The Mailbox Rule in the time of COVID-19

As the July 15 filing deadline approaches, tax returns mailed to the IRS may sit in mail facilities for several days because of COVID-19. But, if a taxpayer follows the Code Sec. 7502 Mailbox Rule, a return will be treated as filed on the date of the postmark and, hence, the taxpayer has no need to worry about the timeliness of filing, if the IRS does not log in the return until several days, or even weeks, after timely mailing.

Background. The IRS has announced that the automatically postponed tax deadline of July 15, 2020, which was granted as COVID-19 relief, will not be further postponed.  The National Taxpayer Advocate has recently identified the uncertainty about when the IRS will be able to open and log all tax returns sitting in mail facilities as one of the adverse impacts to taxpayers caused by COVID-19. And the IRS admits that it is experiencing delays in processing paper tax returns due to limited staffing. The IRS will process paper returns in the order they received them. This delay may result in more utilization of the “Mailbox Rule” than normal. Below is a summary of some key provisions and requirements of the rule.

The Mailbox rule, in summary. Generally, the Code provides that a tax return, claim, statement, other required document, or payment (Tax Document) is deemed to be filed or made on the date of the postmark. This rule applies whether the taxpayer uses the US Postal Service (USPS) or a designated private delivery service (PDS)

If a taxpayer uses a non-designated PDS, making the Mailbox Rule unavailable, then, in order for the Tax Document to be timely, it must be received by the IRS on or before the due date. When a taxpayer does not satisfy the requirements of the Mailbox Rule, a Tax Document is considered filed on the date it is received by the IRS.

Delivery requirement. If a Tax Document is sent as first class mail via the USPS (that is, sent via the USPS but not as registered or certified mail), the taxpayer has the burden of proof to show, in addition to a timely postmark, that the Tax Document was actually delivered to the IRS.

However, that burden does not apply if the Tax Document is sent by certain enhanced mailing services.  A Tax Document (excluding a payment) sent by US registered mail, US certified mail, or by a designated PDS will be prima facie evidence that the document was delivered.

Mailing requirements. To qualify for the Mailbox Rule, a Tax Document must comply with certain mechanical rules regarding:

  • the envelope and address;
  • timely deposit in the U.S. mail; and
  • the postmark.

Envelope and address.  A Tax Document must be contained in an envelope and be properly addressed to the agency, officer, or office with which the Tax Document is required to be filed or made.

For an individual tax return, the proper address can be found in the Instructions for Form 1040 and Form 1040-SR (U.S. Individual Income Tax Return), p. 108, or at Where to File Paper Returns With or Without a Payment.

Timely deposit. A Tax Document must be deposited by the due date in the mail in the U.S. with sufficient postage prepaid. For this purpose, a Tax Document is deposited in the mail when it is deposited with the domestic mail service of the USPS. The Mailbox Rule does not apply to any Tax Document that is deposited with the mail service of any other country.

Postmark—USPS. If the postmark on the envelope of a Tax Document is made by the USPS, then the postmark must bear a date on or before the applicable due date.

If the postmark does not bear a date on or before the due date, then a Tax Document is considered not to be timely filed or paid, regardless of when the Tax Document is deposited in the mail. Thus, a sender who intends to rely on the applicability of the Mailbox Rule assumes the risk that the postmark will end up being an untimely date.

If a Tax Document is sent by U.S. registered mail, the date of registration is treated as the postmark date. If a Tax Document is sent by U.S. certified mail, and the sender’s receipt is postmarked by the USPS, the date of the postmark on the receipt is treated as the postmark date.

Postmark—PDS.  For each designated PDS, the delivery service records electronically the date on which an item was given to it for delivery, which is treated as the postmark date for purposes of Code Sec. 7502.

But Notice 2016-30 provides that the postmark date for a Tax Document delivered after the due date is presumed to be the day that precedes the delivery date by an amount of time that equals the amount of time it would normally take for an item to be delivered under the terms of the specific type of delivery service used (e.g., two days before the actual delivery date for a two-day delivery service).

Taxpayers who wish to overcome the presumption in the Notice must provide information that shows that the date recorded in the delivery service’s electronic database is on or before the due date, such as a written confirmation produced and issued by the delivery service.

