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In our consulting work with Skilled Nursing Facilities (SNFs) we have identified some early trends in PDPM implementation we would like to share. PDPM has been in place for a little over three months and while there were some hiccups in the first month, claims appear to be processing normally. SNFs are reporting that PDPM has been positive for their facilities. Many are reporting increases in Medicare revenues and feel PDPM has also been positive for the industry. However, it will still be a few months until we can really measure the financial and operational impacts of PDPM. As we continue to evaluate the early results, here are several lessons learned thus far:

  1. The good news is we were ready! 
    There were predictions that SNFs were not going to be prepared and smaller providers were going to go out of business because they could not adapt to PDPM. This has not been the case. Providers report they have been able to successfully bill under PDPM and most providers are reporting increased reimbursement under PDPM. Initial PDPM news is positive for the industry, but to be successful providers must continue to adapt.
  2. There still needs to be more education on the Minimum Data Set (MDS) to optimize reimbursement.
    SNFs are unsure how sections of the MDS work together under PDPM. MDS nurses need more training on what section to enter diagnosis codes and they are unsure when a diagnosis or a check box will generate the PDPM score. Diagnoses that impact Speech Language Pathology (SLP) and any diagnoses that impact Non-Therapy Ancillaries (NTAs) should be recorded on MDS Section I8000. Some diagnoses entered in Section I8000 also have check boxes in Section I that must be checked in order to be properly reimbursed.
  3. There were some missed reimbursement opportunities.
    There are several factors contributing to missed reimbursement opportunities, including delays in receiving information from physicians and other departments. Facilities need to build better relationships with physicians and provider networks to improve communication that focuses on clinical conditions and co-morbidities of the resident. Additionally, procedures need to be in place to gather clinical information within the first three days in order to get all relevant information on the five-day MDS.
  4. Diagnosis should be supported by patient care plan.
    To be in compliance with Medicare regulations and prevent takebacks on audit, diagnoses must be supported by the resident care plan. For example, if a diagnosis code for malnutrition is entered in Section I, then the resident care plan and medical records need to support the diagnosis. The care plan should document information, such as specific risk factors, lab results, and weight tracking results. Reimbursement and treatment decisions need to have a demonstrable benefit to the resident and must be supported by the resident care plan.
  5. Providers need to evaluate how they provide therapy.
    Before making significant changes to their therapy programs, facilities should analyze their therapy utilization and outcomes under PDPM, as compared to outcomes and utilization under RUGS IV. This ensures you are providing high-quality care at the lowest cost. Things to consider are per patient day utilization ratios, cost per minute under PDPM vs RUGS IV, productivity standards under PDPM, and outcomes. SNFs that are decreasing their therapy minutes should be sure they still have good quality outcomes. 
  6. The bad news? Rate adjustments may be coming sooner than expected.
    PDPM was intended to be budget neutral. Based on early results, this does not seem to be the case. More SNFs are reporting they are winners rather than losers under PDPM. The belief is if PDPM continues to track with early results there will be a rate adjustment that could come as early as mid-year. However, it is more likely that CMS will make an adjustment to weights and rates as part of the 2020 rulemaking process.

As we move further into 2020, you can expect to see more data on PDPM claims and reimbursements, which will help you make operational and financial decisions about your facility. In the meantime, you should keep focusing on patient care and achieving quality outcomes while thinking about what you can do now to adapt to be successful under PDPM.

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Patient Driven Payment Model (PDPM) implementation lessons learned

Editor's note: read this if you are a CFO, controller, accountant, or business manager.

We auditors can be annoying, especially when we send multiple follow-up emails after being in the field for consecutive days. Over the years, we have worked with our clients to create best practices you can use to prepare for our arrival on site for year-end work. Time and time again these have proven to reduce follow-up requests and can help you and your organization get back to your day-to-day operations quickly. 

