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United States: Tax developments in response to COVID-19

General Information

This page offers an overview of tax developments being reported globally by KPMG member firms in response to the Novel Coronavirus (COVID-19).

The content will be updated on a regular basis. However, due to the fast-moving pace of change, it may not always reflect the most current developments in a given jurisdiction. Please refer to the date of accuracy and refer to the relevant links, under additional information, for original source information.

Date accurate as of: 11 October 2020

Accelerated Refunds

On March 27, 2020, the U.S. President signed the Coronavirus Aid, Relief, and Economic Security Act, (CARES Act, also known as the Phase 3 coronavirus bill), which among other things provides for immediate refundability of corporate alternative minimum tax (AMT) credits. 

On April 13, 2020, the IRS released a set of Q&As addressing how taxpayers can file claims for “quick refunds” related to the net operating loss (NOL) carryback provisions of the CARES Act

For a specific insight on the interaction between the CARES Act five-year NOL carryback provision and the retained AMT rules, please read “KPMG Report: ATNOL Carrybacks under the CARES Act”

On April 16, 2020 the IRS has updated a set of FAQs (FAQ 8 through FAQ 14) addressing how taxpayers can file claims for eligible refund claims related to the NOL carryback provisions. 

On April 17, 2020, the IRS released an advance version of Rev. Rul. 2020-08, which addresses the appropriate period for refund claims resulting from a foreign tax credit (FTC) carryback that was “released” by reason of a NOL carryback from a subsequent year. For more information, please read “KPMG Report: Initial impressions of Rev. Rul. 2020-8 and 10-year limitations period, foreign tax credit and NOL carrybacks” 

On May 27, 2020, the IRS posted a series of FAQs which clarify the treatment of NOL carrybacks of C corporations to tax years in which the AMT applies (i.e., pre-2018). 

On June 29, 2020, the IRS updated a set of FAQs to clarify how taxpayers can file applications for eligible refund claims related to the NOL carryback provisions.

Additional Information

Business Income Tax

On March 27, 2020, the U.S. President signed the Coronavirus Aid, Relief, and Economic Security Act, (CARES Act, also known as the Phase 3 coronavirus bill) which among other things provides for: 

  • Rules providing for the extended use of certain losses. On April 9, 2020, the IRS released Rev. Proc. 2020-24 to provide guidance regarding certain net operating loss (NOL) elections under the CARES Act and Notice 2020-26 to grant taxpayers a six-month extension to file certain forms with respect to the carryback of NOLs arising in any taxable year that began during calendar year 2018 and that ended on or before June 30, 2019. On April 23, 2020, the IRS released additional FAQs addressing how taxpayers with section 965 inclusions may carryback a NOL. For additional information, please read “KPMG report: Initial impressions of IRS guidance implementing NOL provisions in CARES Act (COVID-19)”. The IRS updated certain sections of the Internal Revenue Manual (IRM) addressing the treatment of NOLs in light of the changes made by the CARES Act. The new IRM sections contain specific guidance for processing Form 1139 or Form 1045 with NOLs, section 965 inclusions, and 100% refund of minimum tax credits filed under provisions of the CARES Act. On June 8, 2020, the IRS provided a list of FAQs concerning NOL carrybacks by certain tax exempt organizations who may engage in more than one unrelated trade or business; for more information, please read “IRS provides FAQs on NOL carrybacks by certain exempt organizations”. 
  • Temporary relaxation of the section 163(j) limitation. The bill increases the interest limit from 30% of adjusted taxable income (ATI) to 50% of adjusted taxable income for tax years beginning in 2019 and 2020. It also allows a taxpayer to elect for tax years beginning in 2020 to use its 2019 ATI to compute the section 163(j) limitation amount. On April 10, 2020 the IRS released an advance version of Rev. Proc. 2020-22, which describes time and manner in which taxpayers can make specific elections. For additional information, please read “KPMG report: Excepted Business Elections and other elections regarding CARES Act changes to section 163(j).” For insight on the CARES Act changes to business interest deduction limitations for partnerships and partners, please read “What’s News in Tax: CARES Act Changes to Business Interest Deduction Limitations for Partnerships.”
  • Technical correction for qualified improvement property. The bill includes a technical correction to the TCJA with respect to qualified improvement property (QIP). Such property has a 15-year recovery period for purposes of the general depreciation system of section 168(a) and a 20-year recovery period for purposes of the alternative depreciation system of section 168(g). On April 17, 2020, the IRS released an advance version of Rev. Proc. 2020-25 providing guidance for taxpayers to change the depreciation of “qualified improvement property” placed in service by the taxpayer in a tax year ending in 2018, 2019 or 2020. For additional information, please read “KPMG report: Relief for taxpayers to correct, change QIP depreciation methods.”
  • Modification of charitable contribution limit for corporations. The new law increases the limitations on deductions for charitable contributions for corporations who make cash or certain food inventory contributions in 2020 to 25% of taxable income, subject to certain restrictions.

For more information on the bill, please refer to “KPMG report: Tax provisions in the CARES Act (COVID-19 “phase 3” response): Preliminary analysis and observations“. For more information on the on possible impacts to companies’ income tax accounting from the effects of COVID-10, please refer to “KPMG report: Income tax accounting (COVID-19)”. 

For some highlights on certain income tax provisions relevant to the operation and the acquisition/disposition of private equity portfolio companies that are classified as corporations for U.S. federal tax purposes, please read “What’s News in Tax: The CARES Act: Considerations for Private Equity Funds with Corporate Portfolio Companies” 

The CARES Act includes many provisions that could significantly affect the financial reporting of companies applying U.S. GAAP. For a discussions of the primary accounting and reporting impacts of provisions in the CARES Act as currently understood, please read “Hot Topic: Coronavirus Accounting and reporting impacts of the CARES Act Report”. 

For insight on some cash flow opportunity that wholesalers, retailers, and similar businesses may have by treating COVID-19-related inventory impairments as disaster losses eligible to be recovered on the 2019 federal tax return, please read “KPMG report: COVID-19- related inventory impairments; cash flow opportunity for resellers”. 

On May 4, 2020, the IRS released an advance version of Rev. Proc. 2020-19 to provide temporary guidance regarding the treatment of certain stock distributions by publicly offered real estate investment trusts (REITs) and publicly offered regulated investment companies (RICs).

Rev. Proc. 2020-19 modifies the safe harbor provided in Rev. Proc. 2017-45 by temporarily reducing the minimum required aggregate amount of cash that distributee shareholders may receive to not less than 10% of the total distribution in order for Code section 301, by reason of section 305(b), to apply to the distribution. Specifically, Rev. Proc. 2020-45 provides for a temporary modification and is effective only with regard to distributions declared by a publicly offered REIT or publicly offered RIC on or after April 1, 2020, and on or before December 31, 2020. For additional insight, please read “What’s News in Tax: The Use of Elective Stock Dividends by a Publicly Offered REIT—What to Consider” and “What’s News in Tax: A Common Question from Healthcare REITs: Should the TRS Lease Be Amended during Tough Times?” 

For insight on tax implication of distressed leases and the requirements to continue to recognize rental income even when payments are not actually being made, please read “What’s News in Tax: COVID-19 and Distressed Leases”

For insight on what can affect taxation on a current of future sale of property, please read “What’s News in Tax: Real Estate in the Time of COVID-19: Documenting Changes in Intent and the Dealer Property Analysis”.

On July 6, 2020, the IRS released a set of FAQs concerning the tax treatment of payments from the Provider Relief Fund. The CARES Act provides that payments from the coronavirus relief fund may only be used to cover costs that:

  • Are necessary expenditures incurred due to the public health emergency with respect to COVID-19 
  • Were not accounted for in the state or local government’s most recently approved budget (as of March 27, 2020, the date of enactment of the CARES Act) – 
  • Were incurred during the period that begins on March 1, 2020, and ends on December 30, 2020.

The FAQs clarify that:

  • The receipt of a government grant by a business generally is not excluded from the business's gross income under the Code and therefore is taxable. However, a grant made by the government of a federally recognized Indian tribe to a member to expand an Indian-owned business on or near reservations is excluded from the member's gross income under the general welfare exclusion. 
  • The receipt of loan proceeds is not included in gross income. However, if the government forgives all or a portion of the loan, the amount of the loan that is forgiven is generally included in gross income of the business and is taxable unless an exclusion in section 108 of the Code or other Federal law applies. If an exclusion applies, an equivalent amount of any deductions, basis, losses or other tax attributes may have to be reduced in accordance with the Code or other Federal law. 
  • A payment from the Provider Relief Fund to a business, even if the business is a sole proprietorship, does not qualify as a qualified disaster relief payment under section 139. The payment from the Provider Relief Fund is includible in gross income under section 61 of the Code. 
  • A payment received by a tax-exempt health care provider from the Provider Relief Fund may be subject to tax under section 511 if the payment reimburses the provider for expenses or lost revenue attributable to an unrelated trade or business as defined in section 513.

For insight on the tax impact of COVID-19 on the banking industry, including observation on the CARES Act, please “KPMG report: Tax issues that banks are facing due to COVID-19”, prepared by KPMG in the United States. For an analysis of various tax considerations relating to telemedicine and explores several hypothetical scenarios providing possible interpretations of tax outcomes, please read “KPMG report: Telemedicine and tax.”

Business Income Tax (Proposed):

On May 15, 2020, the U.S. House of Representatives passed the ‘‘Health and Economic Recovery Omnibus Emergency Solutions Act’’ (HEROES Act), which contains additional tax proposal applicable to businesses:

  • A provision that would make the limitation on excess business losses of non-corporate taxpayers permanent, effective retroactive to tax years beginning after 2017.
  • A rule that would limit corporations from carrying back 2019 and 2020 net operating losses (NOLs) to years beginning prior to 2018. There would be further limitations on companies that have engaged in stock buybacks or that have paid certain amounts of executive compensation. The rule would be retroactive back to the date of enactment of the CARES Act (March 27, 2020).
  • A number of expansions and other modifications would be made to the employee retention credit that was enacted as part of the CARES Act.

A new payroll tax credit would be made available with regard to certain expenses of employers subject to COVID-19-related closures.

