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When not hard at work, Maria can be found zipping down the slopes on her skis. Rumor has it Maria learned to ski just as she was learning to walk.

As outlandish as this may sound, if you receive a debit card in the mail with a note saying it’s your stimulus payment, it may not be a scam.

The Treasury Department has recently confirmed it is distributing some Economic Impact Payments through prepaid debit cards mailed to taxpayers. They estimate nearly four million Americans will receive their economic relief payment via this method.

What to Look For

If you are expecting a payment and have not yet received it, take a closer look at the mail you collect in the coming days – or check your recycle bin.

Last week, the Treasury Department began issuing the Economic Impact Payment Cards. The payment will arrive in a plain envelope from Money Network Cardholder Services. The card itself will be issued by MetaBank, N.A., with a Visa name on the front of the card. Information included with the card will explain how to transfer the funds to a personal bank account without incurring any fees. Additionally, the prepaid debit card can also be used for purchases (wherever Visa is accepted) or for cash withdrawal from in-network ATMs.

These Economic Impact Payments are a result of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Previously, the Treasury Department has been electronically depositing the stimulus payments to some taxpayers and issuing paper checks to others.

More information can be found in the IRS COVID Tax Tip 2020-61. Be sure to contact your tax advisor or bank with any questions.

© Clark Nuber PS and Developing News, 2020. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Clark Nuber PS and Developing News with appropriate and specific direction to the original content.

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Articles and Publications

Flow Charts for Implementing UBTI Siloing Rules

On April 23, 2020, the IRS issued the proposed regulations on the unrelated business taxable income (UBTI) siloing rules required under the Tax Act of 2017 and section 512(a)(6) of the Internal Revenue Code. Exempt organizations with multiple unrelated trades or businesses have been eagerly awaiting the guidance as it helps define the extent to which organizations will need to silo UBTI activities. While the guidance leaves several unanswered questions, it does give organizations a road map of how to define and bucket their various trade or business activities. The guidance will help them to properly file the Form 990-T and comply with the special net operating loss rules for exempt organizations that were created under the Tax Act of 2017. To provide assistance, Clark Nuber has created a series of flow charts for organizations to refer to while navigating the proposed regulations. The flow charts also illustrate some of the challenges and administrative burden the siloing rules will have on organizations with a significant amount of UBTI activity from more than one trade or business, most notably if they have an extensive portfolio of alternative investments.

Background

Under the Tax Act of 2017, exempt organizations with more than one unrelated trade or business are not allowed to offset a net operating loss from one trade or business with the income from another trade or business. As a result, a not-for-profit is required to bucket or silo its trade or business activities for reporting purposes. For tax years beginning after December 22, 2017, for compliance purposes, the organization reports its first trade or business on page one of the Form 990-T, and each subsequent trade or business on a separate Schedule M of the Form 990-T. On September 4, 2018, the IRS issued Notice 2018-67, providing initial guidance on the new unrelated business income tax rules and requested comments. On April 24, 2020, the proposed regulations [REG-106864-18] were issued, which were a continuation of the original notice with consideration made from comments from the sector. The IRS and Treasury have indicated they are working toward issuing final regulations by the end of October 2020. Before final regulations are issued, organizations may rely on Notice 2018-67, the proposed regulations, or a reasonable and good-faith interpretation of the siloing rules under section 512(a)(6). If you have any questions regarding the siloing of UBTI, please contact a Clark Nuber tax professional. © Clark Nuber PS, 2020. All Rights Reserved

Opportunity to Defer Payroll Tax to 2021 and 2022

Congress has created numerous tax incentives to assist businesses during this unprecedented time, including the Paid Sick and FMLA Payroll Tax Credit and the Employee Retention Credit. In addition to these, the CARES Act also added a new provision allowing employers to defer the payment of the employer’s portion of Social Security (FICA) taxes for a minimum of 12 months and, for some deferrals, a period of more than 32 months.

