Authored by Paul Dillon, Michelle Hobbs, Mike Schiavo and Pat Balthazor The Treasury Department released detailed information about the Biden administration’s tax proposals for fiscal year 2022 for the American Families Plan and the American Jobs Plan (i.e., the infrastructure bill, see our previous tax alert). Traditionally, tax professionals have referred to this annual publication as the “Green Book.” The report contains new information about the effective dates of these proposed changes as well as additional details on the tax elements of each plan. It is critical to note these are only proposals and will be subject to extensive negotiations and debate. Prospects for passage Legislation needs 60 votes to pass in the Senate, unless the bills are run through the budget reconciliation process. Budget reconciliation generally is limited to one spending bill per federal fiscal year, and it was used already in the current fiscal year to pass the American Rescue Plan Act. At this point, it is uncertain whether reconciliation would be used again on either of these plans, or if the political climate will allow them to be combined into one package. However, even achieving the 50 votes needed for passage via reconciliation in the Senate (with Vice President Harris casting the tie-breaking vote) may be difficult. In addition to apparent differences within the Democratic Party over how much spending is necessary, there is a desire among some senators to pass a bipartisan infrastructure bill. The need to secure 10 Republican votes in the Senate (assuming all Democratic senators vote in favor) may limit the size and scope of any legislation. As a result, we expect lengthy negotiation and debate before any of these proposals are brought up for a vote. American Families Plan: key tax proposals Increase the top individual rate to 39.6% from the current 37%, effective for tax years beginning after Dec. 31, 2021 (this rate was at 39.6% prior to passage of the Tax Cuts and Jobs Act (TCJA) in 2017). For taxable year 2022, the top marginal rate would apply to taxable income over $509,300 for married individuals filing a joint return, $452,700 for unmarried individuals (other than surviving spouses), $481,000 for head-of-household filers, and $254,650 for married individuals filing a separate return. Tax long-term capital gains and qualified dividends of taxpayers with adjusted gross income over $1 million at ordinary rates, effective for gains required to be recognized after the date President Biden first announced the American Families Plan (April 28, 2021). Combined with the proposed increase in the top marginal rate and the 3.8% net investment income (NII) tax, capital gains would be subject to a maximum federal rate of 43.4%.
– This rate would apply to the extent that the taxpayer’s adjusted gross income exceeds $1 million. For example, a taxpayer with $900,000 in wages and $200,000 of long-term capital gain would have $100,000 of capital gain taxed at the current preferential tax rate and $100,000 taxed at the proposed ordinary income rates. End the step-up in basis of assets to fair market value as of the date of death. Specifically, a transfer of appreciated property by gift or upon death would be treated as a realization event – the donor or decedent would realize a capital gain at the time of transfer, which would be taxable income on the federal gift or estate tax return or on a separate capital gains return.
– This change generally would apply to gains in excess of $1 million for an individual and $2 million per couple, and would tax appreciation if property is not donated to charity.
– Gain on unrealized appreciation also would be recognized by a trust, partnership or other noncorporate entity that is the owner of property if that property has not been the subject of a recognition event within the prior 90 years, with such testing period beginning on Jan. 1, 1940. The first possible recognition event for any taxpayer under this provision would thus be Dec. 31, 2030.
– Protections would be put in place to exempt family-owned businesses and farms from taxes when passed down to heirs who continue to run the business. For example, payment of tax on the appreciation of certain family-owned and -operated businesses would not be due until the interest in the business is sold or the business ceases to be family-owned and -operated. In addition, the proposal would allow a 15-year fixed-rate payment plan for the tax on appreciated assets transferred at death, other than liquid assets such as publicly traded financial assets and other than businesses for which the deferral election is made.
– This proposal would be effective for gains on property transferred by gift and on property owned at death by decedents dying, after Dec. 31, 2021, and on certain property owned by trusts, partnerships and other noncorporate entities on Jan. 1, 2022.
 Subject all trade or business income of high-income taxpayers to the 3.8% Medicare tax, either through the NII tax or the self-employment (SE) tax. For taxpayers with adjusted gross income in excess of $400,000, the definition of NII would be amended to include gross income and gain from any trades or businesses that is not otherwise subject to employment taxes. Effective for taxable years beginning after Dec. 31, 2021. “Rationalize” the SE tax treatment for income from flow-through entities. Limited partners and limited liability company (LLC) members who provide services and materially participate in their partnerships and LLCs would be subject to SE tax on their distributive shares to the extent their income exceeds certain threshold amounts. Additionally, S corporation owners who materially participate in the trade or business would be subject to SE taxes on their distributive shares to the extent their income exceeds certain threshold amounts. The various exemptions from SE tax provided under current law for certain types of flow-through entity income (e.g., rents, dividends, capital gains, certain retired partner income) would remain. Effective for taxable years beginning after Dec. 31, 2021. End like-kind exchange tax deferrals for real estate gains in excess of $500,000 ($1 million for married taxpayers filing a joint return); effective for exchanges completed in taxable years beginning after Dec.31, 2021. Tax carried interests as ordinary income, effective for taxable years beginning after Dec. 31, 2021. The proposal would generally tax a partner’s share of income on an “investment services partnership interest” (ISPI) in an investment partnership as ordinary income, regardless of the character of the income at the partnership level, if the partner’s taxable income (from all sources) exceeds $400,000. In addition, partners in such investment partnerships would be subject to SE taxes on such income. Make permanent the “excess business loss limitation,” which limits the amount of business losses that can offset a taxpayer’s income from other sources. This limitation expires in 2025 under current law and was temporarily suspended for 2018, 2019 and 2020 by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Extend, increase or make permanent several credits; including the child tax credit, the child and dependent care credit, the earned income tax credit and Affordable Care Act premium tax credits.   American Jobs Plan: key tax proposals  Increase the corporate income tax rate from 21% to 28%. The rate increase would apply to taxable years beginning after Dec. 31, 2021. For taxable years beginning after Jan. 1, 2021, and before Jan. 1, 2022, the 7% rate increase would be prorated based on the portion of the year occurring in 2022. Impose a 15% minimum tax on worldwide book income in excess of $2 billion. The book income tax equals the excess, if any, of tentative minimum tax over regular tax. Additionally, taxpayers would be allowed to claim certain credits, including a book tax credit (generated by a positive book tax liability) against regular tax in future years but this credit could not reduce tax liability below book tentative minimum tax in that year. The minimum tax is targeting large corporations that report substantial book income to shareholders, yet pay little or no federal income tax. Earlier proposals would have applied to corporations with incomes above $100 million. The effective date is taxable years beginning after Dec. 31, 2021. Change the global intangible low-taxed income (GILTI) regime, effective for tax years after Dec. 31, 2021.
– Eliminate the exemption from GILTI for the 10% return on foreign tangible property (known as qualified business asset income or QBAI). This makes the U.S. shareholder's entire net controlled foreign corporation (CFC) tested income subject to U.S. tax.
– Double the GILTI tax rate to 21% from 10.5%.
– Impose a country-by-country method for calculating GILTI. This would eliminate the ability to blend excess foreign tax credits from high-tax jurisdictions against GILTI inclusions from low-taxed jurisdictions.
– Repeal the high-tax exemption for GILTI and Subpart F. Modify the current inversion rules by lowering the continuing shareholder ownership threshold to 50% rather than 80%. These changes would be effective for transactions that are completed after the date of enactment. Repeal the deduction for foreign-derived intangible income (FDII). Under current law, a 37.5% deduction is allowed for FDII, which is calculated as a percentage of intangible income from exports. The proposal states that the resulting revenue will be used to encourage research and development, but no mention is made of any specific research and development enhancements. This would be effective for taxable years beginning after Dec. 31, 2021. Repeal the base erosion and anti-abuse tax (BEAT) and replace it with a “stopping harmful inversions and ending low-tax developments” (SHIELD) rule. SHIELD would deny tax deductions for certain related-party payments to a member in the same financial reporting group where the recipient member is in a low-tax jurisdiction. The repeal of BEAT and replacement with SHIELD would be effective for tax years beginning after Dec. 31, 2022. Modify the interest expense limitation under section 163(j) for members of certain multinational groups. The interest deduction would be limited to the member’s proportionate share of the financial reporting group’s net interest expense and would be effective for taxable years beginning after Dec. 31, 2021. Create a new general business credit equal to 10% of the eligible expenses paid or incurred in connection with onshoring a U.S. trade or business. Onshoring a U.S. trade or business means reducing or eliminating a trade or business (or line of business) currently conducted outside the United States and starting up, expanding or otherwise moving the same trade or business to a location within the United States, to the extent that this action results in an increase in U.S. jobs. The proposal also includes a disallowance of deductions for expenses paid or incurred in offshoring a U.S. trade or business. This would be effective for expenses paid or incurred after the date of enactment. Repeal various tax credits and incentives for the oil and gas industry. In addition, numerous clean energy, renewable and alternative energy credits and incentives would be added or continued. These provisions clearly indicate the administration's preference toward clean energy and reduced greenhouse gas emissions, while moving away from fossil fuels. We encourage you to connect with your Baker Tilly adviser regarding how any of the above may affect your tax situation. 
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.

The Treasury Department released the “Green Book,” detailing the Biden administration’s tax proposals for the 2022 fiscal year. It specifically provides new information related to the American Families Plan and the American Jobs Plan.