On July 27, 2020, the Senate Republicans released several bills intended to serve as components of a broader Senate legislative response:

The “American Workers, Families, and Employers Assistance Act” – introduced by Senate Finance Committee Chairman Grassley, includes:

  • Enhancements to employee retention tax credit (ERTC). The percentage of credit would be increased to 65% of qualified wages from the current 50%. The maximum amount of qualified wages would be increased to $10,000 per quarter up to $30,000 total. The gross receipts test would be amended to provide that an employer is eligible if they have a more than 25% decrease in gross receipts. When looking at the number of full-time employees for purposes of determining qualified wages, the bill would modify the ERC to differentiate between employers with 500 or fewer employees and employers with more than 500 employees. The bill would clarify that health care expenses are qualified wages as long as the amount is excluded from income under section 106. The bill would allow employers to be eligible for both the Payroll Protection Program (PPP) and the ERC under certain conditions. These changes are generally proposed to be effective for calendar quarters beginning after June 30, 2020. However, the clarification of health expenses and changes to gross receipts for tax-exempt entities would be retroactive to the original date of enactment the CARES Act.
  • Temporary expansion of work opportunity tax credit (WOTC). The bill would expand the WOTC to provide a credit for “a qualified 2020 COVID-19 unemployment recipient,” who is someone certified by the designated local agency to have received or been approved to receive unemployment compensation. The unemployment or approval must be under state or federal law for either the week immediately preceding the hiring date or the week which includes the hiring date and the employee must begin work for the employer before January 1, 2021. The credit would be for 50% of qualified first-year wages, with a $10,000 limitation on qualified first-year wages that may be taken into account with respect to each individual. The bill would remove the rehires exclusion for qualified 2020 COVID-19 unemployment recipients and would provide Treasury with regulatory authority to prevent abuse.

Safe and healthy workplace tax credit. Temporary refundable payroll tax credit of 50% of an employer’s expenses for certain expenses of protecting employees, such as testing for COVID19, protective personal equipment (PPE), cleaning supplies, and qualified workplace reconfiguration expenses. The credits for an employer could not exceed a cap equal to the sum of:

  • $1,000 multiplied by the average of employees employed during the quarter not in excess of 500; plus
  • $750 multiplied by the average number of employees in excess of 500 but not in excess of 1,000; plus 
  • $500 multiplied by the average number of employees in excess of 1,000.

The credit would be limited to employment taxes reduced by any credits under the Families First Coronavirus Response Act (FFRCRA) for required paid sick leave and expanded Family and Medical Leave Act (FMLA) and any credits for the ERC. Any excess credit would be refundable. The credit would apply to amounts paid or incurred for qualified expenses after March 12, 2020, and before January 1, 2021.

  • COVID-19 assistance provided to independent contractor. Safe harbor for providing certain COVID-19-related assistance to service-providers (such as “gig-economy” workers) without jeopardizing independent contractor status. This provision would establish a safe harbor to allow marketplace platform companies to provide independent contractors with COVID-19-related benefits without affecting independent contractor status. The bill would provide that certain benefits would not be taken into account in determining the status of the individual as an employee. These benefits include: 
    • Financial assistance to an individual while the individual is not performing services or performing reduced services because of COVID-19 
    • Health care benefits related to COVID-19, including testing 
    • Equipment to protect the individual, service recipients or customers from contracting COVID-19 (including masks, gloves, and disinfectants)
    • Cleaning products and services related to preventing the spread of COVID-19 
    • Training, standards, and guidelines or similar information related to COVID-19
  • Benefits (other than financial assistance) would be treated as section 139 qualified disaster relief payments excludable from the service provider’s taxable income. This provision would be effective for benefits provided after March 12, 2020, and before January 1, 2021
  • Clarifications and corrections to some CARES Act rules relating to qualified plans as well as to farmers who elected two-year net operating loss (NOL) carrybacks prior to the CARES Act.
  • Temporary changes to some flexible spending account rules. The bill provides that a plan would not fail to be treated as a cafeteria plan or flexible spending arrangement (health or dependent care) because the plan allows participants to carry over unused benefits or contributions remaining in the flexible spending arrangement (up to certain limits) from the plan year ending in 2020 to the plan year ending in 2021. 
  • Uniform procedures through 2024 for assessing state and local income taxes on remote and mobile workers who perform employment duties in multiple states. In particular, the tax provisions would adopt general limitations on withholding and taxation of employee income through 2024. The measure effectively combines provisions of the “Mobile Workforce Simplification Act” (introduced over the past several years) and COVID-related provisions contained in a measure sponsored by Senators Thune (R-SD) and Brown (D-OH) earlier this year. The language provides that no part of the wages earned by an employee who is a resident of a taxing jurisdiction and performs employment duties in more than one taxing jurisdiction would be subject to income in any taxing jurisdiction other than the resident state and any jurisdiction where the employee is present and performing services for more than 30 days during the calendar year in which the wages are earned. 

The “Restoring Critical Supply Chains and Intellectual Property Act” – introduced by Senator Graham:

  • 30% investment credit against equipment costs associated with PPE manufacturing for eligible U.S. manufacturers (modeled after section 48C advanced manufacturing tax credit). Total credit program amount capped at $7.5 billion, with applications due within one year of program’s establishment. Would permit taxpayers that receive the new credit to bring qualifying intangible property used in connection with the production of PPE back to the Unties States without taxable gain

The “Supporting America’s Restaurant Workers Act” – introduced by Senator Scott:

  • Temporary allowance of a full deduction for business meal expenses incurred after enactment and before 2021. This Senate bill would temporarily allow a full deduction for certain business meals. Section 274(n)(2) would be amended to provide a new exception that would allow a full deduction if the expense were for food or beverages provided by a restaurant and were paid or incurred before January 1, 2021. The provision would be effective for amounts paid or incurred after the date of enactment.

On July 9, 2020, the U.S. Congress passed the “Protecting Nonprofits from Catastrophic Cash Flow Strain Act of 2020” to provide relief for tax-exempt organizations, allowing offsets of the costs of unemployment benefits provided for the organizations’ workers who received unemployment insurance payments, which will be effective once signed by the President.

Accelerated Refunds

On March 27, 2020, the U.S. President signed the Coronavirus Aid, Relief, and Economic Security Act, (CARES Act, also known as the Phase 3 coronavirus bill), which among other things provides for immediate refundability of corporate alternative minimum tax (AMT) credits. 

On April 13, 2020, the IRS released a set of Q&As addressing how taxpayers can file claims for “quick refunds” related to the net operating loss (NOL) carryback provisions of the CARES Act

For a specific insight on the interaction between the CARES Act five-year NOL carryback provision and the retained AMT rules, please read “KPMG Report: ATNOL Carrybacks under the CARES Act”. 

On April 16, 2020 the IRS has updated a set of FAQs (FAQ 8 through FAQ 14) addressing how taxpayers can file claims for eligible refund claims related to the NOL carryback provisions. 

On April 17, 2020, the IRS released an advance version of Rev. Rul. 2020-08, which addresses the appropriate period for refund claims resulting from a foreign tax credit (FTC) carryback that was “released” by reason of a NOL carryback from a subsequent year. For more information, please read “KPMG Report: Initial impressions of Rev. Rul. 2020-8 and 10-year limitations period, foreign tax credit and NOL carrybacks” 

On May 27, 2020, the IRS posted a series of FAQs which clarify the treatment of NOL carrybacks of C corporations to tax years in which the AMT applies (i.e., pre-2018). 

On June 29, 2020, the IRS updated a set of FAQs to clarify how taxpayers can file applications for eligible refund claims related to the NOL carryback provisions.

Additional Information

Business Income Tax

On March 27, 2020, the U.S. President signed the Coronavirus Aid, Relief, and Economic Security Act, (CARES Act, also known as the Phase 3 coronavirus bill) which among other things provides for: 

  • Rules providing for the extended use of certain losses. On April 9, 2020, the IRS released Rev. Proc. 2020-24 to provide guidance regarding certain net operating loss (NOL) elections under the CARES Act and Notice 2020-26 to grant taxpayers a six-month extension to file certain forms with respect to the carryback of NOLs arising in any taxable year that began during calendar year 2018 and that ended on or before June 30, 2019. On April 23, 2020, the IRS released additional FAQs addressing how taxpayers with section 965 inclusions may carryback a NOL. For additional information, please read “KPMG report: Initial impressions of IRS guidance implementing NOL provisions in CARES Act (COVID-19)”. The IRS updated certain sections of the Internal Revenue Manual (IRM) addressing the treatment of NOLs in light of the changes made by the CARES Act. The new IRM sections contain specific guidance for processing Form 1139 or Form 1045 with NOLs, section 965 inclusions, and 100% refund of minimum tax credits filed under provisions of the CARES Act. On June 8, 2020, the IRS provided a list of FAQs concerning NOL carrybacks by certain tax exempt organizations who may engage in more than one unrelated trade or business; for more information, please read “IRS provides FAQs on NOL carrybacks by certain exempt organizations”. 
  • Temporary relaxation of the section 163(j) limitation. The bill increases the interest limit from 30% of adjusted taxable income (ATI) to 50% of adjusted taxable income for tax years beginning in 2019 and 2020. It also allows a taxpayer to elect for tax years beginning in 2020 to use its 2019 ATI to compute the section 163(j) limitation amount. On April 10, 2020 the IRS released an advance version of Rev. Proc. 2020-22, which describes time and manner in which taxpayers can make specific elections. For additional information, please read “KPMG report: Excepted Business Elections and other elections regarding CARES Act changes to section 163(j).” For insight on the CARES Act changes to business interest deduction limitations for partnerships and partners, please read “What’s News in Tax: CARES Act Changes to Business Interest Deduction Limitations for Partnerships.”
  • Technical correction for qualified improvement property. The bill includes a technical correction to the TCJA with respect to qualified improvement property (QIP). Such property has a 15-year recovery period for purposes of the general depreciation system of section 168(a) and a 20-year recovery period for purposes of the alternative depreciation system of section 168(g). On April 17, 2020, the IRS released an advance version of Rev. Proc. 2020-25 providing guidance for taxpayers to change the depreciation of “qualified improvement property” placed in service by the taxpayer in a tax year ending in 2018, 2019 or 2020. For additional information, please read “KPMG report: Relief for taxpayers to correct, change QIP depreciation methods.
  • Modification of charitable contribution limit for corporations. The new law increases the limitations on deductions for charitable contributions for corporations who make cash or certain food inventory contributions in 2020 to 25% of taxable income, subject to certain restrictions.

For more information on the bill, please refer to “KPMG report: Tax provisions in the CARES Act (COVID-19 “phase 3” response): Preliminary analysis and observations“. For more information on the on possible impacts to companies’ income tax accounting from the effects of COVID-10, please refer to “KPMG report: Income tax accounting (COVID-19)”. 

