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William Byrnes (Texas A&M) tax & compliance articles

Archive for March, 2020

Byrnes & Bloink’s Covid-19 TaxFacts Intelligence Weekly for March 26, 2020

Posted by William Byrnes on March 26, 2020


Texas A&M University School of Law has launched its online wealth management, risk management, and international tax risk management graduate curricula for industry professionals. Apply now for Summer courses that begin May: FATCA & CRS Risk Management; International Tax Risk Management, Data, and Analytics I  Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018). To apply for Summer, call or fill in the form https://law.tamu.edu/distance-education/

            William H. Byrnes, J.D.
        Robert Bloink, J.D., LL.M.
Today we are seeing our first concrete responses to the COVID-19 virus in the tax field. First, the IRS has now formally extended the income tax filing deadline for tax year 2019 to July 15. Because this is an extension of the actual filing deadline (not just an extension of time to pay owed taxes) it also pushes a number of related deadlines (e.g. for qualified plan contributions) back to July. President Trump also signed the Families First Coronavirus Response Act, which creates a paid sick leave program and related tax credits for small businesses.

 

Avoid Confusion Over IRS 90-Day Extension of the Federal Tax Payment Deadline

In response to the coronavirus pandemic, the IRS has announced that it will extend the tax payment deadline from April 15, 2020 to July 15, 2020. Interest and penalties during this period will also be waived. The April 15 filing deadline was also extended to July 15, although in separate guidance. Individuals and pass-through business entities owing up to $1 million in federal tax are eligible for the relief, as are corporations owing up to $10 million in federal tax. Individuals who do not anticipate being able to file by July 15 should be aware of their option for requesting a six-month filing extension to October 15. The extension is available by filing Form 4868. For more information on federal tax filing requirements, visit Tax Facts Online. Read More

Coronavirus Act Creates Paid Sick Leave Benefits for Small Business Employees

The Families First Coronavirus Response Act applies to private employers with fewer than 500 employees (and government employers), and makes several key changes to paid time off laws. The bill: (1) provides 80 hours’ additional paid sick leave for employees (pro-rated for part-time workers) and (2) expands FMLA protections. The additional paid sick leave is capped at $511 per day (total of $5,110) for employees who cannot go to work or telecommute because they (1) are experiencing COVID-19 symptoms and seeking a diagnosis, or (2) are subject to government-mandated quarantine or a recommendation to self-quarantine. The additional paid sick leave is capped at 2/3 of the employee’s pay rate, subject to a maximum of $200 per day or $2,000 total if the employee (1) is caring for or assisting someone subject to quarantine, (2) caring for a child whose school or care provider is unavailable or (3) experiencing “substantially similar conditions” specified by HHS. For more information on the family and medical leave tax credit available for business owners, visit Tax Facts Online. Read More

Coronavirus Response Act: Tax Relief for Small Business Owners

The law contains a tax credit to help small business owners subject to the new paid sick leave and expanded FMLA requirements. The tax credit is computed each quarter, and allows as a credit (1) the amount of qualified paid sick leave wages paid in weeks 1-2, and (2) qualified FMLA wages paid (in the remaining 10 weeks) during the quarter. The credit is taken against the employer portion of the Social Security tax. Amounts in excess of the employer Social Security taxes due will be refunded as a credit (in the same manner as though the employer had overpaid Social Security taxes during the quarter). The Act also provides a tax credit for qualified health plan expenses that are allocable to periods when the paid sick leave or family leave wages are paid. For more information on refundable tax credits, visit Tax Facts Online. Read More

2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Retirement Planning, Tax Policy | Tagged: , | Leave a Comment »

text of final Covid-19 Senate Bill “Coronavirus Aid, Relief, and Economic Security Act’’ or the ‘‘CARES Act’’.

Posted by William Byrnes on March 25, 2020


2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Professor William Byrnes and Robert Bloink provide for subscribers weekly analysis of tax issues that impact wealth managers and financial planners. Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

 

Final Covid-19 Text of Bill for Senate Vote [PDF Link] Coronavirus Aid, Relief, and Economic Security Act’’ or the ‘‘CARES Act’’.

Tax and Benefits sections of Final Bill described below by Senate Finance Committee (March 25, 2020)

DIVISION A – KEEPING WORKERS PAID AND EMPLOYED, HEALTH CARE SYSTEM ENHANCEMENTS, AND ECONOMIC STABILIZATION

TITLE II—ASSISTANCE FOR AMERICAN WORKERS, FAMILIES, AND BUSINESSES

Subtitle A—Unemployment Insurance Provisions

Section 2101. Short Title
This title is called the Relief for Workers Affected by Coronavirus Act

Section 2102. Pandemic Unemployment Assistance
This section creates a temporary Pandemic Unemployment Assistance program through December 31, 2020 to provide payment to those not traditionally eligible for
unemployment benefits (self-employed, independent contractors, those with limited work history, and others) who are unable to work as a direct result of the coronavirus public health emergency.

Section 2103. Emergency Unemployment Relief for Governmental Entities and Nonprofit Organizations
This section provides payment to states to reimburse nonprofits, government agencies, and Indian tribes for half of the costs they incur through December 31, 2020 to pay
unemployment benefits.

Section 2104. Emergency Increase in Unemployment Compensation Benefits
This section provides an additional $600 per week payment to each recipient of unemployment insurance or Pandemic Unemployment Assistance for up to four months.

Section 2105. Temporary Full Federal Funding of the First Week of Compensable Regular Unemployment for States with No Waiting Week
This section provides funding to pay the cost of the first week of unemployment benefits through December 31, 2020 for states that choose to pay recipients as soon as they become unemployed instead of waiting one week before the individual is eligible to receive benefits.

