Newsletters

The IRS has announced the launch of two new online tools to help families verify, manage and monitor monthly payments of child tax credits under the American Rescue Plan Act (ARP) ( P.L. 117-2). These are in addition to the Non-filer Sign-up tool announced last week, which helps families register for child tax credits. The tools are both available through the Update Portal at https://www.irs.gov/credits-deductions/child-tax-credit-update-portal.

The IRS has announced the launch of two new online tools to help families verify, manage and monitor monthly payments of child tax credits under the American Rescue Plan Act (ARP) (P.L. 117-2). These are in addition to the Non-filer Sign-up tool announced last week, which helps families register for child tax credits. The tools are both available through the Update Portal at https://www.irs.gov/credits-deductions/child-tax-credit-update-portal.

The Treasury and IRS have urged taxpayers to use a special online tool to determine eligibility for the Child Tax Credit (CTC) and the special monthly advance payments beginning on July 15. The new CTC Eligibility Assistant is interactive and easy to use. It is particularly useful to those who do not normally file a federal tax return and have not yet filed either a 2019 or 2020 return.

"This new tool provides an important first step to help people understand if they qualify for the CTC, which is especially important for those who don’t normally file a tax return," said IRS Commissioner Chuck Rettig. "The eligibility assistant works in concert with other features on IRS.gov to help people receive this important credit. The IRS is working hard to deliver the expanded Child Tax Credit, and we will be rolling out additional help for taxpayers in the near future. Where possible, please help us help others by distributing CTC information in your communities," he added.

The CTC Eligibility Assistant does not request any personally-identifiable information for any family member. The tool can be found at https://www.irs.gov/credits-deductions/advance-child-tax-credit-eligibility-assistant.

In addition to verification of their eligibility, the Update Portal allows a taxpayer to unenroll from receiving monthly payments, in order to receive a lump sum. The tool can be found at https://www.irs.gov/credits-deductions/advance-child-tax-credit-payments-in-2021. The unenroll feature is helpful to families that no longer qualify for the child tax credit or believe they will not qualify when they file their 2021 return. This could happen if:

• their income in 2021 is too high to qualify for the credit;
• someone else (an ex-spouse or another family member, for example) qualifies to claim their child or children as dependents in 2021; or
• their main home was outside of the United States for more than half of 2021.

Further, future versions and new features of the tool are planned for the summer and fall. These updates will allow taxpayers to view their payment history, adjust bank account information or mailing addresses. In general, these payments will go to families who:

• filed either a 2019 or 2020 federal income tax return;
• used the Non-Filers tool register for an Economic Impact Payment; or
• registered for the advance child tax credit using the new Non-filer Sign-up tool.

Next, eligible families will receive advance payments, either by direct deposit or check. Each payment will be up to $300 per month for each child under age six and up to $250 per month for each child ages six through 17. Filing soon will ensure that the IRS has taxpayers’ most current bank account information and key details about qualifying family members. This includes individuals who do not normally file tax returns, including families experiencing homelessness and individuals in undeserved groups.

The IRS also announced pertinent child tax credit changes. The ARP raised the maximum child tax credit to $3,600 for children under the age of six and to $3,000 per child for children ages six through 17. Finally, the IRS urged community groups, non-profits, associations, education organizations and taxpayers with connections to individuals with children to share this critical information about the child tax credit as well as other important benefits.

Partnerships, S corporations, and U.S. persons with interests in foreign partnerships may rely on transition relief from penalties for tax years beginning in 2021 with respect to new Schedules K-2 and K-3.

Partnerships, S corporations, and U.S. persons with interests in foreign partnerships may rely on transition relief from penalties for tax years beginning in 2021 with respect to new Schedules K-2 and K-3. These schedules may be required for:

• Form 1065, U.S. Return of Partnership Income,
• Form 1120-S, U.S. Income Tax Return for an S Corporation, and
• Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships.

The IRS also released new draft instructions for Schedules K-2 and K-3. Comments are requested.

Reporting Requirement for Interests in Foreign Partnerships
For tax years beginning in 2021, two new forms may be required when a partnership files Form 1065 or Form 8865, or an S corporation files Form 1120-S (1) Schedule K-2, Partners’ Distributive Share Items—International, and (2) Schedule K-3, Partner’s Share of Income, Deductions, Credits, etc.

The IRS released final versions of these schedules on June 3 and 4, 2021, after receiving comments on draft versions it released in July of 2020.

Waived Penalties for Failing to File or Furnish Schedules K-2 and K-3
The IRS recognizes that a filer may not have systems or procedures in place to obtain information about its partners, shareholders, or the controlled foreign partnership (CFP) to determine whether and how it must file a part of Schedules K-2 and K-3.

Accordingly, for tax years beginning in 2021, penalties will not be imposed for incorrect or incomplete reporting on Schedules K-2 and K-3 if the partnership or S corporation establishes to the satisfaction of the IRS that it made a good faith effort to comply with the requirements to file or furnish the schedules. A Schedule K-2 or K-3 filer that does not establish that it made a good faith effort to comply with the new requirements is not eligible for this penalty relief.

Good Faith Effort to Complete Schedules K-2 and K-3
In determining whether a filer makes a good faith effort to complete Schedules K-2 and K-3, the IRS will take into account:

• the extent to which the filer has changed its systems, processes, and procedures for collecting and processing relevant information;
• the extent to which the filer has obtained information from partners, shareholders, or the CFP, or applied reasonable assumptions when information is not obtained; and
• the steps the filer has taken to modify the partnership or S corporation agreement or governing instrument to facilitate the sharing of information with partners and shareholders that is relevant to determining whether and how to file Schedules K-2 and K-3.

With respect to relevant information about partners, shareholders, or the CFP, the IRS will assess the effort the Schedule K-2/K-3 filer made to obtain this information and the reasonableness of any assumptions, taking into account the relationship between the Schedule K-2/K-3 filer and its partners, shareholders or the CFP. For example, the appropriate level of diligence and/or the reasonableness of an assumption may differ with respect to a partner that manages or controls the partnership, or a partner with a significant interest in the partnership, as compared to partners holding small interests for which there may not be the same ease of access to information. A Schedule K-2/K-3 filer may have made a good faith effort despite being unsuccessful in obtaining information from its partners, shareholders, or the CFP.

Comments Requested
The IRS requests comments on the new draft instructions to Schedules K-2 and K-3 for tax years beginning in 2021. The IRS is especially in comments regarding:

• instances where the instructions do not provide sufficient guidance on how to complete the returns or where additional clarity is needed;
• suggestions for addressing structures and situations that make it difficult to determine certain information (for example, tiered partnership structures or publicly-traded partnerships; and
• reasonable assumptions Schedule K-2/K-3 filers could make in determining whether and how to complete Schedules K-2 and K-3 for tax years beginning after 2021, and whether these assumptions may differ between various parts of the Schedules K-2 and K-3.

Comments must be submitted in writing and should include a reference to Notice 2021-39. The IRS strongly encourages electronic comments submitted via the Federal eRulemaking Portal at https://www.regulations.gov (type IRS-2021-0006 in the search field on the regulations.gov homepage to find this notice and submit comments). However, to the extent practicable, the IRS will also consider paper comments it receives by mail.

The Departments of the Treasury, Labor, and Health and Human Services (the Departments), have issued interim final rules and identical proposed regulations to implement provisions of the No Surprises Act.

The Departments of the Treasury, Labor, and Health and Human Services (the Departments), have issued interim final rules and identical proposed regulations to implement provisions of the No Surprises Act. On December 27, 2020, the Consolidated Appropriations Act, 2021 (CAA), which included the No Surprises Act, was signed into law. The No Surprises Act provides federal protections against surprise billing and limits out-of-network cost sharing under many of the circumstances in which surprise bills arise most frequently. The regulations are generally applicable for plan years (in the individual market, policy years) beginning on or after January 1, 2022.

Application of No Surprises Rules
The interim and proposed Treasury regulations implement the rules under the new Code Sec. 9816 regarding the prevention of surprise medical bills, Code Sec. 9817 regarding surprise ambulance bills, and Code Sec. 9822 regarding the choice of health care professional. The regulations apply to group health plans, including grandfathered plans. They do not apply to excepted benefits, short-term, limited-duration insurance, or health reimbursement arrangements or other account-based group health plans.

The interim regulations also include largely overlapping HHS and DOL regulations that apply to health insurance issuers offering group or individual health insurance coverage, and carriers in the Federal Employees Health Benefits Act (FEHB) Program to provide protections against balance billing and out-of-network cost sharing with respect to emergency services, non-emergency services furnished by nonparticipating providers at certain participating health care facilities, and air ambulance services furnished by nonparticipating providers of air ambulance services.

The new regulations prohibit nonparticipating providers, health care facilities, and providers of air ambulance services from balance billing participants, beneficiaries, and enrollees in certain situations, and permit these providers and facilities to balance bill individuals if certain notice and consent requirements in the No Surprises Act are satisfied. They also require certain health care facilities and providers to provide disclosures of federal and state patient protections against balance billing.

