CARES Act funding deadlines: Update for FQHCs and RHCs

Read this if you are a director, manager, or administrator at a Federally Qualified Health Centers (FQHC) or Rural Health Clinic (RHC).

The latest COVID-19 bill, the Coronavirus Aid, Relief, and Economic Security (CARES) Act included enhancing Medicare telehealth services for FQHCs and RHCs. This legislation waives the Section 1834(m) restriction on FQHCs and RHCs that prohibits them from serving as distant sites. This means during the COVID-19 State of Emergency, FQHCs and RHCs will be able to serve as distant sites to provide telehealth services to patients in their homes and other eligible locations. The legislation will reimburse FQHCs and RHCs at a rate that is similar to payment for comparable telehealth services under the physician fee schedule (Medicare Part B). FQHCs and RHCs will not be paid the Medicare PPS rate for these services.

Currently, Medicare, unlike many Medicaid programs and commercial payers, still requires the video component for telehealth. Effective immediately, the Office for Civil Rights at the Department of Health and Human Services will exercise its enforcement discretion and will not impose penalties for noncompliance with the regulatory requirements under the HIPAA Rules against covered health care providers in connection with the good faith provision of telehealth during the COVID-19 State of Emergency. Providers who want to use audio or video communication technology to provide telehealth during the COVID-19 State of Emergency can use any non-public facing remote communication product that is available to communicate with patients. Examples of acceptable platforms (non-public facing) include Apple FaceTime, Google G Suite Hangouts Meet, and Skype for Business.

We would also like to remind you of the ability to bill for virtual communication services. Virtual communication services are a brief, non-face-to-face check-in with a patient via communication technology, to assess whether the patient's condition necessitates an office visit. The call must be initiated by the patient and to be billable, the call must be between the patient and a physician, nurse practitioner, physician assistant, certified nurse midwife, clinical psychologist, or clinical social worker. If the discussion is conducted by a nurse, health educator, or other clinical personnel, it is not billable as a virtual communication service. There is no video component required for virtual communication services. The check-in cannot relate to a visit with the patient during the previous seven days or result in a visit with the patient within the next 24 hours (or next available appointment). Read the FAQs from Medicare on the virtual communication services.

We continue to be here to support you. If you have any questions or concerns, please do not hesitate to reach out to any of us. 

The Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020, which provides $8.3 billion in emergency funding for federal agencies to respond to the COVID-19 outbreak, has earmarked $100 million for FQHCs to prevent, prepare for, and respond to the COVID-19 national emergency. Pre-award costs will be supported by this funding and may date back to January 20, 2020. We recommend tracking your expenditures related to the coronavirus to the best of your ability. This may be helpful or necessary in providing your organization much needed financial relief.  

As a reminder, FQHCs cannot bill Medicare for telehealth services under the PPS rate. Telehealth can be billed to Medicare under Part B with the FQHC as an originating site and reimbursement is approximately $26. If you do not have home visits on Form 5, be sure to add home visits to 5C as soon as possible.

Amidst rapid hourly changes in contending with the coronavirus and its far-reaching impacts, we are sharing some HRSA and CMS guidance that may be helpful to you: 

• HRSA PAL 2020-01 Telehealth and Health Center Scope of Project 
• HRSA PAL 2017-07 Temporary Privileging of Clinical Providers by FTCA Deemed Health Centers in Response to Certain Declared Emergency Situations
• HRSA PAL 2014-05 Updated Process for Requesting a Change in Scope to Add Temporary Sites in Response to Emergency Events
• CMS COVID-19 Emergency Declaration Health Care Providers Fact Sheet
• CMS Medicare Telemedicine Fact Sheet

Here is a link to HRSA FAQs related to COVID-19. 

Although we are working remotely, we are available to support you. If you have any questions or concerns, please do not hesitate to reach out to any of us.

Read this if your CFO has recently departed, or if you're looking for a replacement.

With the post-Covid labor shortage, “the Great Resignation,” an aging workforce, and ongoing staffing concerns, almost every industry is facing challenges in hiring talented staff. To address these challenges, many organizations are hiring temporary or interim help—even for C-suite positions such as Chief Financial Officers (CFOs).

You may be thinking, “The CFO is a key business partner in advising and collaborating with the CEO and developing a long-term strategy for the organization; why would I hire a contractor to fill this most-important role?” Hiring an interim CFO may be a good option to consider in certain circumstances. Here are three situations where temporary help might be the best solution for your organization.

Your organization has grown

If your company has grown since you created your finance department, or your controller isn’t ready or suited for a promotion, bringing on an interim CFO can be a natural next step in your company’s evolution, without having to make a long-term commitment. It can allow you to take the time and fully understand what you need from the role — and what kind of person is the best fit for your company’s future.

