the 3-month filing and payment postponement period. Unless further relief is provided these penalties will resume after July 15, 2020.

Other Filings – Notice 2020-18 makes it clear that no extension is provided for the payment or deposit of any other type of Federal tax, or for the filing of any Federal information return.

OTHER ISSUES NOT INCLUDED IN NOTICE 2020-18 2019 IRA Contributions – Normally the last day to make an IRA contribution for 2019 is the unextended due date of the 2019 tax return, i.e. April 15, 2020. Since that date has been extended to July 15, 2020, so is the IRA contribution deadline. (Reference IRS COVID-19 Webpage Q&A #17).

Distributions of Excess Retirement Plan Contributions – Excess elective deferrals made to retirement plans in 2019, if withdrawn by April 15, 2020, will not be included in income. This deadline has not been extended. (Reference IRS COVID-19 Webpage Q&A #19).

2019 HSA & Archer MSA Contributions – Like the IRA contribution due date, the due date for 2019 HSAs and Archer MSA contributions has been extended to July 15, 2020. (Reference IRS COVID-19 Webpage Q&A #21).

Cancelling Direct Withdrawals - If you have already filed a return that included direct withdrawals for the tax payment, and the withdrawal date has not yet passed, the direct withdrawal can be cancelled by the taxpayer calling the IRS e-file Payment Services 24/7 at 1-888-353-4537. But wait 7-10 days after the return was accepted before calling. Cancellation requests must be received no later than 11:59 p.m. ET two business days prior to the scheduled payment date.

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• No automatic extension - The withdrawals will not be automatically extended to the July 15 date.

• New Scheduled Payment - A new automatic withdrawal will need to be made or a check sent for payment no later than the July 15 due date. If sending a check, it is wise to obtain a proof of mailing from the P.O. or mail the check a couple weeks ahead of the July 15 due date. The check should be accompanied by a filled-out Form 1040-V, Payment Voucher.

Estimated Tax Payments - (Reference IRS COVID-19 Webpage Q&A #16). • April 15 Estimate – The due date for the April 15 estimate has been extended to

July 15, 2020. • June 15 Estimate – Due date was not extended and continues to be June 15,

2020. Of course, one can continue to make estimated tax payments in the usual manner and according to the usual schedule.

Underpayment Penalties – No relief from the penalty for underpayment of 2019 taxes is provided. The only relief is via Form 2210 for individuals and Form 2220 for corporations. (Reference IRS COVID-19 Webpage Q&A #24)

HIGH DEDUCTIBLE HEALTH PLANS Notice 2020-15

The IRS in IR-2020 advised that high-deductible health plans (HDHPs) can pay for 2019 novel coronavirus (COVID-19)-related testing and treatment, without jeopardizing the plan status. This also means that an individual with an HDHP that covers these costs may continue to contribute to a health savings account (HSA).

In Notice 2020-15 the IRS said that health plans that otherwise qualify as HDHPs will not lose that status merely because they cover the cost of testing for or treatment of COVID-19 before plan deductibles have been met. The IRS also noted that, as in the past, any vaccination costs continue to count as preventive care and can be paid for by an HDHP.

Notice 2020-15 applies only to HSA-eligible HDHPs. Employees and other taxpayers in any other type of health plan with specific questions about their own plan and what it covers should contact their plan.

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FAMILIES FIRST CORONAVIRUS RESPONSE ACT

H.R. 6201, the Families First Coronavirus Response Act was signed into law by President Trump and becomes effective April 2, 2020, and the provisions of the legislation will continue through December 31, 2020. This legislation makes significant changes to the Family Medical Leave Act (FMLA) and to Emergency Paid Sick Leave.

EMERGENCY PAID SICK LEAVE For employers with fewer than 500 employees the legislation makes the employees eligible for paid sick leave without regard to the duration of their employment with the company. Thus, if an employee is unable to work, or work from home, for any of the following reasons they qualify for paid sick leave.

1. Is subject to federal, state, or local isolation or quarantine order related to COVID-19

2. Has had a health care provider advise them that they should self-quarantine as a result of concerns related to COVID-19 (self-quarantining does not qualify).

