On-Demand: CARES Act Tax Insights

Today's EisnerAmper speakers are Michael Laveman, partner, Jeffrey Kelson, partner, Miri Forster, principal, Jordan Amin, partner, Simcha David, partner, Jon Zefi, principal, Murray Solomon, partner, Neil Tipograph:, partner, Barbara Taibi, partner, and Gary Bingel, partner. I will now turn it over to Michael.

Michael Laveman:Good afternoon, we would like to welcome all of you to today's webinar. First and foremost, we hope that you and your families are safe and well. The response to this webinar confirms to us that many are wondering how to shore up our businesses and personal financial situation in order to ride out the unprecedented COVID-19 storm. The good news is that the government is providing support. The $2 trillion, 800-plus page Cares Act represents a third round of federal governmental support, on the heels of funding $8.3 billion for public health support, and passing the Families First Response Act, which provides for paid sick leave or expanded family medical leave for specified reasons.

The Cares Act has two main centerpieces. The first includes a new $350 billion forgivable business loan program called a Paycheck Protection Program, and the second provides a leave to American workers, families and businesses through unemployment benefits, tax rebates, and over a dozen other tax provisions. Today, we'll be focusing on the task components of the Cares Act. It is important to note that we are just over two years removed from the enactment of the 2017 Tax Cuts and Jobs Act. Much of what you will hear today will allow changes and delays to several of the provisions found in that act, just as all of us have finally gotten on top of those complex rules. Our panelists are experts in the areas who have spent many hours studying the complexities of this new act. We hope that you find their comments useful as there are many opportunities to gain sufficient relief in the form of credits, carryback claims, as well as reduced limits on use of losses and certain deductions.

We will be discussing today the following topics, IRS tax filing and payment postponements, payroll tax delays and Employee Retention Credit, modification of limitation on business interest expense, changes to net operating loss limitations, and section 461(L), also known as Excess Business Loss Rules, accelerating minimum tax credits under section 53(E), and changes to charitable contributions by corporations, qualified improvement property, individual tax considerations, as well as at a very important state and local tax update. While today we are covering tax topics, it's challenging to understand what help is available to you, and how you could start accessing it. I would encourage you to visit our coronavirus hub at EisnerAmper.com, where you will find resources designed to help guide you. Thank you again for being on the call, and with that I will turn it over to our first presenter.

Miri Forster: Good afternoon everyone. My name is Miri Forster, and I'm a principal in the tax controversy practice at EisnerAmper. I'm going to be discussing the IRS's response to COVID-19 with respect to tax filings and payments due on April 15th. So the IRS has released a series of notices and FAQs that postpone certain tax filings and payments, including payments of tax on self-employment income from April 15th to July 15th. The postponement to July 15th applies to the vast majority of returns in the forms 1040, 1041, and 1120 series that are due on 4/15, either by an original due date, or an extended due date of 4/15. But note that returns that are due on date other than April 15th are not postponed, and also the list does not include 1065 partnership returns or Forms 1120-S for S corporations.

The IRS has also postponed 2022 Q1 estimated tax payments that are due on April 15th. Interestingly though, they have not postponed Q2 payments, and those currently remain due on June 15th. Other filings and payments due on April 15th that had been postponed to July include 965(H) installment payments, filings and payments, and the filing of Form 8960, the Net Investment Income Tax Form. Also, gift tax and generation skipping transfer tax payments and Form 709 filings are delayed, as are Forms 990-T, due on April 15th. But the delay does not extend Form 990-Ts due on May 15th, or to any other types of Form 990 returns at this time.

Postponements are automatic, so there's no action required by taxpayers, and that there are no dollar thresholds that apply. And after July 15th, penalties and interest will restart if a return isn't filed, or a payment isn't made. Though, taxpayers not ready to file by July 15th, they were encouraged to file extension requests by that date to allow them until September 15th or October 15th, to file their respective returns and avoid late filing penalties.

Moving to the next slide, I want to highlight some other items generally not covered by the postponement. So when FAQ is initially issued by the IRS, payroll and excise tax payments and filings weren't subject to delay, but since then, the IRS has released information that allows for a deferral of certain payroll taxes, and my colleague Jordan Amin will discuss that aspect shortly, and a 90-day delay for certain excise taxes administered by the Alcohol Tobacco and Trade Bureau. So clearly, the items subject to postponement are evolving on a daily basis.

Also, refund claims due on April 15th should be timely filed. There is no postponement for those, and the same for Form 4466, quick refund of estimated taxes. They remain due on April 15th. Last for this slide, the filing of information returns is also not extended, for example, your 1042-Ss for withholding your Forms 1099, but we do believe that certain international information returns, such as the 5471 or 5472 that's mandated by Treasury regulations to be filed with a federal income tax return, may be postponed to July 15th to the extent that the income tax return is also deferred to July.

Last, I want to share some highlights from the IRS. They have announced a people-first initiative, with a series of steps that temporarily modify their operations in light of COVID-19. Similar to most of us, the IRS is on a work from home mandate, so of course, it's impacting their call centers and help desks, which now have limited availability. But for IRS collection matters, they've suspended payments due through July 15th on all existing installment agreements, and accepted offers and compromise. And they've also stopped the issuance of new automatic systemic liens and levies through July 15th.

Please note that because interest continues to accrue on unpaid balances, taxpayers are still encouraged to make outstanding payments if they're able. For IRS and appeals work, new exams are generally not opening until July 15th, except in limited circumstances, for example, a pressing statute of limitations issue. But existing exams and appeals cases are continuing remotely to the extent possible, and tax payers are encouraged to respond to outstanding requests for information if they can, and that's regardless of whether you're in exam appeals, or have any other outstanding IRS correspondence asking for information. Clearly, everything with COVID-19 is evolving on a daily basis, and changes to IRS operations, and then any further postponements of tax filings and payments deadlines are on our radar, and we will continue to communicate updates as we receive them. Now I'll pass the presentation over to my colleague Jordan Amin.

Jordan Amin:Thank you Miri, and good afternoon to everyone attending. My name is Jordan Amin, and I'm a partner EisnerAmper's Private Business Services Group. And in the few minutes I have this afternoon, we're going to talk about two new provisions brought about by the Cares Act. While Michael mentioned at the start some of our colleagues will be discussing changes to existing sections of the code, we have some brand new things to talk about that were brought about by the Cares Act, namely, the Employee Retention Credit and the Payroll Tax Deferral or Delay. Now I know the Paycheck Protection Program Loan, or the PPP, has been stealing all the headlines with the potential for forgiveness. Many of you may have even listened to our colleagues on a webinar earlier this week, but for those companies who may not qualify for the PPP, or maybe it's not the right fit for your business, the Cares Act does provide a couple of additional opportunities for enhancements to cash flow.

So what is the Employee Retention Credit? Well, I'm glad you asked. The Employee Retention Credit is a payroll tax credit against the 6.2% employer social security tax. It's a refundable credit for up to 50% of the qualified wages paid by employers for wages paid between March 12th of this year and December 31st. Qualified wages cannot exceed $10,000 per employee. So in essence, it's a cap of $5,000 for credit per employee when applying the limitation of 50% to the $10,000 wage cap. Tax exempt organizations can also qualify, and if you're an employer participating in the Paycheck Protection Program Loan, then you are unable to take advantage of this credit. Also, the wages used in the calculation of this credit cannot be used if you're claiming a work opportunity credit for that.

