A Tale of Two Tax Agencies During the COVID-19 Crisis: Federal giveth and California taketh away

Written by Ian Merwin. Updated Jul 16, 2020.

On June 29, 2020, the Governor of California, Gavin Newsom, signed into law the fiscal year 2020-2021 state budget, which included provision AB 85, limiting the ability of certain taxpayers to use net operating losses (“NOLs”) and specific business credits for the 2020, 2021, and 2022 tax years. Specifically, for tax years beginning on or after January 1,2020 and before January 1, 2023, taxpayers with a net business income or modified adjusted income of greater than or equal to $1 million will have their NOLs suspended during the period, and businesses will be capped at claiming $5 million in business credits per tax year.

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The IRS and the Pandemic Highlights

Written by Charlotte Ochs. Updated Jul 7, 2020.

Since the beginning of the pandemic it has been a whirlwind of unprecedented economic impacts. With that came the Coronavirus Aid, Relief, and Economic Security (CARES) Act and a curtailment of enforcement actions by the Internal Revenue Service (IRS), including audits. Per the People First Initiative the IRS generally avoided launching new audits from April 1st through July 15th. This did not prevent the IRS from opening audits to protect the government’s interest in preserving statute of limitations. (See IRS, IR-2020-59) In a report released June 29th, National Taxpayer Advocate Erin Collins said that the IRS launched substantially fewer audits from April 1st to June 1st compared to the same period in 2019. The IRS launched 71% fewer Corporate audits, 79% fewer Partnership audits, and 65% fewer individual audits. In total across all types of examinations there was a 65% decrease during this time period. With July 15th approaching the assumption is that there will be an increase in audits launched. However, with the pandemic still in a critical state as numbers of COVID-19 cases rise it remains to be seen what will happen as things are more fluid and the rules of the game are constantly changing.

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Music to Our Ears—A Resounding Victory for R&D Taxpayers

Written by John Bohannon. Updated Jun 22, 2020.

Taxpayers rejoice! A recent case decision signals good news for the R&D legal landscape—Audio Technica U.S., Inc. v. U.S. In this case, the taxpayer was a manufacturer of high-quality audio and microphone equipment. After being denied its claimed research credit during audit, the taxpayer sought to litigate the issue through the Northern District of Ohio in June of 2019 in an 8-person jury trial.

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Paycheck Protection Program Flexibility Act

Written by Charlotte Ochs. Updated Jun 18, 2020.

During this time of unprecedented economic challenges faced by small businesses during COVID-19, rare glimpses of bipartisanship are encountered to assist small business with economic relief. Due to the economic challenges faced by small businesses the economic relief provided is in a constant state of fluidity. This has been the status quo for the Paycheck Protection Program (PPP). The President signed into law the Paycheck Protection Program Flexibility Act (PPPFA) to address the concerns voiced by the small businesses utilizing the program. The Congressional intent of the new law is to allow greater flexibility for business to use the PPP loans that was not provided by the initial short-term fix of the PPP set up under the CARES Act. This new law provides the following expansions and flexibility to address the issues created by the CARES Act – PPP, that was a band aid and not a comprehensive bandage when it was enacted.

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Veterans Targeted for Hiring Incentives

Written by Annette Fago. Updated Jun 8, 2020.

Despite the size of the veteran workforce, tapping into the population has proved to be a challenge for many non-governmental employers. In 2012, to address the challenges faced by Gulf War-era II Veterans, Congress passed the Vow to Hire Hero’s Act, which expanded the Work Opportunity Tax Credit (“WOTC”) with the addition of four new, veteran-specific categories. The WOTC was created in 1996 to provide a federal tax credit to employers that hire individuals from specific target groups. People from these target groups have been identified by the U.S. government as having historically high unemployment rates. By many measures, the WOTC has been a success and continues to have bi-partisan support in Congress.

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Key Changes to COVID-19 Incentives Paycheck Protection Loan and Employee Retention Credit

Written by Charlotte Ochs. Updated May 11, 2020.

Life is in a constant state of flux right now with the COVID-19 virus. It has affected daily life and the economy. Congress has worked to provide economic stimulus programs such as loans and credits. The intent of Congress was to stimulate the economy and help employers maintain business and retain employees to alleviate the economic hardship caused by COVID-19. However, as is typical when trying to quickly stop the negative impact of a disaster, details get omitted from the legislation and key areas need clarification as we have seen recently with the Paycheck Protection Program (PPP) and the Employee Retention Credit. More specifically, with the PPP concerning the deductibility of expenses when payments were made with debt forgiven funds and with the Employee Retention Credit in determining whether employers could claim the Employee Retention Credit when the only payments made to furloughed employees was for their health care benefits.

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WOTC 28-Day Application Processing Time - EXTENDED

Written by Stephanie Cornejo Banuelos. Updated Apr 28, 2020.

The Department of Treasury and the Internal Revenue Service (IRS) released new guidelines and provisions under NOTICE 2020-23 in response to the COVID-19 pandemic.  These measures were intended to provide relief to taxpayers in the form of extensions to time-sensitive acts. Most notably under these provisions was the extension of the tax filing deadline to July 15, 2020.

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IRS Expands Time Period to Claim R&D Tax Credits on Prior & Current Year Tax Returns

Written by Mitch Feldman. Updated Apr 17, 2020.

On April 9, 2020 the Treasury Department and the Internal Revenue Service announced another round of relief provisions in response to the COVID-19 pandemic. This new wave of relief measures is intended to provide further benefits to taxpayers in addition to the previous measures already implemented.

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Report the Employee Retention Credit Under the CARES ACT on your 2nd Quarter 2020 Return

Written by Darren Labrie. Updated Apr 8, 2020.

The IRS has issued FAQs to provide guidance for taxpayers reporting the employee retention credit for certain employers subject to closure due to the COVID-19 crisis.  It provides that the credit with respect to wages paid in March should be reported on the 2nd quarter 2020 employment tax return.

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Tax Incentives Play a Key Role in Assisting Businesses in the Coronavirus Stimulus Packages

Written by Darren Labrie. Updated Mar 31, 2020.

Nothing in recent history will affect the U.S. economy to the same magnitude as the global Coronavirus (COVID-19) pandemic crisis.  The effect will reach government agencies, nonprofit organization, businesses and individuals throughout the country.

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