March 2020 / United States

On 28 February 2020, the US Internal Revenue Service (IRS) issued Revenue Ruling 2020-7 with the announcement of the interest rates on tax overpayments (i.e. tax refunds) and tax underpayments (i.e. tax assessments and late tax payments) for the calendar quarter beginning 1 April 2020. The IRS also issued an accompanying News Release (IR-2020-46) dated 28 February 2020.

The interest rates, which apply to amounts bearing interest during that calendar quarter, are as follows:

• 5% for non-corporate overpayments;
• 4% for corporate overpayments up to USD 10,000;
• 2.5% for corporate overpayments to the extent in excess of USD 10,000;
• 5% for non-corporate and corporate (other than large corporate) underpayments; and
• 7% for large corporate underpayments (i.e. underpayments in excess of USD 100,000).

Revenue Ruling 2020-7 also includes:

• interest factors for daily compound interest for an annual rate of 0.5% (Appendix A); and
• tables including overpayment and underpayment interest rates for prior periods.

The interest rates on overpayments and underpayments for the second quarter of 2020 remain the same as the rates announced for the first quarter of 2020.

Revenue Ruling 2020-7 will appear in the IRS Internal Revenue Bulletin (IRB) as part of IRB Bulletin 2020-12, dated 16 March 2020.

The US Internal Revenue Service (IRS) issued Revenue Procedure 2020-17 on 2 March 2020 to provide an exemption from the information reporting requirements under section 6048 of the US Internal Revenue Code (IRC) for certain US citizens and resident individuals with respect to their transactions with, and ownership of, certain tax-favoured foreign trusts that are established and operated exclusively or almost exclusively to provide pension or retirement benefits, or to provide medical, disability, or educational benefits.

In addition, Revenue Procedure 2020-17 provides procedural guidance for certain eligible individuals on how to request abatement of penalties that have been assessed, or refunds of penalties that have been paid, for a failure to comply with the information reporting requirements regarding such foreign trusts.

Revenue Procedure 2020-17 is effective as of the date on which Revenue Procedure 2020-17 is published in the Internal Revenue Bulletin (i.e. 16 March 2020), and applies to all prior open taxable years, subject to the limitations of IRC section 6511.

Revenue Procedure 2020-17 will be in the IRS Internal Revenue Bulletin (IRB) as part of IRB 2020-12, dated 16 March 2020.

The US Internal Revenue Service (IRS) has released revised Publication 515 (Withholding of Tax on Non-resident Aliens and Foreign Entities). The publication is for use in 2020, and is dated 11 February 2020.

Publication 515 provides guidance for withholding agents who pay income to foreign persons, including non-resident aliens, foreign corporations, foreign partnerships, foreign trusts, foreign estates, foreign governments and international organizations.

The topics discussed in Publication 515 include:

• the persons responsible for withholding (withholding agents);
• the types of income subject to withholding;
• the information return and tax return filing obligations of withholding agents;
• withholding by a partnership on its income effectively connected with a US trade or business that is allocable to its foreign partners;
• withholding on transfer or distribution of a US real property interest under the Foreign Investment in Real Property Tax Act (FIRPTA); and
• how to get tax help from the IRS.

Publication 515 is available on the IRS website at www.irs.gov.

The US Treasury Department and the US Internal Revenue Service (IRS) have issued a document (2020-04113) to correct the final regulations (TD 9890) on certain due diligence and reporting rules applicable to persons making certain US source payments to foreign persons, and guidance on certain aspects of reporting by foreign financial institutions on US accounts.

The correcting document was published in the Federal Register on 6 March 2020.

The correcting document is effective on 6 March 2020 and is applicable to taxable years that begin on or after 6 December 2019.

The final regulations were published in the Federal Register on 2 January 2020

The US Treasury Department and the US Internal Revenue Service (IRS) have issued the second quarter update to their Priority Guidance Plan for 2019-2020. The second quarter update indicates a release date of 6 March 2020.

The initial Priority Guidance Plan for 2019-2020 contained 203 guidance projects.

The second quarter update to the 2019-2020 plan reflects 40 additional projects which have been published (or released) during the period from 1 October 2019 through 31 December 2019.

