Daily Tax Report: State

TAX VIRUS BRIEFING: Relief Continues But Challenges Remain (1)

April 3, 2020, 7:02 PM

The government is preparing to send out checks to American households, an initiative that comes with myriad challenges. Countries and states are continuing to offer relief as unemployment numbers skyrocket and businesses suffer. Congress is out for several weeks, but some talks are starting about the next stage of virus relief. The pandemic may slow the pace of IRS guidance, and is already changing how the agency holds hearings.

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Stimulus Payments

The government is gearing up to send out stimulus checks to households, and is already warning Americans to watch out for fraudsters trying to nab the money.

Fraudsters may use emails, texts, or social media channels to try stealing the payments, and seniors and low-income people are especially at risk. The checks, a key element of the latest virus relief package (Public Law 116-136), could total $2,400 for couples that make $150,000 or less.

Expatriate Challenges: U.S. citizens living overseas may have a harder time getting their checks. International mail delays, foreign phone numbers, and shuttered bank branches could all slow the process.

Wait for It: Some checks may not arrive until September. The IRS will send approximately 100 million checks at a rate of 5 million per week, which could take 20 weeks, according to a document created by the House Ways and Means Committee. House Democrats, however, urged the IRS and Treasury to expedite payments to veteran benefits, very-low income seniors, and those with disabilities.

Improper Payments: A government watchdog warned that agencies are increasingly sending incorrect benefit payments to Americans—about $175 billion in improper payments in fiscal year 2019, about a $24 billion increase from the prior year.

Hurry Up and Wait

Companies eagerly watching for the IRS to issue international tax guidance may be waiting a while. Tax professionals are warning clients that the IRS and Treasury are likely having to deal with other issues first, as the virus has upended business as usual.

The IRS has said it hopes to complete 2017 tax law guidance by the end of the year, and packages are still moving through the review process at the Office of Information and Regulatory Affairs. But the government is also figuring out how to issue checks to Americans and carry out changes in the new relief law.

“This virus has a really significant impact on people where it’s life or death while also impacting economics, so while you wish you had clear guidance, think of the long list of priorities in terms of what people are trying to triage,” said John Harrington, a partner at Dentons US LLP in Washington.

Model, Model, Model: Before taking advantage of the new loss carryback provision in the stimulus law, companies should consider how other international provisions will be impacted, tax professionals said.

Balance Sheets in Vogue

Balance sheets are an increasingly important tool for analysts and corporate executives to get a good snapshot of corporate finances as they try to assess damage from the pandemic.

“We’ve seen a tremendous increase in investors asking about balance sheet quality, leverage metrics, pensions, leases. All those things that really matter when they matter,” said Ron Graziano, accounting & tax research analyst at Credit Suisse LLC. “And they matter a lot right now.”

CECL: The option to defer credit loss deadlines, as offered in the virus law, comply with accounting principles, the Securities and Exchange Commission said Friday. Under the law banks can delay the current expected credit losses (CECL) accounting standard until Dec. 31 or until federal authorities declare the national state of emergency over, whichever is earlier.

Changes at IRS

The IRS continues to adjust how it operates in response to the virus.

  • Mute Your Lines: IRS hearings on proposed rule changes will be held via teleconference for the foreseeable future.
  • Policy Change: The IRS will begin temporarily accepting scanned or photographed images of signatures and digital signatures on certain documents.
  • Micro-Captives: The agency is drawing some scrutiny for its latest steps in a crackdown on insurance tax shelters.

Take a Second Look

Individuals now have the option to make early withdrawals from their 401(k) accounts, up to a certain limit, without facing a tax penalty. Low-income individuals are more likely to need that emergency money, but benefits professionals say it’s best to avoid doing so.

People should try every other option first before draining retirement funds. That could include applying for unemployment insurance, waiting for the federal stimulus checks, and borrowing money from more financially secure relatives.

Nonprofit Perk

The latest relief package also created an above-the-line deduction for charitable giving, meaning it is available to people who take the standard deduction.

