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Reading the fine print: Is it time to review your nonprofit tax policies?

By: Joseph Byrne,

Elizabeth Craft is a Senior Tax Specialist in the Not-For-Profit tax group at BerryDunn. She specializes in preparing tax returns for tax exempt organizations and providing guidance to clients on their tax-related inquiries. Elizabeth holds a Bachelor’s degree in Accounting (2018) and a Master’s in Professional Accountancy (2019) from The University of Southern Mississippi. She achieved her Certified Public Accountant (CPA) designation in 2021. Elizabeth works remotely from Mississippi, serving clients in the New England Area.

Elizabeth Craft
10.01.24 /

It seems these days as though there’s a policy or some fine print for everything. As I grow older, I find myself more and more ensconced in reading the fine print on things—be it a food ingredient label, a contract, or the Apple user agreement (ok, maybe I just skim that one). Just last week, I went to return some school clothes my son had already grown out of and was asked if I had reviewed the store’s return/refund policy (I hadn’t). There’s no question that a review of applicable policies is a best practice for everyone—including exempt organizations.

If it’s been a while since your nonprofit organization last conducted a review of its governing documents and policies, worry not, you’re not alone! This article will highlight a few of the most critical documents applicable to nonprofits to ensure you remain in compliance and good standing.

Conflict of interest policy

If I were playing a rather nerdy version of nonprofit Family Feud, and the category was “Most Important Policies,” I would be shocked if the conflict of interest policy wasn’t the number one answer. It is vital that any potential conflict, either real or perceived, be identified and addressed in a manner consistent with the organization’s policy.

This policy is so important the IRS devotes several questions to it on the Form 990, including a required written narrative detailing how the organization consistently monitors and enforces compliance with said policy. Further, there is a requirement for potential disclosure of certain transactions with “interested persons” on Schedule L of Form 990. Transactions include loans as well as business transactions over a specified dollar threshold. It’s important to note that for Form 990 disclosure, the term “interested persons” includes family members of any officers, directors, trustees, or key employees of the organization, as well as any business entity more than 35% owned or controlled by any of the folks mentioned above.

For these reasons, distribution of a questionnaire to applicable organizational members on an annual basis is a baseline standard.

Gift acceptance policy

The gift acceptance policy is one that often goes overlooked or underappreciated until it’s needed; but when it is needed, it can be a lifesaver. This policy can help to navigate and dictate a myriad of issues, including what sort of gifts the organization is willing to accept and how long the organization is required to retain the gift, as well as provide guidance for board or staff members who are on either the asking or receiving end of contributions. And, perhaps most importantly, the policy can help manage the expectations of donors while maintaining a level of courtesy and respect.

The policy most comes into play when it comes to gifts of something other than cash. For example, if a donor wishes to gift the organization with their interest in a partnership, there could be all sorts of potential tax impacts and complications, including unrelated business income and foreign filing compliance. Another more recent example is the proliferation of cryptocurrency. Having a policy in place that addresses these sorts of non-standard contributions can help mitigate potentially awkward or difficult conversations with donors.

Written whistleblower and document retention and destruction policies

Like the aforementioned conflict of interest policy, the whistleblower and document retention/destruction policies have dedicated questions on the Form 990 asking if the organization has these in place. The key word for both policies is "written." Often times, we will hear that a client follows a policy, but it’s not in writing. Unfortunately, this would warrant a “no” response on the Form 990. Potential donors, members of the media, regulators, and careful job seekers will have greater confidence when you respond “yes” to the policy questions on the Form 990.

While there have not been any sweeping changes or recent regulations on either, it is still a good idea to review these policies on an annual basis to ensure they are still in lockstep with the organization. The IRS does consider these policies to be best practices for any organization (large or small) to have in place.

In addition to reviewing policies of the organization, we also recommend reviewing the governing documents of the organization on a regular basis, especially as IRS guidance or tax laws change.

