Tax Update Blog

Tax News & Views Imminent Funding Roundup

April 21, 2020 | Blog

Small Business Loan Funding Imminent From Congress - Jad Chamseddine, Tax Notes. "The Senate may vote to boost funding for the Paycheck Protection Program (PPP) April 21 after negotiations over an interim package while the fund was running low stalled. Senate Majority Leader Mitch McConnell, R-Ky., blamed Democrats in a pro forma session April 20."

Small Businesses Await Funds as Congress Talks Near an Agreement - Eric Wasson, Bloomberg ($) "The Senate has scheduled a late afternoon session Tuesday in anticipation of approving an agreement on a nearly $500 billion stimulus bill, including $310 billion to replenish the small business program. But negotiations with the Trump administration ended early Tuesday without a deal being reached."

 

How to Maximize Your Loan Forgiveness Under the Paycheck Protection Program - Tom Goekeler, Adam Sweet and Michael Holdren, Eide Bailly. "An approach focused on proper planning and documentation can help a borrower achieve maximum loan forgiveness."

Experts Want States to Clarify Tax Treatment of Forgiven PPP Loans - Paul Jones, Tax Notes. "As businesses receive hundreds of billions of dollars in Paycheck Protection Program (PPP) loans, tax experts want states to indicate whether they, like the federal government, will treat the forgiven loan debt as tax"

 

States are Looking for More Tax Money: How to Protect Yourself - Lauren Taylor, Eide Bailly. "With the uncertainty of when the country will reopen for business, states are looking for ways they can generate revenue to replenish the non-budgeted cash outflow. Since legislative measures take time to pass and become effective, states most likely will turn to their quick and easy revenue generating tool: an audit."

Estate Planners Struggle to Sway Clients on Tax Savings - Jonathan Curry, Tax Notes. "Estate planners widely agree that right now is prime time for their clients to engage in estate tax planning. Convincing clients of that, however, is proving to be a challenge."

 

USDA Announces New COVID-19 Relief Program for Farmers - Kristine Tidgren, Ag. Docket. "The program provides $16 billion in direct support to farmers and ranchers (1) to compensate for actual losses where prices and market supply chains have been impacted and (2) to assist producers with additional adjustment and marketing costs resulting from lost demand and short-term oversupply for the 2020 marketing year caused by COVID-19."

 

Non-Profits Benefit from Relaxed Charitable Deduction Limitations - William Boatwright, Davis Brown Tax Law Blog. "Under the CARES Act, and for the 2020 taxable year only, cash donations to 501(c)(3) public charities are not subject to the general 60% cap and are deductible up to 100% of an individual itemizer’s adjusted gross income."

No bank account? Prepare to wait for COVID-19 cash - Kay Bell, Don't Mess With Taxes. "That could mean some recipients could be waiting months for their money."

Your Stimulus Check Answers About Kids, Child Support, Direct Deposit, ITINs & More - Kelly Phillips Erb, Forbes.

 

IRS Eases Tax Enforcement During Virus Shutdown - Robert Wood, Forbes.

Lesson From The Tax Court: Distinguishing Child Support From Alimony - Bryan Camp, TaxProf Blog:

Some may think that a lesson about the difference between alimony and child support is not worth learning because Congress eliminated the §215 deduction for alimony payments in December 2017. See §11051(a) of P.L. 115-97, 131 Stat. 2054 at 2089. Once Congress did that, both alimony and child support payments are treated the same for income and deduction purposes: not deductible by the payor spouse and not includable by the payee spouse.

I think the lesson is still important, however, for three reasons.

 

Business Loss Change by CARES Act - Track Changes and Policy - Annette Nellen, 21st Century Taxation. "A few notable ones for businesses include the ability to carryback net operating losses (NOLs) for 2018, 2019 and 2020 for 5 years even though the TCJA ended this for tax years beginning after 2017 and even though the carryback can go to years when tax rates were higher than today."

 

Heads I Win, Tails I Win Too: Winners From The Tax Relief For Losses In The CARES Act - Steven Rosenthal, Aravind Boddupalli, TaxVox. "Congress justified massive CARES Act tax relief for losses to infuse cash quickly to businesses, including “small” businesses. But providing cash to the wealthy via tax refunds is little more than a windfall. Congress should target relief to those truly small businesses that desperately need help."

I dissent. The authors object to provisions that temporarily relax provisions enacted in 2017 to limit individual business losses.

Where there is no limitation on the amount of business income that gets taxed on 1040s, there should neither be a limitation on personal business losses. The ability to generate a net operating loss prevents a business with volatile income patterns from being taxed on income it doesn't have.

Consider a single-owner S corporation with $1 million in taxable income each year in 2018 and 2019, but a $2 million loss in 2020 as a result of COVID-19. Over the three-year period, the taxpayer has no taxable income. Yet under Pre-CARES Act law, the taxpayer would pay up to $740,000 of federal income taxes over the three years on the business income - or "only" $592,000 if all of the income qualified for the QBI deduction. The $2 million loss in 2020 would have been limited to a $259,000 offset against non-business taxable income of the owner, at a maximum 2020 benefit of about $88,000, with the rest carrying forward to offset future income, assuming there will be any.

The CARES Act sensibly - but only temporarily - restores the ability to fully deduct and carry back business losses, meaning that this business with zero taxable income would pay zero federal income tax over a three year period where it has no taxable income. 

Rather than using the tax law to "target relief to those truly small businesses that desperately need help," it's challenge enough to tax an income base measured accurately over time. There's no fairness in a $740,000 tax on zero taxable income.

 

Don't Mess With Texas. On this date in 1836, Sam Houston won the Battle of San Jacinto, resulting in a treaty recognizing the independence of Texas.


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This is a roundup of tax news and opinion. Any opinions expressed or implied are those of the author and not necessarily those of Eide Bailly. Opinions found in linked items are those of the authors of the linked item, not of your bloggers or of Eide Bailly. “$” means link may be behind a paywall. Items here do not constitute tax advice.