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Green Book provides more details on Biden tax proposals

Authored by  Brad Polizzano, Paul Dillon and Michelle Hobbs The Internal Revenue Service (IRS) continues to expand its compliance efforts related to virtual currency. A Massachusetts federal judge recently authorized a John Doe summons enabling the IRS to subpoena virtual currency records directly from certain exchanges. In addition, the IRS launched program Operation Hidden Treasure to identify and combat serious noncompliance through virtual currency transactions.  Key takeaways To increase taxpayer compliance in reporting and paying tax on virtual currency transactions, the IRS is using a variety of tools, including court-ordered John Doe summons and a new Operation Hidden Treasure program. Virtual currency exchanges are being ordered by courts to supply the IRS with specific taxpayer-related data. The IRS then uses this information to locate and contact taxpayers in an effort to collect unpaid taxes. Through Operation Hidden Treasure, the IRS will identify tax evasion with virtual currency. Both civil and criminal cases will be pursued. Taxpayers should monitor and contemporaneously document virtual currency transactions and provide relevant data to their tax preparers and include on their annual tax return. Background Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account and/or a store of value. In certain circumstances, it operates similar to government-issued coins and paper money, like what is issued by the Federal Reserve in the United States, but does not have legal tender in any jurisdiction. Virtual currency that has an equivalent value in physical currency is known as “convertible” currency (e.g., Bitcoin).  Instead of being issued by a national government or bank, this is purely an unregulated, electronic form of currency. It can only be transacted though certain designated software, mobile or computer applications. It is typically held within a blockchain network in digital wallets.  Private issuers, developers or organizations can create and issue their own forms of virtual currency. The use of such currency can be restricted to a specific online community or it can be made available to the public. A virtual currency’s value is generally derived on some underlying mechanism or asset (which can lead to significant fluctuations in value).  The IRS taxes virtual currency as property. Gains or losses are recognized on the sale or exchange of a virtual currency, including when a virtual currency is converted in order to purchase goods, services or other forms of currency. The IRS believes there is a substantial amount of virtual currency transactions not reported via third parties (i.e., reported on Forms 1099 or 1098). Regardless of whether third-party documentation exists, taxpayers must still disclose such activity on their tax return in the year of transaction. The 2020 Form 1040 has a question for taxpayers regarding their use of virtual currency. Since a significant number of these transactions seem to go unreported by taxpayers each year, the IRS is expanding its investigation and accumulating necessary data to bring taxpayers into compliance.  John Doe summons Given the sheer number of virtual currency types and their increasing usage, the IRS has been targeting certain cryptocurrency exchanges, requesting specific data about a subgroup of their account holders in order to locate those taxpayers who are underreporting the tax on their transactions. The Internal Revenue Code allows the IRS to ask a court’s permission to obtain tax-related information when the taxpayer’s identity may not be known, otherwise known as a John Doe summons. However, in order to protect taxpayers, a John Doe summons generally must be narrowly tailored to meet the IRS’ specific needs. While not all John Doe summons are successful, in the past few years, the IRS has received authority to investigate virtual currency exchange Coinbase as well as Circle Internet Financial with a pending one for Kraken.  Data requested by the IRS in these John Doe summons, specific to virtual currency, typically includes six categories of records on U.S. account holders with accounts worth at least $20,000 between specific years: Account registration records Know-your-customer due diligence Account-related correspondence Anti-money-laundering exception reports Account activity records, including date and times, amounts, U.S. dollar value, transaction ID, blockchain addresses for units transferred in and out Account funding records In certain cases, courts have stipulated further narrowing the above categories before allowing the IRS to proceed. These John Doe summons permit the IRS to order these virtual currency exchanges to provide the specified information. The IRS then contacts the respective taxpayers, usually starting with CP 2000 letters. Taxpayers respond by filing amended tax returns or settling through IRS examination. In some cases, criminal investigations are started.  Operation Hidden Treasure The IRS designed Operation Hidden Treasure to identify tax evasion with virtual currency. The program falls under the IRS Office of Fraud Enforcement (OFE) and is a partnership with the Criminal Investigation division. The IRS is working with third-party vendors to analyze the blockchain and identify parties associated with “signature” transactions to ultimately track and seize virtual currency in both civil and criminal contexts. Whether the signature transactions constitute those found in other areas of financial crimes, such as through structuring cash deposits or utilizing shell companies or nominees, remains to be seen. Operation Hidden Treasure represents a culmination of previous IRS efforts to enforce compliance for virtual currency transactions. In 2018, Coinbase provided the IRS with the identities of over 13,000 account holders. About a year later, the IRS issued approximately 10,000 soft letters to virtual currency holders as a warning to come forward and report any noncompliance before the IRS initiates an examination. Operation Hidden Treasure will pursue both civil and criminal cases. In civil cases, the IRS may assert a civil fraud penalty that equals 75% of the understatement of tax. To assist on the civil enforcement side, the IRS expanded virtual currency training to an additional 200 employees outside of the OFE to spot issues and effectively approach taxpayers and representatives. Recommendation Understanding your investment and usage of virtual currency is becoming more important as the federal government expands its efforts to hold taxpayers accountable. As part of gathering annual tax return information, taxpayers should review and contemporaneously document their virtual currency holdings and transactions in order to minimize getting caught up in these IRS enforcement programs. Relevant data should be provided to tax preparers during the course of the tax return preparation. For more information on this topic, or to learn how Baker Tilly tax 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.

The IRS is actively pursuing those who aren’t properly reporting their cryptocurrency transactions with the help of a new program called Operation Hidden Treasure as well as assistance from favorable judicial rulings.

Blockchain

IRS continues targeting virtual currency

Authored by Paul Dillon, Michelle Hobbs, Mike Schiavo, Pat Balthazor and Michael Wronsky On April 28, 2021, President Biden addressed a joint session of Congress, announcing the details of his administration’s latest legislative proposal, the American Families Plan (AFP). The AFP calls for approximately $1 trillion in spending and $800 billion in tax cuts geared toward providing universal preschool and two years of free community college, affordable child care, enhanced paid family and medical leave, unemployment insurance reform, and other priorities.  The AFP is the third component of the president’s “Build Back Better” agenda, including the American Rescue Plan (enacted in early March) and the American Jobs Plan (a $2 trillion infrastructure package unveiled in late March). While the infrastructure bill would be funded by corporate tax increases, the AFP would be paid for by tax increases on higher-income individuals. Prospects for passage Use of the budget reconciliation process is generally limited to one spending bill per federal fiscal year and was used already in the current fiscal year to pass the American Rescue Plan Act. However, earlier this month, the official advisor to the Senate on the chamber’s rules and procedures determined another bill could be passed using the filibuster-proof method by revising the 2021 fiscal year budget resolution. At this point, it is uncertain whether reconciliation would be used again on the AFP or the infrastructure package.  It should be noted that even achieving the 50 votes needed for passage via reconciliation in the Senate (with Vice President Harris casting the tie-breaking vote) may be difficult on account of apparent differences within the Democratic party over how much spending is necessary on the AFP’s provisions. As a result, we expect lengthy debate over the legislation, along with the introduction of several counterproposals before any legislation is put forth for a vote.  Key proposals The following are some of the critical tax proposals in the plan: Increase the top individual rate to 39.6% from the current 37%. This rate was at 39.6% prior to passage of the Tax Cuts and Jobs Act (TCJA) in 2017. Eliminate eligibility for the favorable 20% rate on capital gains and dividend income for households making more than $1 million per year. Rather, this income would also be subject to the top individual tax rate of 39.6%. Disallow estates to step-up the tax basis of its assets to fair market value as of the date of an individual’s death. This change would generally apply to gains in excess of $1 million for an individual and $2.5 million per couple, and would tax appreciation if property is not donated to charity. Protections would be put in place to exempt family-owned businesses and farms from taxes when passed down to heirs who continue to run the business.  End like-kind exchange tax deferrals for real estate gains in excess of $500,000. Tax carried interests as ordinary income, rather than long-term capital gains. This provision does not appear to be tied to the carried interest-holder’s income. Extend permanently the current limitation in place that restricts the deductibility of “excess business losses” for noncorporate taxpayers. This limitation expires in 2025 under current law and has been temporarily suspended as part of previous COVID-19 relief provisions.  High-income earners generally pay a 3.8% Medicare tax on their earnings. The proposal is not specific, but it may be targeting the income associated with limited liability companies and limited partner interests as well as income from S corporations, which can avoid the additional tax under current law. However, legislation impacting Social Security and Medicare may not be eligible for budget reconciliation, so a bill including this payroll tax expansion would require 60 votes to pass in the Senate. Make permanent the expanded Affordable Care Act premium tax credits in the American Rescue Plan. Extend the child tax credit increases in the American Rescue Plan through 2025 and make it fully refundable on a permanent basis. The American Rescue Plan expands the child tax credit to $3,000 per child from $2,000 per child who is 6 and older, and $3,600 per child under the age of 6. It also makes 17-year-olds eligible for the first time and makes the credit fully refundable. Make permanent the temporary Child and Dependent Care Credit expansion enacted in the American Rescue Plan. Families will receive a tax credit for as much as half of their spending on qualified child care for children under age 13, up to a total of $4,000 for one child or $8,000 for two or more children. A 50% reimbursement will be available to families making less than $125,000 a year, while families making between $125,000 and $400,000 will receive a partial credit with benefits at least as generous as those they receive today. The credit can be used for expenses ranging from full-time care to after-school care and summer care.  Make permanent the Earned Income Tax Credit expansion for childless workers. Increase funding for the IRS to focus on enforcement for large corporations, businesses, estates and higher-income individuals. Also give IRS the authority to regulate paid tax preparers. We encourage you to reach out to your Baker Tilly advisor regarding how this may affect your tax situation.
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.

President Biden unveiled his administration’s American Families Plan to a joint session of Congress. The plan includes $800 billion in tax cuts to assist families with education and child care costs as well as proposes tax increases for higher-income individuals.

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American Families Plan includes several individual tax changes

Authored by Paul Dillon, Michelle Hobbs, Mike Schiavo and Michael Wronsky The Small Business Administration (SBA) announced via its website that applications for Restaurant Revitalization Fund (RRF) grants will open at noon Eastern time on Monday, May 3, 2021. SBA application portal registration will begin at 9 a.m. ET on Friday, April 30, 2021. Given the program is currently only funded with $28.6 billion, time is of the essence for qualified entities to apply. As discussed below, applicants will need to submit documentation supporting their applications. We strongly recommend gathering this information now to allow applications to be submitted as soon as possible after the window opens.  Grants will be awarded in the order received; however, priority will be given to those businesses owned and controlled by women, veterans or certain socially or economically disadvantaged individuals. Additional details regarding the registration and application processes can be found on the SBA’s website.  The RRF was created by the American Rescue Plan Act (ARPA) to provide restaurants with grants equal to their pandemic-related revenue loss, up to $10 million per entity (including affiliates), and limited to $5 million per physical location. Grant amounts are reduced by any Paycheck Protection Program (PPP) loan proceeds received. Eligible entities include restaurants, caterers, food trucks, bars, lounges, taverns, brewpubs, taprooms and tasting rooms. Though not expressly excluded by the ARPA, the SBA has indicated tax-exempt entities are ineligible for grants. Grants must be used for eligible purposes (including, but not limited to, payroll costs, mortgage and rent payments excluding prepayments, utilities, operational expenses, etc.) no later than March 11, 2023.  As part of the application process, program candidates will need to submit various documents in order to verify data used in the application. Their 2019 and/or 2020 federal income tax returns (Forms 1120, 1065, 1120-S, and 1040 Schedules C or F) will be required to support total gross receipts for each year. Furthermore, bank statements, income or profit/loss statements or Forms 1099-K will also be accepted. In addition, amounts and loan numbers of first- and second-draw PPP loans must be disclosed. Keep in mind, PPP loan proceeds (as well as some other disaster-relief-funding mechanisms) are not included in gross receipts for this purpose.  Certain applicants have additional substantiation requirements. For example, brewpubs, tasting rooms, breweries, wineries, distilleries and bakeries must also provide documents evidencing onsite sales to the public comprised 33% of their gross receipts in 2019. Inns must be able to prove at least 33% of their 2019 gross receipts came from onsite food and beverage sales to the public. See our alert, SBA launch of Restaurant Revitalization Fund appears imminent, for additional information on this program. Please contact your Baker Tilly advisor for assistance with this application process or if you have questions on how the above may affect your tax situation.
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.

