The Section 355 Transaction: Waving Goodbye to Your Business Partner With Money in Your Pocket

A business is constantly changing and almost everyone wants to see their businesses evolve and grow.

However, when businesses have multiple owners, business relationships may sour due to both personal and professional conflicts. These conflicts can often lead to the dissolution and liquidation of a business if owners cannot find common ground, which often results in large amounts of realized income and capital gains tax. If you have almost or already reached such an impasse and you desire to continue operating the business, rather than dissolving your business, consider splitting your business via a Section 355 nonrecognition transaction (a Section 355 transaction can be used for both corporations and limited liability companies that have elected to be taxed as a corporation).

A Section 355 transaction in its most basic form generally involves a parent company and a subsidiary company. Though all requirements are the same within Section 355, there are three variations of the Section 355 fact pattern: 1) a spin-off, 2) a split-up and 3) a split-off.

1. A spin-off involves the distribution of subsidiary company stock from parent company to the shareholders of the parent, without the surrendering of any parent stock.
2. A split-up involves the distribution of two or more subsidiaries from the parent company to the shareholders of the parent company in complete liquidation of the parent company. The distribution of subsidiary stock can either be pro-rata to the parent company shareholders or each shareholder can acquire a separate subsidiary.
3. A split-off involves the distribution of subsidiary to some or all of the parent’s shareholders in exchange for some or all of their stock in parent.

Regardless of the type of split, there are a number of requirements that must be satisfied to ensure the transaction qualifies for nonrecognition treatment. Though a number of the requirements are relatively straightforward, the requirement most prone to challenge is the business purpose requirement. The reason for this is because even if the transaction satisfies all other requirements, if no legitimate business purpose exists, the transaction will lose its nonrecognition treatment and the shareholders and company will be subject to tax.

Though what constitutes a business purpose is not clearly defined within Section 355, or the corresponding regulations, a legitimate business purpose has previously been found in the following situations:

1. when there are two owners and they desire to split because the owners have interest in different business activities;
2. when a parent company surrendered all outstanding stock in its subsidiary due to serious disputes between owners; and
3. when a distribution was completed in order to increase the amount of commercial credit.

Nevertheless, it is important to note that simply because a business purpose has previously been found in the transactions, each transaction is independently reviewed and a business purpose that satisfied the requirement for one transaction may not satisfy the requirement for another.

Given the intricate requirements involved in properly structuring a Section 355 transaction to ensure nonrecognition treatment, it is important that you consult with competent legal counsel. If you have any questions about how a Section 355 transaction can help your business, the attorneys of Vandenack Weaver can assist you.

VW Contributor: Justin A. Sheldon
© 2020 Vandenack Weaver LLC
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Notice 2020-75: The IRS Intends to Issue Proposed Regulations to Assist with State and Local Tax (SALT) Deduction Cap

On November 9, 2020, the IRS released Notice 2020-75. With this Notice, the IRS described its intention to issue proposed regulations, in connection with the Treasury Department, which would allow a partnership or an S-corporation for tax purposes to deduct state and local taxes from their non-separately stated taxable income or loss for the tax year of payments. They would not be passed through to the partners or shareholders, where they would then be subject to the Tax Cuts and Jobs Act’s $10,000.00 limitation on state and local tax (“SALT”) deductions.

Internal Revenue Code Section 164(a) provides for the SALT deduction. The SALT cap was provided for by Section 164(b)(6). In response to the Tax Cuts and Jobs Act’s so-called “SALT cap,” many states, including Connecticut, Maryland, New Jersey, Oklahoma, Rhode Island, Wisconsin, and Louisiana, adopted laws which separately attempted to circumvent the “SALT cap” on the state level. For example, in Louisiana, Oklahoma, and Wisconsin, the solution involved entities calculating their tax base and paying state income tax; the partners and shareholders were not assessed a tax liability and were not assessed a distributive share of income for state income tax purposes.

The remaining states mentioned above took a different approach to circumvent the “SALT cap”, the work-around involved the entity paying state income tax, but retaining certain pass-through features; partners and shareholders would then receive a state income tax credit equal to all or a portion of their share of the tax paid by the entity (as an aside, of the states listed, only Connecticut’s entity taxation regime is mandatory).

With the issuance of Notice 2020-75, the IRS has effectively expressed its intent to approve these state-level work-arounds. The intention of the IRS was unclear up until this point, as it had previously shut down SALT deduction work-arounds involving contributions to a charitable state fund via proposed regulations.

