Reporting Requirements for Provider Relief Fund Recipients

Health care providers have dedicated their resources to providing patients with the care they need throughout a rapidly evolving pandemic. During these unprecedented times, medical providers have been faced with additional costs related to treating coronavirus patients as well as lost revenues due to government shutdowns and the suspension of elective procedures. To help mitigate the financial impact on providers, the U.S. Department of Health and Human Services (HHS) issued Provider Relief Fund (PRF) payments to be used towards eligible coronavirus related expenses and to help cover lost revenues.

Recipients of these funds agreed to certain terms and conditions, including reporting requirements pertaining to the use of these funds. If in any Payment Received Period you received one or more payments totaling $10,000 or more in the aggregate, you are subject to the reporting requirements.  Failure to meet these requirements could result in HHS seeking recoupment of the funds. The following table provided by HHS summarizes each Payment Received Period, along with the Deadline to Use the Funds and the respective Reporting Time Period:

Summary of Reporting Requirements

*On September 10, 2021, HHS offered a 60-day grace period for Period 1. Although the reporting time period and deadline to use the funds has remained the same, HHS will not initiate collection procedures during this grace period.

Providers will be required to report on eligible coronavirus related expenses, such as personal protective equipment, tele-health costs, touch-free technology, hazard pay to employees, physical barriers meant to reduce the spread of COVID-19, and costs related to COVID testing to name a few. The expenses need to be for the preparation for, prevention of or response to coronavirus.  Additionally, if you received any other funds, either from federal, state, or local governments or from business insurance, those monies need to be reported and applied against the eligible expenses first. If you have not used all the PRF payments for eligible expenses, you will need to provide information on lost revenues attributable to coronavirus.  HHS is allowing several different methods to report on lost revenues.

Additional reporting requirements will include interest earned on the funds if they were held in an interest-bearing account, metrics related to personnel, patients and facilities and you will need to answer various questions about the impact of the payments during the period of availability. Providers that expend $750,000 or more in federal funds, including the PRF payments, are subject to a Single Audit requirement.

The reporting requirements outlined above are a general overview of the complex calculations and reporting required to comply with HHS guidelines. For additional information and guidance related to the Provider Relief Fund payments and the related reporting requirements, click here. If you would like assistance or advice regarding your reporting obligations, please call us at 401-921-2000, or complete our online contact form.

Under the American Rescue Plan Act of 2021 (ARP), new tax credits are being provided for paid leave to employees who take time off related to COVID-19. The ARP allows small and medium-sized employers, and certain governmental employers, to claim refundable payroll tax credits equal to 100% of the qualified sick leave. Eligible employers that are entitled to claim the refundable tax credits include businesses and tax-exempt organizations with fewer than 500 employees and pay qualified sick leave wages. Self-employed individuals are eligible for similar tax credits.

Qualified sick leave includes wages for an employee who is directly affected, experiencing symptoms, and seeking a medical diagnosis for COVID-19 as well as employees in the process of obtaining or recovering from the effects of any COVID-19 vaccination. The credit is allowed for up to 80 hours of paid sick leave in an amount equal to the employee’s regular wage, capped at $511 per day for a total of 10 workdays, for a total cap of up to $5,110.

Businesses and nonprofits will be eligible to claim the tax credits available to eligible employers that pay sick and family leave from April 1, 2021 through September 30, 2021. The Emergency Paid Sick Leave Act allows employers to reclaim the original credit as written under the Families First Coronavirus Response Act from its enactment up to March 31st, 2021. Employers can claim the credit again from April 1st, 2021 to September 30, 2021 for another 10 days on the same employee if needed.

Eligible employers claiming the credits for qualified leave wages must retain records and documentation related to and supporting each employee’s leave. Credits can be claimed on Form 941, Employer’s Quarterly Federal Tax Return. Eligible employers can keep the federal employment taxes that they otherwise would have deposited, including federal income tax withheld from employees, the employees’ share of social security and Medicare taxes, and the eligible employer’s share of social security and Medicare taxes with respect to all employees up to the amount of credit for which they are eligible. If the eligible employer does not have enough federal employment taxes on deposit to cover the amount of the anticipated credits, the eligible employer may request an advance by filing Form 7200, Advance Payment of Employer Credits Due to COVID-19.

Self-employed individuals may claim comparable credits on the Form 1040, U.S. Individual Income Tax Return. The credit will be based on the net earnings during the year divided by 260 days to determine the credit limitations. The ARP increased the day limitation to 60 days ($12,000 overall; $200 per day).

