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Category: Tax – Federal, State and Local

Paycheck Protection Program: IRS Confirms Expenses Are Not Deductible

and
November 19, 2020

November 19, 2020

Our firm continues to stay on top of the Paycheck Protection Program (PPP) and its impact on our business clients, and individual owners of flow-through entities. With some very timely guidance, the U.S. Treasury Department and IRS released direction clarifying the tax treatment of expenses where a PPP loan has not been forgiven by the end of the year, which is most of our clients.

Background Information on PPP

On March 13, 2020, President Trump declared the ongoing Coronavirus Disease 2019 (“COVID-19”) pandemic of sufficient severity and magnitude to warrant an emergency declaration for all states, territories, and the District of Columbia. With the COVID-19 emergency, many small businesses nationwide were experiencing economic hardship as a direct result of the federal, state, tribal, and local public health measures that were being taken to minimize the public’s exposure to the virus. These measures, some of which were government-mandated, have been implemented nationwide and include the closures of restaurants, bars, and gyms. In some cases, other measures such as stay-at-home orders were implemented, resulting in a dramatic decrease in economic activity as the public avoided malls, retail stores, and other businesses.

On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) (Pub. L. 116-136) to provide emergency assistance and health care response for individuals, families, and businesses affected by the coronavirus pandemic. The SBA received funding and authority through the CARES Act to modify existing loan programs and establish a new loan program to assist small businesses nationwide adversely impacted by the COVID-19 emergency.

Section 1102 of the CARES Act temporarily permitted the SBA to guarantee 100 percent of 7(a) loans under a new program titled the “Paycheck Protection Program.” Under the PPP, the borrower must use loan proceeds for certain qualifying expenses, including payroll costs, payments of covered rent obligations, and covered utility payments. Section 1106 of the CARES Act provided for forgiveness of up to the full principal amount of qualifying loans guaranteed under the PPP.

On April 24, 2020, the President signed the Paycheck Protection Program and Health Care Enhancement Act (Pub. L. 116-139), which provided additional funding and authority for the PPP. On June 5, 2020, the President signed the Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act) (Pub. L. 116-142), which changed provisions of the PPP relating to the maturity of PPP loans, the deferral of PPP loan payments, and the forgiveness of PPP loans. On July 4, 2020, the President signed into law S. 4116, which reauthorized lending under the PPP through August 8, 2020 (Pub. L. 116-147).

Deductible or Not Deductible, that is the Question?

According to the IRS, since businesses are not taxed on the proceeds of a forgiven PPP loan, the qualifying expenses are not deductible. The IRS rationalizes this position by claiming that this results in neither a tax benefit nor tax harm since the taxpayer has not paid anything out of pocket.

In its recent ruling, the IRS ultimately concluded that if a business reasonably believes that a PPP loan will be forgiven in the future, qualifying expenses related to the loan are not deductible, whether the business has filed for forgiveness or not. Therefore, the IRS encourages businesses to file for forgiveness as soon as possible.

According to the IRS, in the case where a PPP loan was expected to be forgiven, and it is not, businesses will be able to deduct those expenses in the future.

Conclusion

In sum, although this guidance represents much-needed guidance and clarity, it was not unexpected. We have been advising our clients for some time to ensure they are planning for the expectation that certain expenses paid related to the PPP will not be deductible and therefore will result in an increase in tax liability. But, let’s also remember that each of the businesses and their owners benefited tremendously from the use of the PPP loan proceeds. We are working diligently to stay on top of these changes, and will follow-up on any additional guidance.

We would encourage you to review the IRS Revenue Ruling here.

Mike Sorice is a law clerk in the Columbus, Ohio office of Walter | Haverfield. He recently graduated from the Ohio State University Moritz College of Law.

Vince Nardone is Partner-in-Charge of Walter | Haverfield’s Columbus office. He serves as a business advisor to owners and executives of closely-held businesses, counseling them on business planning, tax planning and controversy, cash-flow analysis, succession planning, and legal issues that may arise in business operations. Vince can be reached at 614-246-2264 or vnardone@walterhav.com.

