Reporting Requirement – Beneficial Ownership is due by 12/31

Greetings!

As we approach the end of the year there is a new deadline for Beneficial Ownership Information reporting (BOI). Please read if you own 25% or more of an active business, rental real estate or business investments in LLCs, Corporations, Limited Partnerships, and other state authorized entities, or if you exercise substantial influence over important decisions of a reporting company (i.e. a senior officer)

Most existing companies are required to file a beneficial ownership report before December 31, 2024. What follows is a summary of the Corporate Transparency Act and the BOI reporting requirement. Please contact us if you would like more information or think this might apply to you.

Corporate Transparency Act — Beneficial Ownership Information Reporting Requirement

Starting January 1, 2024, an anticipated 32.6 million businesses will be required to comply with the Corporate Transparency Act (“CTA). The CTA was enacted into law as part of the National Defense Act for Fiscal Year 2021. The CTA requires the disclosure of the beneficial ownership information (otherwise known as “BOI”) of certain entities from people who own or control a company. The intent of the BOI reporting requirement is to help US law enforcement combat money laundering, the financing of terrorism and other illicit activity.

Below is some preliminary information for you to consider as we approach the implementation period for this new reporting requirement. This information is meant to be general-only and should not be applied to your specific facts and circumstances without consultation with competent legal counsel and/or other retained professional adviser.

What entities are required to comply with the CTA’s BOI reporting requirement?

Entities organized both in the U.S. and outside the U.S. may be subject to the CTA’s reporting requirements. Domestic companies required to report include corporations, limited liability companies (LLCs) or any similar entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe. Domestic entities that are not created by the filing of a document with a secretary of state or similar office are not required to report under the CTA.

Foreign companies required to report under the CTA include corporations, LLCs or any similar entity that is formed under the law of a foreign country and registered to do business in any state or tribal jurisdiction by filing a document with a secretary of state or any similar office.

Are there any exemptions from the filing requirements?

There are 23 categories of exemptions. Included in the exemptions list are publicly traded companies, banks and credit unions, securities brokers/dealers, public accounting firms, tax-exempt entities and certain inactive entities, among others. Please note these are not blanket exemptions and many of these entities are already heavily regulated by the government and thus already disclose their BOI to a government authority. The Small Entity Compliance Guide (found here) has a list of the 23 exemptions, along with answers to many other frequently asked questions.

In addition, certain “large operating entities” are exempt from filing. To qualify for this exemption, the company must:

  1. a)Employ more than 20 people in the U.S.;
  2. b)Have reported gross revenue (or sales) of over $5M on the prior year’s tax return; and
  3. c)Be physically present in the U.S.

Who is a beneficial owner?

Any individual who, directly or indirectly, either:

  • Exercises “substantial control” over a reporting company, or
  • Owns or controls at least 25 percent of the ownership interests of a reporting company

An individual has substantial control of a reporting company if they direct, determine or exercise substantial influence over important decisions of the reporting company. This includes any senior officers of the reporting company, regardless of formal title or if they have no ownership interest in the reporting company.

The detailed CTA regulations define the terms “substantial control” and “ownership interest” further.

When must companies file?

There are different filing timeframes depending on when an entity is registered/formed or if there is a change to the beneficial owner’s information.

  • New entities (created/registered in 2024) — must file within 90 days (hopefully this was done by your attorney when you organized)
  • New entities (created/registered after 12/31/2024) — must file within 30 days
  • Existing entities (created/registered before 1/1/24) — must file by 1/1/25
  • Reporting companies that have changes to previously reported information or discover inaccuracies in previously filed reports — must file within 30 days

What sort of information is required to be reported?

Companies must report the following information: full name of the reporting company, any trade name or doing business as name, business address, state of formation, and an IRS taxpayer identification number.

Additionally, information on the beneficial owners of the entity and for newly created entities, the company applicants of the entity is required. This information includes — name, birthdate, address, and unique identifying number and an image of an acceptable identification document (e.g., a driver’s license or passport).

Risk of non-compliance

Penalties are significant for willfully not complying with the BOI reporting requirement and can result in criminal prosecution and/or civil penalties of $591 per day and up to $10,000.

Here is a link to learn more about FinCen Beneficial Ownership Reporting.

