Larry's Tax Law

During the first special session of 2020, the Oregon legislature passed House Bill 4212 (“HB 4212”).  Governor Kate Brown (the “Governor”) signed HB 4212 into law on June 30, 2020. 

HB 4212 extends the time periods that apply to court proceedings, including those in the Oregon Tax Court (“Tax Court”), to provide relief to litigants who may be impacted by the COVID-19 pandemic.

On July 21, 2020, the Chief Justice of the Oregon Supreme Court (the “Chief Justice”) issued Order No. 20-027 (the “Order”) to facilitate the implementation of HB 4212.  In this post, we address the impact that HB 4212 and the Order may have on Tax Court cases.

Taxpayers with cases pending in either the magistrate or regular division of the Tax Court may be able to utilize these extended time periods.  Additionally, taxpayers may still have the ability to initiate or continue Tax Court proceedings if they missed the time period for doing so originally, including appealing adverse determinations to the magistrate division, regular division, or even the Oregon Supreme Court.

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act waives the requirement that taxpayers take required minimum distributions (“RMDs”) for 2020 from IRAs, 401(k) plans and other defined contribution plans.  Taxpayers who already took 2020 RMDs may be able to return them to their retirement plans or IRAs and avoid paying income tax on the distributions.  The timing, however, is critical.

Notice 2020-51, issued by the IRS last week, provides needed clarity about this provision of the CARES Act.

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”).

Up until this past Wednesday, the Paycheck Protection Program (“PPP”) loan forgiveness application issued by the Small Business Administration (“SBA”) had not been updated since May.  New guidance was issued in the interim (and anyone who has been following this area knows that guidance is constantly evolving).  Most taxpayers have some breathing room before they must file their forgiveness applications; so, it may behoove them to wait to file their applications until they digest the most recent guidance.

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.

I previously reported that the Paycheck Protection Program (“PPP”) loan program appeared to have been extended to December 31, 2020.  Unfortunately, the U.S. Small Business Administration (“SBA”) quashed that dream.  While Congress extended the “covered period” to December 31, 2020, it did not extend the life of the PPP to that date.  The SBA recently made that clear when it announced that the extension of the covered period “should not be construed as to permit the SBA to continue accepting applications for [PPP] loans after June 30, 2020.”  So, the PPP application deadline remains June 30, 2020; borrowers in need of a PPP loan only have until the end of this month to submit their applications.  While funds may remain available ($130 billion according to a recent government announcement), borrowers need to hurry up and get their applications submitted to lenders.  Time is of the essence.  To avoid any problems with application submissions, borrowers are wise to submit their applications well in advance of the June 30 deadline.  According to Murphy’s Law, if something can go wrong, it will.  So, applications should be made as soon as possible.  Don’t wait until the last minute.

As I previously reported, the Paycheck Protection Program Flexibility Act of 2020 (“PPPFA”) was jointly introduced in the U.S. House of Representatives (“House”) by Representative Chip Roy, a Republican from Texas and Representative Dean Phillips, a Democrat from Minnesota.  By a nearly unanimous vote, the PPPFA was passed in the House on May 28, 2020.  As anticipated, the legislation was promptly introduced in the U.S. Senate (“Senate”), where (without amendment) it was unanimously passed on June 3, 2020 by a voice vote.  President Trump signed the PPPFA into law today.

This is especially good news for businesses that have been shut down and/or otherwise severely financially impaired by the COVID-19 pandemic.  The PPPFA changes the landscape relative to loans received by businesses under the Paycheck Protection Program (“PPP”) that was enacted as part of the CARES Act.  The PPPFA, at least for some PPP loan borrowers, may not bring glee and joy!  The law contains some provisions that could be detrimental to some businesses.

In News Release 2020-107, issued Thursday, May 28, 2020, the IRS announced that taxpayers will soon be able to electronically file Form 1040-X, Amended U.S. Individual Income Tax Return.  This is welcome news for taxpayers and tax practitioners!

Background

According to the IRS, more than 90 percent of individual taxpayers electronically file their U.S. Federal Income Tax Returns (Form 1040) each year.  Likewise, approximately three million amended U.S. Federal Income Tax Returns (Form 1040-X) are filed each year.

Currently, a large number of tax forms may be filed electronically, including U.S. Federal Income Tax Forms 1040, 1065, 1120 and 1120S.  Additionally, taxpayers may electronically amend U.S. Federal Income Tax Forms 1065, 1120 and 1120S.  They may not, however, amend U.S. Federal Income Tax Form 1040 (Form 1040-X) electronically.  

Despite repeated pleas by tax practitioners for the ability to file Form 1040-X electronically, the IRS has not been able to accommodate practitioners.  That is about to change! 

As I previously reported, the Paycheck Protection Program (“PPP”) was touted as providing emergency assistance (i.e., a lifeline) to restaurants and other businesses ordered to shut their doors (e.g., dental offices, bars, hair salons, fitness clubs, yoga studios, shopping malls and movie theatres).  The owners of these businesses thought the availability of a forgivable loan equal to two-and-one-half times their monthly payroll costs could be exactly what the doctor ordered.  The loan, if forgiven, could keep these business afloat and allow them to retain their trained and skilled workforces once they were allowed to reopen.  Unfortunately, that hypothesis is severely flawed. 

Under the PPP, in order for a borrower to be eligible for forgiveness, the loan proceeds must be used for payroll costs (75 percent), and rent and utilities (25 percent) within eight weeks following the date of the loan.  If a borrower’s business is shut down due to an executive order of the governor for most, if not all, of the eight-week period, how can the borrower use the loan proceeds that indisputably are needed to reopen and maintain the workforce?  That circumstance was clearly not contemplated by Congress when it passed the CARES Act. 

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.)