About the Incentive

The CARES Act allows all employers, including self-employed individuals and partners who pay self-employment taxes, to defer the payment of the employer’s share of FICA taxes and certain railroad taxes. The payroll deferral period began on March 27, 2020 and will end on December 31, 2020. Half of the deferred amount will be payable on December 31, 2021, with the remaining half payable on December 31, 2022 — all without any interest assessed. It is important to note that employers must continue to deposit the employer’s share of Medicare tax, as well as the employee’s share of payroll taxes withheld. Employers who received Paycheck Protection Program (PPP) loans from the SBA also qualify for this employer FICA tax deferral provision. They can defer the employer’s portion of the FICA taxes until the lender issues a decision to forgive the loan. There is pending legislation on allowing the deferral of payroll taxes even after forgiveness is received on PPP loans. Any employer’s FICA taxes up to issuance of the lender’s decision are eligible for the deferral, with 50% of the payment due on December 31, 2021 and 50% on December 31, 2022. A delay in the forgiveness of loan decision (including the audits of loans over $2 million) will be a benefit to the borrowers by increasing the amount of interest-free loan they receive with respect to the employer’s portion of FICA taxes. Of course, it also increases the one percent interest a PPP borrower must pay on the PPP loan. The deferral of the employer’s portion of FICA tax must be deposited on December 31, 2021 and 2022 to avoid any penalties. Late deposit penalties range from 2% to 15%, and failure to pay penalties can be as high as 25% of the employer’s share of FICA taxes. IRS Notice 2020-22 provides relief from the penalty for failing to deposit employment taxes, including taxes withheld from employees, in anticipation of the Paid Sick and FMLA Payroll Tax Credit and the Employee Retention Credit. However, this relief will most likely not extend to the employer FICA tax deferral provision.

How It Will Work

Employers are not required to make a special election to take advantage of this generous deferral of the employer’s FICA taxes. The IRS has released a draft of the revised Form 941 and its instructions for 2020. Line 13b was added to reflect the deferred amount of the employer’s share of FICA tax during the calendar quarter. The updated form will be available to use starting the second quarter of 2020 (April 1 to June 30). Self-employed individuals may revise their quarterly estimated tax payments.

Conclusion

Now is the time to start taking advantage of an interest-free loan by deferring the employer’s portion of FICA taxes and recalculating self-employed person’s estimated tax liabilities to improve current cash flow. Finally, if your business has not applied for the PPP loan, it’s not too late. Funds are still available.  The SBA continues to issue guidance to clarify the program requirements and how the forgiveness will work. This program also includes self-employed persons, partnerships, and seasonal employers. In these uncertain economic times, this is a great opportunity to help businesses increase cash flow and improve sustainability through potential loan forgiveness or a low 1% interest rate loan for two years. For questions on this tax deferral opportunity and other CARES Act programs, contact a Clark Nuber professional. © Clark Nuber PS, 2020. All Rights Reserved

About the Oregon Commercial Activity Tax (CAT)

Join us on June 17 for a webinar covering Oregon’s new Corporate Activity Tax (CAT). You’ll learn how the tax is computed and must be paid, available deductions, possible exemptions, and penalties for non-compliance. Follow the link for registration and more information. Earlier this year, Oregon enacted a form of gross receipts tax that will apply to taxpayers in addition to the state’s income tax. The voters had 90 days to reject H.B. 3427 through their referendum power provided by the Oregon constitution. A similar bill was turned down previously, but due to several potential reasons, the Oregon voters did not reject such a tax this time around. Thus, the tax will become effective January 1, 2020.

The Basics of the Tax

The new Corporate Activity Tax (CAT) will be imposed on “taxable commercial activity” in excess of $1 million at a rate of 0.57%, plus a flat tax of $250. However, taxpayers (including unitary groups) exceeding $750,000 of Oregon “commercial activity” are required to register for the CAT within 30 days of meeting the threshold. The reporting frequency will be quarterly. A penalty of $100 per month may be assessed for failing to register, up to $1,000 per calendar year. Taxpayers exceeding $1,000,000 of Oregon “commercial activity” are required to file an Oregon CAT return, even though tax is not due on the first $1,000,000 of “taxable commercial activity.”

