Around the Firm.

• Remote Work. PG LLP continues to (thankfully and gratefully) enjoy the benefits of operating virtually (i.e. "remotely," "at-home"), having done so throughout the firm's existence. The aggressive application of state of the art technology in the law firm environment was and is a fundamental underpinning of the firm's mission. The pandemic made obvious to us that many lawyers and other professionals were behind the curve in the adoption of even (barely) fundamental technology (cloud storage of documents, for example). It is unnerving to consider the additional challenges those otherwise quite-capable professionals faced in getting up to speed in a world of video conferences and such.
• Vacations? What Vacations?  Unlike many or most summers, the summer of 2020 does not find us (or you) facing the usual summer slowdown or doldrums.  While few of us have any significant vacation plans, we have discovered our clients, too, are in the same boat (aren't we all). And in the spirit of "make hay while the sun shines," we find they are planning and executing their business and investment plans. We are engaged with them and their other advisors helping them do so.

Income Tax

• Tax Season Delayed. The ordinary tax season due date was deferred to July 15 which has come and gone. Our tax accountant friends, having faced the unusual mid-summer tax season, are now busy working on the "next' tax season which involves tax returns due on September 15 (partnership and S corporation returns are in this group).
• Collections. IRS personnel have returned to their offices to some extent. Our mailbox tells us that they are working through the backlog of correspondence, both incoming and outgoing.  Collection activities with regard to delinquent taxpayers are picking back up although the word we have from IRS personnel we interface with is that the collection activities will only slowly pick back up steam.

Estate and Gift Tax

• A Premium on Planning.  As we wind towards the end of 2020, it is clear that our clients and other individuals that enjoy significant wealth must take a close look at instituting effective tax-saving planning while current tax rates are in effect. It is quite reasonable to understand that there is a high likelihood of tax increases as early as 2021 in order to return some modicum of balance to a government fisc that has more or less been ignored in the haste to provide pandemic relief to U.S. taxpayers. This is so regardless of the outcome of the November elections. One revenue-raising target that could easily be on the table is the existing exemption ampimt for estate and gift taxes.  Those incredibly generous currently in existence ($11.5M approx. per person) may well be reduced after the end of 2020. The entrepreneur who has almost all of their wealth tied up in closely held business interests must particularly engage in the planning process sooner rather than later.

State Taxes

• No report

Real Estate

• Repurposed Hotels. Hotels and motels may never be utilized at the same pace as before Covid-19. Some savvy real estate investors have seen this as an opportunity to re-purpose unused hotel and motel properties as permanent apartment housing. This may be an excellent opportunity to provide a stock of affordable housing, almost overnight. We think it is only a matter of time before we actually see a client desiring to evaluate the possibility.
• Opportunity Zones. It is conceivable that some of the repurposeable hotel and motel properties could be found and located in tax-favored opportunity zones (which is the TCJA provision allowing roll-over, deferral, and sometimes outright permanent avoidance of capital gains taxes). We are advising and guiding certain clients with regard to their opportunity zone investment endeavors, all of which began prior to the pandemic. The IRS issued numerous rules and guidelines that allowed those investors, including our clients, to slow down their deployment of investment capital.
• Office/Retail Leasing.  As a result of  the Covid-19 response, many landlords are being approached by concerned (or perhaps aggressive) tenants in an effort to renegotiate their long-term leases and replace fixed rental obligations with percentage rent or other performance-based metrics.  We see this as a trend that is likely to continue as more and pressure from Covid-19 impacts the retail sectors.  In most cases, landlords should be reluctant to modify their leases and sacrifice the certainty of fixed rent, but but with uncertainty comes opportunity.  Therefore, under the right conditions, landlords and tenants alike may be able to mitigate default exposure and improve their current economic positions.
• Industrial Property.  While restaurants, bars, big box retailers and other traditional businesses dependent upon foot traffic have been severely impacted by Covid-19, the silver lining of real estate may well be in industrial investment and ownership. With many more workers now working from home, e-commerce will only continue to grow.  We do not yet know what the economy will look like on the other side of the pandemic, but one thing is certain: consumers will become adjusted to working from home (and businesses will likely feel greater pressure from their workforce to allow continued remote working arrangements).  As a result, growth of e-commerce will only continue to increase and greater (potentially immense) demands will be placed on supply chains.  Retailers desiring to stay competitive in the ever-changing dynamic market must bring their inventories closer to the consumer. Consequently, we anticipate greater volume of sales/acquisitions, as well as speculative development, in the industrial and warehousing space.

Lending

• Nothing to report.

Exempt Organizations

• Nothing to report.

The Economy

• Stock Market Breadth. The various stock market indexes appear to have recovered closely to their pre-pandemic hights.  There is a catch though: Virtually all of the markets’ gains this year have come from the so-called FAANG stocks – Facebook, Amazon, Apple, Netflix, and Google. Add in Microsoft, and these stocks account for virtually all of the gains for 2020. Whether this remains the case is questionable. A couple of the FAANGs are targets of increasing scrutiny in this hyper-politicized world and their role in that world. Whether deserved or not, a cratering of stock prices for any of the FAANGs could lead to an ugly (uglier) market rout.

Healthcare & COVID-19

• Vaccines - Whether and when a coronavirus vaccine(s) will be reliably created is unknowable, no matter what you read.  Further, even when a vaccine is identified and proven, it will take a long time before becoming widely available. So our view is that we all must get accustomed to "the mask" until summer 2021, at least.  In this writer's view, masks may be a newly acquired lifetime habit, at least in "high season" for flu and the like, no matter the progress made in discovering a vaccine.
• Return to Work. Business owners, including several of our clients, face daunting challenges in returning their employees into a "work-from-work" environment. PG LLP does not expressly advise clients with regard to the multiple employment law and privacy issues that must be navigated to avoid undue liability while attempting to restart their on-premises operations. We do know fine law firms and other advisors who can provide that counseling and advice in the human resources law area. We are happy to pass their contact information along to anyone who needs this type of guidance. It is at least clear to us that this is not an area that should be treated as a DIY project.

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