BerryDunn's Kathy Parker, leader of the Boston-based Outsourced Accounting group, has worked with many companies to help them through periods of transition. "As companies grow, many need team members at various skill levels, which requires more money to pay for multiple full-time roles," she shared. "Obtaining interim CFO services allows a company to access different skill levels while paying a fraction of the cost. As the company grows, they can always scale its resources; the beauty of this model is the flexibility."

If your company is looking for greater financial skill or advice to expand into a new market, or turn around an underperforming division, you may want to bring on an outsourced CFO with a specific set of objectives and timeline in mind. You can bring someone on board to develop growth strategies, make course corrections, bring in new financing, and update operational processes, without necessarily needing to keep those skills in the organization once they finish their assignment. Your company benefits from this very specific skill set without the expense of having a talented but expensive resource on your permanent payroll.

Your CFO has resigned

The best-laid succession plans often go astray. If that’s the case when your CFO departs, your organization may need to outsource the CFO function to fill the gap. When your company loses the leader of company-wide financial functions, you may need to find someone who can come in with those skills and get right to work. While they may need guidance and support on specifics to your company, they should be able to adapt quickly and keep financial operations running smoothly. Articulating short-term goals and setting deadlines for naming a new CFO can help lay the foundation for a successful engagement.

You don’t have the budget for a full-time CFO

If your company is the right size to have a part-time CFO, outsourcing CFO functions can be less expensive than bringing on a full-time in-house CFO. Depending on your operational and financial rhythms, you may need the CFO role full-time in parts of the year, and not in others. Initially, an interim CFO can bring a new perspective from a professional who is coming in with fresh eyes and experience outside of your company.

After the immediate need or initial crisis passes, you can review your options. Once the temporary CFO’s agreement expires, you can bring someone new in depending on your needs, or keep the contract CFO in place by extending their assignment.

Considerations for hiring an interim CFO

Making the decision between hiring someone full-time or bringing in temporary contract help can be difficult. Although it oversimplifies the decision a bit, a good rule of thumb is: the more strategic the role will be, the more important it is that you have a long-term person in the job. CFOs can have a wide range of duties, including, but not limited to:

• Financial risk management, including planning and record-keeping
• Management of compliance and regulatory requirements
• Creating and monitoring reliable control systems
• Debt and equity financing
• Financial reporting to the Board of Directors

If the focus is primarily overseeing the financial functions of the organization and/or developing a skilled finance department, you can rely — at least initially — on a CFO for hire.

Regardless of what you choose to do, your decision will have an impact on the financial health of your organization — from avoiding finance department dissatisfaction or turnover to capitalizing on new market opportunities. Getting outside advice or a more objective view may be an important part of making the right choice for your company.

BerryDunn can help whether you need extra assistance in your office during peak times or interim leadership support during periods of transition. We offer the expertise of a fully staffed accounting department for short-term assignments or long-term engagements―so you can focus on your business. Meet our interim assistance experts.

Read this if your company is considering outsourced information technology services.

For management, it’s the perennial question: Keep things in-house or outsource?

For management, it’s the perennial question: Keep things in-house or outsource? Most companies or organizations have outsourcing opportunities, from revenue cycle to payment processing to IT security. When deciding whether to outsource, you weigh the trade-offs and benefits by considering variables such as cost, internal expertise, cross coverage, and organizational risk.

In IT services, outsourcing may win out as technology becomes more complex. Maintaining expertise and depth for all the IT components in an environment can be resource-intensive.

Outsourced solutions allow IT teams to shift some of their focus from maintaining infrastructure to getting more value out of existing systems, increasing data analytics, and better linking technology to business objectives. The same can be applied to revenue cycle outsourcing, shifting the focus from getting clean bills out and cash coming in, to looking at the financial health of the organization, analyzing service lines, patient experience, or advancing projects.  

Once you’ve decided, there’s another question you need to ask
Lost sometimes in the discussion of whether to use outsourced services is how. Even after you’ve done your due diligence and chosen a great vendor, you need to stay involved. It can be easy to think, “Vendor XYZ is monitoring our servers or our days in AR, so we should be all set. I can stop worrying at night about our system reliability or our cash flow.” Not true.

You may be outsourcing a component of your technology environment or collections, but you are not outsourcing the accountability for it—from an internal administrative standpoint or (in many cases) from a legal standpoint.

Beware of a false state of confidence
No matter how clear the expectations and rules of engagement with your vendor at the onset of a partnership, circumstances can change—regulatory updates, technology advancements, and old-fashioned vendor neglect. In hiring the vendor, you are accountable for oversight of the partnership. Be actively engaged in the ongoing execution of the services. Also, periodically revisit the contract, make sure the vendor is following all terms, and confirm (with an outside audit, when appropriate) that you are getting the services you need.