  1. Reconcile early and often to save time.
    Performing reconciliations to the general ledger for an entire year's worth of activity is a very time consuming process. Reconciling accounts on a monthly or quarterly basis will help identify potential variances or issues that need to be investigated; these potential variances and issues could be an underlying problem within the general ledger or control system that, if not addressed early, will require more time and resources at year-end. Accounts with significant activity (cash, accounts receivable, investments, fixed assets, accounts payable and accrued expenses and debt), should be reconciled on a monthly basis. Accounts with less activity (prepaids, other assets, accrued expenses, other liabilities and equity) can be reconciled on a different schedule.
  2. Scan the trial balance to avoid surprises.
    As auditors, one of the first procedures we perform is to scan the trial balance for year-over-year anomalies. This allows us to identify any significant irregularities that require immediate follow up. Does the year-over-year change make sense? Should this account be a debit balance or a credit balance? Are there any accounts with exactly the same balance as the prior year and should they have the same balance? By performing this task and answering these questions prior to year-end fieldwork, you will be able to reduce our follow up by providing explanations ahead of time or by making correcting entries in advance, if necessary. 
  3. Provide support to be proactive.
    On an annual basis, your organization may go through changes that will require you to provide us documented contractual support.  Such events may include new or a refinancing of debt, large fixed asset additions, new construction, renovations, or changes in ownership structure.  Gathering and providing the documentation for these events prior to fieldwork will help reduce auditor inquiries and will allow us to gain an understanding of the details of the transaction in advance of performing substantive audit procedures. 
  4. Utilize the schedule request to stay organized.
    Each member of your team should have a clear understanding of their role in preparing for year-end. Creating columns on the schedule request for responsibility, completion date and reviewer assigned will help maintain organization and help ensure all items are addressed and available prior to arrival of the audit team. 
  5. Be available to maximize efficiency. 
    It is important for key members of the team to be available during the scheduled time of the engagement.  Minimizing commitments outside of the audit engagement during on site fieldwork and having all year-end schedules prepared prior to our arrival will allow us to work more efficiently and effectively and help reduce follow up after fieldwork has been completed. 

Careful consideration and performance of these tasks will help your organization better prepare for the year-end audit engagement, reduce lingering auditor inquiries, and ultimately reduce the time your internal resources spend on the annual audit process. See you soon. 

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Save time and effort—our list of tips to prepare for year-end reporting

Read this if you are a solar investor, developer, or installer.

After a recent article where we highlighted some of the major points of the ITC safe harbor, we received many calls and e-mails looking for clarification on some of the related issues. In working to answer these questions we teamed up with Klavens Law Group, P.C., a Boston law firm that specializes in clean energy. Together with Brendan Beasley and Jon Klavens we have compiled a list of frequently asked questions that may be helpful as you navigate the last few weeks of the year. 

Q: My project is not ready for construction due to a pending decision on a land use permit. How can I minimize capital expenditure while still qualifying the project for the 5% safe harbor?
A: There are a couple approaches you as a taxpayer can take. First, if this project is among several in your portfolio, you can pay or incur expenses prior to December 31, 2019 for enough safe harbor equipment under a single binding contract to qualify each project in your portfolio and retain flexibility to allocate that equipment. Applying the master contract approach (per Section 7.03(2) of IRS Notice 2018-59), you would then transfer equipment, even after December 31, 2019, to affiliate special purpose entities under a second binding contract. Second, you can enter into a binding contract that is subject to a condition, applying section (ii)(B) of the “binding contract” definition at 26 CFR Section 1.168(k)-1(b)(4). In this case, the condition would be the project receiving the land use permits and clearing any related appeals period. Under this approach you would still need to pay or incur―or have your EPC contractor pay or incur under the look-through rule―at least 5% of the project’s depreciable cost basis by December 31, 2019. A limitation on this approach is that, if the condition is not likely to be satisfied within three-and-a-half months of the date of your binding contract, either you or your EPC contractor (applying the look-through rule) must take delivery of the equipment while the condition―and presumably the viability of the project―is still open and uncertain. 

