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TAX VIRUS BRIEFING: Reopenings Start, New Aid Talks on Pause

May 22, 2020, 7:36 PM

The IRS starts ordering workers back to the office as states begin to ease restrictions. Lawmakers take first steps on more aid but are calculating appetites for how much to give, to whom, and when.

Catch up on the ways the coronavirus outbreak continues to change the world.

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Most states started efforts to return to normal life—some with baby steps, some with more—and the IRS made its own move, ordering some workers in three states to report to their buildings as of June 1.

It’s only certain employees, in a few locations at first—Kentucky, Texas, and Utah. But it takes the agency past its earlier call for volunteer workers in order to tackle the daunting pile of taxpayer and tax professional queries, much of it involving paperwork and systems that employees can’t access from home.

Some of the IRS backlog has to do with queries from people trying to learn where their $1,200 economic impact aid is, and the agency said it was adding 3,500 phone operators to tackle virus aid questions.

Tax professionals, too, are continuing to be frustrated by IRS limitations. In one big glitch, the agency’s systems mistakenly blocked access for some to the transcript delivery system, which lets practitioners view client tax returns and account information.

It’s “making a bad situation worse,” Jeff Trinca, vice president of Van Scoyoc Associates in Washington and legislative counsel of the National Association of Enrolled Agents, said Thursday.

The agency’s workload has been enormous. As of Friday, the IRS said, it has sent $256 billion in direct impact payments to about 151 million people in the U.S. Whether it will send more to individuals remains an open question, because policy makers don’t agree on the matter.

Aid Talks on Pause


Congress looks likely to authorize more spending, but Democrats, Republicans, and the White House are still on different pages with respect to where the aid should go. Only one thing looks likely so far: adding flexibility for small businesses in the Paycheck Protection Program, the forgivable-loan program that lawmakers created in the CARES Act (Public Law 116-136).

The program has proved a real problem for thousands of businesses that want to use it—difficult to spend the money within the prescribed time and to meet loan forgiveness criteria, among other things—according to a survey by the National Federation of Independent Business.

The House plans to vote next week on a bipartisan bill (H.R.6886) that would give businesses more than the currently allowed eight weeks to spend their funds on payroll. It also would relax a requirement that at least 75% of the funds be used toward payroll expenses.

Treasury Secretary Steven Mnuchin said Thursday that the administration would support proposals to extend the period to 10 or 12 weeks.

That would be a stand-alone bill, though. As for any more money, and what kind it should be—Mnuchin and Republican leaders are still distancing themselves from decisions as they watch how state and local reopenings play out.

There is “a strong likelihood” another aid package will be needed, Mnuchin said Thursday. But the White House and Republican leadership agree they should assess the impact of the $5 trillion or so already authorized—including money the Federal Reserve and Treasury haven’t deployed yet to back up businesses and state and local governments—before they send more money out.

They definitely agree the $3 trillion bill (H.R. 6800) House Democrats passed last week will go nowhere.

Patriotic Millionaires’ Moment? The group of people who call themselves the Patriotic Millionaires believes this might be the time for Congress to require foundations and other charitable groups to increase their donations to charitable causes.

“This is a terrific way to inject a boatload of money into the economy,” said member Scott Wallace, whose grandfather Henry A. Wallace was vice president in Franklin D. Roosevelt’s administration.

The proposal would double the amount private foundations must donate to charities each year to 10% of their total assets, up from 5%. It would also require donor-advised funds to give 10% of their assets; these groups don’t have any minimums now.

Energy Sector Tax Breaks: Oil and gas, coal, and electric companies have reported benefits from a variety of Cares Act tax breaks, including a payroll tax deferral that, broadly, lets employers delay payments that would have been due this year.

But the companies are also well positioned to take advantage of some of the law’s narrower tax perks, including expanded write-offs for debt interest payments and accelerated refunds of the alternative minimum tax, which was eliminated by the 2017 tax law.

A Duke Energy spokesperson said, for example, that liquidity resulting from the acceleration of $572 million it has remaining in AMT credit refunds “helps provide certainty” as the company keeps delivering power to customers hit by the pandemic.

Testing, Testing: The IRS undertook a 24-hour test of its Income Verification Express Service, which provides expedited tax transcripts to confirm potential borrowers’ incomes. New requests had been on hold since late March. The test involved some staff working remotely to supplement the limited personnel at service centers. The agency said it would give more information about service prospects once the test is evaluated.

Accounting Challenge: Chipotle Mexican Grill Inc., Fossil Group Inc., Burlington Stores Inc., Cheesecake Factory Inc. ... these and so many others have been seeking rent concessions from their retail landlords.

The breaks on lease payments will help businesses slammed by the virus shutdowns, but they hand accountants some hard work at an already tricky time for financial reporting. Lease accounting rules that were new last year were tough sledding, but now? Lease changes may make for some of the hardest accounting companies have ever faced, professionals say.
hose long-term obligations are critical to investors, who have been poring over balance sheets since March to weigh which companies will survive the economic tailspin.