But the $300 perk may not end up making much of a difference for charities or for individuals, and it will be a lot of work for the IRS to oversee.

Congress Plans Next Steps

Chatter is starting about the next phase of virus relief.

House Speaker Nancy Pelosi (D-Calif.) had suggested suspending the $10,000 cap on state and local tax deductions. President Donald Trump wants to restore a tax break for corporate client outings and dinners. Both of those changes would roll back elements of the 2017 tax law.

Both changes are fraught. The SALT limit, for example, was part of several provisions used to keep the overhaul below a $1.5 trillion price cap.

However by Friday Pelosi said that she had started slimming down her ambitions for Congress‘s next coronavirus stimulus package.

More Help Please: Large nonprofits like the American Heart Association are leaning on Congress to let them benefit from loans aimed at small businesses retaining employees through the crisis.

Relief Possible

The IRS may offer relief for the 90-day deadline to file a Tax Court petition after receiving a notice of deficiency.

That change would ease challenges attorneys and taxpayers are facing now that the court building is closed until further notice. That closure is highlighting technology challenges attorneys who represent clients at the court have long faced.

State Financial Woes

Many states have pushed back deadlines to file and pay taxes, in an effort to help businesses and individuals. But in doing so, those governments will lose out on tax revenue they were counting on for the current fiscal year.

Most states have a balanced budget requirement, and only a handful can carry over a deficit into the next fiscal year. To cope, many will have to tap into rainy day funds or patch together spending plans. It won’t be easy.

Some Relief: Pennsylvania and Washington, D.C. are the latest states to say telecommuters won’t change a company’s status with respect to corporate income taxes. Catch up on state action.

Bloomberg Tax has a state-by-state roadmap logging all developments as they happen.

Talking Tax Podcast

Our Talking Tax Podcast this week explores how this would normally be the time when most companies would be closing their books for the first quarter and getting ready to report their earnings. But now, with the coronavirus pandemic in full force, many companies are simply struggling to survive and operating with a skeleton crew. Listen to the latest episode.

Around the World

  • Luxembourg and Germany are easing restrictions on cross-border workers.
  • Russia has more authority to grant tax relief.
  • Canada’s relief package is nearing $200 billion.
  • The U.K. will delay a requirement for electronic filings of value-added tax.
  • Japan will distribute money to households hit by the virus.
  • Slovenia will cancel advance corporate income tax payments.

More international news and information on coronavirus is here.

Commentary: Working From Home

Bloomberg Tax columnist Kelly Phillips Erb has tips for working remotely. She says good communication is even more important now that so many taxpayers and tax professionals are working remotely. It’s also vital to keep your information secure and understand how state privacy rules apply to video calls.

Remember that even though your computer is now constantly nearby, be sure to track your hours. Kelly suggests a spreadsheet or a paper calendar—whatever method is best for you.

Dive Deeper With Bloomberg Tax Insights

  • Paul DiSangro, Brian Kittle, and Maria Critelli of Mayer Brown: 10 action items to help tax professionals manage tax controversies while working under a lockdown.
  • Glenn DeSouza of Dentons: Should the Covid-19 virus, declared by WHO on March 11 as a pandemic, be used to invoke force majeure and amend transfer pricing policies? Cases and solutions based on the latest Chinese legal, accounting, and economic developments give the answer.
  • Richard L. Fox and Joshua D. Headley of Buchanan Ingersoll & Rooney P.C.: Employers can establish employee relief funds under tax code Section 501(c)(3) to provide tax-free financial assistance to employees affected by the Covid-19 crisis.
  • Ted Farrell of Litigation Funding Advisers: Law firms with strong ongoing contingency cases can sell off some portion of those potential future gains for revenue that will make a difference today.
  • Sally Pretorius of KoonsFuller Family Law and Elizabeth Lippy of Trial Advocacy Consulting & Training, LLC: Look at the tools available to help remote attorneys communicate with courts.

To contact the reporter on this story: Colleen Murphy in Washington at cmurphy@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Yuri Nagano at ynagano@bloombergtax.com

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