A summary of the Consolidated Appropriations Act (CAA

A Summary of the Consolidated Appropriations Act

Although tax professionals are unfortunately starting to get used to the trend of eleventh-hour tax legislation, Congress really outdid itself this past year, passing the 5,500-page Consolidated Appropriations

By Christopher Act 2021 (the Act) shortly after

E. Rosborough, midnight on Dec. 22, 2020. By

CPA, JD now, most of us are familiar with the advance tax credits for individuals, the expansion of the Payroll Protection Program (PPP) and the provision allowing for full deductibility of expenses paid with forgiven PPP funds, but this article will highlight/summarize some of the other aspects of the Act that many will find beneficial when filing 2020 and 2021 tax returns.

Charitable contributions

• The Act extends through 2021 the $300 charitable contribution deduction for qualified contributions made by nonitemizers. • The Act extends the enhanced deduction limitations in place for 2020 for qualified contributions made in calendar year 2021 by individuals who itemize and corporations. Individuals may deduct up to 100% of their 2021 AGI and corporations up to 25% of their 2021 taxable income.

PPP relief and beyond

• PPP debt forgiveness was not the only provision granted favorable tax status. The SBA 7(a) debt relief program and emergency EIDL grants were also granted tax relief. • The Act also provides $15 billion for grants for shuttered venue operators and exempts the grant from gross income while allowing deductions for expenses paid with the grant. • The Act expanded PPP eligibility to FCC license holders and newspapers with more than one physical location, allowing greater access to PPP for these borrowers. • Small IRC Section 501(c)(6) organizations and destination market organizations that do limited lobbying are now also eligible for PPP loans. • Professional sports leagues and organizations with the purpose of promotion or participating in a political campaign were specifically made ineligible for PPP loans. • ASC 740 impact for fiscal-year companies: o Although an in-depth analysis of this issue is outside the scope of this article, fiscal-year companies with tax years that ended before Dec. 27, 2020, that record tax provisions should record a temporary item for PPP expenses when there is a timing difference in accordance with the tax law in effect at that time. They would then reflect the tax benefit of the deduction of the expenses in the provision for the period that includes Dec. 27, 2020.

• Finally, the Wisconsin Department of Revenue has clarified that because Wisconsin has not adopted the Act, PPP-covered expenses are not currently deductible for Wisconsin taxable income. (It should be noted that at the time of writing, the Wisconsin legislature was considering a bill that would rectify this divergence from federal law, and this bill may have passed by the time of publication.)

Employee retention credit

Outside of the PPP loan changes, the modification and extension of the CARES Act Employee Retention Tax Credit has the potential for the greatest impact. The highlights of these changes are as follows: • Wages through June 30, 2021, are now eligible for the credit. • The credit is now open to any employer, regardless of whether or not a PPP loan was taken. However, the same wages used in the PPP loan application cannot be used again here. (Hopefully, additional guidance on this issue has been provided by the IRS by the time this article is published.) • The Act reduced the 2020 eligibility requirement of a 50% quarter-over-quarter reduction in gross receipts to 20% for 2021. In addition, the new rule allows a company to elect to use the gross receipts from the immediately preceding quarter rather than the current quarter. • The Act raised the 2020 credit limitation of 50% of employee wages to 70% for 2021, meaning that the maximum credit will be $7,000 per employee per quarter. • For taxpayers who failed to take the credit on their 2020 Form 940s, they are now eligible to file amended Form 941-Xs and claim the refundable credit.

• The definition of “small” employer was raised from no more than 100 employees to no more than 500. The advantage of this is that only “small” employers are allowed to use all qualified wages paid to employees rather than just compensation paid to employees for the time they were not working.

IRC Section 163(j) and electing real property trades or businesses

• The Act retroactively amends the TCJA and requires an electing real-property trade or business to use a 30-year

ADS recovery period for residential rental property placed in service before Jan. 1, 2018. • The IRS will need to provide taxpayers with procedures to apply the 30-year ADS recovery period retroactively.

In the past, the IRS has allowed for amended returns, administrative adjustment requests (for partnerships and

LLCs) or changes in accounting method.

Other credits and incentives

The Act extended or modified a number of credits and incentives. A sampling of these include the following: • The applicable period for the FFCRA family and sick leave credit has been extended from Dec. 31, 2020, to

Mar. 31, 2021. • The Act extended the work opportunity tax credit for five more years and is now applicable to wages paid or incurred to a qualified individual who begins work through Dec. 31, 2025. • Although the increased expensing under Section 179 and nonrecognition of gain on rollover of Empowerment

Zone investments were terminated for tax years

beginning after 2020, tax-exempt enterprise zone facility bonds and the empowerment zone employment credit were retained through 2025. • The Section 45S paid family and medical leave credit that was enacted with the TCJA has been extended for five additional years to apply to paid leave wages paid through

Dec. 31, 2025. • The Act made the energy-efficient building deduction under Section 179D permanent and indexed it to inflation for tax years beginning after 2020. • The Act extends the credit allowed under Section 45 for one year for electricity produced from certain renewable resources. • The Section 30C credit for qualifying alternative fuel vehicle refueling property is extended for property placed in service by Dec. 31, 2021. • The energy-efficient home credit under Section 45L has been extended for one year and is applicable to homes acquired through Dec. 31, 2021. • The Section 25D credits for residential energy-efficient property is expanded and extended for property placed in service through Dec. 31, 2023. • The excise tax credits for alternative fuel used or sold for use as fuel in a motor vehicle and for alternative fuel mixtures produced are extended for one year, through

Dec. 31, 2021.

Excise tax breaks for craft brewers, wineries and distillers

Any article discussing the Act for an audience of Wisconsin CPAs would be remiss if it did not highlight the permanent reduction in excise taxes first introduced in the TCJA. In addition, under the UNICAP rules of Section 263A, the Act makes permanent the exclusion of aging periods for beer, wine and distilled spirits from the production period for purposes of interest capitalization rules. Although it is impossible to do complete justice to a 5,500page bill in a 1,200-word article, most taxpayers will find many provisions of the 2020 Consolidated Appropriations Act very beneficial as they try to manage cash flow and navigate their way out of the recession. While the looming national deficit has many concerned about the direction that the next set of tax legislation might take, let’s all hope that these bills start passing earlier in the year to allow more time for feedback from tax professionals and planning once the bills are signed into law.

Christopher E. Rosborough, CPA, JD, is a senior tax director with RSM US LLP in Madison. Contact him at chris.rosborough@rsmus.com. Although it is impossible to do complete justice to a 5,500page bill in a 1,200-word article, most taxpayers will find many provisions of the 2020 Consolidated Appropriations Act very beneficial as they try to manage cash flow and navigate their way out of the recession.

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