So there are some open questions as it relates to affiliates and the affiliation rules, and the aggregation rules, meaning, if one entity receives the PPP loan, can another claim that retention credit? As in the case with, you'll hear from each of our presenters as we move forward with the Cares Act, some of these questions are still being answered. So on the previous slide, I mentioned that you needed to be an eligible employer. So what is an eligible employer? An eligible employer had its operation shutdown either in full or in part due to a COVID-19 shutdown order from a governmental authority, or there's a second test, which the business experienced the reduction in gross receipts of more than 50% when compared to the prior calendar quarter. So now that we've just finished quarter one, and we've begun the second quarter of the year, businesses can evaluate the impact that had on the first quarter and start to monitor second quarter receipts to see if they qualify.

Please be aware that the qualification is made on a quarterly basis. So now that we've determined who's eligible, let's discuss what qualified wages mean. And there's two different thresholds for that. There's one for employers with more than a hundred employees, and one for less. So, an employer with more than a hundred full time employees, wages paid to employees while they were not working due to a coronavirus shutdown is what qualifies. So your business was partially closed, and you continued to pay your employees, those wages qualify. For an employer with less than a hundred full time employees, it's any wages paid to the employees during that shutdown, or order that was affected by diminished gross receipts, whether they're working or not. So it's important to think about it. A lot of businesses that are going to be shut out from the PPP, because they're over 500 employees, are going to fit into obviously the bucket with more than a hundred employees, but determining whether they qualify for the retention credits. So therefore, it's those employees, again, that were paid to stay home or while they were not working due to the shutdown.

We're going to go through a really basic example, just to illustrate the concept. So, ABC company has five employees, during the second quarter of 2020, and we're predicting the future a little bit. ABC's gross receipts decreased from $85,000 to $40,000, and ABC paid each of its five employees, $8,000 during the quarter. So we have wages paid of $40,000. The credit is limited to 50% of that. We had employer social security tax, which is the 6.2% on the wages of $2,480, so that offsets the tax. And we have a refundable amount of a little in excess of $17,000. So because we have the limit on $10,000 of qualified wages, entities that qualify are going to get a bigger credit at the beginning, and in subsequent quarters they're going to get less of a credit as more and more employees have hit that cap. And again, if you think about the public policy behind some of these programs, they're designed to put cash back into the economy.

So getting these credits up front allows employers that more money to put back to work into the economy. The IRS has been hard at work. They've issued Form 7200, which I have draft form on here, but I believe the form is now final to claim these credits. This form also allows provisions to claim the Sick and Family Leave Credits under the Families First Coronavirus Response Act. Yeah, so there's a lot of changes in the payroll space, and I'm glad that I am not completing payroll tax forms.

So in addition to the credit, there's also the Employer Payroll Tax Deferral or Delay. And what this says is it allows employers to defer the payment of the 6.2% payroll tax and curve between the date of enactment of the Cares Act, which was March 27th, and December 31st, 2020. That deferred payroll tax has to be paid 50% by the end of December 31st, by the end of December, 2021, and by the end of 2022. And if you are self-employed, you too can benefit from this deferral. So 50% of your SE tax, which you pay with your individual return from 2020, which represents the 6.2% employer portion, can be deferred in the same fashion with 25% of the tax or a half of the deferred amount being paid by the end of each of the 2021 and 2022 years. These amounts did not need to be included in your estimated tax computations for those years.

And again, tying back to some of the other provisions, if you receive a Paycheck Protection Program loan, and you receive forgiveness under that loan, you're ineligible to participate in the deferral of these taxes. So I know there's a lot of moving pieces in determining which programs you qualify for, and which one may be the best fit for your business. I encourage you to reach out to your EisnerAmper professional for assistance in working through these complex rules. I thank you for attending today. And with that, I'd like to turn the presentation over to our next speaker, Simcha?

Simcha David: Good afternoon everybody. Thank you, Jordan. My name is Simcha David. I am a partner in EisnerAmper's Financial Services Tax Practice and I'll be discussing this afternoon the modifications to the limitation on business interests, or the modifications to section 163(j), as we refer to it. I just want to spend a brief moment going over the quick analysis of the Business Interest Expense Limitation as we haven't now. So the TCJA put into effect this Business Interest Expense Limitation. It's one of the most far reaching provisions of the new code. The rule applies to all taxpayers and all debt, whether the tax payers and individuals of a proprietorship C corporation, S corporation, and partnerships, whether they're domestic or foreign. This is a limitation on business interest expense that was put into the code.

The basic calculation is that you get to deduct your business interest expense. It's limited to the sum of business interest income. You've got a dollar for dollar offset there. That was put into place for banks. You obviously pay interest expense the depositors, and then earn interest income. For all other businesses, it's 30% of adjusted taxable income, so it's business interest income first, then 30% of adjusted taxable income, and then floor plan financing interest, which is very specific to certain industries. We're going to be focused on the 30% of the adjusted taxable income. And of course those of you who had to deal with 163(j), know that there is an exclusion for a real property trade or business. They can elect out of 163(j), and get the full interest expense deduction. The tradeoff was the use of longer depreciable periods and no bonus depreciation allowed. Certain regulated would be public utilities, and of course the one that many looked at was the small business exception, which had everybody running to figure out what their gross receipts worked for the last three years.

I just want to spend a minute going through now the three changes that we have, and then we'll go into detail on each of one of these three changes in a moment. So the three changes are as follows, very high level. What the act does, it increases the deductible amounts of interest expense from 30% to 50% of adjusted taxable income, and if you did not want that to apply, that would require an election out. It gives entities the ability to use 2019 adjusted taxable income in 2020. We'll get through that in a minute. That would require an election in, if it's wanted. And then, there is a special rule for partnerships, which we will go into in detail. Just a couple of definitions that I think are very, very important for everybody to be aware of. Adjusted taxable income, so a very high level, that's taxable income with items of income gained deduction are lost, not properly allocable to a trader business, such as investment type of items, added or subtracted in as necessary. Business interest income would get subtracted out, so you don't get the benefit of that twice.

Business interest expense gets added back. NOL deductions get added back. The 20% deduction under section 199A, if applicable, would get added back. And the big one was depreciation, amortization or depletion deductions get added back. Now remember, you want the ATI to be as high as possible, because your deduction is based on a percentage of that particular ATI. For years after December 31st, 2021, depreciation cannot be added back to that calculation, which will bring everybody's interest expense deduction down. If you have interest expense above the 30%, that's referred to as excess business interest expense. If you have interest expense below the 30%, the unutilized adjusted taxable income amount is referred to as excess taxable income. And if you have business interest income that was not used to offset business interest expense, it's referred to as excess business interest income. Some important definitions, we will be using them as we go on.

So let's go back to the first rule that we have, and the rule is that the limitation is increased from 30% to 50% of the adjusted taxable income. For non-partnerships, that's the rule for any tax year beginning in 2019 or 2020. Now if you've already filed your 2019 tax return, you can simply go back and amend that return. If the taxpayer does not want this to apply, they would need to elect out. So that's for non-partnerships.

