Larry's Tax Law

The Small Business Administration (“SBA”) continues its quest to provide guidance relative to the Paycheck Protection Program (“PPP”) enacted as part of the CARES Act and the Paycheck Protection Program Flexibility Act of 2020 (“PPPFA”) enacted by Congress to provide clarification and remove some of the rigidity surrounding the PPP.   

The PPP legislation and much of the guidance PPP borrowers have received to date is fraught with complexity and inconsistency.   The SBA is doing its best, as Paul McCartney and John Lennon expressed in their hit song We Can Work It Out, to help PPP borrowers get through these trying times: 

Try to see it my way
Only time will tell if I am right or I am wrong
While you see it your way
There’s a chance that we might fall apart before too long
We can work it out
We can work it out

In that vein, the SBA recently issued interim final rules (“IFRs”) focused on PPP loan forgiveness.  Additionally, last week the SBA published a revised PPP loan forgiveness application (“Form 3508”), and a new short-form forgiveness application (“Form 3508EZ”).

The Oregon Department of Revenue (“DOR”) announced that it will be conducting a public hearing on June 23, 2020 to discuss a second set of temporary administrative rules relative to the Oregon Corporate Activity Tax (the “CAT”) that it intends to make permanent. 

Due to the COVID-19 pandemic, the hearing will be held telephonically.  The conference call will commence at 9:00 a.m. Pacific Time on June 23, 2020.

In a new temporary rule, the Oregon Department of Revenue (“DOR”) formalized its prior informal guidance relative to the assessment of penalties for failing to make sufficient estimated payments under Oregon’s Corporate Activity Tax (“CAT”).  The temporary rule provides some relief to CAT taxpayers whose businesses are adversely affected by COVID-19. 

Background

Pursuant to ORS 317A.137(2), a taxpayer must make estimated quarterly CAT payments.  As discussed previously, ORS 317A.161(2) imposes a penalty on taxpayers who fail to make estimated payments equal to at least 80 percent of their CAT liability for any quarter during 2020. 

The DOR announced in April that it would not assess penalties against a taxpayer for failure to make estimated CAT payments during 2020 if the taxpayer did not have the financial ability to make the estimated payments.  The DOR further stated that it would honor a taxpayer’s good faith compliance efforts if the taxpayer documents those efforts. 

Unfortunately, the DOR pronouncement about penalty abatement was contained in an email blast.  Consequently, many taxpayers and tax practitioners were concerned about whether such an informal announcement could be relied upon, what actually constitutes “good faith compliance efforts” and how to document the efforts.

On Friday, May 22, 2020, the Small Business Administration (“SBA”), in conjunction and consultation with the U.S. Department of the Treasury (“Treasury”), published an interim final rule (“IFR”) containing new guidance on the treatment of bonuses, prepayments, and the loan forgiveness application and process for Paycheck Protection Program (“PPP”) loans.

Loan Forgiveness Process 

Loan forgiveness under the PPP is not automatic.  Rather, borrowers must apply for forgiveness using the SBA’s Loan Forgiveness Application (SBA Form 3508) or their lender’s equivalent form, if any.  The process is somewhat streamlined:

• • The application is submitted to the lender for review and approval.
  • The lender will review the application and make a decision regarding loan forgiveness.
  • The lender has 60 days from receipt of a complete forgiveness application to issue a decision to the SBA.
  • The lender is responsible for notifying the borrower of the amount approved for forgiveness.
  • The lender will then request that the SBA repay the amount forgiven.
  • Within 90 days from the lender’s request for payment, the SBA will pay the lender the amount forgiven, plus any accrued interest. (If applicable, the SBA will deduct the amount of advances under the Economic Injury Disaster Loan program from its payment to the lender.) 

Today, as a result of the COVID-19 pandemic and resulting stay-at-home orders issued by the governors of most states, many employees are working remotely from home for their employers.  In fact, for many employers and employees, the arrangement is working well enough that they will likely consider continuing the arrangement, on a full-time or part-time basis, when the stay-at-home orders are lifted.  This type of arrangement raises all kinds of issues and concerns for employers, including compliance with applicable laws.  Many of the issues are obvious, but some of them are more nuanced and may not be on the minds of employers.