Section 2106. Emergency State Staffing Flexibility
This section provides states with temporary, limited flexibility to hire temporary staff, rehire former staff, or take other steps to quickly process unemployment claims.

Section 2107. Pandemic Emergency Unemployment Compensation
This section provides an additional 13 weeks of unemployment benefits through December 31, 2020 to help those who remain unemployed after weeks of state unemployment benefits are no longer available.

Section 2108. Temporary Financing of Short-Time Compensation Payments in States with Programs in Law
This section provides funding to support “short-time compensation” programs, where employers reduce employee hours instead of laying off workers and the employees with reduced hours receive a pro-rated unemployment benefit. This provision would pay 100 percent of the costs they incur in providing this short-time compensation through December 31, 2020.

Section 2109. Temporary Financing of Short-Time Compensation Agreements
This section provides funding to support states which begin “short-time compensation” programs. This provision would pay 50 percent of the costs that a state incurs in providing short-time compensation through December 31, 2020.

Section 2110. Grants for Short-Time Compensation Programs
This section provides $100 million in grants to states that enact “short-time compensation” programs to help them implement and administer these programs.

Section 2111. Assistance and Guidance in Implementing Programs
This section requires the Department of Labor to disseminate model legislative language for states, provide technical assistance, and establish reporting requirements related to “shorttime compensation” programs.

Section 2112. Waiver of the 7-day Waiting Period for Benefits under the Railroad Unemployment Insurance Act
This section temporarily eliminates the 7-day waiting period for railroad unemployment insurance benefits through December 31, 2020 (to make this program consistent with the change made in unemployment benefits for states through the same period in an earlier section of this subtitle).

Section 2113. Enhanced Benefits under the Railroad Unemployment Insurance Act
This section provides an additional $600 per week payment to each recipient of railroad unemployment insurance or Pandemic Unemployment Assistance for up to four months (to make this program consistent with the change made in unemployment benefits for states in an earlier section of this subtitle).

Section 2114. Extended Unemployment under the Railroad Unemployment Insurance Act
This section provides an additional 13 weeks of unemployment benefits through December 31, 2020 to help those who remain unemployed after weeks of regular unemployment benefits are no longer available (to make this program consistent with the change made in unemployment benefits for states in an earlier section of this subtitle).

Section 2115. Funding for the Department of Labor Office of Inspector General for Oversight of Unemployment Provisions
This section provides the Department of Labor’s Inspector General with $25 million to carry out audits, investigations, and other oversight of the provisions of this subtitle.

Section 2116. Implementation
This section gives the Secretary of Labor the ability to issue operating instructions or other guidance as necessary in order to implement this subtitle, as well as allows the Department of Labor to waive Paperwork Reduction Act requirements, speeding up their ability to gather necessary information from states.

Subtitle B – Rebates and Other Individual Provisions

Section 2201. 2020 recovery rebates for individuals
All U.S. residents with adjusted gross income up to $75,000 ($150,000 married), who are not a dependent of another taxpayer and have a work eligible social security number, are eligible for the full $1,200 ($2,400 married) rebate. In addition, they are eligible for an additional $500 per child. This is true even for those who have no income, as well as those whose income comes entirely from non-taxable means-tested benefit programs, such as SSI benefits.

For the vast majority of Americans, no action on their part will be required in order to receive a rebate check as IRS will use a taxpayer’s 2019 tax return if filed, or in the
alternative their 2018 return. This includes many low-income individuals who file a tax return in order to take advantage of the refundable Earned Income Tax Credit and Child Tax Credit. The rebate amount is reduced by $5 for each $100 that a taxpayer’s income exceeds the phase-out threshold. The amount is completely phased-out for single filers with incomes exceeding $99,000, $146,500 for head of household filers with one child, and $198,000 for joint filers with no children.

Section 2202. Special rules for use of retirement funds
Consistent with previous disaster-related relief, the provision waives the 10-percent early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes made on or after January 1, 2020. In addition, income attributable to such distributions would be subject to tax over three years, and the taxpayer may recontribute the funds to an eligible retirement plan within three years without regard to that year’s cap on contributions. Further, the provision provides flexibility for loans from certain retirement plans for coronavirus-related relief.

A coronavirus-related distribution is a one made to an individual: (1) who is diagnosed with COVID-19, (2) whose spouse or dependent is diagnosed with COVID-19, or (3) who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the Treasury Secretary.

Section 2203. Temporary waiver of required minimum distribution rules for certain retirement plans and accounts
The provision waives the required minimum distribution rules for certain defined contribution plans and IRAs for calendar year 2020. This provision provides relief to
individuals who would otherwise be required to withdraw funds from such retirement accounts during the economic slowdown due to COVID-19.

Section 2204. Allowance of partial above the line deduction for charitable contributions
The provision encourages Americans to contribute to churches and charitable organizations in 2020 by permitting them to deduct up to $300 of cash contributions, whether they itemize their deductions or not.

Section 2205. Modification of limitations on charitable contributions during 2020
The provision increases the limitations on deductions for charitable contributions by individuals who itemize, as well as corporations. For individuals, the 50-percent of
adjusted gross income limitation is suspended for 2020. For corporations, the 10-percent limitation is increased to 25 percent of taxable income. This provision also increases the limitation on deductions for contributions of food inventory from 15 percent to 25 percent. Section 2206. Exclusion for certain employer payments of student loans The provision enables employers to provide a student loan repayment benefit to employees on a tax-free basis. Under the provision, an employer may contribute up to $5,250 annually toward an employee’s student loans, and such payment would be excluded from the employee’s income. The $5,250 cap applies to both the new student loan repayment benefit as well as other educational assistance (e.g., tuition, fees, books) provided by the employer under current law. The provision applies to any student loan payments made by an employer on behalf of an employee after date of enactment and before January 1, 2021.

