CARES ActWebinar

April 1, 2020

Disclaimer: This material has been prepared for informational purposes only, and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional tax planner or financial planner. All information is provided "as is," with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information.

WelcomeRobena Jafari, Partner & Practice Leader, International Tax

Robena Jafari

Table of ContentsI. Extension of Filing and Payment Deadline - Robena Jafari

II. People First Initiative - Robena Jafari

III. Key Highlights of the CARES Act - Robena Jafari

IV. CARES Act Detailsi. Economic Stabilization – Gabe Torre, Tax Partner & Randal Nachenberg, Senior Tax Managerii. Tax – Business – Shawn Kato, Tax Partner & Justin Demere, Tax Partneriii. Tax – Individuals – Lisa Yamakawa, Tax Partneriv. Retirement & Charitable – Lisa Yamakawa, Tax Partnerv. Financial Services – Michael Ferrari, Tax Senior Manager

V. State Tax Updates – Jeff Davis, SALT Partner & Practice Leader

VI. Opportunitiesi. Gifting – Amy Allen, Tax Partner

Robena Jafari

Extension of Filing and Payment DeadlinesOn March 24, 2020, the Internal Revenue Service (IRS) posted Frequently Asked Questions (FAQs) on the extension of certain filing and payment deadlines to July 15, 2020 that was provided in Notice 2020-18.

The FAQs indicate, among other things, that for any taxpayer whose Federal income tax return filing due date has been postponed from April 15 to July 15, 2020, the due date of that taxpayer’s Section 965 installment payment has also been postponed to July 15, 2020.

Robena Jafari

People First InitiativeOn March 25, 2020 the IRS unveiled a new People First Initiative to temporarily adjust or suspend key compliance programs. The IRS release describes changes to its operations effective April 1 through July 15, 2020. Some relevant highlights include the following:

• During this period, the IRS will generally not start new examinations, but will continue to work refund claims.

• New examinations may start, if necessary, to preserve the statute of limitations.• Though IRS examiners will not hold in-person meetings, existing exams will continue

remotely, where possible.• Appeals employees will continue their cases by phone and videoconference.• New automatic, systemic liens and levies will be suspended.• Liens and levies initiated by field revenue officers will be suspended.

Robena Jafari

The CARES ActThe CARES Act broadly provides for direct checks to households; expanded unemployment insurance; loans to small businesses; stabilization of key industries; and investment in medicines and vaccines, and the provision of medical equipment.

It provides information on loan programs and includes eight business tax provisions aimed at providing liquidity through:• Small business loans• Crediting against employers’ payroll taxes amounts paid in wages to retained workers• Delaying payment of employer payroll taxes• Allowing a five-year carryback period for net operating losses (NOLs) and temporarily

removing the 80% limitation• Allowing NOL relief for non-corporate businesses• Clarifying Alternative Minimum Tax (AMT) refund allowances• Increasing the allowance for business interest deductions• Adding a technical correction for qualified improvement property (QIP)

Robena Jafari

Paycheck Protection

Program

Randal Nachenberg & Gabe Torre

Business Loan Provisions• Small Business Administration (SBA) to administer a new program to provide loans of

up to $10 million for qualifying small businesses, along with an opportunity for future loan forgiveness

• Maximum loan amount: 2.5X the business' average monthly annual payroll cost for the preceding 12 months, or $10 million, whichever is less

• No personal guarantee• Loan proceeds may be used for:

1. Interest on debt obligations incurred before March 1, 2020 2. Payroll support3. Employee salaries4. Mortgage payment5. Rent6. Utilities

• Cannot also receive SBA Economic Injury Disaster Loan (EIDL) for same purpose

Randal Nachenberg & Gabe Torre

General Provisions & Payment Deferral

• Authority to approve loans delegated to qualified lenders

• Sole-proprietors are eligible

• Available to organizations of less than 500 employees or existing small business concerns,as previously defined by the SBA

• Unrelated EIDL loans may be refinanced with this PPP loan

• Fees waived for PPP

• If not forgiven, maximum term of 10 years and interest not to exceed 4%

• Deferral on repayment of not less than six months and no more than one year

• Able to receive EIDL (as of Jan. 31, 2020 and forward) and PPP as long as EIDL loans not used for payroll and other PPP purposes

• No prepayment penalty

Randal Nachenberg & Gabe Torre

How Much Can I Borrow?

Example• Payroll Costs from

March 1, 2019 to February 29, 2020 is $2.4M

Randal Nachenberg & Gabe Torre

Calculation steps• Calculate last 12 months’ gross payroll

• Includes wages, commissions, cash tips, vacation, medical leave, severance, healthcare premiums, retirement benefits, state or local tax assessed on compensation, and the sum of payments to independent contractors.

