The COVID-19 relief package that Congress agreed to last month provides many useful tax breaks, but accountants are also wondering about the applicability of some of the breaks, such as claiming restaurant meals as business deductions.
Evan Morgan, director of tax services at Top 100 Firm Kaufman Rossin, is advising his small-business clients to take advantage of various tax credits and extenders, including the Employee Retention Tax Credit, the Work Opportunity Tax Credit, the Health Coverage Tax Credit, and the five-year extension of the New Markets Tax Credit at $5 billion per year.
“A lot of things were extended,” he said. “This is a big package of extensions. Some items were extended for one year and some items were extended for five years.”
Britt Steckman is a senior associate at Bracewell.
Paul is a partner in the Washington, D.C. office of Bracewell.� Paul’s career has intertwined with the SEC’s regulation of the municipal market from the very beginning, when as a young lawyer in the SEC’s Division of Enforcement he participated in preparing the SEC’s September 1977 and 1979 Staff Reports on New York City.� After practice as a securities, project finance, and bond lawyer in New York and Boston, �Paul returned to the SEC in 1994 to work for Chairman Levitt and serve as the first Director of the SEC’s Office of Municipal Securities. During that time, he participated in drafting the continuing disclosure amendments to Rule 15c2-12, oversaw SEC activity relating to Orange County California and advised the Commission on institution and settlement of over 100 enforcement actions in the municipal securities market.�Today, Paul defends states, local governments, and their officials, brokers, dealers, municipal securities dealers, municipal advisors, and their officers and employees, as well as individuals in investigations and enforcement proceedings by the SEC, Department of Justice, FINRA, and states Attorneys General.� Paul also serves as Counsel to a NRSRO, or Rating Agency, on regulatory and enforcement matters.� He advises clients on compliance with SEC and MSRB regulations, and corporate governance matters, conducts internal investigations, and serves as special disclosure counsel in securities transactions.Paul received the "Chairman's Award for Excellence" for his work in developing the amendments to Rule 15c2-12, while at the SEC, and received "The National Federation of Municipal Analysts�Industry Contribution Award" in 2001. Paul is listed in The Best Lawyers in America� in securities law, 2005 - 2010; in corporate governance and compliance law, 2006 -�2010;�and public finance law, 2005�- 2010.� Additionally, he is listed in Who's Who and What's What on Wall Street, Who's Who in America, Who's Who in American Law,The Lawdragon 500 Leading Lawyers in America 2005 edition, and Washington D.C. Super Lawyers 2007 for securities and corporate finance.Paul is frequently interviewed and quoted as an authority on securities regulation in international news media including The National, FTSE Global Markets, BBC News, The Business Times Singapore, and The Singapore American, as well as U.S. media, including The New York Times, The Wall Street Journal, Bloomberg News, the Associated Press, Reuters, and The Bond Buyer.
Jeff Curie is the President of Bitvore Corp., a provider of A.I.-based products that identify risk and opportunity for professionals in the municipal bond, banking and insurance industries.
The five-year extensions will help provide more certainty for tax planning with clients. “Our issue for the last several years is that Congress comes up with these last-minute tax plans, and it’s very difficult for clients that want to plan anything more than three to six months in advance,” said Morgan. “It’s very difficult to do appropriate tax planning, because we’re never sure what Congress is going to do. There’s a lot of uncertainty now about some of the proposals that President-elect Biden has discussed on the campaign trail and whether those are going to happen or not. We really don’t know.”
The package includes a short-term extension on sick leave and family leave, but not for long. “The employer credit for paid sick and family leave was set to expire in 2020, but it was extended to March 31, 2021, and then the Employee Retention Tax Credit, compensation paid to a covered employee, is through June 30, 2021,” said Morgan. “Those are part of the extensions.”
Biden was scheduled to unveil his economic plans Thursday, and chances are that pressing issues like getting the COVID-19 pandemic under control will take priority over tax reform.
“That’s what I’ve been counseling clients who are afraid of retroactive tax increases. If there’s any more tax legislation, it’s going to be the middle of the year, easily, and I think it’s highly unlikely that they will make anything retroactive to Jan. 1, 2021, at that point,” said Morgan. “More likely, if there is some change, it would take effect in 2022.”
One tax break he is encouraging clients to look at is the charitable deduction. “A big item that affects both individuals and businesses is that they extended the change for charitable contributions, so people who don’t itemize their deductions can still take a $300 above-the-line charitable contribution deduction in 2021,” said Morgan. “Also for 2021, the AGI limitation on people who do itemize rises to 100 percent. That’s a pretty big one that’s going to affect a lot of people. People that give to charity will be able to get at least some benefit from it.”
There’s also a break for people who have to dip into their retirement accounts to pay for their current needs. “There’s a change to the penalty tax when people have to take money out of their retirement plans to live off their savings,” said Morgan. “If they can show it’s a qualified coronavirus-related distribution, they’re waiving the 10 percent penalty tax. They have three years to repay. If you take money out of your plan, you can either pick it up in income over three years or you can pay it back to your plan without having to pay tax on it.”
A more controversial provision in the stimulus deal is allowing businesses to write off the costs of meals and entertainment, which President Trump pushed as a priority for helping the ailing restaurant industry.
“In 2021 and 2022 we’re going back to 100 percent allowance for deductions for business meals,” said Morgan. “But they have to be served at a restaurant. I’m not exactly sure what that means at this point. For example, when you’re taking a client to a baseball game, to events and things like that, is that considered a restaurant?”
Howard Wagner, a partner in the Washington National Tax Practice at Top 10 Firm Crowe, has also been scrutinizing the temporary allowance of the full business meal deduction. “That is only for meals provided by a restaurant, so the question is what is the definition of a restaurant,” he said. “If you think of going to a restaurant in a traditional setting, absolutely. If you rent a suite at a sporting event and you’re billed separately for the food, does the catering operation at the baseball game count as a restaurant, or is that not a restaurant for purposes of the full deduction?”
He hopes to see further guidance from the IRS on exactly what venues will be permitted. “The question is, if I go to a hotel for a business meeting and I pay for the meals from the catering operation of the hotel, is that a restaurant?” said Wagner. “You’ve still got the ‘not lavish or extravagant’ standard in the Section 274 rules. When you start talking about people abusing it, this is kind of nibbling around the edges.”