In Notice 2020-75, the IRS has confirmed its intention to issue proposed regulations clarifying that state and local income taxes imposed on and paid by partnerships and S-corporations will be allowed to be deducted by the entities themselves. The Notice says that these taxes must be direct income taxes imposed and paid by the entity, and defines them as Specified Income Tax Payments. The Notice further indicates that the proposed regulations will allow an entity a deduction regardless of their state’s regime, be it mandatory or elective.

Additionally, the Notice states that an entity tax does not constitute an item of deduction if a partner or S-corporation shareholder takes into account the partner’s distribution share separately under Sections 702 or 1363. Specified Income Tax Payments, as they are defined by the Notice, also exclude deductions which would be disallowed by IRC Sections 703(a)(2)(B) (Partnerships) or 1363(b)(2) (S-corporations).

Whether the final regulations will be promulgated has yet to be seen. Additionally, there is concern among lawmakers that this arrangement will allow partners in a partnership or shareholders in an S-corporation to be treated more favorably than workers who earn their income through wages, as wage-earners cannot form an LLC and become sub-contractors in order to avail themselves of the deduction. Only S-corporations, partnerships, and LLCs treated as partnerships for tax purposes may take advantage of the proposed changes described by the Notice.

The proposed regulations are intended to apply to tax payments made by an entity on or after November 9, 2020, and Taxpayers may apply the rules in the Notice to Specified Income Tax Payments made in a taxable year of their entity ending after December 31, 2017. If you are a business owner, or are considering forming a business, and have any questions or concerns as to how this new Notice may affect your business taxes, you should not hesitate to reach out to our law firm’s tax professionals for a consultation or further explanation.

VW Contributor: Elena K. Whidden
© 2020 Vandenack Weaver LLC
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500 Series Notices Issued Once Again – The Hits Keep Coming

Due to COVID-19, on May 9, 2020, the 500 series notices were suspended. Now, it seems, the Internal Revenue Service (the “IRS”) has begun to issue the 500 series notices to taxpayers once again. What is a 500 series notice and what is the importunate of the IRS reissuing these notices you may ask?
The 500 series notices include three different types of notices that alert taxpayers about various stages of nonpayment – (1) the CP501, (2) the CP503 and (3) the CP504.

The CP501 Notice alerts taxpayers that they have a balance due to the IRS and their payment options.

The CP503 Notice alerts taxpayers that the IRS has not heard from the taxpayer about the unpaid balance and that the taxpayer’s property may be subject to a lien if they fail to pay.

The CP504 Notice alerts taxpayers that their remains and unpaid balance and that if not immediately paid, the IRS will levy the taxpayers state income tax refunds.

Regardless of the type of 500 series notice you receive, it is imperative that you follow the directions set forth in the notice to dispute the amount owed or to pay the balance due. If you do not successfully dispute the amount owed and you fail to pay the balance due, a penalty will be assessed, and the outstanding balance and penalty will continue to accrue interest until paid. Furthermore, once the IRS has levied your state income tax refund, if there is still a balance outstanding, the IRS will likely send you a notice of its intent to levy your other property, including: wages, bank accounts, business assets, personal assets, and social security benefits.

Now, all is not lost if you receive a 500 series notice, because there are options afforded to you that can reduce or eliminate the penalty and/or balance owed in part or even entirely. If, based on all the facts and circumstances in your situation, there exists reasonable cause for failure to pay the taxes when due, you will generally qualify for relief from penalties. Though lack of funds, in and of itself, is not a reasonable cause for failure to pay, the reason for the lack of funds may meet the reasonable cause criteria. Sound reasons, if established, may include: fire, casualty, natural disaster, pandemics, death, serious illness, incapacitation, and other reasons which establishes that you used all ordinary business care and prudence to meet your obligations. Regardless of the reason, the following facts need to be established in order to determine if the cause was reasonable:
• What happened and when did it happen?
• What facts and circumstances prevented you from paying your tax during the period you did not pay your taxes timely?
• How did the facts and circumstances affect your ability to pay your taxes?
• Once the facts and circumstances changed, what actions did you take to pay our taxes
• In the case of a business or estate, did the affected person or member have sole authority to make the payment?

If you have been financially impacted by COVID-19, you may satisfy the reasonable cause exception and have the penalty waived.

