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Tax Authorities Looking For Revenue: Now Is Not the Time To Ignore Transfer Pricing

Transfer Pricing Software

COVID-19 necessitates a reassessment of the existing transfer pricing paradigms of Multinational Enterprises (MNEs). Supply chain disruptions and changes in consumer demand resulting from the COVID-19 pandemic and global recession are impacting virtually all major industries. These disruptions erode profits and will require MNEs to adjust transfer pricing approaches. MNEs also face challenges such as government restrictions on travel and enabling personnel to work remotely.

Three points are well illustrated by Will James in the 16-Mar-2020 BKD, LLP Thoughtware® article Transfer Pricing in the Wake of COVID-19: 1) Transfer pricing audits are anticipated to increase for 2020 and future tax years for MNEs with adversely affected profitability; 2) MNEs need to start preparing for audits now by documenting the arm’s length nature of their transfer pricing arrangements and including evidence and analysis of extraordinary COVID-19 business disruptions that result in lower profitability or losses; 3) Documentation of lower profitability or losses that result from COVID-19 and the recession is particularly important for reduced-profit or loss-making MNE entities subject to profit-based methods guaranteeing minimum returns (e.g., Transactional Net Margin Method).

The following is a checklist to consider:
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How To Apply For Payment Protection Program Loan Forgiveness

How To Apply For Payment Protection Program Loan Forgiveness

In last week’s blog, we discussed the continuing confusion surrounding the deductibility of eligible expenses by small businesses who have received loans through the Paycheck Protection Program (PPP). While that situation has yet to be fully resolved, another aspect of the PPP program, applying for loan forgiveness, is a bit clearer cut.

You might ask, “why are you writing about the PPP loan forgiveness in a multistate tax blog?” The answer is simple. One of the things we are proudest of, in our state tax consulting space, is that we too, are a small business. And we’ve had first-hand experience in working through the complexities of this process. We felt it was important enough from a national small business perspective to warrant some dedicated space!

Which Expenses Are Eligible For Loan Forgiveness?

Loans through the PPP are applicable for forgiveness, but to be forgiven, the funds must be used to cover the following:

-Payroll costs, including benefits (up to $15,385 per worker)
-Interest on mortgage obligations, entered into before February 15, 2020
-Rent, under lease agreements in force before February 15, 2020
-Utilities, for which service began before February 15, 2020

In addition, employee and compensation levels must be maintained, or employees must be quickly rehired. Plus, no more than 25 percent of the forgiven amount may be for non-payroll costs.

How To Calculate PPP Loan Forgiveness
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Opportunity Zone Program Deadlines And Guidance

Opportunity Zone Deadlines - Blake Christian

The IRS issued Notices 2020-18, 2020-20, and 2020-23 (“Notices” or “Notice”) in response to the COVID-19 crisis and CARES Act. These Notices are intended to provide some needed guidance, extended filing and compliance deadlines, and cash-flow relief to taxpayers struggling with this current economic environment. The following is a quick summary of these Notices and how Opportunity Zone investors may be able to benefit from:

-an extended window for investing their capital gains into a Qualified Opportunity Fund (QOF),
-an additional 24-month Federal Disaster extension of the standard 31-month working capital safe harbor and the “substantial improvement” period for a tangible property (if included in the written business plan), and
-an extension of time to deploy Qualified Opportunity Zone Business (QOZB) funds into QOZB Property (QOZBP).

Notice 2020-18

Postpones the due date from April 15, 2020, until July 15, 2020, for filing the vast majority of federal income tax returns and making Federal income tax payments otherwise due April 15, 2020
Notice 2020-20

Provides additional relief by postponing specific Federal gift (and generation-skipping transfer) tax return filings and payments
Notice 2020-23

-Provides additional relief to affected taxpayers, as well as relief for specific time-sensitive actions and postponement of due dates in respect to specific government acts
-Affected taxpayers are any persons (as defined in section 7701(a)(1) of the Code) with a Federal tax payment obligation, or a Federal tax return or other form filing obligation, which is due to be performed (initially or pursuant to a valid extension) on or after April 1, 2020, and before July 15, 2020, who are affected by the COVID-19 emergency
-For a detailed list of specific filing and payment obligations that have been extended by this Notice, see Section III, A. linked in the header
-Affected taxpayers with respect to Specified Filing and Payment Obligations, the due date for filing Specified Forms and making Specified Payments are automatically postponed until July 15, 2020
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IRS People First Initiative Limits Certain Enforcement Actions

IRS People First Initiative Limits Certain Enforcement Actions

The IRS postponed certain compliance actions under a new program entitled “IRS People First Initiative,” effective April 1, and running through July 15 initially, in an effort to help taxpayers facing tax challenges in light of the Coronavirus (COVID-19) pandemic. The changes include issues ranging from postponing certain payments related to Installment Agreements and Offers in Compromise to collection procedures and limiting certain enforcement actions.

