Category: Tax Update

2022 / 2023 Tax Letter

Posted on | by FSICPA

2022/2023 Greetings!

So, like most businesses, we are pretty much back to normal, and I say this with gratitude. Some post Covid changes involve modest increases to working remotely and using Zoom and Teams, but we still enjoy being in the same office with each other and meeting face to face with our clients when warranted, which is a good thing.

We continue to update our technology to automate our tax return input and processing procedures. This year we implemented a scan input system at the front end and a streamlined, easy to understand communication of tax return results and instructions to our clients’ system at the final stage. We think you will notice the efficiency.

At the very end of 2021, our firm successfully navigated through a rigorous mandated tri- annual peer review examination with flying colors. We are taking seminars and updating our knowledge of the new tax laws contained in the Inflation Reduction Act, the Covid related tax laws and opportunities, the Secure Act relating to retirement distribution requirements, and the continuing impact of the 2017 Tax Cuts and Jobs Act. The employee retention credit which in many cases returns significant dollars to businesses has been a focus of our attention. We also continue to improve inter-office communications, employee relations, job sharing, work flow, filing and retention systems and to cosmetically spiff up the office.

Nevertheless, it is our people that are by far our greatest asset, and our firm maintains a healthy mixture of the young and eager, the teachers and experienced professionals – all of whom are still aspiring.

At this point, it is again to be acknowledged that Samuel Infurchia and Timothy Frawley have been instrumental in the firm’s development and so we are reminding our clients of their recent admission as partners to the firm.

Joe Rybaruk, a CPA, maintains his unsurpassed, steady and productive work effort. Eddie Florian has taken on more complex assignments and responsibilities. Patrick Kryskiewicz, a CPA, has become a deft tax researcher for us and is heading up our initiative to identify and calculate our clients’ claims for the new employee retention credit. Greg Churchill has moved from intern to full time and is eagerly learning and acquiring new skills with diligence and thoroughness. Allison Infurchia, with her quick perceptions, has become a key go-to-person in getting assignments and large special projects done. Beth Anderson is our office manager and manages the office from both sides – clients and staff. She is always on the lookout for a better system and is always taking the time to sit with a client at pick up. Jackie Gallagher was hired in the front office this year to provide broad support in this critical area, and her friendly and engaging manner together with her experience have been invaluable.

Samuel Infurchia, CPA, a partner, is in the Masters in Taxation program at Villanova, has a business valuation credential and is doing some of the most sophisticated work in the office including foreign taxation, trusts and estates, high net worth client services and tax audit representation. He is continually bringing new ideas, ways of doing things and clients to the firm, all of which have significantly contributed to our firm’s growth.

Timothy Frawley, CPA, a partner, is now our financial audit specialist and maintains the accounting and tax compliance for some of our largest assignments. Not by intention, but just because of his generous and patient demeanor, he has become a good part of the social glue of the firm. He has taken a lead role in training the newer staff and is integral in maintaining our successful peer review status.

Frank Infurchia, Jr, CPA, a co-managing partner, is a primary initiator, leader, researcher, locomotive, business valuator specialist, business developer, and expert in tax compliance, planning, and financial statement presentation at all levels.

Larry Silvestro, CPA, a co-managing partner, has been with us almost from the beginning and sets the standard for client service, business development, high-end financial statement presentation, tax compliance and planning, and daily office leadership. We go back to childhood, although I lament that I am older!

Barbara Infurchia, my wife of 45 years, has been with us from the very beginning, in those days balancing her time raising a family and administering to the fledgling business. Barbara heads up the billing process and does all the firm’s bookkeeping. As such she has become one of the firm’s important monitors.

Bob Meissner has been with us from literally the beginning and continues to maintain a seasonal part-time position, and we are glad to have him.

Frank Infurchia, Sr, CPA, (me) remains thoroughly engaged in the firm I founded 39 years ago. Like the partners, I am a set of fresh eyes at the end of an engagement looking for better ways of financial statement presentation, reporting, tax positions taken and tax planning strategies to employ.

