Employee Retention Tax Credit for Employers under the CARES Act

Posted in coronavirus, COVID, COVID-19, GT Alert, IRS, Labor & Employment, Tax Planning, Taxpayers

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which was signed into law on March 27, 2020, contains a tax credit to encourage companies to continue paying employees if the business has been closed, or there has been a significant decline in sales due to Coronavirus Disease 2019 (COVID-19). This tax credit is available to a business of any size, although the rules for a business with no more than 100 employees are more flexible. Importantly, the credit is refundable and can be monetized quickly after the payroll is paid.

This provision allows a 50% refundable tax credit for wages paid to employees of businesses that have been closed due to governmental order or that have encountered a significant decline in gross receipts. The tax credit is capped at $5,000 for each employee, so there would be no credit allowed after the first $10,000 in wages eligible for the credit have been paid. The eligibility rules vary depending on the number of workers. The credit may be applied to a company that conducts a trade or business for wages paid after March 12, 2020, and before Jan. 1, 2021, if the requirements are satisfied.

Read the full GT Alert, “Employee Retention Tax Credit for Employers under the CARES Act.”

Tax Credit for Emergency Sick Leave and Family Leave Paid by Employers Under the Families First Coronavirus Response Act

Posted in coronavirus, COVID-19, Labor & Employment, Tax Planning

The Families First Coronavirus Response Act (FFCRA), which has been signed into law, requires companies that employ less than 500 employees to pay 80 hours of sick leave and up to 12 weeks of family leave for employees who are required to stay home because of six specific Coronavirus Disease 2019 (COVID-19)-related reasons. This March 20 GT Alert details a company’s requirements to pay the emergency sick leave and family leave to employees. The FFCRA also provides a 100% tax credit to a company for these sick and family leave payments to employees, so that there should be no net cost in making these payments.

Read the full GT Alert: “Tax Credit for Emergency Sick Leave and Family Leave Paid by Employers Under the Families First Coronavirus Response Act.”

GT ALERT – States Revise 2019 Tax Filing Deadlines

Posted in coronavirus, COVID, COVID-19, States Revise 2019 Tax Filing Deadlines, Taxpayers

The Internal Revenue Service (IRS) has extended the filing date for 2019 tax returns from April 15 to July 15.  Several states also have extended filing deadlines and payment due dates for 2019 tax returns because of the Coronavirus Disease 2019 (COVID-19) pandemic.

To read the full alert, click here.

GT ALERT – COVID-19’s Impact on California Property Tax Deadlines and Planning Considerations

Posted in California, California Property Tax Deadlines and Planning Considerations, COVID, COVID-19, Property Tax

The Coronavirus Disease 2019 (COVID-19) crisis has raised questions and concerns about upcoming property tax payment and reporting deadlines in California and whether taxpayers may be entitled to any relief due to a decline in property values. The discussion below addresses these issues.

April 10 Property Tax Payment Deadline

California state legislators, the state controller, the California Association of County Treasurers and Tax Collectors, and various county tax collectors have recently issued statements regarding the impact of the COVID-19 crisis on the April 10 property tax payment deadline.

To read the full alert, click here.

Update: Tax Filing and Payment Extensions

Posted in coronavirus, GT Alert, Income Tax, IRS

Frequently Asked Questions (FAQs) posted by the IRS provide additional information regarding the tax return filing and tax payment deadline relief announced by the IRS in Notice 2020-18. The IRS indicated that the FAQs will be continue to be updated.

Key information in the FAQs:

  • The filing extension until July 15 only applies to those income tax returns due April 15. The relief does not apply to those returns that were due March 16;
  • Section 965 transition tax installment payments due April 15 are extended until July 15;
  • The relief does not apply to gift, estate, payroll, and excise taxes;
  • Health Savings Account (HSA) and IRA contributions are extended until July 15;
  • Estimated tax payments for the second quarter of 2020 are still due June 15;
  • The relief does not extend the time to file any potential refund claim for 2016 taxes.


See
 our previous GT Alert on the IRS extension of the income tax filing deadline.

For more information and updates on the developing situation, visit GT’s Health Emergency Preparedness Task Force: Coronavirus Disease 2019.

IRS Extends Income Tax Filing Deadline to July 15, 2020, and Removes Cap on Tax Payments Deferred to July 15, 2020

Posted in coronavirus, Income Tax, IRS

On March 20, 2020, the IRS issued Notice 2020-18, extending the April 15, 2020, due date for filing federal income tax returns and making federal income tax payments to July 15, 2020, for all affected taxpayers. IRS Notice 2020-18 supersedes IRS Notice 2020-17, which was issued two days earlier, on March 18, 2020, and provided for a capped amount of federal income tax payments to be deferred until July 15, 2020. The new notice was issued after Congress urged the Treasury Department to extend the tax filing deadline until July 15.

Read the full GT Alert on the IRS extension to July 15, 2020, of the income tax filing deadline.

Summary of Guidance on Section 45Q Carbon Tax Credits Under 2020 Notice and Revenue Procedure

Posted in GT Alert, IRS, Section 45Q Tax Credit, Tax Cuts and Jobs Act

On Feb. 19, 2020, the IRS released Notice 2020-12 and Revenue Procedure 2020-12 (together, the “Carbon Guidance”) which provide highly anticipated clarity on the Internal Revenue Code Section 45Q credit for carbon oxide sequestration. The Carbon Guidance provides details on determining when construction has begun on an eligible project, and valid partnership allocations (including a permissible partnership flip structure), which in each case are very similar rules to those applicable or relied upon in solar and wind tax credit tax equity transactions.