Dissolution clause

It’s a sad reality that all things must come to an end, including business entities. Historically, nonprofit organizations were able to rely upon Revenue Procedure 82-2. This procedure identified states where a Section 501(c)(3) charity could rely on state law to satisfy the requirement that its organizing documents require that, upon dissolution, the charity must distribute all of its assets for IRC Section 501(c) tax-exempt purposes. However, the IRS recently issued Revenue Procedure 2024-22, which now makes Rev. Proc. 82-2 obsolete. Said in simpler terms, organizations can no longer simply rely upon applicable state law to satisfy dissolution requirements at the federal level.

For this reason, we strongly encourage all organizations to review this particular clause and consult with legal counsel as needed to ensure the wording and procedures followed are in line with current law. It may be necessary in some cases to amend governing documents and/or bylaws to add the required dissolution wording to remain in compliance. 

Sample policies for nonprofits

Policies and governing documents are critical in ensuring the organization and its decision-makers protect themselves from wrongdoing and criticism that could undermine the ability to promote the organization’s mission. Organizations will be better protected if there are sound policies and procedures in place that can be adequately followed. There are a number of various outlets that provide sample policies, including the Internal Revenue Service, among others. Links to sample policies and additional guidance can be found below:

If you have any questions about the applicability of certain policies, we are here to help! Please do not hesitate to contact a member of your tax engagement team for further guidance.

Now, what to do with these undersized school clothes… perhaps I can donate them to charity? I better check their gift acceptance policy first!

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Read this if you are a not-for-profit looking to learn more about tax filing deadlines.

State of New Hampshire: If your organization has a December 31 year-end, your annual report filing with the Charitable Trusts Unit and related payment are still due by May 15. If you are not ready to file, you may file Form NHCT-4 for an extension by May 15. If your organization has a June 30 year-end, you may email the State Attorney General to ask for additional time to July 15.

April 24, 2020, UPDATE: Commonwealth of Massachusetts: The Massachusetts Attorney General’s office has extended the Form PC filing requirement. All filing deadlines for annual charities filings for fiscal year 2019 have been extended by six months. This extension is in addition to the automatic six month extension that many not-for-profits receive. In addition, original signatures, photocopies of signatures, and e-signatures (e.g., DocuSign) will be accepted.

On April 9, 2020, the Internal Revenue Service (IRS) issued Notice 2020-23, its third round of tax filing relief guidance, which amplifies relief set forth in previously issued IRS notices providing relief to taxpayers affected by COVID-19. Notice 2020-23 also provides additional time to perform certain other actions. The Notice holds the special distinction of being the first to provide specific relief to not-for-profit organizations with return filing and tax payment obligations due between April 1 and July 15, 2020. The details are highlighted below:

Tax deadline extended to July 15, 2020
The Notice explicitly states that Form 990-T tax payment and filing obligations due during the period between April 1 and July 15 will be automatically extended to July 15, 2020. Additionally, Form 990-PF (and associated tax payments) as well as quarterly Federal estimated tax payments remitted via Form 990-W are also explicitly noted and are granted an extension to July 15.
    
While this is certainly good news, the more eagerly anticipated news is the Notice also includes “Affected Taxpayers” who are required to perform “Specified Time-Sensitive Actions” referenced in Revenue Procedure 2018-58. The Revenue Procedure specifically mentions exempt organizations as “Affected Taxpayers” required to perform “specified time-sensitive actions”—one such action being the filing of Form 990.

In summary (with the combined power of the Notice and Revenue Procedure), any entity with a Form 990, Form 990-EZ, Form 990-PF, Form 990-T, Form 990-W estimated tax filing requirement, Form 1120-POL or Form 4720 filing obligation due between April 1 and July 15, 2020 now have until July 15, 2020 to file. Needless to say this is very welcome news for an industry that like so many others, is being pushed to the brink during this turbulent and difficult time.

