Last Year's Unemployment Benefits Could Cost Americans $50 Billion at Tax Time

With tax season officially starting on Friday, millions of Americans could be in for a shock: owing taxes on unemployment benefits they received in 2020, CBSNews.com reported. The federal government and most states consider jobless aid taxable income. But unlike a paycheck, taxes typically aren't automatically deducted from such benefits, with the IRS expecting its cut. Goldman Sachs estimates people could end up owing as much as $50 billion in taxes on unemployment insurance benefits they got last year — as layoffs soared during the coronavirus pandemic — come the April 15 tax filing deadline. That could wipe out many taxpayers' refunds and even dent the economy. Congress could still intervene as Democratic lawmakers have introduced a bill to exempt unemployment benefits from taxes.



In related news, the number of Americans filing for first-time unemployment benefits rose last week as the coronavirus pandemic continues to trigger a high number of layoffs, FoxBusiness.com reported. Figures released today by the Labor Department showed that 793,000 Americans filed first-time jobless claims in the week ended Feb. 6. The number has remained stubbornly high for months, hovering around four times the pre-crisis level, although it's well below the peak of almost 7 million that was reached when stay-at-home orders were first issued in March. Almost 70 million Americans, or about 40% of the labor force, have filed for unemployment benefits during the pandemic. Continued claims, or the number of Americans who are consecutively receiving unemployment benefits, fell to 4.54 million, a decline of about 145,000 from the previous week. The report shows that roughly 20.4 million Americans were receiving some kind of jobless benefit through Jan. 23, an increase of about 2.5 million from the previous week.



Additionally, nearly 11 million Americans will lose unemployment benefits in about two months without additional COVID-19 relief, according to a new analysis, CNBC.com reported. That "benefits cliff" is larger than the one workers faced in December when Congress was debating the contours of a $900 billion pandemic aid measure, according to research published yesterday by The Century Foundation, a left-leaning think tank. However, Democrats appear poised to pass a $1.9 trillion relief package proposed last month by President Joe Biden within a few weeks, which would avert another cliff. December’s $900 billion package ultimately extended two temporary federal programs — Pandemic Unemployment Assistance and Pandemic Emergency Unemployment Compensation — that were set to lapse the day after Christmas. Now, those programs — which support the long-term unemployed and others like self-employed and gig workers — were extended through March 14. Workers who don’t exhaust their allotment of benefits by that date can continue collecting benefits up to April 11. About 10.6 million people will lose their benefits by mid-April and won’t qualify for more aid through other programs, according to The Century Foundation analysis, authored by senior fellow Andy Stettner and Elizabeth Pancotti, a policy advisor at Employ America. That figure amounts to roughly 1.5 million more workers than were poised to lose jobless benefits in December, according to the analysis.

Cash-in-Pockets Emerges as New Democratic Approach to Federal Aid in Coronavirus Bill

Congressional Democrats are using coronavirus relief legislation to advance a vision of federal aid to households that is focused on cash assistance with few restrictions, moving away from the work requirements and minimum-income thresholds that have been cornerstones of federal policies for decades, the Wall Street Journal reported. The bill’s $1,400-per-person direct payments, expansion of the child tax credit and extension of unemployment insurance all would provide flexible cash to households. Democrats have emphasized the breadth of households’ needs during the pandemic and have rejected Republicans’ concerns that giving people money would discourage them from returning to work. For lower-income and middle-income households, the combination of policies in the Democrats’ legislation could yield significant short-term increases in income. While unemployment benefits have an application process and eligibility restrictions, direct payments and the child tax credit expansion would have no strings attached, and they are available even to households with no income. The bottom 20% of households by income would see their after-tax incomes rise by 20% because of the plan’s direct payments and tax credit expansions, according to the Tax Policy Center, a project of the Urban Institute and Brookings Institution. That group would get an average benefit of $2,810, while the middle 20% of households would get an average of $3,360, or 5.5% of after-tax income. Higher-income households would get smaller amounts, and for now, Democrats are waiting before advancing the tax increases on top earners they promised during last year’s campaign. (Subscription required.)

Retailers Hold On to Stores in Hopes of Surge of Shoppers

A surge of expected store closings early this year hasn’t materialized after strong holiday sales prompted retailers to hold on to their leases in hopes of a shopping rebound, Bloomberg News reported. “It wasn’t the wave everyone thought it would be,” said Ryan Mulcunry, a managing director at B. Riley Financial Inc. who advises retailers. Last year, retailers announced plans to shutter a record 12,200 stores, according to CoStar Group. But some are now reconsidering after larger holiday revenues and ready support from lenders gave them more breathing room, Mulcunry said. Holiday sales jumped 8.3% in November and December compared to a year earlier, according to the National Retail Federation, easily beating an expected gain of 3.6% to 5.2%. Traditionally, troubled retailers have sought to restructure their debts — which can include filing for bankruptcy and closing locations — early in the year when they are flush with cash following the holiday season. Even this year, not all retailers have been spared. Women’s clothing company Christopher & Banks Corp. filed for bankruptcy last month and is liquidating nearly 450 locations. Department store chain Belk Inc. also said it would seek court protection. But it now makes more sense for some retailers to hold on to leases in preparation for easing pandemic restrictions, according to Mulcunry. Part of the hope is that consumers will return as they tire of online shopping and seek new outfits for when they return to their offices. Even if retailers do decide to shut some locations, “you’ll get more for your inventory in June,” he said. “A lot of people are betting on this summer having good store and mall traffic.”

