Wednesday, April 21, 2021

Business meals are 100% deductible in 2021, per the IRS

 

Businesses can temporarily deduct 100% of business meals beginning January 1, 2021

IR-2021-79, April 8, 2021

WASHINGTON — The Treasury Department and the Internal Revenue Service today issued Notice 2021-25 PDF providing guidance under the Taxpayer Certainty and Disaster Relief Act of 2020. The Act added a temporary exception to the 50% limit on the amount that businesses may deduct for food or beverages. The temporary exception allows a 100% deduction for food or beverages from restaurants.

Beginning January 1, 2021, through December 31, 2022, businesses can claim 100% of their food or beverage expenses paid to restaurants as long as the business owner (or an employee of the business) is present when food or beverages are provided and the expense is not lavish or extravagant under the circumstances.

Where can businesses get food and beverages and claim 100%?

Under the temporary provision, restaurants include businesses that prepare and sell food or beverages to retail customers for immediate on-premises and/or off-premises consumption. However, restaurants do not include businesses that primarily sell pre-packaged goods not for immediate consumption, such as grocery stores and convenience stores.

Additionally, an employer may not treat certain employer-operated eating facilities as restaurants, even if these facilities are operated by a third party under contract with the employer.

More information for businesses seeking coronavirus related tax relief can be found at IRS.gov.

Wednesday, March 31, 2021

Hillsborough County sales tax rate is 7.5%

 Hillsborough county's tax rate has dropped 1% to 7,5%.  According to the FL DOR.

Monday, March 22, 2021

 Like-Kind Exchanges Under IRC Section 1031 FS-2008-18, February 2008 WASHINGTON        Whenever you sell business or investment property and you have a gain, you generally have to pay tax on the gain at the time of sale. IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange. Gain deferred in a like-kind exchange under IRC Section 1031 is tax-deferred, but it is not tax-free.  The exchange can include like-kind property exclusively or it can include like-kind property along with cash, liabilities and property that are not like-kind. If you receive cash, relief from debt, or property that is not like-kind, however, you may trigger some taxable gain in the year of the exchange. There can be both deferred and recognized gain in the same transaction when a taxpayer exchanges for like-kind property of lesser value.                                                                                                                This fact sheet, the 21st in the Tax Gap series, provides additional guidance to taxpayers regarding         the rules and regulations governing deferred like-kind exchanges.

   Who qualifies for the Section 1031 exchange?                                                                                            *Owners of investment and business property may qualify for a Section 1031 deferral.                              Individuals, C corporations, S corporations, partnerships (general or limited),limited liability               companies, trusts and any other taxpaying entity may set up an exchange of business or                         investment properties for business or investment properties under Section 1031.                          

  What are the different structures of a Section 1031 Exchange?     To accomplish a Section 1031 exchange, there must be an exchange of properties. 

        The simplest type of Section 1031 exchange is a simultaneous swap of one property for another. Deferred exchanges are more complex but allow flexibility. They allow you to dispose of property and subsequently acquire one or more other like-kind replacement properties. 

                *To qualify as a Section 1031 exchange, a deferred exchange must be distinguished from the case of a taxpayer simply selling one property and using the proceeds to purchase another property (which is a taxable transaction).                                                                                                                                 *Rather, in a deferred exchange, the disposition of the relinquished property and acquisition of the replacement property must be mutually dependent parts of an integrated transaction constituting an exchange of property. Taxpayers engaging in deferred exchanges generally use exchange facilitators under exchange agreements pursuant to rules provided in the Income Tax Regulations.

    A reverse exchange is somewhat more complex than a deferred exchange. It involves the acquisition of replacement property through an exchange accommodation titleholder, with whom it is parked for no more than 180 days. During this parking period the taxpayer disposes of its relinquished property to close the exchange. 

*What property qualifies for a Like-Kind Exchange? 

Both the relinquished property you sell and the replacement property you buy must meet certain requirements. 

1)Both properties must be held for use in a trade or business or for investment. 