For some highlights on certain income tax provisions relevant to the operation and the acquisition/disposition of private equity portfolio companies that are classified as corporations for U.S. federal tax purposes, please read “What’s News in Tax: The CARES Act: Considerations for Private Equity Funds with Corporate Portfolio Companies” 

The CARES Act includes many provisions that could significantly affect the financial reporting of companies applying U.S. GAAP. For a discussions of the primary accounting and reporting impacts of provisions in the CARES Act as currently understood, please read “Hot Topic: Coronavirus Accounting and reporting impacts of the CARES Act Report”. 

For insight on some cash flow opportunity that wholesalers, retailers, and similar businesses may have by treating COVID-19-related inventory impairments as disaster losses eligible to be recovered on the 2019 federal tax return, please read “KPMG report: COVID-19- related inventory impairments; cash flow opportunity for resellers”. 

On May 4, 2020, the IRS released an advance version of Rev. Proc. 2020-19 to provide temporary guidance regarding the treatment of certain stock distributions by publicly offered real estate investment trusts (REITs) and publicly offered regulated investment companies (RICs).

Rev. Proc. 2020-19 modifies the safe harbor provided in Rev. Proc. 2017-45 by temporarily reducing the minimum required aggregate amount of cash that distributee shareholders may receive to not less than 10% of the total distribution in order for Code section 301, by reason of section 305(b), to apply to the distribution. Specifically, Rev. Proc. 2020-45 provides for a temporary modification and is effective only with regard to distributions declared by a publicly offered REIT or publicly offered RIC on or after April 1, 2020, and on or before December 31, 2020. For additional insight, please read “What’s News in Tax: The Use of Elective Stock Dividends by a Publicly Offered REIT—What to Consider” and “What’s News in Tax: A Common Question from Healthcare REITs: Should the TRS Lease Be Amended during Tough Times?” 

For insight on tax implication of distressed leases and the requirements to continue to recognize rental income even when payments are not actually being made, please read “What’s News in Tax: COVID-19 and Distressed Leases”. 

For insight on what can affect taxation on a current of future sale of property, please read “What’s News in Tax: Real Estate in the Time of COVID-19: Documenting Changes in Intent and the Dealer Property Analysis”.

On May 27, 2020, the IRS released an advance version of Notice 2020-41 that modifies prior IRS guidance concerning the “beginning of construction” requirement for both the production tax credit for renewable energy facilities under section 45 and the investment tax credit for energy property under 48. The Notice states that the “Continuity Safe Harbor” as provided and extended by prior IRS Notices is being further extended for projects that began construction in either calendar year 2016 or 2017. Notice 2020-41 also provides a “3½ Month Safe Harbor” for services or property paid for by the taxpayer on or after September 16, 2019, and received by October 15, 2020. For insight on Notice 2020-41, please read “Initial impressions of Notice 2020-41 and “beginning of construction” under sections 45 and 48”.

On June 4, 2020, the IRS released Rev. Proc. 2020-34, which allows eligible trusts to make certain modifications to their mortgage loans or lease agreements, or to accept certain additional cash contributions, without jeopardizing their tax status as grantor trusts. Modifications to the mortgage assets or lease agreements and cash contributions that meet the safe harbor criteria will not be deemed to create a “power to vary” that would jeopardize grantor trust treatment under Reg. section 301.7701-4(c) and Rev. Rul. 2004-86. In addition, the safe harbor provided by Rev. Proc. 2020-34 states that a cash contribution from one or more new trust interestholders—to acquire a trust interest or a non-pro rata cash contribution from one or more current trust interestholders—is to be treated as a purchase and sale under section 1001, of a portion of each non-contributing (or lesser contributing) trust interest-holder’s proportionate interest in the trust’s assets. For additional information, please refer to “Rev. Proc. 2020-34: Relief for mortgage loans, lease arrangements of certain trusts”.

For insight on key U.S. tax issues and questions that infrastructures investors should consider, please read the article “COVID-19 and U.S. tax impacts for infrastructure”.

On July 6, 2020, the IRS released a set of FAQs concerning the tax treatment of payments from the Provider Relief Fund. The CARES Act provides that payments from the coronavirus relief fund may only be used to cover costs that:

  • Are necessary expenditures incurred due to the public health emergency with respect to COVID-19 
  • Were not accounted for in the state or local government’s most recently approved budget (as of March 27, 2020, the date of enactment of the CARES Act) – 
  • Were incurred during the period that begins on March 1, 2020, and ends on December 30, 2020.

The FAQs clarify that:

  • The receipt of a government grant by a business generally is not excluded from the business's gross income under the Code and therefore is taxable. However, a grant made by the government of a federally recognized Indian tribe to a member to expand an Indian-owned business on or near reservations is excluded from the member's gross income under the general welfare exclusion. 
  • The receipt of loan proceeds is not included in gross income. However, if the government forgives all or a portion of the loan, the amount of the loan that is forgiven is generally included in gross income of the business and is taxable unless an exclusion in section 108 of the Code or other Federal law applies. If an exclusion applies, an equivalent amount of any deductions, basis, losses or other tax attributes may have to be reduced in accordance with the Code or other Federal law. 
  • A payment from the Provider Relief Fund to a business, even if the business is a sole proprietorship, does not qualify as a qualified disaster relief payment under section 139. The payment from the Provider Relief Fund is includible in gross income under section 61 of the Code. 
  • A payment received by a tax-exempt health care provider from the Provider Relief Fund may be subject to tax under section 511 if the payment reimburses the provider for expenses or lost revenue attributable to an unrelated trade or business as defined in section 513.

For insight on the tax impact of COVID-19 on the banking industry, including observation on the CARES Act, please “KPMG report: Tax issues that banks are facing due to COVID-19”, prepared by KPMG in the United States. For an analysis of various tax considerations relating to telemedicine and explores several hypothetical scenarios providing possible interpretations of tax outcomes, please read “KPMG report: Telemedicine and tax.”

Business Income Tax (Proposed):

On May 15, 2020, the U.S. House of Representatives passed the ‘‘Health and Economic Recovery Omnibus Emergency Solutions Act’’ (HEROES Act), which contains additional tax proposal applicable to businesses:

  • A provision that would make the limitation on excess business losses of non-corporate taxpayers permanent, effective retroactive to tax years beginning after 2017.
  • A rule that would limit corporations from carrying back 2019 and 2020 net operating losses (NOLs) to years beginning prior to 2018. There would be further limitations on companies that have engaged in stock buybacks or that have paid certain amounts of executive compensation. The rule would be retroactive back to the date of enactment of the CARES Act (March 27, 2020).
  • A number of expansions and other modifications would be made to the employee retention credit that was enacted as part of the CARES Act.

A new payroll tax credit would be made available with regard to certain expenses of employers subject to COVID-19-related closures.

On July 27, 2020, the Senate Republicans released several bills intended to serve as components of a broader Senate legislative response:

The “American Workers, Families, and Employers Assistance Act” – introduced by Senate Finance Committee Chairman Grassley, includes:

  • Enhancements to employee retention tax credit (ERTC). The percentage of credit would be increased to 65% of qualified wages from the current 50%. The maximum amount of qualified wages would be increased to $10,000 per quarter up to $30,000 total. The gross receipts test would be amended to provide that an employer is eligible if they have a more than 25% decrease in gross receipts. When looking at the number of full-time employees for purposes of determining qualified wages, the bill would modify the ERC to differentiate between employers with 500 or fewer employees and employers with more than 500 employees. The bill would clarify that health care expenses are qualified wages as long as the amount is excluded from income under section 106. The bill would allow employers to be eligible for both the Payroll Protection Program (PPP) and the ERC under certain conditions. These changes are generally proposed to be effective for calendar quarters beginning after June 30, 2020. However, the clarification of health expenses and changes to gross receipts for tax-exempt entities would be retroactive to the original date of enactment the CARES Act.
  • Temporary expansion of work opportunity tax credit (WOTC). The bill would expand the WOTC to provide a credit for “a qualified 2020 COVID-19 unemployment recipient,” who is someone certified by the designated local agency to have received or been approved to receive unemployment compensation. The unemployment or approval must be under state or federal law for either the week immediately preceding the hiring date or the week which includes the hiring date and the employee must begin work for the employer before January 1, 2021. The credit would be for 50% of qualified first-year wages, with a $10,000 limitation on qualified first-year wages that may be taken into account with respect to each individual. The bill would remove the rehires exclusion for qualified 2020 COVID-19 unemployment recipients and would provide Treasury with regulatory authority to prevent abuse.
  • Safe and healthy workplace tax credit. Temporary refundable payroll tax credit of 50% of an employer’s expenses for certain expenses of protecting employees, such as testing for COVID19, protective personal equipment (PPE), cleaning supplies, and qualified workplace reconfiguration expenses. The credits for an employer could not exceed a cap equal to the sum of:
    • $1,000 multiplied by the average of employees employed during the quarter not in excess of 500; plus
    • $750 multiplied by the average number of employees in excess of 500 but not in excess of 1,000; plus 
    • $500 multiplied by the average number of employees in excess of 1,000.

The credit would be limited to employment taxes reduced by any credits under the Families First Coronavirus Response Act (FFRCRA) for required paid sick leave and expanded Family and Medical Leave Act (FMLA) and any credits for the ERC. Any excess credit would be refundable. The credit would apply to amounts paid or incurred for qualified expenses after March 12, 2020, and before January 1, 2021.

  • COVID-19 assistance provided to independent contractor. Safe harbor for providing certain COVID-19-related assistance to service-providers (such as “gig-economy” workers) without jeopardizing independent contractor status. This provision would establish a safe harbor to allow marketplace platform companies to provide independent contractors with COVID-19-related benefits without affecting independent contractor status. The bill would provide that certain benefits would not be taken into account in determining the status of the individual as an employee. These benefits include: 
    • Financial assistance to an individual while the individual is not performing services or performing reduced services because of COVID-19 
    • Health care benefits related to COVID-19, including testing 
    • Equipment to protect the individual, service recipients or customers from contracting COVID-19 (including masks, gloves, and disinfectants)
    • Cleaning products and services related to preventing the spread of COVID-19 
    • Training, standards, and guidelines or similar information related to COVID-19
  • Benefits (other than financial assistance) would be treated as section 139 qualified disaster relief payments excludable from the service provider’s taxable income. This provision would be effective for benefits provided after March 12, 2020, and before January 1, 2021
  • Clarifications and corrections to some CARES Act rules relating to qualified plans as well as to farmers who elected two-year net operating loss (NOL) carrybacks prior to the CARES Act.
  • Temporary changes to some flexible spending account rules. The bill provides that a plan would not fail to be treated as a cafeteria plan or flexible spending arrangement (health or dependent care) because the plan allows participants to carry over unused benefits or contributions remaining in the flexible spending arrangement (up to certain limits) from the plan year ending in 2020 to the plan year ending in 2021. 
  • Uniform procedures through 2024 for assessing state and local income taxes on remote and mobile workers who perform employment duties in multiple states. In particular, the tax provisions would adopt general limitations on withholding and taxation of employee income through 2024. The measure effectively combines provisions of the “Mobile Workforce Simplification Act” (introduced over the past several years) and COVID-related provisions contained in a measure sponsored by Senators Thune (R-SD) and Brown (D-OH) earlier this year. The language provides that no part of the wages earned by an employee who is a resident of a taxing jurisdiction and performs employment duties in more than one taxing jurisdiction would be subject to income in any taxing jurisdiction other than the resident state and any jurisdiction where the employee is present and performing services for more than 30 days during the calendar year in which the wages are earned. 