The Joint Committee on Taxation of the US Congress (JCT) released a report that provides a technical explanation of Division G, "Tax Credits for Paid Sick and Paid Family and Medical Leave" of HR 6201, the "Families First Coronavirus Response Act" as received in the US Senate on 17 March 2020.

The report is entitled Technical Explanation of Division G, "Tax Credits for Paid Sick and Paid Family and Medical Leave," of H.R. 6201, the "Families First Coronavirus Response Act".

The report is dated 17 March 2020 and is designated JCX-10-20.

The Families First Coronavirus Response Act (HR 6201) includes an employer tax credit for the paid sick and family leave required as part of the bill. The tax credit is intended to cover the cost to businesses of providing paid leave to address the coronavirus disease (COVID-19) pandemic.

The US Internal Revenue Service (IRS) has established a special section entitled "Coronavirus Tax Relief" on its website. The page is focused on steps to help taxpayers, businesses and others affected by the coronavirus.

The page indicates a last reviewed or updated date of 17 March 2020.

The page will be updated as new information is available.

The US Treasury Department also has information available at Coronavirus: Resources, Updates, and What You Should Know.

The US Treasury Department and the US Internal Revenue Service (IRS) issued Notice 2020-17 on 18 March 2020 to permit US taxpayers to defer the payments of US federal income tax (including self-employment tax) due on 15 April 2020 until 15 July 2020 without penalties or interest.

Notice 2020-17 allows all individual and other non-corporate taxpayers to defer up to USD 1 million of US federal income tax payments.

Corporate taxpayers are allowed a similar deferment of up to USD 10 million of US federal income tax payments.

Notice 2020-17, however, does not change the filing deadline of 15 April 2020.

The US Treasury Department also issued a related Press Release dated 18 March 2020.

On 19 March 2020, the US Senate Finance Committee submitted proposals for a third round of legislative measures in response to the economic impact of the coronavirus disease (COVID-19) pandemic. The Coronavirus Aid, Relief, and Economic Security (CARES) Act would introduce tax and non-tax measures for individuals and businesses. The tax measures for individuals would include tax rebates. Individuals and corporations would be permitted a deferral to 15 July of the 15 April filing date for 2019 returns as well as a deferral of estimated tax payments due from the date of enactment until 15 October 2020. A deferral of certain employer and self-employed payroll taxes is also proposed. The deferred filing dates follow recently announced measures to permit US taxpayers to defer the payments of US federal income tax. Further relief provided for businesses in the bill would include relaxations of the rules on use of net operating losses and a relaxation of the rules that limit interest deductions to a percentage of adjusted taxable income. The proposals will have to be agreed by both the House of Representatives and the Senate and may be amended as the legislative process develops.

The US Treasury Department and the US Internal Revenue Service (IRS) issued Notice 2020-18 on 20 March 2020 providing for the automatic deferral of the filing date for federal income tax returns for US taxpayers from 15 April 2020 to 15 July 2020. This notice restates and expands on related measures in Notice 2020-17 that permitted US taxpayers to defer payments of US federal income tax (including self-employment tax) due on 15 April 2020 until 15 July 2020 without penalties or interest. Unlike Notice 2020-17, Notice 2020-18 provides that there is no limitation on the amount of the payment that may be deferred. The new notice is distinct from recently proposed legislative measures in this contex.

In response to the COVID-19 virus pandemic, the Internal Revenue Service (IRS) has updated its frequently asked questions (FAQ) on the Foreign Account Tax Compliance Act (FATCA) to provide for an extension of the date for a Reporting Model 2 FFI or a Participating FFI to file the FATCA Report (Form 8966) from 31 March 2020 to 15 July 2020. The IRS stated that it will not be necessary to file Form 8809-I, Application for Extension of Time to File FATCA Form 8966, in order to obtain the extension.

The US states are announcing that the due dates for filing income tax returns and/or making tax payments for the 2019 tax year will be extended as a result of COVID-19.

It should be noted that some state government websites may be temporarily offline. Further developments will be reported as they become available.

The US states having newly announced income tax filing and/or tax payment extensions or made changes to earlier announcements are listed below.

Illinois has announced that the previously announced extension of the date to file income tax returns and make tax payments to 15 July 2020 applies to both individuals and corporations, and that no interest or penalties will be imposed if the taxes are paid on or before the extended date.

Oregon has announced that the date to file income tax returns and make tax payments is extended to 15 July 2020 for both individuals and corporations. No interest or penalties will be imposed if the taxes are paid on or before the extended date.