The new IRS People First Initiative outlines the IRS’s temporary policies in the following key tax areas:

-Earned Income Tax Credit and Wage Verification Reviews
-Non-Filers
-Audits
-Appeals
-Field Collection Actions
-Liens and Levies
-Passport Certifications to the State Department
-Private Debt Collection
-Statute of Limitations
-Practitioner Priority Service
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Paycheck Protection Program Loan Forgiveness: The Devil Is In The Details

WILLIAM BYRNES

The devil is in the details, but where exactly? This week we are starting to see how the broad changes in the recent spate of COVID-19 legislation will be administered. We have new notices on loan forgiveness procedures (did you get your PPP loan yet?).

The Finer Points of PPP Loan Forgiveness

Loan forgiveness offers powerful assistance to those small businesses who were actually able to receive Paycheck Protection Program loan funds. However, loan forgiveness is not without its costs. While amounts forgiven will not be included in income under the usual cancellation of indebtedness rules, business owners may not be entitled to their typical business deductions either. Notice 2020-32 clarifies that otherwise allowable deductions are disallowed if the payment of the expense (1) results in loan forgiveness under the PPP loan program and (2) the income associated with the loan forgiveness is excluded from income under CARES Act Section 1106(i).

What are the tax consequences of loan forgiveness under the paycheck protection loan program?
Under normal circumstances, when a loan or debt is forgiven, the income is included in the debtor’s income under cancellation of debt principles. Paycheck protection loans, however, are excluded from these generally applicable rules—meaning that amounts forgiven are not included in the recipient’s income when forgiven.
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Shifting Tax Base To Consumption Tax Is Bad Idea

ANNETTE NELLEN

In January 2020, a Nebraska legislator introduced LR300CA, to amend the state constitution to prohibit all forms of taxation other than a consumption tax. The proposal states that the tax is to be at a single-digit rate. Presumably, both the state and local governments could have a single-rate tax. It would apply to all new goods and services, but does not define this term. It sounds like it means tangible personal property and services, possibly also travel and entertainment, but not clear.

It is unlikely that such as tax can raise as much revenue as an income tax, even with no exemptions to the sales tax. High income taxpayers don’t spend all of their income, they save it and invest it. So that drops the tax base compared to an income tax. Consider these two formulas and you’ll see the base for an income tax is broader.

Income = consumption + savings

Consumption = Income less savings

And, with an income tax it is easier to have a progressive rate structure to increase vertical equity in the system.

One new category that would become taxable and affect higher income individuals more than lower-income is to tax food. Currently, Nebraska doesn’t impose sales tax on food. According to data from the Bureau of Labor Statistics, the top 20% of income earners buy 1/3 of total food purchases. They also buy 41% of all entertainment spending. Hopefully the Nebraska proposal intends to apply sales tax to entertainment.
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IRS Provides Tax Relief Through Increased Flexibility For Taxpayers In Section 125 Cafeteria Plans

IRS Provides Tax Relief Through Increased Flexibility For Taxpayers In Section 125 Cafeteria Plans

The Internal Revenue Service today released guidance to allow temporary changes to section 125 cafeteria plans. These changes extend the claims period for health flexible spending arrangements (FSAs) and dependent care assistance programs and allow taxpayers to make mid-year changes.

The guidance issued today addresses unanticipated changes in expenses because of the 2019 Novel Coronavirus (COVID-19) pandemic and provides that previously provided temporary relief for high deductible health plans may be applied retroactively to January 1, 2020, and it also increases for inflation the $500 permitted carryover amount for health FSAs to $550.

Notice 2020-29 (PDF) provides greater flexibility for taxpayers by:

-extending claims periods for taxpayers to apply unused amounts remaining in a health FSA or dependent care assistance program for expenses incurred for those same qualified benefits through December 31, 2020.
-expanding the ability of taxpayers to make mid-year elections for health coverage, health FSAs, and dependent care assistance programs, allowing them to respond to changes in needs as a result of the COVID-19 pandemic.
-applying earlier relief for high deductible health plans to cover expenses related to COVID-19, and a temporary exemption for telehealth services retroactively to January 1, 2020.
Notice 2020-33 (PDF) responds to Executive Order 13877, which directs the Secretary of the Treasury to “issue guidance to increase the amount of funds that can carry over without penalty at the end of the year for flexible spending arrangements.” The notice increases the limit for unused health FSA carryover amounts from $500, to a maximum of $550, as adjusted annually for inflation.

