CARES ACT TAX

Federal Tax & Accounting Road Map

Edward L. Perkins, BA, JD, LLM(Tax), CPA Partner - Gibson & Perkins, PC tedperkins@gibperk.com 610.565.1708 ext. 102 Adjunct Professor Villanova University School of Law - Graduate Tax Program Founder YourOnlineProfessor.net

Edward L. Perkins, BA, JD, LLM(Tax), CPA Author of these books: • Drafting Wills That Work in Pennsylvania • PBI – Special Needs Trusts in Pennsylvania • PBI - The Pennsylvania Trusts Handbook

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Federal Tax & Accounting Road Map

Business Entities

Prior to 2018, Net Operating Losses  Carried back two years and forward 20  Could offset 100% of taxable income.

The TCJA altered these rules  Disallowed all carrybacks losses  Provided indefinite carryforward period,  Limited Losses when carried forward to 80% of taxable income.

Changes to the Net Operating Loss Rules

Changes to the Net Operating Loss Rules ‡

Congress temporarily reversed the TCJA changes:

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Losses from 2018, 2019 and 2020, will be permitted to be carried back for up to five years.

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A taxpayer will be permitted to elect to carry the loss forward.

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Losses carried TO 2019 and 2020 will be permitted to offset 100% of taxable income

Changes to the Net Operating Loss Rules Example.

In 2015 and 2016, X Co. broke even.

In 2017, X Co. reported taxable income of $1 million and paid federal income tax of $350,000.

In 2018, X Co. reported taxable income of $2 million and paid tax of $420,000.

In 2020, X Co. recognizes a net operating loss of $3 million.

X Co. may carry $1 million of the loss back to 2017 and recover the taxes paid (subject to the alternative minimum tax), and then carry the remaining $2 million loss to 2018 and recover that $420,000 as well.

Temporary (and Retroactive) Removal of Net Business Loss Limitation: As part of the TCJA, additional limitation on an individual’s ability to use losses from a business were added.

The TCJA limited the amount of “net business loss” an individual may use in a year to offset other sources of income to – $250,000 if single – $500,000 if married filing jointly.

Any excess loss is converted into a net operating loss subject to more stringent utilization rules than prior to the TCJA.

Temporary (and Retroactive) Removal of Net Business Loss Limitation:

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The latest legislation, however, puts a temporary halt on the loss limitation not only for 2020, but retroactive to January 1, 2018.

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As a result, taxpayer who found a loss limited by the provision in 2018 or 2019 can file an amended return to claim a refund.

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It’s not ALL good news!!

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The CARES Act clarifies that when the provision kicks back in for 2021 and beyond, wages will NOT be considered business income.

As part of the TCJA, a business’s ability to deduct interest expense is limited to.. …30% of “adjusted taxable income,”… … with any excess interest expense carried forward.

Changes to the Interest Limitation Rules

Changes to the Interest Limitation Rules

The CARES Act increases that limit to 50% of adjusted taxable income for 2019 and 2020 In addition the business can elect to use its 2019 adjusted taxable income in computing its 2020 limitation.

GOVERNMENT-PROVIDED RELIEF FUNDS (LOANS AND GRANTS) For loans provided to businesses under the CARES Act (Small Business Administration loans), the Act expressly provides that any forgiveness or cancellation of all or part of such loans will not be treated as income for tax purposes.

MINIMUM TAX CREDITS The CARES Act accelerates the ability of corporations to recover excess minimum tax credits (MTCs) that they possessed when the corporate alternative minimum tax was repealed beginning in 2018 

50% of the excess MTC are refundable in the 2018 tax year

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100% remaining MTCs refundable in tax year 2019.

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Corporations may elect to take the entire refundable credit in the 2018 tax year.

Qualified Improvement Property Fix

As part of the 2017 Tax Cuts and Jobs Act, Congress intended to (greatly) speed up the depreciation on “qualified improvement property� (QIP) QIP is generally defined as any improvement made to the interior portion of a nonresidential building.

