2020 Year-End Tax Guide

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The law provides that this deferral does not apply to employers that take a PPP loan which is forgiven. The question was whether there would be an immediate requirement to pay the deferred tax on the date of forgiveness. IRS Frequently Asked Questions issued in April 2020 states that the deferral applies to all employers, including those who receive PPP loans. Taxes cannot be deferred after the date that PPP loan forgiveness is received. However, taxes deferred up to that date continue to be deferred and do not have to be repaid immediately upon the forgiveness. Given the amount of time that will be involved in receiving a final forgiveness notice, as a practical matter, this will permit deferral through the end of the year. The Service has amended Form 941 for both the CARES Act and FFCRA credits. The form splits the credits between a nonrefundable portion (amount needed to offset other taxes due) and a refundable amount. However, the instructions to the form indicate that the deferral of the employer share of payroll taxes cannot be taken if the taxes have already been deposited. Immediate Refund of the Corporate AMT Credit Under the TCJA, the corporate alternative minimum tax was eliminated for C corporations. For entities with an alternative minimum tax credit, the law provided for a four-year period (2018- 2011) to offset regular tax liability and recover any additional AMT credit. The CARES Act allows recovery of the credit over a two-year period: 2018 and 2019. Alternatively, a corporation can elect to recover the credit solely in 2018, which would require an amended return but creates an immediate opportunity for C corporations to recover refunds for these credits. Net Operating Losses - Carrybacks with No Income Limitation The CARES Act changed the rules applicable to Net Operating Losses (NOL) for 2018, 2019 or 2020. The TCJA repealed the rule permitting a carryback of Net Operating Losses created in 2018 and later years. The CARES Act reversed this rule to allow a five-year carryback for NOLs created in 2018, 2019 and 2020. In addition, the TCJA rules limiting the use of NOLs created in 2018 and later years to 80% of taxable income do not apply to 2018, 2019 and 2020. However, losses created for these years will be subject to the 80% limit when carried to years after 2020.

The law permits taxpayers to waive a carryback of losses under an election made no later than the extended due date for filing the tax return for the loss year. Where the NOL carryback is to a year where Section 965 income (foreign transition tax income) has been recognized, the NOL carryback is not applied to the Section 965 income. Alternatively, the taxpayer can elect not to carry it back to the Section 965 tax year. However, the tax year is still considered as one of the five carryback years. The IRS also issued special rules for the use of Forms 1045 for individuals and 1139 for corporations under a quick refund procedure. Bonus Depreciation Allowed on Qualified Improvement Property (QIP) Costs The rushed legislative process for the TCJA produced a drafting error which impacted real estate. It was the clear intention of that law (as expressed in the Conference Committee reports) that commercial real estate qualified improvement property would be eligible for 15-year depreciation and 100% bonus depreciation. However, due to the drafting error, the language including this type of real estate improvement as 15-year property was never written into the statute. This inclusion would have made the property automatically eligible for bonus depreciation. As a consequence, for property placed in service after 2017, the law did not permit bonus depreciation, and 39-year depreciation applied. The Congressional tax writers attempted to convince the IRS and Treasury to permit bonus depreciation and a 15 year write-off through regulations, but Treasury responded that legislative action would be needed to correct the error for QIP acquired after December 31, 2017. The CARES Act fixes the legislative drafting error and allows Qualified Improvement Property to be treated as 15-year property. This makes QIP eligible for an immediate bonus depreciation deduction. This provision is retroactive to enactment of the TCJA.