Stock Liquidity Events • Monetizing Relief • Audit Expectations

This is a weekend roundup of Bloomberg Tax Insights, which are written by practitioners, featuring expert analysis on current issues in tax practice and policy. The articles featured here represent just a handful of the many Insights published each week. For a full archive of articles, browse by jurisdiction at Daily Tax Report, Daily Tax Report: State, and Daily Tax Report: International.

This week we look at stock ownership plan liquidity events, monetizing pandemic relief provisions, Paycheck Protection Program audits; 401(k) private equity investment, DAC6 hallmarks, state telecommuting guidance, and a whole lot more. We’ll hear from:

• Eric Bardwell of Jeffer Mangels Butler & Mitchell and Jeremy Huish of Business Transition Advisors on minimizing tax on stock ownership plan liquidity events
• Adnan Islam and Ed Ajodah of Friedman LLP on monetizing tax losses from Covid-19 and under the CARES Act
• Kevin Bandoian, Andrew Coles, and Paul Trinh of Resolution Economics LLC on preparing for a Paycheck Protection Program audit
• Dan Morgan of Blank Rome on the Department of Labor acknowledging private equity as a possible alternative investment to publicly traded securities in 401(k) plans
• Keith Brockman on DAC6 hallmark interpretation and why it’s more of an art than a science
• Jason Rosenberg and Adam Caputo of Withum on state tax guidance regarding telecommuting
• Jeff VanderWolk of Squire Patton Boggs on the U.S. Trade Representative’s investigation of digital services taxes
• Steven Wrappe and Matthew Kramer of Grant Thornton on whether to renew an advance pricing agreement
• Christos Theophilou of Taxatelier on corporate residence post-BEPS and global mobility
• Jeffrey Owens of the Global Tax Policy Center at the Institute for Austrian and International Tax Law, WU, on the post-pandemic opportunity for cooperative compliance

Private equity firm Blackstone Group Inc.'s headquarters in New York.

Photographer: Mark Abramson/Bloomberg

Qualified small business stock and employee stock ownership plan transactions can reduce or completely eliminate federal income tax on a liquidity event. Eric Bardwell of Jeffer Mangels Butler & Mitchell and Jeremy Huish of Business Transition Advisors explain how two frequently overlooked tax provisions work. Read: INSIGHT: Stock Ownership Plans Can Minimize Tax on Liquidity Event

Businesses are experiencing an unprecedented economic shock from the pandemic. Adnan Islam and Ed Ajodah of Friedman LLP outline a number of methods for businesses to monetize their losses under provisions in the coronavirus relief legislation. Read: Monetizing Tax Losses From Covid-19 and Under CARES Act

A Paycheck Protection Program loan may have rescued your client and its employees from immediate economic disaster, but the loan came with risks, especially if it was over $2 million. Kevin Bandoian, Andrew Coles, and Paul Trinh of Resolution Economics LLC walk through what to expect and how to prepare for the upcoming audit. Read: Your Client Received a PPP Loan Over $2M—Is It Ready for the Upcoming Audit?

The Department of Labor recently acknowledged that private equity, as an allocation in a target date or balanced fund, is a possible alternative investment to publicly traded securities in 401(k) plans. Dan Morgan of Blank Rome analyzes the DOL’s information letter and key legal hurdles for plan fiduciaries to keep in mind. Read: DOL’s Private Equity Investment Information Letter—What It Means for 401(k) Plans

DAC6, the EU’s new international tax reporting mandate, comes with many unknowns for taxpayers and their advisers. Among these unknowns are how different jurisdictions will interpret five categories of hallmarks subject to disclosure. Keith Brockman explains what a hallmark is and why the first two are particularly worrisome. Read: INSIGHT: DAC6 Hallmark Interpretation—More Art Than Science

Many states have issued guidance on payroll tax withholding as many employees find themselves working from home in a different state than their usual place of employment. Jason Rosenberg and Adam Caputo of Withum outline recent guidance and look at the potential effect on other state taxes. Read: States Provide Covid-19 Tax Guidance in Wake of Telecommuting Employees

The U.S. Trade Representative recently announced new investigations regarding digital services taxes that have been enacted or proposed by several countries. Jeff VanderWolk of Squire Patton Boggs examines the effect of the investigations on the ongoing OECD efforts to develop a multilateral policy on taxing the digital economy. Read: U.S. Investigation of Digital Services Taxes—Will It Affect Multilateral Negotiations at OECD?