As a guiding philosophy, the partners remain steadfast advocates of our client interests not only in our daily dealings but also during the intermittent IRS and DRS tax audits that arise.

So, as I said at the outset, we all have a lot to be grateful for.

We look forward to meeting with you either in person or by Zoom or Teams or by correspondence as we help you with your end of the year tax plans and projections.

We are including with this update our latest tax newsletter which summarizes the significant individual and business tax developments and planning ideas. Audrey (my granddaughter and Frank Jr’s daughter) had a hand in stuffing these envelopes and so the legacy continues! Ha! Tim’s children are next!

Please make arrangements to get us your tax data, electronically, if possible, as soon as you can once we round the year.

We wish you continued health, prosperity and happiness.

Sincerely,

Francis S. Infurchia and all others discussed in this letter

Payroll Tax Deferral – Effective 9/1

Posted on | by Frank Infurchia
September 2, 2020
On August 8, 2020 the President directed the IRS Treasury to defer the withholding, deposit and payment of the 6.2% federal social security tax withheld from eligible employee’s paychecks from September 1, 2020 to December 31, 2020, which will increase employee’s net take-home pay by 6.2% (the amount of social security tax normally withheld). In the Memorandum (link) he also requested the Treasury to explore options for the forgiveness of the deferral. No guidance has been issued regarding the forgiveness of this tax deferral as of September 2, 2020.
The Treasury issued information on Friday August 28 in Notice 2020-65 (link) with information on how to apply this payroll tax deferral. Below are our observations and take-aways from the Memorandum and Notice:
  1. Any company that has payroll is considered affected by COVID-19 and is eligible to participate in the deferral program.
  2. The employer makes the decision on whether or not they will participate in the deferral program.
  3. The deferral period for the 6.2% social security tax begins 9/1/2020 and ends 12/31/2020.
  4. The repayment period begins on 1/1/2021 and ends 4/30/2021. The employer is required to withhold the deferred amount ratably over that period. If repayment isn’t made by 4/30/2021, then penalties, interest, and additional taxes will begin to accrue 5/1/2021.
  5. There is an exception to withholding the amount ratably during the repayment period, the IRS states that “If necessary the employer may make arrangements to otherwise collect the total applicable taxes from the employee”. The IRS doesn’t expand on this, but presumably, could this mean that if an employee is terminated or leaves before 4/30/21 that the employer can withhold the entire deferral amount from the employee’s final paycheck? Perhaps, but more information is needed on this.
  6. Eligible wages are wages paid to any employee whose bi-weekly pay doesn’t exceed $4,000 (pay rates prior to 9/1/2020 are not considered – meaning if the employee was making more than $4,000 bi-weekly prior to 9/1/2020 it doesn’t preclude them from participating).
  7. Applicable wages are determined on a pay-period by pay period basis – so if an employee’s wages exceeds the $4,000 threshold the first bi-weekly pay period but then is under the threshold the second pay period then the second pay period’s social security tax is eligible for deferral.
  8. There is no indication whether individual employees can opt-out if the employer decides to participate in the deferral program.
You should check with your payroll service to determine how they plan to implement this deferral program, should you choose to participate.
As always we will keep you informed as more guidance is issued. Please call or email if you have any questions.

SBA Forgivable Loan – Paycheck Protection Program (PPP)

Posted on | by Frank Infurchia

There is much news about the Paycheck Protection Program (PPP), which is the forgivable loan backed by the SBA. Below is the relevant information you need in order to apply. All of this information is accessible by going to SBA Website – PPP section

PPP Borrower Guide Information sheet – issued by Dept of Treasury: Click Here

PPP Application: Click Here

Lenders will begin processing applications on April 3, according the SBA

It is our understanding and that of the AICPA that virtually all banks and credit unions will be able to process these applications, but you should check with your local banker and discuss this Lenders Guide to be sure.

We remain available to assist in any way we can. Please feel free to share this information.