2)Property used primarily for personal use, like a primary residence or a second home or vacation home, does not qualify for like-kind exchange treatment. 

3)Both properties must be similar enough to qualify as "like-kind." Like-kind property is property of the same nature, character or class. Quality or grade does not matter. Most real estate will be like-kind to other real estate. For example, real property that is improved with a residential rental house is like-kind to vacant land. One exception for real estate is that property within the United States is not like-kind to property outside of the United States. Also, improvements that are conveyed without land are not of like kind to land. 

*Real property and personal property can both qualify as exchange properties under Section 1031; but real property can never be like-kind to personal property. In personal property exchanges, the rules pertaining to what qualifies as like-kind are more restrictive than the rules pertaining to real property. As an example, cars are not like-kind to trucks. 

Finally, certain types of property are specifically excluded from Section 1031 treatment. Section 1031 does not apply to exchanges of: • Inventory or stock in trade • Stocks, bonds, or notes • Other securities or debt • Partnership interests • Certificates of trust 

What are the time limits to complete a Section 1031 Deferred Like-Kind Exchange? While a like-kind exchange does not have to be a simultaneous swap of properties, you must meet two time limits or the entire gain will be taxable. These limits cannot be extended for any circumstance or hardship except in the case of presidentially declared disasters. 

        The first limit is that you have 45 days from the date you sell the relinquished property to identify potential replacement properties. The identification must be in writing, signed by you and delivered to a person involved in the exchange like the seller of the replacement property or the qualified intermediary. However, notice to your attorney, real estate agent, accountant or similar persons acting as your agent is not sufficient. Replacement properties must be clearly described in the written identification. In the case of real estate, this means a legal description, street address or distinguishable name. Follow the IRS guidelines for the maximum number and value of properties that can be identified. 

        The second limit is that the replacement property must be received and the exchange completed no later than 180 days after the sale of the exchanged property or the due date (with extensions) of the income tax return for the tax year in which the relinquished property was sold, whichever is earlier. The replacement property received must be substantially the same as property identified within the 45-day limit described above. 

        Are there restrictions for deferred and reverse exchanges? It is important to know that taking control of cash or other proceeds before the exchange is complete may disqualify the entire transaction from like-kind exchange treatment and make ALL gain immediately taxable. If cash or other proceeds that are not like-kind property are received at the conclusion of the exchange, the transaction will still qualify as a like-kind exchange. Gain may be taxable, but only to the extent of the proceeds that are not like-kind property. One way to avoid premature receipt of cash or other proceeds is to use a qualified intermediary or other exchange facilitator to hold those proceeds until the exchange is complete. You can not act as your own facilitator. In addition, your agent (including your real estate agent or broker, investment banker or broker, accountant, attorney, employee or anyone who has worked for you in those capacities within the previous two years) can not act as your facilitator. 

        Be careful in your selection of a qualified intermediary as there have been recent incidents of intermediaries declaring bankruptcy or otherwise being unable to meet their contractual obligations to the taxpayer. These situations have resulted in taxpayers not meeting the strict timelines set for a deferred or reverse exchange, thereby disqualifying the transaction from Section 1031 deferral of gain. The gain may be taxable in the current year while any losses the taxpayer suffered would be considered under separate code sections. 

    How do you compute the basis in the new property? It is critical that you and your tax representative adjust and track basis correctly to comply with Section 1031 regulations. Gain is deferred, but not forgiven, in a like-kind exchange. You must calculate and keep track of your basis in the new property you acquired in the exchange. The basis of property acquired in a Section 1031 exchange is the basis of the property given up with some adjustments. This transfer of basis from the relinquished to the replacement property preserves the deferred gain for later recognition. A collateral affect is that the resulting depreciable basis is generally lower than what would otherwise be available if the replacement property were acquired in a taxable transaction. When the replacement property is ultimately sold (not as part of another exchange), the original deferred gain, plus any additional gain realized since the purchase of the replacement property, is subject to tax. How do you report Section 1031 Like-Kind Exchanges to the IRS? You must report an exchange to the IRS on Form 8824, Like-Kind Exchanges and file it with your tax return for the year in which the exchange occurred. Form 8824 asks for: • Descriptions of the properties exchanged 

