WEEKEND INSIGHTS: Small Business 401(k)s and Carried Interest

Aug. 30, 2020, 2:01 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 challenges for small employer 401(k) plans, the proposed carried interest rules, Paycheck Protection Program loan forgiveness hurdles, state tax on gain from the sale of a business, and more. We’ll hear from:

  • Dan Morgan of Blank Rome on the 401(k) plan challenges facing small employers
  • Moshe Biderman, Jonathan R. Collett, and Robert Richardt of CohnReznick LLP on the long-awaited proposed carried interest regulations
  • Paul Miller of Miller & Co. on the obstacles to obtaining Paycheck Protection Program loan forgiveness
  • Michael Semes of BakerHostetler LLP on the Minnesota decision upholding tax on GoDaddy gain
  • Steven Wrappe and Matthew Kramer of Grant Thornton LLP on why small and mid-sized taxpayers should consider advance pricing agreements
  • Bill Bosco of Leasing 101 on why it still makes more sense to lease rather than buy
  • Rogério Fernandes Ferreira of RFF & Associados on the recent judgment from the EU General Court in the Apple case
  • Yair Holtzman and Joseph Lally of Anchin, Block & Anchin LLP on using the R&D credit to finance emerging technologies innovation
  • Hugh Simons on why and how elite law firm partners should plan for a reduced estate tax exclusion
  • Larry Eyinla of EY on the challenges of tax collection in sub-Saharan Africa
Machines sit idle on the production floor at the Bimm Ridder Sportswear manufacturing facility in Cedar Rapids, Iowa. Despite relief loans, small businesses are still struggling to stay afloat.
Photographer: Kathryn Gamble/Bloomberg

Congress passed legislation in March that allowed employees to access retirement funds to mitigate the financial impact of Covid-19. Dan Morgan of Blank Rome was among the first to call attention to the planning and operational concerns for employers facing furloughs and layoffs. In this follow-up article, the author outlines 401(k) challenges still facing small employers, and concludes that any broad-based solution must come from Congress. Read: Small Employers Face Pandemic-Induced 401(k) Plan Challenges

Treasury and the IRS recently released proposed regulations for the treatment of carried interest. Moshe Biderman, Jonathan R. Collett, and Robert Richardt of CohnReznick find many uncertainties pertaining to the original statute have been clarified, but many questions remain unanswered. Read: Treatment of Carried Interest—Breaking Down the Long-Awaited Proposed Regulations

Numerous problems and potential pitfalls remain with the Paycheck Protection Program loan forgiveness process. Paul Miller of Miller & Co. lists shifting requirements, lack of guidelines for calculating a company’s full-time equivalent hours, and other uncertainties. Read: Paycheck Protection Program Loan Forgiveness

A recent Minnesota Supreme Court decision reinforces that many factors impact how to apportion or allocate gain or loss from the sale of a business interest. Michael Semes of BakerHostetler analyzes the ruling in which the court affirmed that GoDaddy founder, Robert Parsons, owed $1.25 million in state income tax plus interest and penalties on the sale of his interest in the company. Read: Minnesota Supreme Court Upholds Tax on GoDaddy Gain

Small and mid-sized taxpayers that do business internationally are not immune from the transfer pricing risk faced by most multinational companies. Matthew Kramer and Steven Wrappe of Grant Thornton LLP explain why an advance pricing agreement makes sense even if you aren’t a Fortune 500 company. Read: Small Case, Big Return: Why Small and Mid-sized Taxpayers Should Consider an APA

It’s still better for a business to lease than buy, writes Bill Bosco of Leasing 101. The author follows up with an updated version his October 2019 article on why leasing makes better sense from both a tax and financial accounting perspective. Read: Should I Lease or Buy? New Tax and Accounting Rules Add Complexity—Updated

Rogério Fernandes Ferreira of RFF & Associados looks at the recent judgment from the EU General Court in the Apple case and considers its impact from an EU, and in particular a Portuguese, perspective. Read: The Apple Case Decision in Perspective