If you have received a 500 series notice and believe that the amount does not accurately reflect what you owe or if you have been impacted by the pandemic, or any other reason, the attorneys of Vandenack Weaver can assist you.

VW Contributor: Justin A. Sheldon
© 2020 Vandenack Weaver LLC
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IRS Releases Part 4 and 5 of a Five-Part Security Summit Tips for Tax Professionals during COVID-19

This article wraps up the last of the ​Security Summit’s​ five-part series called Working Virtually: Protecting Tax Data at Home and at Work. ​As a refresher, the Security Summit is made up of the Internal Revenue Service (“IRS”), state tax agencies, and private-sector tax industry officials. The impetus for releasing this five-part series was to equip ​tax practitioners with specific strategies to assess and secure their home and office data, due to the fact that many tax professionals are not working from home.​ ​This article explains the fourth and fifth tips that the Security Summit issued. The fourth tip reminds tax practitioners to be alert of and avoid phishing scams. The fifth tip reminds tax professionals that federal law requires them to have a written information security plan. The Security Summit further recommends that practitioners create an emergency response plan if they experience a data theft.

Tip 4: Avoiding Phishing Scams
What should tax practitioners be on the lookout for to spot potential phishing scams? First, phishing emails can have an urgent message. For example, cybercriminals can send an email impersonating human resources or an administrator asking for the recipient to update their password or other personal information by clicking on a link. The link will then take the individual to a fake site that feigns the appearance of a trusted source requesting them to insert personal information. Or, the email could contain an attachment for the recipient to click on that instead downloads malware on their computer. Now cybercriminals are capitalizing on COVID-19 fears ​by presenting themselves as providers of face masks or personally protective equipment in short supply. Tax professionals should beware of emails from criminals posing as potential clients. Tax practitioners should thus stay vigilant in scanning all emails and urge on the side of caution rather than clicking on any email attachment or any link in an email. When in doubt, taxpayers and tax preparers can forward suspicious emails posing as the IRS to phishing@irs.gov.

Lastly, because phishing scams are commonplace, and often successful, the Security Summit urges tax professionals to educate all office personnel about the dangers and risks of opening suspicious emails – especially during the COVID-19 period.

Tip 5: Make a Plan for Protecting Data and Reporting Theft
The Financial Services Modernization Act of 1999, also known as the Gramm-Leach-Bliley ACT, requires that tax professionals have a written security plan in place to safeguard their client’s tax data. This federal law is administered and enforced by the Federal Trade Commission (“FTC”). The FTC underscores that a tax preparer’s security plan must be appropriate to the company’s size and complexity, the nature and scope of its activities, and the sensitivity of the customer information it handles. Therefore, a security plan for a solo tax practitioner would differ from a global firm’s security plan. On the other hand, the FTC does have requirements that apply to all tax companies, irrespective of their size and complexity.

Each tax institution must:
● Designate one or more employees to coordinate its information security program;

● Identify and assess the risks to customer information in each relevant area of the company’s operation, and evaluate its effectiveness of the current safeguards for controlling these risks;

● Design and implement a safeguards program, and regularly monitor and test it;

● Select service providers that can maintain appropriate safeguards, making sure the contract requires them to maintain safeguards, and oversee their handling of customer information; and

● Evaluate and adjust the program in light of relevant circumstances, including changes in the firm’s business or operations, or the results of security testing and monitoring.

Failure to have a data security plan may result in an FTC investigation. The IRS may also treat a violation of the FTC safeguards rule as a violation of the IRS Revenue Procedure 2007-40 which stipulates the rules for tax professionals participating as an Authorized IRS e-file Provider.

On July 10, 2019, the IRS created this ​youtube video​ to reiterate that all tax preparers must have a written security plan. The video also reiterates the basic requirements for how tax preparers can safeguard taxpayer data. And, as an additional tool, you can revisit the “Taxes-Security-Together” Checklist​ the Security Summit rolled out during the 2019 summer as a starting point for analyzing office data security. You can also look at IRS ​Publication 4557, Safeguarding Taxpayer Data (PDF)​, which details critical security measures that all tax professionals should enact. Finally, the Security Summit noted that the FTC is currently re-evaluating the Safeguards Rule and has proposed new regulations. Therefore, tax preparers should be alert to any changes in the Safeguards Rule and its effect on the tax preparation community.

