Tax News & Views Amending Partnerships and Lost Deductions Roundup

April 9, 2020

IRS Grants Broad Partnership Filing Relief - Eric Yauch, Tax Notes:

The IRS released guidance (Rev. Proc. 2020-23, 2020-18 IRB 1) April 8 that allows partnerships to take advantage of items such as the bonus depreciation changes in the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) by allowing them to file amended returns for tax years 2018 and 2019 in some cases by September 30, 2020.

Changes in partnership tax rules that took effect in 2018 generally keep partnerships from filing amended returns. If a partnership item is corrected after filing by either the taxpayer or the IRS, the correction is taken into account in the year the correction is made - not the year in which the item was originally reported. 

Rev. Proc. 2020-23 allows amended returns for 2018 and 2019 to enable partners to claim refunds for tax breaks enacted retroactively in the Cares Act. These items include bonus depreciation on "Qualified Improvement Property" real property improvements and, for 2019 filings, increased interest deductions. 

Amending the partnership returns will not be sufficient to obtain refunds; the partners themselves will have to then file amended returns reflecting the changes from their amended partnership Forms K-1.


Congress Asked to Clarify Tax Deductibility of PPP Loan Proceeds - Eric Yauch, Tax Notes. "The expenses that Paycheck Protection Program (PPP) loan proceeds must cover to be forgivable would normally be deductible in virtually all cases under sections 162 and 163, but it is unclear whether the tax-exempt nature of the loan forgiveness functions to deny those deductions, Cornell University law professor Richard L. Reinhold said in an April 8 letter to Treasury."

Interesting, in a daunting way. But there's more:

Adam Sweet of Eide Bailly LLP said another question is how the PPP loan debt is treated for tax purposes...

When the partnership incurs the debt, there’s no guarantee that it will be forgiven in whole or in part, so one theory is that the expenses are deductible because the debt basis is a real section 752 liability recognized for tax purposes, Sweet said.

“Of course, at-risk limitations could apply as well due to the nonrecourse nature of the loan,” Sweet added.

But then the question is what happens if and when the debt is forgiven, Sweet said.

“We know there is no cancellation of indebtedness income to recapture previous expenses,” Sweet said. “Does the forgiven loan also jeopardize the previous deductions?”

Stay tuned. 


IRS Says Wait for Guidance Before Filing CARES Act Refund Claims - Nathan Richman, Tax Notes. From the IRS statement: "The IRS is currently exploring available options and expects to issue filing instructions in the coming days. The IRS recommends that taxpayers await further instruction before utilizing traditional processes. Additional information will be posted to"

Overwhelmed? Plain Talk On The Paycheck Protection Program For Small Businesses Affected By COVID-19 - Kelly Phillips Erb, Forbes. "How do I count employees? The Small Business Administration (SBA) calculates all individuals employed on a full-time, part-time, or other basis. You can find out more in the Regulations here." 

AMT Complexities Hinder Companies Monetizing Operating Losses - Emily Foster, Tax Notes. "But taxpayers that carry back losses under the CARES Act to 2017 or earlier could have a regular tax NOL, and if there aren’t loss carrybacks for AMT purposes, that could create minimum tax liability and complicate modeling efforts..."


How Big Will My Recovery Rebate Be?? - Bob Probasco, Procedurally Taxing. What happens if you already owe the IRS?

Speeding up delivery of your COVID-19 payment - Kay Bell, Don't Mess With Taxes. There's nothing you can do, except maybe file your 2019 return with direct deposit information. "If, however, you asked for your refund to be mailed, then your coronavirus payment also will be delivered to you via the U.S. Postal Service. And just like with tax refunds, the mailed coronavirus paper checks will take several weeks longer to arrive."


Iowa Small Business Relief Tax Deferral Program still accepting applications - Iowa Department of Revenue:

For any sales and/or withholding tax filing due during the period beginning March 20, 2020, through the close of business on April 30, 2020, the tax deferral provides an additional 60 days from the original due date to file your tax return and remit your tax payment. Penalty associated with sales and/or withholding tax filings due during the period beginning March 20, 2020, through close of business on April 30, 2020, will be waived. Interest is waived for 60 days from the date your tax return was due.

Coronavirus and Idaho Taxes: Frequently Asked Questions and Answers - Idaho State Tax Commission. "Does the income tax payment extension include estimated quarterly payments? Yes. We've extended the due date for income tax estimated payments that are normally due April 15 to June 15. This includes fiscal-year tax filers."

These States Could Tax Your Recovery Rebates - Jared Walczak, Tax Policy Blog. Alabama, Iowa, Louisiana, Missouri, Montana, Oregon. "It’s doubtful that any of these states intend to tax your rebate. To prevent that from happening, though, lawmakers will have to exempt it."


How The CARES Act Increases Charitable Deductions Without Helping Non-Profits Very Much - Howard Gleckman, TaxVox. "The worst designs set a very low cap on the maximum deduction and provide no incentive to increase giving. The CARES Act’s universal deduction fails on both counts."


New IRS Practice Unit for “Adjustments for Overwithholding on Form 1042” - International Tax Blog. "Yesterday the IRS published a new practice unit titled “Adjustments for Overwithholding on Form 1042.” This practice unit discusses adjustments for overwithholding of tax done on payments of U.S. source income to foreign persons on Forms 1042 tax returns and Forms 1042-S information returns."

Related: 1042 & 1042-S Decision Tree, Eide Bailly International Tax Group.


Today in History: Lee surrenders to Grant at Appomattox. 155 years ago.

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