• Subtract• Compensation of an individual employee in

excess of an annual salary of $100,000 as prorated for the period February 15 to June 30, 2020.*

= Payroll Costs

• Divide by 12• Multiply by 2.5

*Payroll taxes, railroad retirement taxes, income taxes, and any compensation of an employee whose principal place of residence is outside of the United States not included.

12 months Payroll Costs $2,400,000

Divide by 12

Ave. monthly Payroll Costs $200,000

Multiply by 2.5

PPP loan eligibility $500,000

Borrower RequirementsThere are very few borrower requirements to obtain a loan under the new program. Those requirements include a good-faith certification that:• The loan is needed to continue operations during the COVID-19 emergency• Funds will be used to retain workers and maintain payroll or make mortgage, lease

and utility payments• The applicant does not have any other application pending under this program for

the same purpose• From Feb. 15, 2020 until Dec. 31, 2020, the applicant has not received duplicative

amounts under this programIn evaluating eligibility of borrowers, a lender must consider whether the borrower was operating on Feb. 15, 2020 and had employees or independent contractors whom the borrower paid.

Randal Nachenberg & Gabe Torre

Allowable uses of proceedsBusinesses may, in addition to uses already allowed under the SBA’s Business Loan Program, use the loans for:

Payroll costs

Includes• Compensation to employees: salary, wages,

commissions, cash, etc.• Paid leave and severance payments• Payment for group health benefits: insurance

premiums, retirement benefits and state and local payroll taxes

• Compensation to sole proprietors or independent contractors (includes commission-based) up to $100,000 in one year, prorated for the covered period (Feb. 15, 2020 – June 30, 2020 for PPP)

Excludes• Individual employee compensation above

$100,000 per year, prorated for the covered period

• Certain federal taxes• Compensation to employees whose principal

place of residence is outside of the U.S.• Sick and family leave wages for which credit is

allowed under the Families First Act

Randal Nachenberg & Gabe Torre

Allowable uses of proceeds (cont’d.)

Businesses may, in addition to uses already allowed under the SBA’s Business Loan Program, use the loans for:

• Group health care benefits during periods of paid sick, medical, or family leave and insurance premiums

• Salaries, commissions or similar compensation• Payments of interest on mortgage obligations• Rent/lease agreement payments• Utilities• Interest on any other debt obligations incurred before the covered period

Randal Nachenberg & Gabe Torre

Loan Forgiveness Provisions

• No cancellation of debt (COD) income upon forgiveness• Must use proceeds for approved purposes within eight weeks of loan origination• “Available for reduction balance” calculated as:

• Multiplying the loan amount by quotient of: • Average FTEs per month during covered period [8 weeks after loan orig.] / (A) or (B)

• (A) Avg. FTEs per month from Feb. 15, 2019 through June 30, 2019 • (B) Avg. FTEs per month from Jan. 1, 2020 through February, 29, 2020

• Loan forgiveness reduced proportionately based on number of employee reductions or salary reductions greater than 25% for annual salaries less than $100,000

• Hire back FTEs within 30 days of bill passage, no penalty for employee or salary reduction• Must provide documentation for forgiveness of loan and certification stating provided

documents are true and correct

Randal Nachenberg & Gabe Torre

Loan Forgiveness Documentation

There are some required processes to apply for loan forgiveness. Borrowers must submit to their lender:

Documentation verifying FTE on payroll

and pay rates

Documentation on covered costs/payments

(e.g., documents verifying mortgage, rent

and utility payments such as cancelled checks

and payroll reports)

Certification from a business representative that the documentation is true and correct and

that forgiveness amounts requested were used to retain employees and

make other forgiveness-eligible payments

Any other documentation the Administrator may

require

Randal Nachenberg & Gabe Torre

Hospitality & Dining Provisions

Three modified criteria for qualification:1. Businesses with more than one location2. 500 or fewer employees per location3. Assigned to NAICS 72 code (accommodation and food services)

SBA Regulations on entity affiliations waived for: • Businesses in NAICS 72 Code with 500 or fewer employees• Franchise businesses with SBA franchisor identifier codes• Any business that receives financial assistance from a company licensed under section 301

of the Small Business Investment Act

Sole proprietors, independent contractors, and eligible self-employed individuals (as defined in the Families First Coronavirus Response Act) are eligible loan recipients, subject to some documentation requirements.

Randal Nachenberg & Gabe Torre

Payroll Tax Credits and Paid Leave

Gabe Torre

Emergency Paid Sick Leave – General Info

• Covers employers with fewer than 500 employees• Employers utilize the guidance included with the 1993 FMLA legislation to

determine employee count. Includes the use of Integrated Employer and Joint Employer tests

• All employees are covered including those employees covered under a collective bargaining agreement.