Subtitle C – Business Provisions

Section 2301. Employee retention credit for employers subject to closure due to COVID-19
The provision provides a refundable payroll tax credit for 50 percent of wages paid by employers to employees during the COVID-19 crisis. The credit is available to employers whose (1) operations were fully or partially suspended, due to a COVID-19-related shutdown order, or (2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year.

The credit is based on qualified wages paid to the employee. For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19-related circumstances described above. For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order. The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee. The credit is provided for wages paid or incurred from March 13, 2020 through December 31, 2020.

Section 2302. Delay of payment of employer payroll taxes
The provision allows employers and self-employed individuals to defer payment of the employer share of the Social Security tax they otherwise are responsible for paying to the federal government with respect to their employees. Employers generally are responsible for paying a 6.2-percent Social Security tax on employee wages. The provision requires that the deferred employment tax be paid over the following two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022. The Social Security Trust Funds will be held harmless under this provision.

Section 2303. Modifications for net operating losses
The provision relaxes the limitations on a company’s use of losses. Net operating losses (NOL) are currently subject to a taxable-income limitation, and they cannot be carried back to reduce income in a prior tax year. The provision provides that an NOL arising in a tax year beginning in 2018, 2019, or 2020 can be carried back five years. The provision also temporarily removes the taxable income limitation to allow an NOL to fully offset income. These changes will allow companies to utilize losses and amend prior year returns, which will provide critical cash flow and liquidity during the COVID-19 emergency.

Section 2304. Modification of limitation on losses for taxpayers other than corporations
The provision modifies the loss limitation applicable to pass-through businesses and sole proprietors, so they can utilize excess business losses and access critical cash flow to maintain operations and payroll for their employees.

Section 2305. Modification of credit for prior year minimum tax liability of corporations
The corporate alternative minimum tax (AMT) was repealed as part of the Tax Cuts and Jobs Act, but corporate AMT credits were made available as refundable credits over several years, ending in 2021. The provision accelerates the ability of companies to recover those AMT credits, permitting companies to claim a refund now and obtain additional cash flow during the COVID-19 emergency.

Section 2306. Modification of limitation on business interest
The provision temporarily increases the amount of interest expense businesses are allowed to deduct on their tax returns, by increasing the 30-percent limitation to 50 percent of taxable income (with adjustments) for 2019 and 2020. As businesses look to weather the storm of the current crisis, this provision will allow them to increase liquidity with a reduced cost of capital, so that they are able to continue operations and keep employees on payroll.

Section 2307. Technical amendment regarding qualified improvement property
The provision enables businesses, especially in the hospitality industry, to write off immediately costs associated with improving facilities instead of having to depreciate those improvements over the 39-year life of the building. The provision, which corrects an error in the Tax Cuts and Jobs Act, not only increases companies’ access to cash flow by allowing them to amend a prior year return, but also incentivizes them to continue to invest in improvements as the country recovers from the COVID-19 emergency.

Section 2308. Temporary exception from excise tax for alcohol used to produce hand sanitizer
The provision waives the federal excise tax on any distilled spirits used for or contained in hand sanitizer that is produced and distributed in a manner consistent with guidance issued by the Food and Drug Administration and is effective for calendar year 2020

 

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Byrnes & Bloink’s TaxFacts Intelligence Weekly for March 19, 2020

Posted by William Byrnes on March 20, 2020


2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

 

Editor’s Note: New rulings from the IRS help clarify that COVID-19 expenses can be paid by HDHPs (before the deductible has been met) and FSAs can pay for genetic testing when the information is intended to be provided to a medical professional for treatment purposes. Note that the decision on genetic testing comes in the form of a PLR that addresses some rather unique facts, so it may not be very broadly applicable. We also have a new (and regrettably timely) ruling on worthless securities.
IRS Announces HDHPs Can Pay Coronavirus Costs

The IRS announced that high deductible health plans are permitted to cover the costs associated with the coronavirus. HDHPs can cover coronavirus-related testing and equipment needed to treat the virus. Generally, HDHPs are prohibited from covering certain non-specified expenses before the covered individual’s deductible has been met. Certain preventative care expenses are excepted from this rule. HDHPs will not jeopardize their status if they pay coronavirus-related expenses before the insured has met the deductible, and the insured will remain HSA-eligible. The guidance applies only to HSA-eligible HDHPs. For more information on the rules governing HDHPs, visit Tax Facts Online. Read More

Tax Court Rules on Deduction

The Tax Court held that a worthless securities deduction may be permitted even if the entity that issued the securities still held some value. In a complex case involving a number of rounds of financing over several years, the court found it was reasonable to believe that a junior interest may be worthless if there are not funds to pay currently, or anticipated in the future, the senior interests. For more information on the worthless securities deduction, visit Tax Facts Online. Read More

IRS Finds Health FSA Can Reimburse a Portion of Ancestry Genetic Testing

In a private letter ruling (applicable only to the taxpayer requesting the ruling), the IRS found that a portion of the ancestry genetic test could be reimbursed by the health FSA. In the redacted PLR, the IRS discussed whether the genetic testing service could be classified as medical care. The taxpayer’s goal was to provide genetic information to their healthcare provider, but it was impossible to purchase the genetic information without also purchasing the ancestry services. The IRS found that portions of the testing may be considered medical care, although ancestry reports could not be classified as reimbursable medical care. The IRS directed the taxpayer to use a “reasonable method” to allocate between medical and non-medical services. For more information on health FSAs, visit Tax Facts Online. Read More

Texas A&M University School of Law has launched its online wealth management, risk management, and international tax risk management graduate curricula for industry professionals. Apply now for Summer courses that begin May: FATCA & CRS Risk Management; International Tax Risk Management, Data, and Analytics I  Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018). To apply for Summer, call or fill in the form https://law.tamu.edu/distance-education/

 

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SBA to Provide Disaster Assistance Loans for Small Businesses Impacted by Coronavirus (COVID-19)

Posted by William Byrnes on March 17, 2020


SBA’s Economic Injury Disaster Loans offer up to $2 million in assistance for a small business. These loans can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.

