The U.S. House of Representative passed the Families First Coronavirus Act (the “Bill”) to provide relief for families affected by the COVID19.  The Bill requires certain employers to provide emergency family and medical leave and provides a new business tax credit and relief provisions to these employers.  The Bill is subject to the Senates’ vote and President Trump’s approval.  Here are some key provisions contained in the Bill:

• Expanded Emergency Family and Medical Leave is provided to employees of an employer with fewer than 500 employees. The qualifying employees have the right to take up to 12 weeks of job-protected leave for the quarantine instructions due to COVID19, to care of an at-risk family member who is following an quarantine requirement or recommendation, or to care for a child whose school or place of care has been closed.  The qualifying employees are entitled to two weeks of paid leave, and 2/3 of usual pay during the remaining 12 weeks.

• Temporary Federal Emergency Paid Sick Leave Benefit provides two weeks of paid sick leave for qualifying employees of an employer with fewer than 500 employees. The benefit is provided to the qualifying employees to quarantine or seek a diagnosis or preventative care of COVID19.  The benefit is reduced to 2/3 of the employee’s regular pay if the leave is to care for a effected family member or to care for a chile whose school or place of care has been closed.

• New Business Tax Credit is provided for amount equal to 100% of qualified sick leave wages paid by employers with fewer than 500 employees. The credit is allowed against the employer portion of social security payroll taxes.  The credit is limited to a daily amount and number of days in quarter limitations.

• Refundable Business Payroll Tax Credit is provided for required paid family leave. The credit is equal to 100% of qualified family leave wages paid by the qualifying employer with fewer than 500 employees.  The credit capped at $200 per day for each effected employee and $11,000 for each quarter.

Additional detail will be provided in the H.R. 6201.  https://www.congress.gov/bill/116th-congress/house-bill/6201/text

Additionally, Congressional leaders are discussing options to stimulate economic effects of COVID19.  Some of the key stimulus measures in discussion include the suspension of certain payroll taxes, including employer’s share of 6.2% Social Security tax and 1.45% Medicare tax through the remainder of 2020; introduction of employer tax credit for hiring or retaining employees; allowing 2020 net operating loss carryback and removing the 80% taxable income limitation.

We will continually monitor the legislature developments and apprise you when additional information is available.

The IRS updated the instructions for Form 1065, U.S. Return of Partnership Income, adding additional disclosure requirement related to partners’ income adjustments related to IRC sections 704(c) and 743(b).

IRC section 704(c) and regulations thereunder provide rules pertaining to how income and loss should be allocated between partners related to built-in-gains or built-in-loss assets contributed by the partners.  The updated instructions expand on the additional information required to be provided in relation to how items of income, gain, loss, and deduction are affected by the application of section 704(c).  See the instructions to Line 20AA of schedules K/K-1.

IRC section 743(b) and regulations thereunder provide that in the case of a sale or exchange of a partnership interest for which a section 754 election is in place, a partnership shall adjust the basis of partnership property.  The purpose of the adjustment is to eliminate the difference between inside basis of the partnership property and the outside basis of the partnership interest for the transferee partner.  The updated instructions require income, gain, deduction or loss items relating to section 743(b) adjustments on Line 11F (in the case of positive adjustment) and on Line 13V (in the case of negative adjustment).  In addition, the updated instruction require explanation for detail of 743(b) basis adjustment on Line 20AH.

Link to Form 1065 instructions https://www.irs.gov/pub/irs-pdf/i1065.pdf.

캘리포니아 상원 법안 37이 발의 되었다. 이 법안은 현재 8.84%인 법인세를 10.84%에서 14.84%로 인상 시키게 되며, 하원과 상원의 2/3 이상의 찬성표를 얻게 되면 정식 법안으로 채택되게 된다.