• No waiting period for eligibility• Effective April 1, 2020; expires Dec. 31, 2020• Exemptions available to employers with less than 50 employees

Gabe Torre

Emergency Paid Sick Leave – Qualifications

1. Employee is subject to a quarantine or isolation order2. Employee is advised by a healthcare provider to self-quarantine3. Employee is experiencing symptoms of COVI D-19 and seeking diagnosis4. Employee is caring for an individual as described in the first two reasons above5. Employee is caring for child (<18) if school or place of care is closed due to COVID-196. Employee is experiencing any other substantially similar condition

There are six (6) provisions (employee qualifications) under the Act:

Gabe Torre

Emergency Paid Sick Leave Provisions

• Requires employers with fewer than 500 employees to provide full-time employees with 80 hours of paid sick leave at the employee's regular rate of pay or 2/3 of the regular rate of pay (see chart on next slide).

• Part-time employees will be entitled to paid sick leave based on their average hours worked over a two-week period.

• Employees working variable hours will be paid based on the average number of hours the employee worked or would have worked (for estimating purposes) for the last six months prior to taking paid sick leave.

• The amount of hours is available immediately regardless of length of employment.• Emergency paid sick leave will not carryover from one year to the next. (12/31/20)• Emergency paid sick leave will not be paid out to an employee who has separated

employment.

Upon qualification of the Act:

Gabe Torre

Reason Amount Daily cap/max total

Employee is subject to quarantine or isolation order

Regular rate of pay

$511 per day/$5,110 totalEmployee is advised by a healthcare provider to self-quarantine

Employee is experiencing symptoms of COVID-19 and seeking diagnosis

Employee is caring for an individual as described in the first two reasons above

2/3 regular rate of pay

$200 per day/$2,000 totalEmployee is caring for child if school or place of care if closed due to COVID-19

Employee is experiencing any other substantially similar condition

Emergency Paid Sick Leave -Payment Calculations Provisions

Gabe Torre

Expanded Family and Medical Leave –General Information

• Qualifying event is related to a public health emergency

• Covers employers with fewer than 500 employees

• Employers should utilize guidance outlined with the 1993 FMLA legislation to determine employee count. Includes the use of Integrated Employer and Joint Employer tests.

• All employees are covered including those employees covered under a collective bargaining agreement.

• Available to any employee who has been employed for at least 30 calendar days.

• The Act will be effective April 1, 2020 and expire on December 31, 2020

Gabe Torre

Expanded Family and Medical Leave –Provisions

• Requires employers with fewer than 500 employees to provide leave to an employee who is unable to work or telework to care for a child under the age of 18 if the child's day care, elementary or secondary school closes or temporarily transitions to cyber-learning as a result of the COVID-19 public health emergency.

• Allows employers to provide the first 10 days of leave unpaid.

• The remaining 10 weeks of leave will be paid at 2/3 the employee's regular rate of pay with a daily cap of $200 and $10,000 in total.

• Documentation is required for the employee to provide notice in a reasonable timeframe. Awaiting clarity on certification requirements.

Gabe Torre

Reason Amount Daily cap/max total

Employee is unable to work or telework due to caring for child if school or place of care is closed due to COVID-19 2/3 regular rate

of pay$200 per day/$10,000 total

Child is under the age of 18

NOTE: Similar to the existing provisions of FMLA, a total of 12 weeks is available. The first two weeks may be unpaid and the next 10 weeks will be paid as indicated above.

Employees who work a part-time schedule or variable hours will be paid based on the average number of hours the employee worked for the last six months prior to taking Emergency FMLA.

Expanded Family and Medical Leave –Provisions

Gabe Torre

Payroll Credit Provisions of the Act

• The Act allows payroll credits to become the mechanism for funding both the emergency paid sick leave and expanded FMLA provisions related to COVID-19.

• The Act is also allowing for a healthcare cost credit• Employers will be required to track each provision under the Act, by both hours and

wages paid.• ADP believes the credit will be applied on the quarterly Form 941 by reducing the

employer FICA tax responsibility by the amount paid under these provisions. • Formal instructions on this process have not yet been communicated.

Note: The credit was originally limited to the employer’s share of payroll taxes, but it is now a refundable credit and the CARES Act provides for the credit to be advanced to the employer (with Forms to accomplish this to be released).

Gabe Torre

Delay in Employer &Self-Employment Payroll Taxes

• Allows employers and self-employed individuals to defer payment of the employer share of the Social Security tax they otherwise are responsible for paying to the federal government with respect to their employees. Generally 6.2% Social Security tax on employee wages

• The provision requires that the deferred employment tax be paid over the following two years• Half required to be paid by December 31, 2021 • The other half by December 31, 2022.