Qualified Improvement Property Fix

Under the TCJA the depreciable life of QIP was intended to be reduced from 39 to 15 years, and with 100% bonus depreciation being available for all assets with a life of 20 years or less A taxpayer who spent $3 million in 2018 renovating their chain of restaurants should have been entitled to an immediate $3 million tax deduction... ‌but Congress forgot to give QIP a 15 year life.

As a result, the life remained 39 years, and thus QTIP was not eligible for 100% bonus depreciation.

Qualifi ed Improvement Property Fix

The CARES Act provides a technical correction to the QIP problem –

It gives QTOP a 15-year life

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Making the change retroactive to January 1, 2018.

Taxpayers should be entitled to file amended returns to reap the benefits of accelerated depreciation in 2018 and 2019

Qualified Improvement Property Fix

Example: The client above claimed only $75,000 of depreciation related to the $3 million of improvements made to their Arby’s chain in 2018.

Client may file an amended return to take an additional deduction of $2.925 million in 2018, and under rules discussed below, any net operating loss generated by the additional depreciation may be carried back for up to five years to recover taxes previously paid.

How to Get Quick Cash Back from the IRS Overview A corporation that overpays its estimated tax can obtain a quick refund of the excess estimated tax before it files its tax return.

A corporation can obtain a “quick refund” only if the amount of the refund equals or exceeds 10% of the amount estimated by the corporation on its application as its income tax liability for the tax year and is at least $500.

Form 4466 The application is filed on IRS Form 4466, Corporation Application for Quick Refund of Overpayment of Estimated Tax. The IRS generally must act on the application within 45 days.

Any refund is first credited against any unpaid taxes owed by the corporation, and any remainder is refunded to the corporation.

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Compliance Issues

Federal Filing and Payment Deadlines Extended

• The IRS has issued two notices regarding COVID-19: Notice 2020-17 and 2020-18.

• Notice 2020-18 supersedes the previous notice.

• Filing and payment deadlines are extended 90 days until July 15, 2020.

• This applies to federal income tax and payments due on April 15, 2020.

• There is no limitation on the amount of the payment that may be postponed.

Tax Returns Tax Tax Returns Returns due due March March 16, 16, 2020 2020 -- Such Such as as 1065 1065 and and 1120-S 1120-S calendar calendar year year filers filers not not extended extended Interest Interest and and penalties penalties for for nonpayment nonpayment will will not not start start to to accrue accrue until until after after July July 15th, 15th, 2020.

2020.

Estimated Estimated Tax Tax payments payments for for the the 1st 1st quarter quarter are are also also extended extended from from April April 15th 15th to to July July 15th.

15th.

However, However, 2nd 2nd quarter quarter estimated estimated payments payments have have not not been been extended, extended, and and as as of of now now remain remain due due on on June June 15th.

15th.

The The deadline deadline for for IRA IRA contributions contributions for for 2019 2019 has has also also been been extended extended from from April April 15th 15th to to July July 15th.

15th.

The payment obligations and filing obligations specified in this section III.A (Specified Filing and Payment Obligations) are as follows: •

Individual income tax payments and return filings on Form 1040, U.S. Individual Income Tax Return,

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Calendar year or fiscal year corporate income tax payments and return filings on Form 1120, U.S. Corporation Income Tax Return, 1120-C, U.S. Income Tax Return for an S Corporation, and 1120-SF, U.S. Income Tax Return for Settlement Funds (Under Section 468B);

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Calendar year or fiscal year partnership return filings on Form 1065, U.S. Return of Partnership Income

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Estate and trust income tax payments and return filings on Form 1041, U.S. Income Tax Return for Estates and Trusts,

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Estate and generation-skipping transfer tax payments and return filings on Form 706, United States Estate (and GenerationSkipping Transfer) Tax Return,

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Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, filed pursuant to Revenue Procedure 2017-34;

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Form 8971, Information Regarding Beneficiaries Acquiring Property from a Decedent and any supplemental Form 8971, including all requirements contained in section 6035(a) of the Code;

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Gift and generation-skipping transfer tax payments and return filings on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return that are due on the date an estate is required to file Form 706 or Form 706-NA;