 

Sincerely,

Francis S. Infurchia & Company, LLC

Business Tax Updates – CARES Act

Posted on | by Frank Infurchia

This commentary and analysis is provided by our partners at Thomson Reuters as of 3/27/20

Employee retention credit for employers

New law. This provision provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 crisis. (Act Sec. 2301(a))

Eligible employers. The credit is available to employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings. The credit is also provided to employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis. (Act Sec. 2301(c)(2))

The credit is not available to employers receiving Small Business Interruption Loans under Sec. 1102 of the Act. (Act Sec. 2301(j))

Wages paid to which employees? For employers who had an average number of full-time employees in 2019 of 100 or fewer, all employee wages are eligible, regardless of whether the employee is furloughed. For employers who had a larger average number of full-time employees in 2019, only the wages of employees who are furloughed or face reduced hours as a result of their employers’ closure or reduced gross receipts are eligible for the credit. (Act Sec. 2301(c)(3)(A))

No credit is available with respect to an employee for any period for which the employer is allowed a Work Opportunity Credit (Code Sec. 21) with respect to the employee. (Act Sec. 2301(h)(1))

Wages. The term “wages” includes health benefits and is capped at the first $10,000 in wages paid by the employer to an eligible employee. ((Act Sec. 2301(c)(3)(C); Act Sec. 2301(b)(1))

Wages do not include amounts taken into account for purposes of the payroll credits, for required paid sick leave or required paid family leave in the Families First Coronavirus Act (part of P.L. 116-127) (Act Sec. 2301(c)(3)(A)), nor for wages taken into account for the Code Sec. 45S employer credit for paid family and medical leave. (Act Sec. 2301(h)(2))

Other. IRS is granted authority to advance payments to eligible employers (Act Sec. 2301(l)(1)) and to waive applicable penalties for employers who do not deposit applicable payroll taxes in anticipation of receiving the credit. (Act Sec. 2301(k))

Effective date. The credit applies to wages paid after March 12, 2020 and before Jan. 1, 2021. (Act Sec. 2301(m))

 

Delay of payment of employer payroll taxes

Background. Employers are required to withhold social security taxes (Code Sec. 3111(a)) and tax under the Railroad Retirement Tax Act (RRTA) from wages paid to employees. (Code Sec. 3211(a) and Code Sec. 3221(a)). Self-employed individuals are subject to self-employment (SECA) tax. (Code Sec. 1401(a))

New law. The CARES Act allows taxpayers to defer paying the employer portion of certain payroll taxes through the end of 2020. Thus, notwithstanding any other provision of law, the payment for “applicable employment taxes” for the “payroll tax deferral period” won’t be due before the “applicable date.” (Act Sec. 2302(a)(1))

For purposes of the above rules, the term ”applicable employment taxes” means: (A) the taxes imposed under Code Sec. 3111(a) (social security taxes), (B) so much of the taxes imposed under Code Sec. 3211(a) as are attributable to the rate in effect under Code Sec. 3111(a), and (C) so much of the taxes imposed under Code Sec. 3221(a) as are attributable to the rate in effect under Code Sec. 3111(a) (RRTA taxes). (Act Sec. 2302(d)(1))

The term ”payroll tax deferral period” means the period beginning on the date of enactment of the Act and ending before Jan. 1, 2021. (Act Sec. 2302(d)(2))

The term ”applicable date” means: (A) Dec. 31, 2021, with respect to 50% of the amounts to which Act Sec. 2302(a) (employment taxes) and Act Sec. 2302(b) (self-employment tax), as the case may be, apply, and (B) Dec. 31, 2022, with respect to the remaining 50% of those amounts. (Act Sec. 2302(d)(3))

Notwithstanding Code Sec. 6302 (which authorizes IRS to set deadlines for tax deposits), an employer will be treated as having timely made all deposits of applicable employment taxes required (without regard to Act Sec. 2302) to be made during the payroll tax deferral period if all such deposits are made not later than the applicable date. (Act Sec. 2302(a)(2))

