Trump-era stimulus let corporations claim $14 billion in tax refunds, watchdog says

IRS office
  • Tax breaks included in the CARES Act let corporations receive $14 billion in refunds, the GAO said.
  • Roughly 1,200 firms received refunds worth more than $1 million, according to the Wednesday report.
  • The CARES Act won bipartisan support, but Democrats have since slammed the breaks as poorly targeted.
  • See more stories on Insider’s business page.

The Internal Revenue Service (IRS) will dole out $14 billion in tax refunds to corporations thanks to controversial provisions included in last year’s CARES Act, the Government Accountability Office (GAO) said Wednesday.

The $2.2 trillion stimulus package signed by President Donald Trump in the early stages of the pandemic included a swath of measures aimed at reducing tax burdens for struggling businesses. Tenets included carrybacks for business losses and refunds linked to the Alternative Minimum Tax.

The IRS has already received more than 41,000 cases from businesses looking to access refunds through either, or both, of the two tax breaks, according to a GAO report. Roughly $14 billion in related refunds were approved by the end of last year. Of that, about $11 billion has already been distributed.

Yet while the tax breaks included in the CARES Act were touted as ways to keep small businesses afloat, many of the companies filing for relief are winning massive refunds. Nearly 3,000 companies filing for refunds received between $100,000 and $999,000, according to the report. And roughly 1,200 firms got refunds worth more than $1 million.

Bloomberg first reported on the tax break.

US tax law allows businesses to use net operating losses from unprofitable years to cancel out future tax bills in a carryover process. The CARES Act widened this provision to allow operating losses to be carried back as far as five years, effectively letting companies hit by the pandemic dodge some tax burdens.

The CARES Act passed in March 2020 on a nearly unanimous basis, but Democrats have since criticized some of its tax breaks for issuing relief to wealthy companies and Americans. Some lawmakers have even called for the measures to be repealed.

Republicans, however, have pointed out that Democrats backed the bill’s passage and that similar policies have been used in past downturns.

The GAO’s report suggests the $14 billion in approved refunds are the tip of the iceberg for CARES-related tax breaks. IRS officials said in late January they received more than 12,000 more applications for carrybacks and credit refunds, but that they aren’t yet sure how many are related to the CARES Act. A backlog of revised tax returns could also add to the total amount refunded to corporations, the GAO said.

Read the original article on Business Insider

WATCH: How small businesses can master their taxes in 2021

Filing taxes might be a bit different for small business owners this year. Many were greatly impacted by months of mandatory closures, lost essential revenue, civil unrest, government loans and grants, and layoffs. 

To find out what all these things mean for your taxes, small business reporter Jennifer Ortakales Dawkins talked with tax expert panelists. They covered how the pandemic, PPP loans, and revenue losses could impact your filings. 

Meet our panelists: 

Robbin Caruso is a partner in the tax department and the co-leader of the National Tax Controversy group of Prager Metis.

Nicole Davis is the founder and principal of Butler-Davis, a tax and accounting firm located outside of Atlanta, GA. 

Rick Lazio is the senior vice president of alliantgroup and a former US representative.

Topics covered: 

At 1:57 we go over basics like who is considered a small business and what the tax filing deadlines are depending on your business license. 

At 14:16 panelists explain what business owners should know about PPP loans and other types of federal aid and how those can affect your taxes. 

At 23:09 we cover how government-mandated closures affect business taxes,  what to do if your business deferred payroll taxes in 2020, and what pandemic-related expenses businesses can claim. 

At 33:00 panelists explain new, existing, and updated tax credits and incentives, including the Employee Retention Credit (ERC) and Research and Development (R&D) credits. 

And at 46:33 we go into a Q&A to respond to viewers’ questions as well as hear a few more tips from our panelists. 

Watch the full webinar above. For more information on filing your taxes as a small business, check out additional coverage below. 

Read the original article on Business Insider