Additional extensions
Notice 2020-23 (with reference to Revenue Procedure 2018-58) also extends the due date of certain forms, notices, applications, and other exempt organization activities due between April 1 and July 15, 2020, until July 15, 2020 as noted below: 

  • Community health needs assessments (CHNAs) and Implementation Strategies
  • Application for Recognition of Exemption (Forms 1023 and 1024) 
  • Section 501(h) Elections and Revocations (Form 5768)
  • Information Return of US Persons with Respect to Certain Foreign Corporations (Form 5471)
  • Political Organization Notices and Reports (Forms 8871 and 8872)
  • Notification of Intent to Operate as a Section 501(c)(4) Organization (Form 8976) 

We are here to help
Please contact the BerryDunn not-for-profit tax team if you have any questions, or would like to discuss your specific situation.

Article
Not-for-profit May 15 tax deadline extended

Of all the changes that came with the sweeping Tax Cuts and Jobs Act (TCJA) in late 2017, none has prompted as big a response from our clients as the changes TCJA makes to the qualified parking deduction. Then, last month, the IRS issued its long-waited guidance on this code section in the form of Notice 2018-99

We've taken a look at both the the original provisions, and the new guidance, and have collected the salient points and things we think you need to consider this tax season. For not-for-profit organizations, visit my article here. And for-profit companies can read here.  

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IRS guidance on qualified parking: Our take

IRS Notice 2018-67 Hits the Charts
Last week, in addition to The Eagles Greatest Hits (1971-1975) album becoming the highest selling album of all time, overtaking Michael Jackson’s Thriller, the IRS issued Notice 2018-67its first formal guidance on Internal Revenue Code Section 512(a)(6), one of two major code sections added by the Tax Cuts and Jobs Act of 2017 that directly impacts tax-exempt organizations. Will it too, be a big hit? It remains to be seen.

Section 512(a)(6) specifically deals with the reporting requirements for not-for-profit organizations carrying on multiple unrelated business income (UBI) activities. Here, we will summarize the notice and help you to gain an understanding of the IRS’s thoughts and anticipated approaches to implementing §512(a)(6).

While there have been some (not so quiet) grumblings from the not-for-profit sector about guidance on Code Section 512(a)(7) (aka the parking lot tax), unfortunately we still have not seen anything yet. With Notice 2018-67’s release last week, we’re optimistic that guidance may be on the way and will let you know as soon as we see anything from the IRS.

Before we dive in, it’s important to note last week’s notice is just that—a notice, not a Revenue Procedure or some other substantive legislation. While the notice can, and should be relied upon until we receive further guidance, everything in the notice is open to public comment and/or subject to change. With that, here are some highlights:

No More Netting
512(a)(6) requires the organization to calculate unrelated business taxable income (UBTI), including for purposes of determining any net operating loss (NOL) deduction, separately with respect to each such trade or business. The notice requires this separate reporting (or silo-ing) of activities in order to determine activities with net income from those with net losses.

Under the old rules, if an organization had two UBI activities in a given year, (e.g., one with $1,000 of net income and another with $1,000 net loss, you could simply net the two together on Form 990-T and report $0 UBTI for the year. That is no longer the case. From now on, you can effectively ignore activities with a current year loss, prompting the organization to report $1,000 as taxable UBI, and pay associated federal and state income taxes, while the activity with the $1,000 loss will get “hung-up” as an NOL specific to that activity and carried forward until said activity generates a net income.

Separate Trade or Business
So, how does one distinguish (or silo) a separate trade or business from another? The Treasury Department and IRS intend to propose some regulations in the near future, but for now recommend that organizations use a “reasonable good-faith interpretation”, which for now includes using the North American Industry Classification System (NAICS) in order to determine different UBI activities.