The above rules won’t apply to any taxpayer which has had indebtedness forgiven under Act Sec. 1106 with respect to a loan under Small Business Act Sec. 7(a)(36), as added by Act Sec. 1102, or indebtedness forgiven under Act Sec. 1109. (Act Sec. 2302(a)(3))

Notwithstanding any other provision of law, the payment for 50% of the taxes imposed under Code Sec. 1401(a) (self-employment taxes) for the payroll tax deferral period won’t be due before the applicable date. (Act Sec. 2302(b)(1))

For purposes of applying Code Sec. 6654 (requiring individuals to make estimated tax payments) to any tax year which includes any part of the payroll tax deferral period, 50% of the self-employment taxes imposed under Code Sec. 1401(a) for the payroll tax deferral period won’t be treated as taxes to which Code Sec. 6654 applies. (Act Sec. 2302(b)(2))

For purposes of Code Sec. 3504 (imposing third party liability for withholding tax), in the case of any person designated under that section (and any regulations or other guidance issued by IRS with respect to that section) to perform acts otherwise required to be performed by an employer, if an employer directs that person to defer payment of any applicable employment taxes during the payroll tax deferral period under Act Sec. 2302, the employer will be solely liable for the payment of the applicable employment taxes before the applicable date for any wages paid by that that person on behalf of that employer during that period. (Act Sec. 2302(c)(1))

For purposes of Code Sec. 3511 (which requires certified professional employer organizations (CPEOs) to be treated as employers for employment tax withholding purposes), in the case of a CPEO (as defined in Code Sec. 7705(a)) that has entered into a service contract described in Code Sec. 7705(e)(2) with a customer, if that customer directs that CPEO to defer payment of any applicable employment taxes during the payroll tax deferral period under this section, the customer will, notwithstanding Code Sec. 3511(a) and Code Sec. 3511(c), be solely liable for the payment of those applicable employment taxes before the applicable date for any wages paid by the CPEO to any worksite employee performing services for that customer during that period. (Act Sec. 2302(c)(2))

Effective date . The provisions of Act Sec. 2302 apply to the period beginning on the date of enactment of the Act. (Act Sec. 2302(d)(2))

 

Temporary repeal of taxable income limitation for net operating losses (NOLs)

Old law. Under Code Sec. 172(a) the amount of the NOL deduction is equal to the lesser of (1) the aggregate of the NOL carryovers to such year and NOL carrybacks to such year, or (2) 80% of taxable income computed without regard to the deduction allowable in this section. Thus, NOLs are currently subject to a taxable-income limitation and can’t fully offset income.

New law. The CARES Act temporarily removes the taxable income limitation to allow an NOL to fully offset income. (Code Sec. 172(a), as amended by Act Sec. 2303(a)(1))

Effective date. The amendments made by Act Sec. 2303(a) apply to tax years beginning after Dec. 31, 2017, and to tax years beginning on or before Dec. 31, 2017, to which NOLs arising in tax years beginning after Dec. 31, 2017 are carried. (Act Sec. 2303(d)(1))

 

Modification of rules relating to net operating loss (NOL) carrybacks

Old law. Code Sec. 172(b)(1) provides that, except for farming losses and losses of property and casualty insurance companies, an NOL for any tax year is carried forward to each tax year following the tax year of the loss but isn’t carried back to any tax year preceding the tax year of the loss.

New law. The CARES Act provides that NOLs arising in a tax year beginning after Dec. 31, 2018 and before Jan. 1, 2021 can be carried back to each of the five tax years preceding the tax year of such loss. (Code Sec. 172(b)(1) as amended by Act Sec. 2303(b)(1))

Effective date. The amendments made by Act Sec. 2303(b) apply to NOLs arising in tax years beginning after Dec. 31, 2017 and to tax years beginning before, on or after such date to which such NOLs are carried. (Act Sec. 2303(d)(2))

 

Modification of limitation on losses for noncorporate taxpayers

Old law. Code Sec. 461(l)(1) disallows the deduction of excess business losses by noncorporate taxpayers for tax years beginning after Dec. 31, 2017 and ending before Jan. 1, 2026. Generally, Code Sec. 461(l)(3)(A) provides that an “excess business loss” is the excess of the (1) taxpayer’s aggregate trade or business deductions for the tax year over (2) the sum of the taxpayer’s aggregate trade or business gross income or gain plus $250,000 (as adjusted for inflation).