Please contact us at 203-852-7088 if you would like more information on this or would like us to file the BOI reporting for you.

Sincerely,

Francis S. Infurchia & Company, LLC

2023 Tax Updates & New Tax Information

Greetings!

We hope this finds you and your family well as we approach 2024.

Below, please see our firm update letter along with individual and business tax planning letters which were previously mailed.

2023 Firm Letter

2023 Individual Tax Planning

2023 Business Tax Planning

Additionally, there are some recent tax developments related to IRS penalty relief, ERC credits and a new LLC/ corporate ownership reporting requirement (Beneficial Ownership Reporting) that you may find relevant and we have outlined below.

As always, please call or email if you have any questions on this information.

We wish you a year full of joy, health and prosperity ahead. Happy New Year!

Francis S. Infurchia & Company, LLC

Recent & Relevant Updates – 2023

IRS offers penalty relief

The IRS announced on December 19, 2023 new penalty relief for approximately 4.7 million individuals, businesses, and tax-exempt organizations that were not sent automated collection reminder notices during the COVID-19 pandemic. The IRS will be automatically waiving approximately $1 billion of failure to pay penalties charged during 2020 and 2021 for taxpayers with assessed tax balances less than $100,000, but will resume charging this penalty in April 2024. Notices and refund checks should begin to appear in January 2024.

Link to IRS Penalty Relief

Employee Retention Credit (ERC) Updates

Suspension of ERC Processing (September 15, 2023):

The IRS issued a moratorium on the processing of new ERC claims due to a surge in questionable and potentially fraudulent applications. This decision was made to ensure the integrity of the program and to prevent misuse of funds. Taxpayers can still submit claims while the moratorium is in place, but they won’t be processed until 2024 when it is lifted.

Introduction of Withdrawal Process for Unpaid Claims (October 20, 2023):

In response to the previous concerns, the IRS introduced a process allowing taxpayers to withdraw their ERC claims if they hadn’t yet received payment. This step was aimed at those who may have submitted erroneous or doubtful claims, offering them a chance to rectify their submissions without facing immediate penalties. It was part of the IRS’s effort to manage the program more effectively and reduce the burden of processing invalid claims.

ERC Compliance Program and Voluntary Repayment (December 21, 2023):

The most recent development is the establishment of a voluntary compliance program specifically for the ERC. This program targets recipients of ERC funds who may have received payments, which they now believe to be in error because they did not understand the program or were misled by poor advice. The voluntary disclosure program allows repayment of 80% of the ERC received with no interest or penalties if certain criteria are met. The deadline to enter into this program is March 22, 2024.

Please contact our office if you would like more information on these programs.

Link to IRS ERC withdrawal information

Link to IRS Voluntary Repayment Program

Ownership Reporting for all LLCs and corporations

Please read if you own 25% or more of an active business, rental real estate or business investments in LLCs, Corporations, Limited Partnerships, and other state authorized entities.

Effective January 1, 2024, business owners will be required to report and disclose information to the U.S. government about who ultimately owns and controls your business and tax-filing entities. The Corporate Transparency Act requires all entities defined as a reporting company to file information on their “beneficial owners” with the Financial Crimes Enforcement Network (FinCEN), a division of the U.S Department of Treasury. The purpose of this new filing requirement is to create a federal centralized database to crack down on money launderers, terrorists, criminals, and individuals who evade taxes using numerous companies.

Failure to file these disclosure reports can result in significant punitive civil and potentially criminal penalties. We recommend all our clients comply with this new law. As of now, this report need only be filed one time, unless ownership changes occur.

For businesses and entities that are already in existence as of December 31, 2023, the filing of the Beneficial Ownership Information Report (BOI) with FinCEN must be filed by December 31, 2024. Any new entities that are formed starting January 1st, 2024, must file with FinCEN within 90 days of formation, Effective in 2025, the filing requirement for new entities will change to within 30 days of formation.

The US House of Representatives, along with the AICPA and state CPA societies are advocating for a delayed start to this new requirement but as of this email (December 28, 2023) it is still scheduled to begin on January 1, 2024.

While we are happy to alert you to this new reporting requirement, preparing the legal documentation required for this new compliance is outside the scope of what our accounting firm can undertake at this time, so we would be pleased to recommend legal counsel to you.