The Troubles with the Tax

As is often the case, lawmakers are resorting to the old tactic of generating new revenues via new taxes, with little thought given to the administration of said tax or the added compliance burden shouldered by the taxpayer. How these taxes are enforced or, more importantly, how these taxes are computed, is left to others to resolve. Gross receipts taxes, like the CAT, tend to quickly evolve into a complicated, nuanced web of taxable income vs. attributed income vs. apportioned income and deductions. The Oregon Department of Revenue (DOR) is currently facing the task of implementing this new tax. As such, it is hosting a series of town hall meetings across the state to seek input from businesses affected by the tax. In addition to these in-person meetings, the DOR is also planning to host conference calls sometime in the future. At one such town hall meeting in Portland, the room was packed with tax practitioners and business owners voicing their concerns, not only about the additional level of tax, but also the difficulties in, and incongruities of, applying the rules on specific industries. Of the business owners present, agriculture and construction were the most heavily represented. Both industries face significant additional layers of tax that was likely not anticipated by the lawmakers. While the CAT is not a sales tax, many people view it just as such. The statute does not allow businesses to pass the tax on to their customer as a line item (as one would with sales tax), however, there are exceptions to this rule. For example, a vehicle dealer may collect from the purchaser of a motor vehicle the estimated portion of the tax imposed under this section that is attributable to commercial activity from the sale of the vehicle.

Details of the Tax

A plain reading of the law may give the illusion of simplicity, that is until one tries to make sense of the differences between “Oregon commercial activity” and “taxable commercial activity.”  “Oregon commercial activity” is gross receipts attributed to Oregon, while “taxable commercial activity” is net of certain expenses apportioned to Oregon. The CAT allows for a 35% deduction of the larger of:
  1. a) the amount of cost inputs;
or
  1. b) the taxpayer’s labor costs.
Both of these deductions are apportioned to the state using the tax apportionment rules under ORS 314.605 to 314.675. Cost input means cost of goods sold as computed under IRC Section 471 apportioned to Oregon. The exact mechanics of the apportionment calculation are not entirely clear, but are expected to be addressed by administrative rule. Labor costs mean total compensation of all employees excluding compensation paid to any single employee in excess of $500,000. The law provides a list of “excluded persons” not subject to the tax, such as organizations described in IRS Section 501(c) and 501(j) and governmental entities. Certain income items are not taxable, such as dividend or certain types of interest income. Interest income from credit sales or earned by financial institutions is taxable. Out of state businesses with substantial nexus with Oregon are subject to the tax for the privilege of doing business in the state. A person has substantial nexus with Oregon if any of the following apply:
  • Owns or uses a part of their capital in the state;
  • Is authorized by the Secretary of State’s Office to do business in the state; or
  • Has “bright-line presence” in the state.
“Bright-line presence” is established if a person (or unitary group):
  • Owns at any time during the calendar year property in this state with an aggregate value of at least $50,000. For this purpose, owned property is valued at original cost and rented property is valued at eight times the net annual rental charge.
  • Has during the calendar year payroll in this state of at least $50,000.
  • Has during the calendar year commercial activity, sourced to this state under section 66, chapter 122, Oregon Laws 2019 (Enrolled House Bill 3427), of at least $750,000.
  • Has at any time during the calendar year within this state at least 25 percent of the person’s total property, total payroll, or total commercial activity.
  • Is a resident of this state or is domiciled in this state for corporate, commercial, or other business purposes.
As you might suspect, this tax is not considered an income tax and, thus, is not subject to the provisions of the Interstate Income Act of 1959 (also known as Public Law 86-272). For help better understanding this new tax and how it might affect you, contact one of our SALT professionals. © Clark Nuber PS, 2020. All Rights Reserved

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