Creating a Data Theft Response Plan; Report Data Thefts to the IRS
The Security Summit also recommends that all tax practitioners create a response plan so that they have steps in place should they experience a data theft. If a client or the tax firm are the victim of data theft, the Security Summit states that they should immediately:

● Report it to the ​local IRS Stakeholder Liaison​. ​Stakeholder Liaisons will notify IRS Criminal Investigation and others within the agency. Speed is critical. If reported quickly, the IRS can take steps to block fraudulent returns in clients’ names and will assist through the process.

● Email the Federation of Tax Administrators at statealert@taxadmin.org. ​Get information on how to report victim information to the states. Most states require that the state attorney general be notified of data breaches. This notification process may involve multiple offices.

Cyber attackers could also steal a tax practitioner’s identity too. Tax practitioners should
regularly check their IRS e-Services e-File Application to see a weekly count of tax returns filed with their Electronic Filing Identification Number (“EFIN”). Excessive filings are a sign of data theft. E-file applications should also be kept up to date. Circular 230 practitioners also can review weekly the number of tax returns filed using their Preparer Tax Identification Number (“PTIN”). Excessive filings are also a sign of data theft.

As always, tax professionals should take advantage of the additional resources the IRS provides related to security recommendations and questions in ​Publication 4557 Safeguarding Taxpayer Data​ (PDF), as well as the National Institute of Standards and Technology (NIST’s) Small Business Information Security: The Fundamentals​ (PDF).

VW Contributor: Skylar Young
© 2020 Vandenack Weaver LLC
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IRS Releases Part 3 of a Five-Part Security Summit Tips for Tax Professionals

On August 6, 2020 the Internal Revenue Service (IRS), in partnership with the Security Summit, issued the third part of their five-part series providing tips for tax professionals to thwart off cyber-security attacks during COVID-19. This week the advice was focused on virtual private networks (VPN). A VPN ensures your location stays private, your data is encrypted, and you can surf the web anonymously.

To understand how a VPN works, it is important to understand the basic transaction that occurs when individuals browse the internet. For example, when an individual types http://www.google.com in their browser they are entering the website’s domain name. A domain name designates the name of the website’s IP address. Every computer and device accessing the internet also has an IP address as well. When an individual types in http://www.google.com into their internet browser they are sending their data into the internet until it reaches the server. Then that server translates the data and sends the website that individuals has requested to visit. During these transactions, however, individuals are not only sending  requests to visit various websites, they’re also sending out their computer’s IP address and other information too. This allows the potential for hackers to intercept a person’s information. The use of a VPN will protect an individual’s information from being intercepted. A VPN creates a tunnel that encrypts information. A VPN is essential for any business because it provides a safe way to transmit data between a remote user via the Internet and the business network.

Chuck Rettig, the IRS Commissioner noted that “We continue to see tax pros fall victim to attacks every week. Failure to use VPNs risks remote takeovers by cyberthieves, giving criminals access to the tax professional’s entire office network simply by accessing an employee’s remote internet.”

However, finding a legitimate vendor to purchase a VPN from can be difficult. Carefully review various companies that offer VPN services and be sure to choose a service that includes all the capabilities that will meet your needs.

And, while not stated in the IRS’s tip for this week, it is also important to know that while a VPN is necessary, it is not a magical privacy shield that will completely insulate any company from vulnerabilities to cyberattacks. For example, a VPN cannot protect you against a website setting a tracking cookie on your device that will then alert other websites about you. A VPN also cannot protect you against a website that sells your email address to a third-party data broker.

Lastly, the IRS tip for this week also includes the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency (CISA) advice regarding VPNs:

• Update VPNs, network infrastructure devices and devices being used to remote into work environments with the latest software patches and security configurations.
• Alert employees to an expected increase in phishing attempts.
• Ensure information technology security personnel are prepared to ramp up these remote access cybersecurity tasks: log review, attack detection, and incident response and recovery.
• Implement multi-factor authentication on all VPN connections to increase security. If multi-factor is not implemented, require teleworkers to use strong passwords
• Ensure IT security personnel test VPN limitations to prepare for mass usage and, if possible, implement modifications—such as rate limiting—to prioritize users that will require higher bandwidths.

As always, tax professionals should take advantage of the additional resources the IRS provides related to security recommendations and questions in Publication 4557 Safeguarding Taxpayer Data (PDF), as well as the National Institute of Standards and Technology (NIST’s) Small Business Information Security: The Fundamentals (PDF).