Applications for Restaurant Revitalization Fund grants open Monday, May 3, 2021, to eligible businesses within the food industry. Funds are limited so businesses need to apply as quickly as possible.

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Restaurant Revitalization Fund applications open May 3

Authored by Christine Faris, Devin Tenney and Krissa Lietz The IRS recently provided further details relating to the Emergency Paid Sick Leave (EPSL) tax credit and the Emergency Family and Medical Leave (EFML) tax credit under the American Rescue Plan Act of 2021 (ARPA). These tax credits are designed to assist small businesses in providing paid time off for employees to receive COVID-19 vaccinations. The IRS also issued guidance (Fact Sheet 2021-09) on how employers can claim these credits. Who is an eligible employer? An eligible employer is any business, including a tax-exempt organization, with fewer than 500 employees. An eligible employer also includes nonfederal governmental and nonfederal section 501(c)(1) organizations or agencies. Tax credits extended by ARPA Eligible employers that pay EPSL and/or EFML wages from April 1, 2021, to Sept. 30, 2021, not counting any leave taken prior to April 1, may take the tax credits on those wages. The following applies only to the period from April 1 through Sept. 30: The EPSL was effectively renewed by allowing employers to provide up to 80 additional hours of EPSL to employees (providing an additional benefit of up to $5,110). The benefit available under the EFML was increased by eliminating the requirement that the first two weeks of the 12-week EFML period be unpaid (providing an additional benefit of up to $2,000). For example, if an eligible employer offers employees a paid day off in order to be vaccinated, the employer can receive a tax credit equal to the wages paid to employees for that day up to the above limits.  Qualifying paid leave reasons expanded by ARPA For the period starting April 1, 2021, the ARPA expanded qualifying reasons for the EPSL and the EFML to include payments made to an employee: Receiving a COVID-19 vaccination, Recovering from side effects or injuries related to the COVID-19 vaccination, or  Seeking or waiting for results of a COVID-19 test, if the employee has either been exposed to COVID-19 or the employer requested the COVID-19 test. Claiming the tax credits The tax credits are available to eligible employers that pay sick and family leave wages from April 1, 2021, through Sept. 30, 2021. Both tax credits are refundable and count against the employer’s portion of Medicare tax. The credits can be claimed on the employer’s quarterly Forms 941. Employers can reduce their federal payroll tax deposits by the amount of their anticipated credit. Any amounts over and above the federal payroll tax liability are refundable on Forms 941. Form(s) 7200 can also be filed to claim and advance payment of the credit throughout each quarter. Self-employed individuals can claim the credits on their Form 1040 return. We encourage you to reach out to your Baker Tilly advisor regarding how the above may affect your tax situation.
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.

Thanks to the American Rescue Plan Act certain employers will be eligible to receive tax credits for giving their employees paid time off to receive COVID-19 vaccinations. Not every organization qualifies, though. 

Eligible employers can claim tax credits for giving workers paid leave to receive COVID-19 shots

Authored by Paul Dillon, Michelle Hobbs, Mike Schiavo and Michael Wronsky The American Rescue Plan Act of 2021 (ARPA) created the Restaurant Revitalization Fund (RRF) to provide restaurants with grants equal to their pandemic-related revenue loss, up to $10 million per entity (including affiliates) and limited to $5 million per physical location. Grant amounts are reduced by any Paycheck Protection Program (PPP) loan proceeds the applicant received. Eligible entities include restaurants, caterers, food trucks, bars, lounges, taverns, brewpubs, taprooms and tasting rooms. The Small Business Administration (SBA) is administering the fund similar to the PPP loan program.  The web application will be available at restaurants.sba.gov and the applications are expected to open sometime this month. Please note that as of the release of this tax alert the link is not yet live. A draft application was submitted to the Office of Management and Budget (OMB) as part of the review package.  SBA Associate Administrator Patrick Kelley addressed some details with the Independent Restaurant Coalition on April 13, 2021. Kelley revealed some important details operators need to know about where and how to apply when applications go live. Not everyone will get money, even if they’re eligible. Unfortunately, Kelley said, the voted-on funding is not enough to meet the demand of the industry, and many eligible applicants will not be able to receive funding due to shortages of cash and high demand. Due to this demand, Kelley is strongly recommending operators apply on the first day. If Congress sees high enough demand, he said, there could be another round of funding. Of the $28.6 billion fund, $5 billion is allocated specifically to eligible entities with gross receipts of no more than $500,000 in 2019. Grants will be awarded in the order received; however, priority will be given to those businesses owned and controlled by women, veterans or certain socially or economically disadvantaged individuals. Some key items to keep in mind: Applicants CANNOT use the grant funds for wages for which the employee retention credit (ERC) will be claimed. Similar to PPP loans, proceeds are not included in federal taxable income and expenses paid for with the funds are tax deductible if used for authorized purposes. State taxability may vary depending upon whether each state conforms to this provision. Grant recipients are able to spend proceeds on a wide range of expenses incurred from Feb. 15, 2020, to Dec. 31, 2021, including:
– Payroll costs
–  Principal and interest payments on a mortgage, not including any prepayments on principal
– Rent payments, not including prepayments
– Utilities
– Maintenance expenses including construction to accommodate outdoor seating and walls, floods, deck surfaces, furniture, fixtures and equipment
– Supplies including personal protective equipment and cleaning materials
– Food and beverage expenses within the eligible entity's scope of normal business practice before the covered period, which runs from Feb. 15, 2020, through Dec. 31, 2021, or another date as determined by the SBA
– Covered supplier costs
– Operational expenses
– Paid sick leave
– Any other expenses the SBA determines to be essential to maintaining the eligible entity
 Grants generally are equal to the loss in revenue from 2019 to 2020, reduced by any PPP proceeds received in 2020 or 2021. Example: Restaurant A had revenue in 2019 of $1.2 million. In 2020, revenue dropped to $500,000. Also in 2020, the restaurant borrowed and spent a $300,000 PPP loan. It is eligible for an RRF grant of $400,000 ($1.2 million minus $500,000 minus $300,000). Businesses not in operation for all of 2019 take the difference between 12 times the average monthly gross receipts for 2019 less gross receipts in 2020. SBA may provide an alternative formula via forthcoming guidance. Businesses not in operation until 2020 take eligible expenses incurred minus any gross receipts received. SBA may provide an alternative formula via forthcoming guidance.  Example: Restaurant B opened in March 2020. It incurred $400,000 of eligible expenses to date but earned only $220,000 in revenue. B is eligible for an RRF grant of $180,000. Businesses that did not open before mid-March 2020 can get a grant equal to eligible expenses incurred. State or local government-operated businesses, businesses with more than 20 locations and publicly traded companies are ineligible.  Business cannot also receive Shuttered Venue Operators Grant. Action steps: Eligible restaurants should gather all evidence of their gross receipts and calculate the reduction of the gross revenue received in 2020, compared to 2019. Restaurants also should project their eligible expenses for the covered period – Feb. 15, 2020, through Dec. 31, 2021 – and allocate the costs among any other funds they have received through the PPP or ERC. Given the funding restraints of the RRF, we recommend eligible entities utilize the draft application to collect relevant data now so information is readily available when the application formally opens.
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.

Many businesses in the food service industry may be eligible for grants from the Restaurant Revitalization Fund, but limited funds mean they will have to act as quickly as possible once the program opens.

International Tax Coronavirus Resources

SBA launch of Restaurant Revitalization Fund appears imminent

Authored by Paul Dillon, Michelle Hobbs and Mike Schiavo In an effort to provide continuing relief to businesses from the economic impact of the COVID-19 pandemic, the IRS extended penalty relief for certain employers who failed to timely deposit employment taxes.  Certain payroll-related credits enacted in the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act were extended via the Tax Relief Act of 2020 and the American Rescue Plan Act of 2021. Collectively, these Acts allow employers to claim refundable credits to offset employment taxes for qualified sick and family leave wages (FFCRA), actual wages paid to employees during partial or complete government-imposed business suspensions (employee retention credit or “ERC”) as well as qualified health plan expenses allocable to such wages. These credits permit employers to instead use cash to continue paying wages and other costs during government-imposed closures. Employers reducing their employment tax deposits in anticipation of receipt of any or all of the following credits will not be liable for failure to deposit penalties. Paid sick and family leave credits with respect to qualified leave wages paid from Jan. 1, 2021, through Sept. 30, 2021; The ERC with respect to qualified wages paid beginning Jan. 1, 2021, and ending Dec. 31, 2021; and The COBRA credit for coverage from April 1, 2021, and ending Sept. 30, 2021. In other words, when making federal payroll deposits, employers may compute the total amount of the employment tax liability and reduce it by the amount of the anticipated payroll tax credits listed above.  The guidance indicates an employer would not be subject to a penalty for failing to deposit employment taxes if specified requirements are met, including that the employer did not seek payment of an advance credit for the anticipated credits it relied on to reduce its deposits. The relief ensures that eligible employers may pay qualified sick leave wages and qualified family leave wages, qualified wages and COBRA continuation coverage premiums using employment taxes that would otherwise be required to be deposited without incurring a failure-to-deposit penalty. Please see further stimulus coverage on our website for details on these payroll tax credits and other relief programs.
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.