3. Is seeking medical diagnosis as a result of having symptoms of COVID-19. 4. Is caring for somebody (not necessarily a family member) who is subject

to a federal, state, or local isolation or quarantine due to COVID-19; or who has been advised to self-quarantine by a health care provider as a result of COVID-19.

5. If the employee’s child’s school or care facility has been closed or is unavailable as a result of COVID-19 and the employee needs to care for the child.

The Act also includes a provision that an employee qualifies if the employee Is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.

Hours of Sick Leave Time: • Full-Time Employee: 80 Hours • Part-Time Employee (regularly scheduled hours): Same number of hours

they would normally work during a two-week period. • Part-Time Employee (sporadic hours): Special calculation method.

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Sick Pay Benefit:

• For reasons 1 through 3, above: Normal rate of pay but limited to a maximum of $511 per day and a total of $5,110.

• For reasons 4 and 5: Two-thirds of their normal rate of pay but limited to $200 per day and a maximum of $2,000.

Other Issues:

• Employee Accrued Paid Leave – The Act specifically prohibits employers from requiring employees to use other accrued paid leave before using the emergency leave.

• Existing Paid Sick Leave or Paid Time Off - Any existing paid sick leave or paid time off is separate from Emergency Paid Sick Leave and remains with the employee.

• Notice: Employees are not required to provide advance notice before the first day that they take paid sick leave.

CHILD CARE LEAVE (Paid Family Leave) Under the Act employers with fewer than 500 employees are required to pay child care leave for any employee who has been employed by the employer more than 30 days. The first 10 days of leave may be unpaid, or the employee may elect to substitute any accrued vacation leave, personal leave, or medical or sick leave for unpaid leave, after which time these rules will apply. Employee Qualifications - To qualify the employee must be unable to work, or work from home, because the employee must care for their child under 18 years of age, due to school or childcare closures related to a COVID-19 emergency.

Family Leave Benefit – Two-thirds of their normal rate of pay but limited to $200 per day and a maximum of $10,000.

Notice: Where the need for childcare is anticipated an employee should provide their employer with as much advance notice as possible. However, advance notice is not required.

Fear of Losing Job:

• 25 Employees or More: Employers with 25 or more employees must allow their employees to return to work after the leave.

• Less Than 25 Employees: Employers with fewer than 25 employees must allow their employees to return to work after the leave unless the position no longer exists as a result of changes in economic or operating conditions related to/resulting from COVID-19 and the public health emergency. Even so, the act requires employers to do their best to return an employee to an equivalent position if available for up to a period of one year.

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State Family Leave Programs – Some states provide family leave benefits and it will take time to see if there is nexus between the federal emergency benefits and state benefits. For example, CA has a paid family leave program compensated by the state.

SOCIAL SECURITY PAYROLL TAX CREDIT Employers who provide Emergency Paid Sick Leave benefits and Emergency Child Care Leave benefits will be given refundable tax credits against their Social Security taxes that will refund them fully for qualified sick leave and family leave wages under the Act. A similar credit is available for self-employed individuals against their self-employment tax.

Procedure for Claiming this Credit (IR2020-57) - Under guidance that will be later released, eligible employers who pay qualifying sick or child care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS.

The payroll taxes that are available for retention include:

• Withheld federal income taxes, • Employee share of Social Security and Medicare taxes, and • Employer share of Social Security and Medicare taxes with respect to all

employees.

Accelerated Payment - If there are not sufficient payroll taxes to cover the cost of qualified sick and childcare leave paid, employers will be able file a request for an accelerated payment from the IRS. The IRS expects to process these requests in two weeks or less. The details of this new, expedited procedure will be announced soon.

Example - If an eligible employer paid $5,000 in sick leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date.

Example - If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes in order to make qualified leave payments and file a request for an accelerated credit for the remaining $2,000.

Self-Employed Individuals - Equivalent childcare leave and sick leave credit amounts are available to self-employed individuals under similar circumstances. These credits will be claimed on their income tax return and will reduce estimated tax payments.