VW Contributor: Skylar Young
© 2020 Vandenack Weaver LLC
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The Second Circuit Upholds Regulation Best Interest

On June 26, 2020 the U.S. Court of Appeals for the 2nd District ruled that the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) authorizes the Securities and Exchange Commission’s (“SEC”) Regulation Best Interest rule and that the rule is not arbitrary and capricious. Specifically, the Court held that Section 913(f) of the Dodd-Frank Act grants the Securities and Exchange Commission (SEC) confers broad rulemaking authority which includes the Best Interest rule adopted by the SEC.

Background on the Regulation Best Interest Rule

Under federal law, both investment advisers and broker-dealers offer financial services to retail customers. However, only the former owe a fiduciary duty to their clients; broker-dealers do not. To reduce retail investor confusion in the marketplace regarding the investment advisory services and brokerage services, the SEC promulgated the Regulation Best Interest rule. Thus, the point of the Regulation Best Interest rule was to establish a “best interest” standard of conduct applicable to broker-dealers when making a recommendation of a securities transaction to a retail customer. A retail customer is a “natural person, or the legal representative of such a natural person, who: (A) receives a recommendation of any securities transaction or investment strategy involving securities from a broker, dealer, or a natural person who is an assigned person of a broker or dealer; and (B) uses the recommendation primarily for personal, family or household purposes.” However, the rule does not define “best interest.” Rather, it delineates four component obligations a broker-dealer must follow, in addition to prioritizing the interests of the retail customer above any interests of the broker-dealer or associated persons thereof. Those four obligations include:

• The Disclosure Obligation,
• The Care Obligation
• The Conflict of Interest Obligation, and
• The Compliance Obligation.

Issues in XY Planning Network, LLC., v. U.S. Securities and Exchange Commission

Petitioners in this case, including an organization of investment advisers, seven states, and the District of Columbia brought forth an action challenging the lawfulness of Regulation Best Interest. They argued that the Dodd-Frank Act requires the SEC to adopt a rule holding broker-dealers to the same fiduciary standard as investment advisers.

However, the Second Circuit held that the key language in Section 913(f) of the Dodd-Frank Act, which is permissive, reflects Congress’s intent to confer discretionary rulemaking authority to the SEC. The pertinent language states:

“the SEC may commence a rulemaking, as necessary or appropriate in the public            interest and for the protection of retail customers . . . to address the legal or regulatory standards of care for” broker-dealers.”

Petitioners argued that Section 913(g) narrows this discretionary authority under Section 913(f). Unlike the broad authority under 913(f), Section 913(g) is specific in that it authorizes the SEC to establish a fiduciary duty for broker dealers. Thus, Petitioners reasoned that 913(f) was a procedural authorization to commence rulemaking only and that 913(g) provided the substantive content for any such rulemaking. The Second Circuit disagreed and found this interpretation at odds with the plain meaning of the regulation in which 913(f) and 913(g) are two separate and freestanding grants or rulemaking authority that are not interdependent provisions that limit one another.

The Second Circuit also rejected Petitioners’ argument that Regulation Best Interest is arbitrary and capricious. Rather, the court highlighted the fact that the SEC considered thousands of comments and input before rejecting the extension of the fiduciary duty to broker-dealers. The Petitioners further alleged that Regulation Best Interest is arbitrary and capricious because the SEC failed to adequately address the significant evidence that consumers are not meaningfully able to differentiate between the standards of conduct owed by broker-dealers and investment advisers. But once again, the Court showed deference to the SEC’s determination that while a uniform standard of care may reduce retail investor confusion, this benefit could not overcome the burden that would result with respect to significant compliance costs for broker-dealers that would ultimately cause retail customers to experience an increase in the cost of obtaining investment advice and lead to a potential exit of broker-dealers from the market.

This is an important decision in that the Second Circuit has explicitly ruled that that Regulation Best Interest is the standard of conduct expected from broker-dealers. And, moreover, the court rejected the argument that Congress required the SEC to harmonize the investment adviser and broker-dealer regulatory models. Going forward, Regulation Best Interest will open the door to disclosures required for various broker-dealers when they are making explicit recommendations to clients in scenarios where the broker does not already have discretion to make trades. Given this important circuit decision, firms should heed the three-page Appendix the SEC issued on April 7, 2020 to implement plans with respect to Regulation Best Interest. The compliance date for Regulation Best Interest began in June 30, 2020.