For those not familiar, the NAICS categorizes different lines of business with a six-digit code. For example, the NAICS code for renting* out a residential building or dwelling is 531110, while the code for operating a potato farm is 111211. While distinguishing residential rental activities from potato farming activities might be rather straight forward, the waters become muddier if an organization rents both a residential property and a nonresidential property (NAICS code 531120). Does this mean the organization has two separate UBI rental activities, or can both be grouped together as rental activities? The notice does not provide anything definitive, but rather is requesting public comments?we expect to see something more concrete once the public comment period is over.

*In the above example, we’re assuming the rental properties are debt-financed, prompting a portion of the rental activity to be treated as UBI.

UBI from Partnership Investments (Schedule K-1)
Notice 2018-67 does address how to categorize/group unrelated business income for organizations that receive more than one partnership K-1 with UBI reported. In short, if the Schedule K-1s the organization receives can meet either of the tests below, the organization may treat the partnership investments as a single activity/silo for UBI reporting purposes. The notice offers the following:

De Minimis Test
You can aggregate UBI from multiple K-1s together as long as the exempt organization holds directly no more than 2% of the profits interest and no more that 2% of the capital interest. These percentages can be found on the face of the Schedule K-1 from the Partnership and the notice states those percentages as shown can be used for this determination. Additionally, the notice allows organizations to use an average of beginning of year and end of year percentages for this determination.

Ex: If an organization receives a K-1 with UBI reported, and the beginning of year profit & capital percentages are 3%, and the end of year percentages are 1%, the average for the year is 2% (3% + 1% = 4%/2 = 2%). In this example, the K-1 meets the de minimis test.

There is a bit of a caveat here—when determining an exempt organization's partnership interest, the interest of a disqualified person (i.e. officers, directors, trustees, substantial contributors, and family members of any of those listed here), a supporting organization, or a controlled entity in the same partnership will be taken into account. Organizations need to review all K-1s received and inquire with the appropriate person(s) to determine if they meet the terms of the de minimis test.

Control Test
If an organization is not able to pass the de minimis test, you may instead use the control test. An organization meets the requirements of the control test if the exempt organization (i) directly holds no more than 20 percent of the capital interest; and (ii) does not have control or influence over the partnership.

When determining control or influence over the partnership, you need to apply all relevant facts and circumstances. The notice states:

“An exempt organization has control or influence if the exempt organization may require the partnership to perform, or may prevent the partnership from performing, any act that significantly affects the operations of the partnership. An exempt organization also has control or influence over a partnership if any of the exempt organization's officers, directors, trustees, or employees have rights to participate in the management of the partnership or conduct the partnership's business at any time, or if the exempt organization has the power to appoint or remove any of the partnership's officers, directors, trustees, or employees.”

As noted above, we recommend your organization review any K-1s you currently receive. It’s important to take a look at Line I1 and make sure your organization is listed here as “Exempt Organization”. All too often we see not-for-profit organizations listed as “Corporations”, which while usually technically correct, this designation is really for a for-profit corporation and could result in the organization not receiving the necessary information in order to determine what portion, if any, of income/loss is attributable to UBI.

Net Operating Losses
The notice also provides some guidance regarding the use of NOLs. The good news is that any pre-2018 NOLs are grandfathered under the old rules and can be used to offset total UBTI on Form 990-T.

Conversely, any NOLs generated post-2018 are going to be considered silo-specific, with the intent being that the NOL will only be applicable to the activity which gave rise to the loss. There is also a limitation on post-2018 NOLs, allowing you to use only 80% of the NOL for a given activity. Said another way, an activity that has net UBTI in a given year, even with post-2017 NOLs, will still potentially have an associated tax liability for the year.

Obviously, Notice 2018-67 provides a good baseline for general information, but the details will be forthcoming, and we will know then if they have a hit. Hopefully the IRS will not Take It To The Limit in terms of issuing formal guidance in regards to 512(a)(6) & (7). Until they receive further IRS guidance,  folks in the not-for-profit sector will not be able to Take It Easy or have any semblance of a Peaceful Easy Feeling. Stay tuned.