The regulations recodify certain patient protections that initially appeared in the Affordable Care Act and provide that the No Surprises Act applies to grandfathered plans. They also set forth complaints processes with respect to violations of the protections against balance billing and out-of-network cost sharing under the No Surprises Act.

These new rules protect individuals from surprise medical bills for emergency services, air ambulance services furnished by nonparticipating providers, and non-emergency services furnished by nonparticipating providers at participating facilities in certain circumstances. Among other requirements, they require emergency services to be covered without any prior authorization, without regard to whether the health care provider furnishing the emergency services is a participating provider or a participating emergency facility with respect to the services, and without regard to any other term or condition of the plan or coverage other than the exclusion or coordination of benefits or a permitted affiliation or waiting period.

Additionally, emergency services include certain services in an emergency department of a hospital or an independent freestanding emergency department, as well as post-stabilization services in certain instances.

Effective Dates and Comments
The regulations are generally applicable for plan years (in the individual market, policy years) beginning on or after January 1, 2022. However, the HHS-only regulations that apply to health care providers, facilities, and providers of air ambulance services are applicable beginning on January 1, 2022. The OPM-only regulations that apply to health benefits plans are applicable to contract years beginning on or after January 1, 2022.

Comments must be received no later than 5 p.m. on September 7, 2021. Comments, including mass comment submissions, must be submitted in one of the following three ways: electronically at https://www.regulations.gov by entering the file code in the search window and then clicking on “Comment”; by regular mail to the Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-9909-IFC, P.O. Box 8016, Baltimore, MD 21244-8016; or by express or overnight mail to the Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-9909-IFC, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

The IRS has proposed regulations that would amend the rules for filing electronically and affects persons required to file partnership returns, corporate income tax returns, unrelated business income tax returns, withholding tax returns, certain information returns, registration statements, disclosure statements, notifications, actuarial reports, and certain excise tax returns.

The IRS has proposed regulations that would amend the rules for filing electronically and affects persons required to file partnership returns, corporate income tax returns, unrelated business income tax returns, withholding tax returns, certain information returns, registration statements, disclosure statements, notifications, actuarial reports, and certain excise tax returns.

The proposed amendments reflect changes made by the Taxpayer First Act of 2019 (TFA), P.L. 116-25, and are consistent with the TFA’s emphasis on increasing electronic filing.

The IRS is also withdrawing proposed regulations ( REG-102951-16) published in the Federal Register on May 31, 2018, that would amend the rules for determining whether information returns must be filed electronically.

Electronic Filing
Amendments are proposed to:

• income tax regulations under Code Secs. 1461 and 1474, which provide that persons required to deduct and withhold tax are liable for such tax; and Code Sec. 6050I, which requires persons to report information about financial transactions to the IRS;
• pension excise tax regulations under Code Sec. 6011, which require persons to report information for certain excise taxes related to employee benefit plans;
• regulations under Code Secs. 1474, 6011, 6012, 6033, 6057, 6058, and 6059, for determining whether returns must be filed using magnetic media; and
• regulations under Code Sec. 6011 to remove the option available to a person required to report certain excise taxes on Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code, to designate a Form 4720 filed by a private foundation or trust as that person’s return if the foundation is reporting the same transaction.

Under Code Sec. 6011(e) and related regulations, filers are already required to file returns and statements electronically if, during a calendar year, they are required to file 250 or more returns. Eight related proposed rules would lower the 250-return threshold as authorized by Code Sec. 6011(e), as amended by section 2301 of the TFA. A filer can request that the IRS waive the electronic-filing requirement if the filer’s cost to comply with the rule would cause a financial hardship, and the IRS routinely grants meritorious hardship waiver requests.

Under Code Sec. 6050I and related regulations, filers are required to file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, if, in the course of their trade or business, they receive more than $10,000 in cash in one transaction or in two or more related transactions. The related proposed rule would require filers of Forms 8300 to file those forms electronically if such filers are also required to file returns electronically under Reg. §§301.6011-2(b)(1) and (2). The Treasury Department and the IRS expect filers of Form 8300 to use FinCEN’s BSA E-Filing System, which is free, requiring only an internet connection.

Under Code Sec. 6011(e)(4) and related regulations, financial institutions defined in Code Sec. 1471(d)(5) already are required to electronically file Forms 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding. The related proposed rule would extend this filing requirement to Forms 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, filed by the same financial institutions.

Under Code Sec. 6011(h), as amended by section 3101 of the TFA, organizations required to file annual returns relating to any tax imposed by Code Sec. 511 must file those returns in electronic form. A proposed regulation implements this statutory requirement.

Under Code Sec. 6033(n), as amended by section 3101 of the TFA, organizations required to file returns under Code Sec. 6033 must file those returns in electronic form. Proposed regulations implement this statutory requirement.

Seven proposed regulations would require electronic filing for certain returns not currently required to be filed electronically. Because electronic filing has become more common, accessible, and economical, the economic impact of these proposed rules on small entities is expected be insignificant. If the cost to comply with these electronic-filing requirements would cause a financial hardship, an entity may request a waiver, and the IRS routinely grants meritorious hardship waiver requests.

Comments Requested
The proposed rules are scheduled to be published in the Federal Register on July 23, 2021, and available online at federalregister.gov/d/2021-15615, and on govinfo.gov. Written or electronic comments must be received by September 21, 2021, the date that is 60 days after the date the proposed rules are published in the Federal Register. Comments may be submitted electronically at www.regulations.gov (indicate IRS and REG-102951-16), or by mail.

The public hearing is being held by teleconference on September 22, 2021, at 10 a.m. EST. Requests to speak and outlines of topics to be discussed at the public hearing must be received by September 21, 2021. If no outlines are received by that date, the public hearing will be cancelled. Requests to attend the public hearing must be received by 5:00 p.m. EST on September 20, 2021.

Secretary of the Treasury Janet L.Yellen addressed the support for a global minimum tax for corporations at a press conference at the close of the G20 Finance Ministers and Central Bank Governors Meetings, on July 11, 2021.

Secretary of the Treasury Janet L.Yellen addressed the support for a global minimum tax for corporations at a press conference at the close of the G20 Finance Ministers and Central Bank Governors Meetings, on July 11, 2021, see https://home.treasury.gov/news/press-releases/jy0270. Secretary Yellen stated that now 132 countries, representing more than 90 percent of global GDP have agreed to the outline of a global tax deal. Secretary Yellen praised what she sees as a "revival of multilateralism" on taxation and other issues. She stated, "we continue to see consensus around – and enthusiasm for – a global corporate minimum tax rate of at least 15%, as well as a partial reallocation of taxing rights to reflect the realities of the modern business world. … This deal will end the race to the bottom. Instead of asking the question: ‘Who can offer the lowest tax rate?,’ it will allow all of our countries to compete on the basis of economic fundamentals – on the skill of our workforces, our capacity to innovate, and the strength of our legal and economic institutions. And this deal will give our nations the ability to raise the necessary funding for important public goods like infrastructure, R & D, and education."

Implementation in the United States
In response to a question on OECD Pillar One (nexus and source rules), Secretary Yellen said the details of Pillar One remain to be negotiated, and she would say that OECD Pillar Two is further along. Secretary Yellen stated, "Pillar Two [the minimum tax rate], we're hoping to have incorporated in the coming budget resolution and reconciliation bill the changes that are necessary to put it into effect, but Pillar One will be on a slightly slower track. We will work with Congress. Maybe it will be ready in the Spring of 2022 and we will try to determine at that point what's necessary for implementation."

The IRS has provided a procedure for making elections and revocations under Act Sec. 2303(e) of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) ( P.L. 116-136) for taxpayers with a net operating loss (NOL) for any tax year beginning in 2018, 2019, or 2020, all or a portion of which consists of a farming loss (farming loss NOLs). The procedure is effective on the date of its release, June 30, 2021.

The IRS has provided a procedure for making elections and revocations under Act Sec. 2303(e) of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) ( P.L. 116-136) for taxpayers with a net operating loss (NOL) for any tax year beginning in 2018, 2019, or 2020, all or a portion of which consists of a farming loss (farming loss NOLs). The procedure is effective on the date of its release, June 30, 2021.

Specifically, the procedure:

• prescribes when and how to make an election with regard to all NOLs of the taxpayer, regardless of whether the NOL is a farming loss NOL;
• provides that a taxpayer is treated as having made a deemed election under Act Sec. 2303(e)(1) of the CARES Act if the taxpayer, before December 27, 2020, filed one or more original or amended tax returns, or applications for tentative refund, that disregard the CARES Act amendments with regard to a farming loss NOL; and
• prescribes when and how to revoke an election made under Code Sec. 172(b)(1)(B)(iv) or (b)(3) to waive the two-year carryback period for the farming loss portion of a farming loss NOL incurred in a tax year beginning in 2018 or 2019.

