The IRS recently released FAQs on coronavirus-related relief for retirement plans and IRAs (found here: https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers). Specifically, this page provides insight as to the position the IRS may take with respect to the special distribution options, rollover rules for retirement plans, and the permissible loans from certain retirement plans found in the CARES Act.

The FAQs provide details as to what constitutes a coronavirus distribution, and what the requirements are in order to be a qualified individual. The FAQs also detail the loan relief under the CARES Act. Some key questions answered in the FAQs are as follows:

• Coronavirus distributions will generally be included in income ratably over three years, beginning with the year 2020, assuming that 2020 is the year that the distribution is received. A taxpayer may elect to include the entire distribution in gross income for the year of the distribution.
• Coronavirus distributions can be repaid within three years after the date that the distribution was received. If the distribution is repaid, the taxpayer will have the option to file an amended federal income tax return to claim a refund of the tax attributable to the amount of the distribution that was previously included in income. If the three-year repayment period is not yet closed, no income would need to be included for years remaining after the distribution has been repaid.
• Employers have the option to adopt the distribution and loan rules under the CARES Act. An employer can decide to what extent they decide to amend the plan provisions to allow for the coronavirus related distributions. Even if an employer does not treat the distribution as coronavirus-related, a qualified individual is able to treat a distribution that meets the requirements of a coronavirus-related distribution as coronavirus-related on the individual’s federal income tax return.
• Retirement plan administrators may rely on an individual’s self-certification that they meet the requirements to be classified as a qualified individual unless the plan administrator knows the individual does not meet the requirements.
• Qualified individuals can designate eligible distributions from retirement plans on Form 1040 when filing their income tax returns. Form 8915-E (which is expected to be available before the end of 2020) will be used to report the amount of the coronavirus distribution included in income for the year as well as the repayment of these distributions.
• Retirement Plan Administrators will be required to report the coronavirus-related retirement plan distributions on Form 1099-R even if the repayment takes place in the same year. The IRS is expected to provide more information on how to report these distributions at a later time.

If you have any questions about whether any of the provisions in the CARES Act apply to you, or any questions regarding the recently released FAQs, please contact your HBK Tax advisor.

On May 6th, the IRS updated its FAQs related to the Economic Impact Payments, found at the Economic Impact Payment Information Center, to clarify that deceased individuals do not qualify for the payments. The FAQs also indicate that individuals who are incarcerated do not qualify for the payment, a limitation that is not found in the text of the CARES Act. The IRS further clarified that individuals who are nonresident aliens in 2020 do not qualify, even if they are resident aliens during 2019. It should be noted that FAQs that are not officially published and are only available on the IRS website, are not a legal authority and can be changed at any time. Many times these FAQs are not reviewed and are not the official position of the IRS. As such, this information should be used as a guide only to provide insight into the position that the IRS may decide to take, and should generally not be officially relied on by taxpayers. With that said, the IRS is encouraging individuals who received payments that should not have been made to return the payments. How the payment is to be returned depends on how the payment was received: Received by Check and Not Cashed: If the check has not been cashed yet, individuals should write “VOID” in the endorsement section of the check and then mail it back to the IRS, along with a note indicating the reason for returning the check. The mailing address can be found on the FAQ page, linked above. Received by Direct Deposit or Check Cashed: If the payment was received directly into an individual’s bank account, or the check received was cashed, then the IRS is requesting individuals to write a personal check or money order made payable to “U.S. Treasury” and mail it to the IRS. Individuals should write “2020EIP” and the recipient’s social security number or tax identification number on the face of the check and should include a note indicating the reason for the payment. Again, the mailing address can be found on the FAQ page, linked above. The FAQs do not address how the IRS plans to enforce repayment of the Economic Impact Payments, or how they will recover payments if the payments have already been spent. Please contact your HBK advisor if you would like to discuss what this guidance means to your specific situation. As always, we will continue to keep you informed on any new developments

Late yesterday the IRS issued Notice 2020-32 clarifying that no deduction is allowed for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan pursuant to section 1106(b) of the CARES Act. Sen. Chuck Grassley, the chairman of the Finance Committee, said Thursday that he was disappointed in the IRS decision. “The intent was to maximize small businesses’ ability to maintain liquidity, retain their employees and recover from this health crisis as quickly as possible…this Notice is contrary to that intent.” This is evident in the law’s provision to exclude the amount forgiven from taxable income. For example, if the amounts were taxable, and the expenses deductible, taxpayers would be in the same place. Said another way, why exclude the forgiven amount from income at all just to deny the deductions and put taxpayers in the income position? Section 1106(i) of the CARES Act addresses certain Federal income tax consequences resulting from covered loan forgiveness. Specifically, that subsection provides that, for purposes of the Code, any amount that would be includible in gross income of the recipient by reason of forgiveness described in section 1106(b) “shall be excluded from gross income.” Section 1106(i) of the CARES Act operates to exclude from the gross income of a recipient any category of income that may arise from covered loan forgiveness. Neither section 1106(i) of the CARES Act nor any other provision of the CARES Act addresses whether deductions otherwise allowable under the Code for payments of eligible section 1106 expenses by a recipient of a covered loan are allowed if the covered loan is subsequently forgiven under section 1106(b) of the CARES Act as a result of the payment of those expenses. In its decision the IRS Notice points to section 265(a)(1) of the Internal Revenue Code which provides that no deduction is allowed to a taxpayer for any amount otherwise allowable as a deduction if it is allocable to tax exempt income. Loan forgiveness results in tax exempt income, therefore §265(a)(1) disallows the deduction of expenses generating forgiveness. Congress could pass a law allowing the deductions and overriding the IRS ruling, but for now, the expenses will not be deductible. If you have any questions regarding the Notice 2020-32, please consult your HBK tax advisor. We are standing by and ready to help.