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Small Business Exemption - Small businesses with fewer than 50 employees will be eligible for an exemption from the leave requirements relating to school closings or childcare unavailability where the requirements would jeopardize the ability of the business to continue. The exemption will be available on the basis of simple and clear criteria that make it available in circumstances involving jeopardy to the viability of an employer's business as a going concern. The Department of Labor will provide emergency guidance and rulemaking to clearly articulate this standard. Non-Enforcement Period - The Labor Department will be issuing a temporary non-enforcement policy that provides a period of time for employers to come into compliance with the Act. Under this policy, the Labor Department will not bring an enforcement action against any employer for violations of the Act so long as the employer has acted reasonably and in good faith to comply with the Act. The Labor Department instead will focus on compliance assistance during the 30-day period.

PEOPLE FIRST INITIATIVE IR-2020-59

To help people facing the challenges of COVID-19 issues, the IRS has announced a series of steps providing taxpayer relief on a variety of issues including easing payment guidelines to postponing compliance actions.

The IRS will be temporarily modifying the following activities as soon as possible: the projected start date will be April 1 and the effort will initially run through July 15. During this period, to the maximum extent possible, the IRS will avoid in-person contacts. However, the IRS will continue to take steps where necessary to protect all applicable statutes of limitations.

More specifics about the implementation of these provisions will be released later. Highlights of the key actions in the IRS People First Initiative include:

Existing Installment Agreements – For taxpayers under an existing Installment Agreement, payments due between April 1 and July 15, 2020 are suspended. Taxpayers who are currently unable to comply with the terms of an Installment Payment Agreement, including a Direct Deposit Installment Agreement, may suspend payments during this period if they prefer. Furthermore, the IRS will not default any Installment Agreements during this period. By law, interest will continue to accrue on any unpaid balances.

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Offers in Compromise (OIC) – The IRS is taking several steps to assist taxpayers in various stages of the OIC process:

• Pending OIC applications – The IRS will allow taxpayers until July 15 to provide requested additional information to support a pending OIC. In addition, the IRS will not close any pending OIC request before July 15, 2020, without the taxpayer's consent.

• OIC Payments – Taxpayers have the option of suspending all payments on accepted OICs until July 15, 2020, although by law interest will continue to accrue on any unpaid balances.

• Delinquent Return Filings - The IRS will not default an OIC for those taxpayers who are delinquent in filing their tax return for tax year 2018. However, taxpayers should file any delinquent 2018 return (and their 2019 return) on or before July 15, 2020.

Field Collection Activities - Liens and levies (including any seizures of a personal residence) initiated by field revenue officers will be suspended during this period. However, field revenue officers will continue to pursue high-income non-filers and perform other similar activities where warranted.

Automated Liens and Levies – New automatic, systemic liens and levies will be suspended during this period.

Passport Certifications to the State Department – IRS will suspend new certifications to the Department of State for taxpayers who are "seriously delinquent" during this period. These taxpayers are encouraged to submit a request for an Installment Agreement or, if applicable, an OIC during this period. Certification prevents taxpayers from receiving or renewing passports.

Private Debt Collection – New delinquent accounts will not be forwarded by the IRS to private collection agencies to work during this period.

Field, Office and Correspondence Audits – During this period, the IRS will generally not start new field, office and correspondence examinations. They will continue to work refund claims where possible, without in-person contact. However, the IRS may start new examinations where deemed necessary to protect the government's interest in preserving the applicable statute of limitations.

• In-Person Meetings - In-person meetings regarding current field, office and correspondence examinations will be suspended. Even though IRS examiners will not hold in-person meetings, they will continue their examinations remotely, where possible. To facilitate the progress of open examinations, taxpayers are encouraged to respond to any requests for information they already have received - or may receive - on all examination activity during this period if they are able to do so.

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• Unique Situations - Particularly for some corporate and business taxpayers, the IRS understands that there may be instances where the taxpayers desire to begin an examination while people and records are available and respective staffs have capacity. In those instances when it's in the best interest of both parties and appropriate personnel are available, the IRS may initiate activities to move forward with an examination -- understanding that COVID-19 developments could later reduce activities for an agreed period.