TCJA Amendments to NOL Rules
The Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97) amended the NOL rules to provide that, with regard to NOLs arising in a tax year beginning after 2017, the amount allowed as an NOL deduction cannot exceed 80 percent of the taxable income computed without regard to any NOL deduction (the 80-percent limitation). The 80-percent limitation does not apply in the case of a non-life insurance company. The TCJA also eliminated NOL carrybacks, except that a two-year carryback period is allowed for the portion of an NOL that is a farming loss. Taxpayers entitled to this two-year carryback period may make an irrevocable election to waive it. A separate rule provides that any taxpayer entitled to an NOL carryback period may irrevocably elect to relinquish the entire carryback period with respect to that NOL for any tax year. The TCJA changes relating to loss carrybacks apply to NOLs arising in tax years beginning after 2017.

CARES Act Amendments to NOL Rules
The CARES Act temporarily suspended the 80-percent limitation so that it applies only to NOLs arising in tax years beginning after 2017 that are deducted in tax years beginning after 2020. In addition, it provided a five-year carryback period for any NOL arising in a tax year beginning after 2017 and before 2021. The two-year carryback period for farming losses does not apply to any such NOL.

CTRA 2020 Amendments to CARES Act
The COVID-related Tax Relief Act of 2020 (CTRA 2020), which was enacted as part of the Consolidated Appropriations Act, 2021 (CAA 2021) ( P.L. 116-260) amended Act Sec. 2303 of the CARES Act by adding a new subsection (e), which took effect as if originally included in that CARES Act, to provide that a taxpayer with a farming loss NOL for any tax year beginning in 2018, 2019, or 2020, may make an election to disregard the CARES Act amendments.

If a taxpayer makes the election: (i) the 80-percent limitation applies to determine the NOL deduction for each tax year beginning in 2018, 2019, or 2020 to the extent the deduction is attributable to NOLs arising in tax years beginning after 2017, but the 80-percent limitation does not apply to determine the NOL deduction for any tax year beginning before 2018, (ii) the modified taxable income rule applies with regard to each tax year beginning in 2018, 2019, or 2020, and (iii) the NOL carryback period is determined under Code Sec. 172(b), as amended by the TCJA and effective prior to enactment of the CARES Act, for any NOL arising in any tax year beginning in 2018, 2019, or 2020.

An election to disregard the CARES Act amendments (an affirmative election) must be made in the manner prescribed by the IRS. Once made, an election is irrevocable. An affirmative election must be made by the due date, including extensions of time, for filing the taxpayer’s tax return for the first tax year ending after December 27, 2020.

In the case of any taxpayer with a farming loss NOL that files a tax return before December 27, 2020, that disregards the CARES Act amendments, the taxpayer is treated as having made a deemed election (a deemed election) unless the taxpayer amends the return to reflect such amendments by the due date (including extensions of time) for filing the taxpayer’s tax return for the first tax year ending after December 27, 2020.

A taxpayer can revoke an election made under Code Sec. 172(b)(1)(B)(iv) or (b)(3) to waive the two-year carryback period if the election (i) was made before December 27, 2020; and (ii) relates to the two-year carryback period for the portion of any farming loss NOL that is a farming loss arising in tax years beginning in 2018 or 2019.

Procedure for Making Elections to Disregard CARES Act Amendments
Affirmative election. A taxpayer with a farming loss NOL, other than a taxpayer making a deemed election described below, may make an affirmative election under Act Sec. 2303(e)(1) of the CARES Act if: (i) the farming loss NOL arose in any tax year beginning in 2018, 2019, or 2020; and (ii) the taxpayer:

• makes the affirmative election on a statement described below by the due date, including extensions of time, for filing the taxpayer’s tax return for the first tax year ending after December 27, 2020; and
• attaches a statement to its tax return for the first tax year ending after December 27, 2020, that provides at the top: "The taxpayer elects under § 2303(e)(1) of the CARES Act and Revenue Procedure 2021-14 to disregard the amendments made by § 2303(a) of the CARES Act for taxable years beginning in 2018, 2019, and 2020, and the amendments made by § 2303(b) of the CARES Act that would otherwise apply to any net operating loss arising in any taxable year beginning in 2018, 2019, or 2020. The taxpayer incurred a Farming Loss NOL, as defined in section 1.01 of Revenue Procedure 2021-14, in [list each applicable taxable year beginning in 2018, 2019, or 2020]." The taxpayer should also attach a copy of the statement to any original or amended tax return or application for tentative refund on which the taxpayer claims a deduction attributable to a two-year NOL carryback pursuant to the affirmative election.

Deemed election. A taxpayer is treated as having made a deemed election under Act Sec. 2303(e)(1) of the CARES Act if the taxpayer, before December 27, 2020, filed one or more original or amended tax returns, or applications for tentative refund, that disregard the CARES Act amendments with regard to a farming loss NOL. Special procedure is provided for certain taxpayers whose two-year carryback claims filed before December 27, 2020, were rejected. Generally, if such a taxpayer wants to continue to pursue those claims, the taxpayer should submit complete copies of their rejected applications or claims, including the original or amended tax returns for the tax years in which the NOLs arose, in the manner set forth in the procedure.

A taxpayer will not be treated as having made a deemed election if, for each tax year for which the taxpayer filed an original or amended tax return or an application for tentative refund that treated a farming loss NOL in a manner that disregards the CARES Act amendments, the taxpayer subsequently files either (i) an amended return by the due date, including extensions of time, for filing the taxpayer’s tax return for the first tax year ending after December 27, 2020, or (ii) an application for tentative refund within the required time for filing such an application and also by the due date, including extensions of time, for filing the taxpayer’s tax return for the first tax year ending after December 27, 2020. The amended return or application must properly reflect the treatment of each farming loss NOL under the CARES Act amendments.

Procedure for Revocation of Election Not to Apply the Two-year Carryback Period for Farming Losses
A taxpayer that elected under Code Sec. 172(b)(1)(B)(iv) or (b)(3) not to have the two-year carryback period apply to the farming loss portion of a farming loss NOL incurred in a tax year beginning in 2018 or 2019 may revoke that election, if the taxpayer:

• made that election before December 27, 2020;
• makes the revocation by the date that is three years after the due date, including extensions of time, for filing the return for the tax year the farming loss NOL was incurred; and
• attaches a statement to an amended return for the loss year that provides at the top: "Pursuant to section 4.01 of Rev. Proc. 2021-14 the taxpayer is revoking a prior §172(b)(1)(B)(iv) or § 172(b)(3) election not to have the two-year carryback period provided by § 172(b)(1)(B)(i) apply to the Farming Loss NOL, as defined in section 1.01 of Rev. Proc. 2021-14, incurred in the taxable year."

Consolidated Groups
The procedure provides special rules for consolidated groups for making an affirmative election, consequences of affirmative and deemed elections, and reliance on rules in Reg. §1.1502-21 regarding the application of the 80-percent limitation.

The IRS has provided answers to questions that certain transportation companies may have regarding Treasury grants and related taxes.

The IRS has provided answers to questions that certain transportation companies may have regarding Treasury grants and related taxes, https://www.irs.gov/newsroom/coronavirus-economic-relief-for-transportation-services-certs-frequently-asked-questions. These companies must largely prioritize the use of the grants for payroll costs, though grants may be used for operating expenses, including the acquisition of services and any equipment needed to protect workers and customers from COVID-19. In addition, the funds may also be used for the repayment of debt accrued to maintain payroll. The IRS reminded the companies that funds not used for eligible activities within one year of receipt of the grant, must be returned to the Treasury.

The Service reminded the companies that the Coronavirus Economic Relief for Transportation Services (CERTS) Act ( P.L. 117-24) authorizes the Treasury to provide grants to transportation service providers that experienced annual revenue losses of 25 percent or more as a result of COVID-19. Under which, the IRS posted answers to two questions:

• are the grants taxable? Yes, the receipt of a CERTS Act grant is not excluded from the recipient’s gross income under the Code and therefore is taxable; and
• are costs for which the grants are used deductible? Yes, the costs are deductible to the extent that they are otherwise deductible under the law. The tax law generally permits the payment of wages, salaries, and benefits to employees and other amounts paid to carry on a trade or business to be deducted as ordinary and necessary business expenses.

The IRS reminded taxpayers that their website (www.irs.gov) provides millions of visitors with the answers they need to fit their busy summer schedules.

The IRS reminded taxpayers that their website ( www.irs.gov) provides millions of visitors with the answers they need to fit their busy summer schedules. Taxpayers who requested an extension to October 15 or missed the May 17 deadline can still prepare and e-file tax returns for free with the IRS Free File tool. Further, taxpayers can view, download or print tax products, and do the following:

Use the "File" tab on the home page for most federal income tax needs. Access the Interactive Tax Assistant tool that can answer many tax law questions.
See their tax account with the View Your Account tool. With this, they can find information such as a payoff amount, the balance for each tax year owed, up to 24 months of their payment history and key information from their current tax year return as originally filed.
Use the Get Transcript tool to view, print or download their tax transcripts after the IRS has processed the return.
Find the most up-to-date information about tax refunds using the Where's My Refund? tool on the IRS website and on the official IRS mobile app, IRS2Go. Taxpayers can start checking on the status of their refund 24 hours after the IRS acknowledges receipt of an e-filed return.
Additionally, many pages on the IRS website are now available in Spanish, Vietnamese, Russian, Korean, Haitian, Creole, and Chinese—simplified and traditional. Earlier this year, the agency posted a Spanish language version of Form 1040 PDF and the related instructions.