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Estate tax payments of principal or interest due as a result of an election made under sections 6166, 6161, or 6163 and annual recertification requirements under section 6166 of the Code;

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Exempt organization business income tax and other payments and return filings on Form 990-T,

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Excise tax payments on investment income and return filings on Form 990-PF, Return of Private Foundation or Section 4947(a) (1) Trust Treated as Private Foundation, and excise tax payments and return filings on Form 4720, Return of Certain Excise Taxes under Chapters 41 and 42 of the Internal Revenue Code; and

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Quarterly estimated income tax payments

Returns due March 16, 2020 (such as 1065 and 1120-S Calendar year filers) have not been Extended.

Notice 2020-18 also does not apply to payroll and excise taxes The Notice does apply to 965(h) (deferred foreign income) installment payments due on April 15th. These are extended until July 15th.

There is no extension request that needs to be filed to obtain the extension to July 15th.

However, if a taxpayer wants to extend the filing further until October 15th, the extension request must be filed by July 15th.

DUE DATE FOR GIFT TAX AND GST RETURNS AND PAYMENTS • The IRS postponed to July 15, 2020 the due date for both filing a gift tax and GST tax return and for payments of gift and GST tax due April 15, 2020.

• The postponement is automatic; no Form 8892 is required.

• An affected taxpayer may file Form 709 to obtain an extension to file by October 15, 2020.

• The period from April 15, 2020 to July 15, 2020 will be disregarded in the calculation of interest, penalty, or addition to tax for failure to file returns or pay taxes.

For taxpayers under an existing Installment Agreement, payments due between April 1 and July 15, 2020 are suspended.

Taxpayers who are currently unable to comply with the terms of an Installment Payment Agreement, including a Direct Deposit Installment Agreement, may suspend payments during this period if they prefer.

Furthermore, the IRS will not default any Installment Agreements during this period.

By law, interest will continue to accrue on any unpaid balances. Â

Existing Installment Agreements

OIC Payments • Taxpayers have the option of suspending all payments on accepted OICs until July 15, 2020, although by law interest will continue to accrue on any unpaid balances.

Pending OIC applications • The IRS will allow taxpayers until July 15 to provide requested additional information to support a pending OIC. • In addition, the IRS will not close any pending OIC request before July 15, 2020, without the taxpayer's consent.

Field Collection Activities • Liens and levies (including any seizures of a personal residence) initiated by field revenue officers will be suspended during this period.

• However, field revenue officers will continue to pursue high-income non-filers and perform other similar activities where warranted.

Automated Liens and Levies • New automatic, systemic liens and levies will be suspended during this period.

Passport Certifications to the State Department • IRS will suspend new certifications to the Department of State for taxpayers who are "seriously delinquent" during this period.

• These taxpayers are encouraged to submit a request for an Installment Agreement or, if applicable, an OIC during this period. Certification prevents taxpayers from receiving or renewing passports.

Private Debt Collection • New delinquent accounts will not be forwarded by the IRS to private collection agencies to work during this period.

Field, Office and Correspondence Audits • During this period, the IRS will generally not start new field, office and correspondence examinations.

• The IRS will continue to work refund claims where possible, without in-person contact.

• However, the IRS may start new examinations where deemed necessary to protect the government's interest in preserving the applicable statute of limitations.

In-Person Meetings ‡

In-person meetings regarding current field, office and correspondence examinations will be suspended.

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Even though IRS examiners will not hold inperson meetings, they will continue their examinations remotely, where possible.

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To facilitate the progress of open examinations, taxpayers are encouraged to respond to any requests for information they already have received - or may receive - on all examination activity during this period if they are able to do so.

General Requests for Information In addition to compliance activities and examinations, the IRS encourages taxpayers to respond to any other IRS correspondence requesting additional information during this time if possible.

IRS TEMPORARY PROCEDURE ON ELECTRONIC SIGNATURES AND ELECTRONIC DOCUMENT TRANSMISSION From March 27, 2020 until July 15, 2020, the IRS will allow IRS employees:  To accept scanned or photographed images of signatures and digital signatures on documents related to the determination or collection of tax liability; and  Accept documents via email and to transmit documents to taxpayers using SecureZip or other established secured messaging systems.

