On July 27, 2020, Senate Republicans introduced a series of bills and proposals that have been collectively referred to as the “Health, Economic Assistance, Liability Protection and Schools Act” (the “HEALS Act”). The HEALS Act would enhance and expand certain provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) (H.R. 748), and provide additional forms of relief, including certain tax credits for employers. This blog summarizes the most important tax proposals in the HEALS Act and compares them with the Health and Economic Recovery Omnibus Emergency Solutions Act (the “HEROES Act”) that was introduced by House Democrats on May 12, 2020, and the Jumpstarting Our Business’ Success Credit Act (the “JOBS Credit Act”) that was introduced by a bipartisan group of House representatives on May 8, 2020.
Employers that are tax-exempt or have tax-exempt affiliates (for example, a foundation) should pay close attention to a 21% excise tax under Section 4960 of the Internal Revenue Code on certain executive compensation. Proposed Regulations under Section 4960 are described here. The discussion includes traps for the unwary. Please reach out to your Proskauer contact to discuss how these rules affect your organization.
As the UK’s lockdown is relaxed and unemployment figures are expected to continue to rise, the UK Chancellor gave his summer statement announcing measures to stimulate the economy as it recovers from the effects of coronavirus with a clear emphasis on encouraging people to spend money, particularly in the hospitality sector, to try to protect as many jobs as possible.
The UK Chancellor stated the stark fact that in the space of two months during the pandemic the UK’s economy contracted by 25%, which is the same amount as it grew in the previous eighteen years and the IMF expects this to be the deepest global recession since records began. In the Chancellor’s words “the job has only just begun”. The summer statement’s focus was the Chancellor’s plan for jobs: supporting people to find jobs, creating jobs and protecting jobs. Key points to note: Continue Reading
On June 24, 2020, the Internal Revenue Service (the “IRS”) and the U.S. Department of Treasury (“Treasury”) issued final regulations (the “Final Regulations”) on the application of the “passthrough deduction” under Section 199A to regulated investment companies (“RICs”) that receive dividends from real estate investment trusts (“REITs”). The Final Regulations broadly allow a “conduit” approach, through which RIC shareholders who would have been able to benefit from the deduction on a dividend directly received from a REIT can take the deduction on their share of such dividend received by the RIC, so long as the shareholders meet the holding period requirements for their shares in the RIC. This confirms the approach of proposed regulations issued in February 2019 (the “Proposed Regulations”), on which RICs and their shareholders were already able to rely. Additionally, the preamble to the Final Regulations (the “Preamble”) notes that the IRS and Treasury continue to decline to extend conduit treatment to qualified publicly traded partnership (“PTP”) income otherwise eligible for the deduction. Please read the remainder of this post for background, a description of the technical provisions of the Final Regulations, and a brief discussion of policy issues discussed in the Preamble.
On May 26, the Internal Revenue Service (“IRS”) and the U.S. Department of the Treasury issued final regulations (the “Final Regulations”) relaxing nonprofit donor disclosure requirements under section 6033 of the Internal Revenue Code (the “Code”) for many non-charitable tax-exempt organizations. Stated generally, section 6033 requires organizations exempt from taxation under section 501(a) (including section 527 political organizations) to file an annual information return with the IRS, such as a Form 990, Form 990-EZ, or Form 990-N. Section 6033 and the regulations thereunder grant the IRS discretionary authority to determine what information must be reported on such return in light of the efficient administration of the internal revenue laws.
On April 23, 2020, the Treasury Department and the Internal Revenue Service (the “IRS”) issued proposed regulations (the “Proposed Regulations”) under Section 512(a)(6) of the Internal Revenue Code (the “Code”). Section 512(a)(6) was enacted as part of the 2017 Tax Cut and Jobs Act (the “TCJA”) and requires exempt organizations (including individual retirement accounts) to calculate unrelated business taxable income (“UBTI”) separately with respect to each of their unrelated trades or businesses, thereby limiting the ability to use losses from one business to offset income or gain from another. Continue Reading
The UK government has opened a consultation on draft legislation concerning the taxation of coronavirus business support payments. HMRC want views on the technical effectiveness of the proposed legislation in ensuring that grants covered by the legislation are subject to tax. Such grants include the much-reported Coronavirus Job Retention Scheme (“CJRS”) (as reported by us https://www.proskauer.com/blog/uk-government-announce-coronavirus-job-retention-scheme) and the Self-Employment Income Support Scheme (“SEISS”) (as reported by us https://www.proskauertaxtalks.com/2020/03/covid-19-uk-chancellor-announces-measures-to-support-the-self-employed/) introduced by the UK Chancellor. The legislation will also apply to: (a) the Small Business Grant Fund, the Retail, Hospitality and Leisure Grant Fund and the Discretionary Grant Fund, (b) other payments made by public authorities to businesses in response to coronavirus and (c) any other coronavirus support scheme covered in regulations made by the Treasury.
Some key points to note from the draft legislation and the accompanying explanatory note:
- The overarching aim of the legislation is to ensure that the coronavirus support payments received by businesses and individual partners of partnerships are taxable income. The legislation confirms that “so much of the coronavirus support payment as is referable to the business will be treated as a receipt of a revenue nature for income tax or corporation tax purposes”. Therefore such payments are taxable like other taxable receipts, subject to rules regarding profits, expenses and available allowances. This position accords with previous HMRC guidance on the taxability of such grants.
- The legislation confirms that a payment under the SEISS to a partnership or LLP that relates specifically to a partner of that firm is retained by an individual partner rather than being distributed amongst the partners is not to be included in the firm’s calculation of profits but the receipt is to be added to the partner’s share and is the taxable income of the individual partner, rather than of the partnership itself. The whole amount will be treated as profits of the tax year 2020-21.
- In respect of grants made under the CJRS, HMRC note that the recipient of the grant is taxed on the employer if the employees are working in a UK taxable business to ensure that any deduction for employee expenses met by the grant is matched by taxation of the grant covering those expenses.
- The legislation also provides HMRC with the power, by raising income tax assessments or requiring the submission of a self assessment return, to recover payments made under the CJRS or the SEISS (a) which the recipients weren’t entitled to or (b) where a CJRS payment wasn’t used to pay employee costs, PAYE, NICs and make pension contributions. In cases of deliberate non-compliance, HMRC can charge a penalty. HMRC also the power to make a company officer jointly and severally liable for the income tax charge regarding a CJRS payment in certain circumstances.
The legislation is intended be effective from royal assent of Finance Bill 2020 and will apply to coronavirus support payments regardless of when paid. The consultation will close on 12 June.