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Debt Relief: Breaking Down the Tax Aspects of Covid-19's Economic Impact - Part II
By on May 29, 2020
As discussed in Part I of this series, the cancellation of indebtedness, whether in whole or in part, generally results in COD Income to a taxpayer which must be included in gross income. Section 108 of the Internal Revenue Code (the "Code"), though, provides a handful of exceptions to this general rule of income inclusion. However, due to Covid-19, Congress has expanded exceptions to the general COD Income rule beyond those in section 108. Furthermore, it is possible, based on measures passed during prior economic crises, that Congress will pass additional exceptions to the general COD Income rule and that situations will arise in which COD Income exceptions may be expanded beyond their typical scope.
By on May 27, 2020
In a case with potentially broad implications, the Third Court of Appeals recently agreed with the Texas Comptroller that revenues received by a taxpayer from subscription-based satellite-radio programming could be sourced to the location of the subscribers for Texas franchise tax purposes rather than to where the programming actually occurred.
Update on IRS Voluntary Disclosures
By on May 26, 2020
In a previous blog post, we discussed how and when to make a voluntary disclosure to the IRS using the revised voluntary disclosure guidelines announced by the IRS in November 2018. In April 2020, the IRS quietly updated Form 14457, Voluntary Disclosure Practice Preclearance Request and Application and its instructions. The changes to the form and instructions answer some of the outstanding questions but also raise new questions. For example, while the instructions clearly state that a disclosure will not guarantee immunity from prosecution, they also state multiple times that the practice provides a way to "avoid potential criminal prosecution."
By on May 20, 2020
In a recent decision involving the apportionment factor for Texas franchise tax purposes, the Texas Supreme Court held that the sale of certain military aircraft to the U.S. Government for ultimate delivery to foreign buyers could not be sourced to Texas, even though legal title and possession transferred in Texas, where the U.S. Government's involvement was statutorily required under federal law. In so holding, the Court disclaimed deciding whether tangible personal property must be sold to a buyer located in Texas or simply delivered to a point in Texas before the sale can be sourced to Texas. See Lockheed Martin Corp. v. Hegar, 2020 WL 2089741 (Tex. 2020). As discussed below, the decision is potentially significant both with respect to what it holds and also what it expressly disclaims to hold.
Debt Relief: Breaking Down the Tax Aspects of Covid-19's Economic Impact – Part I.
By on May 8, 2020
This is the first in a series of blogs which will address various tax aspects of loan modification, debt relief, restructuring, bankruptcy, and other topics that will likely be at the forefront of the legal landscape in the near future as a result of Covid-19. The posts in this series, while not exhaustive of all topics, will provide guidance on important practice points and raise several issues taxpayers and practitioners should be aware of. The first topic in the series, cancellation of indebtedness, illustrates the often-unexpected tax consequences accompanying relief from indebtedness.
EXPENSES PAID WITH FORGIVEN PAYMENT PROTECTION PLAN (PPP) LOAN PROCEEDS ARE NOT DEDUCTIBLE
By on May 1, 2020
The CARES ACT added the Paycheck Protection Plan program, which provides for a loan on favorable terms to qualifying small businesses to pay permitted expenses. These expenses are limited to payroll costs, mortgage interest, rent and utilities --all as defined in the statute and in SBA Guidance and FAQs.
