Extending more return filing deadlines, explaining how taxpayers can take advantage of the retail glitch fix, and allowing amended partnership returns are among the slew of coronavirus-related guidance projects on the IRS’s plate.
Speaking on an April 2 webinar hosted by the American Bar Association Section of Taxation, IRS Chief Counsel Michael Desmond described the work his office is doing to implement legislation enacted to address the economic impact of the coronavirus pandemic.
Desmond noted that the IRS has so far issued two notices, Notice 2020-18, 2020-15 IRB 1, and Notice 2020-20, 2020-16 IRB 1, extending the deadline for some federal income tax payments and return filings from April 15 to July 15. He said the government has in recent weeks been inundated with requests from tax organizations to provide more expansive relief.
“We have received hundreds of additional comments in terms of time-sensitive dates in the internal revenue laws that are not covered by that April 15 payment and filing deadline extension,” Desmond said. “Those are all being triaged here, and we're considering all of them.”
The IRS is reviewing Rev. Proc. 2018-58, 2018-50 IRB 990, and reg. section 301.7508A-1 to determine what other tax deadlines may be extended when a federal disaster is declared, Desmond said.
“All of that is on the table right now,” Desmond said. “And I do expect we'll have additional guidance very soon responding to many of the questions that have come in since the issuance of Notice 2020-18.”
Jennifer Breen of Morgan, Lewis & Bockius LLP asked whether fiscal-year taxpayers whose filing and payment deadlines don’t fall on April 15 will get their deadlines extended to July 15.
“That's certainly at the top of the list of things that we're considering,” Desmond responded. “We're cognizant of that universe of taxpayers — taxable and tax-exempts — [whose deadlines] may not fall on April 15 in terms of their filing and payment obligations. . . . Stay tuned for something on that, hopefully in the very near future.”
Bonus Depreciation
Lisa M. Zarlenga of Steptoe & Johnson LLP asked if the IRS plans to issue guidance on how taxpayers can take advantage of the retail glitch fix contained in the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136). The legislation made a retroactive technical correction so that qualified improvement property may be treated as qualified property eligible for bonus depreciation.
Taxpayers will need rules on how to retroactively claim bonus depreciation and how to revoke elections to opt out of the interest expense deduction limitations of section 163(j), Zarlenga said.
Desmond said the IRS is considering the best way that can be done and is aware taxpayers need guidance soon. “I can't say any decisions have been made yet,” he said. “We've been trying to triage the CARES Act provisions, and those questions you raise are front and center for us.”
Treasury and the IRS are also working to address comments they’ve received about the barriers that could arise because of changes to the partnership audit regime made by the Bipartisan Budget Act of 2015, Desmond said.
Tax practitioners have pointed out that taxpayers subject to the Bipartisan Budget Act audit regime aren’t able to simply file amended returns; instead, they must file administrative adjustment requests. Practitioners have asked if exceptions can be made to permit partnerships to amend their returns, “or, as we do in connection with some of the [global intangible low-taxed income] regulations, provide for superseding returns for partnerships,” Desmond said.
“It’s an issue we're considering so we can facilitate the use by partnerships of some of the CARES Act provisions,” Desmond said.
NOLs and Other Guidance
The government has also received many comments on implementing the CARES Act provisions that add a five-year carryback period and temporarily repeal the 80 percent limitation for net operating losses arising in 2018, 2019, and 2020, Desmond said.
Chief counsel is working on two buckets of guidance, Desmond said. One bucket will address procedural issues regarding the NOL provisions, such as using Form 1139 or Form 1045 to request refunds from NOL carrybacks, he said. The other bucket will address substantive issues, including how the NOL rules interact with the international provisions, he said.
Another CARES Act guidance project will deal with the new employee retention credit program, which provides qualifying employers with a refundable payroll tax credit of up to $5,000 for each employee’s wages paid from March 13 through December 31, 2020.
An employer qualifies if its operations were fully or partially suspended during the coronavirus crisis by a governmental shutdown order, or if its gross receipts declined by more than 50 percent when compared with the same quarter in 2019.
Breen said that for employers that need cash quickly, the “significant decline in gross receipts” test may not be a feasible way to qualify for the credit because they may need to wait until the second or third quarter to see if they’ve had a significant drop.
“So if employers are going to want to take advantage of this immediately, they're going to really need to rely on this governmental shutdown order,” Breen said. However, because jurisdictions across the United States are taking different approaches to limiting what types of activities can and can’t be performed, businesses need guidance on what constitutes a government shutdown order, she said.
Desmond noted that the IRS issued a FAQ March 31 addressing some issues on how the credit works. However, the agency recognizes that there are several threshold questions on credit eligibility that also need to be fleshed out, he added.
“The one about the scope of closure due to a government order is probably at the top of that list in terms of other questions that we need to answer,” Desmond said, adding that what constitutes carrying on a trade or business is another key question.
“We do certainly recognize that the other trigger for eligibility — this quarter-over-quarter decline in revenue — is one that you can't measure until the end of the quarter, so that puts pressure on that governmental order shutdown provision as a trigger for eligibility,” Desmond said, adding that the IRS is working to issue guidance.
“Stay tuned,” Desmond said. “I don't have any specific answers as to how we'll address that, but we recognize that’s the most important question for that threshold eligibility.”