  • These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. The interest rate is 3.75% for small businesses without credit available elsewhere; businesses with credit available elsewhere are not eligible. The interest rate for non-profits is 2.75%.
  • SBA offers loans with long-term repayments in order to keep payments affordable, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.

Process for Accessing SBA’s Coronavirus (COVID-19) Disaster Relief Lending

  • The U.S. Small Business Administration is offering designated states and territories low-interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19). Upon a request received from a state’s or territory’s Governor, SBA will issue under its own authority, as provided by the Coronavirus Preparedness and Response Supplemental Appropriations Act that was recently signed by the President, an Economic Injury Disaster Loan declaration.
  • Any such Economic Injury Disaster Loan assistance declaration issued by the SBA makes loans available to small businesses and private, non-profit organizations in designated areas of a state or territory to help alleviate economic injury caused by the Coronavirus (COVID-19).
  • SBA’s Office of Disaster Assistance will coordinate with the state’s or territory’s Governor to submit the request for Economic Injury Disaster Loan assistance.
  • Once a declaration is made for designated areas within a state, the information on the application process for Economic Injury Disaster Loan assistance will be made available to all affected communities.
  • SBA’s Economic Injury Disaster Loans are just one piece of the expanded focus of the federal government’s coordinated response, and the SBA is strongly committed to providing the most effective and customer-focused response possible.

See §121.201   What size standards has SBA identified by North American Industry Classification System codes?

The size standards described in this section apply to all SBA programs unless otherwise specified in this part. The size standards themselves are expressed either in the number of employees or annual receipts in millions of dollars unless otherwise specified. The number of employees or annual receipts indicates the maximum allowed for a concern and its affiliates to be considered small.  By example, a hotel that does not exceed $35 million gross revenue is a small business whereas a B&B Inn or a full-service restaurant may not exceed $8 million in revenue.

Even tax law firms can qualify for SBA loans. The office of lawyers that do not exceed $12 million in revenue is a “small” law firm. But tax preparation services? Allowed up to $22 million in revenue.

For additional information, please contact the SBA disaster assistance customer service center. Call 1-800-659-2955 (TTY: 1-800-877-8339) or e-mail disastercustomerservice@sba.gov(link sends e-mail).

Posted in Financial, Wealth Management | Tagged: , , , | Leave a Comment »

Byrnes & Bloink’s TaxFacts Intelligence Weekly for Financial Advisors (March 16, 2020)

Posted by William Byrnes on March 16, 2020


Texas A&M University School of Law has launched its online wealth management, risk management, and international tax risk management graduate curricula for industry professionals. Apply now for Summer courses that begin May: FATCA & CRS Risk Management; International Tax Risk Management, Data, and Analytics I  Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018). To apply for Summer, call or fill in the form https://law.tamu.edu/distance-education/

Editor’s Note: Reconciliation abounds! You need to reconcile your advance premium tax credit payments, the Supreme Court needs to reconcile the ACA without the individual mandate, and employers need to reconcile employee withholdings with the new regs.
Do you (or your clients) receive advance premium tax credit payments? If you haven’t squared them away with 2019 income levels that might delay the return. Also, with new withholding regs it’s a good idea for employers to take a second look at employee allowances.
Finally, the Supreme Court will (again) look at the constitutionality of the ACA. Recall that the last time this happened constitutionality hinged on Congress’ ability to tax, with Chief justice Roberts noting that the Aca was clearly tax legislation since the individual mandate penalty was implemented through the tax code. Now that the individual mandate has been repealed, how will the ACA fare under additional scrutiny? Tune in next year to find out!
And wash your hands!
Tax Season Tip: Failure to Reconcile Advance Premium Tax Credit Payments May Delay Returns

The IRS has released guidance reminding taxpayers who received advance payments of their premium tax credit throughout the year of their obligation to reconcile those payments with respect to their actual household income levels for 2019. Taxpayers have the option of choosing to have premium tax credits applied directly to their monthly insurance premiums. For more information on the premium tax credit, visit Tax Facts Online. Read More

Supreme Court to Once Again Consider ACA Viability

The U.S. Supreme Court has agreed to hear arguments and rule on the continued constitutionality of the Affordable Care Act. The Court may decide whether the remainder of the ACA is constitutional absent the individual mandate. Arguments in the case are set to be heard in October, after the election, and a decision is unlikely before 2021. For more information on the individual mandate, visit Tax Facts Online. Read More
Determining the Employer’s Obligations Under the New Proposed Withholding Regulations

The regulations are clear that the employer is not required to ascertain whether the withholding allowance claimed by the employee is greater than those to which the employee is actually entitled. However, the IRS (or published guidance) may direct an employer to submit employees’ withholding certificates (or the certificates relating to groups of employees) to the IRS. Further, the IRS may notify the employer that an employee is not entitled to claim more than a certain withholding allowance. For more information on the new withholding regulations, visit Tax Facts Online. Read More

2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Pensions, Retirement Planning, Taxation | Tagged: , | Leave a Comment »

What will be the impact of the 2017 Tax Cuts Act, Covid-19 (coronavirus), a Zombie Apocalypse, on Estimated Tax due by April 15?