VW Contributor: Skylar Young
© 2020 Vandenack Weaver LLC
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IRS Releases Part 2 of a Five-Part Security Summit Tips for Tax Professionals

On July 28, 2020 the Internal Revenue Service (IRS), in partnership with the Security Summit, issued the second part of their five-part series providing tips for tax professionals to thwart off cyber-security attacks during COVID-19. The second tip is for tax professionals to use multi-factor authentication to protect client accounts. The notice also provides a reminder that beginning in 2021, all tax software providers will be required to offer multi-factor authentication options on their products that “meet higher standards.”

Multi-factor authentication, sometimes referred to as two-factor authentication, allows for additional authentication factors than just entering in a password to verify a user’s identity. Two-factor authentication requires the user to provide their password and an additional step to access their account. Sometimes, a user will receive a text message with a one-time password, or perhaps the user is asked a knowledge-based question that they previously set up, such as “what is your mother’s maiden name.” However, given the sophistication of cyber-criminals ability to exploit known weaknesses in passwords, the two-factor authentication is not always full-proof. An example of a stronger multi-factor authentication process would be where the user has to input their password and then has to provide biometric sign-in solution, such as scanning their fingerprint, voice recognition, or facial recognition. In this second example, the multi-factor authentication creates a more robust defense against unauthorized access due to the uniqueness of the biometric authentication.

Part two in this series also references easy ways for tax professionals to download authentication apps offered through Google Play and the Apple Store. Use a search engine for “Authentication apps” to learn more. The guidance reminds tax professionals to incorporate multi-factor authentication with all accounts, including cloud storage providers, as well as social media outlets.

Lastly, tax professionals should take advantage of the additional resources the IRS provides related to security recommendations and questions in Publication 4557 Safeguarding Taxpayer Data (PDF), as well as the National Institute of Standards and Technology (NIST’s) Small Business Information Security: The Fundamentals (PDF).

VW Contributor: Skylar Young
© 2020 Vandenack Weaver LLC
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IRS Releases Part 1 of a Five-Part Security Summit Tips for Tax Professionals

On July 21, 2020 the IRS and Security Summit partners issued specific guidance to assist tax professionals with implementing basic security measures. The Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency (CISA) are urging organizations remain in a heightened state of alertness as cybercriminals remain active during COVID-19 and prey on vulnerabilities during this time. The IRS state tax agencies and nation’s tax industry created a five-part series called Working Virtually: Protecting Tax Data at Home and at Work.

Due to the fact that many tax professionals are working from home, this five-part series is designed to walk practitioners through various strategies to assess and secure their home and office data. The first recommendation that was released on July 21 outlines six basic security steps, “Security Six,” that every tax professional should take whether they are working in the office or remotely. This series will continue each Tuesday and end on August 18.

The “Security Six” protections that everyone, especially tax professionals handling sensitive data, should use are:

1. Anti-virus software. It is essential that professionals purchase anti-virus software that scans computer files or memory for certain patters that can detect the presence of malicious software, also known as malware. Tax professionals should educate themselves on the type of anti-virus software, also called anti-malware software package that they purchase. Additionally, it is best practice to configure the anti-virus software so that it automatically scans specific files or directories in real time, rather than the individual performing their own manual scan. Tax professionals also should keep security software set to automatically receive the latest updates to ensure it is always current.

While anti-virus software should protect against spyware, a type of malware that steals    sensitive data and passwords without the user’s knowledge, individuals should never:

• click links with pop-up windows, nor
• download “free” software from a pop-up, nor
• follow links that offer anti-spyware software.

This advice also pertains to phishing emails. Never open an email from a suspicious        source, click on a link in a suspicious email or open an attachment.

2. Firewalls provide protection against outside attackers by shielding a computer or network from malicious or unnecessary web traffic and preventing malicious software from accessing systems. Firewalls can be configured to block data from certain suspicious locations or applications while allowing relevant and necessary data to pass through, according to CISA.

Properly installing a firewall is not full proof, however. Cybercriminals love phishing- don’t become the bait! Firewalls cannot protect data if an employee clicks on a link sent in a scam email or text message, or accidently installs malware. Stay vigilant when scanning emails and text messages, and make sure your employees are also aware of phishing and malware.

3. Two-factor authentication. Two-factor authentication is a free security feature that gives a user an extra layer of protection from being hacked, even if a cybercriminal obtains access to a user’s password. That is because, in addition to entering in the password, a user is prompted to enter a security code sent via text message.