For partnerships, for any tax year beginning in 2020, the limitation again goes from 30% to 50%. However, it does not work in partnerships for tax year 2019, and the reason for that is because under the new centralized audit procedures, they've basically taken away the simple ability of a partner to go back and just file an amended return. There's a different procedure for it, and because many partnerships have already filed, they said, we're going to give you something in exchange for not giving you the 50% deduction in 2019 and that's going to be rule number three that we'll get to soon. So this is the first one, it increases simply from 30% to 50% the second thing that was put into the act, the second rule is that you have the ability, if you'd like to use 2019 adjusted taxable income in 2020. What's the thinking there? The thinking there is then unless you're a manufacturer of toilet paper, your 2019 adjusted taxable income is going to be higher than your 2020 adjusted taxable income. Now very important with this one, is that a tax payer to utilize this has to elect into it. Rule number one that we spoke about before, 30 to 50% that's automatic unless you elect out. This will only work if you elect into it.

So again, it's a good thing to utilize, perhaps if you think that your 2019 adjusted taxable income is going to be greater than your 2020 adjusted taxable income. And finally, we get to the special rule for partnerships. Well, let's spend a minute under the TCJA to talk about how partnerships work with this rule of the business interest expense limitation and what goes on. So what the partnership has, what I mentioned before, it's excess business interest expense. Simply, in year number one, it had $1 million of interest. It was only allowed to deduct 300 000.

So it has $700 000 of interest expense that was not deductible. What does a partnership do with that number? So the partnership actually reports that on the schedule K1 to its partners online, 13K. Now the partner needs to track that number. Why? Well, first of all that 13K number is not deductible in year one. As a matter of fact, it reduces the partner's basis as if it had been deducted. But thankfully if as we go forward, it is not actually the ducted at some point and he gets out of the partnership, the partner could add it back to basics. Well, let's talk about what happens to this number. It gets carried forward to the next year.

The amount is tracked by the partner. The way that 13K, this excess business interest expense gets freed up is only if the partner receives excess taxable income or excess business interest income from the partnership that reported it originally. So if you are a person that's got seven or eight partnerships that you get income from, and three of them report this line 13K you're going to need to track which partnership in a future year gives you income, so that you can actually free up this deduction in a subsequent year. So, that's the way it works under the TCJA. Now remember, we did not give people and the partnership the ability to go from 30% to 50% in 2019. Which means that in 2019 for partnerships limitation is 30%. which means that your partnership may have given you the business interest expense because it was not deducting.

So what the special rule is, is as follows: of that amount of 13K, line 13K from 2019 that came up to you and the example I gave you for 700 000. 50% Of that amount will be deductible in 2020 and it is not subject to the rules of 163J at all. So automatically off the top you would get a $350 000 deduction in 2020. The other 50% we'll still be subject to the normal carryover rules, and you would need to get income as a partner from the partnership that gave you the 13K excess business interest expense. You'd have to get excess taxable income or excess business interest income from that partnership in order to get the deduction. Now, this is automatic. In order to elect out of this is the election will be done at the partner level, not the partnership level. As I mentioned, the partnership did what it had to in 2019, it reported it to the partner on 13K. And so this is a partner level election.

If you do not want it to apply, for some reason you don't want the deduction, you want it in a future year, then you would have to elect out of it. I'm just going to go through a very quick example, very high level. If you have 2019 line 13K, that's the excess businesses interest expense that was reported, said you have $1 million. In 2020, your 2019 remember that was the rule number two, you can use your 2019 adjusted taxable income was $1 million.

Your 2020 business interest expense is $1 million. So how much can you deduct in 2020? Very simple, $500 000 for 2019 line 13K. You get to deduct 50% of the amount that was reported to you on line 13K. Now we go and we do the calculation for 2020. In 2020 I get to deduct 50% of adjusted taxable income, but I'm allowed to use my 2019 adjusted taxable income. Well, 50% of my 2019 adjusted taxable income is another 500 000. Therefore, my total deductible interest business expense would be $1 million. My excess business interest expense carry forward will be $1 million. It'll be 500 000 from the 2019 line 13K that wasn't freed up and $500 000 from 2020. So that's kind of it in a nutshell just to be very careful to remember certain things you elect out of, certain things you elect into. And now I'm going to turn it over to the next presenter.

Jon Zefi:Thank you Simcha. It's John Zefi. I'm a tax partner in the New York offices of EisnerAmper. I'll be covering the change to the net operating loss provisions. My partner and colleague Jeffrey Kelson will be discussing the implications under section 461L. So we, before we get into the CARES Act impact on that operating losses, let's this historical context for NOL prior to the passage of the Tax Cuts and Jobs Act, NOLs could be carried back two years or carried forward 20 years and could be eligible to offset 100% of your taxable income.

With the passage of the Tax Cuts and Jobs Act, NOL could no longer be carried back and could be carried forward indefinitely. There was the limitation, however, as to the extent to which they could set off taxable income. They could offset taxable income to the extent of 80% of taxable income.

With the passage of the CARES Act Now, the CARES Act grants taxpayers the five-year carryback for NOLs that are generated specifically in tax years beginning after December 31st, 2017 and ending before January 1st, 2021. Corporations can now carry back 2018, 19, and 2020 NOLs to offset pre 2018 ordinary income or capital gains.

The point of this being is that they're eligible to be carried back to tax years in which the overall highest effective corporate rate was that a 35% rate. With the passage of the Tax Cuts and Jobs Act, the corporate tax rate was stepped down to 21%. so we're looking at a favorable rate differential of approximately 14 percentage points. Losses are required to be carried back to the earliest of the textures in which the loss may be carried. So in this instance, 2018 losses for corporations can be carried back to the earliest year, which is 2013. The tax cuts, as we mentioned early in jobs act imposed an 80% of taxable income limitation on the use of NOLs, which applied to NOLs, which would generated in tax years beginning after December 31st, 2017. The CARES act however, suspends that 80% of taxable income limitation on the use of the NOLs protectors beginning before January 1st, 2021. Thereby permitting corporate tax payers to fully offset NOLs against taxable income in those years.

Once we get to tax years that are beginning on or after January, 2021, the 80% limitation begins to apply again. A couple of points to be discussed. There were a couple of corrections in the CARES act in and of itself, particularly with respect for fiscal year taxpayers that had tax years straddling the December 31st, 2017 tax year end. Those fiscal year corporate taxpayers found themselves unable to carry back losses generated in that straddle period, because the Tax Cuts and Jobs Act terminated the ability to carry back losses in tax years ending after December 31st, 2017.

So if you're a fiscal year corporate taxpayer with $100 million loss and your fiscal year was effectively July 1st, 2017 and ended June 30th, 2018, the Tax Cuts and Jobs Act prevented you from carrying back those losses and implemented the 80% of taxable income limitation. The CARES act presents a tremendous opportunity for taxpayers that find themselves in those situations and effectively represents a full employment act for tax advisers.