• Dates that properties were identified and transferred • Any relationship between the parties to the exchange • Value of the like-kind and other property received • Gain or loss on sale of other (non-like-kind) property given up • Cash received or paid; liabilities relieved or assumed • Adjusted basis of like-kind property given up; realized gain If you do not specifically follow the rules for like-kind exchanges, you may be held liable for taxes, penalties, and interest on your transactions. Beware of schemes Taxpayers should be wary of individuals promoting improper use of like-kind exchanges. Typically they are not tax professionals. Sales pitches may encourage taxpayers to exchange nonqualifying vacation or second homes. Many promoters of like-kind exchanges refer to them as “tax-free” exchanges not “tax-deferred” exchanges. Taxpayers may also be advised to claim an exchange despite the fact that they have taken possession of cash proceeds from the sale. Consult a tax professional or refer to IRS publications listed below for additional assistance with IRC Section 1031 Like-Kind Exchanges. References/Related Topics • Publication 544, Sales and Other Dispositions of Assets • Form 8824, Like-Kind Exchanges (PDF) • Tax Tips - Real Estate • Form 4797, Sales of Business Property ––3

Thanks to the IRS for this timely information

Thursday, March 18, 2021

IRS Delays Tax Season

 April 15 is not the tax filing deadline for 2021. The Internal Revenue Service and the U.S. Department of the Treasury have announced the 2021 income tax filing and payment deadline is now May 17, 2021.

Thursday, February 11, 2021

IRS Penalty Relief in the Pandemic

 The COVID-19 pandemic caused 2020 to shape up as one of the most difficult years ever for taxpayers and tax practitioners alike. Taxes and other financial matters have also been significantly complicated by new relief provisions, both for tax professionals to interpret and advise clients on and for the IRS to execute and enforce. Nationwide shutdowns and a historic volume of unopened IRS mail add to these complexities as the IRS's automatic notice stream continues to churn out notices and its services continue to be limited.

These extenuating circumstances likely mean that practitioners will need to help more clients than usual with IRS penalty and collection issues. Here are some strategies and best practices that practitioners should keep in mind when requesting penalty abatement from the IRS on behalf of clients.

TALKING THE 'IRM' TALK

It's important to understand and refer to the IRS's Internal Revenue Manual (IRM). This administrative handbook explains the procedures IRS employees should follow in the course of their work. Part 20 of the IRM discusses penalties and interest. Specifically, IRM Section 20.1.1.3 (10/19/20), Criteria for Relief From Penalties, spells out the four categories of penalty relief:

  • Correction of IRS error;
  • Statutory and regulatory exceptions;
  • Administrative waivers (e.g., first-time penalty abatement); and
  • Reasonable cause.

The underlying guidance for each category in the IRM gives practitioners the criteria they need to fight penalties effectively for their clients. And quoting IRS language (and providing the IRM citation) in a penalty abatement request can often help the IRS process the request more quickly and improve the taxpayer's odds for a successful penalty abatement.

FIRST-TIME ABATEMENT AND REASONABLE-CAUSE DEFENSES

Though corrections of errors and statutory/regulatory exceptions are certainly viable options in certain circumstances, practitioners are likely finding their go-to penalty abatement defenses are either the first-time penalty abatement waiver (an administrative waiver) or reasonable cause.

As a refresher, first-time penalty abatement is based on a clean compliance history and can be applied only against failure-to-file, failure-to-pay, and failure-to-deposit penalties. It does not apply to other types of penalties, such as the accuracy-related penalty. Essentially, it helps taxpayers who have an isolated, rare filing/payment compliance issue. But it is only available to use once every three years, meaning taxpayers should use it conservatively and weigh the dollar amount of the penalty carefully so as to potentially preserve this option. See the AICPA Tax Section's IRS First-Time Penalty Abatement page for more guidance.