Employees Working Remotely

The trap is set when an employer has an employee performing services outside of the state(s) where it operates.  Historically, this scenario was likely rare.  It probably only occurred when an employer was physically located near a state border and had an employee working from his or her home located in the neighboring state.  Today, with the internet and sophisticated communication technologies, it is not limited to employees residing in neighboring states.  Further, with the COVID-19 pandemic facing the world, more and more employees are working remotely.  Assuming a remote work arrangement is acceptable to both an employer and an employee, I suspect it will continue to be a prevalent employment arrangement post-COVID-19.  As a result, employers may find themselves with employees working in states, and possibly countries, different from where the employer has its business physically located.  As discussed below, it is vital that employers know where their employers are performing services.  The consequences of not knowing where your employees are working could be costly.

As we recently reported, the Oregon Department of Revenue (“ODOR”) issued written guidance concluding that the receipt of funds pursuant to PPP loans (whether or not forgiven), EIDLP advances and SBA debt relief for certain business loans do not constitute commercial activity under Oregon’s new gross receipts tax, the Corporate Activity Tax (the “CAT”).  Accordingly, taxpayers subject to the CAT do not include these items in their computation of commercial activity. 

Washington state enacted its Business and Occupations Tax (“B&O Tax”) almost 90 years ago. The B&O Tax, like the CAT, is a gross receipts tax.  Unlike the CAT, however, taxpayers subject to the B&O Tax are generally not allowed to deduct any of their costs, including materials and labor, from gross revenues.   

The Washington Department of Revenue (“WDOR”) issued written guidance last week, possibly joining the ranks with the ODOR.  Better late than never!

The WDOR concludes that taxpayers subject to the B&O Tax should not include the receipt of funds pursuant to COVID-19 relief programs for purposes of computing their tax liability under the B&O Tax regime.

During these trying times, especially with stay-at-home orders still in effect in most states, it is difficult not to over-focus on the uncertainty that lies ahead.  Hopefully, we can find healthy distractions to refocus our attention. 

In normal times, one of the many healthy distractions in our lives was viewing live sporting events such as basketball, football, baseball and soccer.  Unfortunately, COVID-19 shut down these activities.  The television networks quickly responded, without letting their stations go dormant, rebroadcasting historic sporting events. 

New guidance from the Oregon Department of Revenue (the “DOR”) with respect to Oregon’s Corporate Activity Tax (“CAT”) was issued yesterday.

Specifically, the DOR announced that: 

• • Certain forgivable federal loans and advances, including Paycheck Protection Program (“PPP”) loans, are excluded from the definition of commercial activity under the CAT;
  • The DOR is scheduling a public hearing to discuss the first set of permanent rules promulgated under the CAT; and
  • The DOR released a draft temporary rule regarding the sourcing of commercial activity for financial institutions.

Background

As previously reported, the new Oregon Corporate Activity Tax (the “CAT”) went into effect on January 1, 2020.  The new law is quite complex and arguably not very well thought out by lawmakers.  Although the Oregon Department of Revenue (the “DOR”) has worked hard to bring clarity to the CAT through rulemaking, many questions remain, including application of the many exemptions and computation of the required tax estimates.  Despite pleas by small businesses to repeal or at least put the CAT in hibernation until the uncertainties resulting from the COVID-19 pandemic have been alleviated, both Oregon’s Governor and the state’s lawmakers have proclaimed in so many words that the show must go on – the CAT will remain in place, even during these horrific times.

Like other commentators, we have been writing extensively about the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the historic $2.2 trillion relief package enacted last month by lawmakers in the wake of the COVID-19 pandemic.

In a prior post, we provided a summary and analysis of numerous tax provisions of the CARES Act. 

In this post, we expand on our previous coverage of the CARES Act relative to net operating losses (“NOLs”), and provide an overview of new guidance issued by the IRS.