WEBINAR: New Proposed UBTI Regulations: Identifying Separate Trades or Businesses, Siloing NOLs, Related CARES Act Changes

What: A live 110-minute CPE webinar with interactive Q&A

Date: Thursday, July 9, 2020

Time: 1:00PM-2:50PM EDT, 10:00AM-11:50AM PDT

Register here – Add to your calendar


This webinar will provide nonprofit advisers and exempt organization personnel with a critical analysis of proposed unrelated business taxable income (UBTI) silo regulations issued Apr. 23, 2020. These regulations offer guidance in identifying separate lines of trade or businesses for purposes of calculating UBTI as required by the 2017 tax law. The panel will detail the specifics of siloing lines of business, describe the impact of new rules governing net operating loss carryforwards, and discuss how to apply the new guidance in calculating UBTI and its required tax.

Description
Notice 2018-67 provided preliminary guidance to tax-exempt organizations on calculating UBTI for separate lines of business as required under Section 512(a)(6) added by the recent tax law. The newly issued regulations provide new rules to separate trade or businesses and use two digits of the NAICS code to make the determination. As always, there are exceptions to the general rules, including an exception for investment activities.

Net operating losses present significant challenges for tax preparers since the new rules require that losses occurring after 2017 offset the specific trade or business activity while pre-2018 can offset aggregate UBTI. On top of this, the CARES Act added a five-year carryback of NOLs arising in 2018, 2019, or 2020. Further, taxpayers and advisers need clarification to incorporate this relief in conjunction with the newly issued regulations.

Listen as our experienced panel provides a review of the proposed silo regulations and offers practical guidance on calculating UBTI under Section 512(a)(6).

Outline

I. Background and Notice 2018-67
II. Section 512(a)(6) provisions
III. Identifying separate and unrelated lines of business using NAICS codes
IV. Exceptions
V. Net operating losses
VI. The CARES Act

Benefits
The panel will discuss these and other high priority topics:

  • How to use NAICS codes to identify separate, unrelated trades or businesses
  • What the proposed regulations say regarding the treatment of partnership income and income derived from passive investments
  • How prior net operating losses are carried forward
  • The interplay of the CARES Act NOL carryback provisions with the newly proposed regulations
  • The new silo requirements to calculate UBTI separately for each unrelated trade or business

Information on the CARES Act

 

Dear Clients, Friends and Family

First and foremost, we hope this finds you well.  Your health and safety is most important during this unprecedented time.  The CARES Act was recently enacted, and it is designed to provide some financial relief for many.

While there is a lot of information in the bill, we will summarize some key aspects here.

 

For individuals

  1. A tax credit for 2020 will be available to eligible individuals for up to $1,200 ($2,400 for eligible individuals filing a joint tax return) and $500 for each qualifying child of the taxpayer.
    1. Eligible individuals include those who reported adjusted gross income below $75,000 ($150,000 for married individuals filing a joint tax return and $112,500 for those filing as head of household).  There are reduced benefits for individuals who earn between $75,000 and $99,000 ($150,000 to $198,000 for married individuals filing a joint tax return and $112,500 to $146,500 for those filing as head of household
    2. Qualifying children are dependents who are under 17.
    3. The advance credit will be based on data included in one’s 2019 tax filings, and if 2019 has not been submitted the IRS will look at 2018’s tax filings and finally, if 2018 has not been filed the IRS will look at data social security payments.
    4. The IRS will advance these credits to eligible individuals electronically for those who have provided the IRS banking data on their tax filing.
    5. Keep in mind this is an advance credit, meaning when 2020 returns are prepared the credit will be adjusted for your 2020 tax filing.   So if you have a dependent who is under 17 on your 2019 or 2018 return, but over 17 on your 2020 return, the $500 will be adjust back to the IRS.   How it will be adjusted back remains unclear.

 2. Elimination of the 10% penalty for early withdrawal from retirement plans

    1. For those who qualify, the 10% early withdrawal penalty has been eliminated for distributions from retirement plans up to $100,000 between January 1 and December 31, 2020.
    2. Distributions must be for some who
      1. has been diagnosed with the virus SARS-CoV-2, coronavirus disease (COVID-19) by a test approved by the Centers for Disease Control (CDC).
      2. has a spouse or dependent child is diagnosed with the virus.
      3. has experienced adverse financial consequences as a result of being quarantined, laid off, furloughed, subjected to reduced work hours, unable to work due to lack of childcare, and the closing of or reduction of hours worked for the self-employed. The Secretary of the Treasury may add other qualifications.