Posted by William Byrnes on March 15, 2020


If a zombie apocalypse does not emanate from the illness known as Covid-19 caused by the coronavirus, then we still need to plan for our 2020 tax payments.  It is likely that taxpayers with business or investment income will be able to reduce the 2020 quarterly estimated tax payments that will be due April 15 this year, June 15, September 15, and January 15 of 2021.  Why?

2019 was a good income year for most taxpayers earning investment and business income.  But 2020 will likely be a depressed income year, maybe even a recession (for those not eaten by zombies). Thus, estimated tax payments to avoid a penalty, generally, 90% of the tax that is estimated to be due for 2020, should be much reduced from the 2019 level paid. (Contrarian investor taxpayers that shorted the market may actually need to make higher estimated taxpayers because the contrarians are likely to have a great capital gain year).

What are the changes enacted in the Tax Cuts and Jobs Act of 2017 that, because of the coronavirus, impact 2020’s estimated tax payments?

  • A taxpayer’s ability to reduce tax because of a net operating loss (“NOL”) in 2020 has been reduced by the TCJA. An NOL resulting in 2020 cannot be applied to taxes paid in the previous two-years of 2019 and 2018 to claw those taxes back.  Before the TCJA, the NOL “carry-back” of two-years was allowed.  NOLs may still be carried forward.  Excess NOL in 2020 may be used to reduce 2021’s income and thus tax due.

However, the TCJA even modifies how much NOL may be used to reduce 2020’s taxable income.  Starting in 2018, the TCJA modified the tax law on “excess business losses” by limiting losses from all types of business for noncorporate taxpayers. An “excess business loss” is the amount of a taxpayer’s total deductions from business income that exceeds a taxpayer’s “total gross income and capital gains from business plus $250,000 for an individual taxpayer or $500,000 for married taxpayers filing a joint return.”  Said another way, the business loss in 2020 is limited to a maximum of $250,000 for an individual taxpayer. Yet, the remainder does not evaporate like a vampire stabbed with a stake in the heart.  The remainder may be carried forward to 2021.  The remainder is called a “net operating loss” or NOL.

But the TCJA has another limitation for the carry forward of an NOL.  The NOL may only be used in 2021 to reduce the taxpayer’s taxable income by 80%.  The remainder NOL in 2021, if any, that resulted from 2020’s original loss and 2021’s limitation to just 80% of taxable income may again be carried forward, to 2022, yet again subject to the 80% of taxable income limitation.  The NOL may keep rolling forward indefinitely, subject to the 80% limitation until it is all used.

  • High net wealth taxpayers that generate gross receipts greater than $26 million may be subject to the TCJA’s limitation of interest expense for 2020. The TCJA included a rule that limits the amount of interest associated with a taxpayer’s business income when the taxpayer has on average annual gross receipts of more than $26 million since 2018.  The limitation does not apply to a taxpayer whose business income is generated from providing services as an employee, and a taxpayer that generates business income from real estate may elect not to have the limitation apply.

The amount of deductible business interest expense that is above a taxpayer’s business interest income is limited to 30% of the taxpayer’s adjusted taxable income (called “ATI”).  For 2020, ATI will probably be significantly lower than in 2019 and 2018. A taxpayer calculated ATI taking the year’s taxable income then reducing it by the business interest expense as if the limitation did not apply. The remaining amount is then further reduced by any net operating loss deduction; the 20% deemed deduction for qualified business income, any depreciation, amortization, or depletion deduction, and finally, any capital loss.  The business interest expense allowable for 2020 is 30% of that remainder.  The lost business income resulting from the coronavirus in 2020 may lead the remainder to be zero, and 30% of zero is zero.  Like the NOL above, the business interest expense if not usable in 2020 does not vanish. It carries forward to 2021 and each year thereafter, applying the same limitation rules each year.

  • Many taxpayers may end 2020 in a capital loss position if the stock market does not fully recover by December.  If a taxpayer’s capital losses are more than the year’s capital gains, then $3,000 of that loss may be deducted from the taxpayer’s 2020 regular income.  Remaining capital loss above the $3,000 may be carried forward to apply against 2021 income, and so on until used up.
  • The IRS may offer taxpayers more time beyond the April 15th deadline to file and pay 2019’s tax in 2020.  The filing and payment for 2019, and estimated tax for 2020, is due on or before April 15. But the IRS has indicated that it may extend that deadline.  A taxpayer may, regardless, file a request for a six-month extension on or before April 15, 2020, that is automatically granted if filed on time. But any tax owing for 2019 will still be due April 15, 2020, after which interest begins to be charged by the IRS to the taxpayer’s tax debt.   Check the IRS website here for whether, because of the coronavirus, it has extended the payment deadline beyond April 15, 2020.  Can the IRS extend the deadline, legally? Yes. Because Congress enacted a section of the Internal Revenue Code (our tax law) “§ 7508A” which is aptly named “Authority to postpone certain deadlines by reason of Presidentially declared disaster or terroristic or military actions”.  The President declared an official national emergency (see here).
  • Taxpayers are not required to exhaust the deductible required by a high-deductible health plan (called “HDHP”) before using the HDHP to pay for COVID-19 related testing and treatment.

I have four tax policy suggestions for Congress that it can include in a taxpayer coronavirus relief bill. I welcome acronym suggestions for this proposed bill’s name, especially a creative bill name whose acronym is “Zombie” or “Eat Brains”. The four tax relief suggestions that will mitigate damage caused by Covid-19 are:

Proposal 1 (stop medical bankruptcy): In 2020 the itemized deduction for medical expenses is reduced by 7.5% of a taxpayer’s AGI.  For 2020, I propose eliminating the 7.5% reduction of medical expenses attributed to the coronavirus or any 2020 flu (or zombie bite), such as hospitalization.  Medical diagnosis should suffice. Not going to be used by many people.  But the people who do use will really need it – those that do not awake as zombies that is.

