Authored by Paul Dillon, Michelle Hobbs, Mike Schiavo and Michael Wronsky The Department of Treasury and the IRS released Revenue Ruling 2020-27, providing that taxpayers who received Paycheck Protection Program (PPP) loans cannot deduct expenses funded by the debt if forgiveness is reasonably expected. In other words, if the taxpayer has otherwise met the requisite conditions for loan forgiveness, associated expenses are nondeductible if forgiveness has not yet been approved by the lender or even applied for by the end of the borrower’s taxable year.  This addresses an issue outstanding since the IRS released Notice 2020-32 in April, which originally provided that expenses funded by forgiven loan proceeds are nondeductible (see our previous tax alert). As the Coronavirus Aid, Relief, and Economic Security (CARES) Act excludes PPP loan forgiveness from gross income, the IRS’ position under the notice was based on a general tax principle that disallows deductions for expenses incurred in the production of tax-exempt income. Given that borrowers have as long as 24 weeks to use the loan for eligible expenditures and Small Business Administration (SBA) rules give lenders and the SBA up to a combined five months to process forgiveness applications, the notice left unanswered the question of how expenses should be treated in the likely event that a loan was still outstanding at the end of the tax year in which the costs were incurred. See our 2020 year-end tax letter article on this topic for additional discussion. Revenue Ruling 2020-27 reiterates the position taken under the notice and applies it two separate fact patterns: A borrower with a calendar tax year incurs expenses that are eligible for forgiveness under the CARES Act and SBA guidance and applies for loan forgiveness in November 2020. The borrower otherwise meets all conditions for full forgiveness of the loan, but has not received a decision prior to year-end. The same facts as above apply, except the borrower has not applied for forgiveness as of year-end, rather, they expect to apply in 2021. In both instances, the taxpayer’s expenses are nondeductible. In addition to the revenue ruling, the Treasury and IRS concurrently released Revenue Procedure 2020-51, allowing taxpayers to deduct such expenses if forgiveness is fully or partially denied or if the borrower voluntarily withdraws its forgiveness application.  Congress may yet act to provide relief, either in the lame-duck or next session to address this issue as part of any additional economic stimulus package. Consequently, we recommend extending tax returns impacted by this guidance to allow for the possibility of legislative relief. We encourage you to reach out to your Baker Tilly tax advisor regarding how the above may affect your situation. For more information on this topic, or to learn how Baker Tilly specialists can help,  contact our team.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

Taxpayers who received Paycheck Protection Program loans cannot deduct associated expenses if they anticipate their loan will be forgiven in a subsequent year, according to new guidance from the Treasury and IRS. 

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A construction contract controls and construction audit webinar series Construction projects are highly visible, complex undertakings requiring significant financial commitments. Whether you’re spending public or private funds for your construction project, the Construction Audit Toolbox webinar series can help ensure your initiative isn’t costing more than it should.  This webinar series provides auditors, facility administrators, CFOs, and other professionals involved in construction project management with an overview of the construction contracting process, construction project audit checklists and templates, best practices, industry insight, and the tools necessary to get you started.

A construction audit and contract controls webinar series to help you with accounting best practices, developing project audit checklists and the tools necessary to get started.

