April 29, 2020
By: Ulmer’s Tax Practice Group
Ulmer’s Tax Practice Group has continued to monitor guidance released regarding the CARES Act. Below are some of the most frequently asked questions our attorneys have received over the last several weeks and the practice’s suggestions and guidance. If you have any additional questions regarding the CARES Act from a tax, estate planning, and employee benefits perspective, please feel free to reach out our attorneys.
Q. If my company has more than 500 employees and we voluntarily comply with the Families First Coronavirus Response Act (FFCRA), can we qualify for the tax credits?
A. No, only employers that are required to provide leave under the FFCRA can qualify for the tax credits.
Q. Can an employer receive tax credits for qualified leave wages under the FFCRA and the Employee Retention Credit under the CARES Act?
A. Yes, but an employer cannot count the same wages twice. An employer cannot claim the Employee Retention Credit for the amount of qualified sick and family leave wages for which an employer received tax credits under the FFCRA.
Q. For individuals making charitable contributions, the adjusted gross income limitation is suspended for 2020. Is this for cash charitable contributions only or is it for cash and non-cash charitable distributions?
A. This does not apply to non-cash charitable contributions. The 60% limit for cash contributions is suspended for 2020. Note that there are two exceptions – a contribution to a private foundation supporting organization or to a donor-advised fund.
Q. Are there any tax incentives to charitable giving?
A. For individuals who take the standard income tax deduction, the CARES Act allows individuals to deduct up to $300 for cash gifts to charity. In addition, for individuals who itemize income tax deductions, the CARES Act suspends the adjusted gross income limitation for certain cash charitable contributions.
Q. Are there any estate planning strategies available due to the COVID-19 pandemic?
A. As certain assets have seen a sharp decline in value due to the economic fallout from the COVID-19 pandemic, this creates an opportunity to expand gifting plans. One can transfer assets without reaching the annual exclusion while the assets have a lower value. In addition, the subsequent growth from those assets will then occur outside of your taxable estate.
Q. Does the CARES Act loosen the rules for my required minimum distribution (RMD)?
A. The CARES Act waives the RMDs from certain retirement plans in 2020, and for 2019 RMDs that were due by April 1, 2020 (if you turned 70 ½ years old last year but did not take the RMD before January 1, 2020).
Q. Are RMDs for 2020 waived for both IRAs and 401(k)s under the CARES Act?
A. The CARES Act appears to waive RMDs that otherwise would be required to be made during the 2020 calendar year from both qualified retirement plans (such as 401(k) plans) and IRAs (as well as 403(b) plans and governmental 457(b) plans).
Q. Does the RMD waiver for 2020 in the CARES Act apply to inherited IRAs?
A. Nothing in the CARES Act excludes inherited IRAs from the waiver of the 2020 RMDs. However, we will continue to monitor IRS guidance for clarifications.
Q. Can an RMD taken from an IRA or qualified retirement plan in January 2020 now be returned to the IRA or qualified retirement plan?
A. The general rule is that a distribution can only be returned within 60 days of receiving the distribution. Since it has been longer than 60 days since the distribution was received, it does not appear that it can now be returned absent a waiver or other guidance from the IRS. However, it is likely the IRS will issue guidance that extends the 60-day window to allow the return of the distribution at a later date (similar to how the IRS extended the 60-day window in connection with the 2009 RMD waiver).
Q. If a Payroll Protection Program loan is forgiven, are amounts paid for business expenses with the proceeds of the loan deductible for federal income tax purposes?
A. It appears that to the extent such payments are otherwise deductible, the fact that they are paid with loan proceeds should not limit their deductibility. Some commentators have indicated that Internal Revenue Code Section 265 may preclude deductibility. However, that section denies a deduction where the expenses are allocable to tax exempt income. The expenses in question would likely be allocable to taxable sources of income (i.e., sales of personal property or revenue from services rendered). In addition, Section 265 does not limit a deduction where tax exempt income is used to pay an expense incurred to generate taxable income.
This document was created by Ulmer & Berne LLP and is not intended as a substitute for professional legal advice. The information provided in this document speaks only to the information and guidance we have available as of the date of publication and is subject to change. We will continue to follow further issued guidance and regulations and endeavor to post those updates via our website. Receipt of this document, by itself, does not create an attorney-client relationship. For more information, please call 216-583-7000 to be connected with an Ulmer attorney.
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