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Tax Update

Tax Update

In this section, we provide a summary of brief updates from the previous quarter on legislative, judicial, and administrative developments in tax that may impact Japanese companies operating in the United States.

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Notice 2020-32: Deductibility of expenses when loan is forgiven under Paycheck Protection Program (COVID-19)

April 30, 2020

The IRS this evening released an advance version of Notice 2020-32 providing guidance regarding the deductibility for federal income tax purposes of certain otherwise deductible expenses incurred in a taxpayer’s trade or business when the taxpayer receives a loan (covered loan) pursuant to the Paycheck Protection Program (PPP).

Notice 2020-32 [PDF 30 KB] clarifies that no deduction is allowed for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan pursuant to provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (Pub. L. No. 116-136) and the income associated with the forgiveness is excluded from gross income under the CARES Act.

The purpose of this report is to provide text of the IRS notice.

TaxNewFlash No. 2020-280 (PDF)

Initial impressions of additional FAQs on the employee retention credit (COVID-19)

April 30, 2020

The IRS on April 29, 2020, released additional “frequently asked questions” (FAQs) on the employee retention credit (ERC) provided by the “Coronavirus Aid, Relief, and Economic Security Act” (CARES Act) (Pub. L. No. 116-136).

The ERC is a refundable payroll credit of 50% of qualified wages paid by eligible employers whose business has been affected by COVID-19. Qualified wages are limited to $10,000 of compensation, including health benefits, paid to each employee. Thus, the maximum credit is $5,000 (50% x $10,000) per employee. The new FAQs include dozens of questions and answers regarding the ERC under the CARES Act.

Initial impressions of additional FAQs on the employee retention credit (COVID-19) (PDF)

IRS adds new FAQs on faxing refund claims, NOL carrybacks under CARES Act (COVID-19)

April 30, 2020

The IRS today updated a set of "frequently asked questions" (FAQs) addressing how taxpayers can file applications for eligible refund claims related to the net operating loss (NOL) carryback provisions of the "Coronavirus Aid, Relief, and Economic Security Act" (CARES Act) (Pub. L. No. 116-136).

Background

Measures included in the CARES Act provide that:

  • A taxpayer with an NOL arising in a 2018, 2019 or 2020 taxable year can carry that loss back to each of the five preceding years unless the taxpayer elects to waive or reduce the carryback.
  • The modified credit rules for prior-year minimum tax liability of corporations—including to accelerate the recovery of remaining minimum tax credits of a corporation for its 2019 taxable year from its 2021 taxable year—allow a corporation to elect, instead, to recover 100% of any of its remaining minimum tax credits in its 2018 taxable year.

Read TaxNewsFlash that examines the guidance provided by Rev. Proc. 2020-24 and Notice 2020-26 on implementation and reporting of the expanded NOL measures.

Updated FAQs

The IRS initially issued these FAQs earlier in April 2020. Read TaxNewsFlash

The IRS today

  • Updated certain of the previously issued FAQs relating to applications to refund claims filed on Form 1045 (as well as those on Form 1139)
  • Added new FAQs 15 to 17 relating to the e-filing of Forms 1120-X in advance of submitting a Form 1139 via fax
  • Added new FAQ 18 relating to the filing of a refund claim by an exempt organization

The FAQs that have been amended or added are indicated by the IRS.

TaxNewFlash No. 2020-276 (PDF)

FAQs on "Main Street" lending program (COVID-19)

April 30, 2020

The "Main Street" lending program is established by funds appropriated by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) (Pub. L. No. 116-136).

Read the Federal Reserve FAQs [PDF 315 KB]

The Federal Reserve also issued a release about expansion of the "Main Street" lending program. Additional information is provided on the Federal Reserve website.

Today's guidance items allow for:

  • Creation of a new loan facility—the "Main Street Priority Loan Facility"—that appears to allow for slightly different purchase percentages (85% by special purpose vehicles (SPVs) and banks retain 15%), with most other terms appearing to be similar
  • Clarification of the definition of an eligible borrower, which now includes an "ineligible business" concept that leverages guidance released under the Paycheck Protection Program (PPP) in April 2020
  • Expansion of the eligibility threshold to allow up to 15,000 employees and $5 billion in revenue (from previous limitation of 10,000 employees and $2.5 billion in revenue)
  • Various changes to the terms of the loans available under the different Main Street facilities

TaxNewFlash No. 2020-274 (PDF)

Accounting and financial reporting relating to CARES Act (COVID-19)

April 29, 2020

The "Coronavirus Aid, Relief, and Economic Security Act" (CARES Act) (Pub. L. No. 116-136, enacted March 27, 2020) includes many provisions that could significantly affect the financial reporting of companies applying U.S. GAAP.