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Taxpayers have until July 15, 2020, to respond to the IRS to verify that they qualify for the Earned Income Tax Credit or to verify their income.

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These taxpayers are encouraged to exercise their best efforts to obtain and submit all requested information, and if unable to do so, please reach out to the IRS indicating the reason such information is not available.

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Until July 15, 2020, the IRS will not deny these credits for a failure to provide requested information.

Earned Income Tax Credit and Wage Verification Reviews

Independent Office of Appeals ‡

Appeals employees will continue to work their cases.

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Although Appeals is not currently holding inperson conferences with taxpayers, conferences may be held over the telephone or by videoconference.

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Taxpayers are encouraged to promptly respond to any outstanding requests for information for all cases in the Independent Office of Appeals.

Statute of Limitations

- The IRS will continue to take steps where necessary to protect all applicable statutes of limitations.

- In instances where statute expirations might be jeopardized during this period, taxpayers are encouraged to cooperate in extending such statutes.

- Otherwise, the IRS will issue Notices of Deficiency and pursue other similar actions to protect the interests of the government in preserving such statutes.

- Where a statutory period is not set to expire during 2020, the IRS is unlikely to pursue the foregoing actions until at least July 15, 2020.

Charitable Contributions

Changes to Charitable Contributions Charitable contributions are itemized deductions If the sum of itemized deductions exceeds the “standard deduction” — $12,400 for a single taxpayer; $24,800 for married filing jointly in 2019 — the taxpayer gets a benefit from charitable contributions…. … If they don’t, they don’t.

The TCJA nearly doubled the standard deduction, while at the same time, limited or eliminated many itemized deductions.

As a result, in 2018 only 8% of taxpayers itemized.

Non-Itemizers To accommodate for this new reality, the CARES Act allows an individual to make a cash contribution of up to $300 made to certain qualifying charities and deduct the contribution “above-the-line� in computing adjusted gross income.

Thus, the taxpayer receives the deduction This above-the-line deduction is here for 2020 and beyond, but is available only to a taxpayer who does not itemize their deductions.

Itemizers

For those who DO itemize, the new law temporarily lifts the limits on charitable giving for 2020.

After passage of the TCJA, cash contributions to public charities are generally limited to 60% of a taxpayer’s adjusted gross income (AGI) The CARES Act allows such contributions to be deducted up to 100% of AGI for 2020, with any excess contributions available to be carried over to the next five years.

For corporate donors, the limit would increase from 10% of adjusted taxable income to 25%.

Health Care

DUE DATES FOR CONTRIBUTIONS TO HEALTH SAVINGS ACCOUNTS

Participants may make contributions to an HSA or Archer MSA for 2019 at any time up to July 15, 2020.

RAPID COVERAGE OF PREVENTIVE SERVICES AND VACCINES FOR CORONAVIRUS A high deductible health plan (HDHP) may, without affecting its status as a HDHP, provide health benefits associated with testing for and treatment of COVID-19 without a deductible, or with a deductible below the minimum deductible (self only or family) for an HDHP. Such benefits are disregarded for purposes of determining the plan’s status as a HDHP. An individual covered by the HDHP will not be disqualified from being an eligible individual under IRC §223(c)(1) who may make tax-favored contributions to a health savings account (HSA).

Individuals

Recovery Rebate • The headliner of the CARES Act is the individual stimulus payment, or as it’s officially titled, the “2020 recovery rebate for individuals.”

• The government will immediately begin cutting checks directly to individual taxpayers, putting nearly $507 billion in cash into the hands of most adult Americans.

• The CARES Act does this via the tax law by adding new Section 6428 to the Internal Revenue Code

INDIVIDUAL STIMULUS PAYMENTS

Recovery Rebate

Here’s how it will work: ― The IRS is going to take a look at your 2019 tax return. ― If your 2019 return has not yet been filed, the Service will look at your 2018 return instead. ― If you haven’t filed a return for EITHER year the IRS will determine whether that you are eligible for a check based on your Form SSA-1099, Social Security Benefit Statement.