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video View the presentation In conjunction with MHA MacIntyre Hudson and Baker Tilly Netherlands, Baker Tilly US recently hosted a comprehensive webinar focused on the unique challenges and opportunities that many companies are facing as a result of Brexit.  It is clear that Brexit is going to impact companies doing business in the EU and the U.K. in many ways – from their day-to-day business, to their handling of value-added tax (VAT) and customs, to their tax implications. Below we have highlighted some of these impacts, and we welcome you to reach out to Baker Tilly’s specialty tax leader, Lynette Stolarzyk, to learn more and discuss ways that Baker Tilly can assist your company.
What is the impact of Brexit from a U.K. VAT and customs perspective? Brexit is officially happening. The U.K. has left the European Union and finds itself in a transitional period through the end of the year. In the situation that the U.K. is being considered a non-EU country, from a VAT and customs perspective from Jan. 1, 2021: All supplies of goods to the EU from the U.K. will become third-country exports and be subject to customs declarations. The same applies for movements of goods from the EU to the U.K.  Customs duty will be charged on U.K. goods imported into the EU, based on the tariffs determined by the EU. Customs duty will be charged on EU goods imported into the U.K., based on the tariffs determined by the U.K.  As a result, we are down to a matter of weeks for the U.K. and the EU to agree on a trade deal in time for 2021. Businesses in the U.K., throughout the EU and across the world are eagerly awaiting the trade deal specifics (including tariff details) in order to plan for the new rules and they anticipate incoming challenges beginning on Jan. 1, 2021. Some of the key customs and U.K. customs and VAT changes that we know are going to happen include: The introduction of the UK Global Tariff: The U.K. will no longer be bound by the current EU Common External Tariff.  The postponement of import VAT accounting: VAT will not be paid on the importation of most goods. The deferment of import declarations: This initiative applies only to “standard” goods and requires submission of customs declaration within six months. The changes surrounding e-commerce: With the abolishment of the Low Value Bulking of Imports (LVBI) on Jan. 1, the overseas seller or online marketplace will be required to charge VAT at the point of sale for any transactions under £135. The introduction of the Trader Support Service: This is a new online portal for declaring goods going into Northern Ireland from Great Britain. The key issues here include the importance of incoterms, which determine who will be the importer and thus responsible for duty and VAT. U.S.-based businesses may already be familiar with incoterms, but the complicated rules will be new to many U.K. and EU businesses.  Another key issue is the customs relief regimes, which are meant to help minimize duty costs and in particular to minimize the chance of getting hit with double-duty costs. Previously, companies could import goods from the U.S. into the U.K. and then onto other countries in the EU without paying duty twice, but now the importer may incur double-duty. Utilizing a customs warehouse – whether it is your own or through a third party – is one possible solution to avoiding double-duty. Other key issues that you should be aware of include: Labelling and packaging legislation: The EU labeling legislation requires an EU address on the label of imported goods. Particularly for food and beverage companies, this is an important challenge moving forward. Conformitè Europëenne (CE) marks and U.K. Conformity Assessed (UKCA) marks: If you are importing goods from outside the U.K., instead of using the CE marking, you will likely need to switch to the UKCA marking, where it’s required, although there will be a one-year grace period where CE marks will be allowed. Administrative issues: You may need agents, fiscal representatives or someone to oversee your VAT registrations and/or your customs declarations. How does Brexit impact U.S. businesses for VAT and customs? VAT is a consumption tax which taxes every transaction in a supply chain. Suppliers charge VAT when selling a product or service and business customers reclaim the VAT charged. Only the consumer carries the VAT burden. For U.S. companies, VAT reporting obligations can be triggered by an establishment (such as a legal entity or nexus in a foreign country) but also by having “only” inventory in an EU country from which these goods are sold to and transported to customers, among other ways. When it comes to VAT, there are many key considerations that a company must consider. Some of the important questions are: Are you supplying goods or are you providing services? In which EU country are these taxable for VAT? Who is responsible for the payment of VAT to the tax authorities? What VAT rate is applicable? Is the VAT charge refundable? Can simplified regulations be applied? Are any exceptions applicable? Are any additional conditions applicable? U.S. businesses that import goods to the U.K. and then sell those goods throughout Europe will face a litany of new issues. Who is responsible for the export charge? Who is responsible for the customs clearance into the EU? This is relevant because when goods are imported into an EU country, import duties and import VAT are due right away. Import VAT deferment is another dynamic that impacts certain countries. If you hold stock in the U.K. while the EU is your main market, you and your customers will run into customs obligations for every transaction involved. With this in mind, perhaps it is worth exploring whether it makes sense to change the nation where you house your inventory in Europe.  