More Information

If you have any questions on the above and how it applies to you, please call us at 401-921-2000, or reach us through email or complete our online contact form.

Treasury Secretary Janet Yellen called for a global minimum tax for US multinationals in a speech to the Chicago Council of Global Advisors on April 5, 2021. Under the proposal, US Multinational Enterprises (MNEs) would pay at least a 21% tax rate on profits earned in every country with foreign operations. The proposal increases the current GILTI rate of 10.5% and would apply more broadly by eliminating the exclusion for the 10% return on tangible fixed assets.

The initiative follows President Joe Biden’s campaign platform that called for raising the US corporate income tax (CIT) rate to 28% and replacing the current global intangible low-tax income (GILTI) tax with a much stronger minimum tax on foreign earnings.

The current GILTI tax on foreign subsidiary earnings has the following main elements:

  • 5% effective tax rate (21% CIT rate with a 50% earnings deduction)
  • Exclusion of a 10% return on foreign tangible assets
  • Global pooling of foreign profits and foreign tax credits (FTCs)
  • Elective High Tax Exclusion (HTE) for Controlled Foreign Corporations (CFCs) with effective tax rate above 18.9% (90% of standard CIT rate)

By contrast, Biden’s foreign minimum tax proposal has the following main elements:

  • 21% effective tax rate
  • Full income tax base (no exclusion of basic returns on foreign investments in tangible assets)
  • Would eliminate pooling of profits and FTCs (by imposing country-by-country limitation)

It is noted that alternative versions of the US GILTI rules changes are being worked on and will likely be considered in the House and Senate. In addition, it will also be important to see how any eventual US changes align with the OECD’s Base Erosion and Profit Shifting (BEPS) Pillar 2 proposal for worldwide minimum corporate income taxation.

It is noted that while the OECD BEPS Pillar 2 initiative is still under discussion, it appears likely to set a minimum tax rate of about 12.5% and would exclude a normal rate of return on foreign investment. As a result, Biden’s proposal could put US MNEs at a competitive disadvantage and reignite corporate inversions (transactions where US MNEs become foreign MNEs).

More Information

If you have any questions regarding these tax updates, please call us at 401-921-2000, or reach us through email or complete our online contact form.

Many of us have been spending more time than ever at home lately, and with all that at-home time, may have noticed a few shortcomings throughout the entire house. Things that we overlooked before are now glaringly obvious, especially when it comes to functionality. Some households now have two parents working from home, as well as schooling being done remotely. Finding areas to accommodate everyone can be a challenge. To address these concerns, many people are building home offices in their basements, designating specific locations in their living areas or bedrooms, and upgrading lighting, internet services, and more.

The Home Improvement Boom

Adding office space, building a deck, upgrading landscaping and kitchen renovations are all popular projects, and the pandemic has not slowed down the pace of home renovations. According to a recent U.S. Census Bureau report, sales at home and garden centers, hardware stores, and building supply stores have seen a year-over-year increase of 22.6%.  Only the category of online sales showed a bigger year-over-year increase. According to Houzz, there was a 58% increase in request for home professionals in June 2020, compared to June 2019.

 All of this is not surprising, given that many employers shut down, and non-essential employees were required to work remotely. Working from home has saved many employees on commuting time, and that has opened up a few extra hours for home projects. Plus, our surroundings impact our mental health. The pandemic has invoked increased stress in most individuals, and having a pleasant, functional environment can boost people’s mood. This effect increases when combined with the sense of accomplishment from a project well-done. Even a simple coat of paint and some organization and decluttering can make a huge difference. 

Paying for Home Improvements 

It may be difficult to find the funds to pay for improvements, especially if you have been out of work due to COVID-19. Some projects, such as painting and adding new cabinet hardware, are inexpensive. Others, obviously, can be quite costly. A popular way to pay for home improvements has always been a home equity loan or home equity line of credit (often referred to as a HELOC). Because interest rates have been low, a cash-out refinance or a HELOC are even more attractive options. While taking on additional debt is always something to be considered carefully, if your projects will increase your home’s value, then it may make sense. Another benefit of a HELOC in these uncertain times is the access to cash it provides, particularly for those who do not have a liquid emergency fund. If you are considering one of these options, do not wait. Some lenders are overwhelmed with applications to process right now, so get the ball rolling as soon as possible.

Tax Implications of Home Improvements 

There may be tax implications if you borrow against your home. If you itemize, on your personal income tax return, a portion of the interest and real estate taxes may be limited. Fewer people itemized these last few years because of the $10,000 limit imposed on the deductibility of taxes and the higher standard deduction provided by the Tax Cuts and Jobs Act of 2017.