New guidance from the IRS says it will not subject certain employers to penalties for failing to deposit employment taxes as long as they meet specified requirements. 

IRS provides additional penalty relief for payroll tax deposits

Over the past year, many government stimulus programs were enacted to help businesses and individuals combat the financial impact of the COVID-19 pandemic. Restaurants have been one of the hardest hit industry segments and should explore any and all avenues possible to subsidize efforts to keep the doors open and employees on the payroll. One of the subsidies enacted within the Coronavirus Aid, Relief, and Economic Security (CARES) Act back in March 2020 was the Employee Retention Credit (ERC). It was overshadowed by the Paycheck Protection Program (PPP) because the law at the time stated if your company received a PPP loan, it was not eligible to also claim the ERC. Therefore, many companies disregarded the ERC as the PPP loan was a more advantageous program. In December 2020 this dynamic changed. Under the Consolidated Appropriations Act, taxpayers are now able to receive a PPP loan and claim the ERC. What’s more, this change was made retroactive to all of 2020. This change of law, along with an easing of the eligibility requirements, opens the door for many restaurants to claim this valuable credit.  How is the credit determined in 2020? The credit is equal to 50% of qualified wages determined on an employee-by-employee basis and must be calculated separately for each quarter the company is eligible during 2020. The maximum wages allowed in 2020 for all quarters for each employee is $10,000, thus allowing for a maximum credit of $5,000 per employee. Eligible wages generally include payroll and employer paid health plan expenses. A company may not, however, claim the credit on wages that were paid using a PPP loan that was forgiven or wages that were used to determine other payroll tax credits such as WOTC and FFCRA credits. There are many detailed considerations and calculations, including interplay with PPP funds, which need to be made. Restaurants should consult with their tax advisor for assistance to maximize their ERC.
I got a PPP loan, how much will my credit be? As can be seen in the example, the credit available to restaurants can be a meaningful portion of total payroll for the year in addition to the PPP loan that was received. This is because of two traits common among many restaurants during 2020:  Government orders forced most restaurants to limit in-store dining throughout the majority of the year. In many cases, the restaurant business would therefore qualify for the ERC as being “partially suspended” for the duration of the order [1]. Since PPP loans were designed to cover only 2.5 months of wages, there are sufficient wages remaining to also claim the ERC.  Many restaurant employees earn less than $10,000 per year. Therefore, a high percentage of the business total payroll costs qualify for the credit.  What are the eligibility requirements? To qualify, businesses must meet one or more of certain eligibility requirements, including a substantial decline in gross receipts and being suspended by a government order due to COVID-19. While generally obtainable to restaurants, these requirements must be reviewed thoroughly with an advisor to ensure the business is eligible.  How do I claim the credit? The credit is a payroll tax credit and is claimed on Form 941. Because all Forms 941 have been filed for 2020, eligible companies will need to adjust their quarterly payroll reports using Form 941-X to claim the credit.   What’s the impact on my income taxes? You do not need to claim the credit received as taxable income. However, the business must reduce the wage deduction on their income tax return by the amount of the credit received. If your income tax returns have already been filed, an amendment would be necessary.   Is this credit available in 2021? Yes! In fact, the credit is even higher in 2021. Businesses may claim a credit equal to 70% of qualified wages and the wage limits resets each quarter. The result is a maximum of $7,000 per employee per quarter for all of 2021. So, an employer could claim $7,000 per quarter or up to $28,000 per employee if they are eligible for all four quarters in 2021.  Once an afterthought, the ERC is now a valuable benefit to many restaurant owners. Although it requires detailed record keeping and careful calculation, the reward can help sustain your operations. Contact Baker Tilly’s Employee Retention Credit advisors for further guidance.
Resources: [1] Eligibility requirements should be reviewed thoroughly.  Safe harbor tests on gross receipts and other metrics may also apply.

One of the subsidies enacted within the Coronavirus Aid, Relief, and Economic Security (CARES) Act back in March 2020 was the Employee Retention Credit (ERC). Read this article to see how the credit is determined for your restaurant and if you qualify for it in 2021.

Employee retention credit (ERC) solutions

Sustain your restaurant operations with Employee Retention Credit

Authored by Michael Wronsky On March 25, 2021, Congress passed the PPP Extension Act of 2021 (the Act), which keeps the loan program open through June 30, 2021. It was set to close March 31. The loan application deadline is also extended, but only to May 31, 2021. President Biden is expected to sign the Act into law.   The extension gives borrowers more time to apply for the popular loan program designed to assist businesses with weathering the continued economic effects of the coronavirus pandemic. While the program was formally extended to June 30, the Act prohibits the Small Business Administration (SBA) from accepting new first- or second-draw loan applications during June. For the remainder of the month, the SBA is only to process applications it has received from lenders before June 1, 2021.   We encourage you to reach out to your Baker Tilly advisor regarding how this may affect your tax situation.
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.

Congress passed legislation to keep the Paycheck Protection Program open until June 30, 2021, after it was set to close at the end of March. 

Coronavirus recovery and growth resources

Federal tax coronavirus resources

Small and family business coronavirus resources

Congress extends Paycheck Protection Program through June 30, 2021

Authored by Paul Dillon, Michelle Hobbs and Mike Schiavo  Tax-related identity theft continues to be a problematic issue and is becoming more dangerous as scammers adapt to preventive measures taken by the IRS and law enforcement. Thieves work year-round to steal personal identification, bank or investment account balances, and tax payments or refunds.  This year’s stimulus payments and tax law changes are providing scammers additional opportunities to attempt to deceive taxpayers into giving them access to their computers and personal information. Email, telephone calls, text messages and social media channels are all used to persuade or intimidate taxpayers into providing such data. With the extension to May 17 for the April 15 deadline, this alert is to remind taxpayers to remain vigilant in protecting sensitive information throughout the year.  Tax document scam One of the most recent schemes involves emails supposedly containing tax documents. Hackers entice the recipients to open embedded attachments, which then release malware onto computers capable of stealing personal data and possibly even tax refunds. Taxpayers receive an email seemingly from a trusted source containing documents purported to be related to their tax return. If opened, these attachments appear blurry on the screen and a “helpful” prompt pops up asking the viewer to click through to edit the documents. Under the guise of viable software, often even including fake service package offerings, promotions and sales, the taxpayer, instead, downloads onto their computer invasive malware, which now allows scammers to steal personal data and potentially access connected or related computers. COVID-19 scams Taxpayers should also be aware of multiple types of pandemic-related scams. Hackers use phishing schemes via email, letters, texts and links coupled with COVID-19 or other pandemic-related language to obtain personal identifying data, passwords and other login information in order to steal economic impact payments and other stimulus benefits. Fake charities are another mechanism thieves are using to play on people’s emotions and instead steal money and identifiable information.  Fraudulent refunds In the refund scam, perpetrators execute the heist by stealing taxpayer data and using it to file fraudulent returns by posing as the taxpayers. Overpayments are refunded via direct deposit into the taxpayers’ bank accounts. Then the thieves contact the taxpayers, stating the refunds were deposited in error and ask that they be returned. The IRS identified two versions of the scam and warned that it may continue to evolve: The thief contacts the taxpayer, posing as a debt collection agency official acting on the IRS’ behalf, reports the erroneous refund deposit and asks for the money to be returned to the collection agency. The taxpayer receives a recorded message via phone, with the recorded voice saying the call is from the IRS and threatening criminal fraud charges, an arrest warrant and blacklisting of the taxpayer’s Social Security number. A fake case number and phone number to call to arrange the repayment of the refund are provided near the end of the message.  The scheme has been listed by the IRS as one of the “Dirty Dozen” scams identified annually, raising awareness of the many varieties of theft attempted most often during return filing season. Perpetrators alter caller ID numbers, use IRS employee titles and fake badge numbers, and reference the taxpayer’s name, address and other personal information in an effort to make the calls appear legitimate. Email schemes Recently, the IRS has seen email schemes targeting tax professionals, payroll professionals, human resources personnel, school systems and individual taxpayers. In these email schemes, criminals pose as a person or organization the taxpayer trusts or recognizes. They may hack an email account and send mass emails under another person's name. They also pose as a bank, credit card company, a tax software provider or government agency. These schemes focus on employees rather than the taxpayer directly. Thieves target employees’ roles at work, especially human resources or finance-related roles. They mask their communications to appear to be coming from a boss or co-worker, or from a trusted business associate, such as a payroll provider. They then request information instead of money, typically, employee data such as W-2 forms. Identity thieves often go to great lengths to create websites that appear legitimate but contain phony login pages. Fake emails and websites also can infect a taxpayer's computer with malware without the user knowing, thereby giving thieves’ access to the computer. Recognizing a plot is critical to prevent further damage. Things to consider include: Remind employees in sensitive positions (access to critical data) to verify requests made via email. They should call or initiate a separate email confirming the request as a reply email may be routed to a false source. Report suspicious requests to your IT department. How to protect yourself Keep in mind, the IRS generally conducts its correspondence via the U.S. mail. In addition,  The IRS will not call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer.  The IRS will not threaten to immediately bring in local police or other law enforcement groups to have the taxpayer arrested for not paying. The IRS will not demand tax payments without giving taxpayers the opportunity to question or appeal the amount owed, ask for credit or debit card numbers over the phone, or call about an unexpected refund. If contacted by any of the above methods or any semblance thereof, taxpayers should: Contact their tax preparer immediately  Report the incident to their local police department and the Federal Trade Commission Place a fraud alert or credit freeze with one of the three major credit bureaus (Equifax, Experian, TransUnion) and request a copy of their credit report Contact their financial institution and close accounts as needed Follow the steps provided by IRS Topic Number 161 for returning an erroneous refund COVID-19-related fraud should be reported to the National Center for Disaster Fraud (NCDF) hotline at +1 (866) 720 5721 Theft of economic impact payments can be reported to the Treasury Inspector General for Tax Administration (TIGTA)  Taxpayers can take a number of steps to help prevent identity theft: Protect Social Security numbers and personal financial information. Confidential information should not be carried around and should only be provided when absolutely necessary, and with extreme caution; Never email or text sensitive personal or financial information; Monitor credit reports; Check Social Security Administration earnings statements annually; Shred financial documents or any other document containing confidential information when no longer needed; Use security software with firewall and anti-virus protections combined with strong passwords (combinations of uppercase and lowercase letters, numerals and special symbols); Recognize and avoid phishing emails and threatening communications; and Refrain from clicking on links or downloading attachments from suspicious emails or other sources. Before opening attachments or links in an unexpected email or text from a trusted provider, contact the provider to confirm documents were indeed sent for review. For more, see the IRS Taxpayer Guide to Identity Theft.  For more information on these topics, or to learn how Baker Tilly tax 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.