The “Restoring Critical Supply Chains and Intellectual Property Act” – introduced by Senator Graham:

  • 30% investment credit against equipment costs associated with PPE manufacturing for eligible U.S. manufacturers (modeled after section 48C advanced manufacturing tax credit). Total credit program amount capped at $7.5 billion, with applications due within one year of program’s establishment. Would permit taxpayers that receive the new credit to bring qualifying intangible property used in connection with the production of PPE back to the Unties States without taxable gain

The “Supporting America’s Restaurant Workers Act” – introduced by Senator Scott:

  • Temporary allowance of a full deduction for business meal expenses incurred after enactment and before 2021. This Senate bill would temporarily allow a full deduction for certain business meals. Section 274(n)(2) would be amended to provide a new exception that would allow a full deduction if the expense were for food or beverages provided by a restaurant and were paid or incurred before January 1, 2021. The provision would be effective for amounts paid or incurred after the date of enactment.

On July 9, 2020, the U.S. Congress passed the “Protecting Nonprofits from Catastrophic Cash Flow Strain Act of 2020” to provide relief for tax-exempt organizations, allowing offsets of the costs of unemployment benefits provided for the organizations’ workers who received unemployment insurance payments, which will be effective once signed by the President.

Customs/Import and Other Miscellaneous Taxes

Excise tax waiver

  • The U.S. Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau (TTB) issued a release announcing that it was waiving certain excise tax provisions with regard to distilled spirits that are used in the production of hand sanitizers. 
  • Existing beverage distilled spirits plants (DSP) and alcohol fuel plants (AFP) can immediately commence production of hand sanitizer without first having to obtain authorization or formula approval. 
  • DSPs and AFPs can supply distilled spirits (ethanol) for use in the manufacture of hand sanitizer to other permittees without first having to obtain authorization. Industrial alcohol users may procure increased amounts of denatured ethanol and can use denatured ethanol to manufacture hand sanitizer without first obtaining formula approval.
  • The hand sanitizer produced must meet certain World Health Organization standards and other standards listed in the TTB release. The TTB release notes that hand sanitizers made with denatured ethanol are not subject to federal excise tax. However, if the hand sanitizer is made with undenatured ethanol, federal excise tax applies. The provisions apply through June 30, 2020. 
  • TTB waived a requirement that brewers first submit to TTB a “Notice of Intent” regarding permission to destroy tax-paid beer at off-brewery premises—thereby alleviating the 12-day waiting period as required under TTB regulations. The waiver has been extended through September 1, 2020.

Excise tax holiday

The CARES Act also provides for a suspension of certain aviation excise taxes through the creation of an “excise tax holiday” through December 31, 2020, and provides for a temporary exception from excise tax for alcohol used to produce some hand sanitizers. For more detailed information, please read the “KPMG report: Tax provisions in the CARES Act (COVID-19 “phase 3” response): Analysis and observations”.

  • On May 12, 2020, the IRS released a set of FAQs providing some clarifications on the application of the excise tax holiday. During the excise tax holiday, no tax is imposed on “jet fuel” kerosene used in commercial aviation (that is, the excise tax imposed pursuant to section 4041(c) or 4081). The CARES Act relief applies only to kerosene used in commercial aviation during the excise tax holiday, and not the sale or removal of kerosene during the excise tax holiday. The excise tax holiday also applies to the “ticket taxes” normally imposed on amounts paid for the transportation of persons and property by air under sections 4261 and 4271.
  • The Office of the U.S. Trade Representative (USTR) released for publication in the Federal Register a notice and request for comments on possible changes to the Section 301 investigation of China and possible removal of medical-care products needed to address the COVID19 pandemic from customs duties. 
  • On May 6, 2020, the Office of the USTR released a notice and a “request for comments “concerning the 2020 generalized system of preferences (GSP) annual review. The GSP program provides for the duty-free treatment of designated articles when imported from beneficiary developing countries
  • On May 18, 2020, the U.S. Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau (TTB) released guidance concerning the tax-free withdrawal of distilled spirits and products containing distilled spirits for hand sanitizer purposes. It clarifies that because the exemptions authorized under TTB’s prior guidance are separate from the CARES Act, distilled spirits permittees can continue to operate under those TTB exemptions even if they also conduct separate operations under the CARES Act. TTB is extending its approval of these exemptions through December 31, 2020. 

For insight on potential custom tariff opportunities, please read “What’s News in Tax: Transfer Pricing Changes May Result in Potential Customs Tariff Opportunities in a COVID-19 Environment”.

Filing/Payment Deadline Extension:

  • The U.S. Treasury Department and IRS have postponed the filing date and the payment date for U.S. federal income tax returns and tax payments for the 2019 tax year that are due on April 15, 2020, to July 15, 2020.
  • As a result of the postponement announced in Notice 2020-18, the period beginning on April 15 and ending on July 15 will be disregarded in the calculation of any interest, penalty, or addition to tax for failure to file the returns or pay the taxes described in the IRS notice.
  • On April 9, 2020, the IRS announced in Notice 2020-23 that this relief and the extensions generally now apply to all taxpayers that have a filing or payment deadline (including quarterly estimated tax payments) falling on or after April 1, 2020, and before July 15, 2020. Individuals, trusts, estates, corporations and other non-corporate tax filers qualify for the extra time. This means that anyone, including Americans who live and work abroad, can now wait until July 15 to file their 2019 federal income tax return and pay any tax due. There will be no accrual of interest, penalties or addition to tax for a failure to pay for the period beginning on April 15, 2020 and ending on July 15, 2020. Interest, penalties, and additions to tax with respect to amounts of postponed federal income tax payments will begin to accrue on July 16, 2020.
  • In addition, the extension applies to the filing of all petitions with the Tax Court, seeking review of a decision rendered by the Tax Court, filing a claim for credit or refund of any tax, and bringing suit upon a claim for credit or refund of any tax.
  • The IRS also clarified that taxpayers have until July 15, 2020 to make the investment at the election of the taxpayer due to be made during the 180-day period described in section 1400Z-2(a)(1)(A) of the Code (Opportunity Zones).
  • On April 23, 2020, the IRS updated the list of FAQs concerning the postponed deadlines for filing federal income tax returns and paying federal taxes that was originally released on March 24, 2020.
  • The FAQs make clear that Notice 2020-23 postpones to July 15, 2020 certain excise tax payments and return filings only (i.e., excise tax payments on investment income and return filings on Form 990-PF, and excise tax payments and return filings on Form 4720, due on or after April 1, 2020, and before July 15, 2020). 
  • On March 25, the IRS announced the extension for reporting Model 2 financial institutions and participating foreign financial institutions to file Form 8966, “FATCA Report.” The filing deadline for eligible financial institutions is extended to 15 July 2020 (from 31 March 2020). On April 14, 2020, the IRS updated FAQ 5 under the Reporting section of the FATCA General FAQs to extend the deadline for Model 1 IGA jurisdictions to December 31, 2020, to submit FATCA data for the 2019 reportable year. On April 29, 2020, the IRS updated the FAQs and granted an automatic extension to December 15, 2020, to submit the FACTA certification to the IRS, for an entity with a certification due date of July 1, 2020. On March 31, the U.S. Treasury Department announced that the date for paying excises taxes for wine, beer, distilled spirits, tobacco products, firearms, and ammunition has been delayed for 90 days.

On April 8, 2020 the IRS released: 

  • A note recommending that taxpayers wait further instructions before utilizing the traditional processes to file corporate and/or individual refund claims that may be available under the CARES Act. 
  • Rev. Proc. 2020-23, which allows “eligible partnerships” to file amended returns to take into account relief provisions from the CARES Act, as well as any other tax attributes to which the partnership is entitled by law. Eligible partnerships must file such amended Forms 1065, and furnish Schedules K-1, before September 30, 2020. For additional information, please read “Rev. Proc. 2020-23: Relief for partnerships, allowing amended returns (COVID19)”.

On April 20, 2020, U.S. Customs and Border Protection (CBP) and the U.S. Treasury Department jointly released a temporary final rule which extends for 90 days the deadline for importers of record with a significant financial hardship to deposit certain estimated duties, taxes, and fees that they would ordinarily be obligated to pay as of the date of entry (or the date of “withdrawal from warehouse”) for merchandise entered in March or April 2020. On July 10, 2020, U.S. CBP issued a release as a reminder of approaching end of the extended 90-day postponement for estimated customs duties, taxes, and fees:

  • No interest will accrue for the postponed deposit of such estimated duties, taxes, and fees during this 90-day postponement period. 
  • Deposits made after the new due date may be subject to interest. 
  • No penalty, liquidated damages or other sanctions will be imposed for the postponed deposit of estimated duties, taxes, and fees in accordance with this temporary postponement, if paid by the new due dates.

On May 4, 2020, the IRS released Rev. Proc. 2020-21 and Notice 2020-25, concerning the rules regarding taxexempt bonds and providing certain relief in response to the pandemic. Rev. Proc. 2020-21 provides temporary guidance regarding the public approval requirement under section 147(f) for tax-exempt qualified private activity bonds. Notice 2020-25 temporarily expands the circumstances and time periods in which a tax-exempt bond that is purchased by its state or local governmental issuer is treated as continuing in effect without resulting in a reissuance or retirement of the purchased tax-exempt bond solely for purposes of section 103 and sections 141 through 150.

