The issue of the application of IRC §265(a)(1) and how it bars a deduction has been widely discussed with relation to the PPP loan program. But the IRS looked at the section again in CCA 202027003[1] in relation to the deduction for charitable contributions under IRC §512(b)(10) for the unrelated business income tax.

The CCA has been issued to answer the following question:

Whether under section 265(a)(1) of the Internal Revenue Code, the charitable contribution deduction allowed under section 512(b)(10) is allocable to tax-exempt income and therefore not deductible in calculating unrelated business taxable income under section 512(a)(1)?

Relief has been granted to certain employers who sponsor safe-harbor 401(k) and §403(b) plans to amend their plans in 2020 to reduce certain contributions in Notice 2020-52.[1] The relief is provided in response to economic issues arising due to the COVID-19 pandemic.

The relief covers two cases:

• An employer makes a mid-year amendment to a safe harbor §401(k) or §401(m) plan that reduces only contributions for highly compensated employees (HCEs); or

• An employer is making certain mid-year amendments to a safe harbor §401(k) or §401(m) plan that reduces or suspends safe harbor contributions.

Safe harbor plans are granted an exemption from meeting the Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) tests. The ADP and ACP tests impose limits on the ability of highly compensated employees (as defined at IRC §414(q)) to make contributions to the plan unless the non-highly compensated employees (NHCE) make sufficient contributions to the plan.

The Sixth Circuit Court of Appeals overturned a District Court ruling in favor of the taxpayer in the case of Audio Technica U.S., Inc. v. United States, Case No. 19-3469.[1] The District Court had ruled that the IRS had conceded a specific-fixed rate percentage in prior years Tax Court settlements, which prevented the IRS from challenging that same percentage in the current year’s dispute. But the Sixth Circuit did not agree that the prior agreements prevented the IRS from raising that issue.

In Chief Counsel Advice 202026002[1] the IRS looks at whether the filing of a superseding return following the filing of the first tax return that was placed on extension changes the starting date for the statute of limitations on the assessment of tax or claiming a refund.

The Small Business Administration has issued another Interim Final Rule (IFR)[1] to take into account changes made in the PPP program due to the passage of the Paycheck Protection Program Flexibility Act (PPPFA). This IFR makes additions and revisions to guidance related to loan forgiveness and review of the application for forgiveness.

Some of the provisions of interest found in the new IFR include the following.

Guidance has been issued on various employee benefit plan relief provisions found in the CARES Act in Notice 2020-50.[1]

Coronavirus-Related Distributions from Retirement Plans

CARES Act §2202(a) provides specific relief to beneficiaries of retirement plans for a coronavirus-related distribution. Specifically, the Notice describes this relief in Section 1 of the Notice for such distributions as follows:

The section provides an exception to the 10% additional tax under § 72(t) of the Code (including the 25% additional tax under § 72(t)(6) for certain distributions from SIMPLE IRAs), allows the distribution to be included in income ratably over 3 years, and provides that the distribution will be treated as though it were paid in a direct rollover to an eligible retirement plan if the distribution is eligible for tax-free rollover treatment and is recontributed to an eligible retirement plan within the 3-year period beginning on the day after the date on which the distribution was received.[2]

Small details can be crucial in certain portions of tax practice, and in the case of Organic Cannabis Foundation, LLC, et al, v. Commissioner[1] the problem involved the use of a particular delivery option available from FedEx that was not on the list of IRS approved delivery services. That fact, combined with the inability of FedEx to make delivery on its initial attempt, combined to deny the taxpayers the ability to contest their issue in the United States Tax Court, their petition being found to have been filed a day late.

The SBA has both revised the PPP loan forgiveness application form to take into account the changes made in the Paycheck Protection Program Flexibility Act (PPPFA) and added a new “Loan Forgiveness Application Form EZ” for qualified borrowers.[1]

The revised forms take into account changes made in the interim final rules released on June 16, 2020.[2] The forms also clarify that a new limit on income replacement for sole proprietors discussed in the IFR will apply to partners and owner-employees.

A new bit of guidance has emerged from the Small Business Administration, with another interim final rule (IFR) appearing on the Federal Register website in pre-publication form.[1] This IFR contains a number of changes to the third and sixth interim final rule on PPP loans, mainly conforming language to agree with changes made in the Paycheck Protection Program Flexibility Act (PPPFA).

However, the IFR does contain some guidance related to the maximums that can be used for payroll costs for a single employee and income replacement for an owner-employee in obtaining forgiveness for borrowers that opt to take advantage of the 24 week covered period added by the PPPFA.

More late Friday guidance on the Paycheck Protection Program loans was issued by the SBA on June 12, with a second set of Paycheck Protection Program Flexibility Act (PPPFA) interim final rules (IFRs).[1] As with the first set, this guidance makes changes to the original April 2, 2020 IFR released shortly after the CARES Act.