The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) (H.R. 748) signed by President Trump on 27 March 2020 includes provisions that provide tax relief to individuals in response to the economic consequences of the COVID-19 pandemic.

Significant provisions are set out below.

Excess business losses

The limitation on the deduction of excess business losses by individuals and pass-through entities is suspended for the 2018, 2019 and 2020 taxable years. In addition, a number of technical corrections were made to the statutory provision with regard to the computation of the deduction.

Charitable contributions

An "above-the-line" deduction is permitted for cash contributions made to qualified charitable organizations in 2020, up to an amount of USD 300. The "above-the-line" deduction permits the deduction to be claimed by taxpayers who do not claim itemized deductions. Taxpayers who itemize their deductions are permitted to claim a charitable deduction of up to 100% of adjusted taxable income (AGI) in 2020 rather than the currently applicable 50%.

Early withdrawals from retirement plans

The 10% penalty for early withdrawals from eligible retirement plans is waived on withdrawals up to a maximum amount of USD 100,000. The related income tax on the withdrawn amount may be paid over a 3-year period, or the individual may re-contribute the withdrawn amount to the retirement plan within the 3-year period.

The waiver applies to individuals: (1) who have been diagnosed with the coronavirus; (2) who have a spouse or dependent who has been diagnosed with the coronavirus; or (3) who experience adverse financial consequences as a result of the coronavirus, including being quarantined, furloughed, laid off from work, having work hours reduced, being unable to work due to lack of child care, a closure or reduced hours of a business owned or operated by the individual due to the coronavirus, or other factors as determined by the Secretary of the Treasury.

The limit on the amount that may be borrowed from qualified retirement plans is increased from USD 50,000 to USD 100,000 if the funds are necessary to provide relief related to COVID-19. In addition, the normal 5-year term of such loans may be extended for an additional year. The repayment of currently outstanding loans may also be delayed for 1 year under qualifying circumstances.

Required minimum distributions from retirement funds

The requirement to take minimum distributions (RMDs) from defined contribution plans, including Individual Retirement Accounts (IRAs) is waived for 2020. The RMD rules currently require individuals who are 72 years of age or older to make minimum annual withdrawals from qualified retirement plans and pay any related income tax imposed on the withdrawal, but such RMDs will not be required to be taken for 2020.

The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) (H.R. 748) signed by President Trump on 27 March 2020 provides for new tax and non-tax measures for individuals and businesses in response to the economic consequences of the COVID-19 pandemic.

Economic relief measures contained in the CARES Act include the following:

• creation of a Corona Relief Fund to provide financial support to certain states facing revenue declines as a result of the COVID-19 emergency;
• a temporary emergency loan programme providing loans of up to USD 10 million for small businesses, in order to cover costs of payroll, rent and mortgage interest necessitated by the COVID-19 emergency, with provision for loan forgiveness in certain circumstances;
• funding of up to USD 500 billion for the making of loans, loan guarantees and other investments, to support states, municipalities, airlines and other critical industries, as well as businesses for which alternative financing is not reasonably available. Eligible businesses must be US based and other conditions such as maintaining employment levels can apply. Small businesses are expressly eligible for support under the programme;
• lump sum income tax rebate payments to US individual taxpayers earning below specified thresholds, including those who have no income;
• temporarily increased and extended unemployment benefits, including for self-employed and similar persons not traditionally eligible for unemployment benefits;
• support for "short-time compensation" programmes, where employers reduce employee hours instead of laying off workers and the employees with reduced hours receive a pro-rated unemployment benefit;
• financial assistance for food assistance programmes; and
• COVID-19 related hardship relief for borrowers with federally-backed mortgages.

It has been reported that a further legislative package including economic relief measures is being prepared.

The CARES Act is distinct from a legislative proposal made by House of Congress Democrats on 23 March 2020 (the Take Responsibility for Workers and Families Act (H.R. 6379)), which includes a wide range of economic measures to address the COVID-19 emergency, including cash grants to individual taxpayers, enhanced unemployment sick-leave measures, and financial support for small businesses.

The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) (H.R. 748) signed by President Trump on 27 March 2020 includes provisions that provide tax relief to businesses in response to the economic consequences of the COVID-19 pandemic.