Link to FinCen Beneficial Ownership Reporting

SBA Released New PPP Loan Applications

January 12, 2021
On Friday, January 8, 2021, the SBA released two new Paycheck Protection Program applications for new first time and second draw borrowers. The program is slated to close on March 31, 2021 or when funding runs out.
The PPP re-opened on Monday, January 11, 2021 but only to first-time borrowers who receive their loans through specific federally designated community development financial institutions and minority depository institutions. On Wednesday, January 13, 2021 these same institutions will open for second draw loans. Shortly thereafter, first and second draw loans will be available from other participating lenders. Businesses, non-profits, self-employed and independent contractors who would like to apply should contact their lenders to see when they will begin accepting applications.
The two new applications released are below – the relevant application and supporting information will need to be completed for a business’ first or second draw loan:
The supporting information needed to apply for first and second draw loans is generally the same; for Second Draw applications, the original lender may have this information already on file.
  1. Proof of established business as of February 15, 2020
  2. 2019 or 2020 Payroll tax returns – Forms 941 and state unemployment
  3. 2019 or 2020 Schedule C or Form 1065 K1s for self-employed/ partnership borrowers
In addition to utilizing the funds on payroll and forgivable costs, in order to receive forgiveness of the Second Draw PPP loan, a business must also demonstrate a 25% reduction of gross revenue in one quarter of 2020 relative to the same quarter in 2019 (or, a reduction of more than 25% annually, as indicated by comparing revenue reported on the 2019 and 2020 the tax returns). This information is only required on the application if the loan amounts exceeds $150,000, otherwise it is only required at the time of forgiveness.
You can read more specifically about the Second Draw PPP in our commentary here.
We are available to discuss this newly released information. Please call us at 203-852-7088 or email if you have questions.

PPP Loan – Forgiveness Instructions & Application

May 18, 2020
On Friday, May 16th the SBA published their Paycheck Protection Program Loan Forgiveness Application along with instructions and worksheets. The Loan Forgiveness Application will need to be submitted to the lender servicing your PPP loan.
You can access the PPP Loan Forgiveness Application, instructions and worksheets here (link).
The AICPA (our professional credential governing body), has been great at disseminating information regarding the PPP, with articles, Excel calculators and prescient insight. As of this email, they are still updating their Excel calculator for forgiveness. Here (link) is an article on forgiveness released by the AICPA last Friday.
The AICPA’s SBA loan information center and resources can be found here (link).
We are available to discuss this newly released information. Please call us at 203-852-7088 or email if you have questions.
This PPP loan guidance and information continues to change on a daily basis and as it does, we will keep you up to date.

SBA Loans and Tax Updates – 3/30/2020

On Friday March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act (CARES) act into law which among other things, infused $349 billion of loan funds to the SBA.  Additionally, there are some major changes to tax law which we have outlined below.

SBA Loan Program

These new SBA loan amounts are generally limited to approximately 2.5 months of payroll/ operating expenses.  The SBA loans may be conditionally forgiven provided they are used for payroll and other specific operating costs of a business.

You can apply for these loans by going to www.sba.gov/disaster.

Our trusted colleagues at Whitman Breed Abbott Morgan have written an excellent analysis regarding these SBA loans.  Click here for their analysis

Tax Updates

Our tax research and update partner Thomson Reuters has provided great insight regarding the many relevant tax updates associated with the CARES Act which we are passing along.

Relevant individual tax updates include the below and can be found here:

  • $1,200 stimulus rebate
  • Waiver of 10% penalty on early IRA withdrawals due to COVID-19
  • RMD requirement waived for 2020
  • $300 above the line deduction for charitable giving

Relevant business tax updates include the below can be found here:

  • Employee retention tax credit
  • Delay of ‘employer side’ payroll tax deposits
  • 5 year net operating loss carryback
  • Interest expense income limitation increased
  • Technical correction of 15-year qualified improvement property

 

We remain available to assist in any way we can.  Please feel free to share this information.

