FEDERAL TAXATION

A “21-GUN SALUTE” TO 2021 TAX LEGISLATION

By Jim Brandenburg, CPA, MST

2021was another challenging year as businesses tried to move ahead after months of pandemic-related challenges. Congress, in an attempt to support struggling businesses, continued its COVID-19 relief efforts while also focusing on developing additional areas. The following three pieces of significant tax legislation were enacted in 2021: • The Consolidated Appropriations Act, 2021 (CAA), signed into law on Dec. 27, 2020 • The American Rescue Plan (ARP) Act, enacted on March 11, 2021 • The Infrastructure Investment and Jobs Act (Infrastructure), signed into law on Nov. 15, 2021 The following is our “21-gun salute” as we highlight 21 business tax provisions enacted in 2021:

CAA

1. Tax treatment of expenses on PPP loans — Following the passage of the Coronavirus Aid, Relief and Economic Security Act (CARES) in March 2020, the IRS announced that the Paycheck Protection Program (PPP) costs would not be deductible since the loans could be forgiven. While this led to much concern for borrowers, it was resolved with the passage of the CAA and its provisions that eliminated cause for concern. One of the key changes

enacted in the CAA was the ability for borrowers to deduct the costs incurred with a PPP loan.

2. Tax treatment of other government loans and

grants — CARES and the CAA introduced several other loans and grants besides the PPP loan, and the

CAA extended the deductibility of the costs for other government programs that are also forgiven, such as

Emergency EIDL grants and subsidies for certain pre-CARES SBA loans. 3. PPP loans extended — The PPP was introduced under

CARES in 2020, and then a “second draw” of PPP with a loan cap of $2 million was included in the CAA. 4. Both PPP and ERC allowed for borrowers — When

CARES was passed in March 2020, it stipulated that companies could not apply for a PPP loan and claim the Employee Retention Credit (ERC). However, the

CAA reversed course and now permits a company to claim both the PPP loan and the ERC in 2020 and 2021. Note: A borrower cannot claim both the loan and the credit on the same wages. Therefore, they must work through both the PPP and the ERC to maximize their loan forgiveness and the amount of the ERC. 5. ERC extended through June 30, 2021 — The ERC initially was set to last only through 2020. The CAA extended the credit through June 30, 2021.

6. Lower thresholds made ERC easier to qualify for in

2021 — To qualify for the ERC in 2020, an employer needed to show a greater than 50% reduction in gross receipts compared to 2019, but the CAA reduced this threshold to a more than 20% decline in gross receipts. 7. Definition of small employer for ERC changed —

A small employer is entitled to the ERC to pay employees whether they are working or not. For 2020, a small employer is measured as having 100 or fewer employees. However, the CAA increased the small-employer threshold to 500 or fewer employees.

This change made the ERC available to many more employers in 2021. 8. Enhanced ERC in 2021 — In 2020, the ERC amounted to up to $10,000 per employee each year and then applied a 50% factor, resulting in $5,000 in credits per employee every year. The CAA increased the ERC to $10,000 per employee per quarter and also upped the

ERC factor to 70%. Therefore, the revised ERC in 2021 amounted to $7,000 per employee each quarter. This was perceived as a major increase in the ERC benefits for 2021. 9. 100% restaurant meal deduction allowed — The CAA increased the 50% deduction for meals to 100% for meals purchased from a restaurant in 2021 and 2022. 10. Disaster relief — The CAA offered various expanded disaster relief measures. 11. Shuttered venue operators grants (SVOG) — The

CAA provided grants to operators of theaters and other performing arts venues. These SVOG grants also received tax treatment similar to that of PPP loans, in that grants are treated as tax-exempt income, and expenses incurred with the grants are deductible.

ARP

12. ERC extended through Dec. 31, 2021 — The ARP extended the ERC for the third and fourth quarters of 2021. 13. New ERC benefits in 2021 — The ARP expanded the ERC to offer new formats to startup businesses and significantly distressed businesses in the third and fourth quarters of 2021. 14. Restaurant revitalization grants (RRG) — Similar to the relief ushered in for shuttered venue operators, the ARP offered relief for restaurants impacted by the pandemic. 15. Support for unfunded multi-employer pension plans — Many multi-employer pension plans are unfunded, and the ARP made changes to shore up the finances of these plans.

16. Expanded reporting for third-party transactions — The ARP offered new reporting rules for third-party network transactions of over $600 (such as for home and vacation property rentals). 17. Medical and family leave benefits extended — Medical and family leave benefits for employees were extended by the ARP through Sept. 30, 2021.

Infrastructure

18. Cryptocurrency reporting requirements — Cryptocurrencies have grown tremendously in recent years, but the reporting rules for them have lagged behind. The recently enacted Infrastructure bill introduced new reporting requirements for cryptocurrency and penalties for noncompliance, opening up a new revenue stream to help fund infrastructure projects.

19. Cryptocurrency treated as cash; additional reporting

required — The Infrastructure legislation treats cryptocurrencies used in transactions greater than $10,000 as cash and requires additional reporting and penalties for noncompliance.

20. ERC changed again — There have been several ERC changes under the CAA and ARP this year, and yet another ERC change was enacted in the Infrastructure bill. This latest bill removes the credit for the fourth quarter of 2021, which is shortly after it was extended for the third and fourth quarters of 2021. 21. The Build Back Better Act — The Build Back Better (BBB) Act continues to wind its way through Congress under the reconciliation process, and it contains many tax changes. As of year-end 2021, it had not been finalized in Congress. While it has passed in the House, its future in the Senate is uncertain. That’s it: 21 for 21. If the BBB is signed into law, there will be many other tax provisions to learn. We will address those in a future article — and find 22 tax changes in 2022.

James D. Brandenburg, CPA, MST, is a tax partner with Sikich LLP, Brookfield. Contact him at 262-754-9400 or jim.brandenbug@sikich.com.

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