Earned Income Tax Credit and Wage Verification Reviews – Taxpayers have until July 15, 2020, to respond to the IRS to verify that they qualify for the Earned Income Tax Credit or to verify their income. These taxpayers are encouraged to exercise their best efforts to obtain and submit all requested information, and if unable to do so, please reach out to the IRS indicating the reason such information is not available. Until July 15, 2020, the IRS will not deny these credits for a failure to provide requested information.

Independent Office of Appeals – Appeals employees will continue to work their cases. Although Appeals is not currently holding in-person conferences with taxpayers, conferences may be held over the telephone or by videoconference. Taxpayers are encouraged to promptly respond to any outstanding requests for information for all cases in the Independent Office of Appeals.

Statute of Limitations - The IRS will continue to take steps where necessary to protect all applicable statutes of limitations. In instances where statute expirations might be jeopardized during this period, taxpayers are encouraged to cooperate in extending such statutes. Otherwise, the IRS will issue Notices of Deficiency and pursue other similar actions to protect the interests of the government in preserving such statutes. Where a statutory period is not set to expire during 2020, the IRS is unlikely to pursue the foregoing actions until at least July 15, 2020.

Continue to next pages for CARES Act

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CARES ACT

Coronavirus Aid, Relief, and Economic Security Act (HR 748) Passed by the Senate 3/25/20; passed by the House 3/27/20; signed by the President 3/27/20

2020 RECOVERY REBATES FOR INDIVIDUALS – (Act Sec 2201) Overview – The recovery rebates are actually credits allowed on a taxpayer’s 2020 tax return and then paid out in advance by the Treasury, similar to the advance premium tax credit, and must be reconciled on the 2020 tax return.

Maximum Credit Amounts: • Each eligible individual: $1,200 • Married couple (both eligible) filing Jointly: $2,400 • Each qualifying child: $500

Credit Phase-out – The credit is phased out by 5% of the taxpayer’s AGI that exceeds the filing status threshold.

Credit Reconciliation – If the advance payment exceeds what is allowed then the excess will have to be repaid on the 2020 tax return. Advance rebates that are more than is allowable for 2020 must be reduced (but not below zero) by the advance rebates made or allowed to the taxpayer during 2020.

Eligible Taxpayer – An eligible taxpayer is anyone other than: (A) a non-resident alien individual, (B) a dependent, or (C) an estate or trust

Social Security Number – No credit shall be allowed to an individual without an SSN.

Adopted children - In the case of a qualifying child who is adopted, an adoption identification number qualifies in place of an SSN.

Military (Special Rule) – Where one spouse has an SSN, the other is not required to have one.

RECOVERY REBATE CREDIT AGI PHASEOUTS Threshold Complete Phase Out Unmarried Taxpayers (as well as Married Filing Separately)

$75,000 $98,990

Head of Household $112,500 $136,490 Married Taxpayer Filing Joint $150,000 $197,990

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Credit Against Possession Tax – Credit is not allowed against the taxes imposed by a possession of the U.S., including Puerto Rico and the Commonwealth of the Northern Mariana Islands.

Advance Payment – Those eligible for an advance payment include those that:

1. Filed a 2019 tax return. If none, then if,

2. Filed a 2018 tax return. If none, then if,

3. Received 2019 Social Security or Railroad Retirement benefits.

No advance credits or refunds will be issued after December 31, 2020 (although the credit will be allowed on the tax return).

2020 Tax Return Reconciliation – Any credit allowed under this provision is to be reduced by any advance payments.

Joint Returns – In the case of a joint return any advance payment shall be treated as being 50% by each spouse (Act Sec 2201(e)(2)). This is obviously included in case the spouses do not fie a joint return in the subsequent year. It should be noted if they do file other than joint, the phase out levels are lower for other filing statuses and it could trigger a repayment where there would not be one if a joint return was filed.

CORONAVIRUS-RELATED RETIREMENT FUNDS DISTRIBUTIONS (Act Sec 2202(a)) The Act allows qualified taxpayers to make coronavirus-related distributions from qualified plans or IRAs not to exceed $100,000. Act Sec 2202(a)(2).