The IRS is warning taxpayers to be careful of scammers disguised as legitimate sources requesting personal information. Find out what you should be looking for and how you can protect yourself from succumbing to their appeals.

IRS alerts taxpayers of cyber, refund scams

Authored by Paul Dillon, Michelle Hobbs, Mike Schiavo and Michael Wronsky The IRS announced in an informal statement that the federal income tax filing due date for individuals for the 2020 tax year will be automatically extended to May 17, 2021, from April 15, 2021.  The situation remains fluid and the IRS will be providing formal guidance in the coming days. Unlike last year’s across-the-board extension, this relief initially appears to be much more limited. Whether the relief will be expanded to apply to other taxpayers, tax filings or other time-sensitive actions remains uncertain. Here is a summary of the key points from the IRS news release:  Individual taxpayers can also postpone, to May 17, 2021, federal income tax payments for the 2020 tax year originally due April 15, 2021, without penalties and interest, regardless of the amount owed. This postponement applies to individual taxpayers, including those who pay self-employment tax. Penalties, interest and additions to tax will begin to accrue on any remaining unpaid balances as of May 17, 2021.  Estimated tax payments for the 2021 tax year are still due April 15, 2021.   This announcement does not impact any state filing deadlines.  Individual taxpayers do not need to file any forms or call the IRS to qualify for this automatic federal tax filing and payment relief. Individual taxpayers who need additional time to file beyond the May 17 deadline can request an extension until Oct. 15 by filing Form 4868. The IRS statement made no mention of extending this relief to other filings due April 15 including those for C corporations, trusts, etc. There is also no current indication that the extension would apply to other time-sensitive matters, for example, section 1031 exchanges and opportunity zone investments. We encourage you to reach out to your Baker Tilly adviser regarding how any of the above may affect your tax situation. 
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.

The IRS extended the 2020 tax year federal income tax filing due date for individuals to May 17, 2021, but it was not extended for all filing deadlines. Formal guidance is expected soon.

Opportunity Zones

IRS extends filing deadline for some taxpayers

The American Rescue Plan Act of 2021 (the Act) passed the U.S. Senate and the House of Representatives and is on its way to being signed into law by President Biden. Of the $1.9 trillion spending bill, $28.6 billion is designated for the Restaurant Revitalization Fund, which is based on the Real Economic Support That Acknowledges Unique Restaurant Assistance Needed To Survive (RESTAURANTS) Act of 2020, will provide relief for small and midsize restaurants. 
 
With the passage of this new legislation, restaurant operators need to understand their eligibility and the benefits provided to them. Similar to the Paycheck Protection Program (PPP) loans, the borrower is required to make a good faith certification that the uncertainty of the current economic conditions makes the grant necessary to support their ongoing operations. Additionally, the business cannot apply for a Shuttered Venue Operators Grant. The eligible businesses that can apply for a grant include: Restaurants Food stands/trucks/carts Caterers Bars/taverns or similar drinking establishments Brewpubs/tasting or tap rooms To qualify for funding, restaurants must not be part of an affiliated restaurant or restaurant group with more than 20 locations. Public companies also are not eligible. Food and drink entities with 20 locations or fewer will qualify for grants equal to the difference between their 2020 and 2019 revenue, with alternative calculations for entities not in business all of 2019 or 2020. The amount of pandemic-related revenue loss is reduced by any amounts received under the PPP loan program. The Act will provide up to $10 million in relief per entity and affiliated businesses (limited to $5 million per physical location). Grants received under this program are exempt from federal income tax, and expenses paid with the funds are deductible. The first 21 days of the grant period will prioritize providing funding to entities owned and controlled by women, veterans and socially and economically disadvantaged small businesses. 

The list of eligible expenses is long, allowing every restaurant to determine their biggest need and seek the appropriate funding. The types of eligible expenses include: Payroll, including paid sick leave  Mortgage principal and interest (but not prepayment of the mortgage) Rent and utilities Maintenance, including construction to accommodate outdoor seating Supplies including protective equipment and cleaning supplies Food and beverages  Covered supplier costs and operational expenses Other costs determined by the administrator to be essential Baker Tilly professionals can help you take advantage of timely and important tax credits for the restaurant industry. 


The fifth federal COVID-19 relief bill is moving on to be signed by the president. The massive bill includes extensions to the employee retention credit, unemployment benefits, PPP qualification parameters among other programs, and it establishes a revitalization fund for restaurants. Read this article to learn more about how the Restaurant Revitalization Fund impacts restaurants. 

International tax coronavirus resources

Preparing your restaurant for the American Rescue Plan Act of 2021

Authored by Paul Dillon, Christine Faris, Michelle Hobbs, Mike Schiavo and Michael Wronsky Both houses of Congress have now passed the American Rescue Plan Act of 2021 (the Act). In the process, the Senate made several substantive changes to the version the House passed at the end of February. The Act now heads to the White House where President Biden is expected to sign it into law prior to March 14, when unemployment benefits are set to expire.  Notable changes by the Senate include expansion of the employee retention credit (ERC), additional restrictions on executive compensation deduction limitations for public companies, tax exclusions for a portion of unemployment benefits, and a faster phaseout for the income threshold for individual tax rebates.  Key provisions Employee retention credit The ERC is extended to apply to qualified wages paid by eligible employers through Dec. 31, 2021. Beginning after June 30, 2021, the credit is expanded to apply to recovery startup businesses, defined as employers that began operations after Feb. 15, 2020, with average gross receipts of $1 million or less, and have not experienced a full or partial suspension or significant decline in gross receipts for the calendar quarter. Additionally, “severely financially distressed” employers, with gross receipts for a calendar quarter that have declined by more than 90% from the same calendar quarter in 2019, can claim the ERC on any wages paid to employees during the calendar quarter. The credit also becomes refundable against the Medicare tax after June 30, 2021. Paycheck Protection Program The Act further expands the PPP to include certain internet publishing organizations (NAICS code 519130) and increases program funding another $7.25 billion. The Act also creates new eligibility for certain not-for-profit organizations with not more than 300 employees and that spend less than $1 million or 15% of receipts and expenses on lobbying activities. In addition, charitable organizations can be eligible for PPP loans if they employ 500 or fewer employees per physical location.  Individual tax rebates The Act provides rebate checks of $1,400 per individual (including dependents) based on their adjusted gross income (AGI) reported on their 2019 tax return (or 2020 return, if filed). However, the final version accelerates the phase-out range of taxpayers no longer eligible for the direct payments.   Eligible individuals mean any individual other than nonresident aliens or individuals who are a dependent of another taxpayer at the beginning of the year. Trusts and estates are also ineligible. Restaurant Revitalization Fund The Act establishes the Restaurant Revitalization Fund. Through this program, the Small Business Administration (SBA) will provide grants to restaurants, food trucks, bars, brewpubs and other eligible entities to cover payroll, rent, utilities, food costs and other expenses essential to operations. Entities with more than 20 locations, publicly traded companies and entities that have applications pending under the grants for shuttered venue operators program are not eligible. Of the $28.6 billion appropriated for this program, $5 billion is earmarked for businesses with gross receipts of $500,000 or less. Further, during the initial 21-day period of the program, the Act directs the SBA to prioritize grants to small businesses owned by women, veterans, and socially and economically disadvantaged small businesses. Grants received under this program are exempt from federal income tax, and expenses paid with the funds are deductible.  Child tax credit and dependent care benefits enhancements The Act increases the child tax credit to $3,000 per qualifying child ($3,600 in the case of children under the age of 6 as of the close of the tax year) and makes it refundable for 2021. The increased credit over the $2,000 available under prior law would phase out at AGI levels of $150,000 for joint filers, $112,500 for head of household and $75,000 for all other taxpayers. The AGI phase-out levels for the $2,000 previously available credit remain the same ($400,000 for joint filers, $200,000 for all others). The Act additionally instructs the Treasury Department to establish a program under which taxpayers will receive periodic advance payments that in total equal 50% of the estimated credit they are entitled for the year. Paid leave payroll tax credits extensions Originally provided for by the Families First Coronavirus Response Act, the payroll tax credits for providing paid sick and family leave are extended through Sept. 30, 2021. Additionally, effective for calendar quarters beginning after March 31, 2021, the limit on wages that can be taken into account for computing the family leave credit with respect to all calendar quarters in total increases to $12,000 from $10,000, and the 10-day limit on the emergency paid sick leave credit resets. In other words, if, as of the end of the first calendar quarter of 2021, an employer reaches both of these respective limits for a given employee, the employer would be able to claim an additional family leave credit up to $2,000 of qualified family leave wages plus an emergency paid sick leave credit up to 10 days for qualified sick leave wages paid to that same employee during the second and third quarters of 2021.  Taxability of student loan forgiveness Student loans forgiven after Dec. 31, 2020, and before Jan. 1, 2026, can be excluded from gross income except in certain circumstances. The Act does not itself include student debt forgiveness, but it could be a sign that potential legislation may be on the horizon. Unemployment benefits The federal unemployment subsidy remains at $300 per week and is further extended through Sept. 6, 2021. For taxpayers with AGI of less than $150,000, the first $10,200 of unemployment benefits received in 2020 will not be subject to income tax (in the case of a joint return, the first $10,200 received by each spouse). Election to allocate interest expense worldwide repealed The Act repeals a provision allowing U.S. affiliated groups to elect to allocate and apportion interest expense on a worldwide basis to determine taxable income applied to foreign tax credit limitations. Section 864(f) was enacted as part of the American Jobs Creation Act of 2004, but its implementation has been deferred several times. This section is relevant in computing the foreign tax credit limitation, which is based on the amount of taxable income from foreign sources and the allocation and apportionment of deductions between U.S.- and foreign-source gross income from different limitation categories. Allocating and apportioning interest expense on a worldwide basis would generally result in increasing the ability to use foreign tax credits. Executive compensation deductibility limitations  The Act expands the executive compensation deduction, which is limited to $1 million each for the highest paid executives at public companies. The limitation will now apply to the CEO, CFO and the next five highest-paid employees. Currently, this limit applies to the CEO, CFO and the top three highest-paid employees.  The purpose of this provision is to offset the costs of providing funding relief to financially struggling multiemployer and single-employer pension plans as described below. It is effective for tax years beginning after 2026.  Excess business loss limitation First enacted in the Tax Cuts and Jobs Act (TCJA), the limitation of certain current trade or business losses of noncorporate taxpayers was extended through 2026. Indexed for inflation, the TCJA placed a $250,000 ($500,000 for married filing joint taxpayers) limit on using these losses originally through 2025. The Coronavirus Aid, Relief, and Economic Security (CARES) Act temporarily suspended the limitation for the 2018, 2019 and 2020 tax years. Pension plan relief The Act contains provisions to assist troubled multiemployer pension plans as well as single-employer pension plans. Multiemployer plans – The Act creates a special program to allow the Pension Benefit Guaranty Corporation (PBGC) upon application by plan sponsors to make direct cash payments to financially troubled pension plans to ensure they remain solvent. Applications must be submitted by Dec. 31, 2025. Single-employer plans – The Act provides that shortfall amortization bases for plan years beginning in 2019 and 2020 would be reduced to zero. For plan years beginning after Dec. 31, 2019, all shortfalls would be amortized over 15 years rather than seven years under current law. Cost-of-living adjustment freeze for qualified retirement plans The Act contains provisions to freeze cost-of-living adjustments for certain annual limitations beginning after Dec. 31, 2030. The 2030 dollar amount would remain in effect until further notice. Defined benefit plans – The limitation on annual benefits Defined contribution plans – The limitation on contributions and other additions Compensation – The limitation on the annual compensation taken into account under the plan  The freeze on the cost-of-living adjustments described above would not apply in the case of a plan maintained by one or more collective bargaining agreements.  The freeze on cost-of-living adjustments applicable to benefits, contributions and compensation is designed to: Raise revenue and help offset the cost of the multiemployer plan reforms. Fill a budget hole in the 10-year scoring window. The freeze may also serve to foreshadow future legislative proposals to cut back on tax incentives for retirement plans as revenue raisers to offset the cost of other policy proposals. Expanded 1099 reporting The Act expands the 1099 reporting threshold for third-party settlement organizations to $600 annually with no fixed number of transactions from $20,000 and 200 transactions per payee under current law. This provision would be effective for transactions after Dec. 31, 2021. This provision is intended to capture more of the money earned by independent contractors in so-called “gig economy” jobs. This will primarily affect companies like eBay, Airbnb, Amazon, but the final rules and ensuing guidance will need to be reviewed to see how expansive this change may be.   We encourage you to reach out to your Baker Tilly adviser regarding how any of the above may affect your tax situation. 
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.