Under current tax law, home mortgage interest on debt up to $750,000 (or $1 million if the debt originated prior to December 16, 2017) used to purchase or improve your home (that includes your primary residence and a second home) is tax deductible. Home mortgage interest on debt that is not used for home purchase or improvements can no longer be deducted. Therefore, it is important to calculate your deductible vs. non-deductible interest if you itemize and have home mortgage debt that was used for anything other than home purchase or improvement. Keep in mind, these limits are cut in half if you are married filing separately. There are also other restrictions that may apply to your situation. 

In addition, major improvements can add to the basis of your home and ultimately reduce the gain on the sale. If you are selling your primary residence, there is a gain exclusion of $250,000 for single and $500,000 for married filing jointly. There are different rules for gain on sale of rentals and vacation homes. 

More Information

If you have any questions regarding the above tax issues and limitations, please call us at 401-921-2000, or reach us through email or complete our online contact form.

The COVID-19 pandemic is not yet over, and contractors will continue to feel its impact for subsequent years. As far as accounting and financial statements are concerned, preparations should be made for possible changes, including adjustments to Generally Accepted Accounting Principles (GAAP) requirements and disclosures.

GAAP Changes

Some significant possible changes to GAAP requirements and disclosures affect the following topics: 

  • Contract modifications
  • Debt modifications
  • Loan covenants
  • Going concern
  • Inventory
  • Property, Plant, and Equipment (PPE)
  • Risks and uncertainties
  • Securities
  • Subsequent events 

These changes will vary from contractor to contractor due to each running their own unique business.

Effects of an Economic Downturn

With the economy slowing and, in some places, shutting down during this pandemic, it is evident it can lead to long term changes to the economy. Contractors need to take into consideration the following possible effects. 

Contracts, debt modifications, loan covenants, and going concern are all directly impacted by this. Contractors will have to analyze their current contracts and possibly renegotiate to proceed on. The same goes for amending existing debt agreements regarding liquidity. The impact on going concern evaluations will require the disclosure of the results from COVID-19 and possible reassessments. This would include things such as key financial ratios, financial projections, and their ability to meet debt covenants.

Inventory and PPE are both similarly affected. ASC Topic 330 states when production is lower than typical, it is required to expense, as an alternative to capitalizing, an allocation of fixed overhead costs. Due to the decrease in the workforce, an adjustment to the carrying value of inventory may be necessary and then disclosed. As for PPE, the carrying amount of an asset may no longer be recoverable, which is required to be disclosed as well.

Risk and Uncertainties

After any pandemic, it is expected there could be a significant increase in risks and uncertainties reported on the financial statements. It is required that contractors disclose the impact of COVID-19 and the effect on their current and future operations for their business. Some areas which are expected to be impacted are volume discounts, variable considerations, rebates in revenue contracts, and asset impairment evaluations. Along with risks and uncertainties come securities. It is no secret that COVID-19 had a major impact on the decline of the economy, therefore capital markets were negatively affected. Therefore, it is required for an individual disclosure to be made of equity securities, debt securities, and equity method investments.

Disclosure

Regarding COVID-19 and subsequent events, contractors must review and disclose the events that occurred because of the pandemic. With the disclosure of a non-recognized subsequent event, the financial impact should be stated as well. Significant disclosures contractors should consider are:

  • Government-mandated restrictions
  • Staff reductions
  • Investment losses

As this pandemic continues, it leaves many contractors wondering what lies ahead. Even though the future is unforeseeable, if contractors act now and take advantage of the resources they are given, they will be prepared. The time to begin planning is now, as it’s important for businesses to know any tax changes and filing requirements. If you have any questions, please reach out via email, give us a call at (401) 921-2000, or fill out our online contact us form.

The Tax Cuts and Jobs Act of 2017 (TCJA) created legislation limiting the deductibility of business interest expense on businesses with average annual gross receipts of $25 million or more (amount is indexed annually for inflation) in the previous three years and businesses considered tax shelters as defined under the Internal Revenue Code. The limitation generally reduces the deductibility of business interest expense to 30% of the taxpayer’s adjusted taxable income. The recent passing of the CARES Act generally increased the deductibility of business interest expenses from 30% to 50% of adjusted taxable income for tax years beginning in 2019 and 2020.