Individual Tax Updates – CARES Act

This commentary and analysis is provided by our partners at Thomson Reuters as of 3/27/20

Individual recovery rebate/credit

New law.  Credit allowed for 2020. Under the CARES Act, an eligible individual is allowed an income tax credit for 2020 equal to the sum of: (1) $1,200 ($2,400 for eligible individuals filing a joint return)plus (2) $500 for each qualifying child of the taxpayer (as defined under Code Sec. 24(c) for purposes of the child tax credit). (Code Sec. 6428(a), as added by Act Sec. 2201(a)) The credit is refundable. (Code Sec. 6428(b), as added by Act Sec. 2201(a))

Checkmark Observation. For purposes of the child tax credit, the term “qualifying child” means a qualifying child of the taxpayer, as defined for purposes of the dependency exemption by Code Sec. 152(c), who hasn’t attained age 17.

Checkmark Observation.   Individuals who have no income, as well as those whose income comes entirely from non-taxable means-tested benefit programs such as SSI benefits, are eligible for the credit and the advance rebate. (CARES Section-by-Section Summary, p. 10).

Eligibility for credit. For purposes of the credit, an “eligible individual” is any individual other than a nonresident alien or an individual for whom a Code Sec. 151 dependency deduction is allowable to another taxpayer for the tax year. Estates and trusts aren’t eligible for the credit. (Code Sec. 6428(d), as added by Act Sec. 2201(a))

Checkmark Observation.   Children who are (or can be) claimed as dependents by their parents aren’t eligible individuals, even if they have enough income to have to file a return. It makes no difference if the parent chooses not to claim the child as a dependent, because the dependency deduction is still “allowable” to the parent.

Checkmark Observation.   An individual who wasn’t an eligible individual for 2019 may become one for 2020, e.g., where the individual was a dependent for 2019 but not for 2020. IRS won’t send an advance rebate to such an individual, because advance rebates are generally based on information on the 2019 return (see below). However, the individual will be able to claim the credit when filing the 2020 return.

Phaseout of credit. The amount of the credit is reduced (but not below zero) by 5% of the taxpayer’s adjusted gross income (AGI) in excess of: (1) $150,000 for a joint return, (2) $112,500 for a head of household, and (3) $75,000 for all other taxpayers. (Code Sec. 6428(c), as added by Act Sec. 2201(a))

Checkmark Observation.   Under these rules, the credit is completely phased-out for a single filer with AGI exceeding $99,000 and for joint filers with no children with AGI exceeding $198,000. For a head of household with one child, the credit is completely phased out when AGI exceeds $146,500. (CARES Section-by-Section Summary, p. 10)

Advance rebate of credit during 2020. Each individual who was an eligible individual for 2019 is treated as having made an income tax payment for 2019 equal to the advance refund amount for 2019. The “advance refund amount” is the amount that would have been allowed as a credit for 2019 had the credit provision been in effect for 2019.

IRS will refund or credit any resulting overpayment as rapidly as possible. No interest will be paid on the overpayment.

If an individual hasn’t yet filed a 2019 income tax return, IRS will determine the amount of the rebate using information from the taxpayer’s 2018 return. If no 2018 return has been filed, IRS will use information from the individual’s 2019 Form SSA-1099, Social Security Benefit Statement, or Form RRB-1099, Social Security Equivalent Benefit Statement.

Checkmark Observation.   In other words, even though the credit is technically for 2020, the law treats it as an overpayment for 2019 that IRS will rebate as soon as possible during 2020.

Checkmark Observation.   Most eligible individuals won’t have to take any action to receive an advance rebate from IRS. This includes many low-income individuals who file a tax return to claim the refundable earned income credit and child tax credit. (CARES Section-by-Section Summary, p. 10)

IRS may make the rebate electronically to any account to which the payee authorized, on or after Jan. 1, 2018, the delivery of a refund of federal taxes or of a federal payment.

No later than 15 days after distributing a rebate payment, IRS must mail a notice to the taxpayer’s last known address indicating how the payment was made, the amount of the payment, and a phone number for reporting any failure to receive the payment to IRS.

No advance rebate will be made or allowed after Dec. 31, 2020. (Code Sec. 6428(f), as added by Act Sec. 2201(a))

Advance rebate reduces credit allowed for 2020. The amount of credit that is allowable for 2020 must be reduced (but not below zero) by the aggregate advance rebates made or allowed to the taxpayer during 2020.

Checkmark Observation.   If the taxpayer received an advance rebate during 2020 that was less than the credit to which the taxpayer is entitled for 2020, the taxpayer will be able to claim the balance of the credit when filing the 2020 return. If, on the other hand, the advance rebate received was greater than the credit to which the taxpayer is entitled, the taxpayer won’t have to pay back the excess. That is because the 2020 credit can’t be reduced below zero.