By now you most likely have heard about the Economic Impact Payments that were introduced with the CARES Act. It is an advanced payment of a 2020 tax credit of $1,200 for single filers or $2,400 for couples filing joint returns. Eligibility depends on AGI limitations which are applied by looking at a taxpayer’s 2018 or 2019 tax return. Please see our resource guide of the CARES Act and the Economic Impact Payments for more in depth information.

Non-Filing Tool
The IRS has released a tool on its website to help individuals who are not required to file an income tax return get their Economic Impact Payments. More information about this tool and who should use it can be found in our article IRS Launches a New Tool to Help Non-Filers Register for Economic Impact Payments.

Check Your Status
The IRS has also released a tool that can help individuals track their Economic Impact Payment status and allows them to enter additional information, if required. The tool can be found in the coronavirus section of the IRS website.

Economic Payment Issues
The Economic Impact Payments were released mid-April; however, many individuals have been reporting issues and have not yet received their payments. Some of the more common issues that individuals have been having regarding their Economic Impact Payments are as follows:

• Information has changed – If some information related to your tax return has changed since you last filed a tax return, such as moving or having new dependents, you may not have received your payment. A simple fix for this is to file your 2019 tax return if you have not done so already with your new information.
• Direct deposit was not set up with the IRS – Some taxpayers may not have had their bank account information included on their tax return and won’t be able to receive their payments via direct deposit. The “Get My Payment” tool can be used to enter your bank account information so you can have your payment sent via direct deposit. The IRS will also be sending out physical checks to anyone else who does not have their bank account information set up in the upcoming months.
• “Payment status not available” on the Get My Payment tool – Many users have reported seeing a message that reads “payment status not available” when checking their status using the Get My Payment tool. This can be a result of a few different reasons, the most common being that you don’t qualify for the payment or that the IRS is processing your information. The links provided above can help determine eligibility for the Economic Impact Payment and track your status. If you have recently filed your 2018 or 2019 tax return, the IRS may still be processing the return and won’t issue your payment until that process is complete. The Get My Payment tool gets updated overnight so there is no need to check your payment status more than once a day.
• Locked out of Get My Payment – As a security precaution, if the IRS is unable to verify your identity, you may be locked out of the system. These lockouts will generally just last one day, so you can try again the following day.
• Didn’t receive additional payments for children – There have been many reports of taxpayers not receiving the additional $500 payment for qualifying children. The IRS has been made aware of this issue and has stated that they are looking into it. This has not affected all taxpayers as others have reported receiving the additional $500 per child.
• Bank account is overdrawn – Banks do have the legal authority to withhold funds from accounts that have been overdrawn and present a negative balance. The CARES Act does not have a provision that makes an exception for the Economic Impact Payments. Some banks have decided to not seize any amounts related to the Economic Impact Payments.
• Married to a non-resident and file a joint tax return – For couples that file a joint tax return, both individuals must have a valid SSN to receive their payment, unless either partner is a member of the U.S. military during the tax year. It is still expected that the couple will qualify for the full credit when they file their 2020 tax return however, they will not receive an advanced payment.
• Resident of Puerto Rico – Due to special rules that are applicable to U.S. territories, direct deposits will not be released to residents of Puerto Rico until the U.S. Treasury has approved Puerto Rico’s distribution plan.

The IRS has a frequently asked questions page. The information on this page is being updated regularly, so the IRS is encouraging taxpayers to check back often. If you have any questions regarding the Economic Impact Payment, please consult your HBK tax advisor, we are standing by and ready to help.

What does the federal government’s COVID-19 Response legislation mean to retirement plans? The recently passed Coronavirus Aid, Relief, and Economic Security Act or the CARES Act, contains relief and assistance for qualified retirement plans and their participants. These retirement plan enhancements include dramatically expanded hardship distribution provisions, significantly larger participant loans and numerous other features that plan sponsors should be aware of. HBKS Retirement Plan Group’s, National Practice Leader, Dean Piccirillo, CFP®, CRPS®, AIFA®, Retirement Plan Manager, Rod Diaz, CRPS®, AIFA® and Bob McNulty, CPC. Mr. McNulty is the President of M2B Retirement Plan Consulting, LLC, a national third-party retirement plan administrator explain in this webinar. Download the presentation materials here.