Take, for example, server monitoring, which applies to every organization or company, large or small, with data on a server. When a managed service vendor wants to contract with you to provide monitoring services, the vendor’s salesperson will likely assure you that you need not worry about the stability of your server infrastructure, that the monitoring will catch issues before they occur, and that any issues that do arise will be resolved before the end user is impacted. Ideally, this is true, but you need to confirm.

Here’s how to stay involved with your vendor
Ask lots of questions. There’s never a question too small. Here are samples of how precisely you should drill down:

• What metrics will be monitored, specifically?
• Why do the metrics being monitored matter to our own business objectives?
• What thresholds must be met to notify us or produce an alert?
• What does exceeding a threshold mean to our business?
• Who on our team will be notified if an alert is warranted?
• What corrective action will be taken?

Ask uncomfortable questions
Being willing to ask challenging questions of your vendors, even when you are not an expert, is critical. You may feel uncomfortable but asking vendors to explain something to you in terms you understand is very reasonable. They’re the experts; you’re not expected to already understand every detail or you wouldn’t have needed to hire them. It’s their job to explain it to you. Without asking these questions, you may end up with a fairly generic solution that does produce a service or monitor something, but not necessarily all the things you need.

Ask obvious questions
You don’t want anything to slip by simply because you or the vendor took it for granted. It is common to assume that more is being done by a vendor than actually is. By asking even obvious questions, you can avoid this trap. All too often we conduct an IT assessment and are told that a vendor is providing a service, only to discover that the tasks are not happening as expected.

You are accountable for your whole team—in-house and outsourced members
An outsourced solution is an extension of your team. Taking an active and engaged role in an outsourcing partnership remains consistent with your management responsibilities. At the end of the day, management is responsible for achieving business objectives and mission. Regularly check in to make sure that the vendor stays focused on that same mission.

Read this is if you are at a healthcare organization and considering telehealth options. 

Given the COVID-19 emergency declaration, telehealth service regulations have been greatly modified to provide flexibility and payment. The guidance on telehealth is very dispersed and can be difficult to navigate. Here are some FAQs based on the many questions we have received. If you have questions related to your specific situation, please contact us. We're here to help.

UPDATED: Are RHCs and FQHCs now eligible as distant site providers for telehealth services? If so, how will they be paid by Medicare?
Yes, the CARES Act includes RHCs and FQHCs as distant sites during the COVID-19 Public Health Emergency (PHE). Distant site telehealth services can be provided by any health care practitioner of the RHC or FQHC within their scope of practice. The practitioners can provide any distant site telehealth service that is approved as a distant site telehealth service under the Physician Fee Schedule (PFS) and from any location, including from the practitioner’s home. CMS has approved an interim payment rate of $92 for RHCs and FQHCs for these services. The rate is based on the average payment for all PFS telehealth services, weighted by the volume of those services paid under the PFS. This rate will apply for services furnished between January 27, 2020 and June 30, 2020. Modifier “95” must be included on the claim. In July 2020, these claims will be automatically reprocessed and be paid at the RHC all-inclusive rate (AIR) and the FQHC prospective payment system (PPS) rate. Reprocessing will begin when the Medicare claims processing system is updated for the new payment rate.

For telehealth distant site services furnished between July 1, 2020 and the end of the COVID-19 PHE, RHCs and FQHCs will need to use RHC/FQHC specific G code, G2025, for services provided via telehealth. These claims will be paid at the $92 rate, not the AIR or PPS rates. If the COVID-19 PHE continues beyond December 31, 2020, the $92 will be updated based on the 2021 PFS average payment rate for these services, again weighted by the volume of those services.

For services in which the coinsurance is waived, RHCs and FQHCs must put the “CS” modifier on the service line. RHC and FQHC claims with the “CS” modifier will be paid with the coinsurance applied, and the Medicare Administrative Contractor (MAC) will automatically reprocess these claims beginning on July 1. Coinsurance should not be collected from beneficiaries if the coinsurance is waived.

UPDATED: Will telehealth visits of any kind affect my FQHC or RHC encounter rate?
Costs associated with telehealth will not affect the prospective payment system rate for FQHCs or the all-inclusive rate calculation for RHCs, but the costs will need to be reported on the cost report. Costs of originating and distant site telehealth services will be reported as follows:

• Form CMS-222-17 on line 79 (Cost Other Than RHC Services) of Worksheet A for RHCs
• Form CMS-224-14 on line 66 (Other FQHC Services) of Worksheet A for FQHCs.