Proposal 2 (stop restaurant bankruptcy): The administration proposes the suspension of the Social Security and Medicare payroll tax to jump-start consumer spending, presumably after the removal of quarantine orders to stay indoors or at least six feet away from each other. Not very targeted.  Someone like me may just shift the payroll tax relief and use it instead to upward adjust my 403(b) retirement savings for 2020, taking advantage of my full $19,500 contribution allowance for 2020 (and because I am 50 years old or older – add another $6,000 retirement ‘catchup’ to that $19,500 for a full $25,500),  Not only have I not spent the money to help the economy rebound, I have reduced my tax due for 2020 because my retirement contributions reduce my taxable income.  I have saved tax twice!! While I quite like that idea personally, I feel empathy for all the local restaurant owners who may go bankrupt unless I go out to eat at more local restaurants once I assured that 2020 was not the year of the zombie apocalypse.

A better-targeted proposal to save our nation’s local restaurants and the local farmers that supply them is to allow taxpayers an itemized deduction up to $1,000 for an individual and $2,000 for a married filing jointly 2020, beyond the standard deduction, of 100% of restaurant meals expense between June 1 and October 31, at U.S. restaurants with the last three years gross annual receipts averaging less than [$5 million – whatever is reasonable so that big chains are not included, Small Business Administration uses a maximum of $8 million for full-service restaurants (NAICS 722511)- I’m OK with that].  I know – many reasons not to do this, such as Americans will become hooked on eating out at local restaurants. Wait, why is that a bad thing?  And we will need to address the tax abusers who will order one slice of pizza and 20 bottles of wine, to go. So maybe the maximum meal receipt must be set at $100 per meal receipt per adult. That should allow plenty of food for a couple, and alcohol, and leave enough for the children to still have mac & cheese. Plus it requires ten different restaurant trips. Local restauranteurs and the local farmers can hold out hope that 2020 will not require filing for bankruptcy protection.  November is Thanksgiving when people eat out anyway, at least in the restaurants that have remained open.  By the way, I am purposely leaving business out of this.  Business has a 50% business meal deduction anyway. And my policy suggestion is about Americans being social and not talking business at the dinner table (and perhaps not politics either).

Proposal 3 (stop hotel bankruptcy): And let’s not forget about locally-owned hotels with average gross receipts below $8 million (SBA uses $35 million for hotels and $8 million for B&B Inns so maybe I am way off base with just $8 million – see NAICS subsector 721 Accomodation). A $500 itemized deduction for 2020 for a U.S. hotel stay (not Air BnB homes or apartments, actually licensed hotels/BnB Inns) for an individual or couple between June 1 and October 31. Might not buy a weekend at the Ritz but the Ritz probably exceeds the small business amount of revenue a year.  Is it sound tax policy? Huey Long (I’m from Louisiana) promised a chicken in every pot and a car in every yard.  I promise a get-a-way weekend at a small(ish) hotel.

Proposal 4 (keep employees employed): A tax credit (I am not sure the right amount, let the Labor Secretary decide, something around $5,000 an employee) to employers of less than 500 employees who do not reduce the monthly payroll of the employees, or fire any employees, between June 1 and September 30. October 1 employers start thinking about Christmas hiring for the shopping season.  I can imagine some mathematically-inclined employees thinking “I am going to walk into my boss’ office and projectile vomit because the cost of losing the tax credits for firing me is too high.” OK, so firing ‘for cause including projectile Zombie vomiting on the boss ‘ will be allowed without loss of the tax credit.  Now if a business wants to expand and hire a lot of employees up to 500 that’s great.  I propose that all employees employed and start fulltime work before June 1st qualify for a reduced $4,000 tax credit (basically $1,000 a month of employment for June through September).

These four proposals are enough to keep the economy, restaurants, hotels, and employees out of recession and bankruptcy.  But I have more proposals not currently part of the current bill, but common sense dictates should be (well, maybe not).  Why have we heard nothing from the House to encourage donations of toilet paper rolls to local shelters?   And why hotels and restaurants, but not spas?  I’ll leave it to the politicians (and lobbyists) to argue about.  Meanwhile, I look forward to receiving your comments while I set up my anti-zombie chicken wire barricade around the yard.

I’ll be covering these and related issues in my weekly Tax Facts Intelligence Newsletter.

2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Tax Policy, Taxation, Uncategorized | Tagged: , , , , , | Leave a Comment »

International Tax Risk Management case studies online Summer and Fall courses for 2020

Posted by William Byrnes on March 6, 2020


Want to join one of the case study teams for the international tax risk management courses taught live online, using Zoom, by industry’s recognized tax risk leaders and leading tax authors?  The courses are for tax attorneys, accountants, or economists and count toward the Texas A&M’s Master and LL.M. degrees in residence and online.

The class of a maximum of 18 students will be grouped into teams of 3 students each. The 6 teams meet using Zoom to prepare a weekly presentation to respond to a real-world post-BEPS client study. Then all teams meet twice together each week ‘in live session class’ via Zoom with the industry case study topic expert professor and the course professor, 9:00am – 10:30am Dallas Central time to discuss and present the case study solutions. Students are provided without charge the learning and textbook materials, videos with PPT, and podcasts, and granted access to a large online law & business/tax database library including Lexis, Bloomberg, IBFD, Kluwer/CCH, Thomson, BvD, S&P, among many other tax and financial data resources.