Gabe Torre

Employee Retention Credit• The provision provides a refundable payroll tax credit for 50 percent of wages

paid by employers (not limited to small businesses) to employees during the COVID-19 crisis. The credit is available to employers whose (1) operations were fully or partially suspended, due to a COVID-19-related shut-down order, or (2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year.

• The credit is based on qualified wages paid to the employee. For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19-related circumstances described above.

• For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order.

• The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee. The credit is provided for wages paid or incurred from March 13, 2020 through December 31, 2020.

• The credit is refundable to the extent it exceeds the employer portion of social security taxes reduced by the paid sick leave and paid extended FMLA established by the Families First Coronavirus Response Act.

Gabe Torre

Pre-Existing Provisions• IRC Section 139 - allows employers to make tax free “qualified disaster relief payments” to

employees – tax free to the employees, including employment tax, and tax deductible to the employer.

• For larger employers, Section 45S is available, which provides a credit for Family Leave paid.

• Eligible employers are allowed a credit of 12.5% of the amount of wages paid to qualifying employees who are on family and medical leave, if the employer pays at least 50% of the wages normally paid to the employee. The credit is increased by 0.25% (but not above 25%) for each percentage point the wages paid to the employee exceed 50% of the employee's normal wages.

• Employee has been employed 1 year or more and comp not in excess of $72k for the preceding year (adjust for inflation, $72k was for 2018).

Gabe Torre

Pre-Existing Provisions - Eligibility

The policy must: 1. Cover all qualifying employees; that is, all employees who have been employed for a year or

more and were paid not more than a specified amount during the preceding year. In general, in determining whether an employee is a qualifying employee in 2018, the employee must not have had compensation from the employer of more than $72,000 in 2017.

2. Provide at least two weeks of annual paid family and medical leave for each full-time qualifying employee and at least a proportionate amount of leave for each part-time qualifying employee.

3. Provide for payment of at least 50 percent of the qualifying employee's wages while the employee is on leave. Fourth,

4. Include language providing “non-interference” protections, as described in Section A of this notice, if an employer employs qualifying employees who are not covered by title I of the FMLA.

To be eligible to claim the credit, an employer must have a written policy that satisfies certain requirements.

Gabe Torre

Business Tax

Shawn Kato & Justin Demere

5 year Carryback of NOLs for years beginning after December 31, 2017 and before January 1, 2021

• Election out of a carryback is permitted, and must be made for 2018-19 returns on the first tax return filed for the year ending after the date of enactment, and for 2020 returns is made with the return.

• This could have permanent cash savings if the NOLs are carried back to pre-TCJA years with higher corporate tax rates (up to 35% tax rate).

• Give consideration to accounting method changes available to accelerate deductions or defer income for the carryback years.

• Special provisions for REITs and insurance companies.• Special rules for carrybacks to Section 965 inclusion years:

• Taxpayer is deemed to have made a 965(n) election to waive the use of the NOL against the taxpayers transition tax inclusion

• Election available to skip over 965 inclusion years in the carryback period

Modifications for Net Operating Losses

Shawn Kato & Robena Jafari

Modifications for Net Operating Losses

Suspension of NOL 80% of taxable income limitations for 2018-2020

Temporary suspension of the TCJA provision limiting use of NOLs arising in tax years after December 31, 2017 to 80% of taxable income for NOLs used in years beginning before January 1, 2021, thereby permitting taxpayers to use 100% of the NOL to fully offset taxable income in those years.

Shawn Kato

Modifications for Net Operating Losses

Clarification of calculation of 80% limitation for years beginning after December 31, 2020

• To calculate the 80% of taxable income limitation, taxable income will be defined as taxable income:

• AFTER the use of pre-2018 NOLs

• BEFORE the deductions for 199A (qualified business income) and 250 (GILTI and FDII)

Shawn Kato

Modifications for Net Operating Losses

Technical correction for fiscal year filers “straddle year”

• Under TCJA provisions, fiscal year filers were unable to carryback NOLs incurred in their 2017 tax year that straddled December 31, 2017 due to a technical glitch. These NOLs are now able to be carried back 2 years and forward 20 years under the pre-TCJA law.

• Affected taxpayers allowed 120 days after enactment to file a carryback claim for that loss OR to elect to forgo the carryback.

Shawn Kato & Robena Jafari

Minimum Tax Credit Refunds Available in 2018

• Taxpayers with AMT credits will be able to claim a refund for the entire amount of the credit instead of recovering the credit through refunds over a period of years, as originally enacted by the TCJA.