Corporate taxpayers may be considering whether they need to review their advance pricing agreement—possibly because they believe they can rely on their expired APA or don’t think the cost is justified due to reduced revenue. Steven Wrappe and Matthew Kramer of Grant Thornton explain the advantages or renewal, including in a pandemic-affected global economy. Read: Seriously, Should I Renew My Advance Pricing Agreement?

Christos Theophilou of Taxatelier discusses the various corporate residency criteria that countries are using in order to tax their residents and the interaction of the tax treaties tie-breaker rule for dual-residence companies. Read: Corporate Residence Post-BEPS and Global Mobility

Professor Jeffrey Owens of the Global Tax Policy Center at the Institute for Austrian and International Tax Law, WU, suggests that the disruption caused by Covid-19 may provide an opportunity to adjust the ways in which multinational enterprises and tax administrations interact, by the use of cooperative compliance programs. Read: Covid-19 and the Future of Taxation—What Role for Cooperative Compliance?

From the Archive

Bloomberg Tax contributors had their eye on the potential tax consequences of working from home as soon as the shutdown began.

Travel restrictions and closed business sites may cause directors and employees to perform services in unintended jurisdictions, whether those jurisdictions be other countries or other U.S. states. Ropes & Gray attorneys walked through practical steps to consider and considerations to avoid jurisdictional issues and potential risks of increased tax exposure.

Covid-19 restrictions on movement have left many employers with staff working from places where the employers don’t typically operate, possibly triggering an unplanned local tax presence. Baker McKenzie attorneys looked at the issues arising from these remote business and employment activities as well as the risks that such remote activities could cause if they continue after the Covid-19 crisis is resolved.

Beyond Tax

What’s happening outside the world of tax?

While private businesses in other industries have leaned on the federal PPP, or Payroll Protection Program, to preserve front-line jobs, law firms who put their own PPP, or profits per partner, ahead of saving the jobs of the associates and staff who make great client service possible, risk alienating their clients—and the revenue those relationships represent, Debra Pickett, founder of Page2 Communications, says. Read: A Tale of Two PPPs, One of Which Your Clients Might Care About

The health-care industry has been devastated by the Covid-19 pandemic, and post-pandemic deals, partnerships, and mergers are expected to rise. King & Spalding attorneys and a senior vice president at ReviveHealth say as health systems race to the altar to beat out competitors for M&A targets and other strategic relationships, it’s critical that they are thoughtful in structuring their deals, justifying the activity, and communicating the benefits. Read: Health-Care M&A Post-Pandemic—Opportunities, Not Opportunism

Mintz attorneys offer recommendations for companies contemplating engaging in a down-round financing to deal with the economic impact of Covid-19. They say it’s important to seek legal advice prior to undertaking the process, because the lower valuation and frequently onerous terms of a down-round financing could cause existing stockholders to engage in litigation. Read: Minimizing Risks in Down-Round Financing During Covid-19

In order to avoid the appearance of bias, employers may foster a “colorblind” work environment in which race and racial differences are not acknowledged or discussed. Now, more than ever, the reality that racial injustice continues to exist in our society calls on employers to recognize the issue and take action to provide a more supportive workplace for employees of color, Ballard Spahr attorneys say, and they offer some suggestions on how employers can avoid “colorblindness” and take meaningful action to support employees of color. Read: Building Supportive Workplaces for Employees of Color

Exclusive Content for Bloomberg Tax Subscribers

(*Note: Your Bloomberg Tax login will be required to read the following content.)

With the current and expected increase in distressed mergers and acquisitions resulting from Covid-19, either in the bankruptcy context of tax code Section 363 sales or outside of bankruptcy in expedited transactions, it is worth revisiting tools to provide buyers with protection from transactional risks where sell side indemnities are either scarce or impossible. William Rowe, Jonathan Welbel, and Mark Roche of Baker McKenzie examine transactional tax liability policies, a more recent tool that functions as an alternative to a seller escrow to provide compensation to insured parties in the event of audit or tax controversy.

Bloomberg Tax Insights articles are written by experienced practitioners, academics, and policy experts discussing developments and current issues in taxation. To contribute, please contact Erin McManus at emcmanus@bloombergtax.com.