To apply for the international tax courses, contact Jeff Green, Graduate Programs Coordinator, T: +1 (817) 212-3866, E: jeffgreen@law.tamu.edu or contact David Dye, Assistant Dean of Graduate Programs, T (817) 212-3954, E: ddye@law.tamu.edu. Texas A&M Admissions website: https://law.tamu.edu/distance-education/international-tax  (applications require university transcripts delivered by May 15).

Strength of the Aggie Network: Texas A&M, annual budget over $6 billion (FY2020), is the largest U.S. public university, with the renown Aggie former students network exceeding 500,000 around the world, Texas A&M is 1 of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and 1 of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space!

 

SUMMER 2020 (May 18 through June 30)

FATCA, CRS, AEoI, Systems and Data: 3 credits (meet Wednesday and Sunday at 9am Central Daylight Dallas time zone)

Week 1. May 18: FATCA, CRS, and EU: nationality, residency, data sharing: Dr. Bruno Da Silva (Loyens & Loeff), and William Byrnes (TAMU).

Week 2. May 25: FATCA/CRS and the Asset Management Industry, intermediaries: Denise Hintzke (Deloitte)

Week 3. June 1: FATCA Withholding Compliance, overlap with QI: Denise Hintzke (Deloitte)

Week 4. June 8: Documentation FATCA v CRS: Danielle Nishida (KPMG) / Laurie Hatten-Boyd (KPMG)

Week 5. June 15: Danielle Nishida (KPMG) or Laurie Hatten-Boyd (KPMG)

Week 6. June 23: Financial Institutions Systems And Data: Haydon Perryman (Bank of America, UBS, Barclays, RBS and Lloyds) 

International Tax Risk Management I (Data, Analytics & Technology) 3 credits (meet Tuesday and Friday at 9am Central Daylight Dallas time zone)

Week 1. May 18: BEPS: Dr. Bruno Da Silva (Loyens & Loeff), and William Byrnes (TAMU).

Week 2. May 25: Interest (thin cap, EBIDTA):

Week 3. June 1: CbCR & Analytics David Deputy, Vertex

Week 4. June 8: LOB / PPT / MLI: Dr. Bruno da Silva (Loyens & Loeff)

Week 5. June 15: General tax risk management approach Dr. Knut Olsen

Week 6. June 23: Future of Analytics & Technology from a Risk Management Perspective: Dr. Paula de Witte 

FALL 2020 (Aug 23 through Nov 23) 3 credits (meet Wednesday and Sunday at 9am Central Daylight Dallas time zone)

Domestic Tax Systems Risk Management

Week 1 Aug 23 Canada (extractive)

Week 2 Aug 30 Mexico (manufacturing)

Week 3 Sept 6 India (services)

Week 4 Sept 13 China (supply chain)

Week 5 Sept 20 Japan Dr. Maji Rhee (Waseda) (comps and secret comps)

Week 6 Sept 27 UK (financial services) 

International Tax Risk Management II (Data, Analytics & Technology) 3 credits (meet Wednesday and Sunday at 9am Central Daylight Dallas time zone)

Week 1 Oct 11 Technology industry (Dell) Pillar 2 – CFC, GILTI, related

Week 2 Oct 18 Manufacture

Week 3 Oct 25 Oil & Gas

Week 4 Nov 1 Tax of Patents / Technology, Dr. Brigitte Muehlmann (Daylight time ends, Wednesday and Sunday at 8am Central Standard Dallas time zone)

Week 5 Nov 8 Tax Risk & Tax Technology, Dr. Brigitte Muehlmann

Week 6 Nov 15 Tax Risk & Tax Technology, Dr. Brigitte Muehlmann   

International Tax & Tax Treaties I: Residency Dr. Bruno Da Silva (Loyens & Loeff), and William Byrnes (TAMU) 3 credits (meet Wednesday and Sunday at 9am Central Daylight Dallas time zone)

Week 1 Aug 23 Domestic Tax Rights; Double Taxation; Tax Treaty Allocation Of Tax Rights

Week 2 Aug 30 Types Of Taxes; Tax Treaty Interpretation

Week 3: Sept 6 Tax Jurisdiction Over Persons, Tax Treaty Interpretation

Week 4: Sept 13 Tax Jurisdiction of Corporations; Tax Treaty Interpretation & Application

Week 5: Sept 20 Tax Jurisdiction of Entities

Week 6: Sept 27 Pillar 1 And 2 (Taxation of Digital; Min Effective Tax)

 International Tax & Tax Treaties II: Source Dr. Bruno Da Silva (Loyens & Loeff), and William Byrnes (TAMU) 3 credits (meet Wednesday and Sunday at 9am Central Daylight Dallas time zone)

Week 1 Oct 11 Tax of Business Income

Week 2 Oct 18 Tax of Investment Income

Week 3: Oct 25 Taxation of Services and Employment Income

Week 4: Nov 1 Double Taxation and Tax Credits (Daylight time ends, Wednesday and Sunday at 8am Central Standard Dallas time zone)

Week 5: Nov 8 Tax Accounting

Week 6: Nov 15 Introduction to Management of Tax and Data

Capstone Nov 23: Groups Create Client Case Studies

SPRING 2021 (Jan 10 – April 26)

U.S. Tax Risk Management (Data, Analytics & Technology) 3 credits (Wednesday and Sunday at 8am Central Standard Dallas time zone)

Week 1 January 10, 2021 Outbound / FDII Melissa Muhammad

Week 2 January 17, 2021 Inbound / BEAT Melissa Muhammad

Week 3 January 24, 2021 [check the box] Form 1120 Documentation: Neelu Mehrotra: EY