What is telehealth versus telemedicine?
Telemedicine refers to a remote clinical service while telehealth is a broader term that embodies a consumer-based approach to medical care, incorporating both delivery of care and education of patients.

UPDATED: What types of service levels are available?
There are three main types of Medicare virtual services with different payment levels. Here are the key things to know for each type:

Telehealth visits

1. These are considered the same as in-person visits and paid at the same PFS rates as regular, in-person visits.
2. Pre-existing patient relationship requirements have been waived.
3. The patient originating site can be any healthcare facility or the patient’s home.

Virtual check-ins

1. These are brief communications in a variety of technology-based manners.
2. They do require the patient to initiate and consent to the check-in.
3. It cannot be preceded by a medical visit within the previous 7 days and cannot lead to a medical visit within the next 24 hours. 
4. A pre-existing relationship with the patient is required.
5. Common billing codes include HCPCS code G2012 (telephone) and G2010 (captured video or images).

E-visits:

1. These also need to be initiated by the patient in order to be billable and would be conducted using online patient portals (no face-to-face), for example.
2. A pre-existing relationship with the patient is required.
3. Common billing codes include CPT codes 99421-99423 and HCPCS codes G2061-G2063. 

The payment rate for these services will be $24.76 beginning March 1, 2020, through the end of the PHE, instead of the CY 2020 rate of $13.53, and should be billed using code G0071. MACs will automatically reprocess any claims with G00771 furnished on or after March 1, 2020, that were not paid at the new rate.

What codes can be billed as telehealth services?
Here is the listing effective as of March 1, 2020. 

Since this time, 85 additional codes have been added. Click here for the list. 

Do we need to request an 1135 waiver or are these changes covered by a blanket waiver from CMS?
A blanket waiver is in effect, retroactive to March 1, 2020 though the end of the emergency declaration. 

Is patient consent required?
Yes, patients must verbally consent to services. This includes brief telecommunications (which currently have a cost share for Medicare). We recommend it for all payers as a best practice.

Is there additional information expected from Medicare?
Yes, Medicare, Medicaid, and other payers are continually updating their guidance. 

What can we bill for telehealth services for Medicaid and insurance carriers?
This is the most problematic to track as it is continually evolving and every state and carrier is different. Providers must understand each payor’s requirements around audio and video, allowable CPT/HCPCS codes, modifiers, and place of service codes. As you have questions, please reach out to us so we can be sure to provide the most current answer.

Resources
Given how quickly information related to telehealth is changing, please feel free to contact us for the latest resources. 

Editor’s note: read this if you are a leader in a healthcare organization and have questions concerning the current definition of health care provider in recent legislation regarding COVID-19.

One of the more common questions we receive regarding the paid sick and family leave provisions of the Families First Coronavirus Response Act (the “Act”) is regarding which employees qualify as a “health care provider”, who an organization can elect to exempt from the paid sick and family leave provisions of the Act. The Department of Labor (DOL) has issued FAQs and temporary regulations addressing the issue.

For purposes of determining employees who could be exempt from the paid sick and family leave provisions of the Act, the definition of a “health care provider” has been broadened. It now includes “anyone employed at any doctor’s office, hospital, health care center, clinic, post-secondary educational institution offering health care instructions, medical school, local health department or agency, nursing facility, retirement facility, nursing home, home health care provider, any facility that performs laboratory or medical testing, pharmacy, or any similar institution, employer, or entity”. 

This includes any permanent or temporary institution, facility, location, or site where medical services are provided that are similar to such institutions. 

Additionally, the definition includes any individual employed by an entity that contracts with any of the above institutions to provide services or to maintain the operation of the facility. This also includes anyone employed by any entity that provides medical services, produces medical products, or is otherwise involved in the making of COVID-19 related medical equipment, tests, drugs, vaccines, diagnostic vehicles, or treatments. 

The DOL guidance also indicates the definition includes any individual the highest official of a state determines is a health care provider needed for the state’s response to COVID-19. 

For purposes of the health care provider exclusion for the sick and family leave provisions of the Act, the newly released DOL temporary regulations provide that the term health care provider is not limited to diagnosing medical professionals. Rather, such health care providers include any individual who is capable of providing health care services necessary to combat the COVID-19 public health emergency. Such individuals include not only medical professionals, but also other workers who are needed to keep hospitals and similar health care facilities well supplied and operational.

The DOL encourages employers to be judicious when using this definition to exempt health care providers to minimize the spread of COVID-19.

It is important to note that the preambles to the temporary regulations indicate an employer’s exercise of this option (i.e., to exclude a health care provider or emergency responder from the paid sick/family leave benefits) does not authorize an employer to prevent an employee who is a health care provider from taking earned or accrued leave in accordance with established employer policies.