Assistive Technology
Moreover, at the online Alternative Media Center (AMC), taxpayers can find a variety of accessible products like screen reading software, refreshable Braille displays, and screen magnifying software. These products include tax forms, instructions, and publications that can be downloaded or viewed online as Section 508 compliant PDF, HTML, eBraille, text, and large print. However, every product is not available in all formats. For example, tax forms are not available as HTML. To request paper copies of tax forms, instructions or publications in Braille or large print, taxpayers must call the tax form telephone number at 800-829-3676.

Coronavirus Tax Relief Information
Further, the IRS has published ready-to-use articles, e-posters, videos, and much more on the website about Economic Impact Payments, the Recovery Rebate Credit, and the Advance Child Tax Credit. The IRS placed a special emphasis on partnering with organizations that work with groups focusing on veterans, homeless and low-income taxpayers as well as non-English speaking audiences to share information. In all, the IRS worked with thousands of partners across the country reaching organizations representing hundreds of millions of taxpayers.

IRS Tax Withholding Estimator
Finally, the IRS Tax Withholding Estimator helps employees assess their income tax, credits, adjustments and deductions and determine whether they need to change their withholding by submitting a new Form W-4, Employee's Withholding Allowance Certificate. However, taxpayers should remember that, if needed, they should submit their new W-4 to their employer, not the IRS.

President Trump on March 27 signed the $2 trillion bipartisan Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136). The House approved the historically large emergency relief measure by voice vote just hours before Trump’s signature. The CARES Act cleared the Senate unanimously on March 25, by a 96-to-0 vote.

President Trump on March 27 signed the $2 trillion bipartisan Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136). The House approved the historically large emergency relief measure by voice vote just hours before Trump’s signature. The CARES Act cleared the Senate unanimously on March 25, by a 96-to-0 vote.

Generally, the following individual and business tax-related provisions are included in what lawmakers have dubbed the "phase three" COVID-19 emergency relief package:

• Direct cash payments of up to $1,200 for certain individual taxpayers and $2,400 for certain married couples filing jointly; those amounts would increase by $500 for every eligible child;
• The 10-percent early withdrawal penalty is waived for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes;
• Payments delayed for employer-side payroll taxes;
• The taxable income limit is eliminated for certain net operating losses (NOL) and businesses and individuals can carry back NOLs arising in 2018, 2019, and 2020 to the last five tax years;
• Excess business loss rules suspended under section 461(l);
• Refunds accelerated of previously generated corporate AMT credits;
• Forgivable loans to small businesses that retain their employees throughout this crisis;
• Temporarily enact provisions of the bipartisan Employer Participation in Repayment Act, which would allow employers to contribute up to $5,250 tax-free to help pay down their employees’ student loans; and
• Various technical corrections to the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97), including the so-called retail glitch.

Wolters Kluwer Special Report CARES Act Tax Briefing
Wolters Kluwer provides a detailed discussion of the tax-related provisions under the CARES Act in the "Special Report CARES Act (COVID-19 Economic Stimulus) Tax Briefing" (at https://engagetax.wolterskluwer.com/Cares-Act.pdf).

Let’s Work Together
Treasury Secretary Steven Mnuchin, who spent many late nights in the U.S. Capitol recently participating in bipartisan negotiations on the Senate’s CARES Act, thanked Republican and Democratic leadership in both the Senate and the House for their bipartisanship. "I am pleased that Congress has passed the CARES Act, the largest economic relief package in history for hardworking Americans and businesses that, through no fault of their own, have been adversely impacted by the coronavirus outbreak," Mnuchin said in a March 27 press release. "President Trump is fully committed to ensuring that American workers and businesses have the resources they need. This legislation provides much-needed relief to help our fellow Americans overcome this difficult but temporary challenge."

Phase Four Economic Relief Package
The CARES Act is considered "phase three" of lawmakers’ and the Trump administration’s collaborative response to the COVID-19 pandemic. Meanwhile, lawmakers on both sides of the aisle, including House Ways and Means Committee Chair Richard Neal, D-Mass., have said they want to see a fourth economic relief measure.

"Our work to help Americans during this emergency won’t stop here. Congress must do more to address the significant public health and economic consequences of the coronavirus," Neal said in a March 27 statement. "In a fourth response package, I want to provide any needed additional support to people who have lost their incomes and to affected patients and health care providers. We should take bold action to improve our country’s economic health too," he added. Additionally, Neal said that he would like to see the Earned Income Tax Credit (EITC) and the Child Tax Credit expanded, as well as infrastructure investments to put people back to work and reinvigorate the economy.

Legislative View – Looking Back and Ahead
"From a legislative view, the CARES Act shares the key characteristics that we’ve seen with other emergency legislation, namely bipartisan willingness to forego typical concerns over cost and take action at unusual speed," John Gimigliano, principal-in-charge of federal legislative and regulatory services in the Washington National Tax practice of KPMG LLP, told Wolters Kluwer in a March 27 emailed statement. "Similar dynamics were apparent in other emergency legislation including bills enacted after the attacks of September 11, Hurricane Katrina, and during the financial crisis," Gimigliano added. "But those precedents also show that each of those three characteristics begins to break down with successive legislative attempts. That made quick passage of the CARES Act key and the development of a ‘coronavirus 4’ package something to watch closely."

Lawmakers are continuing talks on a "phase four" economic relief package in response to the COVID-19 global pandemic. To that end, the House’s "CARES 2" package is currently in the works and could see a floor vote as early as this month.

Lawmakers are continuing talks on a "phase four" economic relief package in response to the COVID-19 global pandemic. To that end, the House’s "CARES 2" package is currently in the works and could see a floor vote as early as this month.

"CARES 2"
President Trump signed into law the $2 trillion bipartisan Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-127) on March 27. The CARES Act is known on Capitol Hill as the third phase of legislation aimed to address the national emergency. However, House Speaker Nancy Pelosi, D-Calif., has said that a House floor vote on a "CARES 2" package could happen later in April.

"The acceleration of the coronavirus crisis demands that we continue to legislate," Pelosi said in a "Dear Colleagues" letter sent out to members during the week of April 6. "We must double down on the down-payment we made in the CARES Act by passing a CARES 2 package, which will extend and expand this bipartisan legislation to meet the needs of the American people," she added. According to Pelosi, the CARES 2 package would (1) go further in assisting small businesses (including farmers), (2) extend and strengthen unemployment benefits, and (3) distribute additional direct payments.

"Our communities cannot afford to wait, and we must move quickly," Pelosi wrote. "It is my hope that we will craft this legislation and bring it to the Floor later this month."

Paycheck Protection Program
Meanwhile, the Trump administration is seeking an increase in funding for the CARES Act’s Paycheck Protection Program. Accordingly, several bipartisan lawmakers have called for congressional action to provide the necessary funding needed for small businesses. The administration is reportedly asking for an additional $250 billion for the largely overrun loan program.

"Through this tax break, workers can get back on payrolls and stay there. By working with their bank, small businesses can get eight weeks of cash-flow assistance through 100 percent federally guaranteed loans," House Ways and Means ranking member Kevin Brady, R-Tex., said on April 7. "If the business [including churches] uses the money to maintain payroll, the portion of the loans used for covered payroll costs, interest on mortgage obligations, rent, and utilities would be forgiven."

Likewise, Senate Majority Leader Mitch McConnell, R-Ky., called for swift action on the matter. "Congress needs to act with speed and total focus to provide more money for this uncontroversial bipartisan program," McConnell said on April 7. "I will work with [Treasury] Secretary Steven Mnuchin and [Senate Minority Leader Chuck] Schumer and hope to approve further funding for the Paycheck Protection Program by unanimous consent or voice vote during the next scheduled Senate session on Thursday."

The Treasury Department and IRS have provided a notice with additional relief for taxpayers, postponing until July 15, 2020, a variety of tax form filings and payment obligations that are due between April 1, 2020 and July 15, 2020. Associated interest, additions to tax, and penalties for late filing or late payment will be suspended until July 15, 2020. Additional time to perform certain time-sensitive actions during this period is also provided. The notice also postpones due dates with respect to certain government acts and postpones the application date to participate in the Annual Filing Season Program. This notice expands upon the relief provided in Notice 2020-18, I.R.B. 2020-15, 590, and Notice 2020-20, I.R.B. 2020-16, 660.

The Treasury Department and IRS have provided a notice with additional relief for taxpayers, postponing until July 15, 2020, a variety of tax form filings and payment obligations that are due between April 1, 2020 and July 15, 2020. Associated interest, additions to tax, and penalties for late filing or late payment will be suspended until July 15, 2020. Additional time to perform certain time-sensitive actions during this period is also provided. The notice also postpones due dates with respect to certain government acts and postpones the application date to participate in the Annual Filing Season Program. This notice expands upon the relief provided in Notice 2020-18, I.R.B. 2020-15, 590, and Notice 2020-20, I.R.B. 2020-16, 660.

