march/april 2020 | 1 · products the realreal offers authenticated luxury consignment. rent the...

March/April 2020 | 1

2 | Mazars USA Ledger


CONTENTS

*The Mazars USA Ledger contains articles and alerts published from February 1, 2020- March 31, 2020

4 | Reinventing Luxury: Sustainability as a Way Forward

6 | Revenue Recognition Procedure Changes Food & Beverage Companies Should Watch Out for Due to ASC 606

8 | Innovations in Accessing Care

10 | Data: The Key to Survival for Transportation & Logistics Companies

12 | Planning for Tax Season: Food & Beverage Update

14 | The Roaring 2020's: The Decade of Subscription Revenue 16 | I Never Report My Foreign Assets! Help!

18 | Legacy Planning to Preserve and Protect Wealth

20 | COVID-19’s Impact on the Global Automotive Industry

21 | LIBOR Transition: The Financial Accounting Standards Board’s (FASB) Guidance to Support a Smoother Transition

21 | Track and Trace Capabilities to Mitigate Supply Chain Disruption

22 | COVID-19 Alerts

25 | NFP Alerts

26 | RE Alerts

27 | HC Alerts

29 | Tax Alerts

March/April 2020


BY CAROLINE BROWN AND NATHALIE GILET

CONSUMER PRODUCTS

REINVENTING LUXURY: SUSTAINABILITY AS A WAY FORWARD

Fall 2019 seemed to be sustainability season – between alarming scientific reports, student strikes, UN General Assembly and corporate engagement, headlines have been filled with climate and sustainability-related news, from observations of the problems to proposed solutions. Many luxury brands embrace this movement and are ready for change, while others are struggling.

Luxury has a complex relationship with sustainability On one hand, luxury products embody durability, long lifespans and transmission from one generation to the next – opposed to the overuse of resources brought about by fast fashion. However, on the other hand, luxury goods don’t have a clean slate. They often use controversial materials, such as fur and exotic skins. They involve a lot of waste in the production and commercial stages - the scandal that occurred in 2018 when Burberry admitted to have destroyed more than £100M worth of unsold items over the past five years revealed the issue’s extent. Furthermore, the secrecy that the industry holds around processes and materials, to protect savoir-faire and keep the aura of mystery that is key to its identity, is a contradiction to sustainable governance, which calls for transparency and open communication.

This is becoming a challenge for the industry, which is facing increasing scrutiny of its environmental and social impacts. Regulations are rising, especially in Europe, where most luxury brands are based. The financial community increasingly considers sustainability practices as an element of risk mitigation and values sound corporate responsibility strategies. Most importantly, customers, especially Gen-Y and Gen-Z, are concerned about the impact of their consumption patterns on people and the environment. While the sustainability of a brand is not

necessarily their first criteria for a purchasing decision, they have a critical eye on products through social media, and expect companies to provide solutions to environmental and social issues, and are quick to shun a company with an adverse reputation. They are expected to represent 80% of luxury’s consumer base in the near future, which makes it key for brands to act on the matter.

To address these concerns, the industry needs to focus on its most pressing issues:

§ Climate change - the clothing industry is responsible for 10% of global greenhouse gas emissions (more than aviation and shipping combined), largely from the energy-intensive processing of oil-derived textiles such as polyester and the fertilizers used to grow natural fibers;

§ Chemical use and release in waterways, especially from dyeing and leather tanning processes. Recent research also identifies that synthetic fibers brake down during the washing cycle, resulting in microplastics release in waterways;

§ Waste - tremendous figures regularly hit the headlines (for example, the Ellen McArthur Foundation reports that in 2017, one garbage truck of textiles was landfilled or incinerated every single second around the world);

§ Water consumption - natural fibers growth and garment production are very thirsty processes, often performed in water-stressed areas, which will become more numerous with climate change;

§ Respect of work ethics throughout the whole production and supply chain, especially in developing countries; and,

§ Animal welfare, with public concern over the conditions in which animals are raised and killed for their products. Fur is the banner of


that movement, but increasing scrutiny also concerns leather, wool, mohair, angora, cashmere, exotic skins and down.

While most of the facts and concerns stated above are applicable to the fashion industry in general, luxury fashion has a specific relationship to sustainability issues. It uses more animal materials such as fur and skins and is a prime target for animal welfare considerations. Climate change threatens the availability of some raw materials (natural fibers in particular), decreasing alternative options for rare materials.

Luxury brands need to re-affirm their values to society and reinvent and communicate their identity and actions. Fortunately, the luxury industry’s specific business model also means that luxury companies are well equipped to adapt to sustainability requirements.

First, they have close relationships with their suppliers, which implies a long-lasting relationship, a traditional long-term view of business focused on preserving heritage and brand equity, a key asset in inventing new business models. Then, the high-quality raw materials they use are prime candidates for circular economy initiatives: recycling, upcycling and inclusion in new designs that enhance the value of luxury products. Finally, luxury companies have a long tradition of giving back through philanthropy and community investment, a form of redistribution of their wealth (although this model is reaching its limits; now stakeholders expect exemplary business practices rather than “buying back a conscience”).

The industry is taking hold of that demand and beginning to reinvent its production models to include sustainability considerations.

Large companies transform their practices Kering is the most obvious example, with a strong commitment (CEO Francois-Henri Pinault said that “Luxury and sustainability are one and the same”) and innovative transformation of its business. The Group’s sustainability journey began in 1996, and accelerated in the 2000’s with the creation of a company-wide sustainability team, and a Sustainability Committee within the Board of Directors in 2012. Kering is paving the way on metrics and transparency with its EP&L (Environmental Profit & Loss), a proprietary tool to measure greenhouse gas emissions, water consumption, air and water pollution, soil use and waste production all along a garment’s value chain, allowing the company to make more informed decisions (for example, the Group has committed to full carbon neutrality in its operations and supply chain on September 24, 2019). Kering publishes the result of its EP&L and shares its methodology in an open-source approach, although to this day it is the only luxury group to publish one. This leadership pays off: Kering ranked first in the Luxury and Apparel & Accessories sectors for the second year in a row in Corporate Knights’ Global 100 rating index.

Smaller companies are also active and innovative in transforming the industry To quote just one, Eileen Fisher has a sustainability journey going back two decades and chooses to operate on a quadruple bottom line: financial, environmental (with eco-materials and circular economy initiatives), social external (worker well-being) and social internal (employee well-being). Rising stars are embedding sustainability at the heart of their vision, such as designer Lina Mayorga, who uses exclusively up-cycled materials and zero-waste techniques (sample yardage, end-of-roll fabrics, and cut-and-sewn waste), even including the United Nations’ Sustainable Development Goals in her designs.

New players are disrupting the industry with business models that challenge traditional ways of producing and consuming luxury products The RealReal offers authenticated luxury consignment. Rent the Runway is a subscription service that allows women to rent designer styles. Fabscrap, a New-York based non-profit, collects leftover materials (garments or textile) to reuse or recycle them in a design-property appropriate manner.

Shifting gears: leadership in collaborationIn addition to these multiple isolated actions, the sector has recently called for collaboration with the creation of the Fashion Pact announced during the G7 summit in August 2019.

The Fashion Pact focuses on climate change, biodiversity protection and oceans conservation, listing commitments in all three areas and identifying tools and areas for collaboration from signatories. So far, 32 global fashion and textile companies have signed up, representing 150 brands. While uncertainty remains as to what the scope of this initiative is going to be and how brands will effectively work together, it is one of the first examples of collaboration of a whole industry, many of whom are known competitors, on such a large scale: an outstanding achievement towards the new ways of operating business that we need to invent to tackle pressing sustainability issues.

Sustainability is the way forward for the luxury industry. New business models, collaboration between brands, specific strategies boosting innovation in products and operations, but also measuring and reporting progress is an opportunity for brands to articulate their values to their customers and to build trust and interest. Now is a key moment of reinvention for the industry: while it was built on an image of excess, it now has an opportunity to embrace a new role as advocate of a more durable world, aligned with its values, in what is perhaps its most impactful role: making sustainability desirable.

Caroline is a Senior Manager in our New York Practice. She can be reached at 212.375.6586 or at [email protected]


FOOD & BEVERAGE

REVENUE RECOGNITION PROCEDURE CHANGES FOOD & BEVERAGE COMPANIES SHOULD WATCH OUT FOR DUE TO ASC 606BY SHAWNA RUIZIn May 2014, the Financial Accounting Standards Board (FASB) issued a new accounting standard which changed the way revenue is recognized and disclosed in financial statements. Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers, is effective for public companies with annual reporting periods beginning after December 15, 2017 and non-public entities with annual reporting periods beginning after December 15, 2018.

Previously, there was no comprehensive guidance related to revenue recognition, but revenue was typically recognized when risk of loss was transferred to the customer, or when persuasive evidence of a sale had occurred.

The new guidance applies a five-step model for recognizing revenue which focuses on control of a good or service. They are:

1. Identify a contract with customer, which is defined in the standard as “an agreement between two or more parties that creates enforceable rights and obligations.”

2. Identify performance obligations, which is the promise (or promises) to a customer in a contract.

3. Determine the transaction price, including any variable costs or other contract costs.

4. Allocate the transaction price to each performance obligation based on the standalone selling price of each performance obligation.

5. Recognize revenue at either a point in time, or over time, based on when the performance obligations are satisfied.

How does this affect food and beverage companies? The update does not drastically change revenue recognition in the sector as compared to software or construction, but there are some components of the standard that directly affect food and beverage companies, especially related to presentation and disclosure in the financial statements. While the majority of food and beverage companies will continue to recognize revenue at a point in time when the sale occurs, it is imperative for entities to understand the new standard in order to determine what aspects apply to them.