Article
Tax-exempt organizations: The wait is over, sort of

Benchmarking doesn’t need to be time and resource consuming. Read on for four simple steps you can take to improve efficiency and maximize resources.

Stop us if you’ve heard this one before (from your Board of Trustees or Finance Committee): “I wish there was a way we could benchmark ourselves against our competitors.”

Have you ever wrestled with how to benchmark? Or struggled to identify what the Board wants to measure? Organizations can fall short on implementing effective methods to benchmark accurately. The good news? With a planned approach, you can overcome traditional obstacles and create tools to increase efficiency, improve operations and reporting, and maintain and monitor a comfortable risk level. All of this can help create a competitive advantage — and it  isn’t as hard as you might think.

Even with a structured process, remember that benchmarking data has pitfalls, including:

  • Peer data can be difficult to find. Some industries are better than others at tracking this information. Some collect too much data that isn’t relevant, making it hard to find the data that is.
     
  • The data can be dated. By the time you close your books for the year and data is available, you’re at least six months into the next fiscal year. Knowing this, you can still build year-over-year trending models that you can measure consistently.
     
  • The underlying data may be tainted. As much as we’d like to rely on financial data from other organization and industry surveys, there’s no guarantee that all participants have applied accounting principles consistently, or calculated inputs (e.g., full-time equivalents) in the same way, making comparisons inaccurate.

Despite these pitfalls, benchmarking is a useful tool for your organization. Benchmarking lets you take stock of your current financial condition and risk profile, identify areas for improvement and find a realistic and measurable plan to strengthen your organization.

Here are four steps to take to start a successful benchmarking program and overcome these pitfalls:

  1. Benchmark against yourself. Use year-over-year and month-to-month data to identify trends, inconsistencies and unexplained changes. Once you have the information, you can see where you want to direct improvement efforts.
  2. Look to industry/peer data. We’d love to tell you that all financial statements and survey inputs are created equally, but we can’t. By understanding the source of your information, and the potential strengths and weaknesses in the data (e.g., too few peers, different size organizations and markets, etc.), you will better know how to use it. Understanding the data source allows you to weigh metrics that are more susceptible to inconsistencies.
  1. Identify what is important to your organization and focus on it. Remove data points that have little relevance for your organization. Trying to address too many measures is one of the primary reasons benchmarking fails. Identify key metrics you will target, and watch them over time. Remember, keeping it simple allows you to put resources where you need them most.
  1. Use the data as a tool to guide decisions. Identify aspects of the organization that lie beyond your risk tolerance and then define specific steps for improvement.

Once you take these steps, you can add other measurement strategies, including stress testing, monthly reporting, and use in budgeting and forecasting. By taking the time to create and use an effective methodology, this competitive advantage can be yours. Want to learn more? Check out our resources for not-for-profit organizations here.

Article
Benchmarking: Satisfy your board and gain a competitive advantage

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.

Article
Three reasons to consider hiring an interim CFO

The COVID-19 emergency has caused CMS (Centers for Medicare & Medicaid Services) to expand eligibility for expedited payments to Medicare providers and suppliers for the duration of the public health emergency.

Accelerated payments have been available to providers/suppliers in the past due to a disruption in claims submission or claims processing, mainly due to natural disasters. Because of the COVID-19 public health emergency, CMS has expanded the accelerated payment program to provide necessary funds to eligible providers/suppliers who submit a request to their Medicare Administrative Contractor (MAC) and meet the required qualifications.

Eligibility requirements―Providers/suppliers who:

  1. Have billed Medicare for claims within 180 days immediately prior to the date of signature on the provider’s/supplier’s request form,
  2. Are not in bankruptcy,
  3. Are not under active medical review or program integrity investigation, and
  4. Do not have any outstanding delinquent Medicare overpayments.