3. Required Minimum Distributions are eliminated for 2020.

4. A $300 above the line deduction for certain charitable contributions for eligible individuals.  Eligible individuals include those who do not itemize deductions.

 

For Businesses

  1. Employee retention credit

a. A refundable credit is available to eligible employers equal to 50% of eligible employees during the COVID-19 crisis.

b. An eligible employer are ones who

  1. have had operations fully or partially suspended as a result of government orders that limited commerce, travel or group gatherings.
  2. have experienced a greater than 50% reduction in quarterly receipts, measured on a year over year basis.
  3. Wages include health benefits and is capped at $10,000 per eligible employee.

1. Sick leave and any required payments under the Families First Coronavirus Act are not eligible.

2. Wages eligible for the Work Opportunity Credit are not eligible for this new credit.

c. The credit is not available for employers receiving a Small Business Interruption Loan.

d. The IRS is authorized to advance payments to eligible employers.

 2. Certain payroll tax payments can be delayed.

    1. The “employer portion” of social security taxes can be delayed for 2020 upon enactment of the bill through December 31, 2020.
    2. Self employed individuals can also defer 50% of self-employment taxes.
    3. For those using certified professional employer organizations (CPEOs) you can defer these payments are well.
    4. The payment date for this deferral is as follows:
      1. For wages, December 31, 2021.
      2. For self-employment tax, December 31, 2022.

 3. A temporary repeal of limitations on net operating losses that was enacted for 2018.

4. Net operating losses can be carried back for up to 5 years for losses for losses incurred in years beginning after December 31, 2018 and before January 1, 2021.

5. A modification is available for non-corporate taxpayers that were subjected to limitation of business losses.  Business losses incurred in 2018, 2019 and 2020 will no longer be  limited.

6. A modification has been made available related to the deductibility of interest expenses.  For those who were subjected to the Section 163(j) rules the 30% calculation has been adjusted to 50% for 2019 and 2020.

7. Small Business Interruption Loans

    1. For small business forgivable loans will become available to cover the cost of payroll and related expenses for 8 weeks.
    2. Small business are ones that employ fewer than 500 employees.
    3. Loans can be made for up to 2.5 times monthly payroll costs incurred in 2019 (individual employee payroll is capped at $100,000 per year, including vacation time, health benefits, pension contributions, etc.)
    4. If one uses the proceeds to pay payroll costs (including benefits), rent and utilities (including telephone and internet use) for 8 weeks the loan can be forgiven if during the 8-week period of loan coverage the average full-time employees are the same as between February 15, 2019 and June 30, 2019 or January 1, 2020 and February 29, 2020.
    5. There will be limits on other programs, loans and credits if one secures this loan.

 

Unemployment Insurance Provisions

Pandemic unemployment assistance will be available to those who would not normally qualify for regular unemployment compensation.  This will cover the self-employed (including gig workers) and part time workers with limited work history.

 

Your health and safety are our greatest concern. Should you require additional information or need any assistance please feel free to contact us.

 

   Very truly yours,

  Schulman Lobel LLP

 

 

 

2018 Voice Art Awards

Schulman Lobel was proud to be the Independent Auditors for the 2018 Voice Arts Awards. Our Partners Michael Williams and Norm Schulman were the presenters for this year’s award show on Sunday, November 18, 2018.8

Schulman Lobel, is proud to congratulate its clients:

  • Frances McDormand – 2018 Academy Award Winner
  • Nathan Lane – 2018 Tony Award Winner
  • Chita Rivera – 2018 Tony Award Lifetime Achievement Winner
  • Wes Anderson on his recently released and critically acclaimed stop-motion animated film, Isle of Dogs.
  • Brian Cox for his leading role, as Logan Roy, in the new HBO drama series, Succession, which has already been picked up for a second season.
  • The York Theater – for receiving the award for Outstanding New Off-Broadway Musical for “Desperate Measures” as well as a total of 14 award nominations including, the drama desk award for outstanding musical & outstanding lyrics.