Recovery Rebate  Once the IRS has either your 2019 return, 2018 return, or Social Security statement, it’s going to cut you a check for $1,200 if single - $2,400 if married filing jointly  + $500 for each child under the age of 17.  The payment is in no way limited to your tax liability or dependent on you having earned a minimum amount of “qualifying income.”

Recovery Rebate

Not everyone gets a check, however….

You need to have provided a valid social security number for yourself, your spouse and any qualifying children on your tax returns Those on the higher end of the income scale will be shut out of the program because the payment phases out once your “adjusted gross income (AGI)” — exceeds $75,000 if single - $150,000 if married.

Once over those thresholds, you’ll lose $5 of your payment for every $100 your AGI exceeds those thresholds.

Recovery Rebate The payments will be made between now and December 31, 2020 In many cases, it will be paid electronically if you have provided direct deposit information to the IRS on your 2018 or 2019 tax returns ‌. but it’s important to understand that any payment you receive acts as an advance payment of a credit you will compute AGAIN on your 2020 tax return.

Recovery Rebate

What that means is that when 2021 rolls around and you prepare your 2020 tax return, you’ll have to recompute the amount you’re owed based on 2020 data… …and compare it to the advance payment you actually received.

If the advance payment was less than what you are owed in 2020— for example, you were phased out in 2019 but not 2020 or you had another child — the excess will be treated as a credit that reduces your 2020 tax liability.

Example: A is single and 30 years old. In 2017, A decided to go to graduate school fulltime.

Recovery Rebate

A goes to school in 2018 and 2019, earns no income, and files no tax return.

As a result, A does not receive a check for $1,200 as part of the stimulus package in 2020.

If A files a 2020 tax return, however, A will receive a credit against her tax liability in 2020, effectively putting an extra $1,200 into A’s pocket.

Recovery Rebate

If the advance payment is GREATER than what you’re owed on your 2020 tax return, however, the question becomes: what then?

The CARES Act does not explicitly require income recognition for any excess, as was required by its counterpart in the House.

Nor is there a mechanism for a taxpayer to repay any excess advance payment.

Thus it is entirely possible a taxpayer could, for example, receive an advance payment in 2020 based on 2019 or 2018 income, only to find themselves ABOVE the phase out threshold in 2020, giving rise to no credit on the 2020 return, and yet still not have to repay the excess amount to the IRS.

QUALIFIED DISASTER RELIEF PAYMENTS Gross income does not include any amount received by an individual as a qualified disaster relief payment Such payments include any amount to reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster.

A qualified disaster relief payment must be made to, or for the benefit of, an individual, but only to the extent any expense compensated by the payment is not otherwise reimbursed.

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International

NOLS AND IRC §965 §

The CARES Act amends IRC §172(b) to allow for the carryback of losses arising in taxable years ending after December 31, 2017 and before January 1, 2021 to each of the five taxable years preceding the taxable year of such loss.

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However, the NOL carryback cannot be used to offset IRC §965(a) income in those taxable years.

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The CARES Act provides that if the taxpayer elects to carryback NOLs to any taxable year in which it included IRC §965(a) income (“deferred foreign income”) in its gross income, then the taxpayer is treated as having made the election under IRC §965(n) to reduce the NOL with respect to each such taxable year.

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The CARES Act allows a taxpayer to elect to exclude from its NOL carryback any taxable year to which IRC §965(a) applies.

DUE DATE FOR IRC §965(H) INSTALLMENT PAYMENTS Although the IRC §965(h) installment payment is generally made in respect of a taxpayer’s 2017 or 2018 tax year, the due date of the installment payment associated with a 2019 tax return is the due date of the taxpayer’s 2019 federal income tax return.

For any taxpayer, whose filing due date has been postponed from April 15, 2020 to July 15, 2020, the due date of that taxpayer’s IRC §965 installment payment has also been postponed to July 15, 2020.

