Earlier this month, both houses of Congress passed the 2021 National Defense Authorization Act (“2021 NDAA”).  Included in Title LXIV of the 2021 NDAA (Title 64 for those of us rusty on Roman numerals), are new information reporting requirements intended to identify individual beneficial owners of certain business entities.  Subject to a number of exceptions, the bill requires certain U.S. and foreign entities to file annual reports with the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) that will disclose information regarding the beneficial owners of reporting companies.  Overall, the reporting will identify those individuals exercising “control,” as the term is defined, over those entities required to report.  According to the legislation, over two million corporations, LLCs, and similar entities are formed under state law in the United States each year, and many “malign actors seek to conceal their ownership” of various entities intended to facilitate illegal activity.  Accordingly, the reporting mandated by the legislation is intended to help protect national security interests and interstate and foreign commerce, as well as counter the financing of terrorism.

The legislation passed both chambers by overwhelming majorities − 335-78 in the House and 84-13 in the Senate. Notwithstanding the significant Congressional support, President Trump has not yet signed the bill into law and has suggested that he may veto the bill (H.R. 6395).  The legislation will become law tomorrow (December 24, 2020) if the President does not veto the bill.  Even if the President vetoes the bill, it appears likely that Congress will override it by reconvening after Christmas and before the new year.  H.Res. 1271 (the rule providing for the consideration of the Senate amendment to H.R. 133 (the end-of-year package that includes COVID relief)) provided that if a veto message is laid before the House on the 2021 NDAA, the veto message and the bill shall be postponed until the legislative day of Monday, December 28, 2020.  Accordingly, if Trump vetoes the bill, the House will vote on its override on December 28.

UPDATE:  President Trump vetoed the bill on December 23, 2020.

UPDATE:  The House of Representatives voted to override President Trump’s veto on December 28, 2020.  Additional coverage is available here.  

UPDATE:  The Senate voted to override President Trump’s veto on January 1, 2021.  Additional coverage is available here.


Continue Reading New Information Reporting on Beneficial Owners Included in 2021 NDAA

After months of gridlock, the House and Senate, on December 21, both passed another round of COVID relief legislation (H.R. 133).  The 5,593-page bill, which gained momentum following the introduction of bipartisan compromise legislation, provides an enhanced employee retention credit (“ERC”), which is easier for employers to qualify during the first six months of 2021, as compared to the ERC enacted as part of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.

The bill also includes extensions to a number of workforce-related tax credits, including the work opportunity tax credit (“WOTC”), the paid family and medical leave tax credit included in the Tax Cuts and Jobs Act as a two-year pilot program, and the paid leave credits enacted as part of the Families First Coronavirus Response Act (“FFCRA”).  The bill would also extend the period during which employers may make student loan payments or reimbursements under an Internal Revenue Code Section 127 educational assistance plan, permit employers to provide additional flexibility under flexible spending accounts, and provide employers with a longer period in which to collect employee Social Security tax which was deferred during 2020 under IRS Notice 2020-65.

The bill would also add an employer income tax credit for qualified wages paid to employees in qualified disaster areas in 2020 for disasters other than COVID-19.  Finally, the bill addresses the deductibility of expenses paid with forgiven PPP loans.
Continue Reading Fourth (and Final?) COVID Relief Measure Clears House and Senate

On Friday, December 18, the IRS released final regulations under section 162(m) implementing the statutory changes made in 2017 by the Tax Cuts and Jobs Act.  Section 162(m), as amended, generally limits the deduction for compensation (also referred to as applicable employee remuneration) paid to the a publicly held corporation’s principal executive officer (“PEO”), principal financial officer (“PFO”), and its three highest-paid executive officers other than the PEO and PFO.  The final regulations are largely unchanged from the proposed regulations released almost exactly one year earlier.  (See earlier coverage.) The IRS did make a small number of changes in response to taxpayer comments, but declined to make changes in a number of areas.
Continue Reading Final 162(m) Regulations Make Few Changes

For employers who decided to defer the employee share of Social Security taxes on wages paid from September 1 to December 31, 2020, pursuant to President Trump’s August 8 presidential memorandum, the employer’s obligation to collect those deferred amounts from employees’ paychecks is fast approaching.  Included among our previous posts discussing the deferral, which was voluntary, is a discussion of IRS Notice 2020-65.  The notice specifies that the employer “must withhold and pay the total [deferred 2020 taxes] . . . ratably from wages . . . paid between January 1, 2021, and April 30, 2021” and further warns that “if necessary, the [employer] may make arrangements to otherwise collect the total [deferred taxes] from the employee.”  (See earlier coverage.)
Continue Reading Unpleasant Surprise May Await Employers That Deferred Employee Social Security Tax

Yesterday, December 9, the IRS released final regulations implementing the Section 274(a)(4) and 274(l) deduction disallowances, adopted as part of the 2017 Tax Cuts and Jobs Act.  Section 274(a)(4) disallows employer deductions for the cost of providing qualified transportation fringe (“QTF”) benefits provided to employees.  Section 274(l) provides a broader deduction disallowance for expenses paid for, or to reimburse for, employees’ trips between their residences and their places of employment.  Both deduction disallowances took effect for tax years beginning after December 31, 2017.

