In light of the ongoing economic uncertainty, many companies are considering amending their credit agreements and other debt instruments, either to minimize the likelihood of breaching financial covenants or to rework payment schedules. However, companies should keep in mind that amending a debt instrument which is trading at a discount to par in the secondary market can result in cancellation of indebtedness income that is currently includible for tax purposes without any associated cash — even in situations where the principal amount of the debt remains unchanged.
Developers of renewable energy facilities that could experience construction delays due to the COVID-19 pandemic may receive important tax relief from the IRS’ recent relaxation of certain “begun construction” requirements. Learn more about how Notice 2020-41 may allow taxpayers to claim production and investment tax credits despite these delays.
State and Local Tax Considerations in Light of COVID-19
April 7, 2020
In conjunction with federal tax provisions included in the CARES Act and workplace changes as a result of COVID-19 stay-at-home directives, businesses should be aware of the ways individual states may choose to address a variety of concerns involving tax reporting for 2020.
Given the economic and capital markets impacts resulting from the U.S. government’s response to the COVID-19 outbreak, it appears inevitable that many commercial mortgage REITs will need to develop strategies to modify their capital structures, finance their operations and engage with distressed borrowers. This client alert highlights key tax issues that commercial mortgage REITs should bear in mind as they develop those strategies.
CARES Act Tax Considerations
April 2, 2020
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law on March 27, 2020, and included tax relief provisions intended to ease the financial burden on many companies affected by COVID-19. However, numerous issues remain unaddressed, and some issues that were included may benefit from future legislation or regulatory action.
In this series, “Critical Thinking in the Time of COVID-19,” Skadden’s European tax practice examines the next stage of analysis for corporates that have begun digesting the economic and legal impact of COVID-19 on their businesses. In this edition, our London-based tax team covers the area of UK tax litigation and enforcement.
The Coronavirus Aid, Relief and Economic Security Act, enacted on March 27, 2020, provides individual and corporate taxpayers with increased charitable contribution deductions for cash contributions made to most public charities during the 2020 calendar year. Most individuals can deduct an amount equal to their adjusted gross income, and the allowable deduction for corporations is more than doubled.
The CARES Act includes a variety of compensation restrictions and payroll relief measures for employers and employees. This mailing reviews and analyzes those provisions.
In this series, “Critical Thinking in the Time of COVID-19,” our European tax practice examines the next stage of analysis for corporates that have begun digesting the economic and legal impact of COVID-19 on their businesses. This edition covers the area of European fiscal state aid
On March 27, 2020, Congress approved the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to provide financial assistance to individuals and businesses, which in aggregate greatly exceeds the financial package Congress previously enacted to address the 2008 financial crisis. The act, which is the third major piece of bipartisan legislation to address the crisis created by the COVID-19 pandemic, includes approximately $2 trillion in assistance to individual and businesses. A total of $500 billion is authorized for direct loans and guarantees, of which $454 billion is provided to the Federal Reserve to support its lending facilities and $29 billion will be for direct lending to passenger and cargo air carriers. An additional $367 billion is available to assist small businesses through the Small Business Administration (SBA). In addition, the act contains a number of provisions aimed at granting temporary regulatory relief. Despite the enormity of the assistance provided by the CARES Act, additional financial assistance legislation is expected if the duration of the national emergency extends beyond a short period of time.
Many companies are in the middle of compensation review season, with compensation levels and performance targets being determined and proxy disclosures being prepared in the midst of the COVID-19 crisis. Previously granted awards already may have been severely impacted by market conditions. During this time, there are a number of specific issues compensation committees should consider.
As many upstream and midstream companies grapple with the prospect of severe liquidity constraints due to the rapid deterioration of the commodity and debt capital markets, borrowers evaluating approaches to capital structure management should consider the current tax landscape before embarking on a plan, particularly if that plan involves transactions such as a debt modification, sale/leaseback transactions involving real estate investment trusts, joint ventures and volumetric production payments. Distressed companies will need to carefully consider the significant consequences outlined here as they reevaluate their capital structures.
On March 18, 2020, the French government published a legislative package of emergency measures aimed at tackling the COVID-19 crisis. It is composed of:
- an Amending Finance Act for 2020, which includes a state guarantee of up to €300 billion to secure the repayment of loans made by banks between March 16, 2020, and December 31, 2020, which was voted into law today;
- a bill providing for certain emergency measures; and
- a bill extending the review period for priority preliminary rulings on the issue of constitutionality, which are being rushed through Parliament under an emergency procedure.
In addition, the government separately announced an array of measures aimed at helping taxpayers.
REIT and RIC Cash Management Strategies for Uncertain Times
March 19, 2020
Despite developments in the equity capital markets stemming from the pandemic-related economic downturn, REITs and RICs looking to preserve liquidity still have a number of options available to them, including deferring quarterly distributions, satisfying distribution requirements with stock-based dividends, and pursuing various types of taxable and tax-deferred asset dispositions. Entities should consider that the IRS currently allows any publicly traded REIT or RIC to take advantage of certain of these cash management strategies without obtaining a private letter ruling.
March 18, 2020
The question is no longer whether the volatility created by the COVID-19 pandemic will deepen the difficulties businesses and other institutions face in the coming months, but by how much and in what ways. In the past few weeks, we have offered client mailings and webinars on COVID-19-related topics, and we will work to keep you informed of important developments as these issues evolve. Included below are updates to our recent commentary, with answers to questions we have been receiving.