On May 27, 2020, the IRS released Notice 2020-35 which specifies that the deadlines for an “affected taxpayer” to perform a “time-sensitive action” regarding certain employment taxes, employee benefit plans, exempt organizations, individual retirement arrangements (IRAs), Coverdell education savings accounts, health savings accounts (HSAs), and Archer and Medicare Advantage medical saving accounts (MSAs) is July 15, 2020, unless a different revised deadline is specified

On June 4, 2020, the IRS published Notice 2020-39, which provides relief for “qualified opportunity funds” (QOF) and their investors:

  • Addresses the application of certain relief provisions in the section 1400Z-2 regulations 
  • Provides relief for certain failures by a QOF to meet the 90% investment standard – 
  • Postpones the time periods for satisfying certain other requirements – 
  • Confirms that the 24-month extension for the working capital safe harbor and the 12-month extension for QOFs to reinvest certain proceeds— both as provided under the section 1400Z-2 regulations—are available to otherwise qualifying QOFs and qualified opportunity zone businesses 

On June 12, 2020, the IRS released Notice 2020-49 regarding the New Markets Tax Credit (NMTC) and specifically to extend the time for taxpayers to make certain time-sensitive actions. The Notice provides relief to a community development entity (CDE) or a qualified active low-income community business (QALICB) for certain specified time-sensitive acts that are due to be performed between April 1, 2020, and December 31, 2020, under the section 45D NMTC requirements and regulations. Accordingly, certain specified time-sensitive actions by a CDE or QALICB, which are due to be performed on or after April 1, 2020, and before December 31, 2020, will be treated as timely satisfied if performed by December 31, 2020.

On June 23, 2020, the IRS released Notice 2020-48 which postpones the due date for Form 720 and payment of the related federal excise tax under section 4161(a) on sales of sport fishing equipment and under section 4161(b) on sales of archery equipment (bows and arrows) for the second calendar quarter of 2020 (April, May, and June) from July 31, 2020 to October 31, 2020. On August 7, 2020, the IRS released Notice 2020-55 which provides until October 31, 2020, for filing a Form 720 and paying the related federal excise tax under section 4161(a) on sales of sport fishing equipment and under section 4161(b) on sales of archery equipment (bows and arrows) for the first calendar quarter (January, February, and March) of 2020

On June 26, 2020, the IRS updated a list of FAQs concerning the deferral of employment tax deposits and payments through December 31, 2020, addressing specific issues related to the deferral of deposit and payment of these employment taxes and in particular regarding implications of the Paycheck Protection Program (PPP).

On July 14, 2020, the IRS released Notice 2020-56 which provides a further postponement until December 31, 2020 of the deadline for performing any community health needs assessment (CHNA) requirement under section 501(r)(3) of the Code, due to be completed on or after April 1, 2020, and before December 31, 2020. The U.S. Securities and Exchange Commission (SEC) also has provided regulatory relief from certain filing obligations of companies that have operations in or that are located in regions affected by the COVID-19. The period of relief covers filing deadlines falling between March 1 and April 30. However, the SEC will continue to consider whether additional relief is necessary as developments unfold.

On July 29, 2020, the IRS posted a set of FAQs providing a temporary procedure applicable until further notice for taxpayers to fax the duplicate copy of Form 3115, “Application for Change in Accounting Method”. Beginning July 31, 2020, the IRS will accept the duplicate copy of Form 3115 by fax at this number: +1 844 249 8134. Taxpayers are reminded that they still need to submit two copies of Form 3115 to the IRS. The IRS emphasized that this change applies only to taxpayers requesting consent to make a change in accounting method under the automatic change procedure.

On July 20, 2020, the IRS released Notice 2020-58 to provide additional time until March 31, 2021 to satisfy the ‘substantial rehabilitation test’ under the rehabilitation credit. In general, projects eligible for a rehabilitation credit for qualified rehabilitation expenditures (QREs) incurred in connection with the rehabilitation of a qualified rehabilitated building (QRB) must satisfy the “substantial rehabilitation test” within a 24-month or 60-month period. The TCJA included a transition rule for QREs incurred with respect to either a certified historic structure or a pre-1936 building, with respect to any building owned or leased at all times on and after January 1, 2018, if the 24-month period selected by the taxpayer or the 60-month period selected by the taxpayer for phased rehabilitation, begins no later than the end of the 180-day period beginning on the date of the enactment of the TCJA. In such case, the modifications made to the rehabilitation credit provisions apply to such expenditures paid or incurred after the end of the tax year in which such 24-month or 60-month period ends. Notice 2020-58 allows taxpayers that have a measuring period under the substantial rehabilitation test ending on or after April 1, 2020, and before March 31, 2021, now have until March 31, 2021, to satisfy the test. The deadline relief also applies to the substantial rehabilitation test for qualifying under the TCJA transition rule.

On August 8, 2020, President Trump signed a memorandum directing the Treasury Secretary to defer the collection of certain payroll taxes for the period of September 1, 2020, through December 31, 2020.

On August 28, 2020, the IRS released Notice 2020-65 which allows employers to defer the withholding and payment of the employee share of social security tax ordinarily due during the period from September 1, 2020, through December 31, 2020, for employees with earnings below a threshold amount. The IRS notice indicates employers that defer the withholding and payment of taxes in 2020 must withhold and pay the deferred taxes ratably over the period from January 1, 2021, through April 30, 2021. Notice 2020-65 provides that:

  • The Treasury Secretary has determined that employers that are required to withhold and pay the employee share of social security tax under section 3102(a) or the railroad retirement tax equivalent under section 3202(a) are affected by the COVID-19 emergency for purposes of the relief described in the presidential memorandum and this notice (this are “Affected Taxpayers”)
  • For Affected Taxpayers, the due date for the withholding and payment of the tax imposed by section 3101(a), and so much of the tax imposed by section 3201 as is attributable to the rate in effect under section 3101(a), on “Applicable Wages” (that is, “Applicable Taxes”) is postponed until the period beginning on January 1, 2021, and ending on April 30, 2021.
  • Applicable Wages means wages as defined in section 3121(a) or compensation as defined in section 3231(e) paid to an employee on a pay date during the period beginning on September 1, 2020, and ending on December 31, 2020, but only if the amount of such wages or compensation paid for a bi-weekly pay period is less than the threshold amount of $4,000, or the equivalent threshold amount with respect to other pay periods.
  • The determination of Applicable Wages is made on a pay period-by-pay period basis. If the amount of wages or compensation payable to an employee for a pay period is less than the corresponding pay period threshold amount, then that amount is considered Applicable Wages for the pay period, and the relief provided in this notice applies to those wages or that compensation paid to that employee for that pay period, irrespective of the amount of wages or compensation paid to the employee for other pay periods.
  • An Affected Taxpayer must withhold and pay the total Applicable Taxes that the Affected Taxpayer deferred under this notice ratably from wages and compensation paid between January 1, 2021 and April 30, 2021 or interest, penalties, and additions to tax will begin to accrue on May 1, 2021, with respect to any unpaid Applicable Taxes. If necessary, the Affected Taxpayer may make arrangements to otherwise collect the total Applicable Taxes from the employee.

For insight on Notice 2020-65, please read “KPMG report: Initial analysis of Notice 2020-65, guidance on employee payroll tax deferral".

On August 28, 2020, the IRS announced that the use of digital signatures will be allowed temporarily on certain forms and returns that cannot be filed electronically in an effort to reduce in-person contact and lessen the risk to taxpayers and tax professionals during the COVID-19 pandemic. The IRS release IR-2020-194 states that certain forms and returns (which cannot be e-filed and generally must be printed and mailed) can be submitted with digital signatures if filed on or before December 31, 2020. The list of forms, as further expanded by IR-2020-206 of September 10, 2020, is the following:

  • Form 3115, Application for Change in Accounting Method 
  • Form 8832, Entity Classification Election 
  • Form 8802, Application for U.S. Residency Certification 
  • Form 1066, U.S. Income Tax Return for Real Estate Mortgage Investment Conduit 
  • Form 1120-RIC, U.S. Income Tax Return For Regulated Investment Companies  
  • Form 1120-C, U.S. Income Tax Return for Cooperative Associations 
  • Form 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts 
  • Form 1120-L, U.S. Life Insurance Company Income Tax Return 
  • Form 1120-PC, U.S. Property and Casualty Insurance Company Income Tax Return 
  • Form 8453 series, Form 8878 series, and Form 8879 series regarding IRS e-file signature authorization forms 
  • Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return 
  • Form 706-NA, U.S. Estate (and GenerationSkipping Transfer) Tax Return
  • Form 709, U.S. Gift (and Generation-Skipping Transfer) Tax Return 
  • Form 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons 
  • Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts 
  • Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner.

On September 10, 2020, the IRS released Announcement 2020-17 which provides that the due dates for reporting and paying excise taxes under sections 4971(a)(1) and 4971(f)(1) regarding delayed minimum required contributions to a single employer defined benefit plan are postponed to January 15, 2021. Announcement 2020-17 clarifies that it is intended to coordinate the due date for reporting and paying the sections 4971(a)(1) and 4971(f)(1) excise taxes with the extended due date for paying the minimum required contributions to which those excise taxes apply (January 1, 2021). 

The IRS announcement states that it overrides the due date provided on Form 5330 and under the Form 5330 instructions for reporting and paying the excise taxes under sections 4971(a)(1) and 4971(f)(1) with respect to a minimum required contribution to which the CARES Act applies

Announcement 2020-17 cautions that it does not apply to the due dates for other excise taxes required to be reported on Form 5330. 

On September 14, 2020, the TTB issued a reminder to semi-monthly excise tax return filers that there are three excise tax return periods and five due dates in September 2020. There are always 3 return periods in September, but this year, because due dates were postponed 90 days as a result of COVID-19, there are also two additional due dates that fall in September. However, this only affects alcohol and tobacco taxpayers who file and pay on a semi-monthly basis, and not those who file and pay quarterly or annually.

The U.S. Treasury Department’s Community Development Financial Institutions (CDFI) Fund today announced that it will consider requests for extensions of compliance and certification reports when the recipients have been affected by the COVID-19 pandemic. The Treasury CDFI release reminds representatives of an organization that has received a CDFI Fund award and/or allocation, including a New Markets Tax Credit (NMTC) allocation, of the requirement to maintain compliance by completing and submitting the annual compliance reports. A failure to file the annual compliance and certification reports or to advise the CDFI Fund of certain “material events” can result in a finding of noncompliance. Some recipients may have a reporting date of September 30, 2020. Recipients of NMTC allocations are required to submit a “material events” form within 20 days of the occurrence of material event. The CDFI Fund will evaluate requests on a case-by-case basis. Recipients that have been affected by the COVID-19 crisis may have their deadlines for the submission of annual compliance and/or certification reports extended by up to 90 days. In addition, the CDFI Fund will consider extensions of up to 180 days for certain participants.

