In response to the Coronavirus (COVID-19), the tax controversy group has put together a chart detailing tax controversy-related developments as they arise. Please refer to the following list of tax and tax controversy-related alerts and original articles for additional insight and guidance:

For additional resources, please visit the Ropes & Gray Coronavirus Resource Center, with up-to-date insights on best practices, legal considerations, and maintaining the health and safety of employees.

 

 

On May 12, 2020, the IRS released proposed regulations (REG-104591) affecting the deductibility of payments made to governments in settlement of alleged violations of law. The proposed regulations interpret Sections 162(f) and 6050X of the Internal Revenue Code of 1986 (the Code), as amended and introduced by the Tax Cuts and Jobs Act (TCJA), respectively. Sections 162(f) and 6050X changed the requirements for taxpayers to deduct amounts paid to the government pursuant to court-ordered judgments, settlement agreements, non-prosecution agreements, deferred prosecution agreements, and decisions by certain boards/commissions. At a high level, under Section 162(f), to be deductible, such payments must be restitution, remediation, or an amount paid to come into compliance with the laws, and must be identified as such in either the order or agreement (the “identification requirement”). In addition, taxpayers must maintain records substantiating the nature of their payments (the “establishment requirement”).

Click here to read the full alert.

***This legal development is still in progress. We will update this Alert as the Act makes its way through the legislative process.***

On Friday evening (May 15, 2020), the House passed, in a 208-199 vote (mostly along party lines, though 14 Democrats and one Independent voted “No” and one Republican voted “Yes,” with 23 Members abstaining), the Health and Economic Recovery Omnibus Emergency Solutions Act (HEROES Act). The HEROES Act is commonly referred to as Phase 4 of the federal government’s response to the COVID-19 outbreak.

  • Complete language for the HEROES Act can be found here.

The Senate Republicans have declared this act “dead on arrival” (DOA), and the White House has threatened to veto the act.

Nonetheless, further below are highlights of 17 notable tax-related provisions: (i) provisions that may be negotiated further (based in part on current Congressional comments in the press, contrary to the DOA comment above); as well as (ii) provisions that are simply notable because they would change tax law in the CARES Act that one may not expect. Continue Reading House Passes Health and Economic Recovery Omnibus Emergency Solutions Act (HEROES Act)

Tax controversy group co-founder and tax partner Kat Gregor, tax controversy counsel Elizabeth Smith, tax controversy associate Isabelle Farrar and associate Andrew Yarrows recently co-authored an article that appeared in Bloomberg Tax. The article outlines some practical considerations for taxpayers and their advisers in light of federal and state taxing authorities’ enforcement-related responses to COVID-19.

Please click here to read the full article.

In this Ropes & Gray podcast, litigation & enforcement partner Dan Ward, ERISA and benefits partner Josh Lichtenstein, and benefits principal David Kirchner discuss the recent $12 million settlement that has been agreed to in the Oracle 401(k) fee litigation, which includes some non-monetary requirements that could have a ripple effect on the routine cross-selling activities of third-party recordkeepers and other service providers to plans.

 

In a recent Bloomberg Law article, tax controversy associate Ellen Gilley comments on how foreign individuals stuck in the U.S. due to coronavirus-related travel restrictions are at risk of having their overseas bank accounts closed under FATCA reporting requirements to the IRS.

Please click here to read the full article.

The IRS launched a compliance campaign targeting issues arising out of the 2017 Tax Cuts and Jobs Act (“TCJA”) on May 1, 2020. The Large Business & International Division (“LB&I”) has released a number of issue-based compliance campaigns in recent years, including one targeting the so-called repatriation tax enacted under the TCJA in Internal Revenue Code Section 965. For previous coverage of the Section 965 compliance campaign, please click here.

Please click here to read the full article.

 

In a recent Law360 article, members of the international arbitration group, Kat Gregor (also tax partner and tax controversy group co-founder) Nick Berg and Dan Ward (litigation and enforcement partners) and Ellen Gilley, discuss how investment agreements can be powerful tools for companies with foreign investments to recover or prevent loss in response to public health crises and COVID-19 measures. The article guides companies on how to monitor governmental regulations for potential overreach as well as how to leverage their protections under investment agreements and international arbitration. Please click here to read the full article.

The group separately co-authored a Ropes & Gray client alert on a similar topic.