• The 100% MTC refund is available starting in 2018, so taxpayers may either claim the refund on a 2018 tentative claim for refund (“quickie refund”) by December 31, 2020 or request the refund on their 2019 tax return.

Shawn Kato

Other Provisions Relevant to Corporations

Modification of limitations on charitable contributions during 2020 will allow corporate taxpayers to deduct more of their charitable contributions by increasing the taxable income limitation from 10% to 25%.

Shawn Kato

Modifications of Limitation on Business Interest

• If applicable, Section 163(j) generally limits interest expense to 30% of Adjusted Taxable Income (“ATI”).

• For tax years beginning in 2019 and 2020, the 30% threshold limit on ATI is increased to 50%.

• Partnerships – change to 50% does not apply to 2019, however there are changes to rules at the partner level that allow for additional deduction in 2020 which can result in a somewhat similar outcome as corporate entities.

• Ability to use 2019 ATI in 2020 – taxpayers can elect to use 2019 ATI to calculate the 2020 business interest expense limitation.

Shawn Kato & Justin Demere

Technical Amendments Regarding Qualified Improvement Property

The CARES Act fixes the so-called “retail glitch” as it relates to Qualified Improvement Property (“QIP”):• QIP: Any improvement made by the taxpayer to the interior of a non-

residential building that is placed in service after the building’s initial placed in service date other than improvements attributable to elevators, escalators, building enlargements or the building’s internal structural framework. Definition does not apply to asset acquisitions.

• QIP now has a 15-year recovery period and is eligible for bonus depreciation.

Justin Demere

Note - any “electing real property trade or business”—i.e., a real property trade or business that has elected out of the interest limitation provisions of section 163(j)—is required to use ADS for QIP and thus cannot claim bonus depreciation on QIP.

• QIP now has a 20-year recovery period for purposes of the Alternative Depreciation System (“ADS”).

• Provision is retroactive to enactment of TCJA which is effective for assets placed in service after 2017.

• Given changes to both regular and ADS lives, no QIP placed in service on a 2018 return (and 2019 return, if filed) was reported correctly.

Amending Partnership Returns to Incorporate Changes

To comply with retroactive provisions for QIP, taxpayers must change the depreciation methods of QIP placed in service after 2017 that has been depreciated as 39-year building property. Potential options:

• Change QIP depreciation methods by filing an automatic accounting method change (Form 3115)• Amend 2018 tax returns

• Certain (many) partnerships are restricted from amending returns under the centralized partnership audit regime (“CPAR”)

• Under CPAR rules, Administrative Adjustment Request (“AAR”), Form 8082, filed by partnership to report the changes and relayed to partners

• Partners take the adjustments into account in the year the adjustments are filed regardless of the tax year to which the change relates

• Change in accounting method (Form 3115) is likely the preferred method if the partnership is subject to the CPAR

Justin Demere

Individual Tax

Lisa Yamakawa

Modification of Limitation on Losses for Taxpayers Other Than Corporations The bill repeals the business loss limitation under section 461(l) for the tax years beginning prior to January 1, 2021 (i.e., calendar years 2018, 2019, 2020). The retroactive nature is not elective and would generally require the taxpayer to amend their 2018 tax return (and 2019 tax return, if already filed). Excess business losses reported on 2018/2019 filed tax returns would generally be converted to NOLs subject to the new 5-year carryback rules. Technical corrections include (not applicable until the rules go into effect for the tax years beginning 1/1/21 or later):

• Section 461(l) calculation now excludes items attributable to a trade or business of performing services as an employee.

• Net operating deductions under section 172 and qualified business income deductions under section 199A are not taken into account in determining excess business losses.

• Deductions for losses from the sale or exchange of capital assets are not taken into account in increasing a section 461(l) limitation. Certain gains from the sale or exchange of capital assets may continue to be taken into account in reducing a potential section 461(l) limitation, but since the gains would first need to be netted with other capital losses, there is the potential for a reduction to this inclusion.

Lisa Yamakawa & Justin Demere

Recovery Rebates – Credits for Individuals• All U.S. resident individuals – eligible for $1,200 rebate ($2,400 married filing jointly) and an

additional $500 for each qualifying child• Amount will be reduced based on adjusted gross income and begin phasing out as follows:

• $75,000 (completely phased out at $99,000) for a single taxpayer, • $112,500 (completely phased out at $146,500 with one child) for a head of household

filer, and • $150,000 (completely phased out at $198,000) for married couples filing jointly.

The IRS will base rebate amounts on the taxpayer’s 2019 tax return if filed, or their 2018 return. If no 2019 or 2018 tax return has been filed, the IRS may use information provided on Form SSA-1099, Social Security Benefit Statement, or Form RRB-1099, Social Security Equivalent Benefit Statement, for the 2019 calendar year.

