Businesses dealing with the present economic downturn may find relief from taxation and potential tax refund options under existing tax law as recently amended by the CARES Act.

Unlocking the Benefits of Net Operating Loss (“NOLs”) Carrybacks: The 2017 Tax Act eliminated the ability to carryback NOLs generated in 2018 and later years.  The CARES Act now allows for carrybacks of NOLs generated in 2018, 2019 and 2020 for up to five years to get a tax refund.  The IRS recently extended the filing deadline for expedited refund of 2018 NOLs to June 30, 2020, which also makes it easier to get a refund.

Qualified Improvement Property (“QIP”) Tax Benefits Resurrected: Prior to the 2017 Tax Act, improvements made to property leased by retail businesses and certain other taxpayers could be depreciated over 15 years.  The 2017 Tax Act renamed these categories of eligible assets as QIP, but inadvertently eliminated the ability to treat it as 15-year recovery property eligible for the new 100% bonus depreciation rules.  The CARES Act fixed this issue (known as the “Retail Glitch”) by treating QIP as 15-year property eligible for bonus depreciation, effective retroactively as of Sept. 27, 2017.

The IRS recently announced that qualifying taxpayers can elect to take bonus depreciation on QIP by filing amended returns (or administrative adjustment requests or Form 3115 change of accounting method) for their 2018, 2019 or 2020 returns.  Taking this step could produce refunds and much needed cash for these types of businesses.

Partnership Relief in Getting CARES Act Benefits:  The IRS recently issued Rev. Proc. 2020-23, which temporarily allows eligible partnerships to file amended partnership returns rather than file an administrative adjustment request, which was much more cumbersome.  This change will allow partnerships to take advantage of the QIP, NOL and other tax benefits afforded by the CARES Act.

Limits on Business Interest Deductions Relaxed:  The 2017 Tax Act added a limit on deductibility of business interest.  Starting in 2018, business interest deductions can generally only offset 30% of the taxpayer’s adjusted taxable income (“ATI”).  The CARES Act increases the 30% limitation to 50% for 2019 and 2020 and made other changes to lessen the adverse impact of this rule.

The Takeaway:  Affected taxpayers should consider the CARES Act tax law changes to reduce their current tax exposure and obtain potential tax refunds.  Let us know how we can help you to take advantage of these opportunities.

 


As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice.  For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.

 

On April 9, 2020, the IRS extended certain additional key tax deadlines affecting payments from both individuals and businesses due to the impact of the COVID-19 pandemic. Notice 2020-23 expanded upon prior IRS guidance that extended the dates for taxpayers to file Federal tax returns and render tax payments by creating a general extension to July 15, 2020, for all taxpayers that have a deadline – whether that deadline applies to a filing, a payment or other action – that falls in the period occurring on or after April 1, 2020, and prior to July 15, 2020, without incurring a late-filing penalty, late-payment penalty or interest.

This includes an extension of time for “performing a time-sensitive action,” which includes the 180-day period for a taxpayer to invest in a Qualified Opportunity Fund (QOF), as well as the 45-day identification period and the 180-day exchange period deadlines for like-kind exchanges under Section 1031 of the Internal Revenue Code. This relief applies automatically and does not require taxpayers to contact the IRS or file any interim documentation to obtain this relief.

These milestone dates were cast in stone under pre-COVID-19 conditions.  However, in the declaration of the COVID-19 pandemic as a federal disaster under the Stafford Act, instructions were given to the Secretary of the Treasury to provide relief from tax deadlines due to COVID-19.