DUE DATE FOR FILING FATCA REPORTS IRS provided an automatic extension of time for Reporting Model 2 FFIs and Participating FFIs to file Form 8966, FATCA Report.

The March 31, 2020 filing deadline was extended to July 15, 2020.

Payroll

The Employment Retention Credit

Employee Retention Credit New to the final version of the CARES Act is a one-year only credit against the employer’s 6.2% share of Social Security payroll taxes … …for any business that is forced to suspend or close its operations due to COVID-19… …but that continues to pay its employees during the shut-down.

Employee Retention Credit It works like so... A business is eligible for the credit in one of two ways: ‥ The operation of the business was fully or partially suspended during any calendar quarter during 2020 due to orders from an appropriate government authority resulting from COVID-19, or ‥ The business remained open, but during any quarter in 2020, gross receipts for that quarter were less than 50% of what they were for the same quarter in 2019.

Employee Retention Credit The business will then be entitled to a credit for each quarter… …until the business has a quarter where it’s recovered sufficiently that … …its receipts exceed 80% of what they were for the same quarter in the previous year.

Employee Retention Credit For each eligible quarter, the business will receive a credit against its 6.2% share of Social Security payroll taxes equal to: 50% of the “qualified wages� paid to EACH employee for that quarter, ending on December 31, 2020 up to exceed $10,000

Employee Retention Credit The business’s “qualified wages” depends on its size If there were more than an average of more than 100 employees during 2019… ...then the credit is allowed only for wages paid to employees who did not work during the calendar quarter.

Employee Retention Credit If there were less than 100 employees for 2019, however, qualified wages include not only those paid to employees during a shut-down, ‌ ‌the credit is based on wages paid to all employees, regardless if they worked or not ... if the employees worked full time and were paid for full time work, the employer still receives the credit.

Employee Retention Credit Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees' wages by the amount of the credit.

If the employer's employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.

If an employer takes out a payroll protection loan under Section 7(a) of the Small Business Act no employee retention credit will be available.

 Â

Employee Retention Credit If an employer takes out a payroll protection loan under Section 7(a) of the Small Business Act no employee retention credit will be available. Â Â

Delay of Payment of Employer Payroll Tax and Self Employment Tax

Delay of Payment of Employer Payroll Tax and Self-Employment Tax The Act also allows the employer’s share of the 6.2% Social Security tax … …that would otherwise be due from the date of enactment through December 31, 2020, to be paid on – December 31, 2021 (50%) – December 31, 2022 (50%)

Delay of Payment of Employer Payroll Tax and Self-Employment Tax

Similarly, a self-employed taxpayer can Defer paying 50% of his or her self-employment tax that would be due from the date of enactment through the end of 2020 > Pay 25% at the end of 2021 > Pay 25% at the end of 2022.

Delay of Payment of Employer Payroll Tax and Self-Employment Tax

This means an employer that incurs its 6.2% share of Social Security tax in 2020 may …

Defer payment of payroll tax until 2021 and 2020… …but receive an immediate credit against those yet-tobe paid payroll taxes via the sum of the Family Leave Credit, Sick Leave Credit, and new Employee Retention Credit.

Emergency Sick Leave and Family Leave

The Families First Coronavirus Response Act (FFCRA) requires companies that employ less than 500 employees to ― Pay 80 hours of Sick Leave and ― Up to 12 weeks of Family Leave ….for employees who are required to stay home because of the Coronavirus Disease

Emergency Sick Leave and Family Leave

The FFCRA also provides a 100% tax credit to a company for these sick and family leave payments to employees ‌so that there should be no net cost in making these payments.

The tax credit is applied to offset the employer’s share of the social security component of its payroll taxes

Tax Credits

‡ Covered employers qualify for dollar-for-dollar reimbursement through tax credits for all qualifying wages paid under the FFCRA. ‡ “Qualifying wages” are those paid to an employee who takes leave under the Act for a qualifying reason, up to the appropriate per diem and aggregate payment caps. ‡ Applicable tax credits also extend to amounts paid or incurred to maintain health insurance coverage.