Amount of payment:
Eligible providers/suppliers will request a specific amount for an accelerated payment. Most providers can request up to 100% of the Medicare payment amount for a three-month period. Inpatient acute care hospitals and certain other hospitals can request up to 100% of the Medicare payment amount for a six-month period. Critical access hospitals (CAHs) can request up to 125% of the Medicare payment for a six-month period.

Processing time:
CMS has indicated that MACs will work to review and issue payment within seven calendar days of receiving the request.

Repayment, recoupment, and reconciliation:
The December 2020 Bipartisan-Bicameral Omnibus COVID Relief Deal revised the repayment, recoupment and reconciliation timeline on the Medicare Advanced and Accelerated Payment Program as identified below. 

Hospitals repayment, recoupment and reconciliation timeline 
Original Timeline 
Time from date of payment receipt  Recoupment & Repayment
120 days  No payments due 
121 - 365 days  Medicare claims reduced by 100% 
> 365 days provider may repay any balance due or be subject to an ~9.5% interest rate      Recoupment period ends - repayment of outstanding balance due 

Hospitals repayment, recoupment and reconciliation timeline 
Updated Timeline
Time from date of payment receipt  Recoupment & Repayment
1 year  No payments due 
11 months  Medicare claims reduced by 25% 
6 months  Medicare claims reduced by 50% 
> 29 months provider may repay any balance due or be subject to a 4% interest rate  Recoupment period ends - repayment of outstanding balance due 

Non-hospitals repayment, recoupment and reconciliation timeline
Original Timeline 
Time from date of payment receipt  Recoupment & Repayment
120 days  No payments due 
121 - 210 days Medicare claims reduced by 100% 
> 210 days provider may repay any balance due or be subject to an ~9.5% interest rate Recoupment period ends - repayment of outstanding balance due 

Non-hospitals repayment, recoupment and reconciliation timeline
Updated Timeline 
Time from date of payment receipt  Recoupment & Repayment
1 year No payments due 
11 months  Medicare claims reduced by 25% 
6 months Medicare claims reduced by 50% 
> 29 months provider may repay any balance due or be subject to a 4% interest rate  Recoupment period ends - outstanding balance due 

Application:
Applications for accelerated payments can be found on each MACs' website. CMS has established COVID-19 hotlines at each MAC that are operational Monday through Friday to assist providers with accelerated or advance payment concerns. Access your designated MACs' website here.

The MAC will review the application to ensure the eligibility requirements are met. The provider/supplier will be notified of approval or denial by mail or email. If the request is approved, the MAC will issue the accelerated payment within seven calendar days from the request.

When funding is approved, the requested amount is compared to a database with amounts calculated by Medicare and provides funding at the lessor of the two amounts. The current form allows the provider to request the maximum payment amount as calculated by CMS or a lesser specified amount.

We are here to help
If you have questions or need more information about your specific situation, please contact the healthcare consulting team. We’re here to help.

Article
Medicare Accelerated Payment Program

Read this if you are a business owner or interested in upcoming changes to current tax law.

As Joe Biden prepares to be inaugurated as the 46th President of the United States, and Congress is now controlled by Democrats, his tax policy takes center stage.

Although the Democrats hold the presidency and both houses of Congress for the next two years, any changes in tax law may still have to be passed through budget reconciliation, because 60 votes in the Senate generally are needed to avoid that process. Both in 2017 and 2001, passing tax legislation through reconciliation meant that most of the changes were not permanent; that is, they expired within the 10-year budget window. Here is a comparison of current tax law with Biden’s proposed tax plan.

Current Tax Law
(TCJA–present)
Biden’s stated goals
Corporate tax rates and AMT

Corporations have a flat 21% tax rate and no corporate alternative minimum tax (AMT), which were both changed by the TCJA.

These do not expire.

Biden would raise the flat rate to the pre-TCJA level of 28% and reinstate the corporate AMT, requiring corporations to pay the greater of their regular corporate income tax or the 15% minimum tax (while still allowing for net operating loss (NOL) and foreign tax credits).