Q: Can I finance a purchase of safe harbor equipment for my project?
A: Yes; however, you can’t use vendor financing. 

Q: I have a project that will be ready to construct in Q2 2020. The project company will execute a binding EPC agreement by December 31, 2019 that includes a procurement component. It will make an initial milestone payment of 7% upon execution. Does my project qualify for the 5% safe harbor?
A: Maybe. There is not enough information here to confirm. As taxpayer you must pay or incur expenses amounting to at least 5% of the total cost of the energy property prior to December 31, 2019, and must take delivery within three-and-a-half months from the date of payment under your binding contract. So the critical question here is what your EPC contractor is doing with that 7% payment. Here are some possible outcomes:

  • The EPC contractor purchases inverters on December 31, 2019 pursuant to a binding contract with a vendor. Applying the look-through rule, the safe harbor is satisfied.
  • The EPC contractor self-constructs a specialized racking system in January 2020, per your EPC agreement, and delivers it to you within three-and-a-half months of the binding contract. The safe harbor is satisfied.
  • The EPC contractor prepares 10% construction drawings and applies for a building permit, each at nominal cost, and holds your 7% payment while waiting for module prices to come down. The safe harbor is not satisfied.
  • The EPC contractor allocates its previously purchased inverters to your project, per your EPC agreement, holding them in its warehouse until May 2020 before delivering them to your site. The safe harbor is likely satisfied. Applying the look-through rule, the EPC contractor’s purchase of the inverters pursuant to a binding contract in 2019 (even if prior to the EPC agreement) will qualify the inverters for safe harbor purposes. The EPC contractor must take steps to identify and segregate the particular inverters within its warehouse.

Q: Can I sell safe-harbored equipment?
A: The buyer of your equipment (unless it is an affiliate) may not utilize the safe harbor unless you are selling the equipment together with the solar project. If, for example, your sale also includes a site lease and a PPA, the purchaser would receive the benefit of the safe harbor. In certain circumstances, you may also be able to become an affiliate of a project LLC by acquiring a membership interest of at least 20% and make an in-kind contribution of the safe-harbored equipment to the project LLC.           

Q: Can I satisfy the physical work test by building roads within my site?
A: Yes; however, the roads must be integral to the energy property. An access road would likely not be interpreted as integral to the property. However, roads used for purposes of operations and maintenance activity―within the area of the facility itself―are considered integral to the energy property.

Q: What constitutes work of a physical nature?
A: This is really open to the facts and circumstances interpretation. The IRS notice instructions referenced previously indicate some specific activities that do not qualify, but there is no quantification of how much of a qualifying activity must be done in order to satisfy the safe harbor requirement. Preliminary planning and site work do not count. But starting construction would, so you could satisfy the requirement with excavation for a foundation, drilling for moorings, pouring concrete, etc. The best bet would be to actually put up a section of panels.

Q: What is the continuing work requirement?
A: There is an additional safe harbor that says if your project is placed in service within four years of the end of the calendar year in which you started it you will have automatically met the continuous work requirement. If your project goes beyond that you will need to show facts and circumstances showing you were taking steps to continue working towards completing the project. For example, if the delay was due to a delay in getting interconnected, be prepared to show documentation that you were continuously working towards resolving that issue.

Unless there are changes to the current tax law, these same provisions will be in effect for each step of the phase-out through the end of 2023. If you have further questions, please contact a member of our renewable energy team

Please note that this Q&A, which may be considered advertising under the ethical rules of certain jurisdictions, is provided with the understanding that it does not constitute the rendering of legal advice or other professional advice by Klavens Law Group, P.C. or its attorneys. Please seek the services of a competent professional if you need legal or other professional assistance.

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ITC safe harbor frequently asked questions

Read this if you are a solar investor, developer, or installer.