이 법안이 적용되게 되면, 2020년 1월 1일 이후의 과세연도에 과세소득이 천만불 ($10,000,000) 이상인 법인의 세율이 기존 8.84%에서 10.84%로 인상되게 된다. 또한, 법인의 급여 비율에 따라 최고 14.84%까지 인상될 수 있다.급여 비율은 법인 내의 급여가 어느정도의 차이가 있는지를 파악하는 척도라고 볼 수 있으며 이는 CEO, COO 혹은 제일 많은 급여를 받는 임직원의 급여를 전직원 급여의 중앙값으로 나누어서 계산된다. 합산신고를 하는 법인들의 경우에는 이러한 급여비율이 하나의 법인처럼 간주되어 계산되게 된다.

급여를 제일 많이 받는 사람의 급여와 급여의 중앙값에 차이가 많이 나게 될수록 법인의 적용세율은 높아지게 되며, 각각의 급여비율에 대한 세율은 다음과 같다.

또한, 미국내의 정직원의 감소 비율이 미국 내 계약직 혹은 해외 정직원의 인상비율보다 10% 이상 클 경우, 세율은 1.5배 인상되게 된다.

자세한 내용을 위해서는 아래의 링크를 클릭하십시오: https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200SB37

The California Senate Bill 37 (the “Bill”), which may potentially increase Corporate tax rate from current 8.84% to a range of 10.84% to 14.84, has been proposed.  The Bill will be enacted if approved by a 2/3 vote in each house of the California Legislature.

The Bill, if enacted, would subject the corporations with taxable income of $10,000,000 or more for taxable years beginning on or after January 1, 2020 to an increased rate ranging from 8.84% to 10.84%.  The tax increase would be based on the corporation’s compensation ratio, which is determined by taking the greater of the compensation of the CEO, COO, or highest paid employee divided by the median compensation of all employees of the corporation.  Note that for combined reporting filers, the compensation ratio would be determined as if the taxpayers were a single taxpayer.

The higher the disparity between the highest paid individual and the median work is, the higher corporate tax rate the corporation would be subject to.   The applicable tax rate would be determined as follows:

Furthermore, the Bill would increase those new applicable tax rates by a factor of 1.5 for those taxpayers that have a more than 10% decrease in full-time employees employed in the United States as compared to an increase in contracted employees or foreign full-time employees.

To view the actual text of the Bill, please click the link below.

https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200SB37

FASB issued Accounting Standard Update 2020-1 (“ASU”) which clarifies the interaction between accounting standards for equity securities (under Topics 321) and equity method investment (under Topics 323).  The guidance is effective for fiscal years beginning after December 15, 2020 for public entities and for the fiscal years beginning after December 15, 2021 for all other entities.

ASC 321 provides a measurement alternative that allows equity securities without a readily determinable fair value to be measured at cost, less any impairment, unless an observable transaction for an identical or similar security occurred.  When the observable transaction occurs, the equity security would be measured at fair value at the date of that transaction.

The ASU clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method.

For example, if an ownership change occurs that results in a company’s applying or discontinuing the equity method, the carrying amount of the investment would be adjusted to its fair value immediately before applying or discontinuing the equity method.

Please click the link below to view the text of ASU 2020-1.  https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176174044348&acceptedDisclaimer=true

For a diagram illustrating the new guidance (prepared by Stout), please click here. The original article by Stout can be reached here.

The US-Mexico-Canada Agreement (USMCA) which replaces the North America Free Trade Agreement (NAFTA) has been approved by the Senate on January 16, 2020 and the President Trump is expected to sign it shortly.

The USMCA retains most of the preferential tariff provisions in NAFTA, except for non-tariff measures in the areas of intellectual property rights and enforcement, automotive, logistics, and pharmaceuticals.  Once the USMCA is signed, enterprises can expect an stability going forward in the trades between the three countries, at least for the next 16 years (USMCA contains a sunset provision that takes effect in 16 years).

The text of the USMCA can be found at https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/agreement-between.