NOTE: The relief is limited to the relief explicitly provided in Notice 2020-18, Notice 2020-20, and Notice 2020-23, and does not apply for any other type of federal tax, any other type of federal tax return, or any other time-sensitive act.

Relief Measures

• Taxpayers Affected by COVID-19 Emergency. Any person (as defined in Code Sec. 7701(a)(1)) with a federal tax payment obligation specified in the notice, or a federal tax return or other form filing obligation specified in the notice, which is due to be performed (originally or pursuant to a valid extension) on or after April 1, 2020, and before July 15, 2020, is affected by the COVID-19 emergency for purposes of the relief.
• Postponement of Due Dates. For an affected taxpayer, the due date for filing specified forms and making specified payments is automatically postponed to July 15, 2020. This relief is automatic: affected taxpayers do not have to call the IRS or file any extension forms, or send letters or other documents to receive this relief. However, affected taxpayers who need additional time to file may choose to file the appropriate extension form by July 15, 2020, to obtain an extension to file their return, but the extension date may not go beyond the original statutory or regulatory extension date.
• Specified Time-Sensitive Actions. Affected taxpayers also have until July 15, 2020, to perform all specified time-sensitive actions listed in either Reg. §301.7508A-1(c)(1)(iv) - (vi) or Rev. Proc. 2018-58, I.R.B. 2018-50, 990, that are due to be performed on or after April 1, 2020, and before July 15, 2020. This includes the time for filing all petitions with the Tax Court, or for review of a decision rendered by the Tax Court, filing a claim for credit or refund of any tax, and bringing suit upon a claim for credit or refund of any tax.
• Certain Government Acts. The notice also provides the IRS with additional time to perform the time-sensitive actions described in Reg. §301.7508A-1(c)(2). Due to the COVID-19 emergency, IRS employees, taxpayers, and other persons may be unable to access documents, systems, or other resources necessary to perform certain time-sensitive actions due to office closures or state and local government executive orders restricting activities.
• Annual Filing Season Program. Under Rev. Proc. 2014-42, I.R.B. 2014-29, 192, applications to participate in the Annual Filing Season Program for the 2020 calendar year must be received by April 15, 2020. The relief postpones the 2020 calendar year application deadline to July 15, 2020.

Specified Forms and Payments
The filing and payment obligations covered by the relief are the following:

• Individual income tax payments and return filings on Form 1040, Form 1040-SR, Form 1040-NR, Form 1040-NR-EZ, Form 1040-PR, and Form 1040-SS.
• Calendar year or fiscal year corporate income tax payments and return filings on Form 1120, Form 1120-C, Form 1120-F, Form 1120-FSC, Form 1120-H, Form 1120-L, Form 1120-ND, Form 1120-PC, Form 1120-POL, Form 1120-REIT, Form 1120-RIC, Form 1120-S, and Form 1120-SF.
• Calendar year or fiscal year partnership return filings on Form 1065 and Form 1066.
• Estate and trust income tax payments and return filings on Form 1041, Form 1041-N, and Form 1041-QFT.
• Estate and generation-skipping transfer tax payments and return filings on Form 706, Form 706-NA, Form 706-A, Form 706-QDT, Form 706-GS(T), Form 706-GS(D), Form 706-GS(D-1), and Form 8971.
• Gift and generation-skipping transfer tax payments and return filings on Form 709 that are due on the date an estate is required to file Form 706 or Form 706-NA.
• Estate tax payments of principal or interest due as a result of an election made under Code Secs. 6166, 6161, or 6163 and annual recertification requirements under Code Sec. 6166.
• Exempt organization business income tax and other payments and return filings on Form 990-T.
• Excise tax payments on investment income and return filings on Form 990-PF and return filings on Form 4720.
• Quarterly estimated income tax payments calculated on or submitted with Form 990-W, Form 1040-ES, Form 1040-ES (NR), Form 1040-ES (PR), Form 1041-ES, and Form 1120-W.
  Notice 2020-18, I.R.B. 2020-15, 590, and Notice 2020-20, I.R.B. 2020-16 are amplified. Rev. Proc. 2014-42, I.R.B. 2014-29, 192, is modified, applicable for calendar year 2020.

synopsisThe Treasury Department and the IRS have released the "Get My Payment" tool to assist Americans in receiving their “economic impact payments” issued under the bipartisan Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136). The free tool went live on April 15, and is located at https://www.irs.gov/coronavirus/get-my-payment.

The Treasury Department and the IRS have released the "Get My Payment" tool to assist Americans in receiving their “economic impact payments” issued under the bipartisan Coronavirus Aid, Relief, and Economic Security (CARES) Act ( P.L. 116-136). The free tool went live on April 15, and is located at https://www.irs.gov/coronavirus/get-my-payment.

Get My Payment
The "Get My Payment" tool generally allows consumers to check the status of their payments, and to enter their direct deposit information if the IRS does not already have it.

"Thanks to hard work and long hours by dedicated IRS employees, these payments are going out on schedule, as planned, without delay, to the nation," the IRS said in an April 15 statement emailed to Wolters Kluwer. "The IRS employees are delivering these payments in record time compared to previous stimulus efforts."

Treasury had earlier announced that millions of Americans were already starting to see their economic impact payments. "These payments are being automatically issued to eligible 2019 or 2018 federal tax return filers who received a refund using direct deposit," Treasury said in an April 13 press release.

Non-Filers Option
Americans who did not file a tax return in 2018 or 2019 can use the "Non-Filers: Enter Payment Info Here" option ( https://www.irs.gov/coronavirus/non-filers-enter-payment-info-here) to submit basic personal information to receive their payments.

For those who filed 2018 or 2019 tax returns with direct deposit information or receive Social Security, however, no additional action on their part is needed. These individuals are expected to automatically receive the payment in their bank accounts.

"We are pleased that more than 80 million Americans have already received their Economic Impact Payments by direct deposit in record time," Treasury Secretary Steven Mnuchin said in an April 15 press release. "The free ‘Get My Payment App’ will allow Americans who do not have their direct deposit information on file with the IRS to input it, track the status, and get their money fast."

Status Not Available
Many individuals began voicing complaints on April 15 that the Get My Payment tool was not functional. In response, the IRS on the same day stated: "The Get My Payment site is operating smoothly and effectively. As of mid-day today, more than 6.2 million taxpayers have successfully received their payment status and almost 1.1 million taxpayers have successfully provided banking information, ensuring a direct deposit will be quickly sent. IRS is actively monitoring site volume; if site volume gets too high, users are sent to an online ‘waiting room’ for a brief wait until space becomes available, much like private sector online sites. Media reports saying the tool ‘crashed’ are inaccurate."

The IRS also provided consumers with the following information regarding certain situations in which payment status is deemed unavailable. The IRS listed the following reasons why users may receive the "Status Not Available" notice while using the online tool:

• If you are not eligible for a payment (see IRS.gov on who is eligible and who is not eligible).
• If you are required to file a tax return and have not filed in tax year 2018 or 2019. If you recently filed your return or provided information through Non-Filers: Enter Your Payment Info on IRS.gov. Your payment status will be updated when processing is completed.
• If you are a SSA or RRB Form 1099 recipient, SSI or VA benefit recipient– the IRS is working with your agency to issue your payment; your information is not available in this app yet.

"You can check the app again to see whether there has been an update to your information," the IRS said. "The IRS reminds taxpayers that Get My Payment data is updated once per day, so there’s no need to check back more frequently."

The IRS has issued guidance providing administrative relief under the Coronavirus Aid, Relief and Economic Security (CARES) Act ( P.L. 116-136) for taxpayers with net operating losses (NOLs).

The IRS has issued guidance providing administrative relief under the Coronavirus Aid, Relief and Economic Security (CARES) Act ( P.L. 116-136) for taxpayers with net operating losses (NOLs).

The CARES Act provides a five-year carryback for NOLs arising in tax years beginning in 2018, 2019, and 2020. The Tax Cuts and Jobs Act ( P.L. 115-97) had eliminated carryback periods effective for tax years ending after 2017. Some taxpayers have filed 2018 and 2019 returns without using five-year carryback period.

The relief:

• provides procedures for waiving the carryback period in the case of an NOL arising in a tax year beginning after December 31, 2017, and before January 1, 2020; and
• describes how taxpayers with NOLs arising in tax years 2018, 2019, or 2020 can elect to either waive the carryback period for those losses entirely or to exclude from the carryback period for those losses any years in which the taxpayer has an inclusion in income as a result of the Code Sec. 965(a) transition tax.

Six Month Extension for Filing Refund Claims
Taxpayers are granted an extension of time to file refund applications on Form 1045 (individuals, estates, and trusts) or Form 1139 (corporations) with respect to the carryback of an NOL that arose in any tax year that began during calendar year 2018 and that ended on or before June 30, 2019.

2017/2018 Fiscal-Year Taxpayers
Relief is also provided for 2017/2018 fiscal year taxpayer who failed to claim an NOL carryback due to a drafting error in the Tax Cuts and Jobs Act that provided the termination of two-year NOL carryback period applied to NOLs arising in tax years ending after 2017. The CARES Act corrects the effective date error by providing that the termination applies to tax years beginning after 2017. This makes these taxpayers eligible to claim an NOL carryback. The CARES Act allows these taxpayer to file a late application for a tentative refund. An application for a tentative refund is considered timely if filed by July 25, 2020.

