WEEKEND INSIGHTS: Loan Forgiveness and Conservation Easements

Sept. 13, 2020, 2:00 PM

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 the perils in trying to keep a small business afloat during the pandemic and the danger of daring to claim a deduction for the grant of a conservation easement. We’ll also learn about the risks in donating stock to a donor-advised fund, whether the five-year plan has gone out the window, and more. We’ll hear from:

  • Lewis Horowitz and Eric Kodesch of Lane Powell on the continuing challenges facing owner-employees seeking PPP loan forgiveness
  • Nancy Ortmeyer Kuhn of Jackson & Campbell on a glimmer of hope from the appeals courts for conservation easement donors
  • Richard L. Fox of Buchanan Ingersoll & Rooney on the trade-offs of donor control v. tax benefits
  • Kate Barton of EY on re-imagining the five-year plan
  • Rob Mander of RSM on why increasing taxes may not be the best way to pay for the pandemic
  • Steven C. Wrappe, Harumi Yamada, and Shunichi Tsutsui of Grant Thornton on U.S.-Japan advance pricing agreements
  • Brett Berg of Prudential Financial on legacy planning in uncertain times
  • Breen Schiller and Dennis Jansen of Eversheds Sutherland on Illinois’ new audit program
  • Michael Shekel of Cherry Bekaert on simplified accounting for convertible instruments and contracts in an entity’s own equity
  • Manjula Muthukrishnan of Avalara on three years of the Indian goods and services tax
Owner-employees are still without workable answers on PPP loan forgiveness.
Photographer: Kathryn Gamble/Bloomberg

Confusion remains over how owner-employees are treated in the computation of the full-time employee ratio in a paycheck protection program (PPP) loan forgiveness application. Lewis Horowitz and Eric Kodesch of Lane Powell examine what has been fixed and what hasn’t, including the apparent bias against owner-employees not intended by Congress: Read: Confusion for ‘Owner-Employees’ Remains—How Are Their FTEs Treated in the PPP Loan Forgiveness Application?

The IRS, with backing from the U.S. Tax Court, has been disallowing deductions claimed for the charitable contribution of conservation easements. The agency has done so based on a common easement provision addressing the unlikely event that a court will extinguish the easement. Nancy Ortmeyer Kuhn of Jackson & Campbell, P.C. walks through recent Tax Court decisions and sees a bright spot in some appellate reversals and remands. Read: Conservation Easements—Will They Be Saved on Appeal?

A recent ruling in the ongoing case of Fairbairn v. Fidelity Investments Charitable Gift Fund held that the tax law requirement that a sponsoring organization have control over a donor-advised fund doesn’t trump the donors’ claim of false promises relating to the liquidation of donated securities. Richard L. Fox of Buchanan Ingersoll & Rooney PC examines the case that illustrates the trade-offs of donor control versus tax benefits. Read: Organization Control Over Donor Advised Fund Requirement Doesn’t Trump Donors’ Claim of False Promises

Businesses globally were already grappling with an unprecedented rate and pace of change prior to the Covid-19 pandemic. As the crisis pushes organizations to transform their operating models, Kate Barton of EY explores why organizations must re-imagine the five-year plans. Read: How the Covid-19 Pandemic Is Transforming the 5-Year Plan

Conversations have already started about how governments will fund increased expenditures to support citizens during the pandemic. Rob Mander of RSM International suggests that resisting the urge to increase taxes may be the best way to support economic growth. Read: Paying for the Pandemic—Are Increased Taxes the Answer?