With December well under way, thoughts turn to year-end and tax filing preparation. While we get many questions this time of year related to changes in the tax law and what taxpayers can do before the end of the year to minimize their tax burden, different this year is the impending phase-out of the Investment Tax Credit (ITC) and Residential Energy Credit (REC) from 30% to 26%. 

Last month, we gave some pointers on the safe harbor provision available for the Investment Tax Credit which would allow qualifying projects to still be eligible for the 30% credit after the end of the year. No such provision exists for the residential credit, however, and any project not complete by 12/31/19 (and completed in 2020) will receive the reduced 26% credit.

The phase-out was designed to coincide with the projected decline in solar costs, and would help smooth the transition to a market where solar competes directly with fossil fuels for energy production. Since then, we have seen component costs increase due to artificially inflated prices resulting from the tariffs imposed on imported goods. This results in a mismatch on the timing of the phase-out to the cost of the materials, a still immature market for solar, and a missed opportunity. Enter a new bill in the House of Representatives.

Growing Renewable Energy and Efficiency Now Act

On November 19, 2019 Chairman Thompson of the House Ways and Means Subcommittee released a discussion draft of a bill titled the Growing Renewable Energy and Efficiency Now (“GREEN”) Act. This draft bill is not ready for a vote yet, but does promote an extension and/or expansion of tax incentives for taxpayers investing in cleantech. With the GREEN Act, solar investors, installers, and other related businesses would benefit from:

  • Revival and extension of the Production Tax Credit (PTC) through 2024
  • Delay of the ITC and REC phaseout until 2024
  • Expansion of the ITC to include additional technologies, most notably energy storage
  • A provision allowing the taxpayer to receive the ITC or PTC as a refund in the year it is claimed for 15% reduction in the value of the credit

A delay in the phase-out would allow time for the costs of components to return to pre-tariff levels and help achieve the original intention of the phase-out. The expansion of the ITC to include energy storage would be a huge boon to that emerging market, and provide an additional incentive for consumers to install storage on an existing project―creating a more efficient energy grid. 

Currently, due to accelerated depreciation, many taxpayers are not able to take the ITC or PTC in the first year due to not having a tax to offset. Allowing for the option to treat the ITC or PTC as a tax payment (which can be refunded) instead of a credit (which can’t) would help investors realize their return much faster and free up capital to invest in other projects. 

Some of these provisions are fairly aggressive, and it is unlikely that they will all remain as they are now in any future passed legislation. However, it is promising to see the House of Representatives considering these types of extensions and expansions when it comes to clean energy incentives. As renewable energy is still a relatively new and rapidly changing marketplace, this is a prime time for renewable energy professionals to keep representatives informed of what they need to help the industry continue to grow. 

Stay tuned, and please contact Mark Vitello if you have any questions or need more information.
 

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The GREEN Act―a ray of hope for the solar carve out and the ITC?

Editor’s note: read this if you work for, or are affiliated with, a charitable organization that receives donations. Even the most mature nonprofit organizations may miss one of these filings once in a while. Some items (e.g., the donor acknowledgement letter) may feel commonplace, but a refresher—especially at a particularly busy time of the year as it pertains to giving—can fend off fines.

As the holiday season is now in full swing, the season of giving is also upon us. Perhaps not surprisingly, the month of December is by far the most charitable month of the year, accounting for almost one-third of all charitable gifts made annually. And with all that giving comes the requirement of charitable organizations to provide donor acknowledgements, a formal “thank you” of the gift being received. Different gifts require differing levels of acknowledgement, and in some cases an additional IRS form (or two) may need to be filed. Doing some work now may save you time (and a fine or two) later. 

While children are currently busy making lists for Santa Claus, in the spirit of giving we present to you our list of donor acknowledgement requirements―and best practices―to help you gain control of this issue for the holiday season and beyond.