New law. The CARES Act temporarily modifies the loss limitation for noncorporate taxpayers so they can deduct excess business losses arising in 2018, 2019, and 2020. (Code Sec. 461(l)(1), as amended by Act Sec. 2304(a))

Effective date. The amendments made by Act Sec. 2304(a) apply to tax years beginning after Dec. 31, 2017. (Code Sec. 461(l)(1), as amended by Act Sec. 2304(a))

 

Corporate minimum tax credit (MTC) is accelerated

Background. Corporations (for which the alternative minimum tax was repealed for tax years after 2017) may claim outstanding MTCs (subject to limits) for tax years before 2021, at which time any remaining MTC may be claimed as fully refundable. Thus, under Code Sec. 53(e), the MTC is refundable for any tax year beginning in 2018, 2019, 2020, or 2021, in an amount equal to 50% (100% for tax years beginning in 2021) of the excess MTC for the tax year, over the amount of the credit allowable for the year against regular tax liability. (Code Sec. 53(e))

New law. The CARES Act changes ”2018, 2019, 2020, or 2021” (above) to ”2018 or 2019,” and changes “(100% for tax years beginning in 2021)” to “(100% for tax years beginning in 2019)” (Code Sec. 53(e)(1), as amended by Act Sec. 2305(a), and Code Sec. 53(e)(2), as amended by Act Sec. 2305(a))

Checkmark Observation.  Thus, the CARES Act allows corporations to claim 100% of AMT credits in 2019.

The CARES Act also provides for an election to take the entire refundable credit amount in 2018. (Code Sec. 53(e)(5), as amended by Act Sec. 2305(b)(1))

Under the CARES Act, a claim for credit or refund where a corporation elects to take the entire refundable credit amount in 2018 must be treated as made under Code Sec. 6411, i.e., as a tentative carryback refund claim. (Act Sec. 2305(d)(1))

Taxpayers may file an application for a tentative refund of any amount for which a refund is due by reason of an election under Code Sec. 53(e)(5). The application, which must be filed before Dec. 31, 2020, must be in the manner and form IRS provides, must be verified in the same manner as an application for a tentative carryback adjustment, and must set forth: (a) the amount of the refundable credit claimed under Code Sec. 53(e) for the tax year, (b) the amount of the refundable credit claimed under Code Sec. 53(e) for any previously filed return for the tax year, and (c) the amount of the refund claimed. (Act Sec. 2305(d)(2)(A))

Within 90 days from the date the application is filed, IRS must: (i) review the application, (ii) determine the amount of the overpayment, and (iii) apply, credit, or refund the overpayment, in a manner similar to that provided in Code Sec. 6411(b) (allowance of tentative carryback adjustments). (Act Sec. 2305(d)(2)(B))

For an application made by a corporation filing a consolidated return, the rules of Code Sec. 6411(c) apply to an adjustment, to the extent IRS provides. (Act Sec. 2305(d)(2)(C))

Effective date. The amendments made by Act Sec. 2305 apply to tax years beginning after December 31, 2017. (Act Sec. 2305(c))

 

Deductibility of interest expense temporarily increased

Background. The Tax Cuts and Jobs Act of 2017 (P.L. 115-97, the “TCJA”) generally limited the amount of business interest allowed as a deduction to 30% of adjusted taxable income. (Code Sec. 163(j)(10))

New law. The CARES Act temporarily and retroactively increases the limitation on the deductibility of interest expense under Code Sec. 163(j)(1) from 30% to 50% for tax years beginning in 2019 and 2020. (Code Sec. 163(j)(10)(A)(i) as amended by Act Sec. 2306(a))