State-By-State Variations

As each state has their own respective tax structure, there are varying degrees of conformity to the federal business interest expense limitations discussed above. Accordingly, businesses may have the added complexity of tracking business interest expense limitations at the state level, which only gets compounded for those businesses operating in multiple jurisdictions. There are currently 35 states that conform to some version of the 163(j) business interest expense limitation, and of these, 22 states conform to the recently increased limitation provided in the CARES Act of 50%, whereas 13 of these states conform to 163(j) as it was originally adopted in the Tax Cuts and Jobs Act of 2017. 

More Information

If you are a business who is subject to the limitation on business interest expense, and seek guidance in this area, please reach out via email, give us a call at (401) 921-2000, or fill out our online contact us form.

If you sustain a casualty loss due to a federally declared disaster under Section 165(i), you may elect to deduct a casualty loss in the tax year before the casualty actually occurred. Taxpayers have the option of claiming a deduction for the casualty loss either in the year the loss occurred or the prior year. To claim the deduction in the prior year, an election may be made to accelerate this loss. In 2019, the IRS finalized a proposed regulation it had issued in 2016 that states this election must be made 6 months after the original due date of the current year return. Under the prior rules, the election had to be made by the unextended due date of the current return.

Who Can Benefit?

Any taxpayer that has suffered a disaster-related loss as defined in Sec. 165 (h)(5) can benefit from this election. This is specifically beneficial for taxpayers who have income to take the loss against on prior year returns and are expecting to have a loss in the current year.

Additional Considerations

The election can be revoked for up to 90 days after the due date of the election. This may be a beneficial election particularly during the 2020 tax year where many businesses may be experiencing losses due to the pandemic. 

If you have any questions regarding the tax implications of electing to accelerate disaster losses, please reach out via email, give us a call at (401) 921-2000, or fill out our online contact us form.

With nearly 700,000 businesses having applied for the Paycheck Protection Program (PPP), many are unaware that the forgiven portion of the loan for Federal purposes may actually be taxable as gross income in some states.

Will Federally Forgiven PPP Debt be Taxable by States?

The answer to the questions is possibly. Under normal circumstances, cancellation of debt would be includable in your gross income. An example would be if you and your credit card company discussed your balance, and the credit card company forgave a portion of your balance due. The balance of the forgiven portion would then be included as income. Businesses that meet the qualifications for their PPP loans to be fully or partially forgiven at the Federal level will need to determine if the states they have nexus in will follow the Federal guidelines.

Will Expenses Paid with PPP Funds Be Deductible?

In the normal course of business, ordinary and necessary expenses are deductible. However, if you received a loan to pay your expenses, and then the debt was forgiven and not taxed, did you pay those expenses? The IRS believes that expenses paid with forgiven funds should not be deductible from a company’s gross income. The exclusion of forgiven expenses in calculating taxable income will increase the company’s tax liability and the amount due to the IRS. Ruling for this topic is not final, although some states have issued guidance.

Disagreement Among States

Each state has the power to regulate the laws within their respective state borders. There are twenty-one rolling conformity states, which means they conform with the Internal Revenue Code (IRC) whenever there are changes. Nineteen states are static conformity. This means their tax laws are based on the IRC as of a specific date. As new federal tax laws are enacted, their legislative body must vote to either adopt any federal changes or change their state’s IRC conformity date. These static conformity states may operate under the pre-TCJA code (Tax Cuts & Jobs Act) due to their outdated conformity of the IRC. The other states either do not have an income tax or have selective conformity between individual and corporate taxation. Significant tax issues may arise for businesses that operate or have nexus in multiple state jurisdictions.

If you have any questions regarding federal PPP loan forgiveness and how it could affect your business, please reach out to us via email, give us a call at (401) 921-2000, or fill out our online contact us form. For further information regarding COVID-19 assistance programs, please visit our COVID-19 Resources page.

Real estate investment trusts are an investment vehicle that owns, operates or finances income producing real estate. A real estate investment trust, or REIT, can be a corporation, trust, or association that is managed by trustee(s) or director(s) to provide its investors a share of income produced through a real estate investment. While REITs are able to avoid the double taxation issue, they are required to distribute their taxable income as dividends to their shareholders in order to retain the status of a REIT.

Benefits of REITs

REITs provide their investors some favorable investment features. Collectively, REITs of all types own more than $3 trillion in gross assets in the United States. Public REIT funds that were raised in 2019 hit $107.3 billion, nearly twice of that in 2018 and 7% higher than the last peak in 2017. Therefore, it shows how REITs are able to raise ample amounts of capital in real estate investments. Additionally, REITs provide investors high dividends that increase accordingly with inflation rates. REITs offer its investors a reduction in the overall risk level according to a study by Ibbotson Associates, where they showed a correlation between REIT stock returns and other common stocks. It showed that REITs display a less volatile investment and may be a way to diversify an investor’s portfolio.