KPMG LLP has updated its report describing the primary accounting and reporting impacts of provisions in the CARES Act. The updated April 2020 report [PDF 214 KB] (19 pages) reflects new information concerning the Paycheck Protection Program and payroll tax deferral measures.

TaxNewsFlash No. 2020-272 (PDF)

Treasury issues guidance on Paycheck Protection Program (PPP); Trump signs PPP funding legislation

April 24, 2020

The U.S. Treasury Department today posted a new interim final rule on the Paycheck Protection Program (PPP) to supplement previously released interim final rules with additional guidance.

The interim final rule [PDF 71 KB] discusses PPP eligibility issues for investment funds and portfolio companies.

New PPP funding legislation

Also today, President Trump signed the "Paycheck Protection Program and Health Care Enhancement Act" (H.R. 266)—legislation that provides more than $400 billion in new funding for the PPP as well as funds for health care, including relief for health care providers and for coronavirus (COVID-19) testing, but no tax provisions.

Treasury FAQs on PPP

Treasury yesterday updated a set of "frequently asked questions" FAQs [PDF 410 KB] concerning the PPP.

FAQ #31 was added and addresses whether businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for PPP loans. In the answer to FAQ #31, borrowers are reminded that they must certify in good faith that their PPP loan request is necessary to support their ongoing operations, taking into consideration their current business activity and their ability to access other sources of liquidity. By example, the FAQ states that it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith. FAQ #31 concludes: "Any borrower that applied for a PPP loan prior to the issuance of this guidance and repays the loan in full by May 7, 2020 will be deemed by SBA to have made the required certification in good faith."

TaxNewsFlash No. 2020-264 (PDF)

IRS FAQs on NOL carrybacks for taxpayers with section 965 inclusions (COVID-19)

April 24, 2020

The IRS on April 23, 2020, released a set of "frequently asked questions" (the Section 965 FAQs) that address the interaction of the new CARES Act net operating loss (NOL) carryback provisions with taxpayers’ section 965 "transition tax" liabilities and inclusion years.

Read the Section 965 FAQs.

Background

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) amended section 172(b)(1) to provide for a carryback of any net operating loss (NOL) arising in a taxable year beginning after December 31, 2017, and before January 1, 2021, to each of the five taxable years preceding the taxable year in which the loss arises (the carryback period).

The Section 965 FAQs provide guidance and details about how taxpayers can make the waiver or exclusion elections and also address numerous other administrative aspects of carrying NOLs back to section 965 inclusion years, including how to practically submit Forms 1139 and 1045 in light of the COVID-19-related IRS office staffing status.

TaxNewsFlash No. 2020-265 (PDF)

IRS expands FAQs on postponed tax return filing, paying deadlines

April 23, 2020

The IRS today updated a list of "frequently asked questions" (FAQs) concerning the postponed deadlines for filing federal income tax returns and paying federal taxes in response to the coronavirus (COVID-19) pandemic.

The FAQs were originally posted on March 24, 2020, shortly after the IRS issued in Notice 2020-18. The IRS subsequently issued Notice 2020-20 and Notice 2020-23 to amplify the guidance issued in Notice 2020-18.

The FAQs (updated April 23, 2020) include the following statement:

NOTE: These FAQs supersede earlier FAQs that were posted on March 24, 2020, following the publication of Notice 2020-18. These FAQs incorporate the expanded relief provided by Notice 2020-23 that was published on April 9, 2020.

Read the FAQs (updated April 23, 2020) (full text of the FAQs is provided below). Hyperlinks to IRS forms and other IRS guidance are not included in this text.

TaxNewsFlash No. 2020-257 (PDF)

Initial impressions of final regulations implementing “anti-hybrid” provisions (sections 245A(e), 267A, and 1503(d))

April 9, 2020

Final regulations were published on April 8, 2020, in the Federal Register as guidance under sections 245A(e), 267A, and the section 1503(d) dual consolidated loss (DCL) rules.

Read the final regulations [PDF 501 KB] (56 pages as published in the Federal Register).