Qualified Taxpayer – A qualified taxpayer is one (Act Sec 2202(a)(4)(A)):

(I) That is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention,

(II) Whose spouse or dependent is diagnosed with such virus or disease by such a test, or

(III) Who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as may be determined by the Secretary of the Treasury.

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Distribution Period – From January 1, 2020 and before December 31, 2020. (Act Sec 2202(a)(4)(A)(i))

10% Penalty Waived – Coronavirus-related distributions are not subject to the 10% early withdrawal penalty. (Act Sec 2202(a)(1))

Taxability Spread Over 3 Years – The Act permits the taxpayer to spread the income from a coronavirus-related distribution over a three-year period beginning with the year of distribution or elect out (i.e., report it all in the distribution year). Act Sec 2202(a)(5).

Re-contribution Option – Any amount of the distribution can be re-contributed in one or more re-contributions over the 3-year period beginning on the day after the date of the distribution. If the funds are re-contributed, they are treated as having been transferred via direct trustee-to-trustee transfer within the 60-day limit that would have applied if it were a rollover. Act Sec 2202(a)(3).

QUALIFIED RETIREMENT PLAN LOANS (Act Sec 2202(b)) Under current law, a loan from a qualified employer plan to a participant or beneficiary is treated as a plan distribution unless the loan amount is the lesser of $50,000 or half of the present value of the employee's nonforfeitable accrued benefit under the plan. There is an exception that allows a loan up to $10,000 without regard to the accrued benefit rule and the loan is required to be repaid within 5 years (longer repayment can be used for a principal residence plan loan).

Maximum Amount – The Act increases the maximum amount a plan participant or beneficiary can borrow from a qualified employer plan from $50,000 to $100,000. Act Sec 2202(b)(1)(A) The “half of present value” test is changed to ‘‘the present value of the nonforfeitable accrued benefit of the employee under the plan.’’Act Sec 2202(b)(1)(B)

Longer Repayment Period – For loans in existence as of the enactment date or taken out after the enactment date and through December 31, 2020, that have a due date in the period from the date of enactment through December 31, 2020, shall have the due date delayed by one year.

Any subsequent repayments with respect to any such loan are to be adjusted to reflect the delay in the due date and any interest accruing during the delay period.In determining the 5-year repayment period and the term of a loan, the 1-year delay period shall be disregarded. (Act Sec 2202(b)(2))

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MINIMUM REQUIRED DISTRIBUTION (RMD) WAIVER (Act Sec 2203(a)) The Act waives 2020 required minimum distributions from defined contribution plans and IRAs. Waiver includes required minimum distributions that are due by April 1, 2020, because the account owner turned 70½ in 2019.

Note: The legislation modifies Sec 401(a)(9); thus, this waiver also applies to beneficiary distributions.

ABOVE-THE-LINE CHARITABLE CONTRIBUTION (Act Sec 2204) Eligible Taxpayer – One that does not itemize deductions

Type of Contribution – Cash Only – can’t be made to a private foundation or to an existing donor advised fund or to establish such a fund.

Maximum Amount: $300

Effective: 2020

LIMITS ON 2020 CHARITABLE CONTRIBUTIONS (Act Sec 2205) Individuals

• AGI Limitations Suspended - Any qualified cash charitable contribution, but not to a private foundation or to an existing donor advised fund or to establish such a fund, shall be allowed only to the extent that the aggregate of such contributions does not exceed the excess of the taxpayer’s AGI over the amount of all other charitable contributions allowed up to the applicable AGI limitation. In other words, first consider other charitable contributions up to the applicable 60, 50, 30 or 20% of AGI limitation and then include the qualified charitable contributions to the extent of the remaining AGI.

• Election – This is an election; otherwise AGI limits apply. • Carryover - Any amount not allowed (the excess) is carried over for five

years. • Effective – 2020.