Capital gains and Qualified Dividend Income

The top tax rate is 20% for income over $441,450 for individuals and $496,600 for married filing jointly. There is an additional 3.8% net investment income tax.

Biden would eliminate breaks for long-term capital gains and dividends for income above $1 million. Instead, these would be taxed at ordinary rates.

Payroll taxes

The 12.4% payroll tax is divided evenly between employers and employees and applies to the first $137,700 of an individual’s income (scheduled to go up to $142,400 in 2020). There is also a 2.9% Medicare Tax which is split equally between the employer and the employee with no income limit.

Biden would maintain the 12.4% tax split between employers and employees and keep the $142,400 cap but would institute the tax on earned income above $400,000. The gap between the two wage levels would gradually close with annual inflationary increases.

International taxes (GILTI, offshoring)

GILTI (Global Intangible Low-Tax Income): Established by the TCJA, U.S. multinationals are required to pay a foreign tax rate of between 10.5% and 13.125%.

A scheduled increase in the effective rate to 16.406% is scheduled to begin in 2026.

Offshoring taxes: The TCJA includes a tax deduction for corporations that manufacture in the U.S. and sell overseas.

GILTI: Biden would double the tax rate to 21% and assess a minimum tax on a country-by-country basis.

Offshoring taxes: Biden would establish a 10% penalty surtax on profits for goods and services manufactured offshore and a 10% advanceable “Made in America” tax credit to create U.S. manufacturing jobs. Biden would also close offshoring tax loopholes in the TCJA.

Estate taxes

The estate tax exemption for 2020 is $11,580,000. Transfers of appreciated property at death get a step-up in basis.

The exemption is scheduled to revert to pre-TCJA levels.

Biden would return the estate tax to 2009 levels, eliminate the current step-up in basis on inherited assets, and eliminate the step-up at death provision for inherited property passed along by the decedent.

Individual tax rates

The top marginal rate is 37% for income over $518,400 for individuals and $622,050 for married filing jointly. This was lowered from 39.6% pre-TCJA.

Biden would restore the 39.6% rate for taxable income above $400,000. This represents only the top rate.

Individual tax credits

Currently, individuals can claim a maximum of $2,000 Child Tax Credit (CTC) plus a $500 dependent credit.

Individuals may claim a maximum dependent care credit of $600 ($1,200 for two or more children).

The CTC is scheduled to revert to pre-TCJA levels ($1,000) after 2025.

Biden would expand the CTC to $3,000 for children age 17 and under and offer a $600 bonus for children age 6 and under. It would also be fully refundable.

He has also proposed increasing the child and dependent care tax credit to $8,000 ($16,000 for two or more children), and he has proposed a new tax credit of up to $5,000 for informal caregivers.

Separately, Biden has also proposed a $15,000 tax credit for first-time homebuyers.

Qualified Business Income Deduction under Section 199A

As previously discussed, many businesses qualify for a 20% qualified business income tax deduction lowering the effective rate of tax for S corporation shareholders and partners in partnerships to 29.6% for qualifying businesses.

Biden would phase out the tax benefits associated with the qualified business income deduction for those making more than $400,000 annually.

Education

Forgiven student loan debt is included in taxable income.

There is no tax credit for contributions to state-authorized organizations that sponsor scholarships.

Biden would exclude forgiven student loan debt from taxable income.

Small businesses

There are current tax credits for some of the costs to start a retirement plan.

Biden would offer tax credits for businesses that adopt a retirement savings plan and offer most workers without a pension or 401(k) access to an “automatic 401(k)”.

Itemized deductions

For 2020, the standard deduction is $12,400 for single/married filing separately and $24,800 for married filing jointly.

After 2025, the standard deduction is scheduled to revert to pre-TCJA amounts, or $6,350 for single /married filing separately and $12,700 for married filing jointly.