If an advance rebate was made or allowed for a joint return, half of the rebate is treated as having been made or allowed to each spouse who filed the joint return.

Checkmark Observation.  Thus, if taxpayers filed a joint return for 2019 and received an advance rebate, but were divorced or filed separate returns for 2020, each individual will take into account half of the advance rebate when reducing the credit allowed for 2020.

Identification number requirement. No credit will be allowed to an eligible individual who doesn’t include the individual’s valid identification number on the tax return for the tax year.

On a joint return, the valid identification number of the individual’s spouse must be included. But this requirement doesn’t apply if at least one spouse was a member of the U.S. Armed Forces at anytime during the tax year and at least one spouse’s valid identification number is included on the joint return.

If a qualifying child is taken into account in figuring the credit, the child’s valid identification number must also be included on the return.

A “valid identification number” means a social security number, as defined in Code Sec. 24(h)(7). For a qualifying child who is adopted or placed for adoption, the child’s adoption taxpayer identification number is a valid identification number.

Checkmark Observation.   Under Code Sec. 24(h)(7), a “social security number” must be issued by the Social Security Administration to a U.S. citizen or to an alien who is eligible to be employed in the U.S. Also, the number must have been issued by the due date of the return.

An omission of a correct valid identification number is treated as a mathematical or clerical error that can be summarily assessed without using the deficiency procedures. (Code Sec. 6428(g), as added by Act Sec. 2201(a))

Regulations. IRS is to prescribe regs and other guidance as necessary to carry out the purposes of the credit provision, including appropriate measures to avoid allowing a taxpayer to receive multiple credits or rebates. (Code Sec. 6428(h), as added by Act Sec. 2201(a))

 

No 10% additional tax for coronavirus-related retirement plan distributions

Background. A distribution from a qualified retirement plan is subject to a 10% additional tax unless the distribution meets an exception under Code Sec. 72(t).

New law. The CARES Act provides that the Code Sec. 72(t) 10% additional tax does not apply to any coronavirus-related distribution, up to $100,000. (Act Sec. 2202(a)(1))

A coronavirus-related distribution is any distribution (subject to dollar limits discussed below), made on or after January 1, 2020, and before December 31, 2020, from an eligible retirement plan (defined in Code Sec. 402(c)(8)(B)), made to a qualified individual. (Act Sec. 2202(a)(4)(A))

A qualified individual is an individual (1) who is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention (CDC), (2) whose spouse or dependent (as defined in Code Sec. 152) is diagnosed with such virus or disease by such a test, or (3) who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury. (Act Sec. 2202(a)(4)(A)(ii))

The administrator of an eligible retirement plan may rely on an employee’s certification that the employee satisfies the conditions of (3) above in determining whether any distribution is a coronavirus-related distribution. (Act Sec. 2202(a)(4)(B))

Limit on distribution. The aggregate amount of distributions received by an individual which may be treated as coronavirus-related distributions for any tax year cannot not exceed $100,000. (Act Sec. 2202(a)(2)(A))

If a distribution to an individual would (without regard to the $100,000 limit in Act Sec. 2202(a)(2)(A)) be a coronavirus-related distribution, a plan is not treated as violating the Code merely because the plan treats such distribution as a coronavirus-related distribution, unless the aggregate amount of such distributions from all plans maintained by the employer (and any member of any controlled group which includes the employer) to such individual exceeds $100,000. (Act Sec. 2202(a)(2)(B))

For this purpose, the term ”controlled group” means any group treated as a single employer under Code Sec. 414(b), Code Sec. 414(c), Code Sec. 414(m), or Code Sec. 414(o). (Act Sec. 2202(a)(2)(C))

Distribution can be contributed back to retirement plan. Any individual who receives a coronavirus-related distribution may, at any time during the 3-year period beginning on the day after the date on which such distribution was received, make one or more contributions in an aggregate amount not to exceed the amount of such distribution to an eligible retirement plan of which such individual is a beneficiary and to which a rollover contribution of such distribution could be made under Code Sec. 402(c), Code Sec. 403(a)(4), Code Sec. 403(b)(8), Code Sec. 408(d)(3), or Code Sec. 457(e)(16), as the case may be. (Act Sec. 2202(a)(3)(A))