Shipping and handling activities in the new guidance may result in changes in revenue recognition. Under previous guidance, shipping and handling revenue would typically be included as part of the sale and the related expense would be included as a distribution expense. Under the new guidance, if control of inventory sold to a customer is transferred prior to shipment, but the company has agreed to ship the goods, the related shipping and handling activity should be recorded as its own performance obligation, with revenue recognized separately from the sale of the inventory items.

It is important to note that if the total revenue is deemed immaterial by management for the shipping and handling income, the revenue does not need to be recorded as its own performance obligation. Additionally, management will need to determine if they are the principal or an agent on these activities to determine if shipping and handling would be recorded on a gross or net basis with the related shipping expense.

Typically, if the company is an agent, these activities would be recorded on a net basis with the related costs. If control of the goods stays with the company until delivery, the shipping and handling costs are not a separate performance obligation, as they are part of the order fulfillment.

ASC 606 has included a policy election that allows entities to include shipping and handling activities that occur after the customer has obtained control as part of the fulfillment cost. This election should be disclosed in the financial statements, if material, and must be consistently applied from year to year.

Variable costs are an important component of ASC 606 when determining the transaction price of the revenue recognition. These encompass many items such as slotting fees, volume discounts, rebates, incentives, credits, returns, etc. Variable costs should be estimated at the time of the contract and reduce the transaction price recorded as revenue with a corresponding payable recorded on the balance sheet.

Although many of these costs have typically been included as a reduction to sales under the previous standards, the new guidance specifically addresses them as they relate to revenue recognition, stating that they should be estimated and recorded at the time of the sale.

Sales incentives (including coupons, volume discounts, and rebates) should also be evaluated by management for revenue recognition under ASC 606.

Prior to the new standard, an estimate for sales incentives would be accrued as a liability during the financial close, if material. As part of the new guidance, management should determine if these sales incentives create a separate performance obligation.

This would occur if the sales incentive provided the customer with an option that is a material right they would not have had without entering into the initial contract.

Material rights generally relate to options to purchase additional goods at a discount. For example, coupons may be considered such an option, and could create a separate performance obligation. If management has determined that the sales incentives are separate performance obligations, the amount of the sales incentive would need to be recorded to revenue or deferred revenue each time a product is sold.

Expected returns are addressed under the new standard as well. The transaction price is reduced, and a refund liability is required to be recognized for any material amounts expected to be refunded to the customer. This liability can be based on historical information or other factors as defined in the guidance. There is a corresponding asset recorded that represents the entity’s rights to the goods expected to be returned, which is the value of the inventory sold, less any restocking fees.

ASC 606 also addresses the incremental costs to obtain a contract (for example: sales commissions), stating that they are required to be capitalized on the balance sheet as an asset if those costs would not have been incurred had the sale not taken place. The requirement to capitalize these costs and amortize over the contract period is waived if the amortization period is less than one year.

The quantitative and qualitative disclosures related to revenue presentation and disclosures have been expanded, with fewer disclosures required for non-public entities. ASC 606 requires disclosures on the disaggregation of revenue, performance obligations, significant judgements, assets recognized to obtain a contract, and other factors.

For many entities, these changes require adjustments to previously issued financial statements. The FASB has allowed entities to reflect these adjustments either through the full retrospective or modified retrospective methods. The full retrospective approach would re-state each prior period presented in the financial statements. The modified retrospective approach reflects the transition to ASC 606 for the most recent year presented and includes disclosures on the impact on those financial statements.

ASC 606 has changed revenue recognition for many companies. For more information about how the new revenue recognition standard may impact your company, please contact Mazars USA.

Shawna is a Senior Manager in our Long Island Practice. She can be reached at 516.282.7252 or at [email protected]


HEALTHCARE

INNOVATIONS IN ACCESSING CAREBY COLLEEN MATTHEWS

Addressing The Whole PersonBlue Cross and Blue Shield of North Carolina’s (BCBSNC) recent announcement about its new value-based care payment model, “Blue Premier Behavioral Health” highlights the industry’s continued quest to find innovative ways to address mental healthcare as part of comprehensive individual well-being.

Providers, health plans and patients alike have been caught up in a system that has not kept pace with the more “traditional” side of the business, i.e., medical and physical care, in terms of access, quality and reimbursement and whose problems have been exacerbated by a drug use disorder epidemic..

Since the advent of value-based care, the need to integrate behavioral health into primary care models became apparent as opportunities in quality and cost were identified through information and intelligence not previously available to providers. Glaring out of network utilization and costs were fueled by lack of access to participating behavioral health providers coupled with patients self-referring to non-participating providers.

Insured patients with behavioral health conditions result in higher cost sharing amounts when compared to insured patients with certain common chronic physical diseases . The untold numbers of patients who do not seek treatment at all, as well as the impact of mental health on physical health, adds further complexity.

BCBSNC’s partnership with Quartet, a New York City startup seeks “to measure the quality of care patients receive and create incentives to

providers for improved access to in-network care, collaboration among providers, and improved patient health outcomes…” A physician-led company, with mental health advocate Patrick Kennedy on its board, Quartet will use its central technology platform and services to drive accessible, personalized and collaborative care. And it has attracted a number of other believers, including Highmark (PA) Cambia Health Solutions (OR) and Horizon Blue Cross Blue Shield (NJ), who have entered into partnerships with the company, as well as some Medicaid Plans (IlliniCare Health, Louisiana Healthcare Connections).

Capital investors, including Centene have continued to demonstrate their confidence in Quartet. Consistent with other large national health plans, Anthem, on the other hand, has chosen a different path, bringing behavioral health services under its own corporate umbrella, with its pending acquisition of Beacon Health Options, the largest independently held behavioral health organization in the country. Citing addressing the needs of the whole person, two likely other considerations are the need to scale broadly and quickly due to membership throughout the country, coupled with their strategy to diversify across all dimensions of health care both in delivery and business. A LOOK AHEAD Many questions remain unanswered.

How will quality and treatment outcomes be measured in behavioral health? While physical health has discreet and often evidenced-based metrics associated with it (e.g., a blood pressure reading, BMI or a lab test), outcomes for successful treatment in behavioral health are more difficult to quantify.


Contributing factors can be subjectivity on the part of patient and health care provider as well as a behavioral health issue manifesting itself or contributing to a physical complaint or condition.

How will providers be incentivized to see that patients are screened properly and effectively for mental health issues? The good news is that integration of behavioral health into the primary care setting has begun and screening tools, especially for depression, have been available and in many practices, used effectively. Even hiring and/or collocating behavioral health professionals at the point of primary care has been a strategy deployed, taking the burden off the primary care provider, which can lead to quick identification of a behavioral health issue and the institution of an appropriate plan of care. Primary care providers and health plans will need to continue to work together on the recognition of integration from both a quality and financial perspective.

On the cost side, will technology resolve access and adequacy problems? It is unclear how technology will resolve the lack of behavior health professionals’ participation or just lack of available practitioners. Using data and input from all stakeholders, including patients can hopefully foster creative solutions.

Finally, are health plans willing to adjust benefit designs to meet the specific demands in mental healthcare? While parity in medical and mental health benefits was supposedly achieved, cost barriers, primarily in the form of high deductible plans and the nature of behavioral health treatments, can add additional strain to an already fragile patient seeking care. Since the lack of behavioral healthcare can negatively impact physical health, as well as fuel unnecessary treatments and costs for patients, health plans and employers, tailoring mental health benefits to meet the needs of patients while addressing health plans’ desire to address quality and cost should be examined further.

Maybe Quartet and others have these answers. It is difficult to say due to the proprietary nature of the offerings. Hopefully, this activity is a sign of good things to come for patients, providers and plans in the quest for the best possible behavioral healthcare.

As a leading change facilitator in this era of sweeping health care reform, the Mazars Healthcare Consulting Practice offers healthcare payors and providers a powerful combination of service and results-oriented strategy to help them meet their business goals, overcome challenges, and improve performance. For more information about their timely, valuable information and insights into policies, best practices and industry developments, visit mazarsusa.com/hc.

Colleen is a Senior Manager in our New York Practice. She can be reached at [email protected]

WEBCASTS

Building a Culture of Compliance in a MSSP ACO | Mazars Webcast | May 6, 2020 | 12:00-1:00PMA functioning Compliance Program is the first line of defense for a Medicare Shared Savings Program (MSSP) Accountable Care Organization (ACO) to prevent, detect and correct noncompliance. An effective ACO Compliance Program is not a static document, but rather it is proactive, responsive, and changes according to the needs of the organization. When effective, an ACO’s Compliance Program sets compliance standards and assists in identifying risk, ensuring open lines of communication, implementing compliance training to enforce standards through well-publicized disciplinary guidelines, preventing the ACO and participants from employing individuals sanctioned by the government, conducting internal monitoring and auditing and, when offenses are reported or detected, promptly responding to threats through corrective action and required reporting.

Scan the barcode to view the 2020 schedule and register!


TRANSPORTATION

DATA: THE KEY TO SURVIVAL FOR TRANSPORTATION & LOGISTICS COMPANIES

BY MICHAEL ROFMAN

Challenging the Status QuoTransportation and logistics companies have long adapted to market disruptions from technologies such as automated guided vehicles and point of sale scanners. However, T&L firms have lagged behind the broader business world in addressing the implications of big data.

Consumer-facing industries, from social media to grocery chains, were quick to adopt big data technologies and analytics. By utilizing data, companies can gain insights on customer interests to then improve client experiences. Companies can derive value from their own data and/or purchase it from other sources. In fact, many make the bulk of their profits from repackaging and selling this high-level information to third parties fit.