Corporations • Allowable Amount – Any qualified cash contribution shall be allowed as a

deduction only to the extent that the aggregate of such contributions does not exceed the excess of 25 percent of the taxpayer’s taxable income (as determined under paragraph (2) of IRC section 170(b)) over the amount of all other charitable contributions allowed under such paragraph.

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• Carryover – If the aggregate amount of qualified contributions made in the contribution year (within the meaning of IRC section 170(d)(2)) exceeds the limitation of clause (i), such excess shall be appropriately taken into account under section 170(d)(2) subject to the limitations thereof.

Food Inventory - In the case of any charitable contribution of food during 2020 to which IRC section 170(e)(3)(C) applies, subclauses (I) and (II) of clause (ii) thereof shall each be applied by substituting “25 percent” for “15 percent”.

EMPLOYER PAYMENT OF STUDENT LOANS (Act Sec 2206) Under current law, an employee may exclude $5,250 from income for an employer sponsored educational assistance program. The provision would expand the definition of expenses to include employer payments of the employee’s student loan debt.

Effective: For student loan payments made after the enactment date and before January 1, 2021.

DELAY OF PAYMENT OF EMPLOYER PAYROLL TAXES (Act Sec 2302) This provision applies to all taxpayers.

Amount Delayed: • 50 percent of the 12.4 percent (Sec 1401(a)) FICA taxes for the period

beginning on the date of the Act’s enactment and ending before January 1, 2021 are not be due until December 31, 2021. (Sec 2302(c)(3)(A))

• The balance of the taxes from this period are not due until December 31, 2022. (Sec 2302(c)(3)(B))

NOTE: The delay does not apply to the 2.9 percent (Sec 1401(a)) Hospital Tax.

MODIFICATION FOR NOLS (Act Sec 2303) NOL Determination - The NOL for a year is determined in the following manner:

• For Years Before Jan 1, 2021: The aggregate of the net operating loss carryovers to such year, plus the net operating loss carrybacks to such year (Note: carrybacks are permitted for years 2018, 2019, and 2020).

• For Years After Dec 31, 2020: The sum of—

(A) the aggregate amount of net operating losses arising in taxable years beginning before January 1, 2018, carried to such taxable year, plus

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(B) the lesser of—

(i) the aggregate amount of net operating losses arising in taxable years beginning after December 31, 2017, carried to such taxable year, or

(ii) 80 percent of the excess (if any) of—

(I) taxable income computed without regard to the deductions under this section [IRC Sec 172] and sections 199A and 250 (foreign-derived intangible income), over

(II) the amount determined under subparagraph (A).

NOL Carryback – In the case of any net operating loss arising in a taxable year beginning after December 31, 2017, and before January 1, 2021 (2018, 2019 and 2020), the loss shall be carried back to each of the 5 taxable years preceding the loss year.

There are special rules for REITs that are not included here.

QUALIFIED IMPROVEMENT PROPERTY GLITCH CORRECTED (Sec 2307) The Act includes a technical correction to the TCJA that amends Sec 168 to include qualified improvement property in the MACRS 15-year recovery period category, thus enabling such property to be eligible for bonus depreciation. The amendment is effective as if the language had been included in section 13204 of the Tax Cuts and Jobs Act (Public Law 115–97). This will give rise to amending some back returns. It might also be handled via Form 3115, but I think amending is the best action to provide fast access to cash, and 2020 will no doubt be a lower income year for most, generally making amendments the course of action.

LIMITATION ON LOSSES FOR TP OTHER THAN CORPS (Act Sec. 2304) This provision retroactively turns off the excess active business loss limitation rule implemented by TCJA (IRC Sec 461(l)) by amending the provision to apply to tax years beginning after December 31, 2020 (rather than December 31, 2017). It also turns off active farming loss rules for tax years beginning after December 31, 2017 and before December 31, 2020.

An active business loss is defined as deductions in excess of income and gain attributable to a trade or business in which the taxpayer actively participates plus $250,000 ($500,000 for joint filers) (i.e. active business losses in excess of $250,000 ($500,000 for joint filers) – adjusted for inflation – were disallowed by the 2017 tax law and treated as NOL carryforwards in the following tax year).