If a contribution is made pursuant to Act Sec. 2202(a)(3)(A) with respect to a coronavirus-related distribution from an eligible retirement plan other than an individual retirement plan, then the taxpayer is, to the extent of the amount of the contribution, treated as having received the coronavirus-related distribution in an eligible rollover distribution (as defined in Code Sec. 402(c)(4)) and as having transferred the amount to the eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution. (Act Sec. 2202(a)(3)(B))

If a contribution is made pursuant to Act Sec. 2202(a)(3)(A) with respect to a coronavirus-related distribution from an individual retirement plan, then, to the extent of the amount of the contribution, the coronavirus-related distribution is treated as a distribution described in Code Sec. 408(d)(3) and as having been transferred to the eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution. (Act Sec. 2202(a)(3)(C))

Distribution can be included in income over three years. In the case of any coronavirus-related distribution, unless the taxpayer elects not to, any amount required to be included in gross income for such tax year will be so included ratably over the 3-taxyear period beginning with such tax year. (Act Sec. 2202(a)(5)(A)) For this purpose, rules similar to the rules of Code Sec. 408A(d)(3)(E) apply. (Act Sec. 2202(a)(5)(B))

For purposes of Code Sec. 401(a)(31), Code Sec. 402(f), and Code Sec. 3405, coronavirus-related distributions are not treated as eligible rollover distributions. (Act Sec. 2202(a)(6)(A))

Also, a coronavirus-related distribution is treated as meeting the requirements of Code Sec. 401(k)(2)(B)(i), Code Sec. 403(b)(7)(A)(i), Code Sec. 403(b)(11), Code Sec. 457(d)(1)(A), and 5 USC 8433(h)(1). (Act Sec. 2202(a)(6)(B))

Loans from qualified plans. The CARES Act provides flexibility for loans from certain retirement plans for coronavirus-related relief. (Act Sec. 2202(b))

Effective date. Act Sec. 2202 applies to distributions made on or after January 1, 2020, and before December 31, 2020. (Act Sec. 2202(a)(4)(A))

 

RMD requirement waived for 2020

Background. In general, Code Sec. 401(a)(9) requires a retirement plan or IRA owner to take required minimum distributions (RMDs) annually once the owner reaches age 72.

New law. The CARES Act provides that the RMD requirements do not apply for calendar year 2020 to: (I) a defined contribution plan described in Code Sec. 403(a) or Code Sec. 403(b); (II) a defined contribution plan which is an eligible deferred compensation plan described in Code Sec. 457(b) but only if such plan is maintained by an employer described in Code Sec. 457(e)(1)(A); or (III) an individual retirement plan. (Code Sec. 401(a)(9)(I)(i), as amended by Act Sec. 2203(a))

The RMD requirements also do not apply to any distribution which is required to be made in calendar year 2020by reason of: (I) a required beginning date occurring in calendar year 2020, and (II) such distribution not having been made before January 1, 2020. (Code Sec. 401(a)(9)(I)(ii), as amended by Act Sec. 2203(a))

For purposes of the Code Sec. 401(a)(9) RMD rules: (I) the required beginning date with respect to any individual is determined without regard to the temporary RMD waiver rules of Code Sec. 401(a)(9)(I) for purposes of applying the RMD rules for calendar years after 2020; and (II) if the 5-year rule of Code Sec. 401(a)(9)(B)(ii) applies (in general requiring a retirement plan to distribute its assets within five years of the death of the employee), the 5-year period is determined without regard to calendar year 2020. (Code Sec. 401(a)(9)(I)(iii),as amended by Act Sec. 2203(a))

Eligible rollover distributions. If all or any portion of a distribution during 2020 is treated as an eligible rollover distribution but would not be so treated if the minimum distribution requirements under Code Sec. 401(a)(9) had applied during 2020, such distribution is not be treated as an eligible rollover distribution for purposes of Code Sec. 401(a)(31), Code Sec. 3405(c), or Code Sec. 402(f). (Code Sec. 402(c)(4), as amended by Act Sec. 2203(b))

Effective date. The amendments made by Act Sec. 2203 apply for calendar years beginning after December 31, 2019. (Act Sec. 2203(c)(1))