There is no effective date. The bill states that the IRS should issue a refund or credit any overpayment attributable to this provision as rapidly as possible. However, no refund or credit shall be made or allowed under this provision after December 31, 2020.

Lisa Yamakawa

Retirement

Lisa Yamakawa

Waiver of early withdrawal penalty for certain withdrawals from qualified retirement plans• Waived 10% penalty for early withdrawal from a qualified

retirement account for distributions up to $100,000 for coronavirus–related purposes

• Any amount received as a coronavirus-related distribution may be taken into gross income ratably over a three-year period beginning in 2020

• Individuals may return coronavirus-related distributions to the retirement account over three years

• The plan administrator may rely on an employee’s certification that they satisfy the necessary conditions.

• Loan limit from qualified plans increased from $50,000 to $100,000 and repayment is over 6 years vs. 5 years

• Qualified Individual with an outstanding loan otherwise due between the enactment of the bill and December 31, 2020 will be delayed for one year.

Coronavirus-related distribution

Any distribution from an eligible retirement plan made from January 1, 2020 through December 31, 2020 to an individual:• Who is diagnosed with SARS-

CoV-2 or COVID-19 by a CDC-approved test,

• Whose spouse or dependent is diagnosed with coronavirus, or

• Who experiences adverse financials consequences due to COVID-19.

Lisa Yamakawa

Defined Benefit Plan ReliefThe bill provides limited relief for single employer defined benefit pension plans.

• Plans could delay contributions otherwise due during 2020 until January 1, 2021 • Delayed contributions would be increased by interest for the period beginning on the original due date until

the actual payment date.

• The bill provides relief for required benefit restrictions. For plan years beginning on and after January 1, 2008, the Pension Protection Act of 2006 (PPA) imposed new benefit restrictions on plans that do not meet specific funding percentage levels. If a plan’s adjusted funding target attainment percentage (AFTAP) is less than 80%, there are restrictions on distributions that may be made to participants and on the ability to enhance benefit accruals.

• Under the CARES Act, a plan sponsor may elect to treat the plan’s AFTAP for the previous plan year – the year ending before January 1, 2020 – as the AFTAP for the plan years which include calendar year 2020. This may allow some plans to avoid triggering certain benefit restrictions in 2020.

Lisa Yamakawa

Required Minimum Distribution Waiver

• The bill waives the required minimum distribution rules for certain defined contribution plans and IRAs for calendar year 2020.

• Individuals are usually required to take mandatory distributions starting at age 72, but such distributions are not required during 2020.

Lisa Yamakawa

CharitableLisa Yamakawa

Modified Charitable Contribution LimitationsNew “Above the Line” Charitable Deduction For 2020, individuals may deduct up to $300 of cash contributions, regardless of whether they itemize their deductions

Limitations on Deductions for Charitable ContributionsFor 2020, limitations will be increased for individuals & corporations who itemize• For individuals, the 50% of AGI limitation will be suspended for 2020

For both deductions:• Contributions must be made in cash in 2020 to a public charity or foundation described in

section 170(b)(1)(A)• Contributions made to organizations outlined in section 509(a)(3) or a donor-advised fund

do not qualify for either deduction

Lisa Yamakawa

Financial Services

Mike Ferrari

Forbearance Relief for Owners of Multifamily Properties• During the covered period (the date of the enactment of the Act and ends the earlier of the

termination of the national emergency declared by the President or December 31, 2020), a multifamily borrower with a Federally backed multifamily mortgage loan experiencing a financial hardship due, directly or indirectly, to the COVID–19 emergency may request a forbearance.

• Federally backed mortgages

• Includes Freddie Mac and Fannie Mae• Excludes temporary financing such as construction loans.

• A multifamily borrower with a Federally backed multifamily mortgage loan that was current on its payments as of February 1, 2020, may submit an oral or written request for forbearance affirming that the multifamily borrower is experiencing a financial hardship during the COVID–19 emergency.

• Forbearance will be provided for up to 30 days. This period can be extended up to 2 additional 30 day periods.

Mike Ferrari

Forbearance Relief for Owners of Multifamily Properties cont’d

WARNING –

Renters are protected during forbearance period. A multifamily borrower cannot evict or initiate eviction of a tenant during the forbearance period, charge any late fees, penalties, or other charges to a tenant for late payment of rent. Also, a multifamily borrower may not issue a Notice to Vacate to a tenant during the multifamily borrower’s forbearance period. Lastly, the borrower cannot require a tenant to vacate before 30 days from the date the borrower provides the tenant with a Notice to Vacate.