The Tax Credit ‡

Under guidance that to be released by the IRS eligible employers who pay qualifying sick or family leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and family leave that they paid, rather than deposit them with the IRS.

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The payroll taxes that are available for retention include : ‡

Withheld federal income taxes

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The employee share of Social Security and Medicare taxes, and

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The employer share of Social Security and Medicare taxes with respect to all employees.

The Tax Credit ยง If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able file a request for an accelerated payment from the IRS. ยง The IRS expects to process these requests in two weeks or less. ยง The details of this new, expedited procedure will be announced by the Service

The Tax Credit Example If an eligible employer paid $5,000 in sick leave Otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, The employer could use up to $5,000 of the $8,000 of taxes it was going to deposit for making qualified leave payments.

The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date.

The Tax Credit Example If an eligible employer paid $10,000 in sick leave and was required to deposit $8,000 in taxes The employer could use the entire $8,000 of taxes in order to make qualified leave payments and File a request for an accelerated credit for the remaining $2,000.

DOL TEMPORARY REGULATIONS COVERING PAID LEAVE UNDER THE FAMILIES FIRST CORONAVIRUS RESPONSE ACT The Department of Labor promulgated regulations to implement public health emergency leave under the Family and Medical Leave Act and emergency paid sick leave to assist working families.

The temporary rule provides – Guidance relevant to the administration of the FFCRA’s paid leave requirements, – Direction for administration of the Emergency Paid Sick Leave Act under the FFCRA, – Provides direction for the effective administration of the Emergency Family and Medical Leave Expansion Act under the FFCRA.

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Retirement

Special Rules for Using Retirement Funds for Coronavirus Costs

If you take money out of a qualified retirement plan before age 59 1/2, you not only pay income tax on the distribution, but Section 72(t) generally imposes a 10% penalty as well.

There are several exceptions to the penalty, of course, and the CARES Act adds a new one, allowing a taxpayer to take a “coronavirusrelated distribution� of up to $100,000 in the year 2020 free from penalty.

Special Rules for Using Retirement Funds for Coronavirus Costs

A “coronavirus-related distribution” is a distribution made during 2020: • To an individual who is diagnosed with SRS-COV-2 or COVID-19 by a test approved by the CDC, • Whose spouse or dependent is diagnosed with one of the two diseases, or • Who experiences adverse financial consequences as a result of being quarantined, furloughed or laid off or having work hours reduced, or being unable to work due to lack of childcare.

Special Rules for Using Retirement Funds for Coronavirus Costs

10% Penalty

While the distribution escapes the 10% penalty, it doesn’t escape the income tax.

The Act, however, allows the taxpayer to spread the income over a 3-year period beginning with 2020.

The taxpayer also has the choice to avoid any income recognition by repaying the distribution to the retirement plan within three years of receiving it.

Special Rules for Using Retirement Funds for Coronavirus Costs In addition, the amount an individual may borrow from his or her retirement plan is increased from $50,000 to $100,000 for the 180-day period beginning after the enactment of the Act. For those required to withdraw a “required minimum distribution” from their retirement plan in 2020, the CARES Act temporary waives the requirement for this year only.

Financial Accounting

ASSET IMPAIRMENT An impairment loss is defined within ASC 360-1035-17 as the non-recoverable amount by which the carrying value of a long-lived asset (asset group) exceeds its fair value.

Nonrecoverable is identified as when the carrying value exceeds the sum of the undiscounted cash flows and eventual disposition of the asset.

The immediate economic effects of the virus are likely to trigger an impairment test for long-lived assets or asset groups at many companies across a variety of industries.

DEPRECIATION OF IDLE ASSETS Depreciation begins when the asset is placed in service and the owner is using the asset to help generate revenue.

Depreciation ends at the earlier of when the asset is depreciated down to its salvage value, is classified as held for sale, or is disposed of or abandoned.

Depreciation, however, does not cease merely because the PP&E becomes idle or is retired from active service.

When completing U.S. GAAP financial reporting, idle assets that result from COVID-19 will continue to be depreciated in the same manner unless a change in depreciation method is made, in which case rules for changing estimates in ASC 250 would be applied

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