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