Marcum 2021 Year-End Tax Guide

• The definition of a large employer (for whom the credit is limited to qualifying wages paid for hours not worked) was changed for 2021 to those with more than 500 full-time employees. For 2020, a large employer was one with more than 100 full time employees in 2019. Companies that are not a large employer can get the credit on wages paid to all employees. Employers that had ignored the credit previously due to large employer status should review this rule for 2021. The CCA 2021 also included a “catch up”rule that allowed companies that discovered they are eligible for the ETRC for the second and third quarters of 2020 to reflect the credit on their return for the fourth quarter of 2020 (instead of filing amended returns for prior quarters). However, the IRS issued guidance that severely limits the use of this “catch up” rule. The employer must: • Have included with the forgiveness application (rather than claiming the ERTC) the wages otherwise eligible for the ERTC. • Had the request for forgiveness denied. The IRS issued Notice 2021-20 and Notice 2021-49 during the year updating its guidance on ERTC. It focused on the interactions between the ERTC and PPP loan forgiveness and clarifying certain issues dealing with the operation of the credit. BUSINESS INTEREST DEDUCTION UNDER IRC SEC 163(J) The IRS issued 2021 final regulations (the 2021 Final Regulations) on IRC sec 163(j) business interest deduction limitations. The final regulations adopted many of the proposed regulations issued in July of 2020. Pursuant to Section 163(j), the deduction for business interest expense for many taxpayers is limited to the total of: business interest income, floor plan financing interest, and 30% of adjusted taxable income (ATI). For 2019 and 2020, the 30% limit was raised to 50%. For years 2018 through 2021, adjusted taxable income (ATI) is determined after adding back depreciation, amortization, or depletion. • Have received a PPP loan. • Request loan forgiveness.

VIRTUAL CURRENCY TRANSACTIONS The Service believes that transactions involving virtual currency are underreported by taxpayers. The IRS does treat virtual currency as property that can produce a gain or loss as it is traded, sold, or used. The recently enacted Bipartisan Infrastructure Bill would require information reporting with respect to such digital/ virtual assets such as cryptocurrency generally effective for statements required to be furnished after December 31, 2023. The Financial Crimes Enforcement Network (FinCen) issued a Notice stating that current regulations do not define a foreign account that holds virtual currency as a type of reportable account on the FBAR, unless it is a reportable account under the regulations. The Network intends to propose an amendment that would include virtual currency as a type of reportable account. The Form 1040 individual income tax return also includes a question involving virtual currency. U.S. SUPREME COURT PASSES ON TWO CASES Affordable Care Act: The Supreme Court addressed several cases dealing with this act, including the constitutionality of the act (California v. Texas) and the taxation of remote workers (New Hampshire v. Massachusetts). The Court and essentially avoided handing down a substantive rule in either case. In California v. Texas, the trial court had determined that the Affordable Care Act was unconstitutional since the elimination of the individual shared responsibility payment (the individual mandate) no longer supported the prior Supreme Court decision that the ACA was an exercise of Congress’ taxing power. The fifth Circuit court sent the case back to the trial court to determine why the entire law (and not just portions of it) should be invalidated. However, prior to the decision on the remand, the case was appealed to the U.S. Supreme Court. In anticipation of all parts of the law being declared invalid, many taxpayers filed protective claims with the IRS claiming refunds of net investment income tax paid in prior years. There were other developments involving virtual currency that occurred during the year.

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