The CARES Act corrects this and allows the loss to be carried back two years, provided that the taxpayer files an application under section 6411A. There's a limitation. However, in terms of the timeframe that application has to be done within 120 days of the passage of the CARES Act. So the clock is ticking with respect to those fiscal tax payers that have tax years with which bridge the 12/31/17 period.

The second important technical tax provision that was adjusted with the CARES Act is that the bill provides that taxable income for purposes of section 172A is determined without giving effect to the deductions for qualified business income FDII and guilty. That's an important fact to be monitored by all folks that are affected by this. An additional further point, when a 2018, 19, or 2020 NOL is carried back to a section 965 inclusion year, the CARES act beams the taxpayer to have made the section nine 65 an election, to waive the use of the NOL against the taxpayer's stringency and tax inclusion item.

So what does that mean in plain English? The taxpayer will only be able to use the NOL carryback to offset it's non 965 income. That's an important provision for corporate taxpayers to keep in mind. So as we mentioned earlier, the net operating loss provisions in the CARES Act represent a potential bevy of planning opportunities for corporate taxpayers. Let's look at a couple of items that corporate tax payers need to be highly focused on as we look at the 2019 and 20 tax years.

First and foremost, any corporate tax payer that is looking at its 2019 and '20 tax filings, has to consider filing any accounting method changes that would allow that tax payer to accelerate deductions into either the '19 or '20 tax year, or defer revenue into subsequent years. The whole point of that is that you want to maximize the NOLs that you would generate in the 2019 and '20 tax years that would be eligible to be carried back to five prior tax years.

That would result in permanent tax savings because you're applying those NOLs to years in which you're effectively taxed at a 35% rate as opposed to the 21% effective corporate tax rate post the passage of the Tax Cuts and Jobs Act. Another important option that we've had discussions with clients about is when we look at the 2019 and '20 years, we have to examine reverse planning method changes. Potentially to defer deductions or accelerate revenue for the 2019 period and thereby generating greater losses in the 2020 period, which would allow for a greater NOL carryback amount from 2020 back five years.

In addition, corporate tax payers have to be highly focused on their capacity to absorb NOLs. So corporate taxpayers with significant carry back capacity, which is defined as taxable income in prior years that would be eligible for offset, and that anticipate the losses that may be incurred in 2020 cascading into 2021. I.E. they're going to have difficult times prospectively as a result of what they're seeing in 2020 that will roll into 2021. If there are calendar year taxpayer, they may want to consider changing their year end to a fiscal year end.

In this illustration, in the second bullet point, we're arguing that the calendar year taxpayer adjusted the tax year to a fiscal year end to November 30th. That will enable part of the 2021 anticipated losses to be front loaded in the 2020 tax year, and then be subject to carry back five prior years. That's an important consideration depending on where you see the economic winds blowing into the latter part of 2020 and into 21 as a corporate tax payer. The other final thoughts that I'm going to leave everyone here with is simply as follows. We did a tremendous amount of work post the passage of the Tax Cuts and Jobs Act. Simcha just highlighted some of the provisions that we dealt within the 163J interest deduction limitation. Well, if we carry back losses to 2018 and 19 we're going to have to go through a re analysis of what we've done for 163J as Simcha highlighted moments ago as well as certain foreign aspects.

The guilty and FDII limitations under section 250 A A2. Those are important considerations and it results in a tremendous amount of tax planning being done on behalf of our clients. With that in mind, I'll turn it over to Jeff Kelson. He'll handle 461L. Jeff?

Jeffrey Kelson:Thank you, John. Jeff Kelson. I co-lead Tax EisnerAmper. I'm going to talk about 461L, but I just want to go back to something. John was talking about seed corporations and that's gotten a lot of attention in these net operating loss rules. Because not only can they perhaps get closed years previously closed that are now open at the higher tax rate, but also some of the limitations of the section 3D2, we can't carry forward the loss so you're restricted, you might be able to avail yourself the carry back to get the total loss.

So there's a lot of great things. And states you have to look at while they all have different rules. But what gets overlooked a little bit, and in my reading of it on the way and whatnot, is that a lot of people have not spoken about the pass through owners and business owners, individuals get the same treatment as C corporations.

So that's what I'm going to talk about here with section 461L. And to not talk about sections, what is 461L did? When the tax reform came out for 2018, it limited the amount that individuals can duct and their return against other income. And they limited that deduction for joint married filers to 500 000. So you can only net 500 000 to offset other income. And that severely restricted what utilization you can get from these losses, you'd have to carry it forward.

So when the CARES Act was coming out, they were trying to afford the same treatment to individuals. But one thing they had to do to get the net operating loss potential in individuals, they had to release this 461L. So what they did in the CARES Act is retroactive to 1118, 461L doesn't exist, it's completely eliminated. So for 2018, 2019, and also for this year, 2020, 461L pretends it was never there. And what that does, the implication is you're not limited to $500 000 losses, any more. You can go way above, and that was the fuel in the engine that was needed to enjoy these NOLs. You needed to get more than 500 on your return before you can really get any substantial refunds. Not business income, so say capital gains, interest, and dividends, which previously could not be offset against that.

Any of these business losses can now be. So in '18, there's an opportunity to go back, amend the return and release more than the 500 000 so you can offset your other income. Capital gains, dividends and interest and allow any extra what could be carried back five years for 2018, go back to 2013. Previously closed years whose taxes are seemingly sealed away, but now can be recovered. And when you carried it back for five years, individuals, it won't be subject to the 80% of income limitation. It can offset all your income in the carry back years. It's not also the QBI deduction, which is that 199A 20%, that that can increase it. But this is all really good for individuals to amend a team to carry it back. To do their '19 returns quickly and carry it back and the '20 returns in the future.

Also, there's some nuance rules in the changes. The deductions for losses, for instance, a capital loss is not taking into account and increasing this limitation. So capital losses cannot serve to increase this business loss. It would just merely go into other capital gains. And because the treasurer was in the mood to fix all the technical corrections, things they had gotten wrong accidentally when they released tax reform 2018. And mostly those things were bad thing for taxpayers they're now making good, there was one mistake that was in the taxpayer's favor in their mind that wages, W2 wages previously could be sheltered by these business losses in determining your 500 000. So what they said is, okay, we're giving you this big gift, we're allowing '18, '19 and '20 to really increase the amount of loss that you can take in your return. And now not only that, but to carry it back five years and offset all that income. So to compensate, we're going to fix what we should've done correctly in the first position in their mind.

That starting in 2021 when 461L finally text effect that we're going to make it even tougher, we're not going to allow these excess business losses to offset W2 income. So that's a small price, I guess to pay for this incredible opportunity to get money's back on '18 and reduce income in '19 and '20. So I don't think it's gotten much attention in all my readings and I think it's a big issue. It's a big provision here. All right, I'm going to turn it over now to my colleague Murray Solomon. He'll take you through the alternative minimum tax credits.

Murray Solomon:Thanks Jeff. Good afternoon everyone. I'm Murray Solomon tax partner in our New York office. Well, I'm going to speak about the minimum tax credit refunds and the changes to the corporate charitable contributions. Just some quick background on the minimum tax credit relief. Going back to the TCJA, the TCJA eliminated the alternative minimum tax for corporations beginning in 2018. At the same time, a company might have accumulated minimum tax credits, which were meant to be monetized when an AMT tax payer became a regular tax payer.

