Tax News & Views Deduction Disallowance Double-Dip Roundup

May 5, 2020

‘Tax 101’: Mnuchin Defends Nondeductibility of PPP Expenses - Jad Chamseddine, Tax Notes ($): 

Mnuchin said the IRS guidance is correct, adding, “I have reviewed this personally. This is basically Tax 101.”

But congressional lawmakers have a different view on how the IRS should be treating expenses associated with the PPP. Senate Finance Committee Chair Chuck Grassley, R-Iowa, previously said that the notice was contrary to the congressional intent behind the CARES Act. On May 4 he said he plans to introduce legislation on the issue.

The head taxwriters in both houses want to change the result of Notice 2020-32, which holds that expenses that make Paycheck Protection Program loan forgivable may not be deducted. That makes it probable that the next Coronavirus bill will override the notice. But nobody knows when, or if, such a bill will pass, leaving PPP borrowers without good information or options.

Related: IRS Says No Deduction for PPP Loan Expenditures - Adam Sweet, Eide Bailly.


Trump Goes All-In on Payroll Tax Cut for Future COVID-19 Relief - Jonathan Curry, Tax Notes ($). "As Congress considers its options for another round of coronavirus relief, President Trump has laid out his cards: It’s payroll tax cut or bust."

Congress Could Reverse IRS Denial Of Tax Deductions For Paycheck Protection Expenses - Robert Wood, Forbes. "The CARES Act expressly says that the PPP loan forgiveness amount are not to be treated as taxable income, and proponents of deductions say the IRS denial of deductions is flatly inconsistent with that. Maybe it even makes it meaningless?"

Economic Analysis: Double Standard on Double Dipping at the IRS - Martin Sullivan, Tax Notes ($). "Except for the absence of logic — no cliché sarcasm, please — the only way to interpret the specific language in section 1101(i) is that it was the intent of Congress to exempt the PPP loan-program subsidy from federal income taxation — a benefit that, by the way, provided an incentive to (mostly) small and medium-size businesses that kept paying their employees during the COVID-19 pandemic. The IRS guidance contradicts that interpretation."


Congress Authorizes More Funds for PPP and EIDL and Says Farms Can Apply - Ag Only Window Opens May 4 - Kristine Tidgren, Ag Docket. "Agricultural Producers Are Eligible, but Borrowers Must Act Fast"

Lawmakers Urge IRS to Rethink Tax-Credit Rule Affecting Furloughed Workers - Richard Rubin, Wall Street Journal ($). "In a letter to Treasury Secretary Steven Mnuchin, Sen. Chuck Grassley (R., Iowa), Sen. Ron Wyden (D., Ore.) and Rep. Richard Neal (D., Mass) urged the administration to reverse its decision. The Internal Revenue Service said last week that employers would be ineligible for the tax credit if they are paying no wages but are still paying health benefits, a decision that could affect many large retailers and travel-industry companies operating that way during the coronavirus pandemic."

Coronavirus-related relief for retirement plans and IRAs questions and answers - IRS FAQ. "In general, section 2202 of the CARES Act provides for expanded distribution options and favorable tax treatment for up to $100,000 of coronavirus-related distributions from eligible retirement plans (certain employer retirement plans, such as section 401(k) and 403(b) plans, and IRAs) to qualified individuals, as well as special rollover rules with respect to such distributions. It also increases the limit on the amount a qualified individual may borrow from an eligible retirement plan (not including an IRA) and permits a plan sponsor to provide qualified individuals up to an additional year to repay their plan loans."

The Wavering Due Date For Tax Returns - Monte Jackel, Procedurally Taxing. "I was told from reliable informed sources inside the government that section 7508A(d) did not apply to the coronavirus pandemic because there was no 'declaration date' in the presidential declaration and there was no 'incident date' in this crisis like there would be for a hurricane or other natural disaster that is objectively determinable. That proposition is debatable."

SBA Offers PPP Loan Forgiveness Relief For Employers Whose Employees Turn Down Offer of Reemployment - Ed Zollars, Current Federal Tax Developments. "The key points to note are the requirement for the employer to issue a written offer to rehire the employee and that the employer must document the rejection of the offer."


A Defense Of The Break Republicans Snuck Into The CARES Act - Peter Reilly, Forbes. Peter is talking about the deferral of the limits on individual business losses enacted as Sec. 461(l) in the 2017 Tax Cuts and Jobs Act:

The coverage on this move, which apparently was a fast one in that the voting came before the scoring, has been negative. There is a lonely voice out there crying that rather than fooling with the effective date, 461(l) should have been retroactively repealed as it is poor tax policy and unfair.

The lonely voice is Joe Kristan, one of the longest running tax bloggers who is back from a break dictated by the demands of an upstream merger on a new platform.

Why do I feel this way? I will quote Peter quoting me: "My short answer is that it is a classic 'heads they win, tails you lose' provision. If you have a good year, the government has no problem taxing all of your income, but if you have a bad year, somehow it's abusive to deduct your entire loss." I have more to say in Peter's post.


When the IRS Adds a Digit… - Russ Fox, Taxable Talk. "Clients of ours filed their tax returns 15 days ago, and this morning received their refund from the IRS. They were expecting $523 and they got that, and just a bit more: The direct deposit was $3,523!

"The IRS does have guidance on what to do in this situation: Tax Topic 161 covers an erroneous refund."

Farm Bankruptcy – “Stripping,” “Claw-Back” and the Tax Collecting Authorities - Roger McEowen, Agricultural Law and Taxation Blog. "Going forward, Chapter 12 reorganization plans should provide that if a pro-forma return shows that the debtor is owed a refund the governmental bodies will pay it."

May the Tax Fourth Be With You: COVID-19 sequel - Kay Bell, Don't Mess With Taxes. "Here we go with the debut of the Star Wars COVID-19 tax sequel: 4 May Coronavirus Tax Moves."

Pandemic Dos And Don'ts Of State Tax Policy: SALT In Review - David Brunori, Law360. "Some states will be tempted to join a handful of states and adopt a gross receipts tax. Virtually all public finance experts consider gross receipts taxes unsound policy choices."


Wisconsin Strip Clubs Win PPP Eligibility After Initial Denial - Frederic Lee, Tax Notes:

The plaintiffs were granted a motion for a preliminary injunction against the Small Business AdministrationSBA Administrator Jovita Carranza, and Treasury Secretary Steven Mnuchin by the U.S. District Court for the Eastern District of Wisconsin. The May 1 decision further bars the SBA — which is administering the PPP loans — and Treasury from using a regulation pertaining to sexual live performances to determine PPP loan eligibility.

Link to order: Camelot Banquet Rooms LLC et al. v. U.S. Small Business Administration; No. 2:20-cv-00601

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