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Peter Gulia

Are Paycheck Protection Program uncertainties resolved?

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Several BenefitsLink discussions describe uncertainties about how to interpret the Paycheck Protection Program.

 

Now that the Paycheck Protection Program Flexibility Act of 2020 seems soon to be enacted, which issues does it solve, and which does it leave behind?

 

https://www.congress.gov/116/bills/hr7010/BILLS-116hr7010eh.pdf

 

 

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2 hours ago, Peter Gulia said:

Several BenefitsLink discussions describe uncertainties about how to interpret the Paycheck Protection Program.

 

Now that the Paycheck Protection Program Flexibility Act of 2020 seems soon to be enacted, which issues does it solve, and which does it leave behind?

 

https://www.congress.gov/116/bills/hr7010/BILLS-116hr7010eh.pdf

 

 

The two significant issues still out there:  1) Can you fund whatever you want into your retirement program in your (now) 24 weeks, regardless of whether it is 2019 or 2020 funding, and without regard to some pro-rata contribution limit.  I believe that you can put in anything you want (that is legitimate contributions) and it counts towards the forgiveness.

2) Is there any restriction on C or S corporation stockholders who are also employees, like the restrictions on Schedule  SE filers (sole props, partners)?  I say there are NOT.

There are a few other minor issues but resolving the above two will quiet most of the noise out there.

It really didn't solve anything; it extended the 8 weeks to 24 and changed the 75/25 to 60/40 but in the process screwed up the language about the 60% (which they are already saying needs to be fixed: the "cliff" issue).

 

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23 hours ago, Gilmore said:

Is there a resolution yet regarding the deductibility issue?

Thanks.

No, but they have all year to fix that, and they will, with certainty (as much certainty as one can have in this world).

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Just for intellectual curiosity, imagine Congress enacts no more change to the statutes.

 

Would a business organization that believes the deduction is proper take that tax-return position?

 

I guess the Treasury department has not published a final or temporary regulation on the issue.  Is there a revenue ruling or notice published in the Internal Revenue Bulletin?

 

A business organization may on its tax return assert a reasonable-basis position.  And, if not contrary to such a rule-or-regulation authority, may do so without a Form 8275-R disclosure.  (If a corporation does not issue and is not included in audited financial statements, Schedule UTP, Uncertain Tax Position Statement, is not required.)

 

A reasonable-basis position can be one with no more support than a “well-reasoned construction of an applicable statutory provision[.]”

 

Even under the stricter standard of AICPA Statement on Standards for Tax Services No. 1—Tax Return Positions, a CPA may recommend a tax-return position, and may prepare or sign a tax return taking a position, if the CPA has a good-faith belief that the position has at least a realistic possibility of being sustained administratively or judicially on its merits if challenged.  In finding whether that standard is met, a CPA “may consider a well-reasoned construction of the applicable statute[.]”

 

If a business organization takes the deduction position (whether for itself, or to pass through to its shareholders, members, or partners), doesn’t that practically end the point for all but the few examined?

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1 hour ago, Peter Gulia said:

Just for intellectual curiosity, imagine Congress enacts no more change to the statutes.

 

Would a business organization that believes the deduction is proper take that tax-return position?

 

I guess the Treasury department has not published a final or temporary regulation on the issue.  Is there a revenue ruling or notice published in the Internal Revenue Bulletin?

 

A business organization may on its tax return assert a reasonable-basis position.  And, if not contrary to such a rule-or-regulation authority, may do so without a Form 8275-R disclosure.  (If a corporation does not issue and is not included in audited financial statements, Schedule UTP, Uncertain Tax Position Statement, is not required.)

 

A reasonable-basis position can be one with no more support than a “well-reasoned construction of an applicable statutory provision[.]”

 

Even under the stricter standard of AICPA Statement on Standards for Tax Services No. 1—Tax Return Positions, a CPA may recommend a tax-return position, and may prepare or sign a tax return taking a position, if the CPA has a good-faith belief that the position has at least a realistic possibility of being sustained administratively or judicially on its merits if challenged.  In finding whether that standard is met, a CPA “may consider a well-reasoned construction of the applicable statute[.]”

 

If a business organization takes the deduction position (whether for itself, or to pass through to its shareholders, members, or partners), doesn’t that practically end the point for all but the few examined?

Pete,

I think you have an absolutely good argument with the letter from both houses both sides of Congress to Treasury telling them that they are wrong.  You can find that here: https://www.grassley.senate.gov/news/news-releases/grassley-wyden-neal-push-treasury-allow-small-businesses-deduct-ppp-expenses.  I think this paragraph, and the last sentence in particular, in their letter is the most useful:

Section 1106(i) was specifically included in the CARES Act to exclude from income loan forgiveness, which would otherwise be taxable, to provide a tax benefit to small businesses that received the PPP loan.  Had we intended to provide neutral tax treatment for loan forgiveness, Section 1106(i) would not have been necessary.  In that case, loan forgiveness generally would have been added to the borrower’s taxable income, and the expenses covered by the PPP loan would be deductible, reducing taxable income by an offsetting amount and resulting in no additional net income.  Notice 2020-32 effectively renders Section 1106(i) meaningless.  That, clearly, is contrary to the intent of Section 1106(i) and the CARES Act more generally.
 
Here was the introduction on Grassley's website:
 
Washington  Senate Finance Committee Chairman Chuck Grassley (R-Iowa), Ranking Member Ron Wyden (D-Ore.) and House Ways & Means Committee Chairman Richard E. Neal (D-Mass.) today wrote to Treasury Secretary Steven Mnuchin urging the department to change its flawed interpretation of the CARES Act preventing businesses from deducting expenses associated with Paycheck Protection Program (PPP) loans that are ultimately forgiven.
 
“Providing assistance to small businesses, only to disallow their business deductions as provided in Notice 2020-32, reverses the benefit that Congress specifically granted by exempting PPP loan forgiveness from income.  This interpretation means that whatever income a small business is able to produce will be taxed on a gross basis to the extent of the loan forgiveness, leaving substantially less after-tax capital for the swift economic recovery we hope is on the horizon,” the lawmakers wrote.
 
Grassley, Wyden and Neal specifically argue that the determination adopted by IRS and Treasury runs contrary to congressional intent underlying the PPP program and the CARES Act overall.
 
Full text of the letter from Grassley, Wyden and Neal follows or can be found HERE.

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Thank you for indulging my curiosity.  (On the underlying tax-law issue, I don’t state any view or argument.)

 

Because Notice 2020-32 was published in the Internal Revenue Bulletin [2020-21 I.R.B. 837-838 (May 18, 2020)], Forms 8275 and 8275-R are in play.

 

If a taxpayer finds its tax return must disclose a position contrary to the IRS’s notice, would that dissuade a taxpayer from taking the deduction?

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