On September 16, 2020, in release IR 2020-212 the IRS explained that under Rev. Proc. 2020-1, the IRS ordinarily processes requests for letter rulings in the order that they are received, but that a taxpayer with a compelling need to have a request processed more quickly may request expedited handling.

A request for expedited handling must be made in writing, preferably in a separate letter submitted with the letter ruling request. – Requests for expedited handling are granted at the discretion of the IRS and typically involve a factor outside of the taxpayer's control that creates a real business need to obtain a letter ruling before a certain date in order to avoid serious business consequences. – Requests for expedited handling need to be submitted as promptly as possible after the taxpayer has become aware of the deadline or compelling business need.

On September 22, 2020, the IRS released Announcement 2020-12 which explains that lenders that make PPP loans that are later forgiven under the CARES Act should not file information returns or furnish payee statements under section 6050P to report the amount of qualifying PPP loan forgiveness.

  • Certain states or local governments have offered tax relief on extensions of time to file and to pay upcoming state and local taxes, as well as additional information on matters such as agency shutdowns
  • KPMG’s State and Local Tax practice has prepared a report (updated as of May 27, 2020) that provides a summary of the jurisdictions that have issued guidance on extensions of time for filing and payment of income, sales and/or other state taxes, or penalty relief in light of COVID19.
  • For tax relief guidance released by certain state and local governments to address the consequences of the travel restrictions due to the COVID-19 pandemic, please read “Tax relief, updated state and local tax guidance” from September 21, 2020.
  • The Delaware Secretary of State in February 2020 mailed letters to over 100 companies perceived as non-compliant with Delaware’s unclaimed property law to “invite” them to enroll in the state’s VDA program. Under Delaware law, companies that do not enroll in the VDA program within 60 days of the mailing date of the letter will be “eligible” for an audit examination by the state. Recognizing the challenges many companies are facing in light of COVID19, including difficulties with receipt and distribution of hardcopy mail, Delaware has extended the deadline to respond to the invitation for the voluntary disclosure agreement (VDA) program to July 18, 2020.

The CARES Act also provides for a delay of payment of certain employer and self-employment payroll taxes. The provision would allow employers and self-employed individuals to defer payment of the employer share (6.2%) of the social security tax they otherwise are responsible for paying in 2020, effective for payments due after the date of enactment. 50% of the deferred payroll taxes are due on December 31, 2021, and the remaining amounts are due on December 31, 2022.

On April 10, 2020, the IRS posted a list of FAQs addressing specific issues related to the deferral of employment tax deposits and payments through December 31, 2020. The FAQs have been further updated on April 28, 2020 and on July 30, 2020. 

Individual Income Tax:

On March 18, 2020, the U.S. President signed the Families First Coronavirus Response Act (also known as the Phase 2 coronavirus bill), which introduced:

  • Credit for sick leave for certain self-employed individuals - the bill allows an eligible self-employed individual a credit against the tax imposed by subtitle A of the Code (relating to income taxes) with respect to qualified sick leave equivalent amounts. To qualify, an individual generally must regularly carry on a trade or business within the meaning of Code section 1402 and must have met the criteria to receive paid leave pursuant to the Emergency Paid Sick Leave Act as if the individual were an employee of an employer. Notice 2020-54 provides guidance for employers on the requirements to report amounts of qualified sick leave wages. Employers are required to report the amounts of qualified sick leave wages and qualified family leave wages either on Form W-2, Box 14, or on a separate statement. The notice provides sample language that can be used to report the paid leave. The Box 14 reporting or separate statement requirements are in addition the requirements to report the wages in Box 1, 3, and 5.
  • Credit for family leave for certain self-employed individuals - The bill allows an eligible self-employed individual a credit against the tax imposed by subtitle A of the Code (relating to income taxes) with respect to qualified family leave equivalent amounts. To qualify, an individual must regularly carry on a trade or business within the meaning of Code section 1402 and must have met the criteria to be entitled to receive paid leave pursuant to the Emergency Family and Medical Leave Expansion Act as if the individual were an employee of an employer
  • Wages under section 3111 - The bill provides that any wages required to be paid by reason of the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act would not be considered wages for purposes of Code section 3111(a). 

The CARES Act also provides for:

  • Rebates (refundable tax credit) of up to $1,200 for single filers and $2,400 for joint filers (with amounts increased by $500 per child). These payments are subject to phase-outs beginning at $75,000/$150,000 adjusted gross income (AGI) for single filers/joint filers.
  • Temporary waiver of the early withdrawal penalty for certain coronavirus-related withdrawals from qualified retirement plans. – 
  • Temporary waiver of requirement minimum distribution rules for certain defined contribution plans and individual retirement accounts. –
  • Allowance of up to $300 of charitable deductions for non-itemizing taxpayers for tax years beginning in 2020 and relaxation of the limitations for those taxpayers who itemize. –
  • Increase in charitable contributions limits of up to 100% of adjusted gross income. For corporations, the 10% AGI limitation would be increased to 25% for certain 2020 cash contributions.

For more detailed information, please read the “KPMG report: Tax provisions in the CARES Act (COVID-19 “phase 3” response): Analysis and observations”.

On May 12, 2020, the IRS released the advance versions of two notices, Notice 2020-29 and Notice 2020-33, as guidance allowing temporary changes to section 125 cafeteria plans. The guidance issued are intended to address unanticipated changes in expenses because of the COVID-19 pandemic and provides that previously provided temporary relief for high-deductible health plans may be applied retroactively to January 1, 2020; it also reflects an increase of the $500 permitted carryover amount for health FSAs to $550 (adjusted for inflation annually).

On June 19, 2020, the IRS released Notice 2020-50 to provide guidance intended to help retirement plan participants affected by COVID-19 to take advantage of the CARES Act provisions. These measures provide enhanced access to plan distributions and plan loans, include expanded categories of individuals eligible for these types of distributions and loans (“qualified individuals”), and include examples on how qualified individuals will reflect the tax treatment of these distributions and loans on their federal income tax filings

On June 23, 2020, the IRS released Notice 2020-51 as guidance relating to the waiver of 2020 required minimum distributions from certain retirement plans pursuant to relief provisions provided by the CARES Act. Specifically, the required minimum distribution rules for calendar year 2020 are waived for certain defined contribution plans and IRAs. Individual are usually required to take mandatory distributions starting at age 72, but such distributions are not required during 2020. The provision is effective for calendar years beginning after December 31, 2019.

On June 29, 2020, the IRS released Notice 2020-52, which clarifies the requirements applicable to a mid-year amendment to a safe harbor section 401(k) or section 401(m) plan that reduces only contributions made on behalf of “highly compensated employees.” It also provides temporary relief from certain requirements that would otherwise apply to a mid-year amendment to a safe harbor section 401(k) or section 401(m) plan adopted between March 13, 2020, and August 31, 2020, that reduces or suspends safe harbor contributions.

On July 1, 2020, the IRS released Notice 2020-53 to provide temporary relief from certain requirements regarding low-income credit available under section 42 of the Internal Revenue Code for qualified low-income housing projects. Please refer to the Tax News Flash for details on the reliefs provided.

On July 30, 2020, the IRS updated a set of FAQs to provide guidance on the special distribution options and rollover rules for retirement plans and IRAs, and for expanded permissible loans from certain retirement plans, introduced by the CARES Act.

On August 6, 2020, the IRS released Notice 2020-62 which reflects modifications to two safe harbor explanations that plan administrators may use to satisfy the requirement under section 402(f) that certain information be provided to recipients of an eligible rollover distribution. The safe harbor explanations reflect legislative changes, including changes related to the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) and the CARES Act.

On August 24, 2020, the IRS issued a release IR-2020- 187 as a reminder to individual taxpayers that the deadline to rollover or repay retirement plan “required minimum distributions” (RMD) is August 31, 2020. The IRS explained that, because the RMD rule is suspended, RMDs taken in 2020 are considered eligible for rollover. Therefore, RMDs can be rolled over to another IRA, another qualified retirement plan or returned to the original plan by August 31, 2020, to avoid paying taxes on that distribution.

On September 9, 2020, the IRS released Notice 2020-66 as interim guidance providing that certain Medicaid coverage of COVID-19 testing and diagnostic services is not “minimum essential coverage” for purposes of section 36B. Therefore, an individual’s eligibility for Medicaid coverage solely for COVID-19 testing and diagnostic services will not prevent that person from being able to claim a premium tax credit under section 36B. The Notice also announces that the U.S. Treasury Department and IRS intend to amend Reg. section 1.5000A-2 to add Medicaid coverage of COVID-19 testing and diagnostic services to the list of health care coverage that is not minimum essential coverage under a government-sponsored program.

Loss Relief

The CARES Act also provides for:

  • Extended carry-back period for net operating losses. The bill allows corporations to carry back losses incurred in tax years beginning after 12/31/2017 and before 12/31/2021. The provision also temporarily (i.e. losses arising in tax years after 12/31/2017 and before 12/31/2020) allows some net operating losses (NOLs) to fully offset income. Special rules are provided for REITs and life insurance companies. It also includes a technical correction to the effective date of changes made by the TCJA to the NOL rules. Please see the “Business Income Tax” section for additional information.
  • Expanded use of losses for partnerships and sole proprietors. The bill temporarily (and retroactively) suspends the application for non-corporate taxpayers of the limitation on excess business losses for tax years beginning in 2018, 2019 and 2020, that was enacted as part of the TCJA, for tax years beginning after 2017 and before 2026. It also makes technical changes to the loss limitation rules, retroactive to the enactment of the TCJA. 
  • For more detailed information, please read the “KPMG report: Tax provisions in the CARES Act (COVID-19 “phase 3” response): Analysis and observations”.

On July 3, 2020, the U.S. Treasury Department and IRS released for publication in the Federal Register as guidance under sections 1502 and 172 regarding consolidated NOLs:

  • The temporary regulations (T.D. 9900) - promulgated under section 1502 permit consolidated groups that acquire new members that were members of another consolidated group to elect in a year subsequent to the year of acquisition to waive all or part of the preacquisition portion of an extended carryback period under section 172 for certain losses attributable to the acquired members when there is a retroactive statutory extension of the NOL carryback period under section 172. These temporary regulations reflect provisions enacted as part of the CARES Act that retroactively extend the carryback period under section 172 for tax years beginning after 2017 and before 2021; and
  • The proposed regulations (REG-125716-18) - include proposed amendments to the consolidated return regulations under section 1502, and provide guidance implementing recent statutory amendments to section 172 as made by the 2017 tax law TCJA and the CARES Act. These proposed regulations respond to and address the issues surrounding absorption of consolidated NOL carryovers and carrybacks, which arise as a result of the TCJA and CARES Act.
  • For specific implications for insurance companies, please read the “KPMG report: Insurance-related measures in consolidated NOL regulations”.