Many medium-sized T&L firms (10-500M) having long-established contracts and have become complacent, despite industry innovations. However, customers are already seeking out consultants and advisors, internally and externally, to drive down cost. Their recommendations often identify quick savings through renegotiated or competing logistics contracts. Firms that aren’t fully leveraging their data and exploring differentiated data services are already on an eroding path.

Leveraging Data in T&LThe logistics industry is information dependent, generating massive amounts of data. Most companies continually monitor their trucks and truck sub-systems for fuel efficiency, performance, stress, and current and future repair needs.


Warehouses similarly create and gather large amounts of data around their customers, inventory and SKUs, including contents and their movement.Externally, data from truck telematics can continually feed information to parts and maintenance suppliers, so that they can more efficiently service the trucks, increasing their profits and reducing costs for the trucking company. Warehouse data might be valuable to the suppliers of the warehouse’s customers and to the customers of those customers. This type of information has the potential to improve efficiency up and down the supply chain - making just-in-time supply systems less risky, automating other functions, and optimizing the customer experience.

Data is also valuable to the insurance industry. With roughly 70% of all freight in the United States carried by trucks, insurance coverage on truck fleets and for goods/loss is important for both T&L firms and insurance groups. Most insurance companies use data to determine policy limits and deductibles. Transportation companies can provide information about accident history, speeding violations, and condition of vehicle fleet to help drive down insurance premiums.

New Industry Standards: The Threat of Emerging PlayersWhat has historically been a fairly stable sector is now seeing an increase of new competition. These entrants are unique in that most are technology companies, rather than traditional logistics groups. They use big data to anticipate just-in-time changes such as gas prices, route changes, and weather issues. Without data monitoring and subsequent adjustments, these newcomers can hurt an incumbent firm’s profit margins before it even knows it’s in trouble.

Unlike traditional firms, these data driven logistics brokers offer more than just long-term relationship benefits.

They run real-time portals, utilize instant freight booking, publicize driver performance ratings, optimize routes, and automate cost structures (TL vs. LTL, volume vs. weight, etc.).

These data exchange marketplaces exist to securely transfer data directly between market participants, increasing agile performance, and bring together a range of data buyers and sellers, increasing sales potential. They are also able to circumvent complex system differences between parties and act as an information filter, sorting data and aligning it to user needs.

Starting Points and Roadblocks to Expanding Data PlatformsCompanies seeking to build out their logistics data management should define a long-term strategy of how they will build proprietary data assets, create new offerings, and participate in data ecosystems.

To start, internal data monetization leads to better efficiencies throughout the organization, leveraging cost reduction and increasing productivity – all of which translates to operational profit. This includes the tracking of routes, validating driver idle time, determining optimal routes based on past history, tracking real-time traffic data, and appropriating trigger points based on the arrival of a shipping container to port. However, making the most of this data will require external monetization by creating a new incremental revenue stream that goes beyond capturing and selling raw data. A solid first step is to reach out to existing business relationships and build out those channels, providing data to suppliers and vendors.

One major challenge in a B2B environment is the structuring of useful data. Companies capture it, but do not know how to package it for use by others. First, data must be formatted and standardized to be easily shared on platforms that enable near real-time data exchanges. Companies also need to consider whether their contracts need to be restructured if they have access to another company’s data, to ensure that it can be ethically and legally used (SKUs vs. Driver Performance).

The Road AheadWhile data transformations can be challenging, it enables business optimization in an increasingly competitive and innovative industry. With the right skills and a comprehensive strategy in place, companies can better analyze data to augment their spend and working capital utilization.

As digital economies continue to change and disrupt the logistics and transportation industry, firms must start to rationalize and analyze their data before they are passed by competitors. Digital capabilities are no longer just nice to have, they are the key to survival.

Michael is a Partner in our New Jersey Practice. He can be reached at 732.475.2195 or at [email protected]


FOOD & BEVERAGE

PLANNING FOR TAX SEASON: FOOD & BEVERAGE UPDATEBY RYAN VAUGHAN

THE FOOD & BEVERAGE INDUSTRY HAS SEEN REVOLUTION OVER THE PAST DECADE WITH THE

SHIFT OF CONSUMERS FOCUS TO CLEAN LABELS, SOURCING, AND SUSTAINABILITY. TAX LAW

HAS EXPERIENCED A SIMILAR TRANSFORMATION WITH THE PASSAGE OF THE TAX CUTS AND

JOBS ACT (“TCJA”) AT THE END OF 2017, AS WELL AS NUMEROUS OTHER CHANGES. THESE

HAVE CREATED TAX PLANNING OPPORTUNITIES, HELPING COMPANIES MANAGE THEIR TAXABLE

INCOME AND CASHFLOW. TWO PARTICULARLY VALUABLE OPPORTUNITIES ARE THE RESEARCH

CREDIT AND THE REMODEL/REFRESH SAFE HARBOR.


Research CreditThe Research Credit, which was made permanent as part of the 2015 PATH Act, can be a useful tax planning tool for the food & beverage industry.

One of the common misconceptions surrounding the R&D tax credit is that participants must wear lab coats and use test tubes in order to qualify for the credit. This could not be further from the truth. In reality, the definition of R&D for tax credit purposes is fairly broad. Companies are able to qualify activities beginning with the development of concepts and extend to the point where a product, process, formula, or other business component is ready to be commercially released.

As the food & beverage industry shifts to better fulfill consumer demand, the Research Credit can apply to reformulating recipes, changing manufacturing processes, source alternative ingredients, and more.

Regardless of industry, size, or revenue, any company that performs activities that meet the following four tests may qualify for R&D tax credits:

• Technical uncertainty. The activity is performed to eliminate technical uncertainty about the development or improvement of a product or process, which includes computer software, techniques, formulas, and inventions.

• Process of experimentation. The activities include some process of experimentation undertaken to eliminate or resolve a technical uncertainty. This process involves an evaluation of alternative solutions or approaches and is performed through modeling, simulation, systematic trial and error, or other methods.

• Technological in nature. The process of experimentation relies on the hard sciences, such as engineering, physics, chemistry, biology, or computer science.

• Qualified purpose. The purpose of the activity is to create a new or improved product or process (computer software included) that results in increased performance, function, reliability, or quality.

• If a company is engaged in any of these activities looking into a potential R&D tax credit may be a fruitful exercise.

Recent changes to the tax law have also had a significant impact on the R&D tax credit:

• The Tax Cuts and Jobs Act introduced several changes in how the R&D tax credit is utilized. The reduction of the top corporate tax rate to 21% creates an opportunity for taxpayers making the reduced credit election under section 280C(c)(3) to recognize 79% of the R&D credit versus 65% of the credit prior to the reduction in the tax rates. Additionally, the repeal of corporate alternative minimum tax (AMT) expanded the ability of corporate taxpayers to utilize the R&D tax credit and was expanded further through the NOL limitation imposed by the TCJA. This limits the amount of taxable income prior year NOLs can offset to 80%, creating taxable income.

In addition to permanently extending the R&D tax credit, the PATH Act made two very important changes effective for tax years beginning after December 31, 2015, which are intended to expand the reach of the credit.

• First, the legislation allows small businesses (gross receipts under $50M) to take the R&D tax credit against their AMT liability for tax years beginning after December 31, 2015. The AMT restriction has long prevented qualified companies from utilizing the R&D tax credit; the legislation removed that hurdle for eligible small businesses (ESB), defined below.

• Second, the PATH Act allows startup businesses with no federal tax liability and gross receipts of less than $5 million to take the R&D tax credit against their payroll taxes for tax years beginning after December 31, 2015, essentially making it a refundable credit capped at $250,000 for up to five years.

Remodel/Refresh Safe HarborThis safe harbor applies to retail, restaurants, and owners of qualified property leased by taxpayers with applicable financial statements incurring qualified remodel and refresh costs. A remodel/refresh project is a planned undertaking by a qualified taxpayer on a qualified building to alter its physical appearance and/or layout.

On December 20, 2019, President Trump signed into law The Further Consolidated Appropriations Act (H.R. 1865, PL 116-94), (the “Act”), which included several technical corrections to the TCJA.

Notably, the Act did not include a technical correction to the TCJA addressing the drafting error which classified Qualified Improvement Property as 39-year property, as opposed to the previous 15-year property treatment. However, there is an opportunity for retail and restaurant taxpayers to accelerate the deductions related to remodel and refresh costs. Under Revenue Procedure 2015-56, a safe harbor election related to the Tangible Property Regulations creates an opportunity for retail, restaurant, and property owners in these industries to deduct 75% of remodel/refresh costs immediately as repair costs and depreciate the remaining 25% over the depreciable life (39 years).

To learn more about how to take advantage of these two important tax credits, please contact your Mazars USA LLP professional for additional information.

Ryan is a Director in our Chicago Practice. He can be reached at 815.418.2486 or at [email protected]


CONSUMER PRODUCTS

THE ROARING 2020'S: THE DECADE OF SUBSCRIPTION REVENUEBY KIERON LUDDE AND GIANNI FAZIO


As we roll into the new decade, a wave of direct-to-consumer, subscription-based revenue companies are beginning to disrupt traditional American retail business models, and an alternative roadmap to success is quickly being drawn. Launching a business with a catchy marketing campaign introducing seemingly cheap products and ending with customers hooked for life, the subscription-based revenue platform is shaking up the competition. The subscription-based revenue wave began with Dollar Shave Club, a company that attracted millions of consumers with a short but catchy video which became an instant classic thanks to a now famous punch line: “Are the blades any good? No,” he says with a deadpan delivery, pausing briefly before adding: “Our blades are [expletive] great!”