Reasonable cause is a facts-and-circumstances test where taxpayers spell out their situation and try to prove how they exercised ordinary business care and prudence. Many types of penalties allow for reasonable-cause defenses (and a reasonable-cause defense can be applied to multiple tax years/periods). The IRM describes categories of reasonable cause, several of which may be invoked for COVID-19—related issues and complications:

  • Death, serious illness, or unavoidable absence (IRM §20.1.1.3.2.2.1): For example, the taxpayer could have been sick or caring for a loved one with COVID-19.
  • Fire, casualty, natural disaster, or disturbance (IRM §20.1.1.3.2.2.2): COVID-19 was declared a natural disaster.
  • Unable to obtain records (IRM §20.1.1.3.2.2.3): Office closures and shutdowns may have prevented taxpayers from obtaining their records on time.
  • Erroneous advice or reliance (IRM §20.1.1.3.2.2.5): Tax legislation came out quickly, yet guidance sometimes lagged, making it hard to effectively advise clients.

It's noteworthy that COVID-19's having been declared a natural disaster may help with proving reasonable cause. On March 13, 2020, President Donald Trump declared a nationwide emergency pursuant to Section 501(b) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act, P.L. 100-707, to avoid governors' having to request individual emergency declarations. All 50 states, the District of Columbia, and four territories have been approved for major disaster declarations to assist with additional needs related to COVID-19.

Often, a compelling reasonable-cause defense may argue multiple categories in the IRM to showcase how the taxpayer's circumstances were complicated but the taxpayer nonetheless exercised ordinary business care and prudence.

TAXPAYER RELIEF INITIATIVE

The IRS in November announced a new program, the Taxpayer Relief Initiative, to help taxpayers who are unable to pay their taxes because of the pandemic (News Release IR-2020-248). Taxpayers who can't pay their tax debt have always had options such as short-term extensions, installment agreements, and offers in compromise, but now they have more flexibility with these agreements. The initiative also highlights reasonable-cause and first-time penalty abatement options to help with penalties.

Tip: For clients who need a payment arrangement, it's wise to wait until the tax is paid in full before requesting penalty abatement. The failure-to-pay penalty will continue to accrue until the tax is paid in full. Thus, to help clients get the entire penalty removed (and not just a piece of it), wait until the balance is paid off to request abatement of the full penalty.

A COLLABORATIVE PROCESS

Remember that those who don't request penalty abatement won't receive it. Many penalty issues can be resolved fairly quickly over the phone with the IRS; other issues may require a straightforward letter to the IRS.

And don't forget that the IRS's Independent Office of Appeals is always a viable option if the issue can't be resolved through normal channels. Appeals employees have more flexibility with penalty abatement, as they are instructed to apply the "hazards of litigation" standard. Also, for special circumstances that can't be resolved with the IRS, the Taxpayer Advocate Service is there to help (see "Tax Practice Corner: Enlist an Ally in TAS," JofA, Jan. 2021).

As we navigate this unprecedented time, the AICPA continues to advocate for streamlined and improved penalty abatement procedures, and the IRS continues to work collaboratively with tax practitioners and taxpayers. Fortunately, the IRS has now expanded the avenues by which taxpayers may defend against or seek abatement of tax penalties. Tax practitioners who understand how to conduct their clients along these routes to obtain penalty waivers will be performing a much-appreciated service.

Thanks to Susan Allen, CPA for much of this information

Thursday, January 07, 2021

PPP 2

 

New PPP guidance issued by SBA, Treasury

By Jeff Drew
52 minutes ago

The U.S. Small Business Administration (SBA) and Treasury issued guidance late Wednesday night for the reconstituted Paycheck Protection Program (PPP).

The guidance came in the form of two interim final rules (IFRs).

  • The 82-page IFR “Business Loan Program Temporary Changes; Paycheck Protection Program as Amended” consolidates the rules for PPP forgivable loans for first-time borrowers and outlines changes made by the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, P.L. 116-260).
  • The 42-page IFR “Business Loan Program Temporary Changes; Paycheck Protection Program Second Draw Loans” lays out the guidelines for new PPP loans to businesses that previously received a PPP loan.