The final regulations (T.D. 9896) broadly adopt, with certain revisions and clarifications, the December 2018 version of proposed regulations under such sections.

Read the April 2020 report prepared by KPMG LLP that provides early impressions and observations about the final regulations. Further analysis of these regulations will also be forthcoming.

Initial impressions of final regulations implementing “anti-hybrid” provisions (sections 245A(e), 267A, and 1503(d)) (PDF)

OECD – Examining cross-border employment/tax issues in time of COVID-19

April 7, 2020

As businesses and employees react to government policies worldwide introduced to combat the coronavirus and COVID-19, there has been a change in regular work patterns and routines, which raises several tax-related issues for cross-border workers and can have an impact on the right to tax between countries. The Organisation for Economic Cooperation and Development released an analysis addressing the tax implications of the employment changes arising under the coronavirus and COVID-19 pandemic involving cross-border workers and other related cross-border matters (e.g., tele-work and right of taxation, residency, permanent establishment).

The Organisation for Economic Cooperation and Development released an analysis addressing the tax implications of the coronavirus (COVID-19) pandemic on cross-border workers and other related cross-border matters (e.g., tele-work and right of taxation, residency, permanent establishment). Due to travel restrictions imposed by countries around the world, many cross-border workers:

— have remained in the host country and are working from their host country home/accommodation (not in the office);

— have been moved back to their home countries (and are working from home);

— have been relocated to third countries (and are working from temporary accommodations); or

— have been furloughed or laid-off.

All the above indicate a change in regular work patterns and routines, which raises several tax-related issues for cross-border workers and can have an impact on the right to tax between countries. The OECD has examined the implications of these changes under the extraordinary circumstances of the current global health pandemic and has put forward some guidance.

GMS Flash Alert 2020-157 (PDF)

Employer-related liquidity–tax credits, deferrals, and efficiencies (COVID-19)

April 3, 2020

As a result of new U.S. legislation as well as existing rules, there are several employer-related tax credits, deferrals, and efficiencies providing economic stimulus that encourage cash retention and provide additional benefits for businesses affected by the coronavirus (COVID-19) pandemic.

A report prepared by KPMG examines select labor-related tax provisions of the "Coronavirus Aid, Relief, and Economic Security Act" (CARES Act), the "Families First Coronavirus Response Act" (FFCRA) and provisions triggered by the COVID-19 National Emergency Declaration.

Employer-related liquidity–tax credits, deferrals, and efficiencies (COVID-19) (PDF)

New FAQs from IRS concerning QI / WP / WT

March 25, 2020

The IRS today issued a release announcing updates to a list of "frequently asked questions" (FAQs) concerning consolidated compliance group (CCG) on the FAQ page for qualified intermediaries / withholding foreign partnerships / withholding foreign trusts (QI / WP / WT).

As noted in the IRS transmittal message, the changes concern FAQ Q5 and FAQ Q18 under the heading "Certifications and Periodic Reviews."

Final regulations: Foreign tax credits, and section 901(m) "covered asset acquisitions"

March 23, 2020

Final regulations under section 901(m) from the U.S. Treasury Department and IRS were published today, March 23, 2020, in the Federal Register.

Read the "Final Regulations" [PDF 381 KB]

The Final Regulations adopt, with certain revisions and clarifications (discussed below), the regulations proposed under section 901(m) and section 704(b) (Reg-129128-14) (the Proposed Regulations) in December 2016, together with temporary regulations (T.D. 9800) (the Temporary Regulations).

Read TaxNewsFlash [PDF 54 KB] describing the 2016 Proposed Regulations and Temporary Regulations as well as KPMG's outline [PDF 64 KB] of the Proposed Regulations and the Temporary Regulations.

TaxNewsFlash No. 2020-139 (PDF)

2020 FBAR update; revisit the rules while relief is available

March 23, 2020

U.S. owners of certain foreign financial accounts (and U.S. individuals with authority over the accounts) are required to file annual reports—on FinCEN Form 114, "Report of Foreign Bank and Financial Accounts (FBAR)."

In light of potential penalties for FBAR noncompliance and continuing efforts to enforce the Bank Secrecy Act by the U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) and the IRS, owners of foreign financial accounts and individuals holding signatory authority over these accounts must remain diligent.

Relief, however, is available in certain circumstances, but coronavirus-related relief from the IRS is not currently expected to delay FBAR filing due dates.