Clicking through this enticing ad takes the consumer to a website full of incredibly cheap offerings, incentivizing an initial trial. For only five dollars they can purchase a razor handle, cartridges, and trial sized pre-shave balm, shaving cream and after shave, all with catchy names like “Shave Butter” and “Post Shave Dew.”

Once the consumer has purchased the trial, they may not realize that they have also subscribed to a $40 per month plan, taking care of “all their grooming needs” by mail. The 2020s look like it will be the decade of consistent revenue streams, driven by strong demand from a new generation of customers seeking a refined autonomous purchasing experience. Take Bark Box, which streamlines some of the toughest purchasing decisions for many dog lovers all around the world. In less than five minutes any dog owner can go online to BarkBox.com, enter simple data about their canine best friend, like breed, size, allergies, and food preferences, and within seconds of payment processing will be subscribed to a plan delivering custom-tailored, high-quality dog treats, toys and more right to their front doors.

The modern consumer seems to be spending more time in the “digital world” than in the “real world.” As millennials are spending more and more of their hard-earned money online, many businesses should consider adapting the way in which they generate revenue. The SEI, Subscription Economy Index, which keeps track of many top subscription-based companies “reveals that over 28 consecutive quarters (January 1, 2012 to December 31, 2018), subscription businesses grew revenues about five times faster than S&P 500 company revenues and U.S. retail stores and 10 times the sales growth of the DAX and ASX.” The business themselves, in terms of market cap, have grown about six times faster than S&P 500 companies in the same time frame.

Gartner, a -leading research and advisory company predicts that "by 2023, 75% of organizations selling direct to consumers will offer subscription services and in its Digital Commerce State of the Union survey, Gartner found that 70% of organizations have deployed, or are considering the deployment of, subscription services.”

Based on these numbers, companies big and small could potentially see their revenue increase tenfold by switching to a subscription model.

There are many factors to consider when thinking about a transition from a traditional brick and mortar business model to a subscription-based revenue stream. Sales departments will face new challenges in marketing and selling, with an increased focus on attracting the customer and maintaining their attention so that they remain subscribed.

Matching transparent prices with simple product offerings can be tough at first, but is one of the most effective strategies for this model. Simplifying and taking the thought out of the purchasing process is key.

From an accounting point of view, many businesses will have to adapt to new revenue recognition and cash flow practices. IT will have to adapt to a larger number of transactions and will either need to learn how to implement subscription ERP software or choose new software to better suit the company’s needs. C-suite and decision makers will need to learn how to read new data from subscription revenue so that they are able to respond quickly to changes in sales data or use data over time to adjust marketing, sales, pricing, and supply chain challenges.

Mazars has encountered many of these challenges when our customers transition to a subscription-based model. Whether implementing new accounting policies and guiding you through new revenue recognition standards, or consulting with IT to handle the subscription model, Mazars is here to help! Kieron is a Senior Manager in our Long Island Practice. He can be reached at 516.620.8527 or at [email protected]

Gianni is Staff in our Long Island Practice. He can be reached at 516.620.8520 or at [email protected]


PRIVATE CLIENT SERVICES

BY TAE MIN AND MELISSA JAGDHARRYI NEVER REPORT MY FOREIGN ASSETS! HELP!

One of the key requirements under the Streamlined Procedures is that a taxpayer is required to certify that their “failure to report all income, pay all tax, and submit all required information returns, including FBARs, was due to non-willful conduct.” According to the IRS, “Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.”Thereare several requirements that must be met for a taxpayer to utilize this procedure.

A U.S. person or resident who chooses to file under the Streamlined Procedures:

1. For each of the most recent 3 years for which the U.S. tax return due date (or properly applied for extended due date) has passed, submit a complete and accurate amended tax return together with any required information returns (e.g. Forms 3520, 3520-A, 5471, 5472, 8938, 926 and 8612) even if these information returns would normally not be submitted with the Form 1040 had the taxpayer filed a complete and accurate original return. In addition, the taxpayer must pay all tax due and interest as computed on these tax returns.

2. For each of the most recent 6 years for which the FBAR due date has passed, file delinquent FBARs and include a statement explaining that the FBARs are being filed as part of the Streamlined Filing Compliance Procedures.

3. Pay a penalty equal to 5% of highest aggregate balance/value of the taxpayer’s foreign financial assets that are subject to the penalty during the 3-year tax return period and 6-year FBAR period described above.

A non-US person or resident must also follow the above procedures but would not be subject to the 5% penalty. Additional details and requirements can be found at https://www.irs.gov/individuals/international-taxpayers/streamlined-filing-compliance-procedures.

A taxpayer that decides not to avail themselves of the potential benefits under the Streamlined Procedures need to be well versed in the potential negative implications of this choice. If eventually audited by the Internal Revenue Service, there can be significant penalties including accuracy related penalties and information return penalties as well as potential criminal penalties. Today’s global economy and mobile environment has helped to create an era in which many individuals live in countries other than the

A US INDIVIDUAL IS REQUIRED TO REPORT THEIR WORLDWIDE INCOME AND FOREIGN FINANCIAL ASSETS, INCLUDING FOREIGN BANK ACCOUNTS TO THE US GOVERNMENT; HOWEVER, MANY US TAXPAYERS ARE NOT AWARE OF THIS FILING REQUIREMENT AND OFTENTIMES ARE NOT AWARE OF FOREIGN INVESTMENT INCOME AND/OR FOREIGN FINANCIAL ASSETS THAT THEY OWN. WHEN AN INDIVIDUAL DETERMINES THAT THEY HAVE NOT REPORTED THESE ASSETS OR RELATED INCOME, PERHAPS FOR SEVERAL YEARS, THEY MAY FEEL VERY OVERWHELMED AND HAVE TROUBLE DETERMINING HOW TO CORRECT THE OVERSIGHT. FORTUNATELY, THE IRS HAS A PROGRAM IN PLACE TO ADDRESS MANY OF THESE SITUATIONS. IT IS CALLED THE STREAMLINED FILING COMPLIANCE PROCEDURES PROGRAM (STREAMLINED PROCEDURES). THIS PROGRAM ALLOWS TAXPAYERS RESIDING IN OR OUTSIDE THE UNITED STATES TO FILE AMENDED OR POTENTIALLY DELINQUENT RETURNS WITHOUT BEING SUBJECT TO MANY OF THE PENALTIES THAT MAY COME WITH NON-FILING.


country of their birth. It is extremely difficult for individuals to understand all the laws and filing requirements of every country. If you are one of these taxpayers who recently became aware of the filing requirements with respect to foreign financial assets and income, the Streamlined Filing Compliance Procedures Program may be a very good option for you to use to get back on track with the IRS.

Please contact your Mazars USA LLP advisor if you have any questions.

Tae is a Senior in our New York Practice. He can be reached at 212.375.6605 or at [email protected]

Melissa is Staff in our New York Practice. She can be reached at 646.225.5925 or at [email protected]

PODCASTS

Mazars Private Client Services for Women: Women Entrepreneurs Thinking Outside the Box, Episode 10Michelle Kushner and Portia Rose talk with Maryam Zadeh owner/founder of HIIT Box about vision as part of our series of Women Entrepreneurs Thinking Outside the Box.

Mazars Private Client Services for Women: Women Entrepreneurs Thinking Outside the Box, Episode 11Can healthy foods like salmon, Greek yogurt, cauliflower and strawberries be making you overweight and sick? Tune in to find out.

Mazars Private Client Services for Women: Women Entrepreneurs Thinking Outside the Box, Episode 12Joan Antoniello and Rachel Efthemes sit down with Robyn Hatcher, founder/owner of Speak Etc. for a podcast that focuses on communication, mindset and executive presence.

CPAs with IPAs, Episode 1 Part 1In the first episode, our host Allen Glenn sits down with Ron Lagnado, Partner-in-Charge of NY A&A here at Mazars. They discuss a myriad of topics ranging from his early days at Rubin and Katz to the struggles of developing business in today’s economy.

COVID Talks, Episode 1 | Industry Impacts and Trends of the DayDuring the first episode of Mazars COVID Talks, co-hosts open with a review of some of the industry impacts and trends of the day.

COVID Talks, Episode 2 | Understanding the Essential WorkforceEpisode 2 takes a quick look at the upticks of the weekend and the infamous Stimulus Bill.

COVID Talks, Episode 3 | Where Do We Start with the CARES Act?During Episode 3, Alisha, Daniella, and Tashonda are joined by Mazars USA Tax Expert, Ryan Vaughan, who is well-versed in the CARES Act.

Business, It's Personal - Business Advisory Episode 1John Confrey and Alisha Jernack give an overview of Mazars’ strategic business planning methodology and dive deeper into the meaning of business advisory.


PRIVATE CLIENT SERVICES

LEGACY PLANNING TO PRESERVE AND PROTECT WEALTHBY KATY CHEN AND KIM WIRZMAN

Legacy planning has become such an important topic of discussion among high net worth families and their advisors in recent years. Research recently done by the Williams Group found that 70% of family wealth is depleted by the end of the 3rd generation. To ensure that they do not fall into that statistic, wealthy families are looking for guidance from their advisors to preserve and protect their accumulated wealth for future generations.

There are many reasons why wealth is depleted: poor investment choices, inflation, taxes and poor personal money management. The list can go on and on, but what it really drills down to is lack of communication and education across generations. The next generation successors are ill-equipped to deal with the responsibility component that comes with their sudden inheritance. To ensure that wealth lasts for multiple generations, wealthy families will need to plan ahead. There are three key considerations when building a sustainable family legacy plan:

1. Build Trust and Establish Open Communication to Prepare HeirsWealth creators are often concerned that knowledge of an inheritance may create rifts among family members or spoil the younger generation and prevent them from achieving their goals. For this reason, they keep their estate plans secretive, creating an atmosphere of distrust and possibly, misunderstandings. Initiating a meeting to discuss the structure of the estate with all family members is an effective approach to prevent misunderstandings and ease any uncertainties about expectations. It is also a great opportunity to share long term investment strategies and knowledge gained from advisers as well as teach the heirs financial responsibility by discussing priorities for the wealth whether it be paying for education, achieving investment goals or giving back to the community.