Special rules for partnerships. Under a special rule for partnerships, the increase in the limitation will not apply to partners in partnerships for 2019 (it applies only in 2020). (Code Sec. 163(j)(10)(A)(ii)(I) as amended by Act Sec. 2306(a)) For partners that don’t elect out, any excess business interest of the partnership for any tax year beginning in 2019 that is allocated to the partner will be treated as follows (Code Sec. 163(j)(10)(A)(ii)(II) as amended by Act Sec. 2306(a)):

…50% of the excess business interest will be treated as paid or accrued by the partner in the partner’s first tax year beginning in 2020 and isn’t subject to any limits in 2020. (Code Sec. 163(j)(10)(A)(ii)(II)(aa) as amended by Act Sec. 2306(a))

…50% of the excess business interest will be subject to the limitations of paragraph 163(j)(4)(B)(ii) (relating to the usual treatment of excess business interest allocated to partners) in the same manner as any other excess business interest that is so allocated. (Code Sec. 163(j)(10)(A)(ii)(II)(bb) as amended by Act Sec. 2306(a)) In other words, it will remain suspended until the partnership allocates excess taxable income or excess interest income to the partner (or the partnership is no longer subject to Code Sec. 163(j)).

Election out of the increased limitation. Taxpayers may elect out of the increase, for any tax year, in the time and manner IRS prescribes. Once made, the election can be revoked only with IRS consent. For partnerships, the election must be made by the partnership and can be made only for tax years beginning in 2020. (Code Sec. 163(j)(10)(A)(iii) as amended by Act Sec. 2306(a))

Election to calculate 2020 interest limitation using 2019 adjusted taxable income. In addition, taxpayers can elect to calculate the interest limitation for their tax year beginning in 2020 using the adjusted taxable income for their last tax year beginning in 2019 as the relevant base. For partnerships, this election must be made by the partnership. (Code Sec. 163(j)(10)(B)(i) as amended by Act Sec. 2306(a))

If an election is made to calculate the interest limitation using 2019 adjusted taxable income for a tax year that is a short tax year, the adjusted taxable income for the taxpayer’s last tax year beginning in 2019 which is substituted under the election will be equal to the amount which bears the same ratio to such adjusted taxable income as the number of months in the short taxable year bears to 12. (Code Sec. 163(j)(10)(B)(ii) as amended by Act Sec. 2306(a))

Effective date. The amendments made by Act Sec. 2306 apply to tax years beginning after Dec. 31, 2018. (Act Sec. 2306(b))

 

Bonus depreciation technical correction for qualified improvement property

Background. The Tax Cuts and Jobs Act of 2017 (P.L. 115-97, the “TCJA”) amended Code Sec. 168 to allow 100% additional first-year depreciation deductions (“100% Bonus Depreciation”) for certain qualified property. The TCJA eliminated pre-existing definitions for (1) qualified leasehold improvement property, (2) qualified restaurant property, and (3) qualified retail improvement property. It replaced those definitions with one category called qualified improvement property (“QI Property”). A general 15-year recovery period was intended to have been provided for QI Property. However, that specific recovery period failed to be reflected in the statutory text of the TCJA. Thus, under the TCJA, QI Property falls into the 39-year recovery period for nonresidential rental property. That makes the QI Property category ineligible for 100% Bonus Depreciation.

New law. The CARES Act provides a technical correction to the TCJA, and specifically designates QI Property as 15-year property for depreciation purposes. (Code Sec. 168(e)(3)(E)(vii), as amended by Act Sec. 2307(a)(1)(A)) This makes QI Property a category eligible for 100% Bonus Depreciation. QI property also is specifically assigned a 20-year class life for the Alternative Depreciation System. (Code Sec. 168(g)(3)(B), as amended by Act Sec. 2307(a)(3)(B))

Effective date. The amendments made by Act Sec. 2307 are effective for property placed in service after Dec. 31, 2017. (Act Sec. 2307(b))