Two-factor authentication is a basic security feature all professionals must use. Three-     factor authentication is even in use. Tax software providers, email providers and others that require online accounts now offer customers two-factor authentication protections to access email accounts. Using the two-factor authentication options offered by tax   software providers is critical to protect client data stored within those systems. Tax pros also can check their email account settings to see if the email provider offers two-factor protections.

4. Backup software/ services.  Critical files on computers should routinely be backed up to external sources. This means a copy of the file is made and stored either online as part of a cloud storage service or similar product. Or, a copy of the file is made to an external disk, such as an external hard drive with multiple terabytes of storage capacity. Tax professionals should ensure that taxpayer data that is backed up also is encrypted – for the safety of the taxpayer and the tax pro.

5. Drive encryption. Given the sensitive client data maintained on tax practitioners’ computers, users should consider drive encryption software for full-disk encryption. Drive encryption, or disk encryption, transforms data on the computer into unreadable files for an unauthorized person accessing the computer to obtain data. Drive encryption may come as a stand-alone security software product. It may also include encryption for removable media, such as a thumb drive and its data.

6. Virtual Private Network. This is critical for practitioners who work remotely. If a tax firm’s employees must occasionally connect to unknown networks or work from home, establish an encrypted Virtual Private Network (VPN) to allow for a more secure connection. A VPN provides a secure, encrypted tunnel to transmit data between a remote user via the Internet and the company network. Search for “Best VPNs” to find a legitimate vendor; major technology sites often provide lists of top services.

Review professional insurance policy

The guidance also reminds tax professionals to review their professional insurance policy to see if their business is protected should a cyberattack occur.

As a final note, tax professionals should seek out addition security best practices as recommended by the  IRS Publication 4557, Safeguarding Taxpayer Data (PDF), and Small Business Information Security: The Fundamentals (PDF) by the National Institute of Standards and Technology.

VW Contributor: Skylar Young
© 2020 Vandenack Weaver LLC
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State of Nebraska Expands Options for Grants to Small Businesses Affected by COVID-19 Pandemic – New Deadline of July 17

Nebraska has re-opened and expanded its program by which certain small businesses will be eligible for grants from the state to help address the impact of the COVID-19 pandemic.  Businesses can begin applying immediately with a deadline of July 17, 2020.

Most businesses with 75 or fewer employees will be eligible.  The number of employees is based on head count and not full-time equivalents.  The initial program was limited to businesses with at least five and no more than 49 employees, so businesses with fewer than five and from 50 to 75 employees should reexamine the option of applying. Certain classes of businesses are excluded (see below). Applicants must be able to demonstrate a negative economic impact due to the pandemic.

Sole proprietors (one employee) are eligible so long as the business has withheld taxes for said employee as of March 13, 2020.

Funds can be used for working capital and for operating expenses not otherwise covered by insurance or other assistance programs.

Businesses excluded include:

• Mining
• Utilities
• Finance and Insurance
• Management of businesses
• Education
• Public administration
• Lobbying
• Businesses delinquent on Nebraska taxes
• Businesses debarred or suspended from federal programs

The grants will not be awarded competitively but will be awarded to eligible applicants on a first-come first-serve basis.  It is anticipated that each eligible business will receive a minimum of $12,000.

The website for the program is here.  Frequently asked questions are here.  The application process can be begun here.

Please call your Vandenack Weaver attorney at 402-504-1300 or info@vwattys.com for more information.

© 2020 Vandenack Weaver LLC
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Congress Adopts PPP Application Extension

The United States Congress has adopted legislation to extend access to the Paycheck Protection Program (“PPP”) loan program through August 8, 2020.
Prior legislation set the deadline for applications at June 30, but, given that over $130 billion of funds remained available, the application was extended to August 8. The latter date gives Congress additional time to determine appropriate use of the remaining funds.

PPP loans provide small businesses with funds for payroll and certain other operating expenses and can be forgiven if conditions are satisfied.
Additional flexibility for borrowers was adopted in June, which may make PPP funding more attractive to some businesses.

Congress is expected to adopt additional legislation in response to the COVID-19 pandemic later in the summer. Making a second PPP loan available to qualifying borrowers is one possibility that is being discussed, but until such a change is adopted borrowers are limited to only one loan.

 

VW Contributor: Jim Pieper
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