Example. A uses UPS 2nd Day Air to send his tax return to the IRS. The filing is due July 15. The return is delivered to the IRS on July 18. The postmark date for A’s return is presumed to be July 16, two days before the actual delivery date for two-day service. To overcome this presumption and establish that the return was timely, A must show that the date recorded in UPS’s electronic data base is on or before July 15.

Postmark—USPS and non-USPS. If a Tax Document has both USPS and non-USPS postmarks, then the non-USPS postmark is disregarded.

Rules for payments. For a payment to qualify for the Mailbox Rule, whether made in the form of currency or other medium of payment, it must actually be “received and accounted for.” For example, if a check is used as the form of payment, the Mailbox Rule does not apply unless the check is honored upon presentation.

Rules for credit or refund claim. When a return also constitutes a claim for credit or refund, the Mailbox Rule is applicable to the determination of whether the claim was timely filed.

Electronically filed document rules. Separate timely submission rules apply to the use of electronic return transmitters and electronic postmarks. A Tax Document filed electronically with an electronic return transmitter is deemed to be filed on the date of the electronic postmark given by the authorized electronic return transmitter. Thus, if the electronic postmark is timely, the Tax Document is considered filed timely although it is received by the IRS after the last date, or the last day of the period, prescribed for filing such Tax Document.

An electronic postmark is a record of the date and time (in a particular time zone) that an authorized electronic return transmitter receives the transmission of a taxpayer’s electronically filed document on its host system.

IRS won’t postpone July 15 filing, payment deadline

In an Information Release, the IRS has announced that the July 15 tax filing and payment deadline won’t be postponed. Individuals unable to meet the July 15 filing deadline can request an automatic extension, until October 15, to file. However, tax payments are due on July 15.

Background. Due to the COVID-19 pandemic, the April 15 filing and tax payment due date for 2019 was postponed to July 15.  Previously, the Treasury Secretary indicated that the July 15 deadline might be postponed.

July 15 deadline won’t be postponed. The IRS has announced that the July 15 filing and payment deadline won’t be postponed. Individuals unable to meet the July 15 filing deadline can request an automatic extension of time to file. However, tax payments are due on July 15.

Automatic extensions of time to file a return. Taxpayers who need more time to file their federal income tax return can get an extension until October 15 by filing Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return, before the July 15 deadline. Taxpayers should estimate their tax liability on Form 4868 and pay any amount due when filing the form.

Taxpayers can also get an automatic extension by making a tax payment using Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or an authorized credit or debit card processor, and indicating that the payment is for an automatic extension.

When using one of the above payment methods to request an automatic extension, taxpayers do not have to file a Form 4868 and will receive a confirmation of their payment for their records.

State filing deadlines. The IRS also reminds taxpayers to check their state filing and payment deadlines, which may differ from the federal July 15 deadline. A list of state tax division websites is available through the Federation of Tax Administrators.

President signs bill that provides more PPP flexibility

On June 5, President Trump signed he Paycheck Protection Program (PPP) Flexibility Act (PPPFA) of 2020 (H.R. 7010) which provides more flexibility for participants in the PPP program, including allowing those participants to defer the payment of certain payroll taxes that the CARES Act prevented them from deferring.

Background. The PPP is a provision included in the CARES Act (P.L. 116-136, the Act) that authorizes a certain amount of forgivable loans to small businesses to pay their employees during the COVID-19 pandemic.

The CARES Act contains a provision, Act Sec. 2302, that defers the payment of 50% of certain payroll taxes until Dec. 31, 2021 and defers payment of the remaining 50% until Dec. 31, 2022. The Act provides an exception to the above rule; under that exception, these deferrals don’t apply to any taxpayer which has had indebtedness forgiven under Act Sec. 1106 with respect to a loan under Small Business Act Sec. 7(a)(36), as added by Act Sec. 1102 (PPP loans), or indebtedness forgiven under Act Sec. 1109.

New law provides tax deferral relief. PPPFA eliminates the above exception and thus would allow taxpayers with these forgiven loans to defer payment of the payroll taxes.

Non-tax provisions in new law. The following are among the non-tax provisions in the new law:

•In the original CARES Act, PPP loans were forgiven if a business spent 75% of the loan money on payroll. PPPFA lowers that to 60%.

•PPPFA allows businesses 24 weeks, instead of the 8 weeks contained in the original CARES Act, to use the loan money. PPPFA also does not require businesses to wait for 24 weeks to apply for forgiveness; they can still do so after eight weeks if they prefer.

