IRS & TREASURY DEPARTMENT ANNOUNCES IT WILL NOT EXTEND JULY 15, 2020 DEADLINE

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The Department of the Treasury and IRS today announced the tax filing and payment deadline of July 15, 2020 will not be postponed due to the coronavirus. Taxpayers unable to meet the July 15, 2020 due date can request an automatic extension of time to file until October 15, 2020.

We advise all clients to make all properly estimated tax payments by July 15, 2020 and to file extensions accordingly, where applicable.

NYC PHASE 1 REOPENING AS EARLY AS JUNE 8, 2020

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Governor Cuomo announced that NYC could begin reopening as early as June 8, 2020 for Phase 1. Last week, Long Island began reopening. Elsewhere in NYS, reopening is already under way and some approaching Phase 2.

We encourage businesses to be careful reopening, adhering to all state and local laws, regulations, and guidance. A coronavirus plan should be adopted. People who are sick should stay home and may be entitled to benefits, including paid time off, family, and paid sick leave. If those are exhausted, they be also be entitled to an unpaid leave of absence. Terminations without cause can trigger legal liability.

Further information on these items can be located at the CDC, OHSA, NY Department of Health, and NYC Department of Health websites:

·                CDC CORONAVIRUS GUIDANCE

·                OSHA CORONAVIRUS GUIDANCE

·                NYS DEPARTMENT OF HEALTH

·                NYC DEPARTMENT OF HEALTH

For your convenience, we have attached CDC and related guidance on this issue.

 As always, consult with counsel regarding your legal obligations as applied to your facts and circumstances.

IRS NOTICE PROVIDES THAT PPP LOAN FORGIVENESS EXPENSES ARE NOT DEDUCTIBLE

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BACKGROUND

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) passed the Paycheck Protection Program (“PPP”). Under the PPP, certain eligible small businesses are allowed to borrow funds. If certain parameters are met, the loan will be forgiven.[1] Typically, when a loan is forgiven, unless the taxpayer was insolvent at the time or otherwise met the exceptions under the Code §108,[2] the amount of loan forgiven would be included in the taxpayer’s gross income. Under the CARES Act, the amount forgiven as a result of this program is excluded from gross income. However, there were many issues that were ambiguous. In particular, as the PPP program requires the loan to be used for payroll and certain other permittable business expenses, the question remained whether the taxpayer would receive a tax deduction for the business expenses allocable to the program.

NOTICE 2020-32

On April 30, 2020, the IRS released Notice 2020-32. This Notice provides that the taxpayer is not eligible to deduct the PPP expenses if the loan is forgiven. The IRS bases their decision on Code §265 and the regulations thereunder. In particular, the IRS states that the loan forgiveness under the program is a “class of exempt income” and therefore the expenses allocable to the loan forgiveness is disallowed these provisions. The rationale behind the notice is to disallow a double benefit. A copy of the notice is attached.

KEY INSIGHTS

It’s not entirely clear if Çongressional intent was to disallow the deduction as this reduces the net overall benefit of the program in time of coronavirus crisis. The program was designed for relief for small businesses. Senator Chuck Grassley (R-Iowa) has stated disappointment with the decision. Richard Neal (D-Mass) has stated that this will be fixed in the future. We expect legislative reversal in future stimulus plans.

If is not fixed, we note that under the Code §265 regulations, the taxpayer must submit with his or her return an itemized statement in detail showing the class of exempt income and the allocations. Therefore, tax preparers should ensure this requirement is met in the next tax filing season and update their checklists accordingly.

[1]           These requirements and PPP loan forgiveness are discussed in other Gray Tolub LLP publications which can be found at: https://graytolub.com/publications.

[2]           References are to the Internal Revenue Code of 1986, as amended from time to time (the “Code”).

CUOMO SIGNS EXECUTIVE ORDER THAT ALLOWS HOMEOWNERES TO PREPAY THEIR PROPERTY TAXES

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On December 22, 2017, Governor Andrew M. Cuomo signed an executive order that allows homeowners in New York to prepay their 2018 property taxes by the end of 2017. The goal is to mitigate the impact of H.R. 1 (known as the “Tax Cuts and Jobs Act”) signed into law by President Trump which modifies and limits the state and local income tax and property tax deduction. Under prior law, in general, subject to the alternative minim tax, state and local income tax and property tax could be deducted from federal income taxes of an individual if the taxpayer itemized their deductions, even if the deduction was unrelated to business or for-profit activity. The Act modifies this deduction for state and local income and property taxes, subject to a $10,000 exception ($5,000 for married taxpayer filing a separate return). It should be noted that foreign real property taxes are not subject to this exception and therefore, foreign real property taxes cannot be deducted.*1

The Act also provides that one cannot prepay their 2018 income taxes in 2017 to avoid this change in 2018. However, such limitation does not apply to property taxes. Therefore, state and localities are encouraging their constituents to prepay their property taxes before year-end, if possible. We also encourage our clients who might be affected to do the same.

*1 For your convenience, we have included Section 11042 of the Act.

GIFT AND ESTATE TAX EXEMPTION DOUBLED

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President Donald J. Trump signed into law H.R.1 (known as the “Tax Cuts and Jobs Act” and hereinafter referred to as the “Act”). The Act made certain modifications of the gift and estate tax exemption. In general, under prior law, US citizen or residents are subject to US gift and estate taxation subject to an exemption amount. The exemption amount was set at $5 million for 2011 and is indexed for inflation for later years. For 2017, the inflation-indexed exemption amount is $5.49 million. The exemption used during life to offset taxable gifts reduces the amount of exemption that remains at death to offset the value of a decedent’s estate. The Act doubles the estate and gift tax exemption for estates of decedents dying and gifts made after December 31, 2017, and before January 1, 2026.*1 This is accomplished by increasing the exemption amount from $5 million to $10 million. The $10 million amount continues to be indexed for inflation occurring after 2011. The provision is effective for estates of decedents dying and gifts made after December 31, 2017. Of particular importance is that the doubling of the exemption amount expires for tax years 2026 and beyond. In addition, the provision could be modified before then depending on the political party in power. Therefore, we recommend that clients take advantage of this provision and reevaluate their gift and estate planning needs.

*1 For your convenience, we have included Section 11061 of the Act. 

IRS AUDITING TAXPAYERS REJECTED BY OFFSHORE VOLUNTARY DISCLOSURE PROGRAM; ENCOURAGES TAXPAYERS TO COME INTO COMPLIANCE

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It has been reported that the IRS has shifted focus to auditing taxpayers who were previously denied entry into the Offshore Voluntary Disclosure Program (“OVDP”). Approximately 6,000 are in in focus. The IRS is also encouraging delinquent taxpayers to hurry into compliance if they have not already done so.

We encourage taxpayers who have been evaluating their options to make a decision and come into compliance. The IRS’s patience may be running thin. In addition, the IRS is receiving information from various sources, including exchange of information under FATCA. Once an audit begins, your options for penalty abatement may be limited.

Feel free to contact us with any questions or if you need assistance with your case. We are happy to assist.