Well, as part of those changes. 50% of the AMT credits that a company had at the end of 2017 and the AMT disappeared were refundable in 2018. And then the remaining credits were then refundable under a sliding scale through 2021. Well, under the CARES Act, the remaining 50% is now fully refundable in 2019. However, they also are allowing you to elect to amend 2018 to get a refund of the remaining 50% effective '18.

So a few points on this, if you plan to file your 2019 return very soon, you can just claim the remaining '18 credits on that return. But if you won't be filing the 2019 return until say October, then consider filing an 1139 for the 2018 right now. Because when a form 1139 is filed, the IRS is directed by law to pay the taxpayer within 90 days.

Now, although the CARES Act in the statute instructs you that you can use an 1139 for a quick refund of the credit, the form doesn't currently have instructions on how to claim the credit. So you may want to wait for guidance from the IRS. But what we've begun to do is pair this form for certain clients, but the footnotes referencing the CARES Act sections, and what we would do is also include a cover letter with that 1139.

Then what we would do is also include a cover letter with that 1139 to the IRS explaining exactly what we were doing. Last point on the AMT credit, you may be in a situation where you actually used all the AMT credit to wipe out 2018 regular tax and now you have a 2019 or '20 NOL that can be carried back to 2018 and if this is your situation, you could still file for a refund of the minimum tax credit that you used in 2018. For this case, you'll probably need to use a form 1120X to get the refund of that AMT credit.

Moving on to charitable contribution limitations for corporations. We're going to cover, I believe, charitable contributions for individuals a little later in this presentation. Charitable contributions made by corporations are generally limited to 10% of taxable income and then excess contributions will carry forward for five years. That's the normal rule. The CARES Act is increasing this percentage of taxable income limitation to 25% for cash contributions made in 2020. That's one year. It only applies to cash contributions made to public charities or foundations, so contributions to supporting organizations or donor-advised funds won't qualify. However, they are allowing this increased limitation for donations of food inventory. I have three points on this provision. First, only companies with taxable income in 2020 will benefit from this increased limitation. However, a company with taxable income in 2020 and who may have NOLs coming into the year, will have their 2020 charitable contributions converted to NOLs and this is a good thing since NOL carryovers have a longer life than charitable contribution carryovers, particularly NOLs from '18 and '19 which have unlimited lives.

Second, it's common to have a charitable contribution limitation increased like this when there's a presidentially declared disaster area. The difference with this provision is that, unlike for when there's declared disasters, these 2020 contributions do not need to be made specifically for COVID-19 purposes. They can basically be made to any qualifying charities. Finally, corporations apparently will need to include an election with the 2020 return to take advantage of this increased limit. They put this election requirement into the statute, I believe, for the partnerships with individuals elected to the charitable contribution committees that apply to individuals, but corporations got roped into this, also. You'll just want to make sure you watch out for this potential flip fault. With that, I'll hand it over to the next presenter to conclude talking about qualified improvement property.

Neil Tipograph:Hi everyone. It's Neil Tipograph: I'm a tax partner at EisnerAmper, New York City office and I'm part of the real estate group. So, qualified improvement property. I'm going to use the term QIP and what QIP is, is first of all, it is the interior improvement to nonresidential buildings. It is going to apply to office buildings. It's going to apply to improvements hotels. It's going to apply to improvements in restaurants, particularly the fast food industry, and it's going to apply to retail stores.

Just to give you the technical definition, QIP is any improvement to the interior portion of a nonresidential building if such improvement is placed in service after the date the building was first placed in surface by the taxpayer. The words by the taxpayer were added to the definition in the SECURE act. There's three things that are not subject to the definition of QIP and that would be any work related to elevators, escalators or the internal structural frame of the building. What happened here was we all expected when the Jobs Act was passed in 2017, we all expected that QIP was to be treated as 15 year property. That's what the committee reports said. That's what all the tax commentary said. Then the tax law came out and through a drafting error and to everyone's surprise, QIP was treated as 39 year prop.

Besides the fact that it was treated as 39 year property for depreciation and not 15 years, besides the fact that it means longer depreciable life, meaning slower depreciation each year, the biggest problem with this error was it robbed the taxpayer of 100% bonus depreciation. These depreciations are typically very large dollar amounts and the reason why they're very large dollar amounts these days is many improvements to buildings are actually written off under the Tangible Property Regulations. Only when we deal with the situation of an extremely sizable improvement to a building do we typically capitalize that improvement. The CARES act takes care of this and it's effective as of January 1st, 2018. There is some commentary out there that says this is effective as of September 27th, 2017. I saw that in CCH originally. That is wrong. The effective date of this change is January 1st, 2018. It is now 15 year property for regular tax purposes and 20 year property for ADS.

A bonus depreciation is not allowed or any taxpayer who has made an election under 163J dealing with the interest expense limitations, that election is irrevocable and as of this time we believe taxpayers who made that election are stuck with it. For those taxpayers they will be depreciating the QIP property at 20 years. The question becomes, how do we correct this on our 2018, 2019 and/or 2020 tax returns? Well, as I speak right now, I am being told by the IRS that they are coming up with a Rev Proc and the Rev Proc is going to give us very specific instructions on how to make this correction, and we expect to see the Rev Proc very shortly. What we do know is, or what we believe the options are, is one, we can amend the 2018 tax returns and use the bonus depreciation or the 15 year depreciation.

If we have already filed the 2019 return, we can also amend that return. We can do, instead of amending returns either on the 2019 or 2020 return, we can do what's called in depreciation parlance, a change of life or a change of use method of depreciation, which is just take the adjusted basis of where we are as of the beginning date of the year over its new life. Finally, we can do a catch-up calculation, which is a calculation we do on form 3115. In the past, the IRS has allowed taxpayers in certain circumstances to do the 3115 type catch-up calculation without filing the form, so we'll see whether the Rev Proc allows us to go through a streamlined process to do this catch-up depreciation. Finally, what we should never lose sight of, any time we take both federal bonus depreciation, we always must look at what the state ramifications are.

For example, in New York State, New York state does not allow bonus depreciation, so it is decoupled and depreciated as if the bonus depreciation was never claimed. The problem with that is sometimes with certain taxpayers at a federal level do not get the benefit of depreciation through the passive loss rules, yet they will still be stuck with an add-back on their New York state returns causing them to generate a New York state and New York City tax. Be very careful if you decide to amend returns or if you decide to do the catch-up calculation and you take bonus depreciation. I would say everyone's homework today after this, after you're done with this seminar, is to take out your 2018 tax returns and if you filed your 2019 tax returns, look at form 4562, see if there is 39 year property listed on the tax return. Then if that addition represents QIP property, consider what your course of action is. Thank you very much. Now to the next speaker.