Significant provisions are set out below.

Alternative minimum tax credits

Corporations are permitted to claim alternative minimum tax credits (MTCs) at an accelerated rate of 50% for 2018 and 100% for 2019. Corporations may also elect to claim the full refundable credit amount for 2018.

Net operating losses

Net operating losses (NOLs) arising in tax years 2018, 2019 and 2020 are permitted to be carried back for a 5-year period. This changes current law under which NOLs are not permitted to be carried back but may only be carried forward.

In addition, the limitation that currently allows NOLs to offset only 80% of taxable income is temporarily removed so that taxable income may be fully offset by NOLs.

Deduction of business interest

The limitation on the deduction of business interest is increased in taxable years beginning in 2019 and 2020 from 30% of adjusted taxable income (ATI) to 50% of ATI. The CARES Act also permits taxpayers to use their ATI as computed for 2019 as their ATI amount for 2020.

Charitable contributions

The deduction limitation for 2020 on cash contributions by corporations to qualified charitable organizations is increased from 10% of taxable income to 25% of taxable income. In addition, the deduction limitation for qualified contributions of food inventory is increased from 15% of taxable income to 25% of taxable income.

Qualified improvement property

Technical corrections are made to the rules for the depreciation of qualified improvement property (QIP) in order to permit enhanced deductions for improvements made to real property. The deduction generally applies to interior improvements made to non-residential real property. As a result of the technical amendments, bonus depreciation may be claimed at a 100% rate for eligible QIP placed in service after 2017.

Social security taxes

Employers and self-employed individuals are permitted to defer the payment of the employer's portion of social security taxes for 2020. This applies to the 6.2% payroll tax imposed on employee wages. The employer or self-employed individual is required to pay 50% of the deferred taxes on 31 December 2021 and 50% of the deferred taxes on 31 December 2022.

Refundable payroll tax credit

A refundable payroll tax credit is provided for 50% of qualified wages paid by employers who were carrying on business in 2020 and whose operations were adversely affected by the COVID-19 crisis.

The credit is available to employers: (1) whose operations were fully or partially suspended due to a COVID-19 shut down order, or (2) whose gross receipts declined by 50% or more compared to the same quarter of the prior year.

For employers who qualify for the credit under the 50% gross receipts test described above, the qualification will terminate at the end of the calendar quarter in which gross receipts exceed 80% of the gross receipts for the same quarter in the prior year.

For employers with greater than 100 full-time employees, qualified wages are wages paid to employees who are not providing services due to COVID-19 circumstances. For employers with 100 or fewer full-time employees, all wages paid to employees are qualified for the credit regardless of whether the employer is in operation or is subject to a shut-down order.

The credit is limited by reference to the first USD 10,000 of compensation paid to an eligible employee, including health benefits. The credit is available for wages paid or incurred from 13 March 2020 to 31 December 2020.

House Passes Bill Providing Testing, Employment Relief; 90-Day Waiver of Penalties and Interest on Tax Payments

As coronavirus (COVID-19) continues to spread, rattling financial markets, forcing the closures of businesses and schools, and cancelling major public events across the country, the Trump Administration and Congress began taking steps to mitigate the impact on Americans. On March 13, 2020, President Trump declared a national emergency, which frees up $50 billion in funding for state and local governments to use in fighting the pandemic.

Meanwhile, the House, after working closely with Administration officials, passed the Families First Coronavirus Response Act (H.R. 6201) early in the morning on March 14, 2020. Over the following days, it became clear that changes, described as technical corrections, needed to be made to the bill as passed by the House. An amended version of the bill was passed by the House on March 16, 2020 by unanimous consent, as the majority of House members were on recess for the week, and the bill was sent to the Senate. The President

has indicated his support for the bill. The Senate is expected to take up the bill, but is also considering significant changes to it while also considering an even larger stimulus or relief package. The bill as passed increases funding for testing and extends paid sick leave to employees all over the country affected by the pandemic.

PAID LEAVE

The bill passed by the House requires employers with fewer than 500 employees to provide paid sick leave to employees who are forced to stay home due to infection or to care for a family member (“qualified paid sick leave”) or due to quarantining (“qualified family leave”). The bill compensates employers and the self-employed for this paid leave in the form of a tax credit.