This GT Alert provides a useful summary of the background and requirements for Section 45Q credit qualification; and the Carbon Guidance, including the “Physical Work Test” and the “5% Safe Harbor” as relates to establishing commencement of construction on a qualified facility or carbon capture equipment.

Read the full GT Alert, “Summary of Guidance on Section 45Q Carbon Tax Credits Under 2020 Notice and Revenue Procedure.”

Unanimous Supreme Court Restricts Application of Federal Common Law and Invalidates Bob Richards Doctrine in Tax Refund Disputes

Posted in GT Alert, Income Tax, U.S. Supreme Court

In a unanimous decision written by Justice Neil Gorsuch (Rodriquez v. FDIC No 18-12690), the Supreme Court vacated a decision by the U.S. Court of Appeals for the Tenth Circuit (In re United Western Bancorp, Inc., 914 F. 3d 1262 (10th Cir, 2019)) that awarded a federal income tax refund of a failed bank to the Federal Deposit Insurance Corporation as receiver. The award was opposed by the Chapter 7 bankruptcy trustee for the holding company that owned the bank and had filed a consolidated federal tax return.

Read the full GT Alert, “Unanimous Supreme Court Restricts Application of Federal Common Law and Invalidates Bob Richards Doctrine in Tax Refund Disputes.”

IRS Takes First Steps to Implement Carbon Capture Tax Credit

Posted in Congress, Internal Revenue Code, IRS, Tax Cuts and Jobs Act

On Feb. 19, 2020, the Internal Revenue Service released partial guidance on the implementation of section 45Q tax credits related to the capture and sequestration of carbon dioxide. The section 45Q tax credit was updated on Feb. 9, 2018, as part of the Bipartisan Budget Act (Pub. L. 115-123) to increase the amount of the tax credit per ton and to broaden the applicability to include “qualified carbon oxide.” The new IRS guidance is designed to assist in implementing the modified law.

The 2018 law removed the volume cap applicable to the tax credit, expanded the definition to include not just carbon dioxide but other carbon oxides such as methane, and raised the amount of the tax credit per ton. Carbon oxides captured and used for enhanced oil recovery can now receive a tax credit of up to $35 per ton, while carbon oxides deposited in secure geological storage can receive a tax credit of up to $50 per ton.

In May 2019, the IRS requested public comments on several different aspects of implementing the tax credit, and suggested that those comments would be used to formulate “regulations and other guidance.” The guidance documents released on Feb. 19, 2020, are the first products of this long-awaited implementation process.

The IRS guidance addresses (1) the “beginning of construction” and “continuous construction” requirements for qualifying projects and (2) a “safe harbor” for the allocation rules affecting investors in business partnerships claiming the tax credit. The IRS suggested that additional guidance will be issued “in the near future” relating to (3) what qualifies as secure geological storage and (4) the recapture of the tax credit for carbon oxide that is no longer captured.

  1. Construction Definitions.

In order to qualify for the credit, construction must begin on a qualified facility before Jan. 1, 2024. The beginning of construction requirement may be satisfied by meeting one of two tests: (1) the Physical Work Test or (2) the Five Percent Safe Harbor Test. Demonstrating continuity of construction is also required. This continuity requirement may be met by satisfying the six-year continuity safe harbor.

  • Physical Work Test. Construction will have “begun” when “work of a significant nature” occurs and a “continuous program of construction” is maintained. There is no fixed minimum amount of work required in dollar or percentage terms. Off-site manufacturing of components can qualify. However, preliminary activities like obtaining financing, securing permits, or conducting research do not qualify.
  • Five Percent Safe Harbor. If five percent or more of the total cost of the qualified facility or carbon capture equipment is paid or incurred, then construction will be considered to have begun. Continuous efforts to advance towards completion must be demonstrated. Cost overruns are counted for purposes of calculating the five percent threshold.
  • Six-Year Continuity Safe Harbor. If a qualified facility or carbon capture equipment is placed in service by the end of a calendar year that is no more than six years after the year in which construction began, then the continuity of construction requirement will be deemed to be satisfied.
  1. Safe Harbor for Business Partnerships.

In general, a partner’s share of the section 45Q tax credit is determined by the partnership agreement or, if the agreement does not provide an allocation, a partner’s share is determined in accordance with a partner’s interest in the partnership. Partners may include a project developer and one or more investors. Section 45Q and the new guidance require that individuals or entities claiming the tax credit must have a financial stake in the project partnership.

A partnership will be treated as properly allocating the section 45Q tax credit if a number of conditions are met, including (but not limited to):

  • The developer must have a minimum one percent interest in each material item of income, gain, loss, deduction, and credit;
  • Each investor must have a minimum interest in each material item of partnership income, gain, loss, deduction, and credit equal to at least five percent of the investor’s interest for the taxable year in which such interest is the largest;
  • An investor’s partnership interest must be a “bona fide equity investment”;
  • An investor’s investment in the project must equal “at least 20 percent of the sum of the fixed capital investment plus any reasonably anticipated contingent investment required to be made by the investor under the partnership agreement.”

The most important guidance from the IRS is yet to come. Many believe the guidance on permanent storage will have the most impact on industry investments. Some are also urging Congress to enact a multi-year extension of the tax credit due to the two-year delay in the release of guidance documents, which has impacted investment decisions. Stakeholders are also advocating for an extension of the construction start deadline, which lasts only through 2023 under current law.

We expect that Congress will continue to press the IRS to expedite this process so that incentives intended to accelerate the development of carbon capture technologies can become a reality.

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