Congress made the big move this week with its $2 trillion coronavirus damage-control package. Action continued across the country and around the world, as U.S. states and foreign governments continued adjusting tax requirements to demands of the pandemic-hobbled marketplace. Banks got some U.S. relief from the credit-loss accounting requirement, although it wasn’t clear how helpful that would be.
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Virus Relief From Congress
President Donald Trump signed into law a sweeping coronavirus relief package (H.R. 748) Friday, the third of what is likely to be multiple bills aimed at easing the economic effects of the pandemic.
The $2 trillion package will provide refundable tax credits of as much as $1,200 per individual, $2,400 for couples who file joint tax returns. The IRS may not be able to issue those payments as fast as administration officials hope.
What do tax pros recommend? File immediately if you lost a job, got divorced, or experienced some other event that lowered your 2019 income compared to 2018. But if you got promoted, or got a higher-paying job last year, you may be better off filing after you receive your rebate check. There is no consequence for making that choice.
Here are other key tax elements:
- Business losses from tax years after Dec. 31, 2017, and before Jan. 1, 2021 could be carried back five years. But most companies won’t feel that change immediately.
- Distillers would get more favorable tax treatment to start producing hand sanitizer.
- The retail glitch, a tax law error preventing restaurants and retailers from immediately writing off the costs of interior improvements, is fixed at long last.
- The IRS would get $250 million in emergency funding—available until Sept. 30, 2021—to respond to the coronavirus.
- Individuals can take up to $100,000 out of their 401(k) accounts as an early withdrawal.
Read more about the package in this BGOV Bill Summary.
Tax Court: Facebook’s summer trial in Washington is canceled because of the pandemic. Facebook and the IRS are in a dispute over the value of intangible assets that Facebook shifted to an Ireland subsidiary. The San Francisco portion of the trial wrapped earlier this month.
IRS Updates: The IRS issued a mandatory evacuation order requiring employees who are eligible to work remotely to do so starting Monday, according to an internal email obtained by Bloomberg Tax. The move is the most recent step the agency has taken in response to the coronavirus outbreak.
Late Friday the agency announced that individuals would get an additional three months to report taxable gifts.
Corporate Tax Execs at Home
As the tax world changes quickly around the coronavirus response, it’s been challenging for corporate tax executives to keep up with new regulatory guidance, keep operations running smoothly with their businesses and employees, and make sure routine paperwork gets filed while they’re working from home.
Additionally, the need to communicate with regulators for deadline extensions, and for grace when those deadlines aren’t met, is adding to the anxiety.
“The logistical issues are significant, also this is made more complex by all the guidance coming out,” said Carol Doran Klein, VP and international tax council at the U.S. Council for International Business whose members include about 300 multinational companies, law firms, and business associations.
State by State
For state tax authorities, particularly those in states with income taxes, addressing the fast-moving crisis has meant adjusting to IRS deadline extensions.
In many states, key tax dates are linked with the IRS by statute, so the change there has been a mere formality. In others, where administrative action is required, there has been a scramble to get the paperwork signed and the news out to taxpayers. In still others, like New Jersey where legislative action is required, bills have been passed and sent to the governor for signing, and yet there they wait. In some cases there is a sense that states, concerned for their deteriorating budget projections, are reluctant to act.
Corporate taxpayers, meanwhile, are concerned that extended deadlines—at least the July 15 extension—won’t be enough to make coherent filing possible in the near future. And while tax executives are trying to communicate the problems they are facing, governments are so far distracted by their own logistical challenges. In a letter to the Multistate Tax Commission, leaders of the McDermott Will & Emery international law firm spoke for many practitioners in calling for postponement of tax filing and payment deadlines, waivers from hard copy and notarized document requirements, and suspensions of interest and assessments during periods of mandated business closure.
Bloomberg Tax has a state-by-state roadmap logging all developments as they happen.
Talking Tax Podcast
Bloomberg Tax reporters Allyson Versprille and Colin Wilhelm chat with Talking Tax host Siri Bulusu about how the IRS and Congress are handling the coronavirus outbreak. Listen to the latest episode.
- The OECD should hold off on its digital tax project to focus on policies to address the economic fallout of the coronavirus, the National Foreign Trade Council told Treasury Secretary Steven Mnuchin Friday.
- The economic fallout from the pandemic will force multinationals to rework their intercompany tax planning.
- Singapore introduced a $33 billion budget to help lessen the economic impact of Covid-19.
- Poland pushed back the deadline for corporate tax returns.
- Russia will tax dividends paid to offshore entities.
- Kenya will cut value-added tax rates and provide other tax relief to individuals and businesses.
- France offered tax relief to tech startups.
- The U.K. announced its fourth emergency relief package Friday, coming in at $11 billion.
More international news and information on coronavirus is here.
Congress’s virus relief also includes a provision to override the current expected credit losses (CECL) standard, notable since lawmakers have rarely intervened successfully in the accounting standards process.
Banks have the option to delay complying with the standard until the period after Dec. 31 or until public health authorities declare the national state of emergency over, whichever is earlier. But big banks have already started to make the change, so the provision could potentially make things more confusing.
Lease Accounting: On Thursday the Governmental Accounting Standards Board announced it was working on some relief to government accountants affected by the virus. Delaying new standards, especially for leasing and rule changes related to fiduciary activities, is among the options the board is considering.
Employers are considering ways to give hardship assistance to employees. Some are also considering creating crisis funds through charitable organizations, which permit employers to make tax-deductible donations and employees to collect emergency grants tax free.
“A lot of companies have either ramped up their existing employee assistance funds or they are exploring how to actually create one to help their employees or others who rely on them for work,” said James Starr, president and chief executive officer of America’s Charities.
Help for Nonprofits
Nonprofits are hoping for more help from Treasury and lawmakers. Tax-exempt organizations are facing revenue loss and are being forced to close, just like businesses, advocates say.
Help from the IRS could include: a filing extension for nonprofits with a May 15 deadline to file Form 990, an annual informational return detailing their activities and finances, or expansion of the list of groups charities can support. If scams are a concern, Congress could give the agency more money for enforcement, which could help it curb charitable scams.
Commentary: E-Signatures From Home
Bloomberg Tax columnist Kelly Phillips Erb discusses how lawyers and accountants can properly execute signatures on contracts, tax returns, powers of attorney, and closing documents while they work from home because of the coronavirus.
Dive Deeper With Bloomberg Tax Insights
- Cheng Chi, Choon Beng Teoh, and Tanya Tang of KPMG China and Brian Cody of KPMG LLP: How can Chinese limited risk manufacturing, distribution, and service companies—wich are common in the supply chains of many multinational corporations—address their transfer pricing arrangements in light of changed circumstances?
- Olga Lubomirsky of Mazars: The tax implications of quarantine and how to utilize tax-loss harvesting to further manage your taxes.
- Jan Sanders and Ibrahim Ahmed of PKF Netherlands: Protect you business and supply chain from VAT fraud, which may increase during the economic crisis brought on by the Covid-19 outbreak.
- David Fuller of McDermott, Will & Emery explains how tax code Section 139 works and what’s reimbursable, after President Trump’s emergency declaration triggered the section, which allows employers to exclude disaster assistance payments from employees income.
—WIth assistance from David Jolly.