CICPAC, the Construction Industry CPAs and Consultants group, always hosts one of the most valuable and interesting conferences to come down the pike for construction accountants. The following article highlights some of the many interesting topics raised at 2021’s Construction Summit.
COVID-19 legislation mostly wound up by the end of 2021, including the end of the sick leave tax credit, the Payroll Protection Program, and the employee retention credit.
From the IRS point of view, all of these various programs, coupled with all the other issues generated by COVID-19, have created a historic logjam of returns and correspondence. Delays in processing notice responses and paper returns can last longer than a year at this point. The IRS continues to push for e-filings and hopes to move towards online notice responses as a way to reduce these backlogs.
From a tax perspective, entertainment expenses continue to be 100% nondeductible while meals remain 50% deductible for business purposes. Firm outings remain 100% deductible. Starting for tax years beginning in 2022, R&D expenses must be amortized, regardless of whether you claim the R&D credit. Practitioners continue to hope that the amortization requirement will be delayed or repealed.
Many states have taken steps to minimize the impact of the federal $10,000 limitation on taxpayer’s state and local tax deduction. Following favorable IRS guidance, over 20 states have enacted laws allowing tax to be paid at the pass-through entity level and providing a corresponding credit to individuals for their personal income taxes. This workaround can be very beneficial to taxpayers but care must be taken in following each state’s specific guidelines.
States remain aggressive in pursuing sales tax compliance and imposing sales tax on taxpayers with no physical presence but sales above certain threshold amounts.
As with “PPP1” loans, with respect to unforgiven PPP2 loans, they can be accounted for as debt until formally forgiven or can be recognized as income if there is reasonable assurance of forgiveness. The employee retention credit should be recognized as income when earned.
ASC 842 lease accounting was originally delayed from 2020 to 2021 due to new revenue recognition and delayed again to 2022 due to COVID-19 (effective for nonpublic entities for fiscal years starting after 12/15/2021). ASC 842 requires recognition of most leases on a company’s balance sheet. ASC 842’s goal is to increase transparency as approximately 85% of leases are not on the balance sheet.
All lease arrangements and amendments should be identified and reviewed to determine what changes will be necessary to comply with the new standard. This could result in new software, procedures, and controls, as well as additional financial statement disclosures.
The bidding process and online storage of sensitive information raise a host of security and privacy concerns. A whopping 93% of responding construction companies reported a cyber incident in the past 12 months, up significantly from just 16% in 2016. There are a variety of steps companies can take to protect themselves, including a cyber insurance policy. Some steps companies can take on their own include multi-factor authentication, encrypted backups, and employee awareness training.
On January 6, 2021, the Department of Labor announced a rule distinguishing between employees and independent contractors, making it easier to classify a worker as an independent contractor. This rule was withdrawn on May 5th, due to it being inconsistent with the Fair Labor Standards Act and that it would have a disruptive effect on workers and businesses. Consequently, the Department of Labor still applies the “economic reality” test, considering factors such as the extent to which the rendered services are an integral part of the principal’s business, the permanency of the relationship, and the nature and degree or control by the principal.