2. Define Core Family Values, Traditions and Mission Statement as a Family A shared understanding of family traditions and history, life stories, values and wishes are key to creating a legacy plan. When having this discussion, it is important to have the entire family, including the younger generation, involved. Teaching family values at an early age will help ensure that they adhere to these values and effectively transition this knowledge to the next generation.

In addition to defining family values and traditions, the creation of a family mission statement provides purpose and guidance to enhance a family’s ability to preserve and grow its financial wealth for future generations. To establish a mission statement, the family must first understand their history and overcome any issues that may undermine the ultimate mission. Secondly, the family should collectively develop a common vision.

3. Build a Team of Trusted AdvisorsLegacy planning differs from traditional estate planning and financial planning because it involves an emotional element when choosing trusted advisors to manage family wealth. Families look to advisors to facilitate important discussions across generations, find ways to bring families together as well as provide guidance and best practices for wealth transfer. Trust and an innate demonstration of care are just a few of the important qualities needed in an advisor.

It is extremely difficult for families to maintain wealth across many generations. Those that do often embrace an atmosphere of open communication and instill the family’s values along with a sense of the family history and build a team of trusted advisors.

Kim is a Manager in our New Jersey Practice. She can be reached at 732.205.2024.or at [email protected]

Katy is a Senior in our New Jersey Practice. She can be reached at 732.475.2123.or at [email protected]


COVID-19’S IMPACT ON THE GLOBAL AUTOMOTIVE INDUSTRYBY JEREMY RICE

As COVID-19 continues to wreak havoc on financial markets across the globe, the automotive industry is bracing for substantial and long-lasting impacts. From supply chain interruptions to plant shutdowns, to a substantial slowdown of retail sales, the entire industry is under threat.

The regional impacts of the outbreak are highly variable, but as it spreads, the current status in the harder hit areas provide a glimpse of what may be ahead. China saw a 79% drop in the automotive market in February 2020. As a result, Chinese auto manufacturers have petitioned the government to stimulate the market through tax breaks, subsidies, and temporary reductions in emissions requirements.

The original epicenter of the global outbreak is Hubei province, which is one of the core regions of automotive production within China. Utilization within automotive plants in Hubei remains far below capacity, with many plants fully shut down. Factory restarts will occur as COVID-19 cases in Hubei continue to drop, helping the overall industry get back on track, but the process is likely to take months.

In Europe, many of the largest automotive groups, including FCA, Volkswagen, and PSA, have shuttered most plants across the continent, effectively halting the entire supply chain for the time being. Ford has also announced a halt of production activity throughout Europe. Retail activity is currently at a standstill, as many European countries have moved into full lockdown. Over the past week, original equipment manufacturers’ (OEM) production in the U.S. has ground to a halt. It started with negotiations between the United Auto Workers and the “Big 3” OEMs (Ford, FCA, and GM), which agreed to temporarily halt production. Since then, OEMs across the U.S.

have announced upcoming plant shutdowns, with the latest being the BMW plant in Spartanburg, SC, which is scheduled to close on April 3, 2020.

On the retail side, OEMs are focusing on driving sales through financing incentives and other consumer-friendly offerings. With nine states under shelter in place requirements, and certainly more to come, retail activity is also experiencing significant slowdowns. A prolonged slowdown of retail sales will have far-reaching impacts, as OEMs may struggle to meet demand due to capacity constraints once the market picks up.

As OEM production shuts down, the automotive supply chain is also closing. Suppliers do not have the ability to stockpile inventory, because they generally produce and deliver in a just-in-time format. And automotive suppliers operate on thin margins, which require high volume and efficiency to maintain operations. As cash flows dry up, suppliers will face difficult choices regarding their labor force and the future viability of their businesses.

In response to these impacts, forecasts for U.S. light vehicle sales in 2020 have been reduced to 14.5 million units, compared to 17 million units in 2019, with further reductions possible. There remains significant uncertainty in the market as the length of the shutdown remains unknown. The COVID-19 situation remains fluid, and while the automotive industry is not known for its nimbleness, it will need to react quickly to changing rules, regulations, and consumer demand. The long-term impacts are not yet known, but it is certain that they will be significant and widespread throughout the supply chain.

Jeremy is a Partner in our New Jersey Practice. He can be reached at 312.863.2405.or at [email protected]

TRANSPORTATION & LOGISTICS


FINANCIAL SERVICES

AS TRANSPORTATION CONTINUES TO BE DISRUPTED BY COVID-19, BUSINESSES ARE STRUGGLING TO TRACK THEIR SUPPLIER DELIVERIES. BUSINESSES CANNOT AFFORD DELAYS IN GETTING THEIR SHIPPING CONTAINERS OUT OF THE PORT TO THEIR WAREHOUSE FACILITIES, AND SUPPLY CHAIN LEADERS NEED VISIBILITY ON WHERE THEIR MATERIAL IS AT A MOMENT’S NOTICE.

Unfortunately, we have found that most companies have not yet invested in efforts to modernize their track and trace capabilities and are forced to follow the status of their shipments through excel spreadsheets, emails, and phone calls. This high level of manual operation creates communication issues, incomplete information, and untraceable cargo, leaving business leaders and their customers wondering when their products will arrive.

Most transportation spend is used to account for over-the-road operations through Full Truck Load (FTL) or Less Than Truck Load (LTL) coverage. With that in mind, it is important to know of delays, container arrival times, and weather issues pertaining to all shipments. Our team of Supply Chain Management professionals can help streamline your business transportation processes, giving you visibility and improving the control of your end to end supply chain operations.

Mazars has the capability to rapidly identify and evaluate a fully integrated track and trace solution while working with your current enterprise resource planning systems to provide your organization with near real-time track and trace capabilities by:

• Identifying your business requirements for real-time transportation visibility on ocean, air, road, or rail with our proven streamlined RFP process and valued partner relationships (e.g., FourKites, Project 44, Descartes).

• Helping you clearly understand capabilities and needs (i.e. container or product tracking).

• Helping you identify and align your current carrier network to a cloud platform to provide transportation visibility to your demand planning team and customers.

• Realizing the benefits that a fully integrated track and trace solution offers your business and customers.

Sheldon is a Manager in our Maryland Practice. He can be reached at [email protected]

BY JIMMY LEE AND SHELDON PARKER

TRACK AND TRACE CAPABILITIES TO MITIGATE SUPPLY CHAIN DISRUPTION


A L E R T

HELPFUL CONSIDERATIONS TO NAVIGATE COVID-19Published March 23, 2020

By Michael Coletti, Marc Lion and Jason Pourakis

Over the past few days, we have seen an unprecedented velocity of change. Each day brings new issues and concerns. The federal, state and local governments have continuously altered regulations for who can and can’t go to work and what the ramifications will be for your employees and your business. Below are some critical action steps and informational items the Mazars USA team has identified to assist you through these uncharted waters. We are here to help in any way possible as your trusted advisors. 1. Immediate Business Considerations

a. Forecast revenues out weekly for 13 and 26 weeks, evaluate the macroenvironment, and communicate with customers, especially your most profitable.

b. Review your supply chain, identify risks, review return policies, and evaluate delivery options and methods.

c. Communicate with your financial institution regarding available credit, deferring payments, and refinancing options.

2. Employee Matters and Compliance with Changing Regulation

On March 16, 2020, Congress passed legislation that expanded FMLA for employees. We’ve highlighted some of the key elements below but recommend consulting your legal advisor and/or payroll partner for further clarification. a. Paid sick leave applies to employees who are unable to

work (or telework) and who meet the following conditions: i. Employee is unable to work (or telework) due to the need to care for their child under the age of 18 if the child’s school or child-care provider is closed; ii. Employee is subject to a quarantine or self- quarantine related to COVID-19; iii. Employee is experiencing symptoms of COVID-19 and seeking a medicaldiagnosis; iv. Employee is caring for an individual subject to quarantine; v. Any other substantially similar conditions.

b. Employers with 500 or fewer employees are allowed a credit against employer Social Security and Medicare tax liability equal to 100% of the qualified sick leave wages paid by the employer, and subject to limits. The credit is refundable (to the employer) to the extent it exceeds the employer’s total Social Security and Medicare tax liability

for any calendar quarter. The Department of Labor will issue guidance for small businesses with fewer than 50 employees, if these requirements would jeopardize the business.

3. Evaluate Additional Financing Optionsa. If eligible, apply to the Small Business Association (SBA)

for an Economic Injury Disaster Loan (EIDL). See below for further guidance.

b. If eligible, apply for the Facebook Small Business Grant Program. Facebook has announced $100 million in cash grants and ad credits for up to 30,000 small businesses.

c. Explore your state and local lending and grant options. New York, Los Angeles, San Francisco, Chicago, Texas, and others have introduced available funding programs.

d. Stay informed with this Forbes link, which updates daily, for new Small Business Relief Programs.

e. For more information regarding COVID-19 relief at the state and local levels, please contact Mazars USA.

f. Numerous banks have initiated disaster relief lending options. Click here to read more about these programs.

