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September Tax Law Updates

| Sep 11, 2020 | Tax Law

Portions of this content are available on the IRS website and elsewhere. We have reposted it here for your information and convenience.

Layoff & Rehire During COVID & Qualified Plan Partial Termination Rules

IRS advises that employees laid off because of COVID-19, and then rehired by the end of 2020, are generally not treated as having an employer-initiated severance from employment for purposes of determining whether a partial termination of a qualified plan has occurred. IRS.GOV

Tax Court & COVID-19 Procedural Changes.  To accommodate remote operations during the COVID-19 pandemic, the Tax Court has announced additional procedural changes which include limited appearances and electronic signatures. United States Tax Court press release, August 6, 2020

COVID-Telecommuting and State Taxation: A federal coronavirus relief package announced by U.S. Senate Republicans on July 27 includes a number of smaller measures, including the bipartisan Remote and Mobile Relief Act, which is designed to limit the state tax consequences of temporary work in a state and to provide “state tax certainty” during the pandemic, with limitations on business tax nexus and concrete rules for employees. Health, Economic Assistance, Liability Protection, and Schools (HEALS) Act. The HEALS Act comprises several smaller pieces of legislation, including the bipartisan Remote and Mobile Relief Act (RMRA) (S3995)

College Scandal & Tax Crimes. Defendant who was charged with tax fraud denied motion to sever his trial from co-defendants as additional charges were considered inextricably linked to conduct underlying conspiracy charges and doing so prevented undue waste of resources. His alternate motions for dismissal or to strike were also denied. (U.S. v. Colburn, et al, DC MA, 126 AFTR 2d ¶2020-5117)

Amended Return Opportunities due to Retroactive COVID-19 Relief for those who filed Earlier: for cash strapped individuals and businesses impacted by the COVID-19 crisis, is worth the while. Here are six amended return opportunity areas to consider: 1. Net operating losses (NOLs) removes the limitation on deductions for prior year NOLs carried over into tax years before 2021, where an 80%-of-taxable-income limitation existed under the TCJA. Consequently, NOLs generated in post-2017 tax years can be carried over to fully offset taxable income in 2018-2020. See, IRC 172, Rev Proc 2020-242. Tax deductible IRA, HSA, SEP, or solo 401(k) contributions made before July 15, 2020.  Early filing taxpayer, who contributed to a plan after filing their return, but before July 15, may have missed a 2019 deduction. Although those contributions could still be deducted on their 2020 tax return, given the time value of money in a cash strapped COVID-19 environment, amending the return may make sense. 3. Corporate minimum tax credit carryovers. The refundable AMT credit may provide much needed cash for the corporation. The deadline to claim a 2018 minimum tax credit, described in Code Sec. 53(e)(5), is December 30, 2020. 4. Depreciation rules on qualified improvement property (QIP).  The CARES Act retroactively corrects the TCJA drafting error that omitted QIP from the option of claiming 15-year straight-line depreciation which would allow for 100% bonus depreciation. (Code Sec. 168(k)(6)Code Sec. 168(e)(3)(E)) 5. Suspension of excess business loss disallowance (2018–2020) The TCJA disallowed current deductions for excess business losses incurred by individuals and other noncorporate taxpayers beginning in 2018. An excess business loss is one that exceeds $250,000, for single filers, or $500,000 for married filing jointly, adjusted annually for inflation. The CARES Act suspends the excess business loss disallowance rule for losses arising in tax years beginning 2018–2020. (Code Sec. 461(I), as amended by CARES Act Sec. 2304(a)).  6. Business interest expense deduction limitation increased to 50% ATI.  CARES Act retroactively increased the ATI limitation from 30% to 50% for tax years beginning in 2019 and 2020 (not including 2018). (Code Sec. 163(j)(10)(A)(i), as amended by CARES Act Sec. 2306(a)) A special rule applies to partners in partnerships: the 50% ATI limitation cannot be applied to the 2019 tax year; it can only be applied to the 2020 tax year. (Code Sec. 163(j)(10)(A)(ii)(I), as amended by CARES Act Sec. 2306(a))  Coronavirus Aid, Relief, and Economic Security Act (CARES Act, P.L. 116-136, (3/17/2020)

Taxpayer’s Installment Agreement Rejected by USTC.  The Tax Court held IRS Settlement Officer properly rejected proposed installment agreement because married taxpayers had the current ability to pay their tax debt in full. (Dodson, TC Memo 2020-106)

Loss from Property Sale Not Deductible Without Basis The Tax Court found that individuals could not deduct a loss from their sale of real property because they failed to establish their basis in the property. (Duffy, TC Memo 2020-108)