Special Tax Alert
The Senate Republicans released a revised draft (the “Revised Bill”) of their initial proposal (the “Original Proposal”) for the Phase 3 COVID-19 Bill yesterday. The Revised Bill is nearly 580 pages long and generally covers the same wide range of areas. Since its release, the Senate failed a key procedural hurdle last night, as well as this afternoon. This reflects the fact that there are still points of contention between the parties, particularly around unemployment insurance, limitations on stock buybacks and executive pay for corporations that get federal assistance, and worker protections. Nonetheless, we feel it is important to highlight some of the notable changes that were made to the tax provisions of the Original Proposal as this reflects the most recent bill text we have seen from Congress. Our alert discussing the Original Proposal can be found here.
Due Date Extensions
Late Friday evening, the IRS released Notice 2020-18, which supersedes Notice 2020-17, and allows taxpayers to make their federal income tax payments (including estimated taxes) that are due on April 15, 2020 by July 15, 2020 without any penalty. As a result, the Revised Bill does not include similar provisions that were included in the Original Proposal.
The Revised Bill does retain the Original Proposal’s extension of the due date of the employer’s portion of payroll taxes and 50% of self-employment taxes (regardless of the individual’s income level) from 2019 to 50% being due on December 31, 2021 and 50% due on December 31, 2022.
It is important to keep in mind, that the time to file all other returns, including returns that the due on a date other than April 15 (e.g., income tax returns of fiscal year taxpayers) and non-income tax returns (e.g., payroll), as well as various elections (e.g., section 83(b) elections) have not been extended. Additionally, the deadline to apply for a “quickie refund” of an overpayment of 2019 estimated taxes is April 15. It is our view that the deadline to apply for this refund has not changed, but the issue is not entirely clear. For a discussion of a quickie refund, please see our prior alert.
NOL Carrybacks and Excess Business Losses
The Revised Bill retains the NOL carrybacks and excess business losses provision from the Original Proposal but addresses the drafting glitch we highlighted in our last alert, so that the NOL carryback applies to losses arising in the 2018, 2019, and 2020 taxable years.
AMT Refundable Credit
The Revised Bill provides that the AMT minimum tax credit is 50% refundable in 2018 and 50% refundable in 2019. The Original Proposal provided that the entire amount of the credit was refundable in 2018, requiring taxpayers to file an amended 2018 tax return to claim the refund. The change to spread the refund period over 2018 and 2019 makes it so taxpayers do not need to file an amended 2018 return in order to obtain the refund.
However, taxpayers can elect to claim the full amount of the refundable credit in 2018. If such an election is made, then Revised Bill provides that such claim for refund is not subject to review by the Joint Committee of Taxation prior to issuance of the refund.
Modifications to Limitation on Interest Expense Deduction
The Revised Bill generally retains the proposed changes to the limitation on business interest expense (section 163(j) limitation) that were included in the Original Proposal, with two notable exceptions. First, the Revised Bill adds special 2019 rules that apply to partnerships.
Second, similar to the Original Proposal, the Revised Bill provides that for taxable years beginning in 2020, a taxpayer can elect to use its 2019 adjusted taxable income (ATI) to calculate its section 163(j) limitation. However, the Revised Bill provides further relief by allowing the taxpayer to prorate its 2019 ATI, if 2020 is a short year (the Original Proposal disallowed the use of the taxpayer’s 2019 ATI in computing its 2020 section 163(j) limitation if the taxpayer had a short year)…