The AICPA will provide a detailed review of the new guidance in a virtual Town Hall today at 3 p.m. ET. The webcast is available for free to AICPA members.

The JofA will update this article with details about the new PPP guidance later this morning. Following is a summary of the new program as described in the Economic Aid Act.

PPP2 overview

Congress revived the PPP as part of the $900 billion COVID-19 relief bill that was signed into law on Dec. 27. The program provided $525 billion in forgivable loans over five months before it stopped accepting applications in August. The Economic Aid Act rebooted PPP (or PPP2, as some call it) with many of the same parameters as the first program but also several important differences from the original PPP.

One of the biggest changes is making PPP funding available to businesses that previously received a PPP loan. Business are eligible for a second PPP loan of up to $2 million, provided they have 300 or fewer employees, have used or will use the full amount of their first PPP loan, and can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.

Fresh PPP loans also are available to first-time borrowers from the following groups:

  • Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans.
  • Sole proprietors, independent contractors, and eligible self-employed individuals.
  • Not-for-profits, including churches.
  • Accommodation and food services operations (those with North American Industry Classification System (NAICS) codes starting with 72) with fewer than 300 employees per physical location.

The legislation also allows borrowers that returned all or part of a previous PPP loan to reapply for the maximum amount available to them.

PPP loan terms

As with PPP1, the costs eligible for loan forgiveness in PPP2 include payroll, rent, covered mortgage interest, and utilities. PPP2 also makes the following potentially forgivable:

  • Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines.
  • Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations.
  • Covered operating costs such as software and cloud computing services and accounting needs.

To be eligible for full loan forgiveness, PPP borrowers will have to spend no less than 60% of the funds on payroll over a covered period of either eight or 24 weeks — the same parameters PPP1 had when it stopped accepting applications in August.

PPP borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs in the year prior to the loan or the calendar year, the same as with PPP1, but the maximum loan amount has been cut from $10 million in the first round to the previously mentioned $2 million maximum. PPP borrowers with NAICS codes starting with 72 (hotels and restaurants) can get up to 3.5 times their average monthly payroll costs, again subject to a $2 million maximum.

Simplified application and other terms of note

The new COVID-19 relief bill also:

  • Creates a simplified forgiveness application process for loans of $150,000 or less. Specifically, a borrower shall receive forgiveness if the borrower signs and submits to the lender a certification that is not more than one page in length, includes a description of the number of employees the borrower was able to retain because of the loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount. The SBA must create the simplified application form within 24 days of the bill’s enactment and may not require additional materials unless necessary to substantiate revenue loss requirements or satisfy relevant statutory or regulatory requirements. Borrowers are required to retain relevant records related to employment for four years and other records for three years, as the SBA may review and audit these loans to check for fraud.
  • Repeals the requirement that PPP borrowers deduct the amount of any Economic Injury Disaster Loan advance from their PPP forgiveness amount.
  • Includes set-asides to support first- and second-time PPP borrowers with 10 or fewer employees, first-time PPP borrowers that have recently been made eligible, and for loans made by community lenders.

AICPA experts discuss the latest on the PPP and other small business aid programs during a biweekly virtual town hall. The webcasts, which provide CPE credit, are free to AICPA members. Go to the AICPA Town Hall Series webpage for more information and to register.

The AICPA’s Paycheck Protection Program Resources page houses resources and tools produced by the AICPA to help address the economic impact of the coronavirus.

For more news and reporting on the coronavirus and how CPAs can handle challenges related to the outbreak, visit the JofA’s coronavirus resources page or subscribe to our email alerts for breaking PPP news.

— Jeff Drew (Jeff.Drew@aicpa-cima.com) is a JofA senior editor.