Donor acknowledgement letters

Charitable (i.e., 501(c)(3)) organizations are required to provide a donor acknowledgement letter to each donor contributing $250 or more to the organization, whether it be cash or non-cash items (i.e., publicly traded securities, real estate, artwork, vehicles, etc.) received. The letter should include the following: 

  1. Name of the organization
  2. Amount of cash contribution
  3. Description of non-cash items (but not the value) 
  4. Statement that no goods and services were provided (assuming this is the case)
  5. Description and good faith estimate of the value of goods and services provided by the organization in return for the contribution, if any
  6. Statement that goods or services provided by the organization in return for the contribution consisted entirely of intangible religious benefit, if any

It is not necessary to include either the donor’s social security number or tax identification number on the written acknowledgment and as a best practice should not be included in the letter.

In addition to including the elements above, the written acknowledgement is also required to be contemporaneous, that is, sent out in a timely fashion. According to the IRS, a donor must receive the acknowledgment by the earlier of:

  • The date on which the donor actually files his or her individual federal income tax return for the year of the contribution
  • The due date (including extensions) of the return in order to be considered contemporaneous

Quid pro quo disclosure statements

When a donor makes a payment greater than $75 to a charitable organization partly as a contribution and partly as a payment for goods and services, a disclosure statement is required to notify the donor of the value of the goods and services received in order for the donor to determine the charitable contribution component of their payment.

An example of this would be if the organization sold tickets to its annual fundraising dinner event. Assume the ticket costs $100 and at the event the ticketholder receives a dinner valued at $40. In this example, the donor’s tax deduction may not exceed $60. Because the donor’s payment (quid pro quo contribution) exceeds $75, the charitable organization must furnish a disclosure statement to the donor, even though the deductible amount doesn’t exceed $75.

It’s important to note that there are some exclusions to these requirements if the value received is considered to be de minimis (known as the Token Exception), but the value received needs to be relatively small (ex: receiving a coffee mug with a picture of the organization’s logo on it). Please consult your tax advisor for more details.

If the organization does not issue disclosure statements, the IRS can issue penalties of $10 per contribution, not to exceed $5,000 per fundraising event or mailing. An organization may be able to avoid the penalty if reasonable cause can be demonstrated.

Receiving or selling donated noncash property? Forms 8283 & 8282 may be required.

If a charitable organization receives noncash donations, it may be asked to sign Form 8283. This form is required to be filed by the donor and included with their personal income tax return. If a donor contributes noncash property (excluding publicly traded securities) valued at over $5,000, the organization will need to sign Form 8283, Section B, Part IV acknowledging receipt of the noncash item(s) received.

By signing Form 8283, the donee organization is not only acknowledging receipt, but is also affirming that if the property being received is sold, exchanged, or otherwise disposed of within three years of the original donation date, the organization will be required to file Form 8282. A copy of this form is filed with the IRS and must also be provided to the original donor. Form 8282 is not required for sales of donated publicly traded securities. The penalty for failure to file Form 8282 when required is generally $50 per form.

Cars, boats, and yes, even airplanes? That would be Form 1098-C.

An airplane? Yes, even an airplane can be donated, and the donee organization must file a separate Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, with the IRS for each contribution of a qualified vehicle that has a claimed value of more than $500. Contemporaneous written acknowledgement requirements apply here too, and Form 1098-C can act as acknowledgement for this purpose. An acknowledgment is considered contemporaneous if it is furnished to the donor no later than 30 days after the date of the contribution if you plan to use the item for a mission-related purpose, or 30 days after the date of the sale of the item to an unrelated third party.

Penalties for failure to provide contemporaneous written acknowledgement for qualified vehicles can be pretty stiff, generally calculated as a percentage of the sale price if sold, or a percentage of the claimed value if not sold. Should you have any questions or receive a request regarding any of the forms noted above, please consult your tax advisor.

As you can see, the rules around donor acknowledgements can seem a lot like Grandma’s fruitcake―complex and perhaps a bit on the nutty side. When issuing donor acknowledgements this holiday season and beyond, be sure to review the list above and check it twice. Doing so may end up keeping you off of the IRS’s naughty list!

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Donor acknowledgements: We have to file what?