Mike Ferrari

Forbearance Relief and Foreclosure Protection for Owners of Residential PropertiesSection 4022 of the Act provides for a foreclosure moratorium and the right to request forbearance to owners of residential real property (including individual units of condominiums and cooperatives) with a “Federally backed mortgage loan.”Federally backed mortgage: any loan which is secured by a first or subordinate lien on residential real property designed principally for the occupancy of 1 to 4 families

• Purchased or securitized by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association (Freddie Mac & Fannie Mae)

• Insured by the Federal Housing Administration

• Insured under section 255 of the National Housing Act

• Guaranteed under section 184 or 184A of the Housing and Community Development Act of 1992

• Guaranteed or insured by the Department of Veterans Affairs;

• Guaranteed or insured by the Department of Agriculture;

• Made by the Department of Agriculture• There are lender-specific deferral programs

from Bank of America, Ally Bank, SunTrust, and BB&T. Mortgages serviced by these companies can pause payments for up to 120 days in some cases. Payments are then added to the end of the loan term.

Mike Ferrari

Forbearance Relief and Foreclosure Protection for Owners of Residential Properties

A borrower with a Federally backed mortgage loan experiencing a financial hardship due, directly or indirectly, to the COVID–19 emergency may request forbearance on the Federally backed mortgage loan, regardless of delinquency status, by submitting a request to the borrower’s servicer, and affirming that the borrower is experiencing a financial hardship during the COVID–19 emergency.

A borrower of such a “Federally backed mortgage loan” may request:• Forbearance relief from the lender for a period of 180 days. • The forbearance period may be extended up to an additional 180 days, provided that, at

the borrower’s request, either the initial or extended period of forbearance may be shortened. No additional fees, penalties, or interest will accrue during the forbearance period.

The Act also provides for a foreclosure moratorium. Beginning on March 18, 2020, for not less than a 60-day period, a servicer of a “Federally backed mortgage loan” may not initiate any judicial or non-judicial foreclosure process, move for a foreclosure judgment or order of sale, or execute a foreclosure-related eviction or foreclosure sale.

Mike Ferrari

Mike Ferrari

If your mortgage is held by a private lender, you should still contact them to see if they are providing mortgage relief. Many banks are suspending payments or offering special terms. Also, check with your local jurisdictions to see if there are any forbearance options and/or eviction/foreclosure relief.

Private Lenders – Other Options

SALT Tax Relief

Jeff Davis

SALT COVID-19 Relief

Overview - State Income Tax ReliefWith the recent IRS extension of federal income tax filings and income tax payments, the states have moved quickly to also extend their deadlines to 7/15 or another specified deadline.

• 37 states (including DC): AL, AR, AZ, CA, CO, CT, DC, DE, GA, IL, IN, KS, KY, LA, MA, ME, MD, MI, MN, MO, MT, NC, ND, NE, NM, NY, OH, OK, OR, PA, RI, SC, TN UT, VT, WI, and WV changed their file and payment deadlines to 7/15

• 8 states: IA (7/31), HI (7/20), ID (6/15), MS (5/15), NH (6/15), OR (4/30), VA (6/1), WA (6/15) changed to a different filing and payment deadline

• Puerto Rico (6/15) and UVSI (7/15)

Jeff Davis

California Franchise Tax Board (“FTB”) – Business/Individual Income Tax Relief

Specifically for California, Governor Newsom has passed several executive orders to extend the California payment and filing and filing deadlines for business and individual taxpayers

The California FTB has extended the deadlines to 7/15 for the following: • 2019 tax returns• 2019 tax return payments • 2020 1st and 2nd quarter estimated tax payments • 2020 LLC taxes and fees • 2020 Non-wage withholding payments

• Automatic relief from interest and penalties• To claim special COVID-19 relief, write the name of the state of emergency (for example,

COVID-19) in black ink at the top of the tax return• For e-filers, follow software instructions to enter disaster information

SALT COVID-19 Relief

Jeff Davis

SALT COVID-19 ReliefLocal Jurisdictions – Business/Individual Income Tax Relief

Similar to the states, some cities have also provided guidance to taxpayers on local tax relief. Some notable cities are San Francisco and Oakland.