The preamble to the temporary regulations further indicates the paid sick leave and expanded family and medical leave provisions of the Act exist so employees will not be forced to choose between their paychecks and the individual and public health measures necessary to combat COVID-19. The preambles further state, conversely, providing paid sick leave or expanded family and medical leave does not come at the expense of fully staffing the necessary functions of society.

Organizations face a difficult decision whether to exempt health care providers (and emergency responders) from the paid sick and family leave provisions of the Act. It is not an easy decision to make, and an organization may want to contact legal counsel to understand the legal implications with respect to the decision to exclude health care providers (or emergency responders). 

An organization trying to decide whether to exclude health care professionals (or emergency responders) should consider the following:

• These employees can’t be prevented from taking paid time off under the organization’s existing paid time off guidelines.
• Any decision related to the paid sick/family leave provisions doesn’t affect an employee’s eligibility to take FMLA leave under the normal FMLA rules.
• The organization may want to include health care professionals (and emergency responders) in the sick leave provisions of the Act so the organization can be eligible for tax credits if an employee is diagnosed with or has symptoms of COVID-19 or is caring for an individual diagnosed with or who has symptoms of COVID-19. 
• An organization may be able to elect to exclude health care providers (and first responders) from only the paid family leave provisions of the Act.

Ultimately, each organization must make a decision in the best interests of their business, their employees, and their consumers. Unfortunately, there is no single best answer that covers all organizations struggling with this decision. 

If the decision is made to exclude health care providers from all or a portion of the paid sick and family leave provisions of the Act, we recommend contacting your legal counsel to review the employee communications before it is provided to employees.

For more information
If you have more questions, or have a specific question about your particular situation, please call us. We’re here to help. 

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security (CARES) Act, which provides relief to taxpayers affected by the novel coronavirus and COVID-19. The CARES Act is the third round of federal government aid related to COVID-19. We have summarized the top provisions in the new legislation below, with more detailed alerts on individual provisions to follow. Click here for a link to the full text of the bill.

Compensation, benefits, and payroll relief
The law temporarily increases the amount of and expands eligibility for unemployment benefits, and it provides relief for workers who are self-employed. Additionally, several provisions assist certain employers who keep employees on payroll even though the employees are not able or needed to work. 

The cornerstone of the payroll protection aid is a streamlined application process for SBA loans that can be forgiven if an eligible employer maintains its workforce at certain levels. 

Additionally, certain employers affected by the pandemic who retain their employees will receive a credit against payroll taxes for 50% of eligible employee wages paid or incurred from March 13 to December 31, 2020. This employee retention credit would be provided for as much as $10,000 of qualifying wages, including health benefits. Eligible employers may defer remitting employer payroll tax payments that remain due for 2020 (after the credits are deducted), with half being due by December 31, 2021, and the balance due by December 31, 2022. 

Employers with fewer than 500 employees are also allowed to give terminated employees access to the mandated paid federal sick and child care leave benefits for which the employer is 100% reimbursed by the government through payroll tax credits, if the employer rehires the qualifying employees.

Any benefit that is driven off the definition of “employee” raises the issue of partner versus employee. The profits interest member that is receiving a W-2 may not be eligible for inclusion in the various benefit computations.

Eligible individuals can withdraw vested amounts up to $100,000 during 2020 without a 10% early distribution penalty, and income inclusion can be spread over three years. Repayment of distributions during the next three years will be treated as tax-free rollovers of the distribution. The bill also makes it easier to borrow money from 401(k) accounts, raising the limit to $100,000 from $50,000 for the first 180 days after enactment, and the payment dates for any loans due the rest of 2020 would be extended for a year.

Individuals do not have to take their 2020 required minimum distributions from their retirement funds. This avoids lost earnings power on the taxes due on distributions and maximizes the potential gain as the market recovers.

Two long-awaited provisions allow employers to assist employees with college loan debt through tax free payments up to $5,250 and restores over-the-counter medical supplies as permissible expenses that can be reimbursed through health care flexible spending accounts and health care savings accounts.

Deferral of net business losses for three years
Section 461(l) limits non-corporate taxpayers in their use of net business losses to offset other sources of income. As enacted in 2017, this limitation was effective for taxable years beginning after 2017 and before 2026, and applied after the basis, at-risk, and passive activity loss limitations. The amount of deductible net business losses is limited to $500,000 for married taxpayers filing a joint return and $250,000 for all other taxpayers. These amounts are indexed for inflation after 2018 (to $518,000 and $259,000, respectively, in 2020). Excess business losses are carried forward to the next succeeding taxable year and treated as a net operating loss in that year.