Tuesday, December 29, 2020

PPP- Round 2

 Paycheck Protection Program Round 2: The Highlights

After much deliberation, Congress finally agreed to approve a $900 billion COVID-19 relief package as part of the Consolidated Appropriations Act, 2021. Included in that amount is $284 billion for a second round of the Paycheck Protection Program (PPP). The new relief package includes:

  • additional funding for new PPP loans

  • the ability to obtain a second PPP loan for small businesses facing significant revenue declines in any 2020 quarter compared to the same quarter in 2019

  • clarifications providing for the deductibility of business expenses paid with forgiven PPP loans (a material change from existing IRS guidance)

  • loan eligibility for Section 501(c)(6) not-for-profit organizations for the first time

  • $15 billion for live venues, independent movie theaters and cultural institutions

  • $20 million for the Economic Injury Disaster Loan Program

While based on similar principles as the first round of PPP funding under the CARES Act, the second round of PPP has some key differences that are set forth below. Please note that guidance and regulations related to this second round of PPP have not yet been issued. (The Small Business Administration (SBA) must provide these regulations within 10 days of the enactment of the Act.) We expect to provide updates as such guidance and regulations are issued. Several of the key changes are summarized below.

Limited Eligibility for Second Round PPP Loans

 The second round of PPP loans is available to not only first-time qualified borrowers but also to borrowers that previously received a PPP loan. PPP loans are limited to businesses that (i) employ no more than 300 employees or meet an alternative size standard; (ii) have used the entire amount of their first PPP loan or will use such amounts, and (iii) had gross receipts during Q1, Q2 or Q3 2020 that were at least 25 percent less than the gross receipts from the same quarter in 2019 (applicants may use Q4 2020 if they apply after January 1, 2021). If the business was not in operation for a portion of 2019, then the comparable quarters may be different.
Borrowers should be aware that the second round of PPP did not remove or change the necessity requirement. All borrowers must be able to certify that the "[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant" as of the date on which the PPP loan application is submitted. 

Maximum Loan Amount

 Borrowers have an option to calculate the maximum loan amount by multiplying the borrower's average total monthly payroll in (a) the one-year period prior to the date on which the loan is made, or (b) calendar year 2019, by 2.5x. The maximum loan amount has been reduced from $10 million in the first round to $2 million. Similar to the first round, seasonal employers calculate their maximum loan amount differently.

Maximum Loan Amounts for the Hospitality Industry

 Borrowers that have NAICS Code 72 (typically restaurants and hotels) are permitted to use a 3.5x multiplier of their average monthly payroll costs to calculate their maximum loan amount, subject to the $2 million cap.

Choose Your Own Covered Period

 Originally the SBA provided that the covered period (the time in which a borrower must use the funds to qualify for forgiveness), would be an eight-week period beginning on the date the borrower received the loan proceeds. In subsequent amendments, the covered period was expanded to 24 weeks. In this latest round of PPP, borrowers are able to choose the length of their covered period so long as it is at least eight weeks and is not longer than 24 weeks. This subtle change will allow borrowers more control over how to handle potential reductions in workforce once the PPP funds are exhausted.

Use of PPP Funds

 Congress expanded the types of expenses for which PPP loans can be used, which applies to existing PPP loans (except in the event forgiveness has already been obtained) and new loans. In addition to payroll, rent, covered mortgage interest and utilities, the PPP now allows proceeds to be used for:

  • Covered Operations Expenditures: payments for business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment or tracking of payroll expenses, HR and billing functions, or account or tracking of supplies, inventory, records and expenses
  • Covered Property Damage Costs: costs related to property damaged and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation
  • Covered Supplier Costs: expenditures to a supplier of goods that are essential to the operations of the entity at the time at which the expenditure was made and is made pursuant to a contract or order in effect at any time before the covered period or, with respect to perishable goods, in effect at any time during the covered period
  • Covered Worker Protection Expenditures: operating or capital expenditures that allow a business to comply with requirements or guidance issued by the CDC, HHS, OSHA or any state or local government during the period beginning March 1, 2020 and ending on the date which the national emergency declared by the president expires related to the maintenance of standards for sanitation, social distancing or any other worker or customer safety requirement related to COVID-19. These expenses appear to include PPE, physical barriers that were put in place, expansion of indoor/outdoor space, ventilation or filtration systems and drive-through windows.