Barbara Taibi:Hello everyone. This is Barbara Taibi. I am a partner in the Personal Wealth Advisory Group in the Metro Park office. I'd like to say hello and thank you to all of my clients and business colleagues that I see have signed up for this webinar. I miss all of you and hope to see you soon. I'm going to talk a little bit about some of the individual tax considerations with the CARES act. Probably the first that we've all been talking about and hearing a lot about in the news are these rebate checks, which should be coming out to taxpayers sometime within the next few weeks. The amounts have settled on $1200 for a single tax payer with adjusted gross income up to $75000, $2400 for a married couple with adjusted gross income up to $150000, and $500 for each qualifying child. They're going to phase out these amounts by $5 for every $100 that the AGI exceeds these levels.

That means that you'll be fully phased out and not receive a rebate if you're a single taxpayer with adjusted gross income over $99000 and if you are married filing a joint return and your AGI has exceeded $198000. Who's supposed to get the rebates? Well, you must be a US resident. It's not available for non-resident aliens, trusts, estates or any individuals that are claimed as dependents on another return. You must have a social security number. They're going to base the payment on either your 2018 tax return or your 2019 return if filed, so that might be one of the things we do when we were talking about some planning. You might want to decide to either delay or accelerate the filing of your 2019 return. If maybe '18 gives you a better rebate situation you'll hold off and if '19 is a year where you may be made less money, let's get your '19 return in there and filed very quickly because these are going to start to go out soon.

You'll still get the rebate, even if the tax return was only filed and you had no tax due, but you were trying to take the child tax credit or the earned in credit, you will still get the rebate. Another question we've been asking is even if your only source of income is social security, yes, you will still get this if you're under those limits. The thing to remember is that it's really a 2020 refundable credit against your tax liability, but the government wanted to get this money into the hands of people much more quickly than something on their 2020 return. These are really advanced credits and it's going to show on the 2020 return against your liability, so should you happen to be in a different situation when you're filing your 2020 return and circumstances are that you should have gotten more than you did get in these advanced rebates, you're going to have the opportunity then to get the benefit of the rest of the money that you are due.

The good news is even if they overpaid you because your circumstances are different, you are not going to have to pay anything back. That's very good news. I guess the one thing that when we think about this is, if they're working off of your '18 or '19 return, who are the people that are really left out? Well, it's going to be the people that probably need it the most, which are the people that didn't need to file because their income was too low and they have said that they're going to come out with a streamlined filing system that is going to get rolled out within the next few weeks, so even people that did not file in '18 or '19 are going to be able to get the rebate if they qualify.

Lastly on this subject, just know that the payments are going to be made electronically to the account authorized on or after January the first of 2018 and after that they're going to send a paper notice to people within two weeks to the address on record telling them they did that. If there was a problem, it'll have a name and phone number that everyone is going to be able to contact. Okay. Moving to some retirement income provisions. Required minimum distributions are suspended for 2020 and that includes for inherited IRAs and traditional IRAs. You should think wisely in this area and determine whether or not you're going to take your RMD or not. If in 2020 you're in a lower tax bracket, maybe it makes sense to take it, right? You're going to get money and you're going to pay the least amount of tax on that money.

If you find yourself in the same brackets now, next year, the year before, maybe you think I don't need the cash, I'm going to just leave it in there because I'd rather see if I can keep it in the tax-deferred plan and maybe it'll get the eventual market uptick. Especially if your required minimum distribution was based on a 12-31-19 market value, which is probably higher than where your account is now, you might want to think about leaving it in there. What about those of you that maybe already took your 2020 RMD? Well, you can just include it in your income and pay the tax just like any normal year. If you are still within the 60 day time frame, you can use the 60 day rule to return the distribution into your retirement plan without any tax consequences to you, or maybe it's time to think about the conversion into a Roth IRA.

Typically, when market values are depressed, it's a good time to consider Roth IRA conversions. Also note that 2019 contribution deadlines for qualified plans, HSAs, SEPs, you now have until July 15th, the new extended tax return date, to place your contribution into these plans. Typically, you would have had to do this by April the 15th. Then in July, if we further extend your returns to October, you will have an additional three months if you're on a valid extension to make that payment in October.

The next rules I'm going to discuss about retirement loans and distributions are going to apply to individuals who have been affected by COVID-19. What does that mean? It means that either you've been diagnosed with COVID-19, your spouse or dependent has been diagnosed, you've experienced adverse financial consequences, whether it's due to the quarantine, being furloughed, laid off, there's a work reduction, you have an inability to work due to a lack of childcare which we're seeing all over the place with school closings, or maybe you're the owner or operator of a business that's forced to reduce their hours because of state mandates due to COVID-19. Assuming that unfortunately you meet these requirements, a few things that you need to think about are, they have waived the 10% penalty for early distributions. That means if you are under age 59 and a half and you need to take money out of your retirement plan, you typically had to pay the 10%. Well, that's been waived.

It's been waived up to distributions of $100000 that are taken from January the first to 12-31-20, so the full year. That means money that is coming out of your 401(k), your IRA, certain deferred comp plans and other tax-deferred retirement plans. It allows for multiple distributions. If you maybe take $30000 now and you realize a few months down the road you need some more, you can take several distributions to get you up to that $100000. You will then have to pay the income tax on this distribution ratably up to the next three years. That's three years starting on the date that you took the money out.

The distribution can also be contributed back into the retirement plan anytime over the three year period following the distribution date and in doing so, that's going to be treated as a tax free rollover. Currently you only have those 60 days to do something like this, so this is giving you an additional three years. Some changes to retirement plan loans. This is going to apply to loans from the date of enactment, which is March 27th of '20 through the end of the year, 12-31-20. If you are borrowing from your retirement plan, it's going to increase the amount you are allowed to borrow to the lower of $100000 or 100% of your vested balance. The lower of those two and that's up from the limit prior to this, which was $50000 or 50% of your vested balance. For those of you that have existing loans in your retirement plans now and you have a payment due between 3-27-20 and 12-31-20, you can defer that payment for an additional year.

Another area they've made some changes in are the charitable contributions. You see all over the signs, we're all in this together, right? Everybody wants to do something to help others, whether it be large or small. The first thing they made a change to, which it is small but nonetheless, these dollars could add up. They're allowing everyone an additional $300 charitable deduction. If you make a contribution to charity, you're going to be able to take a $300 almost above the line deduction so whether you itemize or not, you're going to get this additional $300. This is for 2020 and going forward. In my example, let's say if you have deductions of $7000 you would normally itemize, sorry, you wouldn't itemize. You would take the standard deduction of $24400. You would still be able to do that and now you get another $300 on top of the $24400. For those of us with ability to contribute more, they have also eliminated the 60% adjusted gross income limit for charitable contributions for 2020 only.

The law now is if you make all cash contributions, you can only deduct up to 60% of your adjusted gross income. You can now give cash gifts up to 100% of your adjusted gross income in 2020 and this would go to qualified public charities. This does not include charitable donations that you make to donor-advised funds, charities that support other charities and certain private foundations. They are excluded because you can see what they're really trying to do here is get cash straight to the people that need it quickly. These are cash contributions. Partners and shareholders can also qualify for this if they make the election. Any excess contributions will still carry over under the normal rules, which is the five year carryover rule. Lastly to our students and people still paying off some student loans. Please note that they have defers the payment of student loans and that includes principal and interest for six months. That'll get us to September the 30th of 2020 without any penalty or interest charges. They say that these have to be on federally owned loans, but actually about 95% of all student loans are federally owned loans.