•PPPFA pushes back a June 30 deadline to rehire workers to December 31, 2020.

•The CARES Act required a business to rehire the same number of full-time employees or full-time equivalents by June 30, 2020. It provided one exception to that requirement. PPPFA provides additional exceptions if an employer is unable to rehire the required number of employees. For example, there is an exception if the employer Is able to demonstrate an inability to hire similarly qualified employees on or before December 31, 2020

•For any PPP loan that is not forgiven, a business will have five years to repay the loan.

PPP Loan Forgiveness Application

On Friday, May 15th, the SBA released the much anticipated PPP Loan Forgiveness Application. The application and related instructions do not provide as much guidance and detail as we expected, but there are still several key takeaways as outlined below:

Alternative Payroll Covered Period: For administrative convenience, Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day of their first pay period following their PPP Loan Disbursement Date (the “Alternative Payroll Covered Period”). For example, if the Borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is April 26 and the last day of the Alternative Payroll Covered Period is Saturday, June 20.

Eligible payroll costs: Borrowers are generally eligible for forgiveness for the payroll costs paid and payroll costs incurred during the eight-week (56-day) Covered Period (or Alternative Payroll Covered Period defined above) (“payroll costs”). Payroll costs are considered paid on the day that paychecks are distributed or the Borrower originates an ACH credit transaction. Payroll costs are considered incurred on the day that the employee’s pay is earned. Payroll costs incurred but not paid during the Borrower’s last pay period of the Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date. Otherwise, payroll costs must be paid during the Covered Period (or Alternative Payroll Covered Period).

Eligible non-payroll costs: An eligible non-payroll (mortgage interest, rent and utilities) cost must be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period. Eligible non-payroll costs cannot exceed 25% of the total forgiveness amount.

Non-Compensation payroll costs to Owners (owner-employees, self-employed individuals, general partners): It appears that non-compensation payroll costs (health insurance and retirement costs) for owner-employees, self-employed individuals and general partners are not eligible for forgiveness.

It is possible (and likely) that additional guidance and clarification will be issued. At that time, we will follow-up as appropriate.

Click here for a link to the SBA Forgiveness Application.

Click here for a link to a detailed article by Tony Nitti discussing the application.

Please let us know if you have any questions.

May 13 deadline to get economic impact payment as direct deposit

In an Information Release, IRS has urged taxpayers who qualify for, but have not already received, their CARES Act economic impact payment (EIP), to provide direct deposit information on IRS’s Get My Payment website by noon on Wednesday, May 13 if they wish to get their EIP via direct deposit and thus avoid the delay involved in receiving a paper check.

Tax filers with adjusted gross income up to $75,000 for individuals and up to $150,000 for married couples filing joint returns receive the full payment. For filers with income above those amounts, the payment amount is reduced by $5 for each $100 above the $75,000/$150,000 thresholds. Eligible taxpayers who filed tax returns for either 2019 or 2018 automatically receive an EIP of up to $1,200 for individuals or $2,400 for married couples. Parents also receive $500 for each qualifying child.

In general, if IRS has direct deposit bank information about a taxpayer eligible to receive an EIP, then the taxpayer will receive the EIP via direct deposit. If IRS does not have that information, then the taxpayer will receive the EIP via paper check.

IRS has set up the Get My Payment website/tool that: (a) shows taxpayers either their EIP amount and the scheduled delivery date of the EIP by direct deposit or paper check, or that a payment has not been scheduled; and (b) allows taxpayers who did not use direct deposit on their last filed tax return to provide their direct deposit information which will speed their receipt of their EIP.

May 13 deadline for getting direct deposited EIP. After noon on Wednesday May 13, IRS will begin preparing files for use in sending paper checks that will begin arriving through late May and into June. Taxpayers who use Get My Payment before that cut-off can still take advantage of entering direct deposit information.

So, IRS has urged taxpayers who haven’t yet received their EIP and haven’t entered their direct deposit information at Get My Payment, to enter that information before Wednesday at noon.

Paycheck Protection Program expenses not deductible

In a Notice, the IRS has clarified that no deduction is allowed for an expense that is otherwise deductible if both (1) the payment of the expense results in forgiveness of a loan made under the Paycheck Protection Program and (2) the income associated with the forgiveness is excluded from gross income pursuant to Coronavirus Aid, Relief, and Economic Security Act.