In the case of sick leave wages paid by an employer to an employee, the employer receives a refundable credit against its share of either the OASDI and the RRTA portion (as applicable) of the payroll tax. The credit can be claimed on a quarterly basis, equal to 100 percent of the amount of sick leave wages paid under the new law. The amount of the credit is limited to $200 per day. However, the credit is increased to $511 per day if the employee if the employee is on leave because he or she:

• is subject to a federal, state or local quarantine or isolation order related to COVID-19;

• has been advised by a health care provider to self quarantine due to concerns related to COVID-19; or

• is experiencing symptoms of COVID-19 and seeking a medical diagnosis

The amount of total hours of paid sick leave is limited by the new law.

For family leave wages paid by an employer, a separate refundable payroll tax credit applies, with different limitations. The 100 percent credit against the employer’s share of the payroll tax is limited to $200 per day, up to an aggregate of $10,000.

For self-employed persons, the credit is allowed against regular income taxes. The limit on sick leave wages is determined by multiplying the number of days (subject to limitation) the self-employed person is unable to perform services in the trade or business by the lesser of 67% of the taxpayer’s average daily self-employment income, or $200 ($511 in the case of the three scenarios that

also apply to the employer payroll tax credit). The same calculation is made for family leave wages, with days unable to perform services (no more than 50) multiplied by the lesser of 67% of the taxpayer’s average daily self-employment income, or $200. The new law provides numerous requirements, limitations and definitions relating to the application of the mandate, as well as the credit.

COMMENT. As mentioned above, these provisions are all temporary. The credits are applicable from the date selected by the Secretary of the Treasury (which must be within 15 days of the date of enactment) until December 31, 2020. The tax provisions do not make changes to the Internal Revenue Code.

PENALTY AND INTEREST WAIVER

On March 17, 2020, Treasury Secretary Steven Mnuchin announced that, while the due date for filing 2019 tax returns would not be postponed, the IRS would waive penalties and interest on tax payments for 90 days. The waiver only applies to individual taxpayers owing up to $1 million in taxes and corporations owing up to $10 million in taxes. At the time of publication, the IRS and Treasury had not yet issued guidance on how the waiver would be implemented. Secretary Mnuchin stated that taxpayers are encouraged to still file timely returns, as the IRS is still processing them and many taxpayers receive refunds, which could be beneficial during the current crisis.

ADDITIONAL GUIDANCE

The IRS announced in Notice 2020-15 that a health plan that satisfies the requirements of a high deductible health plan (HDHP) under the Internal Revenue Code, and thus allows individuals to deduct contributions to a health savings account, will not cease to be qualified as an HDHP if it allows for COVID-19 testing. This includes testing to be done with deductibles below the minimum deductible for an HDHP, including a $0 deductible.

(Fonte: Wolter Kluwer – Tax Briefing – 17/03/20)

NOTICE REGARDING NYC EMPLOYEE RETENTION GRANT PROGRAM AND NYC SMALL BUSINESS CONTINUITY FUND.

NYC employee retention grant program

The City is offering small businesses with 1-4 employees a grant to cover 40% of payroll costs for two months to help retain employees. Businesses can access up to $27,000.

Businesses, including non-profits, must:

• Be located within the five boroughs of New York City
• Demonstrate that the COVID-19 outbreak caused at least a 25% decrease in revenue
• Employ 1- 4 employees in total across all locations
• Have been in operation for at least 6 months
• Have no outstanding tax liens or legal judgements

NYC small business continuity fund

Businesses with fewer than 100 employees who have seen sales decreases of 25% or more will be eligible for zero interest loans of up to $75,000 to help mitigate losses in profit.

Businesses must:

• Be located within the five boroughs of New York City
• Demonstrate that the COVID-19 outbreak caused at least a 25% decrease in revenue
• Employ 99 employees or fewer in total across all locations
• Demonstrate ability to repay the loan
• Have no outstanding tax liens or legal judgements

As part of the applications, you will be required to demonstrate a revenue decrease by providing

documentation such as: point-of-sales reports, bank statements, quarterly sales tax filings, 2019 tax

returns, or CPA-certified profit & loss statements.

If you need any further information please contact Lucia Tognacci at l.tognacci@diacrongroup.com

Please find below the Memorandum on identification of essential critical infrastructure workers during covid-19 response issued by CISA on March 19^th, 2020.