The TCJA suspended the personal exemption and most individual deductions through 2025.

It also capped the SALT deduction at $10,000, which will remain in place until 2025, unless repealed.

Biden would enact a provision that would cap the tax benefit of itemized deductions at 28%.

SALT cap: Senate minority leader Charles Schumer has pledged to repeal the cap should Biden win in November (the House of Representatives has already passed legislation to repeal the SALT cap).

Opportunity Zones

Biden has proposed incentivizing - opportunity zone funds to partner with community organizations and have the Treasury Department review the program’s regulations of the tax incentives. He would also increase reporting and public disclosure requirements.
Alternative energy Biden would expand renewable energy tax credits and credits for residential energy efficiency and restore the Energy Investment Tax Credit (ITC) and the Electric Vehicle Tax Credit.


If you have questions about your specific situation, please contact us. We’re here to help.

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Biden's tax plan and what may change from current tax law

Read this if you are a tax-exempt organization.

The IRS recently issued proposed regulations (REG-106864-18) related to Internal Revenue Code Section 512(a)(6), which requires tax-exempt entities to calculate unrelated business taxable income (UBTI) separately for each unrelated trade or business carried on by the organization.

For years beginning after December 31, 2017, exempt organizations with more than one unrelated trade or business are no longer permitted to aggregate income and deductions from all unrelated trades or businesses when calculating UBTI. In August 2018, the IRS issued Notice 2018-67, which discussed and solicited comments regarding various issues arising under Code Section 512(a)(6) and set forth interim guidance and transition rules relating to that section. 

The good news
The new proposed regulations expand upon Notice 2018-67 and provide for the following:

  • An exempt organization would identify each of its separate unrelated trades or businesses using the first two digits of the NAICS code that most accurately describes the trade or business. Activities in different geographic areas may be aggregated.
  • The total UBTI of an organization with more than one unrelated trade or business would be the sum of the UBTI computed with respect to each separate unrelated trade or business (subject to the limitation that UBTI with respect to any separate unrelated trade or business cannot be less than zero). 
  • An exempt organization with more than one unrelated trade or business would determine the NOL deduction allowed separately with respect to each of its unrelated trades or businesses.
  • An organization with losses arising in a tax year beginning before January 1, 2018 (pre-2018 NOLs), and with losses arising in a tax year beginning after December 31, 2017 (post-2017 NOLs), would deduct its pre-2018 NOLs from total UBTI before deducting any post-2017 NOLs with regard to a separate unrelated trade or business against the UBTI from such trade or business. 
  • An organization's investment activities would be treated collectively as a separate unrelated trade or business. In general, an organization's investment activities would be limited to its:
     
    1. Qualifying partnership interests
    2. Qualifying S corporation interests
    3. Debt-financed property or properties 

Organizations described in Code Sec. 501(c)(3) are classified as publicly supported charities if they meet certain support tests. The proposed regulations would permit an organization with more than one unrelated trade or business to aggregate its net income and net losses from all of its unrelated business activities for purposes of determining whether the organization is publicly supported. 

The missing news: Unaddressed items from the new guidance
With the changes provided by these proposed regulations we anticipate less complexity and lower compliance costs in applying Code Section 512(a)(6). While this new guidance is considered taxpayer friendly, the IRS still has more work to do. Items not yet addressed include:

  • Allocation of expenses among unrelated trade or businesses and between exempt and non-exempt activities.
  • The ordering rules for applying charitable deductions and NOLs.
  • Net operating losses as changed under the CARES Act.

The IRS is requesting comments on numerous key situations. Until the regulations are finalized, organizations can rely on either these proposed regulations, Notice 2018-67, or a reasonable good-faith interpretation of Code Sections 511-514 considering all the facts and circumstances.
We will keep you informed with the latest developments.

If you have any questions, please contact the not-for-profit consulting team

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IRS unrelated business taxable income update: The good news and the missing news