The guidance also explains how 2017/2018 fiscal year taxpayer may waive the carryback period, reduce the carryback period (if it is longer than the standard two-year carryback), or revoke an election to waive a carryback period for a tax year that began before January 1, 2018, and ended after December 31, 2017.

Partnerships with NOLs
See the story "BBA Partnerships Can Amend Returns for CARES Benefits" on Rev. Proc. 2020-23, below.

The Treasury Department and IRS have extended the due date for the payment of federal income taxes otherwise due on April 15, 2020, until July 15, 2020, as a result of the ongoing coronavirus (COVID-19) emergency. The extension is available to all taxpayers, and is automatic. Taxpayers do not need to file any additional forms or contact the IRS to qualify for the extension. The relief only applies to the payment of federal income taxes. Penalties and interest on any remaining unpaid balance will begin to accrue on July 16, 2020.

The Treasury Department and IRS have extended the due date for the payment of federal income taxes otherwise due on April 15, 2020, until July 15, 2020, as a result of the ongoing coronavirus (COVID-19) emergency. The extension is available to all taxpayers, and is automatic. Taxpayers do not need to file any additional forms or contact the IRS to qualify for the extension. The relief only applies to the payment of federal income taxes. Penalties and interest on any remaining unpaid balance will begin to accrue on July 16, 2020.

Dollar Limits
The due date for making federal income tax payments otherwise due on April 15, 2020, for any taxpayer is automatically extended until July 15, 2020. The extension is limited to a maximum amount:

• up to $1 million for individuals, regardless of filing status, and other unincorporated entities such as trust and estates; and
• up to $10 million for each C corporation that does not join in filing a consolidated return or for each consolidated group.

Federal Income Tax Payments Only
The relief is available for federal income tax payments, including payments of tax on self-employment income, otherwise due on April 15, 2020. Thus, it applies to the payment of federal income taxes for the 2019 tax year, as well estimated income tax payments for the 2020 tax year that are due on April 15, 2020. The extension is not available for the payment or deposit of any other type of federal tax.

Taxpayers are urged to check with their state tax agencies for details on any delays in filing and payment state taxes.

Penalties and Interest
Any interest, penalty, or addition to tax for failure to pay federal income taxes postponed will not begin to accrue until July 16, 2020. The period from April 15, 2020, to July 15, 2020, will be disregarded but only for interest, penalties, or additions to tax up to maximum dollar amounts ($1 million or $10 million as applicable).

Interest, penalties, and additions to tax will continue to accrue from April 15, 2020, on the amount of any federal income tax in excess of the maximum dollar amounts. Taxpayers subject to penalties or additions to tax that are not suspended may seek reasonable cause under Code Sec. 6651 for failure to pay tax.

Individuals and certain trusts and estates may also seek a waiver to a penalty under Code Sec. 6654 for failure to pay estimated income taxes. Similar relief is not available for estimated tax payments by corporations or tax-exempt organizations for the penalty under Code Sec. 6655.

The IRS has provided emergency relief for health savings accounts (HSAs) and COVID-19 health plans costs. Under this relief, health plans that otherwise qualify as high-deductible health plans (HDHPs) will not lose that status merely because they cover the cost of testing for or treatment of COVID-19 before plan deductibles have been met. In addition, any vaccination costs will count as preventive care and can be paid for by an HDHP.

The IRS has provided emergency relief for health savings accounts (HSAs) and COVID-19 health plans costs. Under this relief, health plans that otherwise qualify as high-deductible health plans (HDHPs) will not lose that status merely because they cover the cost of testing for or treatment of COVID-19 before plan deductibles have been met. In addition, any vaccination costs will count as preventive care and can be paid for by an HDHP.

HSAs and HDHPs
Eligible individuals can deduct contributions to HSAs. One requirement to qualify as an individual is to be covered under an HDHP and have no disqualifying health coverage. An HDHP is a health plan that satisfies certain requirements, including requirements with respect to minimum deductibles and maximum out-of-pocket expenses.

COVID-19 Relief
A health plan that otherwise satisfies the HDHP requirements will not fail to be an HDHP merely because it provides medical care services and items purchased related to testing for and treatment of COVID-19 prior to satisfaction of the applicable minimum deductible. As a result, the individuals covered by such a plan will not fail to be eligible individuals merely because of the provision of health benefits for testing and treatment of COVID-19.

This relief provides flexibility to HDHPs to provide health benefits for COVID-19 testing and treatment without application of a deductible or cost sharing. Individuals participating in HDHPs or any other type of health plan should consult their particular health plan regarding health benefits for COVID-19 testing and treatment provided by the plan, including the potential application of any deductible or cost sharing.

Caution. The IRS states that this relief applies only to HSA-eligible HDHPs. Employees and other taxpayers in any other type of health plan should contact their plan with specific questions about what their plan covers.

On December 20, President Donald Trump signed the bipartisan, year-end government spending and tax package, just hours before federal funding was set to expire. Trump's signature on the over 2,000-page spending package avoided a government shutdown.

On December 20, President Donald Trump signed the bipartisan, year-end government spending and tax package, just hours before federal funding was set to expire. Trump's signature on the over 2,000-page spending package avoided a government shutdown.

Year-End Tax Package
The Further Consolidated Appropriations Act, 2020, (HR 1865), logs just over 700 pages and serves as only half of the government spending package for fiscal year 2020, which runs through September 30. Most notably, HR 1865 serves as the legislative vehicle for a year-end tax package, which carries a costly $426 billion price tag over a 10-year budget window, according to the nonpartisan Joint Committee on Taxation (JCT), JCX-54R-19.

Some of the tax-related provisions in the year-end package include, among other items:

• Retroactive and current renewal of over two dozen temporary tax breaks known as tax extenders, which have expired or would soon be expired, spanning from 2017 to 2019. Generally, the renewed tax breaks are extended through 2020, and the biodiesel and short-line railroad maintenance tax credits are extended until 2022;
• The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) (HR 1994), which makes sweeping changes to retirement savings and employer retirement contributions provisions;
• Certain fixes to the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97); and
• Full repeal of three tax-related provisions of the Affordable Care Act (ACA) ( P.L. 111-148), two of which include the 2.3 percent excise tax on medical devices and the 40 percent excise "Cadillac" tax on high-dollar employer-sponsored health insurance plans.

The House approved HR 1865 on December 17 by a 297-to-120 vote. The Senate cleared the measure on December 19 by a 71-to-23 vote.

"So in the end, with more than $400 billion in tax cuts, there were lots of winners and the usual loser – the budget."

"There were numerous fits and starts, but this result is a reminder that Congressional muscle memory on extenders is very strong, so ultimately the members did what they always do – extend them," John Gimigliano, principal-in-charge of the federal legislative and regulatory services group in the Washington National Tax practice of KPMG LLP told Wolters Kluwer. "Some might be surprised to see the ACA taxes rolled back, but it has always felt like those items were on borrowed time; it was really just a question of when and how they were repealed, not whether. So in the end, with more than $400 billion in tax cuts, there were lots of winners and the usual loser – the budget."

SECURE ACT
The bipartisan SECURE Act, which cleared the House in May but remained stalled in the Senate most of the year, makes a number of major as well as administrative changes for retirement savings affecting both individuals and employers.

Some of those changes are noted as follows:

IRA Changes

• Moving the start date for requirement required minimum distributions (RMDs) to the year the owner turns 72;
• Ending the 70 1/2 age limit for contribute contributions to an IRA; and
• Shortening the distribution period for nonspouse inherited IRAs to a 10-year maximum.
  The 10-year window for distributions to a nonspouse beneficiary applies regardless of when the IRA owner dies. Thus, the change will severely limit the use of "stretch IRAs" as an effective planning tool. Limited exceptions are available.

401(k) Changes

• Requiring plans to offer participation to long-term, part-time employees;
• Encouraging auto-enrollment by increasing the cap; and
• Streamlining the safe harbor for non-elective contributions.

Employers with 401(k) plans must offer employees who work between 500 and 1000 hours year an additional means to participate in the plan. The rule change would only affect 401(k) cash or deferral arrangements, and no other qualified plans.

Retirement Plans for Small Employers

Several changes are made to encourage more small employers to offer retirement benefits to their employees, such as:

• Adding a new tax credit for small employers using auto-enrollment plans;
• Increasing the credit for small employer pension plan start-up costs; and
• Allow small employers of two or more to band together to participate in a new class of pooled multiple employer plans (MEPs).

Congress Adjourns Until 2020
After an eventful two-week sprint to the finish line, Congress adjourned for the year on December 20. Lawmakers are expected to return to Washington, D.C. during the week of January 6, 2020.

The IRS has released final regulations that present guidance on how certain organizations that provide employee benefits must calculate unrelated business taxable income (UBTI) under Code Sec. 512(a).

The IRS has released final regulations that present guidance on how certain organizations that provide employee benefits must calculate unrelated business taxable income (UBTI) under Code Sec. 512(a).

