Tax Alert- California Excludes PPP Loan from Income but Disallows Necessary and Ordinary Business Expenses

California "will not tax" forgiven Paycheck Protection Program (PPP) loan amounts. For tax years beginning on and after January 1, 2020, California conforms to federal law excluding from income any covered loan amount forgiven pursuant to:


  • Section 1106 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136);

  • the Paycheck Protection Program and Health Care Enhancement Act (P.L. 116-139); or

  • the Paycheck Protection Program Flexibility Act of 2020 (P.L. 116-142).


For California purposes, "covered loan" has the same meaning as in the CARES Act.

The BAD - No Credit or Deduction for Expenses Paid Using Forgiven PPP Funds

California will not allow a credit or deduction for any expenses paid for using forgiven PPP funds. Taxpayers must reduce any credit or deduction otherwise allowed for those expenses by the amount of the forgiven loan excluded from income.  So effectively

A.B. 1577, Laws 2020, operative as noted

Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group is exclusively comprised of former IRS litigators and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division and Criminal Division.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Newport Beach and Yorba Linda, California

Tel: (949) 397-2292 (Newport Beach Office)

Tel: (714) 463-4430 (Yorba Linda Office)

IRS Warns of Higher Penalties on Tax Returns Filed After September 14

The IRS warns taxpayers who have not yet filed their tax returns, that higher penalties will be imposed if they file after September 14. Further, taxpayers who submitted an extension have until October 15 to file and would not face the failure to file penalty if they file their taxes by that deadline. However, an extension to file is not an extension to pay so any taxes the taxpayers owe after the July 15 deadline are subject to the failure to pay penalty and interest.

If a tax return is more than 60 days late, a minimum penalty applies. If no return has been filed after 60 days, the minimum penalty that can be charged is USD 435 or 100-percent of the unpaid tax, whichever is less. This year, that important 60-day date occurs after September 14. In addition to penalties, interest will also be charged on any tax not paid by the July 15 due date. The IRS has reminded taxpayers that Free File is available through October 15 to prepare and e-file a 2019 individual return. In addition, taxpayers who have not been assessed any penalties for the past three years may qualify to have penalties abated. A taxpayer who does not qualify for the first-time penalty relief may still qualify for penalty relief if their failure to file or pay on time was due to reasonable cause and not willful neglect. However, interest cannot be abated.

Moreover, qualified taxpayers can choose to pay any taxes over time through an installment agreement. Further, more information for taxpayers who owe taxes, but cannot afford to pay the full amount is available on the IRS website. Taxpayers can use the IRS Tax Withholding Estimator to do a paycheck checkup to have the right amount of tax withheld during the year. The IRS has reminded taxpayers to visit the "Are Payments I Receive for Being Unemployed Taxable?" tax tool to determine if their unemployment is taxable.

Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group is exclusively comprised of former IRS litigators and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division and Criminal Division.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Newport Beach and Yorba Linda, California

Tel: (949) 397-2292 (Newport Beach Office)

Tel: (714) 463-4430 (Yorba Linda Office)

 

California Victims of Wildfires Granted Tax Relief

The IRS has granted tax relief to the victims of wildfires that took place in parts of California on August 14, 2020. The affected taxpayers will now have until December 15, 2020, to file various individual and business tax returns and make tax payments. The disaster area in California includes the counties of:


  • Lake,

  • Monterey

  • Napa,

  • San Mateo,

  • Santa Cruz,

  • Solano,

  • Sonoma and

  • Yolo


Taxpayers who live or have a business in the disaster area may qualify for tax relief.

 Filing and Payment Deadlines Extended

 The IRS has postponed various tax filing and payment deadlines that occurred starting on August 14. As a result, the affected taxpayers will now have until December 15, 2020, to file returns and pay any taxes that were originally due during this period. This means individuals who had a valid extension to file their 2019 return due to run out on October 15, 2020, will now have until December 15, 2020, to file. The IRS noted, however, that because tax payments related to 2019 returns were due on July 15, 2020, those payments are not eligible for this relief. The December 15 deadline also applies to quarterly estimated income tax payments due on September 15, and the quarterly payroll and excise tax returns normally due on October 31. Further, the deadline also applies to tax-exempt organizations, operating on a calendar-year basis, that had a valid extension due to run out on November 15. Businesses with extensions also have the additional time including, among others, calendar-year corporations whose 2019 extensions run out on October 15. In addition, penalties on payroll and excise tax deposits due after August 14 and before August 31, will be abated as long as the deposits are made by August 31.

The affected taxpayers do not need to contact the IRS to get this relief. In addition, the IRS will work with taxpayers, including workers affiliated with a recognized government or philanthropic organization, who live outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227.

Casualty Losses

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2020 return normally filed next year), or the return for the prior year (2019).

Taxpayers claiming a disaster loss on their tax return should write the appropriate FEMA declaration number (4558 for California) on any return claiming a loss. Finally, the IRS has requested taxpayers to see Publication 547 for information on disaster recovery.

Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group is exclusively comprised of former IRS litigators and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division and Criminal Division.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Newport Beach and Yorba Linda, California

 

Tel: (949) 397-2292 (Newport Beach Office)

 

Tel: (714) 463-4430 (Yorba Linda Office)

U.S. and Switzerland Enter into Competent Authority Arrangement

The competent authorities of Switzerland and the U.S. have entered into the following Competent Authority Arrangement regarding the implementation of the arbitration process provided for in paragraphs 6 and 7 of Article 25 of the Convention between the Swiss Federation and the United States of America for the Avoidance of Double Taxation with Respect to Taxes on Income, signed at Washington on October 2, 1996, as Amended by the Protocols signed on October 2, 1996, and September 23, 2009 (the "Convention") and the exchange of notes accompanying the 2009 Protocol which form an integral part of the Convention.

Arbitration Process

The arbitration process is applicable to cases that the competent authorities of Switzerland and the U.S. have determined are suitable for assistance under the mutual agreement procedure of Article 25 of the Convention in accordance with published guidance. Further, the arbitration process is subject to certain exceptions described in paragraph 4. The published guidance in the case of Switzerland, is the "Factsheet on the mutual agreement procedure" of May 2018 or any amendment or successor provisions thereof, and in the case of the United States is the, Rev. Proc. 2015- 40, IRB 2015-35, 236, or any amendment or successor provisions thereof. This arrangement has been adopted in accordance with paragraphs 6 and 7 of Article 25 of the Convention and subparagraphs a) and q) of paragraph 1 of the Treaty Annexure A. The competent authorities of both contracting states, the presenter of the case and the arbitrators are required to follow the procedures in this arrangement in good faith.

Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group is exclusively comprised of former IRS litigators and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division and Criminal Division.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Newport Beach and Yorba Linda, California

Tel: (949) 397-2292 (Newport Beach Office)

Tel: (714) 463-4430 (Yorba Linda Office)

Tax Flash: California Taxpayer Entitled to Abatement of Demand Penalty

A California personal income taxpayer was entitled to an abatement of a demand penalty because the penalty was not properly imposed. Generally, the Franchise Tax Board (FTB) may impose a penalty when a taxpayer does not timely respond to a Demand for Tax Return. Further, the FTB is only allowed to impose a demand penalty if the taxpayer also failed to timely respond to a Request or a Demand for Tax Return for a prior year, and that failure resulted in FTB issuing a Notice of Proposed Assessment (NPA) at any time during the four taxable years preceding the year for which the current Demand is being issued. In this matter, the demand penalty at issue was for the 2014 tax year. However, it was noted that the FTB did not issue an NPA to the taxpayer during 2010, 2011, 2012, or 2013 tax years. Therefore, the requirements under the applicable regulation were not met. Accordingly, the demand penalty was not properly imposed.

Giordano, California Office of Tax Appeals, No. 18053180, June 3, 2020, released August 2020

Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group is exclusively comprised of former IRS litigators and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division and Criminal Division.

For further information, or to arrange a consultation please contact Wilson Tax Law Group, APLC at 949.397-2292.

Newport Beach and Yorba Linda, California

Tel: (949) 397-2292 (Newport Beach Office)

Tel: (714) 463-4430 (Yorba Linda Office)

California US Central District Court Issues New Closure Notice

The United States District Court for the Central District of California announces the following regarding the Court’s operations in light of the Coronavirus (COVID-19) pandemic and the recent surge of COVID-19 cases in the District.

COVID-19 Notice - GO No. 20-09

Access to the Courthouses


  • Effective immediately, all Courthouses of the Central District of California will be closed to the public, until further notice, and except as set forth below.

  • All federal Pro Se Clinics in the district are closed.
    The Los Angeles and Santa Ana Clinics are providing remote assistance via telephone and/or email. Please contact them for more information:
    Los Angeles: (213) 385-2977, Ext. 270 or tinyurl.com/fedproseclinic
    Santa Ana: (714) 541-1010, Ext. 222


Court Hearings

  • All appearances in civil cases will be by telephone or video conference.

  • Hearings in any criminal matter may proceed in court when the defendant does not consent to appear by telephone or video conference. Members of the public will have access to such proceedings with a limit of 10 people present in the courtroom or in an overflow courtroom at one time at the discretion of the assigned judge.

  • Criminal bench duty will continue to take place in the Roybal Courthouse in Los Angeles and the Santa Ana Courthouse, by video or telephonic conference with the defendant’s consent and in-court absent consent.


Jury Trials

  • Until further notice, no jury trials will be conducted in civil cases. However, individual judges, at their discretion, may offer bench trials by video conference in lieu of postponement.

  • Until further notice, no jury trials will be conducted in criminal cases.

  • The Court has adopted gating criteria that will be used to inform when the Court resumes jury trials, which is Phase 3 of the Court’s Plan for Phased Resumption of Court Operations. The gating criteria is designed to determine local COVID-19 exposure risks based on 14-day trends of facility exposure, community spread, and community restrictions.