Despite what appears to be the good intentions of the IRS, further clarification of the extended deadline provided under Notice 2020-23 may be necessary with regard to its effect on like-kind exchanges as there is a lack of clarity as to whether this supersedes the guidance set forth in Revenue Procedure 2018-58, which already provided that the last day of a 45-day identification period and the last day of a 180-day exchange period that fall on or after the date of a federally declared disaster be “postponed by 120 days or to the last day of the general disaster extension period authorized by an IRS News Release or other guidance announcing tax relief for victims of the specific federally declared disaster, whichever is later.”  Notice 2020-23 states that it “amplifies Notice 2020-18, 2020-15 IRB 590 (April 6, 2020), and Notice 2020-20, 2020-16 IRB 660 (April 13, 2020)” but does not otherwise reference any other notice or Revenue Procedure. The Notice allows for an extension to July 15, 2020, rather than the 120-day extension, which would have been longer.

 


 

As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice.  For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.

On April 9, 2020, the IRS updated its guidance originally provided in Notice 2020-18, Additional Relief for Taxpayers Affected by Ongoing Coronavirus Disease 2019 Pandemic, to provide extension relief to taxpayers in response to the coronavirus emergency.  In addition to the prior extension of time for the filing and payments with respect to federal income tax returns (Forms 1040, 1120, 1120-S and 1065) and federal gift tax returns (Form 709) until July 15, 2020, the IRS has now also postponed a variety of additional federal tax form filings and payment obligations that were due between April 1, 2020 and July 15, 2020.

In Notice 2020-23, the IRS extended the relief until July 15, 2020 for federal estate tax returns (Form 706), including estate tax returns that are filed in order to make portability elections under Revenue Procedure 2017-34, the information form to report the basis in assets received from a decedent (Form 8971), income tax returns for estates and trusts (Form 1041), and exempt organization business income tax returns and private foundation returns (Forms 990-T and 990-PF).  In addition, the updated guidance extended the due date until July 15, 2020 for estate tax payments of principal or interest that would have been due between April 1, 2020 and July 15, 2020 as a result of elections made under Sections 6166, 6161 and 6163 of the Internal Revenue Code, and the annual recertification requirements under Section 6166 of the Internal Revenue Code.  Associated interest, additions to tax, and penalties for late filing or late payment will be suspended until July 15, 2020.  First and second quarter estimated federal income tax payments for exempt organizations, individuals, estates and trusts and corporations are both now due on July 15, 2020.


 

As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice.  For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.

The coronavirus outbreak, the subsequent passage of the CARES Act by the federal government, and current low interest rates have changed the landscape of charitable contributions and planning in 2020.

Charitable Contributions

The CARES Act changes the limitations on charitable giving to encourage individuals and corporations to make cash contributions to public charities.

  1. Above-the-line deduction. Under prior rules, individuals who do not itemize their deductions on their income tax returns could not take a charitable deduction for cash contributions to qualified charities.  The passage of the Tax Cuts and Jobs Act of 2017 drastically reduced the number of individuals who chose to itemize deductions by (a) raising the standard deduction to $12,400 for single taxpayers and $24,800 for taxpayers that are married filing jointly, and (b) capping the deduction for state and local taxes at $10,000.  The CARES Act adds a new above-the-line deduction that allows an individual who does not itemize to deduct up to $300 of cash contributions to a qualified charity.  This is in addition to the standard deduction.
  2. Relaxed limitations on deductions for individuals. For individuals who choose to itemize, IRC Section 170(b)(1) limited the deduction for cash contributions to qualified charitable organizations to 60% of the individual’s adjusted gross income.  Under the CARES Act, however, the deduction for cash contributions to a qualified charitable organization in 2020 is increased to 100% of the individual’s adjusted gross income.  If the contribution exceeds the limitation, the individual can still carry forward and utilize the excess amount over the following five years.
  3. Relaxed limitations on deductions for corporations. Under prior law, corporate deductions for cash contributions to qualified charities were limited to 10% of taxable income.  The CARES Act increases this limitation for cash contributions to qualified charities in 2020 to 25% of the taxable income of such corporation.  The corporation can also carry forward and utilize any access amount over the following five years.  In addition to the increase in the limitation for deductions of cash contributions, the limitation for deductions of contributions of food inventory by a corporation is also increased from 15% to 25%.
  4. Qualified charitable organizations. Cash contributions must be made to a public charity and cannot be made to a donor advised fund or private foundation.

