In February, a U.S. Tax Court opinion in Anikeev v. Commisioner addressed challenging issues regarding the IRS’s existing policy with respect to the taxation of credit card rewards and other rebates. The case involves Mr. and Mrs. Anikeev, each of whom held a Blue Cash American Express Card (“Blue Card”) during 2013 and 2014, on which they accumulated a substantial amount of reward dollars through the use of their cards. At issue in Anikeev is whether the reward dollars were taxable income to the Anikeevs. Basing its decision on longstanding IRS policy, the court determined that the overwhelming majority of the rewards were not taxable to the Anikeevs, although the decision does address how the Service could potentially reform its policy regarding credit card rewards to prevent the same result in the future. Continue Reading Making a Point: Tax Court’s Anikeev Decision Challenges Longstanding IRS Policy on Credit Card Rewards
On Thursday, April 1, 2021, the Financial Crimes Enforcement Network (“FinCEN”) released an advance notice of proposed rulemaking (“ANPR”), presenting the public with its first opportunity to comment on the beneficial ownership disclosure requirements in the Corporate Transparency Act (“CTA”), a key component of the Anti-Money Laundering Act of 2020 (“AMLA”). The ANPR focuses on procedures and standards for beneficial ownership reporting by covered companies, and on the design and use of FinCEN’s planned beneficial ownership database. The ANPR does not address expected modifications to the customer due diligence (“CDD”) requirements of financial institutions, which will be the subject of a separate rulemaking process. Comments on the ANPR are expected to be due on May 5, 2021 — i.e., 30 days after the ANPR is slated for publication in the Federal Register.
This alert summarizes key issues in the ANPR, as relevant both to financial institutions and to reporting companies. Continue Reading FinCEN Releases Advance Notice of Proposed Rulemaking on Beneficial Ownership Disclosure Requirements
On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (the “ARPA”) into law. The ARPA includes clarifying language regarding the scope of Form 1099-K (Payment Card and Third Party Network Transactions) reporting for third party payment networks and a change to the de minimis reporting standard applicable to third party settlement organizations (“TPSOs”) effective for returns required to be filed for 2022. Continue Reading American Rescue Plan Act Clarifies Scope of Form 1099-K Reporting and Reduces De Minimis Threshold
Almost a year after the employee retention credit was adopted as part of the Coronavirus, Aid, Relief, and Economic Security Act (“CARES Act”), and nearly a month after the final Form 941, Employer’s Quarterly Federal Tax Return, claiming the credit for 2020 was due, the IRS issued Notice 2021-20 (the “Notice”). This is the final article in our three-part series looking at how the IRS’s guidance on the employee retention credit has changed over the past ten months. This article focuses on how Notice 2021-20 builds on previous IRS guidance to narrow the scope of the credit and limit its availability. Part I focuses on the statute and approach the IRS took in interpreting statute when the IRS issued frequently asked questions (“FAQs”) in April 2020. Part II focuses on the initial signs of trouble for employers that first appeared in the updated FAQs in June 2020.
The Notice is the proverbial effort to close the barn door after the horse is out of the barn–and in this case, clear across the pasture. Although much of the guidance in the Notice reflects the (“FAQs”) that were posted to the IRS website beginning last April and that have been revised multiple times since, the Notice continues the trend that began last June of narrowing the availability and the amount of the employee retention credit—and in some instances, narrowing it in a way not contemplated by the permissive statutory language. (For our complete coverage of the employee retention credit and IRS guidance, click here.) Continue Reading A Look at IRS Guidance on the Employee Retention Credit: Part III—The IRS Seeks to Close the Barn Door
On March 10, 2021, the House passed the fifth major COVID-relief legislation, the American Rescue Plan Act (the “Act”), which it originally passed last week before its amendment and passage by the Senate on March 6. President Biden is expected to sign the Act on Friday, March 12, 2021.
The Act adopts a new payroll tax credit that is similar to the employee retention credit, which was originally enacted as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and amended by the Consolidated Appropriations Act, 2021 (the “CAA”). The new credit will be in effect from July 1, 2021, through December 31, 2021. In addition, the Act significantly increases the exclusion for employer-provided dependent care assistance for 2021, and makes prospective changes to extend the availability of paid leave credits similar to those originally adopted as part of the Families First Coronavirus Response Act (the “FFCRA”) and that are set to expire on March 31. Finally, the Act will extend the deduction limitation under section 162(m) to additional employees. Continue Reading American Rescue Plan Act Goes to Biden for Signature: Includes Changes to Employee Retention Tax Credit, Employer-Provided Dependent Care, Paid Leave Credits, and Deduction Limitations for Executive Compensation
Almost a year after the employee retention credit was adopted as part of the Coronavirus, Aid, Relief, and Economic Security Act (“CARES Act”), and nearly a month after the final Form 941, Employer’s Quarterly Federal Tax Return, claiming the credit for 2020 was due, the IRS issued Notice 2021-20 (the “Notice”), providing guidance on the credit. This is the second of three articles in our series looking at how the IRS’s guidance on the employee retention credit has changed over the past ten months. This article focuses on the first signs of trouble for employers that appeared in the frequently asked questions (“FAQs”) when they were updated in June 2020. The first article focuses on the approach the IRS took in the FAQs when initially issued in April 2020. The final article focuses on how Notice 2021-20 builds on those FAQs, and their June revisions, to narrow the scope of the credit and limit its availability.