The fifth federal COVID-19 relief bill is moving on to be signed by the president. The massive bill includes extensions to the employee retention credit, unemployment benefits, PPP qualification parameters among other programs, and it establishes a revitalization fund for restaurants.

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Congress passes latest round of stimulus legislation

Authored by Paul Dillon, Pat Balthazor and Michael Wronsky On March 3, 2021, the Small Business Administration (SBA) released additional Paycheck Protection Program (PPP) loan guidance, including a new interim final rule (IFR), frequently asked questions (FAQ) and updated loan application forms. The guidance accounts for changes made to the PPP by the Consolidated Appropriations Act, 2021 (CAA) and incorporates directives by the Biden administration to increase the maximum loan amounts available to Form 1040 Schedule C filers and to allow applicants and entities owned by individuals who have been convicted of nonfraud-related felonies or are delinquent or have defaulted on their student loans to be eligible for PPP loans.  This tax alert is a preliminary overview of critical points covered by the guidance. Baker Tilly continues to analyze the content in greater detail and will issue additional communications as warranted. Key takeaways  IFR on loan calculation amount and eligibility  A Form 1040 Schedule C filer’s maximum loan amount was previously calculated based on its net profit reported on Schedule C line 31 (in essence, deemed owner compensation), plus payroll costs, if the proprietor had employees. The deemed owner compensation component, redefined as “proprietor expenses,” can now be calculated using either line 31 or gross income as reported on Schedule C line 7. Proprietors with employees must reduce the gross income figure by any expenses for employee benefit programs (line 14), pension and profit-sharing plans (line 19) and wages (line 26), to avoid double counting as these amounts constitute payroll costs that factor into the maximum loan amount. To mitigate the risk of increased fraud that could arise from use of the gross income methodology, borrowers of loans calculated using gross income of more than $150,000 will not automatically be deemed to have made the loan necessity certification in good faith, and such certification may be subject to SBA review.  The SBA will review a sample of first-draw loans applied for based on Schedule C gross income, which will require the use of new application Form 2483-C (second-draw borrowers will use Form 2483-SD-C) to determine whether loans computed with gross income amounts of $150,000 or more were applied for in compliance with loan eligibility criteria, including the good-faith certification. The sample size is not specified in the IFR. The IFR removes certain restrictions from loan eligibility as directed by the Biden administration in February; specifically, applicants or owners of applicants who have been convicted of nonfraud-related felonies (fraud, bribery, embezzlement or making a false statement in a loan application or application for federal assistance) or are delinquent or have defaulted on their student loans are now eligible for the PPP. FAQ FAQ No. 46: Revised to provide that as second-draw borrowers must demonstrate a 25% reduction in gross receipts, they be automatically deemed to have made the good-faith certification that their loan is necessary. It additionally clarifies the requirement that all loans greater than $2 million are subject to SBA review for compliance applies only to first-draw loans.   FAQ Nos. 57 and 58: Defines lobbying activities for purposes of determining whether section 501(c)(6) and destination marketing organizations are eligible for loans, and provide that loan proceeds cannot be used for lobbying activities or expenditures, by referencing section 3 of the Lobbying Disclosure Act of 1995 (2 U.S.C. 1602).   FAQ Nos. 59 and 60: Clarify that if a first-draw loan borrower files for bankruptcy protection after disbursement of their loan, they are still eligible for forgiveness provided other eligibility requirements are met. However, the borrower will not be eligible for a second-draw loan pursuant to the prohibition against applicants being presently involved in any bankruptcy proceedings.   FAQ Nos. 61 and 62: Provide that if a second-draw applicant uses or will have used all of its first-draw loan proceeds on eligible expenses, but fails to meet the requirement that 60% of loan proceeds be used on payroll costs, it will still be eligible for a second-draw loan (though its first-draw maximum forgiveness amount will be reduced). Additionally, a first-draw borrower will not be rendered ineligible for a second-draw loan on account of receiving only partial loan forgiveness (i.e., for failure to meet the aforementioned 60% requirement or due to salary or headcount reductions). FAQ No. 63: Confirms that SBA size and alternate size standards are not available for determining eligibility for second-draw loans. FAQ No. 65: Confirms that borrowers are eligible for the employee retention credit, but cannot request forgiveness for payroll costs that were used to claim the credit.  First- and second-draw loan application forms – Forms 2483 and 2483-SD, respectively, are revised to account for the removal of certain restrictions on borrower eligibility as ordered by the Biden administration.  First- and second-draw loan application forms for Schedule C filers using gross income – Forms 2483-C and 2483-SD-C, respectively, are new for use by applicants using gross income as reported on Schedule C, discussed above. We encourage you to reach out to your Baker Tilly advisor with questions on how the above may affect your tax situation.

Newly released Paycheck Protection Program guidance includes a new interim final rule, an FAQ and updated loan application forms, reflecting changes that were made in December’s relief bill as well as directives from the Biden administration.