Thank you very much for that. I'm going to now pass it on to my colleague Gary Bingel, who's going to talk about some state and local tax updates.

Gary Bingel:Thanks, Barb. Appreciate that. My name is Gary Bingel. I am the partner in charge of the state and local tax group for EisnerAmper, and I am based in the Metro Park, New Jersey office. I'm going to be talking about some of the state law.

I'm going to be talking about some of the state and local ramifications of some of the other things folks are talking about. Starting off with... There we go, with the state filing and payment extensions. At this point I believe every state, I've gotten most states on here and a few more came online just recently. Pretty much every state has done some sort of extension to the federal due dates. Some of them but not all. Matter of fact, just yesterday New Jersey finally came out with a press release, said it is extending their due date for corporate and individuals to 7/15, and they also extended the state fiscal year end to 9/30. There really isn't much details out there right now. I checked the New Jersey website just a little while ago. There wasn't anything new up there other than just mentioning this, so hopefully there'll be more information coming out pretty soon.

Like a lot of the guidance that's out there for a lot of states, it's not real explicit whether that includes things like estimated payments. New Jersey is actually isn't even explicit whether it includes payments at all, but I'm assuming it does include payments, which is what most people believe right now. Otherwise there would've been no reason to extend the fiscal year end to 9/30.

Some of the things to be aware of, and we are tracking all of these by the way, at least for the income taxes for corporate and individuals on our website, there's a map you can click on, it'll bring you to most of the links, which we've been updating a couple times a day, so that is pretty recent. There are some pitfalls to avoid here to make sure as you're going through these, you don't get whipsawed or get surprised by anything.

Specifically even states that extended, not all of them extended to 7/15. As I mentioned, New Jersey extended their fiscal year end from 6/30 to 9/30. And a lot of states also had 6/30 year ends and what they were afraid of is if they adopted the 7/15 extension date, then they're getting all those payments in the next fiscal year. And a lot of states didn't want to do that. So what they did was a lot of states extended to other 6/15 or 5/15. So you need to be aware, don't just take a quick look and say, "Okay, they extended. I'm good until 7/15." Also, these extensions have happened one of two ways. In some states they actually had to go through and do a law change like New Jersey. Other states it was really just more an administrative change. Specifically the department of revenue would come out and say, "These were going to be filed late and we'll waive all the penalties."

The problem with that is in a lot of states, the department of revenue only has the authority to waive the penalties and does not have the authority to waive interest. So you have to be aware when you're looking at these as well to make sure that both interest and penalties are waived because otherwise you may think, "Okay, I'm good, I'm going to hold off on filing and paying." And then you may get an interest bill. So, you need to be aware of that. Generally the states that did an actual law change or had the governor sign some sort of emergency law, we'll waive both interest and penalties.

Also, not all states extended the estimated payments. Some only extended the first quarter, some extended first and second quarter. Some didn't extend any estimated payments. So in some instances similar to the federal, I believe you may have your second quarter payment due before your first quarter payment where you may just have to make those at their normal times.

Also, we've generally been following the other taxes like income tax. Some of the other taxes like real estate taxes and business, personal property taxes, sales taxes, states have been all over the place on extending those. For some of the locally administered taxes, like personal property taxes, real estate taxes, there's only been a couple of states or jurisdictions, I believe Maryland, one or two other ones where those are administered at the state level. And so they have had to... Those are the only ones that could extend all of those local taxes as well. So for most of those that are administered by the localities, you may actually have to check with each specific locality to see whether there were extensions and some of the localities, again extended some things and not the others. Finally, be aware that just because a state extended the filing and payment deadlines, again doesn't mean that localities within the state extended or did the same extension.

One of the biggest areas for the extensions for other taxes that we've been getting many questions on are the sales tax payments. There are several states that went through and said, "Okay, we're going to let you delay paying the sales tax." Most of them say they're going to allow you to delay paying but not filing. So they still want you to file. So that's something to be aware of. As a general consideration. We are not recommending that people take advantage of that, even if you can delay it. Sales taxes are a trust fund tax and you're supposed to be separating them out anyway.

And if that money is not available now or if you don't have it now and you needed it for operations now, then I'm not sure what makes you think you may have and in three months when it's due and if that timeframe comes due and you can't make the payment then, you may be an even bigger trouble because of the personal responsibility of the officers and such where you may have even a bigger issue. Usually when people get in significant trouble in personal liability for sales taxes, it's because they did just that and took the sales tax money and used it to fund operations. So unless absolutely necessary, we are not recommending that people do that.

Okay. Some of the other tax provisions it's going to be quite some time, unfortunately, at least several months more than likely before we start to see any real guidance from the states on some of these other tax provisions. To the extent some of these provisions are similar to or in the same area as what was enacted by the TCGA a few years ago and addresses a specific item. You may be able to look and see how the state addressed that item for TCGA purposes to get some inkling of how they may address it currently. Not going to be definitive, but that may at least provide some level of guidance because I don't expect it'll be several months before a lot of these things get addressed at the state level, which is obviously going to be problematic on several fronts. It would be several months anyway and with the department of revenue's largely shut down in a lot of places, I think that'll only make it worse.

NOL provisions. Just looking at some, some general things people spoke about NOL provisions. Most states do have their own NOL calculations and provisions which are not directly tied to the federal NOL calc. So I would expect few states to suddenly go through and change the NOLs or their NOL provisions. Most of them are decoupled, even if they start with line 30 of federal income. Often you need to add back that federal NOL to get to an adjusted state number. So I don't see a lot of states following those, but we'll have to wait and see. There might be some.

G163J, I think a lot of states again are going to automatically follow those changes just like they did under the TCGA provisions because they're generally included in line 28 or line 30 to the extent a state is starting with federal income. So state would need to either specifically decouple from those provisions before they didn't file on them. So again, a lot of states had 163J guidance out there after the TCGA and so I would maybe look at that and see if you can get some guidance from there.

Qualified investment improvement property, again, as one of my previous speakers mentioned, states have generally decoupled from the federal depreciation rules, so they're going to have their own rules and I don't see a lot of them following that. Probably the best way to determine how this may impact you, at least for the next couple of quarters until they start to come out with more guidance is to just take a look and see is this item a below one or above the line item? To the extent the item is automatically included in let's say line 28 or line 30 unless there was a specific decoupling, the state will generally at least start off following that. One thing to watch out for is that not every state automatically updates to the current internal revenue code version. So some states have a fixed conformity where they might only update it every year or two.

A state like California, I believe is still tied to the 2015 IRC and so none of this is going to be in there. They don't even follow a lot of the TCGA provisions because they are tied to a version of the code before that. So those are just some of the general things that what we're looking at and looking at following over the next several months from a state and local standpoint on how states may be treating some of these.

So from a practical standpoint, there are some things just from a business standpoint to watch out for. A lot of these really are business issues that are impacting the business just because all of a sudden you've got massive amounts of people working from home. And the first is the impact on Nexus. So having employees working from home in several states as opposed to coming into an office in one state may create Nexus in those states.