The provision includes technical corrections to the 2017 tax legislation by clarifying that:

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• Excess business losses do not include any deduction under IRC Sections 172 or 199A or any deductions related to performing services as an employee.

• Because capital losses cannot offset ordinary income under the NOL rules, capital loss deductions are not taken into account in computing the Sec 461(l) limitation, and that the amount of capital gain taken into account in calculating the Sec 461(l) limitation cannot exceed the lesser of capital gain net income from a trade or business or capital gain net income.

CORP CREDIT FOR PRIOR YEAR MINIMUM TAX LIABILITY (Act Sec. 2305) The 2017 tax legislation repealed the corporate alternative minimum tax (AMT) and allowed corporations to claim outstanding AMT credits, subject to certain limits, for tax years prior to 2021, at which time any remaining AMT credit may be claimed as fully refundable. This CARES Act provision allows corporations to claim 100% of AMT credits in 2019 as fully refundable and provides an election to accelerate claims to 2018, with eligibility for accelerated refunds.

MODIFICATION OF LIMITATION ON BUSINESS INTEREST (Act Sec. 2306) A change in the 2017 tax law legislation generally limited the amount of business interest allowed as a deduction to 30% of adjusted taxable income (ATI). A provision in the CARES Act generally allows businesses to elect to increase the interest limitation from 30% of ATI to 50% of ATI for 2019 and 2020 and allows businesses to elect to use 2019 ATI in calculating their 2020 limitation.

A special rule for partnerships allows 50% of any excess business interest allocated to a partner in 2019 to be deductible in 2020 and not subject to the 50% (formerly 30%) ATI limitation. The remaining 50% of excess business interest from 2019 is subject to the ATI limitation. The 2019 ATI limitation remains at 30% of partnership ATI rather than 50% of ATI. The ATI limitation for 2020 is 50% of partnership ATI and partnerships may elect to use 2019 partnership ATI in calculating their 2020 limitation.

TELEHEALTH AND HSAs (Act Sec. 3701) Under current law, taxpayers may only make contributions to health savings accounts (HSAs) while they are covered by a high deductible health plan. This provision would allow a high deductible health plan to provide telehealth and remote care services without a deductible for 2020 and 2021.

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REIMBURSEMENT OF FEMININE HYGIENE PRODUCTS (Act Sec. 3702) This provision permits tax-free reimbursement of feminine hygiene products from health savings accounts (HSAs), health reimbursement arrangements (HRAs), health flexible spending accounts (health FSAs), and Archer medical savings accounts (Archer MSAs). Effective for expenses incurred after December 31, 2019.

IRS NOTICE 2020-20 On March 27, 2020 the IRS issued Notice 2020-20, indicating that a 706 Gift Tax & Generation Skipping Tax due and payments due on April 15, 2020 have been extended to July 15, 2020. Similar to the Notice 2020-18 relief provided to other filings.

\California Filing & Payment Postponements – The FTB has postponed until July 15 the filing and payment deadlines for all individuals and business entities for:

• 2019 tax returns • 2019 tax return payments • 2020 1st and 2nd quarter estimate payments • 2020 LLC taxes and fees • 2020 Non-wage withholding payments

Cancelling Direct Withdrawals and Schedule Web Pay Payments - If you have already filed a return that included direct withdrawals for the tax payment, and the withdrawal date has not yet passed, the direct withdrawal can be cancelled by the taxpayer calling FTB's e-file help desk at (916) 845-0353. Cancellation requests must be received no later than two business days prior to the scheduled payment date, although it is risky to wait to last moment.

To cancel a payment schedule through Web Pay on the FTB's website cancellations must be made on the website.

New payments can only be scheduled through Web Pay.

Other State Filing & Payment Delays – The AICPA has posted a public webpage that provides up-to-date information about filing and payment postponements state by state. Here is the link to that web page: https://www.aicpa.org/content/dam/aicpa/advocacy/tax/downloadabledocuments/coronavirus-state-filing-relief.pdf

revision date: 3/24/2020 covid-19 tax related issues · clientwhys.com 5 covid-19 tax related...

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