Charitable Planning

The low interest rates that resulted in the wake of the coronavirus outbreak create an opportunity for individuals that are charitably inclined but also want to plan for future generations to utilize a Charitable Lead Annuity Trust or CLAT.

A CLAT is a trust that most often provides an annuity payment to a charity for a predetermined term of years.  At the end of the term, the remaining assets can be used to fund a trust for the grantor’s family members.  At the start, the grantor receives an income tax deduction based on the fair market value of the present interest of the annuity payments going to charity.  The grantor also uses a small portion of his or her federal estate and gift tax exemption based on the remainder interest going to the trust for his or her family.

The historic low interest rates result in a higher income tax deduction providing an immediate benefit to the grantor.  If the assets contributed to the CLAT outperform the estimated rate of return based on these low interest rates, the grantor’s family would also receive considerable assets while using minimal federal estate and gift tax exemption.  This situation could be ideal for an individual who has a large income tax burden and was already considering providing for charities.

For individuals that are looking to make charitable gifts in 2020, the CARES Act and the current interest rate environment provide several options.

 


*As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice.  For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.

In New York and New Jersey, Revocable Trusts, also known as Living Trusts, have started to be used with greater frequency in estate planning.  In a typical Revocable Trust, the creator of the trust (ie, the grantor) is also the sole beneficiary and sole trustee during his or her lifetime.  This structure allows the grantor unfettered access and control over the assets that were transferred into the trust during the grantor’s lifetime.

During the coronavirus pandemic, with courts being limited to only emergency filings, stock market volatility and businesses on pause, the use of Revocable Trusts can provide even greater benefits.

Immediate Access to Assets

Probate (ie, the determination by a court as to the validity of a Will) can be a lengthy process in many states causing delays in a fiduciary gaining access to assets.  In many instances, immediate access to an individual’s assets at his or her death is essential.  If a Revocable Trust has been funded, such assets can be used immediately to help pay for expenses (such as funeral expenses or medical bills), while also providing immediate control over (a) brokerage accounts with fluctuating assets due to market volatility allowing beneficiaries to adjust investments, and (b) businesses that may be subject to constantly changing governmental orders.

Reduces Probate and Administrative Fees

Probate can also be a time-consuming, expensive and arduous process in many states.  A Revocable Trust, if fully funded, will avoid the probate process since all assets will pass pursuant to the terms of the trust.  If there are no assets in an individual’s name at his or her death, such individual completely eliminates the need to probate a Will.  This can be even more important for individuals with assets in more than one state.  With a Will, each state would generally require an ancillary probate proceeding to allow for the transfer of that state’s assets.  By funding a Revocable Trust, the need for such ancillary probate proceedings would also be eliminated.

In addition to avoiding probate, many state courts continue to oversee the actions of fiduciaries when assets pass under a Will.  Whether it is requiring periodic accountings or permission from the court anytime a fiduciary change is needed, the ongoing administrative costs with a Will can be burdensome.  Revocable Trusts can avoid these costs.

Tax Advantages

While a Revocable Trust is generally not considered a tax saving vehicle, the Revocable Trust can still offer tax advantages if continuing trusts will be established for beneficiaries.  In some states (such as Connecticut), trusts are taxed differently if they are created under a Revocable Trust rather than a Will.  In these states, continuing trusts established under a Will remain subject to state income tax regardless of the location of the assets and the domicile of the beneficiaries.  Continuing trusts established under a Revocable Trust, on the other hand, may be able to minimize such state income taxes.

Privacy

Revocable Trusts also provide a level of privacy over the disposition of assets.  Probate is a public process.  When a Will is offered to the court for probate, the Will becomes part of the public record, allowing anyone to access the Will and ascertain how and to whom assets will be distributed.  A Revocable Trust that governs the disposition of an individual’s estate would not allow for the public to access to this information.

The COVID-19 crisis has highlighted the utility of Revocable Trusts as part of an individual’s estate plan.