Japan-based multinational corporations account for half of the bilateral advance pricing agreements with the IRS. Steven C. Wrappe, Harumi Yamada, and Shunichi Tsutsui of Grant Thornton LLP look at the benefits and challenges facing Japan-based MNCs and encourage them to reevaluate and renegotiate those deals. Read: Global Transfer Pricing Trends Continue to Drive Interest in U.S.-Japan APAs

The economic and social conditions brought about by the Covid-19 pandemic only increase the need to help your clients get their financial house in order. Brett Berg of Prudential walks through current gifting options and emphasizes the need to include flexibility in legacy planning. Read: Legacy Planning in 2020—How to Handle Uncertainty and Seize Opportunity

The Illinois Department of Revenue recently announced an expansion of its audit resolution program as it braces for a wave of litigation over amendments to the state’s marketplace facilitator law. Breen Schiller and Dennis Jansen of Eversheds explain why the program won’t stop litigation. Read: Destined for the Courtroom—Illinois Audit Program Won’t Stop Sales Tax Litigation

The Financial Accounting Standards Board (FASB) released new guidance last month on accounting for convertible instruments and contracts in an entity’s own equity. Michael Shekel of Cherry Bekaert LLP walks through the update and finds that freestanding contracts and embedded derivatives will qualify for equity classification and avoid the generally more complex accounting procedures underlying an asset or liability classification. Read: Simplified Accounting for Convertible Instruments and an Increase in Equity Classification for Contracts in an Entity’s Own Equity

Three years after the introduction of Goods and Services Tax in India, Manjula Muthukrishnan of Avalara reviews its progress, and considers both its successes and also where there may still be room for improvement. She also discusses what international investors need to know about tax automation in the GST system. Read: Three Years of Goods and Services Tax in India: What Businesses Need to Know

From the Archive

Bloomberg Tax contributors have been highlighting the problems they encounter with the well-intended but administratively-challenged Paycheck Protection Program and sharing their insights.

Numerous problems and potential pitfalls remain with the loan forgiveness process of the program. Paul Miller of Miller & Co. listed shifting requirements, lack of guidelines for calculating a company’s full-time equivalent hours, and other uncertainties.

Some have compared the design and execution of the PPP to flying an airplane while trying to build it. As analogies go, it works, wrote Daniel Mayo of Withum. The author explained how the latest guidance is limiting the benefits of the program.

The PPP provided over 4.8 million loans to businesses impacted by the pandemic, but the IRS kept hindering the Congressional intent to give business owners the greatest financial benefit from those loans. Juan Vasquez Jr., Jaime Vasquez, and Victor Viser of Chamberlain Hrdlicka highlighted what they said the IRS got wrong in guidance on the tax treatment of the loans.

Beyond Tax

What’s happening outside the world of tax?

As debate continues over the future of bar exams, the potential impact on future malpractice claims needs to be considered. In this Q&A, Courtney Curtis-Ives, co-chair of the professional liability practice group at Kaufman Dolowich & Voluck LLP, and Kiera Goral, assistant vice president of claims for QBE North America, discuss ramifications of eliminating the bar exam. Read: Would Eliminating the Bar Exam Impact Malpractice Claims?

Covid-19 has required law firms to pivot to remote recruiting, and the shift means being even more intentional about recruiting ethnically diverse and ‘LGBTQ+' law students. Jennifer Carriòn, a member of Morgan, Lewis & Bockius LLP’s lawyer recruiting team, suggests engaging former summer associates, creating on-demand programs to reduce Zoom fatigue, and working with career services offices to host events. Read: Five Ways Law Firms Can Remotely Engage Diverse Law Students

Exclusive Content for Bloomberg Tax Subscribers

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Disguised sales of property are among the most common exceptions to the nonrecognition treatment afforded upon the contribution of property to a partnership by a partner. Because of its complex nature, identifying its occurrence and knowing when to provide disclosure to the IRS can be a trap for the unwary. It is important for taxpayers to have a solid understanding of the rules that may convert an otherwise nonrecogniton transaction into a taxable sale as well as when disclosure is required in that context. Grace Kim and Ryan Nodal of Grant Thornton LLP provide an overview of the disclosure rules in the disguised sale of property regulations.

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.

To contact the reporter on this story: Erin McManus in Washington at emcmanus@bloombergtax.com

To contact the editors responsible for this story: Meg Shreve at mshreve@bloombergtax.com; David Jolly at djolly@bloombergindustry.com

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