SBA releases new PPP IFR, FAQ and loan applications 

Authored by Paul Dillon, Christine Faris, Michael Wronsky and Devin Tenney On March 1, 2021, the IRS released Notice 2021-20, providing long-awaited guidance on the retroactive changes made to the employee retention credit (ERC) by the Consolidated Appropriations Act, 2021 (CAA). The notice is mainly in the form of 71 frequently asked questions (FAQ), most of which are similar to the ERC FAQ the IRS previously published on its website. Specifically, the notice outlines how Paycheck Protection Program (PPP) loan borrowers who have already applied for forgiveness can claim the ERC. Broadly, the ERC can be retroactively claimed for qualified wages reported on a forgiveness application that exceed the total reported payroll and nonpayroll costs needed to support the forgiven amount of the loan.  Further, the notice adopts the definition of “full-time employee,” initially provided by the IRS FAQ for use in determining an employer’s headcount to assess whether it is a large or small employer, without requiring either seasonal workers or part-time employees be included in the computation. It also defines key terms used in determining whether an employer is eligible under the suspension test. This tax alert is a preliminary overview of critical points covered by the notice. Baker Tilly will provide additional information in the coming weeks and months as we analyze the guidance in detail. Key takeaways The notice retains the FAQ format of the preexisting IRS guidance: updating it for retroactive changes made to the ERC by the CAA and making additional clarifications. The notice does not cover CAA updates to the credit that apply exclusively to 2021. While the guidance relies on the FAQ format, by being incorporated in a notice and formally published in the Internal Revenue Bulletin, it allows taxpayers to rely on the contents for penalty protection. Determining PPP loan recipient’s qualified wages: A PPP loan recipient is deemed to have made an election under the Coronavirus Aid, Relief, and Economic Security (CARES) Act to exclude qualified wages from its ERC determination for all wages that are reported on an application for forgiveness — up to the amount of total payroll and nonpayroll costs reported on the application needed to support the forgiven amount. The ERC can be claimed on qualified wages in excess of this figure, but not on any amounts for which the election is deemed made (unless forgiveness is ultimately denied). As stated in the notice, the IRS’ position is effectively that an employer “cannot reduce the deemed election by the amount of the other eligible expenses that it could have reported on its PPP Loan Forgiveness Application” (emphasis added); a potentially damaging blow to borrowers that have already filed a forgiveness application.  The borrower is not considered to have made the election for any qualified wages paid that are not included in payroll costs reported on the forgiveness application.  Example 1: Employer X received a PPP loan of $200,000 and is an eligible employer for ERC purposes who paid $250,000 in qualified wages during the second and third quarter of 2020 (which overlapped with X’s covered period). X reported $250,000 of payroll costs on its loan forgiveness application, which was ultimately approved by the Small Business Administration (SBA) in full. X is deemed to have made an election to exclude $200,000 of qualified wages from its ERC determination (the maximum reported payroll costs needed to support the $200,000 forgiven amount), and can claim the ERC for the remaining $50,000 of qualified wages in 2020’s second and third quarters. Example 2: Same facts as Example 1, except X additionally incurred and reported $80,000 of eligible nonpayroll costs on its forgiveness application. In this instance, X is deemed to have made an election to exclude $120,000 of qualified wages ($200,000 PPP loan principal * 60% minimum payroll cost requirement), the minimum amount of payroll costs together with the reported nonpayroll costs needed to support the $200,000 of forgiveness. X can therefore claim the ERC on $130,000 of qualified wages ($250,000 total, less $120,000 in reported payroll costs needed to support forgiven amount) in the second and third quarters of 2020. Example 3: Same facts as Example 2, except X did not report the $80,000 of eligible nonpayroll costs on its forgiveness application, despite incurring them during its covered period. As such, X is deemed to have elected to exclude $200,000 of qualified wages from its ERC determination (the maximum reported payroll costs needed to support the $200,000 forgiven amount) and can claim the ERC for the remaining $50,000 of qualified wages in 2020’s second and third quarters. FAQ definition of “full-time employee”: For purposes of the 2020 credit, an employer is considered a large employer if it had more than 100 average full-time employees in 2019 (for purposes of the 2021 credit, the 100 threshold is increased to 500). The notice retains the same definition of full-time employee provided by the original IRS FAQ for this purpose, which appears to limit the employees that need to be included in the calculation to those who performed an average of at least 30 hours of service per week or 130 hours of service in the month. References to part-time employees and seasonal workers remain absent from the definition.  “More than nominal portion” of employer’s operations defined: An essential business can be an eligible employer under the suspension test if based on the facts and circumstances that “more than a nominal portion” of its operations have been suspended by a government order. Per Q&A No. 11, a portion of an employer’s operations will be considered more than nominal for the quarter in which the employer is testing eligibility if either: The gross receipts from that portion of the business make up at least 10% of the employer’s total gross receipts (both determined using the gross receipts from the same calendar quarter in 2019), or The hours of service performed by employees in that portion of the business make up at least 10% of the employer’s total employee service hours (both determined using the service hours performed by employees in the same calendar quarter in 2019). “More than nominal effect” on employer’s operations defined: An employer can qualify under the suspension test if its operations are not shut down, but rather subject to a government-mandated modification that has “more than a nominal effect” on the operations under the facts and circumstances. Per Q&A No. 18, a modification will have more than a nominal effect if it results in a 10% or more reduction in an employer’s ability to provide goods or services in its normal course of business. The notice however does not appear to provide any parameters by which this reduction can be measured. Factors for defining “comparable operations” via telework provided: An employer subject to a government-ordered closure will not be eligible under the suspension test if it can maintain “comparable operations” via telework. Q&A No. 16 provides the following four factors for consideration in determining whether comparable operations have been maintained and allows for additional factors to be considered if relevant:  Telework capabilities – Determine whether an employer has adequate support (IT and otherwise) such that operations can continue from another location.  Portability of employees’ work – Determine the amount of work that is portable or otherwise adaptable to be performed from a remote location. Need for presence in employee’s physical workspace – If an employer’s physical workspace is so critical to its trade or business operations that central tasks cannot be performed remotely, this factor alone indicates the employer is unable to continue comparable operations. Examples of critical physical workspaces include laboratories or manufacturing involving special equipment or materials that cannot be accessed or operated remotely.  Transitioning to telework operations – A period of adjustment to telework is expected, and an employer will not be considered to have a suspension of operations while it experiences inefficiencies attributable to the transition. However, if an employer incurs a significant delay (for example, two weeks) in moving operations to comparable telework on account of a need to, for example, implement teleworking policies or provide employees with necessary equipment, the employer’s operations may be deemed subject to a partial suspension during such a transition period.  Some areas remain unclear: While much is covered by the notice’s 102 pages, questions and areas of uncertainty remain, most notably, whether foreign affiliates must be included for aggregation purposes.  Please reach out to your Baker Tilly tax advisor to discuss how the above may affect your tax situation.
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.

The IRS issued guidance regarding retroactive changes made to the employee retention credit, including how Paycheck Protection Program loan borrowers can claim the ERC – even if they already applied for forgiveness.

IRS updates, formalizes ERC guidance 

Authored by Paul Dillon, Christine Faris, Michelle Hobbs and Michael Wronsky By the end of February, the House of Representatives is expected to pass the American Rescue Plan Act of 2021 (the Act), a combination of several bills making up the fifth stimulus legislation package designed to provide further economic relief from the continuing COVID-19 pandemic. The Senate is expected to begin discussions the first week of March when it is likely the legislation will be modified and sent back to the House. While the Act contains an increase of the minimum wage to $15 per hour, this provision was deemed to violate the Senate reconciliation rules. Additionally, other elements of the Act may not have unanimous support of all Democratic senators.  Both chambers of Congress are using budget reconciliation to pass the Act. In the Senate, this means the Act is not subject to filibuster and only a simple majority is needed to pass it. Therefore, ratification can occur without any Republican votes if no Democratic senator dissents. The final bill is expected to be signed into law by President Biden shortly after passage by both chambers. From a tax perspective, what is not included in the Act is perhaps as important as what is included. The Act contains no tax increases, including those that had been outlined in President Biden’s campaign proposals. At this time, individual, corporate and capital gains rates are unchanged, and no adjustments were made to the estate and gift tax regime. During a CNBC interview earlier this month, Treasury Secretary Janet Yellen said any tax increases sought by the Biden administration would be introduced gradually, suggesting these would come later in 2021 as part of a larger legislative package and be phased in slowly. Meanwhile, the Act does include several tax provisions such as an extension of the employee retention credit, another round of individual tax rebates and enhancements to the child tax credit. Notable nontax provisions include modifications to the Paycheck Protection Program (PPP), an increase to and continuation of the federal unemployment subsidy as well as funding for primary school and higher education institutions, and vaccine distribution.  Key provisions Employee retention credit The refundable quarterly payroll tax credit, designed to assist employers experiencing full or partial suspensions or significant declines in gross receipts in keeping employees on their payroll, was extended to apply to qualified wages paid through Dec. 31, 2021. Beginning after June 30, 2021, the credit will become a refundable payroll tax credit against the Medicare tax, otherwise known as the hospital insurance tax. Paycheck Protection Program The Act further expands the PPP to include certain internet publishing organizations (NAICS code 519130) and increases program funding another $7.25 billion. The Act also creates new eligibility for certain not-for-profit organizations with not more than 300 employees and spend less than $1 million or 15% of receipts and expenses on lobbying activities. In addition, charitable organizations can be eligible for PPP loans if they employ 500 or fewer employees per physical location. Finally, the SBA affiliation rules will no longer apply to not-for-profit organizations.  Individual tax rebates The Act provides rebate checks of $1,400 per individual (including dependents) based on their adjusted gross income (AGI) reported on their 2019 tax return (or 2020 return, if filed). Payment amounts will begin to phase out for single filers with AGI of $75,000 or higher ($150,000 for joint, $112,500 for head-of-household filers).  EIDL grants and other loan proceeds Under the Act, Economic Injury Disaster Loan (EIDL) grants as well as restaurant revitalization grants would be exempt from federal income tax. Further, similar to forgiven PPP loans, these exclusions from taxable income would not result in a loss of tax deductions for expenses funded by those grants. Child tax credit and dependent care benefits enhancements The Act increases the child tax credit to $3,000 per qualifying child ($3,600 in the case of children under age 6 as of the close of the tax year) and makes it refundable for 2021. The increased credit over the $2,000 available under prior law would phase out at AGI levels of $150,000 for joint filers, $112,500 for head of household, and $75,000 for all other taxpayers. The AGI phase out levels for the $2,000 previously available credit remain the same ($400,000 for joint filers, $200,000 for all others). The Act additionally instructs the Treasury Department to establish a program under which taxpayers will receive monthly advance payments of the credit they are due, from July through December 2021. Paid leave payroll tax credits extensions Originally provided for by the Families First Coronavirus Response Act, the payroll tax credits for providing paid sick and family leave are extended through Sept. 30, 2021. Additionally, effective for calendar quarters beginning after March 31, 2021, the limit on wages that can be taken into account for computing the family leave credit with respect to all calendar quarters in total increases to $12,000 from $10,000, and the 10-day limit on the emergency paid sick leave credit has been reset. In other words, if, as of the end of the first calendar quarter of 2021, an employer reached both of these respective limits for a given employee, they would be able to claim the family leave credit on up to an additional $2,000 of qualified family leave wages and another 10 days of the emergency paid sick leave credit for qualified sick leave wages paid to that same employee during the second and third quarters of 2021.  Unemployment benefits The federal unemployment subsidy increases to $400 per week from $300 and is further extended through Aug. 29, 2021.  Election to allocate interest expense worldwide repealed The Act repeals a provision allowing U.S. affiliated groups to elect to allocate and apportion interest expense on a worldwide basis to determine taxable income applied to foreign tax credit limitations. Section 864(f) was enacted as part of the American Jobs Creation Act of 2004, but its implementation has been deferred several times. This section is relevant in computing the foreign tax credit limitation, which is based on the amount of taxable income from foreign sources and the allocation and apportionment of deductions between U.S.- and foreign-source gross income from different limitation categories. Allocating and apportioning interest expense on a worldwide basis would generally result in increasing the ability to use foreign tax credits. Pension plan relief The Act contains provisions to assist troubled multiemployer pension plans as well as single-employer pension plans. Multiemployer plans – The Act creates a special program to allow the Pension Benefit Guaranty Corporation (PBGC) upon application by plan sponsors to make direct cash payments to financially troubled pension plans to ensure they remain solvent. Applications must be submitted by Dec. 31, 2025. Single-employer plans – The Act provides that shortfall amortization bases for plan years beginning in 2019 and 2020 would be reduced to zero. For plan years beginning after Dec. 31, 2019, all shortfalls would be amortized over 15 years rather than seven years under current law. Cost-of-living adjustment freeze for qualified retirement plans The Act contains provisions to freeze cost-of-living adjustments for certain annual limitations beginning after Dec. 31, 2030. The 2030 dollar amount would remain in effect until further notice. Defined benefit plans – The limitation on annual benefits Defined contribution plans – The limitation on contributions and other additions Compensation – The limitation on the annual compensation taken into account under the plan    The freeze on the cost-of-living adjustments described above would not apply in the case of a plan maintained by one or more collective bargaining agreements.   For more information about how these issues may affect you, connect with your Baker Tilly tax professional.
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.