The final regulations largely follow the approach taken in the proposed regulations issued in June, which built on earlier guidance provided in Notice 2018-99.  Treasury Regulation § 1.274-13 addresses the deduction disallowance under section 274(a)(4) for the cost of QTFs provided under section 132(f), such as qualified parking, transit passes, and other tax-free commuting benefits.  Treasury Regulation § 1.274-14 addresses the deduction disallowance under section 274(a).
Continue Reading IRS Issues Final Regulations on Commuting Expenses Deduction Disallowances

As previewed by the recent final Form W-4 regulations published in October (see earlier coverage), the IRS released a draft of Publication 15-T (Federal Income Tax Withholding Methods) on November 17.  The publication provides a new computational method for employers who must continue to rely on pre-2020 Forms W-4 to determine the amount of

On November 16, the IRS added two new FAQs to its website that address an issue that has been concerning employers since the CARES Act was adopted.  For purposes of the employee retention credit (“ERC”), Section 2301(d) of the CARES Act includes an aggregation rule that treats all employers required to be aggregated under section 52 of the Code or certain provisions of section 414 of the Code to be treated as a single employer.  (See earlier coverage of the aggregation rule.)  Because the CARES Act also prohibits any employer who receives a Paycheck Protection Program (“PPP”) loan (regardless of whether the loan is forgiven) from claiming the ERC.

Based on the statutory language, practitioners have been concerned that if an employer acquires another employer that previously received a PPP loan, the acquirer’s entire aggregated group may no longer be eligible to claim the ERC.  More troubling, Section 2301(l)(3) of the CARES Act instructs the Treasury to promulgate regulations for the recapture of the ERC claimed by an employer that subsequently obtains a PPP loan.  This caused concerned that the acquirer could not only lose the ability to claim the ERC prospectively after the acquisition, but could be required to repay any amount or ERC previously claimed.  Although the new FAQs are not binding on the IRS, they prove welcome news.
Continue Reading IRS FAQs Provide Welcome Guidance on Employee Retention Credit and PPP Loans in M&A Transactions

On October 6, the IRS published final regulations addressing changes made by the Tax Cuts and Jobs Act of 2017 (the “TCJA”) to how an employee instructs an employer to withhold income taxes based on the employee’s Form W-4 (Employee’s Withholding Certificate).  These final regulations were issued only 8 months after the proposed regulations were published (see earlier coverage), which is considered warp-speed in IRS time. The Preamble to the final regulations provide a new method for employers who must continue to rely on pre-2020 Forms W-4 to determine the amount of federal income tax to withhold from employee’s wages.
Continue Reading Preamble to Final Regulations on the Mechanics of Income Tax Withholding Provide Transition Method for Pre-2020 Forms W-4

On Friday, October 30, the IRS provided guidance regarding the proper reporting on Form W-2 for employers who deferred the withholding of the employee share of Social Security tax under Notice 2020-65. (See earlier coverage.)  Based on the IRS guidance, employers should report FICA wages up to the OASDI (Social Security) wage base in Box 3 of the 2020 Form W-2.  Only the amount of Social Security tax actually withheld during 2020 should be reported in Box 4 of the form.

In 2021, if the employer withholds the 2020 deferred Social Security taxes, the employer must file a Form W-2c for 2020 reporting the additional withholding in Box 4.  Although the IRS guidance does not address this, if the employer pays in 2021 the employee’s share of Social Security taxes that were deferred in 2020, the employer must still file a Form W-2c reporting the amount as withheld Social Security taxes in Box 4.  Moreover, the employer would also be required to include the amount of taxes paid by the employer on the employee’s behalf as additional wages in Boxes 1, 3 (up to the OASDI wage base), and 5 on the employee’s 2021 Form W-2.  Because the employer’s payment of the employee’s deferred tax constitutes additional wages to the employee in 2021, these amounts will need to be grossed up to account for employment taxes on the amount of the employee’s tax paid by the employer if those taxes are not withheld from the employee’s other 2021 wages.
Continue Reading IRS Provides Guidance on Preparation of Forms W-2 for Employees with Deferred Social Security Tax Withholding

The IRS recently published new guidance on the tax withholding and reporting consequences associated with qualified retirement plan distributions to state unclaimed property funds.  In Revenue Ruling 2020-24, the IRS clarified that distributions from qualified retirement plans to state unclaimed property funds are subject to both federal income tax withholding and 1099-R reporting requirements.  In a companion revenue procedure, Rev. Proc. 2020-46, the IRS permitted taxpayers to self-certify for a waiver of the 60-day deadline for rolling over funds between qualified plans when the funds had been distributed to a state unclaimed property fund.

Continue Reading IRS Updates Guidance on Qualified Plan Distributions to State Unclaimed Property Funds