U.S. businesses that provide services to the U.K. and the EU face a different set of VAT rules and requirements, and in some situations, changes must be made to the current set-up to make sure that companies comply and unnecessary costs are avoided. The factors include what type of service they provide, whether they are B2B or B2C, and whether they provide electronic services (online media, apps, etc.). Of course, there are certain VAT simplification rules that will no longer be applicable in case of a no-deal Brexit. This list includes triangular transactions, call-off stock simplification rules, regulations surrounding the installation of goods, and distance selling rules. So with all this as a background, what do you need to do? Analyze your supply chain and pricing: Check which terms are applicable to your supply chain and check if your pricing is accurate. We recommend that you model, model and then model the numbers some more. Please reach out to us if you have any questions. Check your customs and logistics partners: Are you ready for the upcoming changes? What are the additional charges for the export and import declarations?  Check your contracts: Are the contracts closed with all parties relevant to your supply chain up to date? Not only with your customers but also with your suppliers. Arrange all formalities: Make sure you can continue business with little or no interruption on Jan. 1, 2021. If required, get an Economic Operators Registration and Identification (EORI) number in the U.K., in an EU country, arrange the necessary VAT registrations, etc.  From a structure and direct tax perspective, a no-deal Brexit would present the following changes: Parent subsidiary directive and royalties and interest directive would no longer apply
– These directives allow companies and subsidiaries in the EU to pay dividends to parent companies within the EU with no withholding tax. The U.K. has tax treaties with virtually all EU countries, meaning there likely will not be a significant change if these directives are eliminated. (Depending, of course, on which EU states you are operating in.) Directive on Administrative Cooperation (DAC) would no longer apply
– DAC gives rise to DAC 6, which is designed to stop questionable tax-avoiding transactions between states but often captures transactions with good intentions. This is a reporting obligation with stringent penalties for failures, so it needs care. Anti-Tax Avoidance Directive would cover various tax-avoiding schemes U.S. Limitation on Benefits provisions may apply
– This isn’t considered an issue at the moment, but a move-out of the EU could trigger additional complications. So, what needs to change at your organization as it pertains to Brexit? On the direct tax side, there likely is not much you need to worry about it. Of course, though, it depends on your business and structure, on whether you provide goods or services, on whether you import, export or both, and whether you truly need an EU presence, among other factors.  Each company needs to decide if it wants to have a subsidiary based in the EU, but generally, companies will not need one. As far as whether they should create a holding company in the U.K., some of the factors to consider, from a fiscal standpoint, include the U.K.’s: Extensive tax treaty network Foreign dividend exemption Substantial shareholdings exemption Lack of withholding tax on dividends paid Favorable incentives for R&D, Patent Box Low CT rate in G7/20 Flexible loss rules From a non-fiscal standpoint, the U.K. offers U.S.-based companies a similar language and a similar culture, as well as the U.K.’s: Economic and political stability Respected legal system Flexible labor market Strong and credible capital markets Relatively young population So while Brexit will change the relationship between the U.K. and the EU, it may not change the way you do business or require you to make any structural changes. You should review your business to determine whether you are impacted and to what degree. Of particular importance is analyzing your supply chain and conducting a variety of models to determine which direction makes the most sense for your company. Of course, the sooner you begin this process, the better. Whatever you need and whatever you ultimately decide, Baker Tilly and our team of international specialists – as well as our extensive Baker Tilly International network – are always here to help.
For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