Payroll Tax

With regard to payroll tax, the CARES Act provides for the following measures (among others):

Employee retention payroll tax credit for certain businesses. The bill provides a refundable payroll tax credit for 50% of “qualified wages” paid by certain employers to employees. The credit is available to eligible employers carrying on a trade or business in calendar year 2020 whose: (1) Operations were fully or partially suspended, due to orders of a governmental entity that were related to the COVID-19 crisis, or (2) Gross receipts declined by more than 50% when compared to the same quarter in the prior year. For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to COVID-19 circumstances. For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit. The credit is capped at the first $10,000 of compensation, including health benefits, paid to the employee. The credit is refundable to the extent it exceeds the employer portion of social security taxes reduced by the paid sick leave and paid extended FMLA established the Coronavirus Phase 2 legislation. The provision is effective for wages paid or incurred from 13 March 2020 through 31 December 2020.

On March 31, 2020 the U.S. Senate Finance Committee released a set of “frequently asked questions” (FAQs) to address the employee retention credit provisions. 

On April 10, 2020 The IRS has re-issued Form 941, “Employer’s Quarterly Federal Tax Return” for 2020 and the related instructions—each with a note providing guidance for employers claiming the newly enacted employee retention credit.

On April 29, 2020, the IRS released FAQs on the employee retention credit; for more information, please read KPMG TNF “Initial impressions of additional FAQs on the employee retention credit”.

On May 4, 2020, the IRS clarified that an employer that applied for a Paycheck Protection Program (PPP) loan an repays the loan by May 18, 2020 will be treated as though the employer had not received a covered loan under the PPP for purposes of the Employee Retention Credit. The IRS clarified that will now generally treat qualified health plan expenses paid during a furloughed period as qualified wages for purposes of the employee retention credit.

On June 19, 2020, the IRS updated the FAQs and clarified what constitutes “gross receipts” for a tax-exempt employer for purposes of determining eligibility for the Employee Retention Credit. Other FAQs were also updated to include helpful clarifications and expanded examples. Please refer to “IRS updated FAQs on employee retention credit” for more detailed information.

On July 24, 2020, the U.S. Treasury Department and IRS released for publication in the Federal Register (on July 29, 2020) temporary regulations (T.D. 9904) and proposed regulations (REG-111879-20) providing rules for reconciling advance payments of refundable employment tax credits. A provision of the CARES Act provides that if the amount of the employee retention credit exceeds the taxes imposed by section 3111(a) or 3221(a) (limited to the portion attributable to the rate in effect under section 3111(a)) for any calendar quarter, that excess amount is treated as an overpayment that is to be refunded under sections 6402(a) and 6413(b). The temporary regulations and corresponding proposed regulations provide that any credits claimed that exceed the amount to which an employer is entitled and are actually credited and paid are considered to be an erroneous refund of the credits and treated as an underpayment of the taxes imposed under section 3111(a) or 3221(a). Therefore, these regulations authorize the IRS to assess any portion of the credits erroneously credited, paid or refunded. This mechanism allows the IRS to recover amounts and provides taxpayers with administrative protections but avoids litigation. These regulations apply to all credits under provisions of the Families First Act (Act sections 7001 and 7003) refunded on or after April 1, 2020, as well as credits under a provision of the CARES Act (Act section 2301) that are refunded on or after March 13, 2020.

Payroll tax credit for required paid sick leave - Effective for wages paid with respect to a period that begins on a date selected by Treasury and that ends December 31, 2020, the bill generally would provide an employer payroll tax credit equal to 100% of the qualified sick leave wages paid by the employer under the Emergency Paid Sick Leave Act, subject to certain limitations. The tax credit generally would be available for wages of up to either $511 or $200 for each day an individual is paid qualified sick leave. The amount of the credit for any calendar quarter generally could not exceed the tax imposed under Code section 3111 or Code section 3221(a) for such quarter. However, the bill includes refundability provisions for credits that exceed tax liability. On July 24, 2020, the U.S. Treasury Department and IRS released for publication in the Federal Register (on July 29, 2020) temporary regulations (T.D. 9904) and proposed regulations (REG111879-20) providing rules for reconciling advance payments of refundable employment tax credits. In general, provisions of the Families First Act provide that if the amount of the paid sick and family leave credits exceeds the taxes imposed by Code section 3111(a) or 3221(a) for any calendar quarter, that excess amount is to be treated as an overpayment that is to be refunded pursuant to the rules under sections 6402(a) and 6413(b).

The temporary regulations and corresponding proposed regulations provide that any credits claimed that exceed the amount to which an employer is entitled and are actually credited and paid are considered to be an erroneous refund of the credits and treated as an underpayment of the taxes imposed under section 3111(a) or 3221(a). Therefore, these regulations authorize the IRS to assess any portion of the credits erroneously credited, paid or refunded. This mechanism allows the IRS to recover amounts and provides taxpayers with administrative protections but avoids litigation. These regulations apply to all credits under provisions of the Families First Act (Act sections 7001 and 7003) refunded on or after April 1, 2020, as well as credits under a provision of the CARES Act (Act section 2301) that are refunded on or after March 13, 2020.

Payroll tax credit for required paid family leave - Effective for wages paid with respect to a period that begins on a date selected by Treasury within 15 days of enactment and that ends December 31, 2020, the bill would provide an employer payroll tax credit for each calendar quarter generally equal to 100% of the qualified family leave wages paid by the employer to comply with the Emergency Family and Medical Leave Expansion Act with respect to such quarter. The credit would be against the employer portion of OASDI taxes imposed by Code section 3111(a). 

The IRS has provided draft versions of Form 7200, Advance Payment of Employer Credits Due to COVID-19, and the draft instructions for Form 7200 for use by employers that file Form(s) 941, 943, 944, or CT-1 to request an advance of the tax credit for qualified sick and family leave wages and the employee retention credit. On July 15, 2020, the IRS announced that it is sending letters to taxpayers that have experienced a delay in the process of Form 7200, “Advance Payment of Employer Credits Due To COVID-19.” The IRS release explains that taxpayers will receive letter 6312 if the IRS either rejected Form 7200 or made a change to the requested amount of advance payment due to a computation error. The letter will indicate the reason for the rejection or, if the amount is adjusted, the new payment amount will be listed on the letter. Also, a taxpayer will receive a letter if the IRS needs written verification from a taxpayer that the address listed on the Form 7200 is the current mailing address for the business. 

For more information on the labor-related tax provisions of the “Coronavirus Aid, Relief, and Economic Security Act” (CARES Act), please read “KPMG Report: Employer-related liquidity—tax credits, deferrals, and efficiencies”.

On June 11, 2020, the IRS released Notice 2020-46 as guidance for employers whose employees forgo sick, vacation or personal leave because of the COVID-19 pandemic. The Notice provides that cash payments that an employer makes to section 170(c) organizations in exchange for vacation, sick or personal leave that the employees elect to forgo will not be treated as wages (or compensation) to the employees (or otherwise be included in the gross income of the employees) if the payments are:

Made to the section 170(c) organizations for the relief of victims of the COVID-19 pandemic in the affected geographic areas, and

Paid to the section 170(c) organizations before January 1, 2021.

It further provides that employees electing to forgo leave will not be treated as having constructively received gross income or wages (or compensation). Electing employees cannot claim a charitable contribution deduction under section 170 with respect to the value of forgone leave. An employer may deduct these cash payments as a business expense (under the rules of section 170 or the rules of section 162) if the employer otherwise meets the respective requirements of either section.

On August 3, 2020, the IRS posted a set of FAQs concerning the tax treatment of leave-sharing plans under IRS Notice 2006-59.

On August 6, 2020, the IRS released Notice 2020-61, which provides guidance concerning the special rules relating to funding of single-employer defined benefit pension plans, and related benefit limitations, as enacted by the CARES Act.

Notice 2020-61 states in Q&A-11 that the extended due date under the CARES Act does not change the date by which a contribution must be made in order to be deducted for a tax year under section 404(a)(6), which permits a deduction for the prior tax year if the payment is on account of that tax year and is made no later than the due date for filing the return for that tax year (including extensions).

Notice 2020-61 provides special instructions for actuaries completing Schedule SB of Form 5500 in light of the changes made by the CARES Act

On August 21, 2020, the IRS indicated that it was aware that a “small population of employers” that reduced their tax deposits in anticipation of claiming the sick and family leave credits or employee retention credit may have received a notice stating that there was a failure-to deposit penalty applicable to the Form 941 on which the credits were claimed.

According to the IRS statement:

  • Under IRS Notice 2020-22, employers claiming the new tax credits may reduce their deposits throughout the tax period up to the amount of the credit. 
  • However, in reporting the schedule of liabilities on Form 941, the reported liabilities did not match the reduction in deposits for every pay date
  • In these situations, the employers may have incurred a failure-to-deposit penalty on the difference in the reported liabilities and the reduced deposits (in situations when deposits were reduced by the amount of the anticipated credit(s) in excess of liability for the employer portion of social security for a given pay date)

The statement explains that while the IRS has taken steps to implement rules that prevent the failure to deposit penalty from incurring on employers reducing their deposits in anticipation of these credits, the IRS has become aware some employers may still have inadvertently received notice of the penalty. The IRS stated that it is taking actions to identify these employer accounts and correct them as soon as possible.

The IRS release concludes that employers that have recently received these notices do not need to take additional actions at this time.

Payroll Taxes (Proposed):

  • The U.S. House of Representatives yesterday passed the “Child Care for Economic Recovery Act” on July 29, 2020. The bill contains tax provisions including measures that would:
  • Modify the amount, refundability, and other provisions of the child and dependent care tax credit 
  • Increase the exclusion for employer-provided dependent care assistance 
  • Provide a new refundable payroll credit for certain fixed-expenses of certain child care facilities 
  • Provide a new refundable payroll credit for certain employee dependent care expenses paid by employers 
  • Allow increased flexibility for dependent care flexible spending arrangements 
  • Expand the employee retention credit to employment of domestic employees  
  • Provide $5 million in supplemental appropriations to allow the IRS to make grants under the Community Volunteer Income Tax Assistance Matching Grants Program.