Tax Treatment

 PPP loans will not be included as taxable income. Expenses paid with the proceeds of a PPP loan that is forgiven are now tax-deductible. This covers not only new loans but also existing and prior PPP loans, reversing previous guidance from the Treasury and IRS, which did not allow deductions on expenses paid for with PPP proceeds. In addition, any income tax basis increase that results from the borrower's PPP loan will remain even if the PPP loan is forgiven.

EIDL Advances Do Not Reduce Forgiveness

Prior to the passage of the new Act, borrowers that received an EIDL Advance (advances between $1,000 and $10,000) had that amount subtracted from their total forgiveness, which, in effect, had the effect of repaying the EIDL Advance. The Act now provides that EIDL Advances will not reduce PPP loan forgiveness. The SBA has indicated that borrowers that already received forgiveness and had their EIDL Advance deducted from such forgiveness may be able to amend their forgiveness applications. Further guidance is expected to be issued.

Forgiveness Applications for Loans Under $150,000

 Forgiveness application for loans under $150,000 will be simplified to a one-page certification that includes a description of the number of employees the eligible recipient was able to retain because of the loan, the estimated total amount of the loan spent on payroll costs and the total loan amount. Borrowers should be aware, however, that while the forgiveness application is simplified, all of the rules still apply. Rather than going through the process of showing how borrowers arrived at certain numbers, the simplified application merely asks borrowers to self-certify. Given the liability attached to making a false certification to the SBA, we advise all borrowers to use the long-form application to ensure that the certifications made on the simplified form are true and correct. Furthermore, all borrowers must retain all employment records relevant to the forgiveness application for a period of four years following the date of submission, and all other records relating to PPP and the forgiveness application for a period of three years following submission of the forgiveness application. 

Eligibility for Section 501(c)(6) Not-for-Profit Organizations

 For the first time, Section 501(c)(6) not-for-profit organizations will be eligible to apply for and receive PPP loans. These organizations generally consist of business leagues, chambers of commerce, real estate boards, boards of trade and professional football leagues, which are not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual. These organizations are generally expected to be eligible so long as (i) they do not receive more than 15 percent of their receipts from lobbying activities, (ii) lobbying activities do not comprise more than 15 percent of the organization's total activities, (iii) the cost of lobbying activities did not exceed $1 million during the tax year ending February 15, 2020, and (iv) the organization does not employ more than 300 employees.

© 2020 Much Shelist, P.C.National Law Review, Volume X, Number 363

Monday, December 28, 2020

Washington Tax Break, Dec 21, 2020

 

On Dec. 21, the behemoth 5,593-page deal to provide coronavirus stimulus and keep the U.S. government running in 2021 was finally released to the public.

It passed both the House and the Senate just a few hours later.

Now as lawmakers rush home for Christmas, business groups and observers are poring over the bill – the longest ever passed by Congress – to see which businesses and industries come out the biggest winners.

Your resource on tax filing
Tax season is here! Check out the Tax Center on AOL Finance for all the tips and tools you need to maximize your return.

Some of the biggest examples of government largesse were known in advance. Airlines received a second round of the Payroll Support Program with a price tag of $16 billion. Amtrak received $1 billion in funding, and emergency grants to music venues added another $15 billion to the total.

Smaller businesses of all stripes will also be able to take advantage of a second round of the forgivable loans from the Paycheck Protection Program.

But a range of other industries – from beer makers to thoroughbred horse racers – got tax breaks to help them in the coming years and months. Here are some notable examples.

The 'three martini lunch' tax deduction

A tax break many picked up on was what critics have termed the “three martini lunch” deduction. The provision, which President Trump has touted in the past, allows a company to fully deduct a business meal as a business expense.