Perhaps having come to believe that its approach to reading the statute as reflected in the FAQs—an approach entirely consistent with the language and purpose of the legislation—opened the barn door too wide, the IRS began to limit the availability of the credit as it made revisions to the FAQs. In June 2020, the IRS revised a number of FAQs providing additional guidance on what constitutes a “partial suspension.” (See earlier coverage.) Much of that guidance narrows the types of orders that constitute a partial suspension. For example, FAQ 30 was revised to indicate that an employer who maintains both essential and non-essential operations is considered to have a partial suspension if its non-essential operations are suspended as a result of a governmental order.
However, that relatively straightforward reading of the statute was accompanied by a new IRS-imposed requirement that the non-essential operations must constitute “more than a nominal portion” of the business. Similarly, changes to FAQ 34 require that many types of governmental orders must have more than a “nominal effect” on the employer’s business operations. The examples suggest that orders restricting the ability of a business to serve customers may not have more than a nominal effect, even if customers are required to wait outside in a line because of restrictions on the number of customers that may be served. (Apparently, the IRS believes that the patience of customers during a pandemic is unlimited and it should be assumed that all would-be customers will wait as long as necessary, however long that may be.)
In making these revisions, the IRS did not define or offer any insight into what constitutes a “nominal portion” of a business or a “nominal effect” on business operations. Perhaps more important, the IRS did not point to any statutory support for instituting this new “more than nominal” requirement in its informal guidance.
Tomorrow, we will look at the latest IRS guidance on the employee retention credit, Notice 2021-20.
Recently released IRS Notice 2021-20 (the “Notice”) provides guidance on the interaction between the Paycheck Protection Program (“PPP”) and the employee retention credit. Unfortunately, the Notice may limit the ability of many PPP borrowers to claim an employee retention credit that employers may have believed they would be entitled to claim. Continue Reading Notice 2021-20 Limits Employee Retention Credit For Many PPP Borrowers
Almost a year after the employee retention credit was adopted as part of the Coronavirus, Aid, Relief, and Economic Security Act (“CARES Act”), and nearly a month after the final Form 941, Employer’s Quarterly Federal Tax Return, claiming the credit for 2020 was due, the IRS issued Notice 2021-20 (the “Notice”). This is the first of three articles looking at the evolution of IRS guidance on the employee retention credit. This article focuses on Congress’s intention in enacting the employee retention credit and the guidance the IRS provided in the frequently asked questions (“FAQs”) it issued in April 2020. The second article focuses on the first signs of trouble for employers that appeared when the IRS updated the FAQs in June 2020. The final article focuses on how Notice 2021-20 builds on those FAQs to narrow the scope of the credit and limit its availability. Continue Reading A Look at IRS Guidance on the Employee Retention Credit: Part I—Broad and Pragmatic Interpretations in the Pandemic’s Early Days
Recently released IRS Notice 2021-11, implements the extension of the period for collecting from employees and depositing employee Social Security tax that was deferred in the last four months of 2020. IRS Notice 2020-65 (see earlier coverage) had specified that the employer “must withhold and pay the total [deferred 2020 taxes] . . . ratably from wages . . . paid between January 1, 2021, and April 30, 2021.” Many employers did not permit the deferral of such taxes. For those that did, the Consolidated Appropriations Act, which was signed into law December 27, 2020, modified Notice 2020-65 by extending the time period during which the employer must withhold and pay the 2020 deferred employee Social Security taxes. The period is now for the entire year − from Jan. 1, 2021, through Dec. 31, 2021.
The extension of time in which to collect the 2020 deferred employee Social Security taxes certainly spreads out the financial impact on affected employees’ paychecks across more pay periods in 2021, which is likely welcome relief to employees. However, it also increases the risk that the employer may not be able to collect all of the deferred taxes in 2021, since an employee could leave employment at any time during the year.
As explained in our earlier coverage, employers are not relieved of the obligation to deposit the deferred employee Social Security taxes. The employer remains liable for the payment of the deferred taxes, if the employer is unable to collect them from the employee. In other words, if the employer is unable to collect all of the deferred 2020 taxes in 2021 from wages paid to the employee—because the employee leaves employment before or during that period—the employer must still deposit the deferred taxes or be exposed to late deposit and other penalties. Moreover, if the employer does not deduct the 2020 deferred Social Security taxes from other remuneration paid to the employee in 2021 or otherwise collect the amount from the employee before the end of 2021, the employer’s payment of the employee’s 2020 deferred Social Security taxes constitutes compensation to the employee in 2021, and that compensation must be reported on a 2021 Form W-2 and subjected to payroll taxes.
Notice 2021-11 does not clarify whether an employer that elected to defer the employee share of Social Security taxes can, in fact, impose a shorter period of time to collect the deferred taxes from the affected employees in 2021, in order to minimize the risk of uncollectibility because of employee terminations during the year. Notice 2021-11 simply states that the collection must occur during 2021 and that penalties, interest and additions to tax will now start to apply on Jan. 1, 2022, for any unpaid balances of 2020 deferred employee Social Security taxes. (Because December 31, 2021, is a legal holiday, deposits made by January 3, 2022, will be considered timely.)
In Announcement 2021-2, released on February 1, the IRS instructed lenders not to report loan relief payments made by the Small Business Administration under Section 1112(c) of the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The Announcement reflects a provision in the Consolidated Appropriations Act, 2021 (the “CAA”), excluding such payments from gross income for purposes of U.S. federal income tax. The Announcement also instructs lenders who have already furnished and/or filed Forms 1099-MISC reporting the relief payments to issue corrected Forms 1099-MISC. Given that February 1, 2020, was the deadline for furnishing Forms 1099-MISC to payees, many lenders may have to issue corrected returns. Continue Reading IRS Requires Lenders to Correct Forms 1099-MISC Reporting SBA Payments on Certain Loans