AICPA Tax Insider (May 14, 2020): Covid Tax Changes and More

COVID-19 pandemic prompts many tax changes

By Alistair M. Nevius, J.D., and Sally P. Schreiber, J.D.

Taxpayers have a variety of tax relief measures to help them through the economic disruption caused by the coronavirus pandemic. From tax credits to filing postponements, here is a breakdown of the initial changes benefiting individuals and businesses. 

IRS allows midyear changes to health coverage, dependent care elections

In response to the pandemic, the IRS is giving increased flexibility for midyear elections under a Sec. 125 cafeteria plan during calendar year 2020.

Trusts and estates are permitted certain deductions

The IRS issued proposed regulations to clarify that certain deductions are allowed to an estate or nongrantor trust because they are not miscellaneous itemized deductions.

State and local taxes during the pandemic (podcast)

From Paul Bonner

Eileen Sherr, CPA, CGMA, a senior manager in the AICPA Tax Policy and Advocacy team discusses her work, together with the AICPA Technical Resource Panel for State and Local Taxation, advocating for coronavirus-related taxpayer relief at the state and local level.

AICPA proposes broad range of tax relief to aid economic recovery

The AICPA has made a broad range of legislative recommendations to encourage economic recovery in the wake of the COVID-19 pandemic.

AICPA supports bill that would make PPP-funded expenses deductible

A bill introduced in the Senate would clarify that ordinary expenses funded by Paycheck Protection Program (PPP) loans are deductible by taxpayers. If enacted, this would overrule a recent IRS notice saying the expenses are not deductible.

AICPA Document Summaries Week of May 11, 2020

Final debt/equity regs. issued

The IRS issued final regulations regarding the treatment of certain interests in corporations as stock or indebtedness. T.D. 9897 (5/13/20) (see related news story).

EMPLOYEE BENEFITS

IRS issues monthly corporate yield curve and segment rates

The IRS issued guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under Sec. 417(e)(3), and the 24-month average segment rates under Sec. 430(h)(2). In addition, the IRS provided guidance as to the interest rate on 30-year Treasury securities under Sec. 417(e)(3)(A)(ii)(II), as in effect for plan years beginning before 2008, and the 30-year Treasury weighted average rate under Sec. 431(c)(6)(E)(ii)(I). Notice 2020-37 (5/12/20).

IRS issues COVID-19 guidance for cafeteria plans and high-deductible health plans

The IRS in a notice provided increased flexibility for midyear elections made under a Sec. 125 cafeteria plan during calendar year 2020 with respect to employer-sponsored health coverage, health flexible spending arrangements (FSAs), and dependent care assistance programs. The notice also provides increased flexibility for grace periods to apply unused amounts in health FSAs to medical care expenses and unused amounts in dependent care assistance programs to dependent care expenses incurred in either case through Dec. 31, 2020. In addition, the notice provides that the relief in Notice 2020-15 regarding high-deductible health plans and expenses related to COVID-19, and in Section 3701 of the Coronavirus Aid, Relief, and Economic Security Act, P.L. 116-136, regarding a temporary exemption for telehealth services, may be applied retroactively to Jan. 1, 2020. Notice 2020-29 (5/12/20) (see related news story).

IRS increases carryover of unused amounts in health FSAs to $550

The IRS issued guidance that increases the $500 limit for unused amounts remaining in a health flexible spending arrangement (FSA) that may be carried over into the following year to $550. Regarding individual coverage health reimbursement arrangements, the guidance also provides clarification on the reimbursement for premium expenses occurring prior to the beginning of the plan year (generally, addressing the need to pay the premium for January health insurance coverage in December of the previous year). Notice 2020-33 (5/12/20) (see related news story).

EXEMPT ORGANIZATIONS

Donated easement failed perpetuity requirement, but taxpayer’s position was reasonable

The Tax Court held that an easement deed violated the “protected in perpetuity” requirement of Sec. 170(h)(5), as interpreted in Regs. Sec. 1.170A-14(g)(6), because the donee’s share of the extinguishment proceeds (1) was based on a fixed historical value rather than a proportionate share, and (2) was reduced by the value of any improvements made by the donor. However, because the court found that the taxpayer’s position was reasonable, the court rejected the IRS’s assessment of a penalty under Sec. 6662. Oakbrook Land Holding, LLC, T.C. Memo. 2020-54 (5/12/20).

Perpetuity requirement for donated easements is valid

The Tax Court held that Regs. Sec. 1.170A-14(g)(6), which provides that a donated easement must be protected in perpetuity for the donation to be tax-deductible, was properly promulgated and is valid under the Administrative Procedure Act, 5 U.S.C. Section 553. The court further held that the construction of Sec. 170(h)(5) set forth in Regs. Sec. 1.170A-14(g)(6) is valid under Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984). Oakbrook Land Holding, LLC, 154 T.C. No. 10 (5/12/20).

IRS PROCEDURE

Prop. regs. on deductibility of fines and penalties

The IRS issued proposed regulations providing guidance on Sec. 162(f), as amended by legislation enacted in 2017, concerning the deduction of certain fines, penalties, and other amounts. REG-104591-18 (5/13/20) (see related news story).

Chief Counsel clarifies procedures for electronically transmitting large files to DOJ

The IRS Office of Chief Counsel clarified procedures in Chief Counsel Notice CC-2019-005 for Chief Counsel attorneys to transmit large files electronically to the Department of Justice, Tax Division, using email and Justice Enterprise File Sharing. CC-2020-006 (5/11/20).

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal..

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