San Francisco – Gross Receipts Tax, Payroll Expense Tax, Commercial Rents Tax, and Homelessness Gross Receipts Tax Relief

• Typically due on 4/30, but extended for small businesses (taxpayers or combined groups with combined SF gross receipts in 2019 of $10M or less) to 3/1/21

• Businesses with SF gross receipts over $10M appear to be subject to the non-extended deadlines

San Francisco – Business License Tax Relief• Typically due on 3/31, but extended to 6/30

Oakland – Business Tax Relief• Penalty waiver for small businesses for failure to file by 3/20• Customer service line at (510) 238-3704 or email BTwebsupport@oaklandca.gov

Jeff Davis

SALT COVID-19 ReliefCalifornia Department of Tax Fee Administration – Indirect Tax Relief

The California Department of Tax Fee Administration has extended the deadlines for sales/use taxes, special taxes and fees such as fuel taxes, cannabis taxes, cigarette and tobacco taxes

• Extensions are not automatic, but instead need to be requested by a taxpayer• Taxpayer may request an extension of up to 60 days for filings and payments by either of

the following options:• Online services - https://onlineservices.cdtfa.ca.gov/Directory/• Email - BTFD.RAUElectronicMaintenanceRequests@cdtfa.ca.gov

• To the extent that a taxpayer has an online service account, we recommend that the taxpayer request an extension online

• Based on our discussions with the California Department of Tax Fee Administration, these extensions are being approved automatically at this time

• These extensions provide relief from interest and penalties• It is important to note that on 3/30, Governor Newsom extended the time frame up

to 90 days after the due date of the return or payment for individuals or businesses filing a return for less than $1,000,000 in tax

Jeff Davis

SALT COVID-19 Relief

California Employment Development Department – Payroll Tax ReliefThe California Employment Development Department has extended the deadlines for filing state payroll reports and deposits of state payroll taxes

• Extensions are not automatic, but instead need to be requested by a taxpayer

• Taxpayer can request up to a 60 day extension to file state payroll reports and deposit state payroll taxes via its online service account• https://www.edd.ca.gov/about_edd/Employer_Services_Online.htm

• Required to include the impact of COVID-19 in written extension request• The request must be received within 60 days from the original past due

date of the payment or return• These extensions provide relief from interest and penalties

Jeff Davis

SALT COVID-19 ReliefCalifornia Counties – Potential Limited Property Tax Relief

California establishes the property tax deadlines and have not extended these deadlines –as such, the counties do not have the ability to extend these deadlines

• Personal property taxes – the due date depends on applicable county (e.g., LA county due date is 4/1 but normal automatic extension to 5/7)

• Real property taxes – the due is generally 4/10• We have reached out to several counties (e.g., San Diego, Orange, Los Angeles, and

others) on the real property tax due date and they have communicated that the tax payments are still due on their respective due dates, but a taxpayer can submit a Penalty Cancellation Request form online on 4/11/20 on forward and must include applicable supporting documentation (e.g., hospitalization) for the requested penalty relief

• Existing state law authorizes counties to waive penalties, costs and other charges when failure to make a timely payment is due to reasonable cause and circumstances beyond the taxpayer’s control, within certain conditions

• No automatic approval - all penalty relief requests reviewed on a case-by-case basisJeff Davis

GiftingAmy Allen

Gifting StrategiesDepressed asset values and historically low interest rates is an opportune time to transfer wealth to intended beneficiaries.

Make outright gifts or gifts in trust.

Intra Family Loans

Sell assets to junior family members or Intentionally Defective Grantor Trusts “IDGT.”

Grantor Retained Annuity Trust “GRAT”

Grantor contributes assets into a trust while retaining a right to receive an annuity stream from the Trust over a term of years.

Charitable Lead Annuity Trust “CLAT”

Transfer assets to a trust in which charity is designated to receive an annuity stream for a term of years. At end of the term, the assets pass to the Beneficiaries.

Amy Allen

Other Strategies to Consider

Asset Swapping

A Grantor can swap a depressed fair market value asset into their grantor trust which can remove the recovery in the asset outside of their taxable estate.

IRA to ROTH IRA conversion

Convert when assets are depressed. Assets continue to grow tax free and all withdrawals are income tax free. Also, potentially lower income due to business losses.

Amy Allen

Q&A

Contact Information We continue to collect data and build repositories with central points of contact for each subject matter. Please contact the following individuals for questions, issues on specific matters on the new guidance.

• Shawn Kato, Business Tax – Corporations (skato@squarmilner.com)

• Justin Demere, Business Tax – Partnerships (jdemere@squarmilner.com)

• Gabe Torre, Loans & Credits (gtorre@squarmilner.com)

• Amy Allen, Individual Tax (aallen@squarmilner.com)

• Lisa Yamakawa, Individual Tax (lyamakawa@squarmilner.com)

• Jeff Davis, SALT (jdavis@squarmilner.com)

• Robena Jafari, International Tax (rjafari@squarmilner.com)

• Randal Nachenberg, PPP Loans (rnachenberg@squarmilner.com)

Disclaimer

This material has been prepared for informational purposes only, and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional tax planner or financial planner. All information is provided "as is," with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information.