The CARES Act defers the effective date of Section 461(l) for three years, but also makes important technical corrections that will become effective when the limitation on excess business losses once again becomes applicable. Accordingly, net business losses from 2018, 2019, or 2020 may offset other sources of income, provided they are not otherwise limited by other provisions that remain in the Code. Beginning in 2021, the application of this limitation is clarified with respect to the treatment of wages and related deductions from employment, coordination with deductions under Section 172 (for net operating losses) or Section 199A (relating to qualified business income), and the treatment of business capital gains and losses.

Section 163(j) amended for taxable years beginning in 2019 and 2020
The CARES Act amends Section 163(j) solely for taxable years beginning in 2019 and 2020. With the exception of partnerships, and solely for taxable years beginning in 2019 and 2020, taxpayers may deduct business interest expense up to 50% of their adjusted taxable income (ATI), an increase from 30% of ATI under the TCJA, unless an election is made to use the lower limitation for any taxable year. Additionally, for any taxable year beginning in 2020, the taxpayer may elect to use its 2019 ATI for purposes of computing its 2020 Section 163(j) limitation. 

This will benefit taxpayers who may be facing reduced 2020 earnings as a result of the business implications of COVID-19. As such, taxpayers should be mindful of elections on their 2019 return that could impact their 2019 and 2020 business interest expense deduction. With respect to partnerships, the increased Section 163(j) limit from 30% to 50% of ATI only applies to taxable years beginning in 2020. However, in the case of any excess business interest expense allocated from a partnership for any taxable year beginning in 2019, 50% of such excess business interest expense is treated as not subject to the Section 163(j) limitation and is fully deductible by the partner in 2020. The remaining 50% of such excess business interest expense shall be subject to the limitations in the same manner as any other excess business interest expense so allocated. Each partner has the ability, under regulations to be prescribed by Treasury, to elect to have this special rule not applied. No rules are provided for application of this rule in the context of tiered partnership structures.

Net operating losses carryback allowed for taxable years beginning in 2018 and before 2021
The CARES Act provides for an elective five-year carryback of net operating losses (NOLs) generated in taxable years beginning after December 31, 2017, and before January 1, 2021. Taxpayers may elect to relinquish the entire five-year carryback period with respect to a particular year’s NOL, with the election being irrevocable once made. In addition, the 80% limitation on NOL deductions arising in taxable years beginning after December 31, 2017, has temporarily been pushed to taxable years beginning after December 31, 2020. 

Several ambiguities in the application of Section 172 arising as a result of drafting errors in the Tax Cuts and Jobs Act have also been corrected. As certain benefits (i.e., charitable contributions, Section 250 “GILTI” deductions, etc.) may be impacted by an adjustment to taxable income, and therefore reduce the effective value of any NOL deduction, taxpayers will have to determine whether to elect to forego the carryback. Moreover, the bill provides for two special rules for NOL carrybacks to years in which the taxpayer included income from its foreign subsidiaries under Section 965. Please consider the impact of this interaction with your international tax advisors. 

However, given the potential offset to income taxed under a 35% federal rate, and the uncertainty regarding the long-term impact of the COVID-19 crisis on future earnings, it seems likely that most companies will take advantage of the revisions. This is a technical point, but while the highest average federal rate was 35% before 2018, the highest marginal tax rate was 38.333% for taxable amounts between $15 million and $18.33 million. This was put in place as part of our progressive tax system to eliminate earlier benefits of the 34% tax rate. Companies may wish to revisit their tax accounting methodologies to defer income and accelerate deductions in order to maximize their current year losses to increase their NOL carrybacks to earlier years.

Alternative minimum tax credit refunds
The CARES Act allows the refundable alternative minimum tax credit to be completely refunded for taxable years beginning after December 31, 2018, or by election, taxable years beginning after December 31, 2017. Under the Tax Cuts and Jobs Act, the credit was refundable over a series of years with the remainder recoverable in 2021.

Technical correction to qualified improvement property
The CARES Act contains a technical correction to a drafting error in the Tax Cuts and Jobs Act that required qualified improvement property (QIP) to be depreciated over 39 years, rendering such property ineligible for bonus depreciation. With the technical correction applying retroactively to 2018, QIP is now 15-year property and eligible for 100% bonus depreciation. This will provide immediate current cash flow benefits and relief to taxpayers, especially those in the retail, restaurant, and hospitality industries. Taxpayers that placed QIP into service in 2019 can claim 100% bonus depreciation prospectively on their 2019 return and should consider whether they can file Form 4464 to quickly recover overpayments of 2019 estimated taxes. Taxpayers that placed QIP in service in 2018 and that filed their 2018 federal income tax return treating the assets as bonus-ineligible 39-year property should consider amending that return to treat such assets as bonus-eligible. For C corporations, in particular, claiming the bonus depreciation on an amended return can potentially generate NOLs that can be carried back five years under the new NOL provisions of the CARES Act to taxable years before 2018 when the tax rates were 35%, even though the carryback losses were generated in years when the tax rate was 21%. With the taxable income limit under Section 172(a) being removed, an NOL can fully offset income to generate the maximum cash refund for taxpayers that need immediate cash. Alternatively, in lieu of amending the 2018 return, taxpayers may file an automatic Form 3115, Application for Change in Accounting Method, with the 2019 return to take advantage of the new favorable treatment and claim the missed depreciation as a favorable Section 481(a) adjustment.