Read a March 2020 report [PDF 160 KB] prepared by KPMG LLP: What's News in Tax: 2020 FBAR update: Revisit the rules while relief is available

TaxNewsFlash No. 2020-143 (PDF)

Proposed regulations: Deductibility of meal and entertainment expenses

February 24, 2020

The U.S. Treasury Department and IRS on February 21, 2020, released for publication in the Federal Register a notice of proposed rulemaking (REG-100814-19) as guidance under section 274 and regarding changes made to section 274 by the U.S. tax law enacted in 2017.

Background

The 2017 tax law (Pub. L. No. 115-97)—the law that is often referred to as the "Tax Cuts and Jobs Act" (TCJA)—eliminated the deduction for any expenses related to activities generally considered entertainment, amusement or recreation. It also increased the scope of the deduction limitation for expenses related to food and beverages provided by employers.

The proposed regulations [PDF 309 KB] (12 pages as published in the Federal Register) address the elimination of the deduction for expenditures related to entertainment, amusement or recreation activities and provide guidance to determine whether an activity is considered to be entertainment. The proposed regulations also address the limitation on the deduction of food and beverage expenses and the applicability of exceptions under section 274(e).

According to a related IRS release—IR-2020-39 (February 24, 2020)—the proposed regulations generally follow guidance provided by the IRS in Notice 2018-76, a notice that provided transitional guidance on the deductibility of expenses for certain business meals. Read TaxNewsFlash

TaxNewsFlash No. 2020-088 (PDF)

Contractor's "substantial rights" for research tax credit (U.S. Tax Court)

February 18, 2020

The U.S. Tax Court granted an order for summary judgment to an architectural design services firm on the issue of "funded" research under section 41(d)(1)(H).

The Tax Court's order was based on the analyses of rights and risks under several selected contracts—notably, the issue of whether the taxpayer had retained “substantial rights” under the contracts—and concluding that the activities performed under the contracts did not comprise funded research and, thus, that the related expenses should qualify for the research credit.

The case is: Populous Holdings, Inc. v. Commissioner, Docket No. 405-17 (December 6, 2019). Read the Tax Court's order [PDF 349 KB]

TaxNewsFlash No. 2020-078 (PDF)

Corrections to final regulations, transfers to partnerships with related foreign partners

February 14, 2020

The U.S. Treasury and IRS today released for publication in the Federal Register two notices of corrections to final regulations (T.D. 9891), released in January 2020, that concern transfers of appreciated property by U.S. persons to partnerships with foreign partners related to the transferor.

The final regulations were published in the Federal Register in January 2020. Read TaxNewsFlash

TaxNewsFlash No. 2020-076 (PDF)

OECD transfer pricing (final) guidance on financial transactions: Initial impressions

February 13, 2020

As part the base erosion and profit shifting (BEPS) project, Actions 8-10, the Organisation for Economic Cooperation and Development (OECD) on 11 February 2020 issued final recommendations ("OECD guidance" or "final guidance") regarding the arm's length treatment of various financial transactions among related parties. This follows release of proposed guidance in July of 2018 ("draft guidance"), and applies transfer pricing methods to intercompany loans, cash pools, financial guarantees, hedging transactions, and captive insurers.

Read about the February 2020 release of the OECD final guidance: TaxNewsFlash

The following discussion provides initial impressions and observations, including notes about changes from the 2018 draft.

Read a printable version of this report:

OECD transfer pricing (final) guidance on financial transactions: Initial impressions (PDF)

Washington State: Legislation revises B&O tax surcharge

February 12, 2020

The governor of Washington State on February 10, 2020, signed into law Senate Bill 6492—legislation that modifies and simplifies the Washington business and occupation (B&O) tax "workforce education" surcharge (that became effective January 1, 2020).

KPMG observation

Although Senate Bill 6492 addresses many of the concerns taxpayers had with the surcharge, note that the definition of a "select advanced computing business" remains largely unchanged. A single member engaging in the business of advanced computing can still subject the entire affiliated group to the surcharge, and there is still no requirement for such member to be primarily engaged in the business of advanced computing.

TaxNewsFlash No. 2020-073 (PDF)

For more information, please contact:

Tai Kimura | +1 408 367 2204 | tkimura@kpmg.com

 

 

 

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. This article represents the views of the authors only, and do not necessarily represent the views or professional advice of KPMG.

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