The bill outlines a “temporary allowance of full dedication for business meals” on page 4,946. In an analysis from the American Action Forum, Gordon Gray notes that firms can currently deduct 50% of the cost of business-related meals. After the new year, the deduction increases to 100% for 2021 and 2022. The cost to the Treasury will be somewhere around $5 billion to $6.3 billion, according to early estimates.

The provision was pushed by Republicans and reportedly agreed to by Democrats in exchange for expanded tax credits for low-income families.

The provision has been touted by some as a way to help the restaurant industry, but critics say it’s more directly aimed at business executives.

Restaurants appear to have come away from the deal with a mixed bag. Industry groups had been pushing for legislation called the RESTAURANTS Act which would provide direct aid, but it wasn’t included in the final deal.

Restaurants can also receive help through the second round of the PPP, but industry advocates have already come out and said the deal falls “woefully short.”

Breweries and winemakers

The deal includes a range of measures for spirits-makers, including the reduction of certain excise taxes and reduced rates for alcohol imports. The industry had been bracing for a tax hike at the end of the year in the event Congress took no action.

In a statement, Chris Swonger, president and CEO of the Distilled Spirits Council, said it would mean “a huge sigh of relief for struggling craft distillers.”

SOLVANG, CA - NOVEMBER 28:  A winery tasting room employee talks to customers in downtown on November 28, 2020, in Solvang, California. Despite a rapidly rising surge of cases and deaths in California, and lack of a Julefest parade and other holiday festivities, thousands of tourists, primarily from Southern California and Los Angeles continue to flood into this Danish-themed Central Coast community each weekend. (Photo by George Rose/Getty Images)
A winery tasting room employee talks to customers in Solvang, California in November. (George Rose/Getty Images)

Breweries have been pushing Congress for months to make the previous tax cuts permanent, getting a majority of lawmakers to co-sponsor legislation that was eventually worked into the overall deal. Jim Trezise, president of WineAmerica, thanked “the hundreds of supporters in Congress for this major breakthrough.”

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The spirits industry has been turned upside down in 2020 with many brick-and-mortar alcohol sellers seeing their businesses shut down while online purveyors like Drizly saw 350% growth.

Horse racers

Owners of thoroughbred racehorses, many of whom reside in Senate Majority Leader Mitch McConnell’s home state of Kentucky, also received special attention in the final deal.

The legislation includes a provision to reclassify “certain racehorses as 3-year property,” which will translate into a tax break for owners. The provision allows owners to depreciate the value of qualifying racehorses to save money on taxes, which could help “spur investment in racehorses,” according to thoroughbreddailynews.com.

WASHINGTON, DC - DECEMBER 21: Senate Majority Leader Mitch McConnell (R-KY) walks to his office after leaving the Senate Floor at the U.S. Capitol on December 21, 2020 in Washington, DC. The House and Senate are set to vote today on a roughly $900 billion pandemic relief bill to bolster the U.S. economy amid the continued coronavirus pandemic that would be the second-biggest economic rescue measure in the nations history. (Photo by Cheriss May/Getty Images)
Senate Majority Leader Mitch McConnell (R-KY) during the final stages of the stimulus negotiations on Monday. (Cheriss May/Getty Images)

The deal also includes the Horseracing Integrity and Safety Act of 2020. The bill will regulate the horse-racing industry at a national level and aim to stop things like the race-day doping.

“I’m proud the Senate agreed to my legislation to preserve our signature racing industry and the 24,000 workers who support it,” McConnell said in a statement.

Targeted changes for farmers and the self-employed

summary of the tax provisions compiled by the House Ways and Means ranking member Kevin Brady (R., Texas) highlighted a range of other groups who will benefit come tax time.

Farmers and ranchers will now have new rules about how they can claim farming losses by changing rules that had been instituted in the CARES Act. The regulation “eliminates unnecessary compliance burdens for farmers.”

The new rules also impact some self-employed workers and allows others – like educators, volunteer firefighters, and emergency medical responders – to write off certain personal protective equipment or make permanent certain tax benefits.

Thanks to Ben Werschkul for much of this information