As we all know, generally having remote employees in a state is going to create Nexus there. And so you want to take a look at that and see if all of a sudden you've got a large number of people working in a state where you haven't previously filed, how you want to address that for several different purposes, including payroll, taxes, income taxes and such. Now a couple of states, New Jersey did come out and said that having employees working remotely due solely to this pandemic and the issues surrounding it will not give you Nexus if that's solely the only reason they're working from home. So New Jersey is providing a little bit of relief there. I think that dates back to the Hurricane Sandy days when a lot of states are in the Northeast were looking for line workmen and free workmen and stuff such to come in and help with the cleanup and they let all of those companies and folks come in without imposing Nexus on them cause they really wanted to help cleaning up but I think this is along those lines.

They know that states or that companies are hurting enough already and don't want them to have to worry about some of these administrative things. Mississippi I believe is one of the other states that also came out with something similar and said, "Look, having remote employees won't give you Nexus if that's the only reason solely they're working from here." So hopefully more states will jump on that bandwagon, at least be lenient with this, especially since we don't really know how long this is going to go on. The next issue to look at is your impact on revenue sourcing mostly for service companies. Your portion may change significantly because again, some states will look at for certain types of taxes where the employee is actually working for purposes of sourcing the revenue as opposed to where the client is and if all of a sudden again, instead of having all your employees come into one office, let's say in New York City where all that revenue is going to New York City, you may have a larger workforce now that is performing services from other states.

So you need to take a look at that and that may actually help you with something like the UBT. Wage withholding, again, similar to the impact on revenue sourcing, wage withholding may change, so the Philadelphia wage tax, Philadelphia and Michigan have come out and said that for their cities, if the people are working outside, let's say Philadelphia or the cities in Michigan, you don't have to worry about withholding the city taxes on those. So there's going to be a lot of things to look for coming up in the coming months. Hopefully stay until we at least release some guidance on that. And that's it with that. 

Jeffrey Kelson:Okay. As you can hear, these were far reaching changes. It was tax reform in a day. Owners must avail themselves of the amended returns, the loans, which we know is going to be SBA guidance tomorrow, and a lot of the questions under PPP. So this helps. Payroll credits, which you can do very quickly and carry back and the tax software has to accommodate itself. A lot of moving parts. There's a bunch of questions. Miri, do you want to, or Barbara Taibi?

Miri Forster:Sure, I'll start. So we've talked a lot about the changes to the NOL loss limitation rule. John, can you let us know if those same changes apply to capital loss carry back as well?

Jon Zefi:So thank you, Miri. This is Jon Zefi. So the bill does not modify the rules related to the capital losses, which continue to qualify for the three year carry back and the five year carry forward. I think Miri also, I saw a question with respect to the NOL carryback provisions, the five-year carryback provisions and their impact for corporate taxpayers on their respective provisions. And I think the refund receivable recognized would be measured in prior periods prior to the implementation of the rate reduction and the Tax Cuts and Jobs Act to 21% from 35%, so that refund receivable if it's the refund receivable that's resulting from a carry back to a year prior to the Tax Cuts and Jobs Act would be measured at a 35% rate of applicable to that carry back year. While I believe the deferred tax asset that is de-recognized may have been measured at a 21% rate. So for a 2020 loss that's expected to be carried back to a pre-2018 year, this could result in a benefit in the estimated tax rate at the 35% rate.

Murray and Jeff, do you have in additional comments with respect to the impact on provisions for back for revisions?

Murray Solomon:Sure Jon and that is an excellent point you just made. I'll just add to that just to confirm that the effect of this cares act should be accounted for in your quarterly financials ending with the March 31 corridor, first quarter of your calendar year end since it was enacted on the 27th of March. So that's one thing to note and some companies that might have extended their time period to file the K, I don't believe you would include it there but you may need some subsequent event disclosure. But certainly there might be companies that will be in a position to release valuation allowance on 2018 or 2019 NOLs that were not previously realizable with a one year carry back but can now be carried back up to five years. And just the only other thing I'll add is the also on 163J a lot of companies might have had valuation allowances on their interest limitation carry forward that were the interest there was limited and now with these relaxed limitation rules, you might be able to release some of that valuation allowance and might've had-

Jordan Amin:Hey.

Murray Solomon: Yeah, go ahead.

Jordan Amin: Murray, on that point, just to extend the point that you just made, in terms of when you recognize, what happens on the state and local side to state and local provision, when there may not be an immediate adoption of the provisions under the cares act? How do you handle that just broadly?

Murray Solomon:Well, that's where life gets really fun when you're in the tax provision world because you basically have to look at every tax paying jurisdiction separately. So you'll be doing all your calculations separately on a state by state basis because some states won't have the same NOL carryback rules and a lot of states won't be following the interest and the vision.

Jordan Amin:Hey Jeff, any thoughts on that?

Jeffrey Kelson:I agree. I think it's exactly what Murray said. We're getting some other questions about... All over the place. The employee retention credit can be claimed with the quarterly payroll return. There's a new form for that, which Jordan went over form 7200. They want to get you the money as soon as possible. You can offset not only the FICA, but you can offset employee withholding taxes on the federal, so it's all about getting the money into circulation.

Miri Forster:There were also some questions administratively on the estimated taxes. Just to clarify, the first quarter estimated taxes are extended to July 15th but the second quarter that are due June 15th are still due on June 15th.

Jeffrey Kelson:Yeah, for the second quarter before the first. There's some questions, a lot of questions regarding PPP, which was the discussion the other day that we presented. Today was more focused on the tax. But I will say there's going to be a lot of information, I think coming out tomorrow. Questions around whether household employees are considered. If you're having household employee, you're not really having money making business. So, you're probably not going to get a value sales of these credits alone, but they themselves might be able to. It all kind of flows down. There's question about whether PPO count, those employees PPOs count. Does your employee? Yes, so probably your employees.

Anybody else has any other point they want to make?

Miri Forster:I think there are also some questions on 163J. One question asks if confirmation about whether partnerships include LLCs and also about how S Corp business expenses are treated.Jeffrey Kelson:Yeah, so-

Jon ZefiAll right-

Jeffrey Kelson:Go ahead.

Gary Bingel:Thank you Miri. I guess I'll take that since I spoke to that, Jeff. So the question was whether 163J I'm understanding the partnership rule applies to LLC. So the answer is as follows: if your LLC was set up and you have more than one owner, then you are a partnership and the special rule for partnerships applies. You would use 30% of the API in 2019. If you have one owner of your LLC it will be a disregarded entity and the individual rules will apply and you'd use 50% in 2019. If you check the box on your LLC to be treated as a corporation, then you are treated as a corporation and again you would use 50% of ATI in your 2019 return.

With regard to S corporations, I will say that I don't think that the rule for partnerships apply to them. I'll hang my hat for two reasons on that. Number one is that the law, the cares act specifically says special rules for partnerships as corporations are not partnerships although they act like partnerships.

And number two is the fact that S corporations are not included in the new centralized partnership order procedures of the bipartisan budget act of 2015 so they have the regular amended return procedure. And so it would make sense that as corps would utilize 50% of API in 2019 and if they already filed, they would go back and amend.