IRS

IRS Adds Phone Operators To Answer Economic Impact Payment Questions

IRS Adds Phone Operators To Answer Economic Impact Payment Questions

The Internal Revenue Service is starting to add 3,500 telephone representatives to answer some of the most common questions about Economic Impact Payments.IRS telephone assistance and other services will remain limited, and answers for most of the common questions related to Economic Impact Payments are available on IRS.gov. The IRS anticipates bringing back additional assistors as state and local advisories permit.

Answers for most Economic Impact Payment questions are available on the automated message for people who call the phone number provided in the letter (Notice 1444). Those who need additional assistance at the conclusion of the message will have the option of talking to a telephone representative.
Americans are encouraged to use IRS.gov.

The IRS regularly posts new and updated answers to the most frequently asked questions about Economic Impact Payments and the Get My Payment tool. Those who wish to know the status of their Economic Impact Payment are reminded to check Get My Payment regularly; the information is frequently updated as the IRS continues to process the remaining payments for delivery.
For those who are eligible for an Economic Impact Payment but aren’t required to file a tax return, the IRS reminds them the Non-Filers tool also remains available in English or Spanish for them to register for a payment.

IR-2020-97

How To Return An Incorrectly Received Stimulus Check

How to return an economic stimulus payment

By way of background, the IRS is issuing checks/direct deposits to most US taxpayers who have an SSN, if your income was less than $75,000, you would get $1,200 and another $500 per dependent.
Interestingly enough, US citizens living overseas are eligible.

You can find more details here.

As the IRS focused on relative speed, millions of stimulus payments have already been sent in error. The IRS confirmed it on May 6, along with guidelines to return it. Stimulus payments made by mistake have been issued to, among others, non-resident aliens, detainees, and deceased taxpayers. The IRS is now asking these recipients, or their family members, to return the money.

If one of these situations might apply to you, first check the following:

Your income in 2020 exceeds the income threshold – no mistake. No need to pay it back; The CARE act based taxpayers’ eligibility on their 2018 or 2019 income level.
You renounced US citizenship or surrendered a green card in 2019. The IRS issued a stimulus payment based on the information on your 2018 tax return – this payment is a mistake. You have to return it.
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IRS People First Initiative Provides Relief To Taxpayers

IRS Relief To Taxpayers

Due to COVID-19, the IRS is providing relief on a variety of issues as part of the People First Initiative. The IRS is modifying certain activities through the filing and payment deadline, Wednesday, July 15, 2020. Here’s what people need to know about relief related to IRS exams or audits.

Field, office and correspondence audits – Generally, the IRS won’t start new field, office and correspondence audits. The agency will continue to work refund claims, where possible, without in-person contact.

However, the IRS may start new audits if needed to preserve the statute of limitations.

In-person meetings – In-person meetings for current field and office audits are on hold. However, examiners will continue their work remotely, where possible. Taxpayers should respond to any requests for information during this period, if possible.
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Tax Manager/Senior Tax Manager (San Francisco, CA)

Tax Manager/Senior Tax Manager In San Francisco, CA

TaxConnections has been retained by an investment firm to fill a Tax Manager/Senior Tax manager role located in San Francisco, CA. We would genuinely appreciate your review of this opportunity and kindly refer this to anyone who may appreciate learning more.

The Tax Manager/Senior Tax Manager will be responsible for assisting senior tax management with tax research and planning and all aspects of the tax compliance and forecasting for a very significant investment partnership and the related investment management entity. Individual must have a solid understanding of current tax laws including knowledge of investment partnership structures.

Researching and communicating the tax consequences of current and proposed investments will be a part of the responsibilities of the successful candidate. In addition, the position will require both the preparation and review of highly detailed complex Federal, California and multi-state income tax returns, foreign investment reporting implications, preparation of tax forecasts and researching complex tax issues.  The Tax Manager must be able to perform multiple tasks, have proven project management skills and produce high quality, accurate and detailed work on a timely basis. Also, must be able to timely identify and communicate issues, positions, and opportunities both orally and in writing to management.

Responsibilities include the following:
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