4. Insurance Considerationsa. Most credit insurance policies have language built in

that states you have a “duty to notify” if you have a loss. Monitor your accounts receivable. Your insurance company may have the ability to reduce coverage if they feel the customer they are insuring is less credit-worthy.

b. Review your insurance and current premium adjustments due to reduction in full time workforce (workmen’s compensation), sales (general liability) and fleet (fewer vehicles on the road). Consider having mid-year policy audits and deferral of premiums.

c. Discuss with your broker the potential value of Supply Chain Disruption Insurance, as this is a relatively new product. Be certain to go over contingent physical loss (in this case COVID-19 related) and non-direct damage business interruption, which is geared towards contamination or regulatory shutdowns.

d. Start preparing a business interruption insurance claim even though, from what we know today, it will be denied. Gather all relevant information and be prepared in case the government steps in and provides a bailout.

5. Tax Planninga. Federal income tax returns and payments due April 15,

2020, and 2020 first quarter estimated tax payments due April 15, 2020, are now due July 15, 2020.

b. Internal Revenue Code Section 139 provides for

COVID -19

COVID-19


A L E R T

COVID -19

COVID-19

employers to make tax free payments to employees to reimburse or pay reasonable and necessary personal, family, living or funeral expenses not otherwise covered by insurance.

c. Analyze the pending stimulus package for opportunities to reduce current taxes and/or claim refunds if available. Keep monitoring your inbox for messages from Mazars USA for additional information when the stimulus package is released or refer back to mazarsusa.com for daily updates.

d. Track state and local tax filing relief at the AICPA’s State Tax Filing Guidance Chart and contact Mazars USA for questions on how this impacts your tax filings.

SBA – EIDL (ECONOMIC INJURY DISASTER LOAN)This program is administered and funded directly by the federal government and not through a banking institution. The program is based on the state in which you are located. The following states are eligible; Arizona, California, Colorado, Connecticut, Delaware, the District of Columbia, Florida, Georgia, Illinois, Indiana, Louisiana, Maine, Maryland, Massachusetts, Michigan, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Virginia, Washington, and West Virginia.

We have highlighted some areas of the program below, however, please click here for more information. Funding up to $2,000,000; fixed rate of 3.75% (2.75% for private not-for-profit entities); up to a 30-year amortization.a. No fees or up-front costs (except for potential legal fees),

and no prepayment fees.b. An EIDL can be used to pay all costs of operations as

well as short term debt (debt due within the next 12 months).

c. There is currently a 30-day approval process.d. The definition of small business is under $5M in net

income and $15M in net worth. If you have several entities, each entity should apply.

If the above does not answer your questions or cover concerns, please reach out to us. Additionally, stay up to date on future Mazars USA COVID-19 releases at MazarsUSA.com. At Mazars USA, we are committed to seeing you though these difficult and stressful times and helping you protect your business.

This decision took place January 16, 2020 and will be a positive step towards a clear resolution on implementing the repeal.

Mazars’ InsightWhile there are still many specifics of this process that the IRS still needs to provide guidance on, such as the removal of potential penalties, organizations should focus on filing these amended returns so as to receive these refunds as soon as possible. It should also be noted that the speed at which the IRS will process these changes, approve refunds and discontinue enforcing the original TCJA regulations is unknown. Therefore, organizations may want to avoid relying on these funds for imminent needs.

We at Mazars will remain at the forefront of this process and will be reaching out to provide assistance and guidance to our clients. Please contact your Mazars USA LLP professional for additional information.

FUNDING RELIEF OPTIONS FOR COMPANIES IMPACTED BY COVID-19Published March 28, 2020

By John Confrey and Alisha Jernack

Amidst the COVID-19 economic crisis, there is a growing need for relief for small to middle-market companies.

U.S. Small Business Administration (SBA) Disaster LoanThe SBA Economic Injury Disaster Loans or EIDL Loans are provided to eligible companies to help fund working capital to be used to pay fixed debts, and cover payrolls, COVID-19 related sick pay, and operating expenses that were paid prior to the disaster. The loans have zero cost to apply and there

is no obligation to utilize the loan if one is granted after the application process.

Eligibility is based upon: § Credit history acceptable to SBA § Repayment capability by the business and its owners § ALL US territories are currently eligible § Application with existing SBA loans, can qualify for EID

loan but cannot be consolidated with existing loans § Maximum borrowing is up to $2m for eligible entities § Interest rates are 2.75%-3.75%


§ Terms are up to 30 years

State and Local Coronavirus Small Business Assistance ProgramsMost states and cities are directing businesses to the SBA for low-interest federal disaster loans for working capital. However, some states and cities have additional assistance programs in place.

States include but are not limited to: § California - IBank

• Los Angeles – EWDD • San Francisco – OEWD

§ Illinois • Chicago – Resiliency Fund

§ Florida – Disaster Loan § Oregon

• Hillsboro – Crisis Funding § Michigan – Small Business Relief § Maine – Relief Loan § New Jersey – EDA Grant § New Mexico – Business Loans § New York

• New York City – Employee Retention Grant § North Dakota – Development Fund § Pennsylvania – Emergency Loan § Washington

• Seattle – Small Business Relief

In addition to the above, additional states may be providing funding.

Additional Private Funding Resources (Source Facebook)Facebook Small Business Grants Program

§ Up to $100m in cash grants and ad credits § Up to 30,000 eligible businesses worldwide

US Bank Quick Loan (Source US Bank) § Loans ranging from $5,000 to $25,000 § 12 – 84 months term § 2% interest rate

SourceUS Bank Cash Flow Manage (Source US Bank)

§ On demand line of credit ranging from $5,000 to $250,000 § 1% lower than the standard rate

Stimulus 2020 (Source Stimulus 2020) § $1,000 loan § No interest or fees

Note: The above list contains select private funding options. There are numerous other options available.

PAYCHECK PROTECTION PROGRAMPublished March 28, 2020

By David Rim, Alisha Jernack and Ryan Vaughan

The CARES Act establishes a new Paycheck Protection Program to let small businesses, nonprofits, and individuals seek loans through the Small Business Administration (“SBA”) 7(a) loan program. The program authorizes $349 billion in total 7(a) lending from February 15 through June 30 for fiscal 2020. It would provide for the SBA to fully guarantee loans under the new program, compared with a 75% or 85% guarantee for standard 7(a) loans.

Loans would be available during the covered period for: § Any business, nonprofit, veterans’ group, or tribal business with 500 or

fewer employees, or a number set by the SBA for the relevant industry. § Sole proprietors, independent contractors, and eligible self-employed

workers. § Hotel and food service changes with 500 or fewer employees per

location

The maximum for a 7(a) loan is increased to $10 million or 250% of the average monthly payroll costs for the prior year, and interest rates are capped at 4%.

Mazars’ Paycheck Protection Program – Analysis Tool


A L E R T

COVID-19

COVID -19

Recipients could use the loans to cover eligible payroll costs -- including salaries, commissions, regular paid leave, and healthcare benefits -- as well as mortgage interest and utility payments. They would have to make a “good faith certification” that they will use the funds to retain workers, maintain payroll, and pay for rent and similar expenses.

Recipients cannot use the funds to compensate individual employees at an annual rate above $100,000, or to pay for emergency sick or family leave under the second coronavirus response package (Public Law 116-127).

Approved 7(a) lenders can issue covered loans if they determine a business was operating with salaried employees or paid contractors as of Feb. 15. The measure would provide $25 million for the Treasury Department to set criteria to allow additional insured banks and credit unions to participate.

The SBA would have to assume that eligible loan applicants in operation as of Feb. 15 were adversely affected by COVID-19 and require lenders to let them defer payments for at least six months and as long as one year.

Recipients of SBA-guaranteed loans under the Paycheck Protection Program could apply for loan forgiveness over eight weeks for eligible payroll costs and mortgage interest, rent, and utility payments. The SBA would pay lenders for any canceled debt plus accrued interest.

Loan forgiveness would be reduced for businesses that fire employees or cut their pay. Businesses could receive additional forgiveness for wages paid to tipped employees. Covered loans would have a maximum maturity of 10 years following a borrower’s application for forgiveness. The SBA would continue to guarantee remaining balances. Canceled debt would be excluded from borrowers’ gross income for tax purposes.

Terms of Loan Forgiveness (Sec. 1106) § Loan recipients will be eligible for loan forgiveness for an 8-week period after the loan’s origination date in the amount

equal to the sumnof the following costs incurred during that period: § Payroll costs (compensation above $100,000 excluded) § Payment of interest on the mortgage obligation § Rent obligations § Utility payments

§ The amount forgiven cannot exceed the amount borrowed. § Loan forgiveness will be proportionally reduced if the average number of employees is reduced during the covered period

as compared to the same period in 2019. The amount of loan forgiveness will be reduced by the amount of any reduction in total employee salary or wages during the covered period that is in excess of 25% of the total salary or wages.

§ Payroll documentation and documentation of expenses are required to receive forgiveness, to ensure the forgiveness was used to retain employees and pay expenses.

§ Borrowers that rehire laid off workers by June 30 won’t be penalized for having a smaller workforce at the beginning of the period.

§ Borrowers with tipped workers may receive loan forgiveness for the additional wages paid to those employees. § Lenders have 60 days to issue a decision on the application. § The canceled loan amount will not count towards gross income for tax purposes.


A L E R T

NFP

By Israel Tannenbaum

In Revenue Procedure (Rev. Proc. 2020-8) the IRS has announced that effective January 31, 2020, Form 1023 (Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code) must be filed electronically.. This modifies Revenue Procedure 2020-5, 2020-1 I.R.B. 241, which explains procedures for issuing determination letters on public charity status, private foundation status, and other determinations related to exempt organizations.

Rev. Proc. 2020-8sets forth procedures for issuing determination letters in response to electronically submitted Form 1023 applications.