Notice 2020-32, 2020-21 IRB

President signs bill that provides additional small business loan monies

On April 24, President Trump signed the Paycheck Protection Program and Health Care Enhancement Act, which has been referred to as COVID 3.5. The Act includes additional money for the small-business loan program, as well as more funding for hospitals and testing. There are no tax provisions in the Act.

IRS Extends Additional Filing and Payment Deadlines

On April 9, 2020, the Internal Revenue Service issued Notice 2020-23 which extends more tax deadlines to cover individuals, estates, corporations and others. This extension includes a variety of tax form filings and payment obligations that are due between April 1, 2020 and July 15, 2020, including estimated tax payments due June 15 and the deadline to claim refunds from 2016. The Notice also suspends associated interest, additions to tax, and penalties for late filing or late payment until July 15, 2020.

  • Individual income tax payments and return filings on Form 1040
  • Calendar year or fiscal year corporate income tax payments and return filings on Form 1120, 1120-H, 1120-S
  • Calendar year or fiscal year partnership return filings on Form 1065
  • Estate and trust income tax payments and return filings on Form 1041
  • Estate and generation-skipping transfer tax payments and return filings on Form 706
  • Gift and generation-skipping transfer tax payments and return filings on Form 709
  • Exempt organization business income tax and other payments and return filings on Form 990-T Exempt Organization Business Income Tax Return
  • Excise tax payments on investment income and return filings on Form 990-PF, Return of Private Foundation
  • Quarterly estimated income tax payments calculated on or submitted with Form 990-W, Estimated Tax on Unrelated Business Taxable Income for Tax-Exempt Organizations, 1040-ES,  1041-ES, Estimated Income Tax for Estates and Trusts, and 1120-W, Estimated Tax for Corporations.

Previously, the IRS issued the following notices regarding the extension of various filing and payment deadlines:

  • On March 18, 2020, IRS issued Notice 2020-17, which postponed the due date for certain Federal income tax payments from April 15, 2020 until July 15, 2020 due to the novel coronavirus (COVID-19) emergency.
  • On March 20, 2020, the IRS issued Notice 2020-18, which also postponed until July 15, 2020 the filing date for 2019 federal income tax returns and 2020 federal estimated income tax payments that would otherwise be due on April 15, 2020.
  • On March 27, 2020, the IRS issued Notice 2020-20, which extended recent income tax filing and payment relief to those taxpayers who have gift tax or GST tax obligations otherwise due by April 15 to July 15, 2020. This Notice also announced that this 3-month period would be disregarded for purposes of calculating interest and penalties.

Please contact an ARM tax professional with any questions or to discuss in further detail.

Tax Relief provided by the CARES Act

We hope that you are keeping yourself, your loved ones, and your community safe from COVID-19 (commonly referred to as the Coronavirus). Along with those paramount health concerns, you may be wondering about some of the recent tax changes meant to help everyone coping with the Coronavirus fallout. In addition to the summary of IRS actions and earlier-enacted federal tax legislation that we previously sent you, we now want to update you on the tax-related provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Congress’s gigantic economic stimulus package that the President signed into law on March 27, 2020.

Recovery rebates for individuals. To help individuals stay afloat during this time of economic uncertainty, the government will send up to $1,200 payments to eligible taxpayers and $2,400 for married couples filing joints returns. An additional $500 additional payment will be sent to taxpayers for each qualifying child dependent under age 17 (using the qualification rules under the Child Tax Credit).

Rebates are gradually phased out, at a rate of 5% of the individual’s adjusted gross income over $75,000 (singles or marrieds filing separately), $122,500 (head of household), and $150,000 (joint). There is no income floor or ‘‘phase-in’’—all recipients who are under the phaseout threshold will receive the same amounts. Tax filers must have provided, on the relevant tax returns or other documents (see below), Social Security Numbers (SSNs) for each family member for whom a rebate is claimed. Adoption taxpayer identification numbers will be accepted for adopted children. SSNs are not required for spouses of active military members. The rebates are not available to nonresident aliens, to estates and trusts, or to individuals who themselves could be claimed as dependents.

The rebates will be paid out in the form of checks or direct deposits. Most individuals won’t have to take any action to receive a rebate. IRS will compute the rebate based on a taxpayer’s tax year 2019 return (or tax year 2018, if no 2019 return has yet been filed). If no 2018 return has been filed, IRS will use information for 2019 provided in Form SSA-1099, Social Security Benefit Statement, or Form RRB-1099, Social Security Equivalent Benefit Statement.