Background

Organizations that are otherwise exempt from tax under Code Sec. 501(a) are subject to tax on their unrelated business taxable income (UBTI) under Code Sec. 511(a). Code Sec. 512(a) defines UBTI of exempt organizations and provides special rules for calculating UBTI for organizations described in Code Sec. 501(c)(7) (social and recreational clubs), voluntary employees’ beneficiary associations (VEBAs) described in Code Sec. 501(c)(9) and supplemental unemployment benefit trusts (SUBs) described in Code Sec. 501(c)(17).

Covered Entity

"Covered entity" describes VEBAs and SUBs subject to the UBTI computation rules under Code Sec. 512(a)(3). A corporation is treated as having exempt function income for a taxable year only if it files a consolidated return with the organization described in Code Sec. 501(c)(7), (9), or (17). These final regulations add a clause to clarify that the term "covered entity" includes a corporation described in Code Sec. 501(c)(2) to the extent provided in Code Sec. 512(a)(3)(C).

Nonrecognition of Gain

If a property used directly in the performance of the exempt function of a covered entity is sold by that covered entity, and other property is subsequently purchased and used by the covered entity directly in the performance of its exempt function—at any point within a four-year period beginning one year before the date of the sale and ending three years after the date of sale—gain, if any, from the sale is recognized only to the extent that the sales price of the old property exceeds the covered entity’s cost of purchasing the other property.

Limitation on Amounts Set Aside for Exempt Purposes

The total amount of investment income earned during the year should be considered when calculating whether an excess exists at the end of the year. Any investment income a covered entity earns during the taxable year is subject to unrelated business income tax (UBIT) to the extent the covered entity’s year-end assets exceed the account limit.

Effective Date

The final regulations apply to tax years beginning on or after December 10, 2019.

The IRS has issued a revenue procedure with a safe harbor that allows certain interests in rental real estate to be treated as a trade or business for purposes of the Code Sec. 199A qualified business income (QBI) deduction. The safe harbor is intended to lessen taxpayer uncertainty on whether a rental real estate interest qualifies as a trade or business for the QBI deduction, including the application of the aggregation rules in Reg. §1.199A-4.

The IRS has issued a revenue procedure with a safe harbor that allows certain interests in rental real estate to be treated as a trade or business for purposes of the Code Sec. 199A qualified business income (QBI) deduction. The safe harbor is intended to lessen taxpayer uncertainty on whether a rental real estate interest qualifies as a trade or business for the QBI deduction, including the application of the aggregation rules in Reg. §1.199A-4.

QBI Deduction and Rental Real Estate
Under Code Sec. 199A, certain noncorporate taxpayers can deduct up to 20 percent of the taxpayer’s QBI from each of the taxpayer's qualified trades or businesses, including those operated through a partnership, S corporation, or sole proprietorship. Certain relevant passthrough entities (RPEs) (partnerships, S corporations, trust funds) calculate the deduction and pass it along to their owners or beneficiaries. A qualified trade or business is generally any trade or business under Code Sec. 162, but not a specified service trade or business (SSTB) or a trade or business of performing services as an employee.

Rental or licensing of tangible or intangible property (i.e., rental activity) that is not a Code Sec. 162 trade or business is still treated as a trade or business for the QBI deduction if the property is rented or licensed to a trade or business conducted by the individual or a RPE which is commonly controlled under Reg. §1.199A-4 ( Reg. §1.199A-1(b)(14)).

Earlier this year, the IRS released a proposed revenue procedure with a safe harbor for treating a rental real estate enterprise as a trade or business under Code Sec. 199A ( Notice 2019-7, I.R.B. 2019-9, 740). The IRS has issued the new revenue procedure after considering public comments on Notice 2019-7.

Rental Real Estate Enterprise
The new safe harbor applies to a "rental real estate enterprise." This is an interest in real property held for the production of rents, and may consist of an interest in a single property or interests in multiple properties. The taxpayer or RPE must hold each interest directly or through a disregarded entity, and may either:

• treat each interest in similar property held for the production of rents as a separate rental real estate enterprise; or
• treat interests in all similar properties held for the production of rents as a single rental real estate enterprise.

Properties are similar if they are part of the same rental real estate category: either residential or commercial. Commercial real estate held for the production of rents can only be part of the same enterprise with other commercial real estate. Residential properties can only be part of the same enterprise with other residential properties.

A taxpayer or RPE that treats interests in similar properties as a single rental real estate enterprise must continue to treat interests in all similar properties, including newly acquired properties, as a single rental real estate enterprise if it continues to rely on the safe harbor. However, a taxpayer or RPE that chooses to treat its interest in each residential or commercial property as a separate rental real estate enterprise can choose to treat its interests in all similar commercial or all similar residential properties as a single rental real estate enterprise in a future year.

An interest in mixed-use property—a single building that combines residential and commercial units—can be treated as a single rental real estate enterprise, or bifurcated into separate residential and commercial interests. A mixed-use property interest that is treated as a single rental real estate enterprise cannot be treated as part of the same enterprise as other residential, commercial, or mixed-use property.

Safe Harbor Requirements
The safe harbor determination must be made annually. For a rental real estate enterprise to qualify for the safe harbor, all of the following requirements must be met during the tax year:

• Separate books and records are maintained to reflect income and expenses for each rental real estate enterprise. If an enterprise has more than one property, the requirement can be met if income and expense information statements for each property are maintained and then consolidated.
• For rental real estate enterprises in existence for less than four years, 250 or more hours of rental services are performed per year. For rental real estate enterprises in existence for at least four years, 250 or more hours of rental services are performed per year in any three of the five consecutive tax years that end with the tax year.
• The taxpayer maintains contemporaneous records (including time reports, logs, or similar documents) on the hours of all services performed, a description of all services performed, the dates when the services were performed, and who performed the services. For services performed by employees or independent contractors, the taxpayer may provide a description of the rental services, the amount of time generally spent performing the services, and the time, wage, or payment records for the employee or independent contractor. Records must be made available for inspection at the IRS's request. (The contemporaneous records requirement does not apply to tax years that begin before January 1, 2020.)
• For each tax year for which it relies on the safe harbor, the taxpayer or RPE must attach a statement to a timely filed original return (or an amended return for the 2018 tax year only) that includes: (i) a description (including the address and rental category) of all rental real estate properties in each rental real estate enterprise; (ii) a description (including the address and rental category) of rental real estate properties acquired and disposed of during the tax year; and (iii) a representation that the requirements of Rev. Proc. 2019-38 have been satisfied.

"Rental services" include, but are not limited to:

• advertising to rent or lease the real estate;
• negotiating and executing leases;
• verifying information contained in prospective tenant applications;
• collecting rent;
• daily operation, maintenance, and repair of the property, including purchasing materials and
• supplies;
• managing the real estate; and
• supervising employees and independent contractors.

Rental services does not include:

• financial or investment management activities, such as arranging financing;
• procuring property;
• studying and reviewing financial statements or reports on operations;
• improving property under Reg. §1.263(a)-3(d); or
• time spent traveling to and from the real estate.

If an enterprise fails to satisfy the safe harbor requirements, it can still be treated as a trade or business for the QBI deduction if it otherwise meets the trade or business definition in Reg. §1.199A-1(b)(14).

Property Excluded From Safe Harbor
The safe harbor does not apply to:

• real estate used by the taxpayer (including an owner or beneficiary of an RPE) as a residence under Code Sec. 280A(d);
• real estate rented or leased under a triple net lease, which includes a lease agreement that requires the tenant or lessee to pay taxes, fees, and insurance, and to pay for maintenance activities for a property in addition to rent and utilities;
• real estate rented to a trade or business conducted by a taxpayer or an RPE that is commonly controlled under Reg. §1.199A-4(b)(1)(i); or
• the entire rental real estate interest, if any portion of it is treated as an SSTB under Reg. §1.199A-5(c)(2).

Effective Date
The safe harbor applies to tax years ending after December 31, 2017. However, taxpayers and RPEs can rely on the prior safe harbor in Notice 2019-7 for the 2018 tax year.

Final regulations dealing with the 100 percent bonus depreciation allowance for qualified property acquired and placed in service after September 27, 2017, allow property which is constructed under a pre-September 28, 2017 binding contract to qualify for the 100 percent rate. The final regulations adopt proposed regulations ( REG-104397-18) with certain modifications, including a revised constructed property rule. In addition, the IRS has issued a new set of proposed regulations dealing with issues it is not ready to finalize.

Final regulations dealing with the 100 percent bonus depreciation allowance for qualified property acquired and placed in service after September 27, 2017, allow property which is constructed under a pre-September 28, 2017 binding contract to qualify for the 100 percent rate. The final regulations adopt proposed regulations ( REG-104397-18) with certain modifications, including a revised constructed property rule. In addition, the IRS has issued a new set of proposed regulations dealing with issues it is not ready to finalize.

FINAL REGULATIONS: Written Binding Contract Rules
Constructed property. The proposed regulations provided that property manufactured, constructed, or produced for the taxpayer by another person under a written binding contract entered into prior to the manufacture, etc., of the property is acquired pursuant to a written binding contract. Thus, if the contract was entered into before September 28, 2017, the 100 bonus rate did not apply.