The resource guide below provides details for some of the most important provisions of the Coronavirus Aid, Relief, Economic Security (CARES) Act.

CARES Act Resource Guide

Early Wednesday morning, Senate Majority Leader Mitch McConnell announced that Senate Democrats and Republicans reached an agreement on the $2 trillion relief bill known as the Coronavirus Aid, Relief, and Economic Security (CARES) Act (“Act”). Late last night, the U.S. Senate approved the historic rescue plan which calls for $250 billion for direct payments to individuals and families, $350 billion in small business loans, $250 billion in unemployment insurance benefits and $500 billion in loans to distressed businesses. The House is scheduled to vote on the legislation Friday. President Trump urged Congress to act “without delay” and said he would sign the legislation immediately. The CARES Act includes the following provisions: Direct Payments to Individuals – If passed, the Act would include payments to lower- and middle-income individuals of $1,200 for each adult (up to $2,400 for a married couple) and $500 for each child. Individuals who earn $75,000 or less and married couples earning $150,000 or less in adjusted gross income are entitled to the full payment. The payment would be reduced if income exceeds these amounts, phasing out entirely at $99,000 for singles, and $198,000 for couples without children. The income thresholds would be based on 2019 income tax returns, or 2018 if a 2019 return has not yet been filed. Expansion of Unemployment Insurance – The Act would also extend coverage for unemployment insurance to four months, and increase the eligibility and amount provided by an extra $600 per week. Limits and Oversight – There would be additional oversight on how companies use government loan funds, protecting workers and preventing companies from providing executive bonuses. Paycheck Protection Program – The Act would increase the government guarantee of loans made for the Payment Protection Program under section 7(a) of the Small Business Act to 100 percent through December 31, 2020. It would increase the maximum 7(a) loan amount to $10 million through December 31, 2020, and provide a formula by which the loan amount is tied to payroll costs incurred by the business to determine the size of the loan. The Act specifies allowable uses of the loan include payroll support, such as employee salaries, paid sick or medical leave, insurance premiums, and mortgage, rent, and utility payments. Any loan amounts not forgiven at the end of one year (as discussed below) would be carried forward as an ongoing loan with a maximum term of 10 years, and a maximum interest rate of four percent (4%). The 100 percent loan guarantee would remain intact. Loan Forgiveness – The Act would establish that the borrower will be eligible for loan forgiveness equal to the amount spent by the borrower during an 8-week period after the origination date of the loan on payroll costs, interest payment on any mortgage incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020. The amount of eligible loan forgiveness would be reduced proportionally by any reduction in employees retained compared to the prior-year and reduced by the reduction in pay of any employee beyond 25 percent of their prior-year compensation. To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, the Act provides that borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period. Employee Retention Credit – This provision would provide a refundable payroll tax credit for 50 percent of wages paid by employers to employees during the COVID-19 crisis. The credit would be available to employers whose (1) operations were fully or partially suspended, due to a COVID-19 related shut-down order, or (2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year. The credit would be based on qualified wages paid to the employee. For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19-related circumstances described above. For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order. The credit would be provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee. The credit would be provided for wages paid or incurred from March 13, 2020 through December 31, 2020. Delay of Payment of Employer Payroll Taxes – This provision would allow employers and self-employed individuals to defer payment of the employer‘s share of the Social Security tax than they would otherwise be responsible for paying to the federal government with respect to their employees. Employers are generally responsible for paying a 6.2 percent Social Security tax on employee wages. The deferred employment tax would be paid over the following two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022. Additional Business Tax Provisions – The following would be changes to the tax code aimed to assist businesses with cash flow:

• Increase to the net operating loss (NOL) carryback period to five years for NOLs arising in 2018, 2019, or 2020
• Modification to the limitation on losses for taxpayers other than corporations
• Make corporate alternative minimum tax credits immediately refundable
• Increase the limitation on business interest expense from 30 percent to 50 percent
• Technical correction to allow for the immediate write off of qualified improvement property
• Temporary exception from the alcohol excise tax for alcohol used in hand sanitizer
• Increase to the corporate income limitation on charitable contributions to 25 percent

  Additional Individual Tax Provisions – the following would be changes to the tax code aimed to assist individual taxpayers and families:

• Waiver of the 10 percent early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts, income would be subject to tax over three years, and the taxpayer may recontribute the funds to an eligible retirement plan within three years without regard to contribution limitations
• Waiver of the required minimum distributions rules for 2020
• Allowance of a $300 above-the-line deduction for charitable contributions
• Elimination of the income limitation for charitable contributions

  Since this is a developing story, we will continue to provide additional information as it becomes available. If this Act is signed into law, we will be providing a more comprehensive overview of these provisions and what they may mean for our clients. If you have any questions, or would like to discuss any of these provisions, please contact your HBK advisor.