Commentary: The Biden Administration and Puerto Rico: A Proposal for a Beneficial Relationship*

The Biden Administration has an opportunity to address the crisis in Puerto Rico and rectify the enormous problems that plague Puerto Rico, according to a commentary in the New York Law Journal. The implementation of a long-term economic development and infrastructure program will benefit not only Puerto Rico, but also its creditors. Puerto Rico needs a Marshall Plan to resuscitate its moribund economy, according to the commentary. The repeal of the Jones Act is a key component of that long-term economic plan. The Jones Act requires that all freight shipped on a vessel into Puerto Rico from an American port must be shipped on a U.S.-flagged vessel with a U.S. crew. The Jones Act has been described as archaic legislation that is protectionism at its worst that has significantly increased the cost of shipping goods to Puerto Rico, the commentary explains. Another important component of a long-term economic development plan for Puerto Rico is the reenactment of Internal Revenue Code § 936, which was pivotal to the Puerto Rican economy. Under § 936, U.S. corporations were granted a tax exemption from income originating in Puerto Rico. In 2006, when § 936 was no longer in effect, the Puerto Rican economy went into recession. Additionally, it is estimated that Puerto Rico’s infrastructure will need a $23 billion investment in the next 10 years to help it modernize, which will make Puerto Rico more attractive for business investment and can provide an economic stimulus for the Puerto Rican economy.



*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

COVID-19 Forces Co-Working Firms to Recast Their Business Model

The pandemic is compelling a number of co-working firms to discard original business models, or accelerate the adoption of a new one, with the broader office market under threat, the Wall Street Journal reported. The original strategy, popularized by WeWork and many of its peers, involved leasing as much office space in city centers as possible, and then effectively subletting it to companies for a profit. This approach led to spectacular growth and sent WeWork’s valuation soaring to $47 billion. With the majority of office employees still working from home during Covid-19, demand has plummeted. But co-working firms remain on the hook for the expensive long-term leases they signed during the boom years, and many are struggling to meet these obligations. Knotel Inc. became the industry’s biggest victim yet of this mismatch when it filed for chapter 11 bankruptcy last month. Now, some analysts suggest the pandemic is accelerating the end of the industry’s lease-and-sublet model. “The business model was similar to picking up pennies in front of a steamroller, which history has shown isn’t a sustainable strategy,” said Daniel Ismail, a senior analyst at commercial real-estate analytics firm Green Street. Instead, he expects revenue-sharing agreements to become more common. They are similar to the relationship between hotel owners and operators, where operators get fees and a share of profits but don’t have to pay rent. Revenue-sharing deals are considered less risky because they leave operators with lower fixed costs. “You will be making more money on the space, if you’re doing a lease deal, when times are good,” said Shlomo Silber, chief executive of New York-based co-working company Bond Collective. “However, when times are bad, you’ll really get hurt.” (Subscription required.)

Experts Unpack Important Commercial Bankruptcy Law Changes Enacted in December on Latest ABI Podcast

Legislative measures throughout 2020 were aimed at providing economic stability to meet the challenges of the financial distress caused by the COVID-19 pandemic, and December saw a flurry of activity that resulted in the Combined Consolidated Appropriations Act of 2021. The $2.3 trillion spending bill combined $900 billion in stimulus relief for the COVID-19 pandemic with a $1.4 trillion omnibus spending bill for the 2021 federal fiscal year. The bill passed both chambers of Congress on Dec. 21 and was signed into law by the President on December 27. Within the nearly 5,600 pages of this bill were important changes to the Bankruptcy Code. In this podcast, ABI Legislation Committee Co-Chair Ferve Khan of BakerHostetler (New York) discusses the changes with Tiffany Payne Geyer of BakerHostetler (Orlando) and Tom Salerno of Stinson LLP (Phoenix).

Celebrate ABI's 40 Under 40 Class of 2020 at a Special Virtual Program on Thursday!

Join us on February 18 at 7 p.m. EDT as we honor ABI’s 2020 Class of 40 Under 40. This newest class of honorees is an incredibly accomplished and diverse group, reflecting the multidisciplinary nature of our professional community. ABI is very proud to do its part to usher in the next generation of insolvency leaders. The virtual program includes a keynote by author, adventurer and entrepreneur Garrett Gravesen. He is the author of the international bestseller 10 Seconds of Insane Courage. The event will also feature remarks from ABI leadership and a special presentation for this year's 40 honorees, and will conclude with networking. Register for FREE.

Submissions for Asset Sales Committee’s “Asset Sale of the Year” Award Now Being Accepted!

ABI’s Asset Sales Committee has opened the application period for its 3rd Annual Asset Sale of the Year Award. Submissions are due by Friday, March 5, 2021. Please see below for more information regarding the contest as well as previous winners. Criteria for submissions include:

• Completion of a sale that was strategic and provided stakeholders with value;
• A display of excellence across the full spectrum of the sale process, from the initial targeting through pursuit, structuring and financing to complete a transaction;
• A sale that reflects a high level of professional expertise in the design of the transaction, and that tested creativity and skill in completing the transaction; or
• A sale of strategic or legal significance and impact (winning entries might focus on overcoming challenges to complete the sale, innovative financial engineering, and motivating agreement across multiple stakeholders)

Eligibility
A bankruptcy sale (via either § 363 or a plan) that closed between January 1 and December 31, 2020.

At least one professional involved in the sale must be a member of the Asset Sales Committee as of the nomination deadline. Self-nominations are permitted.

Click here for more information.

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