Effects of the CARES Act at the state and local levels
As with the Tax Cuts and Jobs Act, the tax implications of the CARES Act at the state level first depends on whether a state is a “rolling” Internal Revenue Code (IRC) conformity state or follows “fixed-date” conformity. For example, with respect to the modifications to Section 163(j), rolling states will automatically conform, unless they specifically decouple (but separate state ATI calculations will still be necessary). However, fixed-date conformity states will have to update their conformity dates to conform to the Section 163(j) modifications. 

A number of states have already updated during their current legislative sessions (e.g., Idaho, Indiana, Maine, Virginia, and West Virginia). Nonetheless, even if a state has updated, the effective date of the update may not apply to changes to the IRC enacted after January 1, 2020 (e.g., Arizona). 

A number of other states have either expressly decoupled from Section 163(j) or conform to an earlier version and will not follow the CARES Act changes (e.g., California, Connecticut, Georgia, Missouri, South Carolina, Tennessee (starting in 2020), Wisconsin). Similar considerations will apply to the NOL modifications for states that adopted the 80% limitation, and most states do not allow carrybacks. Likewise, in fixed-dated conformity states that do not update, the Section 461(l) limitation will still apply resulting in a separate state NOL for those states. 

These conformity questions add another layer of complexity to applying the tax provisions of the CARES Act at the state level. Further, once the COVID-19 crisis is past, rolling IRC conformity states must be monitored, as these states could decouple from these CARES Act provisions for purposes of state revenue.

2020 recovery refund checks for individuals
The CARES Act provides eligible individuals with a refund check equal to $1,200 ($2,400 for joint filers) plus $500 per qualifying child. The refund begins to phase out if the individual’s adjusted gross income (AGI) exceeds $75,000 ($150,000 for joint filers and $112,500 for head of household filers). The credit is completely phased out for individuals with no qualifying children if their AGI exceeds $99,000 ($198,000 for joint filers and $136,500 for head of household filers).

Eligible individuals do not include nonresident aliens, individuals who may be claimed as a dependent on another person’s return, estates, or trusts. Eligible individuals and qualifying children must all have a valid social security number. For married taxpayers who filed jointly with their most recent tax filings (2018 or 2019) but will file separately in 2020, each spouse will be deemed to have received one half of the credit.

A qualifying child (i) is a child, stepchild, eligible foster child, brother, sister, stepbrother, or stepsister, or a descendent of any of them, (ii) under age 17, (iii) who has not provided more than half of their own support, (iv) who has lived with the taxpayer for more than half of the year, and (v) who has not filed a joint return (other than only for a claim for refund) with the individual’s spouse for the taxable year beginning in the calendar year in which the taxable year of the taxpayer begins.

The refund is determined based on the taxpayer’s 2020 income tax return but is advanced to taxpayers based on their 2018 or 2019 tax return, as appropriate. If an eligible individual’s 2020 income is higher than the 2018 or 2019 income used to determine the rebate payment, the eligible individual will not be required to pay back any excess rebate. However, if the eligible individual’s 2020 income is lower than the 2018 or 2019 income used to determine the rebate payment such that the individual should have received a larger rebate, the eligible individual will be able to claim an additional credit generally equal to the difference of what was refunded and any additional eligible amount when they file their 2020 income tax return.

Individuals who have not filed a tax return in 2018 or 2019 may still receive an automatic advance based on their social security benefit statements (Form SSA-1099) or social security equivalent benefit statement (Form RRB-1099). Other individuals may be required to file a return to receive any benefits.

The CARES Act provides that the IRS will make automatic payments to individuals who have previously filed their income tax returns electronically, using direct deposit banking information provided on a return any time after January 1, 2018.

Charitable contributions

• Above-the-line deductions: Under the CARES Act, an eligible individual may take a qualified charitable contribution deduction of up to $300 against their AGI in 2020. An eligible individual is any individual taxpayer who does not elect to itemize his or her deductions. A qualified charitable contribution is a charitable contribution (i) made in cash, (ii) for which a charitable contribution deduction is otherwise allowed, and (iii) that is made to certain publicly supported charities.
  