Status Update: Ohio’s Proposed Tax Amnesty Program Offers Settlement Opportunities for Individuals and Businesses with Tax Liabilities

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November 2, 2020

November 2, 2020

In a previous client alert here, released on June 12, 2020, Vince Nardone and Mike Sorice discussed a proposed tax amnesty plan passed by the Ohio House of Representatives set to begin on January 1, 2021. Although the program passed the House of Representatives in mid-May, to date, the proposed tax amnesty is still under review by the Ohio Senate’s Ways and Means Committee, even with the proposed amnesty period right around the corner.

On May 20, 2020, the Ohio House of Representatives unanimously approved a new tax amnesty proposal (HB 609) that would raise revenues for the state and provide relief for taxpayers while Ohio’s economy recovers from the COVID-19 pandemic. The tax amnesty program would establish an amnesty period during which taxpayers with unreported or underreported Ohio taxes could discharge their tax debts by paying the delinquent tax without paying penalties and interest.

If approved by the Senate and signed by Governor DeWine, the temporary amnesty period would run from January 1, 2021, to March 31, 2021. For more information on the proposed tax amnesty program, including covered taxes, please visit our previous alert on this topic here.

Mike Sorice is a law clerk in the Columbus office of Walter | Haverfield. He recently graduated from the Ohio State University Moritz College of Law.

Vince Nardone is Partner-in-Charge of Walter | Haverfield’s Columbus office. He serves as a business advisor to owners and executives of closely-held businesses, counseling them on business planning, tax planning and controversy, cash-flow analysis, succession planning, and legal issues that may arise in business operations.

Ohio’s Proposed Tax Amnesty Program Offers Settlement Opportunities for Individuals and Businesses with Tax Liabilities

and
June 12, 2020

 

June 12, 2020

The Ohio House of Representatives has unanimously approved a new tax amnesty proposal (HB 609), would raise revenues for the state and provide relief for taxpayers while Ohio’s economy recovers from the COVID-19 pandemic. This program, which is now under review by the Ohio Senate’s Ways and Means Committee, presents opportunities for our clients to minimize the costs of unreported and underreported tax liabilities.

Tax amnesty programs relieve taxpayers who owe past-due taxes and fees while raising revenue for the taxing authority. This creates a win-win situation. Without such programs, taxpayers who owe must pay penalties and accrued interest.

In economic downturns, tax planning is critical to ensure the long-term health of a business. Therefore, it’s important that our clients avail themselves of voluntary disclosure programs and tax amnesty programs offered by federal, state, and local taxing authorities to minimize the impact of delinquent or unpaid tax liabilities.

Details of the bill are as follows:

The Amnesty

The tax amnesty bill would establish an amnesty period during which taxpayers with unreported or underreported taxes could discharge their tax debts by paying the delinquent tax without paying the penalties and interest (the “amnesty”). The three-month, temporary amnesty period would run from January 1, 2021, to March 31, 2021.

Under this proposal, the Tax Commissioner must waive penalties and accrued interest if an eligible taxpayer pays the full amount of included taxes or fees during the amnesty period. The tax amnesty bill also authorizes the Commissioner to require a taxpayer to file returns or reports, including amended returns or reports.

In addition to the waiver of penalties and interest, the taxpayer would be immune from criminal prosecution or any civil action concerning the taxes paid. Further, no assessment may be issued against the taxpayer for that tax or fee.

Covered Taxes under the Proposed Tax Amnesty Bill

The amnesty only applies to covered taxes and fees and does not apply to local taxes.  Covered taxes include:

  • Ohio income tax
  • Commercial activity tax
  • State sales and use taxes
  • Financial institutions tax
  • Public utility excise taxes
  • Kilowatt hour tax
  • MCF (natural gas) excise tax
  • Insurance premium taxes
  • Cigarette/tobacco/vaping excise taxes
  • Alcoholic beverage taxes
  • Motor fuel excise tax
  • Fuel use tax
  • Petroleum activity tax
  • Casino wagering tax
  • Severance taxes
  • Wireless 9-1-1 charges
  • Tire fees
  • Horse racing taxes

The amnesty does not apply to school district income taxes or county and transit authority sales and use taxes. Further, the amnesty only applies to unreported or underreported taxes that were due and payable as of the bill’s effective date. It does not apply to any taxes if the Ohio Department of Taxation has issued a notice of assessment or audit, issued a bill, or if an audit has been conducted or is pending.