The research and development tax credit can help finance emerging technologies. Yair Holtzman and Joseph Lally of Anchin, Block, and Anchin list multiple technologies that could be eligible for the credit and outline requirements to claim the credit. Read: Financing Innovations in Emerging Technologies With R&D Tax Credits

A Democratic success in the coming election could bring a reduction to the gift and estate tax exclusion and necessitate revised estate planning among more affluent individuals, including elite law firm partners. Dr. Hugh Simons outlines some actions and implications for managing partners. Read: Joe Biden’s Inadvertent Contribution to Keeping Partners at Elite Firms Hungry

Revenue from taxation is declining in sub-Saharan Africa, representing newfound challenges as governments seek resources to not only tackle broader development goals, but the impact of Covid-19. Larry Eyinla, EY Africa Tax Leader, shares how local governments can re-imagine their tax administration to thrive during and beyond the pandemic. Read: Why Tax Collection Remains a Challenge in Sub-Saharan Africa

From the Archive

Bloomberg Tax contributors have been identifying the potential retirement plan pitfalls and quandaries brought about by the Covid-19 shutdown from the time almost everyone found themselves either working from home or not working.

Coronavirus relief legislation authorized distributions and loans from retirement plans without penalties or withholding requirements to assist employees and plan participants suffering economic consequences from the Covid-19 pandemic. Lauren Parker and Joshua Sutin of Chamberlain Hrdlicka explained the provisions and employer considerations.

The IRS and Department of Labor described how they believed the CARES Act provided for an individual’s savings and retirement benefits. Employee benefits and estate planning attorney Albert Feuer said the new guidance left open many issues and further guidance was needed.

Beyond Tax

What’s happening outside the world of tax?

Business divorces take place at a higher rate than personal divorces. California attorney Lee Weinberg identifies the main factors that lead to business breakups, offers tips to minimize risks of a dissolution, and suggests ways to increase the likelihood that the process will be one that is relatively orderly and peaceful. Read: Business Divorces—Preparing for the Worst During Covid-19

Erwin Chemerinsky, dean of Berkeley Law, discusses key lessons the legal profession can learn from attempts to administer the July bar exam and how the pandemic presents a chance to rethink how law school graduates will take the test in the future. Read: Pandemic Provides Opportunity to Rethink the Bar Exam

Private plaintiffs are increasingly using the citizen-suit provision of the RICO Act to attack marijuana farmers. Randy D. Gordon, a partner at Barnes & Thornburg LLP and executive professor at Texas A&M University School of Law, examines the implications of these civil cases and impact on marijuana cultivators. Read: Up in Smoke? Attacks on Marijuana Farming Under RICO

The unconscionable actions and rantings that led up to the murder of the son of a New Jersey federal judge show the sad underbelly of gender discrimination in law. U.S. District Judge Alia Moses and Nicole Westbrook, a litigator with Jones & Keller, say the current construct of the legal profession feeds anti-feminist thinking, but it can change. Read: It’s Time to Address the Gender Divide in Law

Big Law clients expect their firms to keep up with legal technologies. Attorney Jean-Marc Chanoine, with Templafy, says law firms need to bring in compliance teams early in the digital transformation process to implement safeguards and remain competitive. Read: Law Firm Tech Needs to Meet Client Expectations

Exclusive Content for Bloomberg Tax Subscribers

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In light of its scheduled expiration at the end of 2025, and the recent issuance of final Treasury regulations, now may be an appropriate time for us to take a closer look at tax code Section 199A. Ari Zak and Jeff Kang of Dechert LLP discuss the rules of Section 199A that apply to investments in “pass-through” or “conduit” entities, and provide a comparative analysis of how partnerships, publicly traded partnerships (other than those that are taxable as corporations) (Qualified PTPs), real estate investment trusts (REITs), and regulated investment companies (RICs) are treated thereunder.

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; Yuri Nagano at ynagano@bloombergtax.com

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