That rule was scrapped in response to negative feedback. Instead the final regulations provide that such property is treated as self-constructed property, and the contract is ignored for purposes of determining when the property is deemed acquired. The acquisition date is now the date that the taxpayer begins manufacturing, constructing, or producing the property as determined under rules similar to those that apply to 50 percent bonus property.

Acquisition date. The final regulations provide that the acquisition date of property acquired pursuant to a written binding contract is the later of:

• the date on which the contract is entered into;
• the date on which the contract is enforceable under state law;
• if the contract has one or more cancellation periods, the date on which all cancellation periods end; or
• if the contract has one or more contingency clauses, the date on which all conditions subject to such clauses are satisfied.

Liquidated damage clause. When a contract has multiple damage provisions, the final regulations clarify that only the provision with the highest damages is taken into account in determining whether the contract limits damages.

Qualified Improvement Property
The IRS once again declined to make qualified improvement property placed in service after 2017 eligible for bonus depreciation. A legislative change is required to give this property its intended 15-year recovery period. With a 15-year recovery period, qualified improvement property will qualify for bonus depreciation under the general rule that allows bonus depreciation on property with an MACRS recovery period of 20 years or less.

Used Property
Predecessor defined. Property previously used by the taxpayer or a predecessor of a taxpayer does not qualify for bonus depreciation if the taxpayer or predecessor had a depreciable interest in the property. The final regulations define "predecessor" as:

• a transferor of an asset to a transferee in a transaction to which Code Sec. 381(a) applies;
• a transferor of an asset to a transferee in a transaction in which the transferee’s basis in the asset is determined, in whole or in part, by reference to the basis of the asset in the transferor’s hands;
• a partnership that is considered as continuing under Code Sec. 708(b)(2);
• the decedent in the case of an asset acquired by an estate; or
• a transferor of an asset to a trust.

Depreciable interest look back rule. The final regulations do not define a "depreciable interest" because this is a facts and circumstances issue. However, a five-year look back period is provided for determining whether a taxpayer or predecessor held a depreciable interest in property.

Substantially renovated property. If a taxpayer places substantially renovated property in service and the taxpayer or a predecessor previously had a depreciable interest in the property before it was substantially renovated, the taxpayer’s or predecessor’s prior depreciable interest does not prevent the taxpayer from claiming bonus depreciation. Property is substantially renovated if the cost of the used parts is not more than 20 percent of the total cost of the substantially renovated property, whether acquired or self-constructed.

Syndication transactions. A lessor who reacquires property in a syndication transaction is not treated as having a prior depreciable interest in the property.

Partnerships
The final regulations permit a partnership to claim bonus depreciation on the portion of a Code Sec. 743(b) basis increase that is attributable to built-in gain under Code Sec. 704(c), even if the partnership is using the remedial allocation method. An exception is provided for publicly traded partnerships that need to maintain fungibility for publicly traded partnership units.

If a partnership interest is acquired and disposed of during the same tax year, the bonus deduction is not allowed for any Code Sec. 743(b) adjustment arising from the initial acquisition. However, if a partnership interest is purchased and disposed of in a "step-in-the shoes" Code Sec. 168(i)(7) transaction in the same tax year, bonus on the section 743(b) adjustment is allowed. The section 743(b) adjustment is apportioned between the purchaser/transferor and the transferee.

The final regulations also clarify the treatment of qualified property transferred in a Code Sec. 721(a) transaction to a partnership in the same tax year that the qualified property is acquired by the transferor if the partnership has another partner who previously had a depreciable interest in the qualified property. In this situation, the qualified property is deemed placed in service by the transferor during that tax year, and the bonus deduction is allocated entirely to the transferor and not to the partnership. Thus, the contributing partner has contributed property with a zero basis to the partnership, and the contributed property is Code Sec. 704(c) property in the hands of the partnership.

Film, Television, and Theatrical Productions
The final regulations clarify that a used qualified film, television, or live theatrical production does not qualify for bonus depreciation. Also, the basis of a qualified film, television, or live theatrical production is reduced by the deduction claimed under Code Sec. 181 before computing the bonus deduction.

Using ADS
Using the alternative depreciation system (ADS) to determine the adjusted basis of a taxpayer’s qualified business investment (under Code Sec. 250(b)(2)(B) or Code Sec. 951A(d)(3)) or the adjusted basis of a taxpayer’s tangible assets for allocating business interests expense between excepted and non-excepted trades or businesses (under Code Sec. 163(j)) does not cause a taxpayer’s tangible property to be ineligible for bonus depreciation.

Public Utility Property
An example is added to clarify that the 100 percent bonus rate does not apply to self-constructed property of a regulated public utility if construction begins after September 27, 2017, and the property is placed in service in a tax year beginning after 2017.

Effective Date
The final regulations apply to qualified property placed in service during or after the tax year that includes the date of publication in the Federal Register. However, a taxpayer may choose to apply the final regulations in their entirety to qualified property acquired and placed in service after September 27, 2017, provided the taxpayer consistently applies all rules in the final regulations. Additionally, a taxpayer may rely on the proposed regulations issued on August 8, 2018, to qualified property acquired and placed in service after September 27, 2017, in tax years ending before the date of publication of the final regulations.

PROPOSED REGULATIONS: Acquired and Self-Constructed Components
A taxpayer may elect to treat components of a larger self-constructed property that are acquired or self constructed after September 27, 2017, as eligible for the 100 percent bonus rate, even though manufacture, construction, or production of the larger self-constructed began before September 28, 2017. The larger property must be eligible for bonus depreciation at the 50 percent rate.

Businesses With Floor Plan Financing
Property used in a trade or business that has had floor plan financing indebtedness does not qualify for bonus depreciation if the floor plan financing interest related to the indebtedness is taken into account under Code Sec. 163(j)(1)(C) in determining the allowable business interest deduction.

The proposals provide rules for determining whether interest in floor plan financing indebtedness has been taken into account during a tax year. In general, floor plan interest is not considered taken into account for a tax year if the sum of interest business income for the tax year and 30 percent of the adjusted taxable income for the tax year equals or exceeds business interest as defined in Code Sec. 163(j)(5). The proposals clarify that the determination of whether a trade or business that has had floor plan financing indebtedness has taken floor plan financing interest into account is made annually.

Leased Property
The proposals clarify that taxpayers leasing property to a trade or business with floor plan financing indebtedness or a rate-regulated utility may claim bonus depreciation. The taxpayer, however, may not be a trade or business with floor plan financing indebtedness that prevents it from claiming bonus depreciation or a rate-regulated utility.

Used Property
Five-year lookback. A safe harbor provides that a taxpayer who disposes of property within 90 days after placing it in service did not hold a prior depreciable interest in the property. Consequently, the property is eligible for bonus depreciation if subsequently reacquired.

Partnerships. A taxpayer has a prior depreciable interest in a portion of property if the taxpayer was a partner in a partnership at any time the partnership owned the property. The amount of the prior depreciable interest is based on the partner’s total share of depreciation deductions with respect to the property.

Series of related transactions. Special rules in the original proposed regulations governing the treatment of a series of related transactions for purposes of the used property acquisition requirements are modified and expanded.

Consolidated groups. Significant clarifications to the rules governing the used property acquisition requirements for consolidated groups are also made.

Written Binding Contract Rules
Property not acquired pursuant to a contract. The acquisition date of property that is not acquired pursuant to a written binding contract is the date on which the taxpayer paid or incurred more than 10 percent of the total cost of the property. The cost of land and preliminary activities are excluded from cost for this purpose.

Purchase of entities. Binding contract rules that apply to the purchase of an entity are proposed. The current binding contract rules only deal with purchases of assets.

A contract to acquire all or substantially all of the assets of a trade or business, or to acquire an entity such as a corporation, a partnership, or a limited liability company, is binding if it is enforceable under state law against the parties to the contract. The presence of a condition outside the parties’ control (including, for example, regulatory agency approval) will not prevent the contract from being a binding contract. Further, the fact that insubstantial terms remain to be negotiated by the parties to the contract, or that customary conditions remain to be satisfied, does not prevent the contract from being a binding contract. This proposed rule also applies to a contract for the sale of the stock of a corporation that is treated as an asset sale as a result of a deemed asset acquisition election under Code Sec. 338.

Long Production Property
The proposals provide rules for determining qualifying basis attributable to the manufacture, construction, or production of long production property and certain aircraft eligible for an extended placed in service deadline.

Mid-Quarter Convention
The mid-quarter convention applies to property placed in service during the tax year if 40 percent or more of the basis of the property was placed in service in the last three months of the tax year. The proposals clarify that the basis of property is not reduced by the 100 percent bonus allowance. This rule has always applied to 50 percent bonus property.

Effective Date of Proposals
In general, the proposed regulations apply to qualified property placed in service during or after the tax year that includes the date the proposals are finalized. A taxpayer may rely on the proposals in their entirety to qualified property acquired and placed in service after September 27, 2017.