Rebates are payable whether or not tax is owed. Thus, individuals who had little or no income, such as those who filed returns simply to claim the refundable earned income credit or child tax credit, qualify for a rebate.

Waiver of 10% early distribution penalty. The additional 10% tax on early distributions from IRAs and defined contribution plans (such as 401(k) plans) is waived for distributions made between January 1 and December 31, 2020 by a person who (or whose family) is infected with the Coronavirus or who is economically harmed by the Coronavirus (a qualified individual). Penalty-free distributions are limited to $100,000, and may, subject to guidelines, be re-contributed to the plan or IRA. Income arising from the distributions is spread out over three years unless the employee elects to turn down the spread out. Employers may amend defined contribution plans to provide for these distributions. Additionally, defined contribution plans are permitted additional flexibility in the amount and repayment terms of loans to employees who are qualified individuals.

Waiver of required distribution rules. Required minimum distributions that otherwise would have to be made in 2020 from defined contribution plans (such as 401(k) plans) and IRAs are waived. This includes distributions that would have been required by April 1, 2020, due to the account owner’s having turned age 70 1/2 in 2019.

Charitable deduction liberalizations. The CARES Act makes four significant liberalizations to the rules governing charitable deductions:

(1) Individuals will be able to claim a $300 above-the-line deduction for cash contributions made, generally, to public charities in 2020. This rule effectively allows a limited charitable deduction to taxpayers claiming the standard deduction.

(2) The limitation on charitable deductions for individuals that is generally 60% of modified adjusted gross income (the contribution base) doesn’t apply to cash contributions made, generally, to public charities in 2020 (qualifying contributions). Instead, an individual’s qualifying contributions, reduced by other contributions, can be as much as 100% of the contribution base. No connection between the contributions and COVID-19 activities is required.

(3) Similarly, the limitation on charitable deductions for corporations that is generally 10% of (modified) taxable income doesn’t apply to qualifying contributions made in 2020. Instead, a corporation’s qualifying contributions, reduced by other contributions, can be as much as 25% of (modified) taxable income. No connection between the contributions and COVID-19 activities is required.

(4) For contributions of food inventory made in 2020, the deduction limitation increases from 15% to 25% of taxable income for C corporations and, for other taxpayers, from 15% to 25% of the net aggregate income from all businesses from which the contributions were made.

Exclusion for employer payments of student loans. An employee currently may exclude $5,250 from income for benefits from an employer-sponsored educational assistance program. The CARES Act expands the definition of expenses qualifying for the exclusion to include employer payments of student loan debt made before January 1, 2021.

Break for remote care services provided by high deductible health plans. For plan years beginning before 2021, the CARES Act allows high deductible health plans to pay for expenses for tele-health and other remote services without regard to the deductible amount for the plan.

Break for nonprescription medical products. For amounts paid after December 31, 2019, the CARES Act allows amounts paid from Health Savings Accounts and Archer Medical Savings Accounts to be treated as paid for medical care even if they aren’t paid under a prescription. And, amounts paid for menstrual care products are treated as amounts paid for medical care. For reimbursements after December 31, 2019, the same rules apply to Flexible Spending Arrangements and Health Reimbursement Arrangements.

Business only provisions

Employee retention credit for employers. Eligible employers can qualify for a refundable credit against, generally, the employer’s 6.2% portion of the Social Security (OASDI) payroll tax (or against the Railroad Retirement tax) for 50% of certain wages (below) paid to employees during the COVID-19 crisis.

The credit is available to employers carrying on business during 2020, including non-profits (but not government entities), whose operations for a calendar quarter have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also available to employers who have experienced a more than 50% reduction in quarterly receipts, measured on a year-over-year basis relative to the corresponding 2019 quarter, with the eligible quarters continuing until the quarter after there is a quarter in which receipts are greater than 80% of the receipts for the corresponding 2019 quarter.

For employers with more than 100 employees in 2019, the eligible wages are wages of employees who aren’t providing services because of the business suspension or reduction in gross receipts described above.

For employers with 100 or fewer full-time employees in 2019, all employee wages are eligible, even if employees haven’t been prevented from providing services. The credit is provided for wages and compensation, including health benefits, and is provided for the first $10,000 in eligible wages and compensation paid by the employer to an employee. Thus, the credit is a maximum $5,000 per employee.