Filing Information

  • The intake sections in each courthouse will be closed to the public. To post a bond or submit an emergency, time-sensitive filing such as a temporary restraining order, call the following telephone numbers:
    Los Angeles – (213) 894-8288
    Riverside – (951) 328-4450
    Santa Ana – (714) 338-3958 or (714) 338-4760

  • All criminal duty matters handled by a district judge shall be filed in the appropriate division.

  • All magistrate judge criminal bench duty matters shall be filed in the Edward R. Roybal Federal Building and United States Courthouse in Los Angeles and Santa Ana Courthouse.

  • All criminal document duty matters handled by a magistrate judge shall be filed electronically.

  • For all other intake and records questions, call the following telephone numbers:
    Los Angeles Civil Intake – (213) 894-3535
    Los Angeles Criminal Intake – (213) 894-8288
    Riverside Civil and Criminal Intake – (951) 328-4450
    Santa Ana Civil Intake – (714) 338-2886
    Santa Ana Criminal Intake – (714) 338-4786
    Archival records requests are suspended because the Federal Records Center is closed.

  • The court’s CM/ECF system is available 24/7 for electronic filing of documents.

  • Unrepresented litigants who cannot electronically file their documents and attorneys who are required to manually file documents pursuant to the local rules must mail their filings to the Clerk of Court at 255 E. Temple Street, Suite TS-134, Los Angeles, CA 90012-3332.

  • Non-paper physical exhibits or other exhibits exempted from electronically filing shall be sent via U.S. Mail or other commercial delivery to the Clerk of Court at the above address.


Mandatory Chambers Copies

  • Until further notice, all district judges and magistrate judges do not require mandatory chambers copies during the pandemic.

  • Any judge can require a chambers copy in a particular case if desired. The chambers copy shall be mailed to the judge via Fed Ex. Chambers copy cannot be hand-delivered to the courthouse.


The Court continues to monitor the COVID-19 pandemic as it evolves and will provide updates concerning the Court’s operations as adjustments are made.

Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group is exclusively comprised of former IRS litigators and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division and Criminal Division.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Newport Beach and Yorba Linda, California

Tel: (949) 397-2292 (Newport Beach Office)

Tel: (714) 463-4430 (Yorba Linda Office)

 

CARES Act Provides Favorable Tax Treatment for Withdrawals from Retirement Plans and IRAs

Individuals and businesses should know that the Coronavirus Aid, Relief, and Economic Security (CARES) Act provides favorable tax treatment for withdrawals from retirement plans and Individual Retirement Accounts (IRAs). Under the CARES Act, individuals eligible for coronavirus-related relief may be able to withdraw up to $100,000 from IRAs or workplace retirement plans before December 31, 2020, if their plans allow. In addition to IRAs, this relief applies to 401(k) plans, 403(b) plans, profit-sharing plans and others.

Individuals eligible to take coronavirus-related withdrawals may also, until September 22, 2020, be able to borrow as much as $100,000 (up from $50,000) from a workplace retirement plan, if their plan allows. Loans are not available from an IRA. For eligible individuals, plan administrators can suspend, for up to one year, plan loan repayments due on or after March 27, 2020, and before January 1, 2021. A suspended loan is subject to interest during the suspension period, and the term of the loan may be extended to account for the suspension period.

In addition, to be eligible for COVID-19 relief, coronavirus-related withdrawals or loans can only be made to an individual if:


  • The individual is diagnosed with COVID-19 by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetics Act);

  • The individual’s spouse or dependent is diagnosed with COVID-19 by such a test; or

  • The individual, their spouse or a member of the individual’s household experiences adverse financial consequences as a result of: (1) being quarantined, furloughed or laid off, having work hours reduced, being unable to work due to lack of childcare, having a reduction in pay (or self-employment income), or having a job offer rescinded or start date for a job delayed, due to COVID-19; or (2) closing or reducing hours of a business owned or operated by the individual, the individual’s spouse, or a member of the individual’s household, due to COVID-19.


Individuals and businesses can learn more about these provisions by contacting a tax professional for assistance.  Wilson Tax Law Group, APLC (www.wilsontaxlaw.com) is a boutique Orange County tax controversy law firm that specializes in representation of individuals and businesses before federal and state tax authorities with audits, appeals, FBAR, offshore compliance, litigation and criminal defense.  Firm founder, Joseph P. Wilson, is a former Federal tax prosecutor and trial attorney for the IRS and California Franchise Tax Board.  Wilson Tax Law Group is exclusively comprised of former IRS litigators and Assistant US Attorneys from the US Attorney’s Office, Central District of California, Tax Division and Criminal Division.

For further information, or to arrange a consultation please contact: Wilson Tax Law Group, APLC

Newport Beach and Yorba Linda, California

Tel: (949) 397-2292 (Newport Beach Office)

Tel: (714) 463-4430 (Yorba Linda Office)

Tax Alert- California Excludes PPP Loan from Income but Disallows Necessary and Ordinary Business Expenses

California "will not tax" forgiven Paycheck Protection Program (PPP) loan amounts. For tax years beginning on and after January 1,...