REIT Requirements

In order to meet the qualifications for REIT status, the entity must meet several requirements. The entity must: 

  1. Be managed by one or more trustees or directors.
  2. Be a corporation, trust or association taxed as a domestic corporation.
  3. Be at least 100 shareholders and its shares must be freely transferable.
  4. Have no more than 50% of the stock owned directly or indirectly by five or fewer individuals during the last half of the taxable year. 

As stated in §856, a REIT must also meet a 75% gross income and a 95% gross income test. In regards to the taxation of REITs, the dividends are taxable to the shareholder; however, if a REIT pays out more than its taxable income, the excess is a nontaxable return of capital that reduces the shareholder’s basis. In order to take advantage of a REIT, certain steps can be taken to minimize the REIT’s tax impact. As all items with tax implications, it is recommended to speak with an informed tax professional in order to fully understand the complexities of a REIT and minimize its tax impact.

If you have any questions about REITs, and their tax implications for you, please reach out via email, give us a call at (401) 921-2000, or fill out our online contact us form.

COVID-19 has enhanced both the work from home and schooling from home models. More and more people are looking at redesigning their current home and/or buying a new home due to lifestyle changes, and with employers encouraging the work from home concept, people are looking to migrate to the suburbs from city centers. 

Let’s say you have been offered an attractive price for your current home. Over the years, you’ve probably put a ton of money into your home—that new roof in 2013, the deck you added in 2014, and the nightmare that was a kitchen remodel in 2017. While those costly improvements didn’t net you any tax benefits back when they were done, we hope you kept those receipts and records! We’ll get back to that in a bit.

Let’s say you purchased your home when the market was low, around 2012. Now you’re ready to sell and recoup your investment. Will there be a big tax bite on the gain? Probably not, if you’ve lived in the home as your primary residence for two of the last five years. If you meet this time requirement, your first $250,000 of gain (if single) or $500,000 of gain (if married—the rules are a little more complicated if there’s been a divorce) are not subject to federal income tax under current law. Also, this exclusion is available to take more than once, but not more often than every two years.

Back to our example, if you are single and managed to get a fantastic deal on your house (perhaps a foreclosure) in 2012 for $125,000 and were lucky enough to see your investment appreciate over the years and now you have been offered $399,000. That is a gain of $274,000 and doesn’t that put you over the exclusion? Not necessarily. This is where having your receipts and records from all those improvements comes in handy. Your basis (investment on which the gain is calculated) in the home includes your purchase price plus any improvements. Also, the costs associated with the sale (such as real estate commissions) are deducted from the sales price. Once you re-do the math with these additional figures, your gain could very well be below the $250,000 threshold and therefore, is tax-free as illustrated below:

Keep in mind that not all the money you put into your home “counts” as an increase to your basis. Normal repairs and maintenance (such as painting, fixing plumbing leaks, repairing broken steps) should not be considered. Nor should improvements that are no longer part of the home, such as wall-to-wall carpeting that you installed but later replaced with hardwood flooring. In that case, the hardwood flooring, but not the carpet, would be added to the basis. A common misconception is that you can include the value of your time for do-it-yourself projects, but this is specifically not allowed according to the tax laws (sorry, DIY-ers!). Items that can be included typically increase the home’s value, such as appliances that are left with the home upon sale, decks, flooring, additions, doors and windows, fences, siding, heating and air conditioning systems, driveways, security systems, and kitchen and bath modernizations.

If you meet the requirements for living in the home for two of the past 5 years, but your gain is above the $250,000/$500,000 limit, only the excess is subject to tax at preferential capital gains rates.

This represents a basic overview of the tax law as it applies to the sale of a primary residence. There are many situations that call for additional analysis in the year the home is sold, such as:

  • The home was previously a rental property or used for business
  • The home was received through a divorce settlement, gift or inheritance
  • The homeowner meets an exception to the two-year rule
  • The homeowner qualifies for a reduced exclusion
  • The home was acquired through a like-kind exchange
  • The homeowner had received any tax credits or subsidies that may be subject to recapture

Since a home is often the largest asset and most significant portion of a taxpayer’s net worth, this exclusion offers a meaningful tax break and acts as an incentive to homeownership. Keep in mind, however, that tax laws can and do change. For this reason, we recommend keeping excellent records of all improvements to justify your basis in the property even if you don’t think your gain will approach anywhere near the threshold amount.

If you have any questions regarding the tax implications for selling your home, please reach out via email, give us a call at (401) 921-2000, or fill out our online contact us form.

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