Past Tax Amnesty Programs

Ohio has conducted several general tax amnesty programs in the past. Ohio’s most recent tax amnesty program, conducted from January 1, 2018, through February 15, 2018, raised $14.3 million for Ohio’s coffers while it decreased the cost of compliance for taxpayers with delinquent or unreported taxes. Ohio also conducted tax amnesties in 2002, 2006, and 2012.

Utilizing tax amnesty and voluntary disclosure programs is one of several strategies to minimize the impact of falling behind on tax obligations, and Walter | Haverfield’s attorneys are monitoring all such opportunities. Let our attorneys apply their experience, passion, and attention to detail to help develop the best strategies to minimize the impact of tax liabilities.

To read more about this topic, click here for a Law 360 article titled “Ohio Oks Tax Amnesty To Boost Pandemic Recovery”

Vince Nardone is Partner-in-Charge of Walter | Haverfield’s Columbus office. He serves as a business advisor to owners and executives of closely-held businesses, counseling them on business planning, tax planning and controversy, cash-flow analysis, succession planning, and legal issues that may arise in business operations.

Mike Sorice is a law clerk in the Columbus, Ohio office of Walter | Haverfield. He recently graduated from the Ohio State University Moritz College of Law.

Congress Delivers a Gift for Charitable Business Owners


July 9, 2018

Walter | Haverfield’s Alexis Kim explained the Bipartisan Budget Act of 2018 in the Cleveland Metropolitan Bar Journal. The act provides an exception to the excess business holding rules for certain philanthropic businesses.

TCJA May Spur Liquidations Of Family Limited Partnerships


July 2, 2018

 

Walter | Haverfield partner Gary Zwick was quoted extensively in an article in Tax Notes, which is a premier national publication in tax law. Gary discussed the benefits of family limited partnerships and the tax ramifications when those partnerships are liquidated.

 

Ohio’s Tax Amnesty Program Kicks Off January 1


December 5, 2017

Individuals and businesses have until February 15 to pay unreported or underreported tax liabilities and avoid penalties, reduce interest costs

Individuals and businesses that owe unreported or underreported tax liabilities as of May 1, 2017, have an opportunity to avoid all tax penalties and cut the interest they owe in half if they act by February 15, 2018. The special offer is part of the new tax amnesty program announced by the Ohio Department of Taxation in November. The program takes effect January 1, 2018, and only applies to tax liabilities that are unknown to the Department of Taxation.

Residents, as well as nonresidents of Ohio, are eligible as long as they have not already received a notice of assessment and are not currently under audit.

Types of taxes covered under the amnesty program include:

  • Individual income tax
  • School district income tax
  • Employer withholding tax
  • Employer withholding for school district income tax
  • Pass-through entity tax (primarily for out-of-state businesses)
  • Sales and use taxes
  • Commercial activity tax
  • Financial institutions tax
  • Tobacco and alcohol tax

In some cases, nonresidents and out-of-state businesses may not have been aware of their Ohio tax obligation. It’s important to note that most income, purchases or commercial transactions that originate in Ohio are subject to Ohio taxes. Such previously unknown liabilities are covered under the new amnesty program.

Federal Tax Updates


August 30, 2017

On October 29, 2017, Gary A. Zwick will be speaking on the topic, “Federal Tax Updates,” at the West Virginia Tax Institute, in Charleston, West Virginia.

Business Law: Start to Finish


Contributions to quasi-governmental public-private partnerships


August 24, 2017

In the August 2017 issue of The Tax Adviser, Alexis J. Kim authored an article titled, “Contributions to quasi-governmental public-private partnerships.” Through this article, donors may gain a better understanding of how a Sec. 115(1) organization can receive tax-deductible donations without having an IRS determination letter, and quasi-governmental agencies may secure a framework to use, in conjunction with tax counsel, during formation and ongoing operations, to comply with Secs. 115 and 170.

Private Letter Rulings Help Six Ohio Land Banks Aggressively Pursue More Land Donations


July 18, 2017

With a decree from the IRS and ample funding, Summit County Land Bank is gearing up for a busy year


April 11, 2017

Renting out your home during the 2016 Republican National Convention: windfall or tax liability?


June 2, 2015