Wages don’t include (1) wages taken into account for purposes of the payroll credits provided by the earlier Families First Coronavirus Response Act for required paid sick leave or required paid family leave, (2) wages taken into account for the employer income tax credit for paid family and medical leave (under Code Sec. 45S) or (3) wages in a period in which an employer is allowed for an employee a work opportunity credit (under Code Sec. 51). An employer can elect to not have the credit apply on a quarter-by-quarter basis.

The IRS has authority to advance payments to eligible employers and to waive penalties for employers who do not deposit applicable payroll taxes in reasonable anticipation of receiving the credit. The credit is not available to employers receiving Small Business Interruption Loans. The credit is provided for wages paid after March 12, 2020 through December 31, 2020.

Delayed payment of employer payroll taxes. Taxpayers (including self-employeds) will be able to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022. Taxes that can be deferred include the 6.2% employer portion of the Social Security (OASDI) payroll tax and the employer and employee representative portion of Railroad Retirement taxes (that are attributable to the employer 6.2% Social Security (OASDI) rate). The relief isn’t available if the taxpayer has had debt forgiveness under the CARES Act for certain loans under the Small Business Act as modified by the CARES Act (see below). For self-employeds, the deferral applies to 50% of the Self-Employment Contributions Act tax liability (including any related estimated tax liability).

Net operating loss liberalizations. The 2017 Tax Cuts and Jobs Act (the 2017 Tax Law) limited NOLs arising after 2017 to 80% of taxable income and eliminated the ability to carry NOLs back to prior tax years. For NOLs arising in tax years beginning before 2021, the CARES Act allows taxpayers to carryback 100% of NOLs to the prior five tax years, effectively delaying for carrybacks the 80% taxable income limitation and carryback prohibition until 2021.

The Act also temporarily liberalizes the treatment of NOL carryforwards. For tax years beginning before 2021, taxpayers can take an NOL deduction equal to 100% of taxable income (rather than the present 80% limit). For tax years beginning after 2021, taxpayers will be eligible for: (1) a 100% deduction of NOLs arising in tax years before 2018, and (2) a deduction limited to 80% of taxable income for NOLs arising in tax years after 2017.

The provision also includes special rules for REITS, life insurance companies, and the Code Sec. 965 transition tax. There are also technical corrections to the 2017 Tax Law effective dates for NOL changes.

Deferral of noncorporate taxpayer loss limits. The CARES Act retroactively turns off the excess active business loss limitation rule of the TCJA in Code Sec. 461(l) by deferring its effective date to tax years beginning after December 31, 2020 (rather than December 31, 2017). (Under the rule, active net business losses in excess of $250,000 ($500,000 for joint filers) are disallowed by the 2017 Tax Law and were treated as NOL carryforwards in the following tax year.)

The CARES Act clarifies, in a technical amendment that is retroactive, that an excess loss is treated as part of any net operating loss for the year, but isn’t automatically carried forward to the next year. Another technical amendment clarifies that excess business losses do not include any deduction under Code Sec. 172 (NOL deduction) or Code Sec. 199A (qualified business income deduction).

Still another technical amendment clarifies that business deductions and income don’t include any deductions, gross income or gain attributable to performing services as an employee. And because capital losses of non-corporations cannot offset ordinary income under the NOL rules, capital loss deductions are not taken into account in computing the Code Sec. 461(l) loss and the amount of capital gain taken into account cannot exceed the lesser of capital gain net income from a trade or business or capital gain net income.

Acceleration of corporate AMT liability credit. The 2017 Tax Law repealed the corporate alternative minimum tax (AMT) and allowed corporations to claim outstanding AMT credits subject to certain limits for tax years before 2021, at which time any remaining AMT credit could be claimed as fully-refundable. The CARES Act allows corporations to claim 100% of AMT credits in 2019 as fully-refundable and further provides an election to accelerate the refund to 2018.