현재 미국에는 많은 수의 주재원들이 거주하고 있고, 그들은 미국에서의 주재기간이 끝날 시, 미국을 떠나 자신의 국가로 돌아가는 경우가 일반적이다. 주재원들은 미국을 떠날시, 미국 IRS에 남아있는 납세와 세금 신고의 의무가 있는지 확인해보는것이 중요하다. 여러 납세와 세금 신고의 의무가 있겠지만, 가장 간과하기 쉬운 신고 의무 중 하나가 1040-C 제출을 통해 IRS로부터certificate of compliance를 받는 것이다. Form 1040-C신고와 certificate of compliance수령 의무를 준수하지 않는 것은 추후에 미국 입국시  문제가 될 수 있다.  Form 1040-C는 해당 과세연도에 신고해야할 소득이 있거나 납부해야할 소득세가 있는 외국인이 미국을 떠나게 될 경우, IRS에 제출해야하는 세무서류이다. 미국을 떠나는 외국인 주재원들은 Form 1040-C 신고를 통해 해당 과세연도에 신고해야할 소득에 대한 소득세가 납부되었거나 미래에 납부되어질 것을 IRS에 입증한 뒤,  certificate of compliance를IRS로부터 발행 받아야한다. 작성된 1040-C는 근처 IRS에 직접 방문해 신고 및 제출되어야한다. 또한, IRS방문 시, 아래 서류들을 지참해야한다.

1. 미국 비자가 있는 여권
2. 과거 2개년치의 개인세금보고
3. 해당 과세연도의 세금납부 영수증
4. 해당 과세연도의 누적 급여 명세서
5. Social security card
6. 미국 출국 비행기표 등

IRS 방문과 certificate of compliance발행은 미국 출국일로부터 최소 2주전 그리고 최대 30일전까지 가능하다. 중요한 것은, 추후에 IRS에서 해당 외국인의 미국 출국이 세금납부 혹은 징수에 영향을 줄 것으로 판단하면, 이미 발행된 certificate of compliance를 무효화시킬 수 있다는 것이다. 또한, 1040-C는 예상 소득 및 소득세에 기반되어 작성 및 신고 된 것일뿐,  최종 세금보고로 인정되지 않기 때문에, 해당 과세연도에 대한 세금보고를  추후 세금보고 기간시, 반드시 신고해야한다. 미국을 떠나거나 떠날 것으로 예상되는 외국인 주재원들은 Form 1040-C 신고와 certificate of compliance수령 절차에 대해 면밀히 살펴봐야 할 것이다.

FASB issued ASU 2019-12 (“ASU”) providing guidance to reduce complexity in certain areas of accounting for income taxes.  The new guidance is effective fiscal years beginning after December 15, 2020 for public entities and December 15, 2021 for all other entities.  The changes included in the ASU are summarized below:

Intraperiod Tax Allocation

US GAAP generally requires an “with-and-without” approach in allocating tax expense or benefit to continuing operation.  This approach sometimes result in a unexpected outcome in certain situations.  Under the current approach, a loss-making entity with no total tax expense may report an income tax benefit from continuing operation and an offsetting income tax expense from the other components (including discontinued operations and equity).  The new guidance provides that a loss-making entity, with no total tax expense generally will report no income tax benefit from continuing operations and no offsetting income tax expense from the other components.  In other words, in certain situations, the complex with-and-without allocation calculation may be omitted.

Converting Consolidation to Equity Method

Under current GAAP, when an entity transitions from consolidation to the equity method of accounting for a foreign investment, it does not recognize a deferred tax liability related to the transition-date outside-basis difference if it had been asserting indefinite reversal to its investment in the former subsidiary.  However, the new guidance removes this exception to the general principle of recognizing deferred tax liability on outside-basis difference in foreign investment and requires immediate recognition of deferred tax liability if it is no longer eligible to assert indefinite reversal.