PE and Place of Management:

On April 21, 2020, the IRS released an advance versions of two revenue procedures providing relief for certain individuals who remain in the United States beyond a specified number of days because of the coronavirus (COVID-19) pandemic.

Rev. Proc. 2020-20: 

  • Offers relief to nonresident individuals who, but for the COVID-19-related emergency travel disruptions, would not have been in the United States long enough to be considered resident aliens under the “substantial presence test” and establishes procedures to apply the medical condition exception to exclude up to 60 consecutive days spent in the United States during a time period starting on or after February 1, 2020, and on or before April 1, 2020, with the specific start date to be chosen by each individual
  • Provides procedures for an individual to exclude those days of presence in order to claim benefits under an income tax treaty with respect to dependent personal services income.
  • Rev. Proc. 2020-27 provides relief to any individual that reasonably expected to become a “qualified individual” for purposes of claiming the foreign earned income exclusion under section 911 but left the foreign jurisdiction during the period described by this revenue procedure. 
  • The IRS also released a set of FAQs providing that certain U.S. business activities conducted by a nonresident alien or foreign corporation will not be counted for up to 60 consecutive calendar days in determining whether the individual or entity is engaged in a U.S. trade or business or has a U.S. permanent establishment, but only if those activities would not have been conducted in the United States but for travel disruptions arising from the COVID-19 emergency. 
  • For additional insight, please read “KPMG report: FAQs for determining U.S. trade or business or permanent establishment”

On May 27, 2020, the IRS explained that certain alien individuals who were not able to leave the U.S. because they contracted COVID-19 or experienced other medical conditions, may be eligible to claim he “medical condition exception” to exclude certain days of U.S. presence from the substantial presence test, described in section 7701(b)(3), provided they meet the requirements described in section 7701(b)(3)(D)(ii) and section 301.7701(b)-3(c)—the medical condition exception. Alien individuals who are eligible to claim the medical condition exception generally must file Form 8843, Statement for Exempt Individuals and Individuals With a Medical Condition, to claim the exception. Form 8843 requires a signed statement from a physician or other medical official that the alien individual was unable to leave the United States due to a medical condition or medical problem.

On June 12, 2020, the IRS updated a set of FAQs as guidance nonresident alien individuals and foreign businesses with employees or agents that have been affected by the emergency travel disruptions as a result of the COVID-19 pandemic.

Suspension of Tax Audits:

On March 25, the IRS announced that: 

  • During this period, the IRS will generally not start new field office and correspondence examinations; will continue to work refund claims when possible, without in-person contact, but may start new examinations when deemed necessary to protect the government's interest in preserving the applicable statute of limitations.
  • IRS Appeals Office employees will continue to work their cases, and even though Appeals is not currently holding in-person conferences with taxpayers, conferences may be held over the telephone or by video conference.
  • The IRS will continue to take necessary steps to protect all applicable statutes of limitations. In instances when statute expirations might be jeopardized during this period, taxpayers are encouraged to cooperate in extending such statutes. Otherwise, the IRS will issue deficiency notices and pursue other similar actions to protect the interests of the government in preserving such statutes. Where a statutory period is not set to expire during 2020, the IRS states that it is unlikely to pursue the foregoing actions until at least July 15, 2020.

Practitioners need to be aware that depending on staffing levels and allocations going forward, there may be more significant wait times for the “Practitioner Priority Service”.

On March 27, the IRS further announced the suspension of certain administrative procedures:

  • Suspension of “information document request” (IDR) enforcement procedures through July 15, 2020, for taxpayers that are unable to respond timely to an IDR request because of the coronavirus pandemic. 
  • Suspension until further notice of certain “helplines” including the “Practitioner Priority Service”, the e-Services help desk line, and the eServices, FIRE and AIR system help desks. 
  • Temporary suspension of acceptance of new income verification express services (IVES) requests, and reports delays with existing IVES processing as well as Centralized Authorization File number authorizations. Practitioners with e-Services accounts and with client authorization can access the Transcript Delivery System to obtain prior-year transcripts.

A memorandum from the IRS Deputy Commissioner explains that IRS Services and Enforcement employees will temporarily (until July 15, 2020) accept documents by email and digital signatures on certain documents. 

On April 2, 2020 the Director of IRS Appeals, Case Operations and Support, issued a memorandum providing for temporary guidance (expires on July 15, 2020), which allows Appeals employees to:

  • Accept digital signatures (scanned or photographed) on documents related to consideration of a taxpayer’s case by Appeals 
  • Accept documents by email and to transmit documents to taxpayers using SecureZip or other established secured messaging systems

'On April 13, 2020, the IRS stated that: 

— The IRS operations to process third-party authorizations are now closed – The IVES is temporarily on hold 

— Extremely limited service are currently available 

— The IRS is unable to process paper tax returns

 

On April 14, 2020, the Commissioner of the IRS Large Business and International (LB&I) Division issued a memorandum addressing which LB&I compliance activities would be postponed and which would be allowed through July 15, 2020. For a list of the activities, please refer to the KPMG TNF. 

On April 30, 2020, the IRS released an advance version of Rev. Proc. 2020-29 which temporarily allows for the electronic submission of requests for:

  • Letter rulings, closing agreements, determination letters, and information letters under the jurisdiction of the IRS Office of Chief Counsel
  • Determination letters issued by the IRS Large Business and International Division (LB&I)
  • However, it does not modify procedures for determination letters issued by the IRS’s Small Business/Self Employed Division, Wage and Investment Division, or Tax Exempt and Government Entities Division.

On June 12, 2020, the IRS Deputy Commissioner (Services and Enforcement) extended to December 31, 2020 the authorization to accept documents by email and additional information on encryption technologies.

On June 26, 2020, the Commissioner of the IRS LB&I Division issued a memorandum, superseding prior memoranda, addressing which LB&I compliance activities are postponed, which will continue and which will resume beginning July 15, 2020. 

The new LB&I memorandum provides LB&I activity to be postponed through July 15, 2020, includes the following: 

  • LB&I will not start an examination of any new return unless it falls within the list of activities continuing through July 15, 2020. 
  • Except for certain cases, managers have discretion on prior, subsequent, and related returns associated with an existing examination.

The memo also lists LB&I activity continuing through July 15, 2020, including:

Compliance assurance process, large corporate compliance, FATCA, qualified intermediary (QI) programs and current open examinations—these are to proceed as usual, but without in-person contact

  • New examinations arising from voluntary disclosure practice cases, claims, and other pre-refund verification programs—these are to proceed as usual, but without in-person contact.
  • Work is to continue on the following campaigns, but without in-person contact: 
    • Syndicated conservation easements 
    • Micro captive insurance 
    • Section 965
    • Tax Cuts and Jobs Act (TCJA) implementation 
    • Existing and any new campaigns to be assessed for purposes of categorizing as postponed or continuing with clear communications to follow on which ones are continuing through July 15, 2020 
  • Workload reviews of existing inventory will continue. 
  • Examiners can charge time to new cases (e.g., audit planning) when taxpayer contact will not be made until after July 15—for example, “high income” Form 1040 returns and related entities. 
  • Prior time limits on classification activities are suspended. 
  • Other consensual work initiated by taxpayers—these are to proceed as usual, but without in-person contact and include, for example, pre-filing agreements and refund claims

Lastly, the LB&I memo provides that beginning July 15, 2020, all LB&I operations will resume under “normal procedures” except for:

  • Appointments (whether in-person or virtual) are to be scheduled for August 2020 or later, depending upon the facts and circumstances of the taxpayer. Accommodations are to be made to support virtual LB&I work.
  • Regarding IDR enforcement, LB&I examiners are instructed to note the temporary suspension of the IDR enforcement process.

On June 7, 2020, the Commissioner of the Tax Exempt and Government Entities (TE/GE) Division of the IRS released a memorandum, which supersedes an April 2020 memorandum and:

  • Extends the approval period to deviate from standard IDR enforcement timelines
  • Provides guidance regarding resumption of TE/GE examination activities post-July 15, 2020. “All operations” activities will resume under normal procedures after July 15, 2020—except that inperson, face-to-face appointments are to be limited to specific situations. All appointments (whether inperson or virtual) are to be scheduled for August 2020 or later.

Transfer Pricing 

In May 2020, the IRS announced changes to the procedures for filing documents under Rev. Proc. 2015-40 (MAP requests) and under Rev. Proc. 2015-41 (APA requests and APA annual reports)

Under temporary guidance issued by the Deputy Commissioner, Services and Enforcement (DCSE), in March 2020, any documents requiring the taxpayer's signature under either Rev. Proc. 2015-40 or Rev. Proc. 2015-41 may be submitted with either an image of the taxpayer's signature (scanned or photographed) or the taxpayer's digital signature created using encryption techniques to provide proof of original and unmodified documentation. Either form of signature is acceptable. The DCSE guidance clarifies that submissions required by either Rev. Proc. 2015-40 or Rev. Proc. 2015-41 may be filed electronically, paper copies are not required.

The IRS also explained that with regard to questions about pending and executed APAs, Advance Pricing and Mutual Agreement program (APMA) is actively discussing various substantive and procedural issues with treaty partners, including such technical issues as the application of transfer pricing methods in periods of economic distress and the impacts of current economic conditions on specific industries, types of taxpayer, regions, etc. Taxpayers wanting to discuss these and other general Issues with APMA are directed to contact the appropriate APMA Assistant Director.

For insight on what taxpayers need to consider when responding to APA challenges that flow from the COVID19 pandemic, please read “Advance Pricing Agreement and COVID-19”.

International tax directors face the unenviable challenge of determining whether they should modify transfer pricing policies in the face of the economic downturn caused by the COVID-19 pandemic. There are various factors and approaches that tax directors might consider when determining if their current target profit margins are appropriate during the COVID-19 disruption and, if not, how they might adjust those target margins consistent with the arm’s length standard. Please read “What’s News in Tax: COVID-19 and Transfer Pricing Policy: A Lookback Analysis of Routine Returns” prepared by KPMG member firm in the United States

Various transfer pricing strategies can be deployed to meet short-term and long-term operational, financial, and capital needs by conserving available cash, enhancing access to external sources of new liquidity, and tapping into cash reserves in multiple jurisdictions. For insight on these strategies, please read “What’s News in Tax: Addressing Liquidity Issues during Covid-19 Using Intercompany Pricing Tools”.