Week 4 January 31, 2021 [Subpart F & GILTI, PTEP ] Form 5471 Documentation: Neelu Mehrotra: EY

Week 5 February 7, 2021 M&A or topic and Neelu Mehrotra: EY

Week 6 February 14, 2021 FTCs; wrap-up: Melissa Muhammad 

E.U. International Risk Management 3 credits (Wednesday and Sunday at 9am Central Daylight Dallas time zone)

Week 1 February 28, 2021 General Framework & Fundamental Freedoms

Week 2 March 7, 2021 P/S + Interest / Royalty

Week 3 March 21, 2021 M&A directive

Week 4 March 28, 2021 Cross-Border Losses – Dr. Bruno Da Silva

Week 5 April 4, 2021 Free Movement of Capital (investment funds)

Week 6 April 11, 2021 ATAD, DAC 6, Abuse – Dr. Bruno da Silva

Capstone Week: Build a client case study, wrap up 

Transfer Pricing Risk Management: Tangibles, Methods, Economics, and Data (William Byrnes course material professor)

Week 1 January 13 Arm’s Length Standard (v Formulary Approach) Dr. Bruno Da Silva & William Byrnes

Week 2 Jan 20 CUP & Comparables  Dr. Lorraine Eden

Week 3 Jan 27 Cost Plus & Resale Minus  Dr. George Salis

Week 4 Feb 3: Comparable Profits Method & TNMM Dr. George Salis

Week 5 Feb 10 Profit Split Dr. George Salis

Week 6 Feb 17 Best Method Dr. Lorraine Eden 

Transfer Pricing Risk Management: Intangibles and Services (William Byrnes course material professor)

Week 1 March 2 Intangibles Royalty Rates CUT and CPM  Dr. Debora Correa Talutto

Week 2 March 16 CSA Intangibles Buy In/Out Dr. George Salis & William Byrnes

Week 3 March 23 Digital Business Unitary Apportionment Dr. Bruno Da Silva

Week 4 March 30 Digital Value Chain, Internet of Things Dr. Lorraine Eden

Week 5 April 6 U.S. v OECD v UN Manual case study Extractive Industries, Financing Hafiz Choudhury

Week 6 April 13 Restructuring the Business, Services case study Hafiz Choudhury

Capstone Hand-On Week with Financial databases April 20 – 26: Thomson OneSource, BvD (Moodys), and CrossBorder AI Solutions Dr. Debora Correa Talutto & William Byrnes

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Byrnes & Bloink’s TaxFacts Intelligence Weekly for Financial Advisors (March 5, 2020)

Posted by William Byrnes on March 5, 2020


Texas A&M University School of Law has launched its online wealth management, risk management, and international tax risk management graduate curricula for industry professionals. Apply now for Summer courses that begin May: FATCA & CRS Risk Management; International Tax Risk Management, Data, and Analytics I  Texas A&M University is a public university and is ranked 1st among public universities for its superior education at an affordable cost (Fiske, 2018) and ranked 1st of Texas public universities for best value (Money, 2018). To apply for Summer, contact Jeff Green, Graduate Programs Coordinator, T: +1 (817) 212-3866, E: jeffgreen@law.tamu.edu or contact David Dye, Assistant Dean of Graduate Programs, T (817) 212-3954, E: ddye@law.tamu.edu. Texas A&M Admissions website: https://law.tamu.edu/distance-education/

Editor’s Note: Litigation on breaches of fiduciary duties in qualified plans has increased dramatically in the past few years, and this week sees an interesting decision from the Supreme Court reducing the statute of limitations where the employee has actual knowledge of the breach. In contrast, the IRS indicates that there is no statute of limitations for employer ACA violations. For more on these topics and many others, log in to Tax Facts for the latest.
U.S. Supreme Court Rules on Statute of Limitations for Fiduciary Breach

The U.S. Supreme Court, in the widely watched Intel case, agreed with former employees that an employer cannot shorten the time period over which plan participants can sue by simply posting relevant information online or sending information in the mail. In most cases, plan participants have six years to bring a lawsuit for fiduciary breach. However, that window is shortened to three years from the date the participant had “actual knowledge” of the fiduciary violation. For more information on investment diversification requirements for 401(k)s, visit Tax Facts Online. Read More

IRS Releases Regs on Post-Reform Deduction for Business Meals and Entertainment

The IRS released regulations governing the post-tax reform treatment of the deduction for business meals and entertainment expenses. The regulations generally mirror guidance release in 2018 and 2019 on the deduction. As such, taxpayers may continue to deduct 50 percent of their business-related food and beverage expenses that are not lavish or extravagant. For more information on the post-reform deduction, visit Tax Facts Online. Read More

IRS: No Statute of Limitations on ACA Penalties for Large Employers

In usual scenarios, when a taxpayer files a return reporting certain information to the IRS, that filing triggers the start of a limitations period after which the IRS can no longer challenge the information in that return (generally, three years). However, the IRS has recently clarified that this rule does not apply with respect to ACA penalty taxes owed by applicable large employers—because there is no actual return that they file in order to report those taxes. This is the case despite the fact that ALEs have certain reporting obligations via annual Forms 1094-C and 1095-C. For more information on how penalties are assessed, visit Tax Facts Online. Read More

2020’s Tax Facts Offers a Complete Web, App-Based, and Print Experience

Reducing complicated tax questions to understandable answers that can be immediately put into real-life practice, Tax Facts works when and where you need it….on your desktop, at home on your laptop, and on the go through your tablet or smartphone.  Questions? Contact customer service: TaxFactsHelp@alm.com800-543-0874

Posted in Pensions, Retirement Planning, Taxation, Wealth Management | Tagged: | Leave a Comment »

 
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