Converting Equity Method to Consolidation

Under current GAAP, when an entity transitions from the equity method to consolidation for a foreign investment, it retains the deferred tax liability previously recognized event if it asserts indefinite reversal when the investment becomes a subsidiary.  However, under the new guidance, an entity will follow the general principle of GAAP when transition from the equity method to consolidation and derecognize the previously recognized deferred tax liability upon conversion if it no longer meets the indefinite reversal criteria.

Interim Period Tax Accounting

US GAAP generally requires an entity to estimate its annual effective tax rate and use the rate to calculate its income taxes on a year-to-date basis for interim reports.  An exception is provided under the current GAAP when the entity generates loss for an interim period in excess the anticipate loss for the current year.  In that situation, the year-to-date income tax benefit is limited to the amount that would is anticipated for the entire year.  The new guidance removes this exception and requires an entity to compute interim period tax benefit based on the estimated effective annual tax rate and the year-to-date loss.

Franchise Taxes

Non-income-based state franchise tax is reported above the line, not as tax expense, outside of the scope of income tax guidance.  However, taxes tax require payment equal to the higher of the non-income-based tax and the income-based tax are in the scope of income tax guidance, but only for the portion in excess of the non-income-based tax.  This requires an entity to first account for the none-income-based portion of the tax in pretax income and then apply current GAAP income tax guidance to the incremental income-based portion, if any.  However, under the new guidance, an entity is required to first account for these taxes as income taxes and then account for the non-income-based portion, if any, in pretax income.

For additional detail, please click the link below:

https://www.fasb.org/jsp/FASB/Document_C/DocumentPage?cid=1176173929469&acceptedDisclaimer=true

Notice 2019-66:  Partnership Tax Compliance Increase

IRS는 2020 년 세금 연도부터 유효한, 파트너쉽에 대한 납세의무 요구 사항을 크게 높일 수있는 Notice 2019-66 ( the “Notice") 을 발표했습니다. 이 Notice는 파트너쉽 세금 보고서에 다음과 같은 정보를 요구합니다.

• 마이너스 계정을 포함한 각 파트너의 과세기반 자본 계정 (tax basis capital accounts) 의 정보. 이 정보는 파트너쉽안에서 분배가 이뤄지거나 파트너 지분이 처분될 경우, IRS가 용이하게 식별 및 과세할 수있게 할 것입니다.

• 할당된 각 파트너의 IRC Section 704 (c) 에 대한 미인식손익 (unrecognized gain/loss). 이 요구 사항에 따라 파트너쉽은 각 파트너의 built-in gains or losses를 계산하고 공개해야하므로 IRS는 파트너 간의 관련 손익이 적절히 할당되었는지 볼수 있습니다.

• 각 파트너의 IRC Section 465 “at-risk activities”. 이러한 공개는 파트너의 Section 465의  at-risk limitation의 적용을 강화할 것입니다.

Please click on the link below for additional detail.

https://www.irs.gov/pub/irs-drop/n-19-66.pdf

Notice 2019-66:  Partnership Tax Compliance Increase

The IRS released the Notice 2019-66 (the “Notice”) which may substantially increase the compliance requirement for partnerships effective for partnership tax years beginning in 2020.  The Notice requires following disclosures in the partnership tax returns:

• Tax basis capital accounts, including negative tax basis capital accounts on a partner-by-partner basis.  The disclosure will enable the IRS to easily identify and quantify taxable distributions and/or disposition of partnership interest by a partner.

• Partner’s share of net unrecognized Section 704(c) gain or loss on a partner-by-partner basis.  Under this requirement, partnerships are required to compute and disclose each partner’s built-in gains or losses, enabling the IRS to see proper allocation of related gains and losses between partners when triggered.

• Partner’s Section 465 “at-risk activities” on a partner-by-partner basis.  Such disclosure will enhance the application of Section 465 at-risk limitation by partners.

Please click on the link below for additional detail.

https://www.irs.gov/pub/irs-drop/n-19-66.pdf