Speaking of Accounting: On this week’s Talking Tax podcast, consultant and accounting veteran Esther Mills talks with host Amanda Iacone about the extraordinary challenges businesses face right now in calculating their current and future situations so as to give investors the fairest picture.

The House Democrats’ virus relief bill calls for expanding the employee retention tax credit enormously. How would it work?

Global News

Companies may be liable for a spate of new state and international taxes as stay-at-home orders drag on to one extent or another. That’s because their workers who are stranded or sheltered in states or countries they don’t normally work from can expose them to corporate income tax and various employment tax obligations.

To avoid the risk of noncompliance, companies need to know where employees are, how long they’ve been there, and which jurisdictions have said they’ll forgive unexpected cross-border tax liabilities during the pandemic. But this can be complicated by the fact that states have different time thresholds at which an individual becomes taxable.

“It’s not so simple as tracking information,” according to Pilar Mata, tax counsel for Tax Executives Institute’s state and local tax committee. “It’s, ‘Do I have the systems necessary to do that?’ ‘Is it a short term or long term change’?”

Wealth Taxes: Several Latin American countries may be fertile ground for taxing the richest residents to get governments through pandemic-wrought financial disasters.

Measures are being debated in Chile, Brazil, Argentina, Peru, and Mexico as global organizations, including the International Monetary Fund, have pointed to pronounced inequality and low levels of tax compliance throughout the region.

Some Chilean lawmakers are proposing a 2.5% tax on people with assets of more than $10 million.

Foreign Tax Credits: Multinationals facing worldwide income drops say they could feel more pain from IRS guidance on foreign tax credits.

Rules as proposed in December (REG-105495-19) could reduce availability of the credits, which companies use to offset their U.S. taxes, tax professionals say. Some of them told the IRS at a virtual hearing Wednesday that the complicated requirements are a big problem for multinationals with many controlled foreign corporations across different countries.

  • Russia: The government is adding to tax breaks for various sectors, this week offering measures that include providing that debt that is canceled or forgiven on concessional loans granted to medium and small businesses for the purpose of supporting employment won’t be taxable.
  • Scotland: Scottish companies based in places designated as tax havens won’t be able to get loans from a relief package lawmakers passed this week. Parliament’s action is similar to steps taken by France, Poland, and Denmark.
  • France: The government won’t raise taxes to pay coronavirus-crisis debt, but instead will rely on future growth, Finance Minister Bruno Le Maire said. And bringing back a wealth tax isn’t a good solution, he said.
  • U.K.: EU state aid rules are hampering the ability of some U.K. startups from obtaining government funding aimed at boosting economic activity in the post-pandemic era, Chancellor of the Exchequer Rishi Sunak told Parliament.

More international news and information on coronavirus is here.

State Developments

It’s a continuing bright spot for state tax coffers amid the general gloom. Online shopping is resembling the normal year-end holiday season, according to Steven Ridzyowski of Ecommerce Marketing Agency.

Walmart Inc. said online sales grew 74% in its latest quarter ending May 1. And even with Covid-19-related costs of $900 million, it reported that overall comparable sales rose 10%.

A retail trend to watch, Ridzyowski said: inventory deployment, where “large inventory will be all held in one place versus multiple stores, and the future products will be shipped directly to consumers.”

  • In Louisiana: The Department of Revenue started opening offices, with limited numbers of people allowed in and precautions taken.
  • In New York: Businesses will have until June 22—extended from May 19—to hand over sales tax collections to the state without penalties and interest.

Bloomberg Tax has a state-by-state roadmap logging all developments as they happen.

Copyright: Taxgirl.com; Illustration: Jonathan Hurtarte/Bloomberg Law

Commentary

Crowdfunding might be a great way to help individuals or small businesses these fraught days, but Kelly Phillips Erb, the TaxGirl, says it’s good to know about possible tax considerations.

Dive Deeper With Bloomberg Tax Insights

  • Attorneys at Chamberlain Hrdlicka: The Paycheck Protection Program has presented small businesses with multiple rule changes and problems with the loan forgiveness application.
  • Attorneys at Covington & Burling: Evaluation of Treasury and IRS guidance for international travelers unable to leave the U.S. due to travel restrictions.
  • Timothy Evans of Mazars: What to know about using the pandemic relief provision that temporarily repealed the business loss limitations enacted in the 2017 tax law.
  • Mark A. Fahleson of Rembold Ludtke: Examining risks of civil, administrative, and criminal liability as businesses reopen.

To contact the reporter on this story: Kathy Larsen in Washington at klarsen@bloombergtax.com

To contact the editors responsible for this story: Rachael Daigle at rdaigle@bloombergindustry.com; Vandana Mathur at vmathur@bloombergtax.com

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