  This above-the-line charitable deduction may not be used to make contributions to a non-operating private foundation or to a donor advised fund.
• Modification of limitations on cash contributions: Currently, individuals who make cash contributions to publicly supported charities are permitted a charitable contribution deduction of up to 60% of their AGI. Any such contributions in excess of the 60% AGI limitation may be carried forward as a charitable contribution in each of the five succeeding years.
  
  The CARES Act temporarily suspends the AGI limitation for qualifying cash contributions, instead permitting individual taxpayers to take a charitable contribution deduction for qualifying cash contributions made in 2020 to the extent such contributions do not exceed the excess of the individual’s contribution base over the amount of all other charitable contributions allowed as a deduction for the contribution year. Any excess is carried forward as a charitable contribution in each of the succeeding five years. Taxpayers wishing to take advantage of this provision must make an affirmative election on their 2020 income tax return.
  
  This provision is useful to taxpayers who elect to itemize their deductions in 2020 and make cash contributions to certain public charities. As with the aforementioned above-the-line deduction, contributions to non-operating private foundations or donor advised funds are not eligible.
  
  For corporations, the CARES Act temporarily increases the limitation on the deductibility of cash charitable contributions during 2020 from 10% to 25% of the taxpayer’s taxable income. The CARES Act also increases the limitation on deductions for contributions of food inventory from 15% to 25%.

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Please contact a BerryDunn professional if you have any questions, or would like to discuss your specific situation.

The President signed The Families First Coronavirus Response Act (hereinafter the “Act”) into law on March 18th and the provisions are effective April 2nd. You can read the congressional summary here. There are two provisions of the Act that deal with paid leave provisions for employees. Here are some highlights for employers.

The provisions of the Act are only required for employers with fewer than 500 employees. Employers with over 499 employees are not required to provide the sick/family leave contained in the Act, but could voluntarily elect to follow the new rules. The expectation is that employers with over 499 employees are providing some level of sick/family leave benefits already. In any case, employers with over 499 employees are not eligible for the tax credits. 

Employers with fewer than 500 employees are required to provide employees with up to 80 hours of paid sick leave over a two-week period if the employee:

• Self-isolates because of a diagnosis with COVID-19, or to comply with a recommendation or order to quarantine;
• Obtains a medical diagnosis or care if the employee is experiencing COVID-19 symptoms;
• Needs to care for a family member who is self-isolating due to a COVID-19 diagnosis or quarantining due to COVID-19 symptoms; or
• Is caring for a child whose school has closed, or childcare provider is unavailable, due to COVID-19.

These rules apply to all employees regardless of the length of time they have worked for the employer. The 80-hours would be pro-rated for those employees who do not normally work a 40-hour week. 

Employees who take leave because they themselves are sick (i.e., the first two bullets above) can receive up to $511 per day, with an aggregate limit of $5,110. If, on the other hand, an employee takes leave to care for a child or other family member (i.e., the last two bullets above), the employee will be paid two-thirds (2/3) of their regular weekly wages up to a maximum of $200 per day, with an aggregate limit of $2,000.

Days when an individual receives pay from their employer (regular wages, sick pay, or other paid time off) or unemployment compensation do not count as leave days for the purposes of this benefit.

Family and Medical Leave Act

Employees who have been employed for at least 30-days also have the right to take up to 12 weeks of job-protected leave under the Family and Medical Leave Act (FMLA). The Act requires that 10 of these 12 weeks (i.e., after the sick leave discussed above is taken) be paid at a rate of no less than two-thirds of the employee’s usual rate of pay. Any leave taken under this portion of the ACT will be limited to $200 per day with an aggregate limit of $10,000.

Exemptions

The Secretary of Labor has the authority to issue regulations exempting: (1) certain healthcare providers and emergency responders from taking leave under the Act; and (2) small businesses with fewer than 50 employees from the requirements of the Act if it would jeopardize the viability of the business.

Expiration

The provisions of the Act are set to expire on December 31, 2020, and unused time will not carry over from one year to the next.

Tax credits 

The Act provides for refundable tax credits to help an employer cover the costs associated with providing paid emergency sick leave or paid FMLA. The tax credits work as follows:

• A refundable tax credit for employers equal to 100 percent of qualified family leave wages paid under the Act.
• A refundable tax credit for employers equal to 100 percent of qualified paid sick leave wages paid under the Act. 
• The tax credits are taken on Form 941 – Employer’s Quarterly Federal Income Tax Return filed for the calendar quarter when the leave is taken and reduce the employer’s portion of the Social Security taxes due. If the credit exceeds the employer’s total liability for Social Security taxes for all employees for any calendar quarter, the excess credit is refundable to the employer.

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