Read about the legislative successes NCACPA’s Advocacy program has achieved on behalf of the membership.
NCACPA joined with AICPA and other state CPA societies to successfully lobby Congress to ensure tax deductibility for business expenses associated with forgiven Paycheck Protection Program (“PPP”) loans. The IRS had previously declared such deductions would be disallowed.
H.R. 133 (Public Law 116-120) clarifies that deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven, and that the tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness.
The legislation contained numerous other provisions important to the profession, including $284 million to fund Second Draw PPP loans and a streamlined process for loan forgiveness.
Deductibility will also apply to eligible expenses associated with Second Draw PPP loans. The list of eligible expenses was broadened to include personal protective equipment; certain supplier costs; costs related to property damage not covered by insurance and caused by public disturbances that occurred in 2020; and expenditures for software, cloud computing, and other human resources and accounting needs.
More than 640 NCACPA members combined with 409 of their clients to send emails to Congress in support of PPP expense deductibility.
NCACPA led and championed many COVID-19 relief measures at both the state and federal level. On the state level, we were pleased the NC Department of Revenue honored our request on behalf of taxpayers and the state of North Carolina to extend the filing and payment deadline to July 15. Additionally, NCACPA fought for accounting to be listed as an essential business service in light of stay-at-home orders throughout North Carolina.
On the federal level, NCACPA worked with Senator Burr and Senator Tillis on critical clarifications and improvements needed with small business loans in light of COVID-19, as well as to secure their assistance in pressuring the Treasury Department and the IRS to provide targeted penalty relief for late filings and payments resulting from delays due to the pandemic.
Historically, the North Carolina Department of Revenue has been unable to track or maintain a record of valid POAs filed by taxpayers, causing the Department to often communicate with taxpayers directly, instead of their representatives. This has led to advocates not receiving important documents. The Association worked diligently with the legislature and Department to support updating internal systems and processes in order to resolve the issue. On November 8, 2019, the North Carolina General Assembly passed Senate Bill 557, which included a provision stipulating the Department of Revenue report to the Joint Legislative Oversight Committee on General Government on its progress in updating its electronic tax systems to store and recognize POA registrations by January 31, 2020.
Additionally, NCACPA championed the adoption of market-based sourcing for multi-state taxpayers in allocating income tax on services and intangibles, which is necessary to allow North Carolina to remain competitive in attracting infrastructure and employer investments in the state. On November 8, 2019, the NC General Assembly enacted market-based sourcing for apportioning the corporate income tax and the franchise tax net worth base, effective for taxable years beginning on or after January 1, 2020. Under the new market-based sourcing rules, receipts from intangibles will be sourced based on where the intangible is used. Special market-based sourcing rules are provided for broadcasters, banks, natural gas pipeline companies, and electric power companies.
On June 12, 2018, both chambers of the North Carolina General Assembly voted to override Governor Cooper’s veto of the new state budget, allowing it to become law. Included in the budget was a state extension proposal NCACPA worked diligently on over the past several months. The provision requires any taxpayer granted an extension of time for filing a federal income tax return be granted an automatic extension of time to file the corresponding state income tax return and franchise tax return. This becomes effective for taxable years beginning on or after January 2019.
This success for taxpayers and practitioners could not have been achieved without the help of a number of NCACPA members who contacted their representatives to advocate for this issue.
NCACPA was highly involved in the drafting of this legislation, which made numerous technical changes to the North Carolina tax code. NCACPA’s Tax Modernization Task Force made recommendations to lawmakers clarifying recent changes to the sales tax laws related to RMI services, and provided language found in this bill.
In meetings with legislators, NCACPA also brought attention to an issue with GS 105-122(d) regarding how a corporation’s franchise tax base was calculated. The Association pointed out that indebtedness related to real estate no longer reduced the taxable base for franchise tax purposes, and that this drastically increased the tax for many North Carolina corporations. This was an unintended change in 2015 that was corrected in this legislation.
Additionally, a provision proposed by NCACPA was included, directing the NC Department of Revenue to conduct a feasibility and cost study of allowing the “pass-through of a federal extension of time for filing a federal income tax return to serve as an application for a State extension of time for filing corporate franchise and other income tax returns.” The DoR completed this study in January of 2018, and the Association is still ardently working with the Department and lawmakers to eliminate the state extension form requirement.
The Association worked with the NC Secretary of State, bill sponsors, and committee members to eliminate the option of filing corporate annual reports with the NC Department of Revenue, a great success especially for CPAs working in or for nonprofits.
The North Carolina Supreme Court’s decision stated that independent auditors do not owe a fiduciary responsibility to their audit clients, as a matter of either law or fact, a reversal of the NC Court of Appeals’ former ruling. NCACPA worked on this case for nearly two years, intervening with an amicus brief arguing for reversal in early 2015. This safeguarding of auditor independence was a great win for the profession.
Following provisions in the federal Protecting Americans From Tax Hikes (PATH) Act of 2015, NCACPA urged lawmakers in the NC General Assembly to make conformity determinations so taxpayers and businesses could be alleviated of much uncertainty. The IRC Update Bill was passed in May of 2016, which, importantly, decoupled on a permanent basis two provisions made permanent at the federal level under the PATH Act—enhanced Section 179 expensing, and tax-free distribution from IRAs to public charities. Section 179 was of extra significance, as legislative leaders were previously inclined to leave the state deduction limit at $25,000 and the investment limit at $200,000.
This bill addressed the critically important and time-sensitive issue of tax conformity resulting from the passage of the Tax Increase Prevention Act (TIPA) of 2014. TIPA was enacted after the NC General Assembly had adjourned, so the 50 provisions extended in the federal Act had not yet been addressed by NC lawmakers, creating uncertainty and challenge for both taxpayers and tax advisors working on 2014 tax returns. NCACPA worked with the General Assembly for several months to address these provisions on a state level, resulting in the passage of Senate Bill 20.