A related IRS release, IR-2020-25, expands on this and revises the instructions for Form 1023. The required user fee for Form 1023 will remain $600 for 2020.

The new rules are effective on Jan. 31, 2020. However, the IRS will accept completed paper Forms 1023 if submission of the Form 1023 is postmarked on or before April 30, 2020.

Mazars’ InsightThese changes generally apply procedures that were previously provided with respect to the required electronic filing of Form 1023-EZ, to Form 1023.

This is a positive change for newly-created organizations, as the IRS expects that the increased processing efficiency from electronic filing of Form 1023 will significantly reduce the time it takes them to process applications for, and approve, exempt status for not-for-profit organizations.

Please contact your Mazars USA LLP professional for additional information.

FORM 1023, APPLICATION FOR TAX EXEMPT STATUS, MUST BE FILEDELECTRONICALLY Published March 28, 2020

NOT-FOR-PROFIT ALERT CONTACT

Israel Tannenbaum646.225.5915 [email protected]


A L E R T

By Lisa Minniti-Soska

On March 19, 2020, Pennsylvania Governor Tom Wolf has ordered that all non-life-sustaining businesses close their physical locations effective March 21, 2020. Most construction work has not been deemed a life-sustaining business under this order. All businesses that do not comply will be cited, fined, or have their licenses suspended.

To help manage the effects of COVID-19, contractors should conduct a thorough review of their existing contracts for provisions related to delays, such as force majeure clauses. A force majeure clause typically relieves the parties from completing certain obligations under a contract when extraordinary events arise that are unavoidable and beyond the realistic control of the parties to the contract.

Most common examples include flood, fire, earthquake, or other “acts of God.” It is important to review the exact terms of the contract to know whether the effects of COVID-19 are covered under the construction contract.

Even without expressly mentioning epidemics and pandemics, the force majeure clause may contain language that could provide relief. For example, due to numerous states’ governors declaring a state of emergency, a force majeure provision that includes governmental actions, decrees, or orders may cover COVID-19.

Also, due to proclamations signed by President Trump, parties affected by travel restrictions may be able to use the protections of a force majeure clause. There is the additional issue of labor shortages, stop work orders, and delays caused by these travel restrictions, which have severely impacted overall ability to engage in commerce.

COVID-19 HAS HALTED CONSTRUCTION IN PENNSYLVANIAPublished March 28, 2020

REAL ESTATE CONTACT

Lisa [email protected]

RE


STATE REFORMS CREATE AGGRESSIVE DEADLINE FROM DHCS TO COMPLY WITH CMS STANDARDS Published February 25, 2020

A L E R T

HC

CONDUCTING A COMPLIANCE PROGRAM ASSESSMENT FOR A MSSP ACCOUNTABLE CARE ORGANIZATIONPublished March 4, 2020

By Justin Frazer

A functioning Compliance Program is the first line of defense for a Medicare Shared Savings Program (MSSP) Accountable Care Organization (ACO) to prevent, detect and correct noncompliance. When effective, an ACO’s Compliance Program sets compliance standards and assists in identifying risk,

ensuring open lines of communication on compliance issues, implementing compliance training to enforce standards through well-publicized disciplinary guidelines, preventing the ACO and participants from employing individuals sanctioned by the government, conducting internal monitoring and auditing and, when offenses are reported or detected, promptly responding to threats through corrective action and required reporting.

By Steven Herbst, Russ Foster & Melissa Borrelli

Change Is Here Once MoreOver the last decade, the Medi-Cal program has significantly expanded, due in large part to changes born out of the Affordable Care Act and federal and State statutes, regulations, politics, and policy agendas. DHCS has dramatically increased enrollment in and the scope of Medi-Cal managed care plans and, if their current blueprint for the future, CalAIM or, as was just announced, Medi-Cal Healthier California for All, comes to fruition, this trend will continue. Change is here once more.

Under the Bipartisan Budget Act of 2018, states must maintain a State Medicaid Agency Contract (SMAC) by July 6, 2020 for their Medicare Advantage Dual Eligible Special Needs Plans (D-SNPs). Specifically, the SMAC requires Medicare Advantage D-SNPs to comply with more comprehensive models of integrated care coordination for dual eligibles by January 1, 2021.

As part of California’s attempt to comply with the SMAC requirement DHCS will transition the Cal MediConnect (CMC) and the Coordinated Care Initiative (CCI) to a Medicare Advantage D-SNP and a state-wide Managed Long Term Services and Supports (MLTSS) model.

DHCS’s preliminary plans are to introduce mandatory enrollment for dual eligibles into MLTSS plans and increase the availability of plan choice, enabling consumers to enroll into a D-SNP that is aligned with their MLTSS plan.

An aggressive timeline has been proposed wherein between 2020 and 2023 the State will comply with CMS regulatory standards, phase-out the CMC and CCI programs, integrate long-term care into managed care, and require Medi-Cal Managed Care Plans to operate D-SNPs.

Navigating A Changing LandscapeMazars has several years of experience in guiding and strategizing Medicaid plans across the country in how best to meet these mandates. From contracting and network builds, to financial projections, to compliance and clinical requirements, if it is in the realm of managed care, we have you covered with a broad and deep bench of experts, some of whom are former regulators and plan staff, along with a cadre of clinicians who have multiple successes in drafting Models of Care. Should you need assistance in evaluating how your current plan design and membership will be impacted by these regulatory reforms or guidance in launching a Medicare Advantage D-SNP, Mazars is here to provide you with the strategic support in navigating the changing landscape.

Should you need assistance in evaluating how your current plan design and membership will be impacted by these regulatory reforms or guidance in launching a Medicare Advantage D-SNP, Mazars is here to provide strategic support in navigating the changing landscape.

For more information about their timely, valuable information and insights into policies, best practices and industry developments, visit mazarsusa.com/hc.


A L E R T

HC

Utilizing Centers for Medicare and Medicaid Services (CMS) guidelines, the Regulatory Compliance team of the Mazars Healthcare Consulting Group (Mazars) can evaluate whether the ACO has developed an effective Compliance Program as required in 42 CFR Part 425, as well as other applicable state and federal regulatory standards. Specifically, Mazars will work with the ACO to develop a compliance work plan and audit tools that verify whether the ACO has a compliance foundation or a “culture of compliance” upon which to build. In order to verify whether the ACO has implemented a “culture of compliance,” Mazars will document assurances that ACO participants, providers, suppliers and other downstream contractors are: (1) maintaining compliance standards, (2) educated about compliance issues, (3) in possession of resources to adequately and quickly identify, communicate and correct operational/compliance vulnerabilities and (4) meeting professional standards applicable to the ACO and its core values.

The Assessment: Required Elements Of An Effective ACO Compliance ProgramAccording to 42 CFR § 425.300, five (5) distinctive elements are required to constitute an effective ACO compliance program under applicable Federal ACO compliance regulations.

§ Elemnt # 1 – The appointment of a “designated compliance official or individual who is not legal counsel to the ACO and reports directly to the ACO governing body.”

§ Element # 2 – The development and implementation of “mechanisms for identifying and addressing compliance problems related to the ACO’s operations and performance.”

§ Element # 3 – “A method for employees or contractors of the ACO, ACO participants, ACO providers/suppliers, and other individuals or entities performing functions or services related to ACO activities to anonymously report suspected problems related to the ACO to the compliance officer.”

§ Element # 4 – The provision of “compliance training for the ACO, the ACO participants, and the ACO providers/suppliers”

§ Element # 5: A requirement for the ACO to report “probable violations of law to an appropriate law enforcement agency.”

The Compliance Plan, Code of Conduct, Policies and Procedures as well as compliance training for all employees and participants can demonstrate an ACO’s commitment to

meeting its compliance requirements. The ACO is governed by the numerous requirements for the MSSP, as stated in 42 CFR Part 425, as well as other applicable state and federal regulatory standards. All contracts or arrangements between the ACO and its participants require compliance with the ACO’s MSSP participation agreement, as well as all applicable laws and regulations. For example, as the ACO continues to enter into strategic partnerships with diverse payers, clearly identified and properly resourced staff member or members will be required to ensure that participants, per their contractual requirements, are taking actionable steps on the health data being disseminated by the ACO. If the ACO is unable to verify whether participants are addressing gaps in care, achieving CMS quality performance benchmarks or providing cost-effective care as per their contract with the ACO, the ACO will ultimately be non-compliant with CMS and its strategic payers.

Mazars has developed tools to conduct an ACO assessment to ensure that:1. Detailed policies and procedures are being distributed to

appropriate personnel,2. Identified issues are reported through regular,

documented meetings to the Compliance Committee on a timely basis for consideration and as necessary,

3. Identified issues are reported to the CEO or Board of Directors by the Chief CO,

4. There is follow-up training and education of staff involved with the compliance issue,

5. There is necessary communication between the CO and staff and management,

6. The ACO is able to make consistent, timely, and appropriate disciplinary action, if any,

7. Risk Assessments are being completed,8. Participant monitoring and auditing are being completed

to ascertain possible Fraud, Waste or Abuse,9. Root Cause analysis is being completed and

documented and,10. Timely and effective corrective actions are being

implemented.

Having an effective compliance program is an ongoing process that requires buy-in from all ACO Personnel. An effective compliance plan is not a static document, but rather it is proactive, responsive, and changes according to the needs of the organization. For more information about their timely, valuable information and insights into policies, best practices and industry developments, visit mazarsusa.com/hc


L E R T

TAX

By Mark Peltz

The U.S. Department of Commerce’s Bureau of Economic Analysis (BEA) requires U.S. persons who control, directly or indirectly, at least 10%, or more, of the ownership interest in a foreign business enterprise to file a mandatory benchmark survey called BE-10.