2017 Voice Arts Awards

Schulman Lobel is proud to be the Independent Auditors for the 2017 Voice Arts Awards. Our Partners Andrew Blackman & Anita Katzen were the presenters for this year’s award show on November 15th.

Promotion of Rene Verghese, as Schulman Lobel’s newest partner

It is with great pride and much enthusiasm that I announce on behalf of the partners of the firm the promotion of Rene Verghese, as Schulman Lobel’s newest partner.

This is a true success story for the firm, as Rene joined us 11 years ago as a junior accountant with a huge desire to learn, progress, and achieve. Rene’s stellar record of client satisfaction, coupled with her keen marketing skills and tax expertise have been the primary ingredients to her success.

Proposed Tax Reform from President Trump

To Clients, Friends, and Family,

One of the campaign promises made by President Trump was unveiled last week. On Wednesday April 26, 2017, the President released his broad-stroke vision of a tax reform plan, the 2017 Tax Reform for Economic Growth and American Jobs. The outline calls for significant tax rate cuts and simplification of the federal income tax filing process.

While pundits and others attempt to project the benefits and costs of the vague plan, we feel it is too early to take any action at this time. While the plan calls for the lowering of individual and corporate tax rates, certain valuable deductions may be eliminated (such as state, local and real estate taxes at the individual level).

Some of the Presidents proposal includes the following:

INDIVIDUALS

  1. Tax Rates: Condense the current multi-tiered income tax brackets to three income tax brackets at 10%, 25%, and 35%. The taxable income ranges for the new rates have not been disclosed at this time.
  2. Standard Deduction: Doubling the standard deduction to simplify tax filings in conjunction with eliminating certain itemized deductions.
  3. Itemized Deductions: Elimination of all itemized tax deductions except mortgage interest and charitable contributions. The loss of many itemized deductions would move many more taxpayers to the standard deduction. Individuals located in high taxing states and with high real estate taxes, such as NY, NJ, CA, and CT would be impacted the greatest. Also, losing the medical expense deduction may prove difficult for many.
  4. Elimination of refundable individual credits such as the earned income tax credit, the additional child tax credit and the American Opportunity Tax Credit are being considered.
  5. Elimination of targeted tax breaks for wealthy individuals. No news has been distributed on this topic.
  6. Repeal of the 3.8% net investment income tax on investment income of higher income taxpayers.
  7. Unspecified tax relief for families with child and dependent care expense.
  8. Repeal of the Alternative Minimum Tax (AMT).

ESTATE TAX

  1. Elimination of the Federal Estate Tax. However, the treatment or the retention of the gift tax has not been addressed. There would be a replacement of the estate tax with a carry-over basis rule.

BUSINESSES

  1. Corporate Taxes: Reduction of the corporate tax rate from a maximum 35% to a flat 15%.
  2. Small Businesses: The President has proposed a 15% tax rate on pass-through income for owners of S Corporations, partnerships, LLCs, and sole proprietorships. Note, under the plan, upon distribution of assets, a second layer of tax would be imposed similar to dividends now taxed to C Corporations. There is discussion, but no information, to prevent pass-through owners from converting compensation income taxed at higher rates into profits at the 15% tax rate.

INTERNATIONAL

  1. Repatriation: The Presidents Plan calls for a one-time tax repatriated profits at a yet unspecified rate.
  2. Territorial Tax Regime: U.S. companies will pay U.S. tax on income related to the U.S.. Further, U.S. companies will not be subject to U.S. tax on the worldwide income concept.

While the broad outline of a proposal put forth by the President are seen as bold moves by many pundits, there are not many details. Many are speculating on what will result. The lack of details makes it difficult to determine what benefits, if any, individuals or companies may be provided.

The President plans to have a number of listening sessions throughout the month of May as his administration further develop their proposal. In the meantime, we must all patiently wait for Congress to act on this call from the President. We will be watching what Congress does over the summer months and will keep you advised.

Very truly yours,
Schulman Lobel Zand Katzen Williams & Blackman, LLP

Voice Arts Awards

voice1 voice2

Big thank you all around to the amazing team at Shulman Lobel,CPA for insuring the integrity of the VOICE ARTS® balloting process. Can’t wait to reveal what’s in those envelopes!