If Act Sec. 2203(c)(2) applies to any pension plan or contract amendment (see below), such pension plan or contract does not fail to be treated as being operated in accordance with the terms of the plan during the period beginning on the date of enactment of the Act and ending on December 31, 2020, solely because the plan operates in accordance with the temporary RMD suspension rules of Act Sec. 2203. In addition, except as provided by the Secretary of the Treasury, such plan or contract does not fail to meet the requirements of Code Sec. 411(d)(6) (Sec. 204(g) of the Employee Retirement Income Security Act of 1974) by reason of such amendment. (Act Sec. 2203(c)(2)(A))

Act Sec. 2203(c)(2) applies to any amendment to any pension plan or annuity contract which: (I) is made pursuant to the amendments made by Act Sec. 2203; and (II) is made on or before the last day of the first plan year beginning on or after January 1, 2022. (Act Sec. 2203(c)(2)(B)(i)) In the case of a governmental plan, clause (II) is applied by substituting”2024” for ”2022”. (Act Sec. 2203(c)(2)(B)(i))

Act Sec. 2203(c)(2) does not apply to any amendment unless during the period beginning on the date of enactment of the Act and ending on December 31, 2020, the plan or contract is operated as if such plan or contract amendment were in effect. (Act Sec. 2203(c)(2)(B)(ii))

 

$300 above-the-line charitable deduction

Background. Adjusted gross income is gross income less certain deductions. (Code Sec. 62(a))

New law. The CARES Act adds a deduction to the calculation of gross income, in the case of tax years beginning in 2020, for the amount (not to exceed $300) of qualified charitable contributions made by an eligible individual during the tax year. (Code Sec. 62(a)(22), as amended by Act Sec. 2204(a))

For this purpose, the term “eligible individual” means any individual who does not elect to itemize deductions. (Code Sec. 62(f)(1), as amended by Act Sec. 2204(b))

The term “qualified charitable contribution” means a charitable contribution (as defined in Code Sec. 170(c)): (A) which is made in cash; (B) for which a deduction is allowable under Code Sec. 170 (determined without regard Code Sec. 170(b)); (C) which is made to an organization described in Code Sec. 170(b)(1)(A), and not to an organization described in Code Sec. 509(a)(3); and (D) which is not for the establishment of anew, or maintenance of an existing, donor advised fund (as defined in Code Sec. 4966(d)(2)). In addition, a qualified charitable contribution does not include any amount which is treated as a charitable contribution made in such tax year by reason of Code Sec. 170(b)(1)(G)(ii) or Code Sec. 170(d)(1). (Code Sec. 62(f)(2), as amended by Act Sec. 2204(b))

Effective date. The amendments made by Act Sec. 2204 apply to tax years beginning after Dec. 31, 2019. (Act Sec. 2204(c))

Modification of limitations on individual cash charitable contributions during 2020

Background. Individuals are allowed a deduction for cash contributions to certain charitable organizations (such as churches, educational organizations, hospitals, and medical research organizations) up to 60% of their contribution base (generally, adjusted gross income (AGI)). (Code Sec. 170(b)(1)(G)(i)) If the aggregate amount of an individual’s cash contributions to these charities for the year exceeds 60% of the individual’s contribution base, then the excess is carried forward and is treated as a deductible charitable contribution in each of the five succeeding tax years. (Code Sec. 170(b)(1)(G)(ii))

New law. The CARES Act provides that (except as stated below) qualified contributions are disregarded in applying the 60% limit on cash contributions of individuals and the Code Sec. 170(d)(1) rules on carryovers of excess contributions. (Act Sec. 2205(a)(1))

Qualified contributions are allowed as a deduction only to the extent that the aggregate of those contributions does not exceed the excess of the individual’s contribution base over the amount of all other charitable contributions allowed as deductions for the contribution year. (Act Sec. 2205(a)(2)(A)(i))

Qualified contributions are charitable contributions if—

1. They are paid in cash during calendar year 2020 to an organization described in Code Sec. 170(b)(1)(A) (i.e., 501(c)(3) and certain other charitable organizations); and

2. The taxpayer has elected to apply this provision with respect to the contribution. (Act Sec. 2205(a)(3)(A))

However, contributions to a Code Sec. 509(a)(3) supporting organization or a donor advised fund are not qualified contributions. (Act Sec. 2205(a)(3)(B))

