COVID-19 and Tax Update
There are many developments regarding tax and accounting issues concerning COVID-19 and the various government pronouncements. Any CPA practice must consider several issues when serving clients. See the AICPA document link attached to this article from the Center for Plain English Accounting, which discusses several issues involving CPA practices. I would also refer you to the “Tax Practice Quality Control Guide” issued by the AICPA February 20, 2020, for additional guidance.
These documents involve the “agents” fee for the preparation of a PPP loan application – who is considered an agent, and when? A great deal of care should be considered when providing advice or assisting clients, including things like conflict of interest, independence for future services and whether the lending institution has required you to attest to the application and its contents.
Also, we must consider the various tax implications. For example, the topic of payroll arises in a number of the relief programs provided in the legislation already enacted. A separate issue is the application of all the federal changes to Georgia. Remember, the Georgia conformity date is still January 1, 2019. Therefore, the enacted legislation from December of 2019 and all the legislation regarding COVID-19 is not effective in Georgia. The Georgia legislative session has been suspended, and they will have to return to deal with conformity and the Georgia budget.
Payroll has taken on a whole new meaning when we are considering the virus relief legislation. How employment taxes work and which ones are available for which benefits are an issue. You, the practitioner, will have to determine which program is best for each client that you advise. Please get a separate engagement letter for each project on which you advise. Payroll taxes can be a loan, you can obtain an advance, or the loan may be forgiven. Which is the best for the taxpayer? The legislation involved is FFCRA, CARES Act and CARES Act two.
CARES ACT 3.5 includes new rules regarding franchises and how to determine the 500 count for the number of employees. It also increases the amount of funding for PPP loans. There will be more legislation to come on this issue.
The economic incentive payments have begun to be issued, and many have received the payment based upon the 2018 Form 1040 filing or the 2019 filing if that had already been submitted. You are reminded that this will carry into the preparation of Form 1040 for 2020, particularly for self-employed individuals, but also for those taxpayers whose income will be lower for 2020 than for the year 2019.
Finally, one must consider that the loan forgiveness program is NOT automatic. The enacted statute says it MAY be forgiven; this implies a process yet to be determined as to how the financial institutions will apply this provision. Guidance will have to come from the SBA. A tax person should consider IRC Section 265, which says the expenses related to non-taxable income are not deductible. The costs of complying and filing the PPP application, and perhaps your fees when this section is applied is only one of many questions yet unanswered, so please stay tuned.
Arthur Auerbach, CPA, CGMA is an independent tax consultant located in Atlanta, Ga., specializing in tax consulting and estate and financial planning for individuals and closely held businesses. He is affiliated with the Asbury Law Firm as a consultant.