Relaxation of business interest deduction limit. The 2017 Tax Law generally limited the amount of business interest allowed as a deduction to 30% of adjusted taxable income (ATI). The CARES Act generally allows businesses, unless they elect otherwise, to increase the interest limitation to 50% of ATI for 2019 and 2020, and to elect to use 2019 ATI in calculating their 2020 limitation. For partnerships, the 30% of ATI limit remains in place for 2019 but is 50% for 2020. However, unless a partner elects otherwise, 50% of any business interest allocated to a partner in 2019 is deductible in 2020 and not subject to the 50% (formerly 30%) ATI limitation. The remaining 50% of excess business interest from 2019 allocated to the partner is subject to the ATI limitations. Partnerships, like other businesses, may elect to use 2019 partnership ATI in calculating their 2020 limitation.

Technical correction to restore faster write-offs for interior building improvements. The CARES Act makes a technical correction to the 2017 Tax Law that retroactively treats (1) a wide variety of interior, non-load-bearing building improvements (qualified improvement property (QIP)) as eligible for bonus deprecation (and hence a 100% write-off) or for treatment as 15-year MACRS property or (2) if required to be treated as alternative depreciation system property, as eligible for a write-off over 20 years. The correction of the error in the 2017 Tax Law restores the eligibility of QIP for bonus depreciation, and in giving QIP 15-year MACRS status, restores 15-year MACRS write-offs for many leasehold, restaurant and retail improvements.

Accelerated payment of credits for required paid sick leave and family leave. The CARES Act authorizes IRS broadly to allow employers an accelerated benefit of the paid sick leave and paid family leave credits allowed by the Families First Coronavirus Response Act by, for example, not requiring deposits of payroll taxes in the amount of credits earned.

Pension funding delay. The CARES Act gives single employer pension plan companies more time to meet their funding obligations by delaying the due date for any contribution otherwise due during 2020 until January 1, 2021. At that time, contributions due earlier will be due with interest. Also, a plan can treat its status for benefit restrictions as of December 31, 2019 as applying throughout 2020.

Certain SBA loan debt forgiveness isn’t taxable. Amounts of Small Business Administration Section 7(a)(36) guaranteed loans that are forgiven under the CARES Act aren’t taxable as discharge of indebtedness income if the forgiven amounts are used for one of several permitted purposes. The loans have to be made during the period beginning on February 15, 2020 and ending on June 30, 2020.

Suspension of certain alcohol excise taxes. The CARES Act suspends alcohol taxes on spirits withdrawn during 2020 from a bonded premises for use in or contained in hand sanitizer produced and distributed in a manner consistent with FDA guidance related to the outbreak of virus SARSCoV- 2 or COVID-19.

Suspension of certain aviation taxes. The CARES Act suspends excise taxes on air transportation of persons and of property and on the excise tax imposed on kerosene used in commercial aviation. The suspension runs from March 28, 2020 to December 31, 2020.

UPDATED: Ohio Passes Legislation to Extend Tax Deadlines

The Ohio Senate unanimously passed the much-anticipated House Bill 197 to address several items during the COVID-19 health and economic crisis. Some of the key tax provisions include:

  • The extension of the state and school districting income tax returns for individual filers from April 15th to July 15th to mirror the federal deadlines
  • The extension of the state-administered municipal net profit tax return for businesses filers from April 15th to July 15th to mirror the federal deadlines
  • Changing the due date for estimated taxes and waiving any penalties and interest associated with the extensions of time to file.

The full text of the legislation can be read here.


UPDATE: March 27, 2020 5:00PM

Ohio Extending Income Tax Filing and Payment Deadline

Tax Commissioner Jeff McClain today announced that Ohio will be following the federal government and IRS in extending the deadline to file and pay the state income tax.
The new deadline is July 15, an extension of approximately three months from the original deadline of April 15.

Commissioner McClain said the extension is intended to provide some relief to taxpayers and help offset some of the economic impact of the coronavirus and the public safety measures adopted to contain its spread.

As with the IRS extension, Ohio will be waiving penalty on tax due payments made during the extension. Also, thanks to a legislative agreement between Governor Mike DeWine and the General Assembly, there will be no interest charges on payments made during the extension.

The filing extension, and waiver of penalty and interest, will be available to those filing the Ohio individual income tax, the school district income tax, the pass-through entity tax, and to those taxpayers that have opted in to have the commissioner administer the municipal net profit tax through the state’s centralized filing system.

Individuals, estates, trusts and certain businesses making quarterly estimated income tax payments, have also been granted additional time to file and pay without penalty or interest. The first and second quarterly payments, normally scheduled for April 15 and June 15 for most taxpayers, have both been extended to July 15.

The Department of Taxation will be issuing more detailed guidelines in the next few days.