In the case of a partnership or S corporation, the election in item (2) above is made separately by each partner or shareholder. (Act Sec. 2205(a)(3)(C))

If the aggregate amount of qualified contributions exceeds the limitation in Act Sec. 2205(a)(2)(A)(i), the excess is added to the individual’s carryover amount described in Code Sec. 170(b)(1)(G)(ii).(Act Sec. 2205(a)(2)(A)(ii))

Effective date. The amendments made by Act Sec. 2205(a) apply to tax years beginning after Dec. 31, 2019. (Act Sec. 2205(c))

 

Modification of limitations on corporate cash charitable contributions during 2020

Background. A corporation’s charitable deduction cannot exceed 10% of its taxable income, as computed with certain modifications. (Code Sec. 170(b)(2)(A)) If a corporation’s charitable contributions for a year exceed the 10% limitation, the excess is carried over and deducted for each of the five succeeding years in order of time, to the extent the sum of carryovers and contributions for each of those years does not exceed 10% of taxable income. (Code Sec. 170(d)(2)(A))

New law. The CARES Act provides that (except as stated below) qualified contributions (see above) are disregarded in applying the 10% limit on charitable contributions of corporations and the Code Sec. 170(d)(1) rules on carryovers of excess contributions. (Act Sec. 2205(a)(1))

Qualified contributions are allowed as a deduction only to the extent that the aggregate of those contributions does not exceed the excess of 25% of the corporation’s taxable income (as computed under Code Sec. 170(b)(2)) over the amount of all other charitable contributions allowed to the corporation as deductions for the contribution year. (Act Sec. 2205(a)(2)(B)(i))

If the aggregate amount of qualified contributions exceeds the limitation in the previous paragraph, the excess is taken into account under the Code Sec. 170(d)(2) carryover rule, subject to its limitations. (Act Sec. 2205(a)(2)(B)(ii))

Effective date. The amendments made by Act Sec. 2205(a) apply to tax years beginning after Dec. 31, 2019. (Act Sec. 2205(c))

Increase in limits on contributions of food inventory

Background. A donation of food inventory to a charitable organization that will use it for the care of the ill, the needy, or infants is deductible in an amount up to basis plus half the gain that would be realized on the sale of the food (not to exceed twice the basis). In the case of a C corporation, the deduction cannot exceed 15% of the corporation’s income. In the case of a taxpayer other than a C corporation, the deduction cannot exceed 15% of aggregate net income of the taxpayer for that tax year from all trades or businesses from which those contributions were made, computed without regard to the taxpayer’s charitable deductions for the year. (Code Sec. 170(e)(3)(C))

New Law. In the case of any charitable contribution of food during 2020 to which Code Sec. 170(e)(3)(C) applies, the taxable income limits are 25% rather than 15%. (Act Sec. 2205(b))

Effective date. The amendments made by Act Sec. 2205(b) apply to tax years beginning after Dec. 31, 2019. (Act Sec. 2205(c))

Tax-excluded education payments by an employer temporarily include student loan repayments

Background. An employee’s gross income doesn’t include up to $5,250 per year of employer payments, in cash or kind, made under an educational assistance program for the employee’s education (but not the education of spouses or dependents). (Code Sec. 127)

New law. The CARES Act adds to the types of educational payments that are excluded from employee gross income” eligible student loan repayments” (below) made before January 1, 2021. The payments are subject to the overall $5,250 per employee limit for all educational payments.

Eligible student loan repayments are payments by the employer, whether paid to the employee or a lender, of principle or interest on any qualified higher education loan as defined in Code Sec 221(d)(1) for the education of the employee (but not of a spouse or dependent).(Code Sec 127(c)(1)(B), as amended by Act Sec. 2206(a))

To prevent a double benefit, student loan repayments for which the exclusion is allowable can’t be deducted under Code Sec 221 (which allows the deduction of student loan interest subject to a dollar limit and a phase-out above specified taxpayer income levels.) (Code Sec. 221(e)(1), as amended by Act Sec. 2206(b))

Effective date. The amendments made by Act Sec. 2206 apply to payments made after the date of enactment of the Act. (Act Sec. 2206(c))

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