On demand webinar: navigate the complex rules of customs and VAT to continue trading with the U.K. and EU. Baker Tilly International will help you prepare for Jan. 1, 2021.

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On Oct. 13, 2020, Baker Tilly’s Matt Gilbert participated in a Cybersecurity Maturity Model Certification (CMMC) panel discussion hosted by the American Bar Association’s Accounting, Cost and Pricing Committee. The discussion covered: Current timeline for CMMC's implementation and what to expect An overview of the concepts behind the CMMC, including a discussion of how to understand what constitutes Controlled Unclassified Information (CUI).   Allowability of the costs incurred by contractors as they work to become compliant. What specifically government contractors are doing now to prepare their supply chains, including small business subcontractors and vendors, for compliance.  
For more information on this topic or to learn how Baker Tilly specialists can help, contact our team.

The American Bar Association’s Accounting, Cost and Pricing Committee along with Baker Tilly discusses how to successfully navigate the CMMC and DoD's new interim DFARS rule, in this panelist discussion.

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As we write our annual tax-planning letter, we are constantly reminded that this is no ordinary year. The fall continues to be dominated by a highly partisan election, a second wave of COVID-19, an economy struggling to recover from the worldwide pandemic and a wildly fluctuating stock market. Adding to this mix of uncertainty is the ever-changing tax landscape. 2020 has seen not only continued guidance relating to the Tax Cuts and Jobs Act (TCJA), but also the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act contains numerous revisions to the TCJA, which in some cases require taxpayers to redo returns two years after the fact. The CARES Act also introduced the PPP loan program, the rules for which were written hastily and leave several important questions still unanswered.  All of this created a perfect storm for taxpayers — businesses and individuals alike. Besides continuing economic uncertainty, tax rates could be in play depending on the election results. The prospect for increasing rates could hinge on control of the Senate, especially if the Democrats win the White House. While a change in control of the House of Representatives is not anticipated, if Republicans retain their majority in the Senate, it is unlikely any meaningful rate changes would be enacted. In addition, the economic downturn, coupled with trillions of dollars of enacted stimulus legislation, has created a federal deficit exceeding $3 trillion annually. At the end of June (the close of the government’s third quarter), the deficit represented 13.1% of GDP, a level not seen since World War II. To reduce this amount, anticipate either higher tax rates or a combination of spending cuts and restrictions on deductions. In terms of limiting deductions, remember the business interest limitation using 30% of adjusted taxable income is temporarily increased to 50% through 2020 (returning to 30% in 2021). Furthermore, 100% bonus depreciation is set to expire for assets placed in service after Dec. 31, 2022. Congress may choose to limit other deductions in attempts to raise revenue. While many are facing difficult times, business does not stand still. Solid financial and tax planning is needed now more than ever. With our year-end letter, we have always urged readers to not only do their annual tax planning, but to use this period to conduct a full financial review of their portfolios and estate planning as well. This year, such a financial review is not just recommended, it is critical. In the coming weeks and months, managing cash and minimizing current taxes is even more important as the economy recovers. The CARES Act presents some one-time opportunities for taxpayers to reduce taxes and obtain refunds from prior years. For example, while the TCJA had repealed the net operating loss (NOL) carryback rules, the CARES Act reinstated them for 2018, 2019 and 2020 losses. If you have a taxable loss in 2020, careful analysis is needed to maximize the tax benefit of such loss since a 2020 loss can be carried back five years. However, losses incurred in 2021 will no longer be eligible for any carryback. As a result, this represents your last chance to recover tax payments made in 2015 through 2019. If you need cash currently, look into filing an NOL carryback return as soon as possible after year-end to expedite your refund. In addition to these NOL changes, our 2020 year-end tax-planning letter focuses on tax topics with the above economic and political backdrop in mind. We examine multiple pieces of CARES Act and TCJA guidance (including Paycheck Protection Program debt forgiveness, the employee retention credit and payroll tax deferral), analyze pass-through loss and cancellation of indebtedness strategies, summarize tax capital reporting, define the home office deduction as well as review a myriad of international and state and local tax changes.  As always, your Baker Tilly advisor is ready to assist you in meeting your financial and tax objectives. Contact an advisor 
Visit the sections below for more information about the most pressing year-end tax issues: Business interest limitation rules (section 163(j)) – Where do we stand? Will refunds from losses become a lifeline for struggling businesses? Loan modifications: Take care of them so they don't take care of you Lease modifications: Beware of potential tax ramifications Tax issues created by PPP loan forgiveness Limited liability companies in a loss environment Carried interests in 2020 and beyond Final 2020 bonus depreciation regulations Partnership tax capital – 2020 reporting requirements loom Employee benefits and executive compensation update Proposed regulations issued to implement TCJA small business taxpayer simplified accounting methods Home office deduction Opportunity zones – reminder of COVID-19 relief and remaining areas of uncertainty Residency rules and state trust taxation – Beware the traps Time running out for year-end estate planning State and local tax update U.S. international tax update Conclusion We will continue to keep you informed of the latest developments by sending updates to assist you with planning throughout the remainder of the year. See our 2020 Tax Planning Guide  for additional ways to help you reduce your taxable income by taking advantage of every tax break to which you are entitled.  Take a look back on our 2019 year-end tax letter. 
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely.  The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

Baker Tilly’s 2020 year-end tax focuses on tax topics with the above economic and political backdrop in mind. Our professionals look at international, federal, state-and-local and compensation tax issues among other areas.

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Authored by Timothy Kosiek and Christopher DeMarco The small business owner's guide to the CARES Act For borrowers with a straightforward PPP loan compliance environment, we have developed a self-service, Excel-based loan forgiveness calculator. But if your situation is more complex, or you have limited staffing available to support the loan requirements, we can provide an automated approach to forecasting eligible spend, monitoring specific payroll exceptions, and managing compliance with final documentation requirements.
Business owners have been strongly affected by COVID-19 and are left with many questions. The programs and initiatives in the Coronavirus Aid, Relief, and Economic Security (CARES) Act passed by Congress are intended to assist them in overcoming the current challenges. Baker Tilly developed the below FAQs to guide business owners as well as certain not-for-profits and other employers during this uncertain time.  NOTICE: Baker Tilly is providing updated information as it becomes available. Due to the nature of the emerging and rapidly evolving information from government and non-government relief programs, some requirements and offerings may change before they are listed here. Please consult with your loan officer for the most current details. Paycheck Protection Program (PPP) loans The program provides cash-flow assistance through 100% federally guaranteed loans to employers who maintain their payroll during this emergency. If employers maintain their payroll, the loans are forgiven up to the full principal amount of qualifying loans guaranteed under the PPP, which would help your workers remain employed, as well as help your small businesses and our economy to snap back quicker after the crisis.  PPP has a host of attractive features, such as forgiveness of up to eight weeks of payroll based on employee retention and salary levels, no SBA fees and at least six months of deferral with maximum deferrals of up to a year. Small businesses and other eligible entities will be able to apply if they were harmed by COVID-19 between Feb. 15, 2020, and June 30, 2020. This program would be retroactive to Feb. 15, 2020, to help bring workers who may have already been laid off back onto payrolls.  View the PPP application Expand the section(s) below to view the FAQ.
Baker Tilly COVID-19 support During this uncertain time, Baker Tilly is ready to help you with practical advice on informing and supporting your employees as well as keeping your business running. 
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

Coronavirus Aid, Relief, and Economic Security Act – Baker Tilly specialists answer all your questions.

Treasury guidance disallows deductions related to PPP loan proceeds if forgiveness expected

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2020 year-end tax letter

Paycheck Protection Program (PPP) FAQ

Treasury guidance disallows deductions related to PPP loan proceeds if forgiveness expected

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