 

 

 

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), commonly referred to as Phase 3 of the federal government’s response to the coronavirus outbreak, was enacted on March 27, 2020. See Ropes & Gray Alerts on CARES Act, and certain key tax provisions of CARES Act. The CARES Act created opportunities for corporations to receive tax refunds that otherwise may not have been available, and the chart below describes certain procedures by which corporations can request such refunds (subject to the notes below).

NOTE: The IRS recommended on April 8 that taxpayers await further instruction from the IRS before utilizing traditional processes to claim refunds under the CARES Act. Additional information will be posted to irs.gov in the coming days.

Updated 4/13/20 — The IRS announced temporary procedures to accept FAX transmissions of tentative refund claims (Form 1139), but at this time the IRS has not identified any other corporate forms. https://www.irs.gov/newsroom/temporary-procedures-to-fax-certain-forms-1139-and-1045-due-to-covid-19

Updated 4/21/20 — The IRS issued guidance setting forth the methods to obtain refunds or credits for a taxpayer that placed “qualified improvement property” into service after Dec 31, 2017. (Rev. Proc. 2020-25)

How can a corporation get a refund for the 2018 or 2019 tax year (i.e., paid more tax than was due)? Not yet filed federal income tax return:

  • Quick refund (Form 4466)
    • Generally, available to taxpayers who have overpaid estimated taxes in the current year by at least 10% of the expected liability, and at least $500.
    • Generally, due after the end of the corporation’s tax year, and not later than the due date for filing the corporation’s tax return (not including extensions).
    • Notice 2020-23 extends the filing deadline to July 15, 2020 for a Form 4466 that would otherwise have to be filed on or after April 1, 2020, such as for calendar year 2019.
    • Must be filed before the corporation files its federal income tax return for the year.
    • IRS will make a determination within 45 days from the date application is filed.

Already filed federal income tax return:

  • Amended Return (Form 1120X)
    • Must be filed within three years after the date the corporation filed its original return, or within two years after the date the corporation paid the tax (if filing a claim for a refund), whichever is later.
    • Prior to the COVID-19 pandemic, it would typically take three to four months for the IRS to process Form 1120X.
    • The IRS has clarified in Rev. Proc. 2020-25 that an amended return is one of two available avenues for a taxpayer to retroactively obtain the benefit of immediate expensing of “qualified improvement property.”
  • Form 3115 (Change in accounting method)
    • Generally, under Rev. Proc. 2020-25, a taxpayer that placed “qualified improvement property” (QIP) into service during prior years may file for an accounting method change to obtain the benefit of a corresponding section 481(a) adjustment during the current taxable year, rather than in the applicable prior year(s).
    • A corporation may use this approach to capture the prior-year benefit of treating the QIP as 15-year depreciable property that qualifies for 100% bonus depreciation rather than 39-year property.
    • Under Rev. Proc. 2020-25, Form 3115 would be automatically accepted by the IRS.
How does a calendar-year corporation carry back NOLs under the CARES Act?
  • First, file a corporate tax return (Form 1120) for the year from which NOLs are to be carried back.
  • Second, file one of the following:
    • Tentative Refund (Form 1139)
      • Taxpayers can file Form 1139 no later than 18 months after the close of the taxable year in which an NOL arose for years beginning during the 2018 calendar year and ending on or before June 30, 2019. For years ending after June 30, 2019, the form is due 12 months after the close of the year.
      • IRS is required, to the extent practicable, to make a limited examination of the refund claim within 90 days of filing the application, but IRS has expressed doubt about whether 90 days will be practicable under current circumstances.
      • IRS retains the right to subsequently conduct a full audit, which means the taxpayer could have to return the refund.
      • IRS announced that it will accept FAXED applications of Form 1139 beginning on 4/17/20.
    • Amended Return (Form 1120X) (described above).
  • Special rules apply to certain non-calendar year taxpayers and taxpayers with foreign subsidiaries that have income inclusions resulting from the Section 965 toll charge imposed by the 2017 TCJA. These rules are not discussed here.
What if a corporation desires not to carry back NOLs?
  • Taxpayers can elect not to carry back NOLs.
    • Rev. Proc. 2020-24 describes the irrevocable election made by attaching a separate statement for each year being waived (2018, 2019, or both) to the taxpayer’s federal income tax return for the first taxable year ending after 3/27/2020.
    • The statement must say that the taxpayer is electing to apply Section 172(b)(3) under Rev. Proc. 2020-24 and the taxable year for which the statement applies.
  • A separate decision on whether to waive the carryback can be made for each year in which NOLs arise.