The IRS and Treasury have issued “extraordinarily prompt guidance” on the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136), but the law’s tax provisions need further clarity, according to the American Bar Association Section of Taxation.
In some cases, the current state of guidance has left many taxpayers in a quandary over how to proceed, the tax section said in a May 12 letter to the IRS and Treasury.
The CARES Act’s provision allowing for the deferral of an employer’s share of 2020 payroll taxes is complicated by the rule that prevents employers from claiming both payroll tax deferral and availing themselves of the Paycheck Protection Program’s (PPP) loan forgiveness. The tax section noted that subsequent IRS FAQs have since clarified that an employer that receives a PPP loan can still defer payroll tax obligations until a decision is made by its lender as to whether the loan was forgivable.
However, that situation presented employers with uncertainty and “administrative difficulties,” and thus many employers failed to use the payroll tax deferral provision despite being eligible, according to the tax section. The letter suggests further guidance should allow employers that paid payroll taxes after March 27 that could have been deferred to apply those payments to other payroll taxes owed for the remainder of 2020 without incurring a failure-to-deposit penalty.
The tax section also requested that further guidance establish whether section 108, regarding income from a discharge of indebtedness, applies to forgiven PPP loans; provide more nuanced mechanisms for distributing the $1,200 economic impact payments to individuals with nontraditional family situations; and offer clarity on implementing the retail glitch fix that was included in the CARES Act.
Just One Little Thing
Some of the ABA tax section’s other requests are fairly basic, including that the IRS and Treasury settle whether the $300 above-the-line charitable deduction applies per tax form filed or per individual.
The tax section noted that the Joint Committee on Taxation has interpreted the provision as applying the $300 cap to returns filed by both individuals and married taxpayers filing jointly, but the group recommended official guidance on the matter to “prevent possible confusion.”
The tax section also sought confirmation that coming guidance on the CARES Act’s changes to retirement plan rules would clearly state that it is optional for employers to adopt the new law’s plan distribution and loan rules.
The IRS and Treasury already suggested as much in an FAQ issued May 4, but “we nonetheless recommend that in forthcoming guidance, Treasury and the Service include a statement like the one in Notice 2005-92,” which was issued in response to Hurricane Katrina relief legislation, the tax section said. The letter also requested that subsequent guidance confirm that employers who mistakenly assumed the new retirement plan rules were mandatory be allowed to rescind adoption of those rules.
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