The House passed the fifth federal COVID-19 relief bill. Carrying a hefty price tag – $1.9 trillion – and facing an uphill battle as it moves to the Senate.

State & Local Government

House expected to advance latest round of stimulus legislation

Employer payroll tax credits, loans, and other Consolidated Appropriations Act incentives There are numerous relief programs available to lessen the burden of employee expenses and help businesses survive. The Consolidated Appropriations Act, 2021 (“CAA”), funds the government for the next fiscal year and consists of several bills that together mark the fourth economic stimulus package designed to help taxpayers continue to weather coronavirus-related closures. The CAA extends and enhances many relief provisions that were included in the Families First Coronavirus Response Act (FFCRA) and Coronavirus Aid, Relief, and Economic Security (CARES) Act. Each business must determine which relief programs will have the most positive impact on their business, while also ensuring the benefits they choose can work together. Baker Tilly’s coronavirus benefit coordination matrix not only explains who can use each benefit but also how each benefit coordinates with others. 
A preview of the matrix is shown below, highlighting the Paycheck Protection Program: 
Download the matrix to learn more about which benefits may help your business during this challenging time, such as: PPP – second draw loans Employee retention credit – 2021 version Emergency Paid Sick Leave credit Emergency Paid Family and Medical Leave credit  Work Opportunity Tax Credit  Shuttered Venue Operators grant Restaurant Revitalization Fund grant Emergency Economic Injury Disaster Loan R&D credit payroll tax offset

Understand Coronavirus benefit and relief programs, who is eligible and how the benefits coordinate with other programs.

Family Business

Not-for-Profit

Not-For-Profit Coronavirus Resources

Relief Funding Assistance

Coronavirus benefit coordination matrix

Authored by Paul Dillon and Michelle Hobbs Borrowers receiving a Form 1099-MISC, “Miscellaneous Information,” that includes as income certain payments on loans authorized under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, such as the Paycheck Protection Program (PPP), may need to request a corrected 1099-MISC from their lenders. If income relating to these types of loan forgiveness is incorrectly included in a Form 1099, it could result in IRS correspondence to borrowers regarding underreported income. The IRS released Announcement 2021-2 directing lenders to issue corrected Forms 1099-MISC within 90 days if payments of principal, interest and associated fees on a loan subsidized by the Small Business Administration are reported as income to the borrower. Directions for filing corrected Forms 1099-MISC can be found in the 2020 filing instructions. Failure to do so could result in penalties assessed to the lender. Taxpayers that received Forms 1099-MISC from a lender that supplied CARES Act funding should carefully scrutinize the amounts reported to ensure such payments are not being reported as income. If this occurs, they should immediately contact the lender and request a corrected Form 1099-MISC. In January 2021, the IRS previously waived any requirement by lenders to issue Forms 1099-MISC reporting payments of principal, interest and associated fees on CARES Act funding.  For more information about how these issues may affect you, connect with your Baker Tilly tax professional.
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.

Borrowers of loans subsidized by the SBA via the CARES Act, including PPP loans, should confirm Forms 1099-MISC sent by their lenders were corrected to indicate the principal, interest and related fees on those loans were not reported as income.

IRS requires corrected 1099s for CARES Act loans

Authored by Paul Dillon, Michelle Hobbs and Pat Balthazor Generally, a corporation’s charitable contribution deduction cannot exceed 10% of taxable income. The Coronavirus Aid, Relief, and Economic Security (CARES) Act expanded this deduction to 25% of taxable income for cash contributions made during calendar years 2020 or 2021. At the end of December, the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTRA) further expanded the limitation to 100% of taxable income for certain qualified disaster relief contributions. A qualified disaster relief contribution is a cash contribution that is:  Paid between Jan. 1, 2020, and Feb. 25, 2021 Made for relief efforts in one or more qualified disaster areas Documented with a contemporaneous written acknowledgement from the charity which includes a statement that the contribution was used (or will be used) for relief efforts in one or more qualified disaster areas
– Corporations may have to go back to the donee to obtain documentation that includes the above statement, if not reflected in the receipt they currently have; such documentation must be obtained before the return reflecting the deduction is filed (see below) Taxpayers elect to apply this qualified disaster relief contribution rule by computing its deductible amount of qualified contribution using the increased limit and claiming the amount on the income tax return for the year in which the contribution was made. Qualified disaster relief areas are those under a major disaster declaration by the president (declared between Jan. 1, 2020, and Feb. 25, 2021) and listed by the Federal Emergency Management Agency (FEMA) as such between Dec. 27, 2019, and Dec. 27, 2020. This designation does not include any disasters related to COVID-19.   Contemporaneous records – Since these changes were enacted so late in 2020, the IRS recently issued a release providing limited relief from the contemporaneous written acknowledgement requirements. Acknowledgement must be obtained by the organization before the corporation timely files its tax return (including extensions). With respect to qualified cash contributions made before Feb. 1, 2021, the contemporaneous written acknowledgement does not have to contain the disaster relief statement referenced above.  For more information about how these issues may affect you, connect with your Baker Tilly tax professional.
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.

A recent IRS release provides corporations with limited relief for the requirement that they need certain documentation to claim deductions for qualified charitable cash contributions made before Feb. 1, 2021.

IRS provides record-keeping relief for corporate charitable contributions 

Authored by Paul Dillon, Michelle Hobbs and Michael Wronsky This week, the Small Business Administration (SBA) and Department of Treasury released several items of guidance on Paycheck Protection Program (PPP) loans:  An updated interim final rule on loan forgiveness, to account for changes to the PPP made by the Consolidated Appropriations Act, 2021 (CAA) Two sets of frequently asked questions (FAQ) about how to calculate the maximum loans available under the first- and second-draw programs, how to calculate the 25% revenue reduction required for eligibility for the latter, and what documentation is needed to be submitted with the loan applications  Updated loan forgiveness applications:
– Form 3508S (for use by borrowers of loans of $150,000 or less)
– Form 3508EZ (for use by borrowers who maintained specified levels of employee salaries and headcounts)
– Form 3508 (for use by borrowers ineligible to use the above forms) Links to the documents are included above and a summary of their contents follows below. We will continue to analyze this guidance and issue additional communications as appropriate. We encourage you to reach out to your Baker Tilly advisor regarding how the above may impact your situation. Interim final rule (IFR) on loan forgiveness: Consolidates previously issued IFRs on loan forgiveness and makes necessary updates to conform to the CAA’s amendments to the program, Provides that for second-draw loans in excess of $150,000, the borrower must submit its loan forgiveness application for their first-draw loan (even if the requested amount is $0) either before or simultaneously with the second-draw forgiveness application, and on separate applications, Clarifies the limit on forgiveness for owner compensation must be prorated based on the length during which the compensation is paid or incurred. For example, if a covered period of 10 weeks is chosen by the borrower, the maximum amount of owner compensation eligible for forgiveness is calculated as $100,000 divided by 52 weeks multiplied by 10 weeks ($19,231). The $20,833 maximum limit previously in effect applies to covered periods exceeding 2.5 months.    FAQ: Provide detailed instructions for how self-employed individuals with and without employees, farmers, ranchers, partnerships, S and C corporations, eligible not-for-profit organizations, eligible not-for-profit religious institutions, veterans organizations and tribal businesses calculate their maximum first- and second-draw loan amounts  Outline the following primary sets of documentation that must be submitted with the second-draw loan application (or forgiveness application, if the loan is $150,000 or less) to support a 25% gross receipts reduction: Quarterly financial statements (if not audited, the first page must be signed and dated by the applicant attesting to their accuracy),  Quarterly or monthly bank statements showing deposits from the relevant quarters, Annual IRS tax filings and further provides the amounts required to compute gross receipts by entity tax return type, including:
– Self-employed individuals other than farmers and ranchers: Form 1040, Schedule C – sum of lines 4 and 7
– Partnerships: Form 1065 – sum of lines 2 and 8, minus line 6
– S corporations: Form 1120-S – sum of lines 2 and 6, minus line 4
– C corporations: Form 1120 – sum of lines 2 and 11, minus the sum of lines 8 and 9
– For not-for-profit organizations: Form 990: the sum of lines 6b(i), 6b(ii), 7b(i), 7b(ii), 8b, 9b, 10b and 12 from Column A of Part VIII Note: these instructions require that for-profit entities exclude net gains or losses on business asset sales, in addition to capital asset sales. The exclusion of business asset sales appears to be in conflict with the definition of gross receipts provided within the FAQ (as well as the definition under Treas. Reg. section 1.448-1T(f)(2)(iv)(A)). It is unclear whether this is intentional or an oversight.  Provide that if payroll costs for the prior 12 months were used to compute a borrower’s first-draw loan amount, those same payroll costs cannot be used to compute that borrower’s second-draw amount. Loan forgiveness applications:  Of particular interest is the loan amount threshold for determining eligibility to file the paired-down Form 3508S increased to $150,000 from $50,000. Applicants do not need to show the computation of their requested forgiveness amounts, but still must attest to the accuracy of the information reported and submit documentation to support the use of loan proceeds on eligible costs. Borrowers of loans of $50,000 or less do not need to reduce their forgiveness amount for any reduction in employee headcounts or salaries.   For more information about this topic, please visit our comprehensive set of Payroll Protection Program Solutions.
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.

The Small Business Administration and Treasury Department released new guidance and updated loan forgiveness applications for the Paycheck Protection Program. 

Real estate coronavirus resources

Additional PPP guidance, forgiveness applications released

Visit Baker Tilly's Coronavirus Preparedness Center to learn more

Depending on where and to the extent that COVID-19 spreads, filing deadlines may be changed and resources to help taxpayers file may be affected.

Baker Tilly’s federal tax professionals will keep you informed on any significant changes in tax requirements related to the spread of COVID-19.

Who is eligible and what are the benefits?

Coronavirus to impact tax-filing deadlines and tax payments

Baker Tilly offers specialized federal tax compliance and planning expertise to help businesses optimize value while minimizing their tax burden.

Baker Tilly’s tax team contributes to clients’ success by accelerating tax deductions, increasing tax credits, reducing cash taxes and mitigating risks.