For this filing, a U.S. person is defined as an individual, corporation, trust, or nonprofit organization. A foreign business enterprise can be incorporated or unincorporated. Thus, if property is used to generate income, regardless of whether it is held in a company or not, there is a filing requirement. The BEA has clearly stated there is a reporting requirement for individuals that own foreign real estate that is used for commercial purposes.

Generally, the BE-10 must be filed by each U.S. person who has a foreign business enterprise on December 31, 2019. If the U.S. person is subject to the filing requirements, that person must file Form BE-10A along with Form BE-10B, BE-10C or BE-10D, depending on the percentage of ownership and size of the foreign business enterprise.

The BE-10 survey, conducted every five years, is the BEA’s most comprehensive survey of U.S. direct investment abroad. Any U.S. person subject to the reporting requirements of the BE-10 must submit the report regardless of whether the BEA contacted it to participate in the survey. The forms are due by May 31, 2020 or June 30, 2020, if the filer has to submit more than 50 forms to satisfy its reporting obligation.

Failure to participate in this mandatory survey may subject the U.S. person as well as its directors, officers and employees to civil and/or criminal penalties.

As a general rule, if you were required to file IRS Forms 5471, 8865, 8858 or 8938 with your U.S. tax return or you owned real estate in a foreign country that was not used solely for personal purposes, you are required to complete Form BE-10 and all applicable attachments.

Please contact your Mazars USA LLP professional for more information.

DO YOU OWN 10% OR MORE IN A FOREIGN BUSINESS? DON'T MISS THE BE-10 FILING DEADLINEPublished February 24, 2020


TAX

TAX L E R T

RE-FUELING THE PROPANE TAX CREDITPublished on March 3, 2020

By Ryan J. Vaughan and Owen Liu

In December 2019, The Further Consolidated Appropriations Act of 2020 reinstated several fuel tax credits, including retroactively extending the alternative fuel tax credit, which expired in 2017. On January 15, 2020, the Internal Revenue Service issued Notice 2020-8 (the “Notice”), which provides a process for eligible taxpayers to make a one-time claim for the credits and payments allowed for alternative fuel sold and used during calendar year 2018 and 2019.

Under Section 4 of the Notice, the 2018 and/or 2019 alternative fuel tax credit can be claimed by filing Form 8849 with Schedule 3. The taxpayer has to be registered with the IRS for the Excise Tax and maintain adequate records to substantiate eligibility. Under Section 8 of the Notice, the procedures for claiming the alternative fuel income tax credit by filing Form 4136 do not change. Additionally, the Notice requires all claims for 2018 and/or 2019 eligible fuel credits to be made on a single Form 8849 and Schedule 3, which must be filed between February 14 and August 11, 2020. As discussed in the prior paragraph, taxpayers can still file for 2019 eligible fuel credits with Form 4136, subject to the due date of the respective income tax return.

Mazars’ Insight When filing for the 2018 alternative fuel tax credit, either Form 8849 or Form 4136 can be used (but not both). Filing Form 8849 may be more efficient than filing Form 4136, since filing Form 4136 also requires amending the 2018 income tax returns.

Some taxpayers use alternative fuel in their trade or business, but they are not required to pay excise tax directly to the IRS, thus they have no excise tax liability. Since Form 8849 is used to claim credit against the excise tax, will a taxpayer receive a refund by filing Form 8849, even if the taxpayer did not have excise tax liability? Based on the Notice, it appears that in these cases the IRS will issue a refund in lieu of an alternative fuel income tax credit.

Partnerships will file Form 8849, rather than the partners. This is because while a partnership is disregarded for federal income tax purposes, it is regarded as a taxable entity for excise tax purposes.

Internal Revenue Code Section 6424(d) allows an alternative fuel tax credit of 50 cents for each gallon of alternative fuel use claimed by eligible taxpayers. Propane, also known as Liquified Petroleum Gas, is one of the eligible alternative fuels, among others such as P Series fuels, Compressed Natural Gas, and Liquified Hydrogen. The credit is commonly applicable to taxpayers who use propane to fuel vehicles not required to be registered for highway use, such as forklifts.

The alternative fuel tax credit is used to reduce the excise tax liability for the period of the claim, typically during the calendar year. If the alternative fuel tax credit exceeds the taxpayer’s excise tax liability, then the excess amount is allowed as an alternative fuel income tax credit.



By John Kostenbauder, Harold Hecht, Seth Rabe and Julie Montrone

The State of Connecticut (CT) has implemented several tax law changes for tax year 2019 that affect pass-through entities and C corporations, as well as individuals. This Alert addresses the major changes in each of these categories.

Pass-Through Entity Changes1. In 2018, CT first imposed a tax at the highest personal CT rate on S

corporations, partnerships and LLCs. CT also provided for a credit in 2018 of 93.01% of the entity-level tax that owners could use on their individual CT returns. For tax year 2019, the credit available to be used by owners has been reduced to 87.5%.

2. For income tax years beginning on or before June 26, 2019, interest and penalties are waived on any extra taxes owed by pass-through owners due to the reduction in the pass-through credit rate.

3. The tax base for calculation of the 2019 pass-through entity tax has been modified to: a. Include guaranteed payments in the Standard Base and the Alternative Base. b. Exclude expenses treated as an itemized deduction for federal income tax purposes.

d. Non-resident individuals whose only CT source income is from pass-through entities will not be required to file a 2019 CT individual tax return if the individual: a. Receives a Schedule CT K-1 and the pass-through entity tax credit satisfies in full the individual’s CT income tax liability; or b. Receives a CT K-1 with the box “PE filed Schedule CT-NR, Elective Composite Income Tax Remittance Calculation.”

5. Pass-through entities with required annual payments of less than $1,000 are not required to make estimated payments.

6. The $250 business entity tax has been repealed, effective January 1, 2020. It has been replaced with a higher annual report fee payable to the CT Department of State.

Mazars’ InsightIndividual owners of CT pass-through entities will most likely see higher tax liabilities as a result. Non-residents who are relieved of a filing requirement as discussed above may still file a CT non-resident return if beneficial.

Corporate Changes1. The 10% business surcharge has been extended to tax years beginning

before January 1, 2021. The surtax does not apply to corporations with gross income of under $100 million or subject to the minimum tax.

2. For tax years 2019 and later, the cap on R&D and Urban Reinvestment Act credits has been reduced from 70% to 50.01% of a corporation’s CT tax liability.

Individual Changes1. CT has enacted a change affecting telecommuting employees that

impacts how CT non-residents may be taxed in CT for individual income tax purposes. CT has joined several other states including New York and Pennsylvania in adopting a “convenience of the employer test.” The convenience of the employer test says that compensation earned by a non-resident employee is attributable to the office in the state to which the employee is assigned unless the employer requires the employee to work from another location outside the state for business purposes. As a result, CT non-resident wages are taxable in CT if they are working remotely for a CT employer for other than business reasons. This further means employers will need to withhold CT individual income tax in the event the compensation earned by an employee working remotely is assigned to CT.

Note, however, that the CT provision only applies when the individual’s state of domicile also has a convenience of employer test. The Special Notice issued by the State of Connecticut Department of Revenue Services specifically states that their test is intended to be like the one currently applied by New York to CT residents. Connecticut resident employees working from a remote location who are subject to tax on income earned in a jurisdiction that applies the convenience of the employer test, will now be eligible to claim a credit on their Connecticut income tax return for taxes paid to such jurisdiction.

CONNECTICUT INTRODUCES 2019 TAX YEAR CHANGESPublished on March 13, 2020


TAX L E R T

TAX

By Richard Bloom Treasury Secretary Steven Mnuchin announced today during the White House’s daily coronavirus briefing that individuals and corporations can defer certain tax payments for up to 90 days.

Individuals can defer up to $1 million of tax liability interest and penalty free. According to Mnuchin, the reason the number is set at $1 million is because it covers pass-throughs and small businesses.

Corporations can defer up to $10 million interest and penalty free.

No special requirements were announced in order to take part in this deferral. It was stated that simply filing your taxes will automatically result in not being charged interest and penalties.

Mnuchin stated that taxpayers are still encouraged to file by April 15, because many Americans will receive tax refunds.

The plan is estimated to result in deferrals of as much as $300 billion in IRS payments.

We are closely monitoring the details of this relief as well as other relief associated with the coronavirus.

Mazars USA LLP is continuing our operations in a normal fashion and we have ensured that our systems are able to handle a fully remote workforce without interruption of client services. We encourage you to send us your tax documents as soon as possible (preferably in an electronic format) so that we can continue providing the exceptional service that you have come to expect from Mazars USA.

TREASURY EXTENDS APRIL 15TH PAYMENT DEADLINEPublished on March 17, 2020

By John Kostenbauder, Harold Hecht, Seth Rabe and Julie Montrone Several states have taken steps to extend the 2019 tax filing deadline for certain taxpayers in order to help shore up the economy in the face of COVID-19. Some of the states that have announced extensions include:

California Relief for filing and paying income taxes has been extended for affected taxpayers until June 15. This includes partnerships, LLCs and individuals. The state does not define who is an affected taxpayer and requires anyone using this relief provision to specifically reference COVID-19 with their filing. As a result of this extension, the state has indicated it will waive interest and any late filing or late payment penalties that would otherwise apply.

California also indicated that the June 15 deadline could be further delayed if the IRS provides for a longer relief period.

For more information, see: https://www.ftb.ca.gov/about-ftb/newsroom/news-releases/2020-2-more-time-to-file-pay-for-california-taxpayers-affected-by-the-covid-19-pandemic.html

ConnecticutThe state announced extensions for filing and paying tax. 2019 Connecticut partnership and S corporation passthrough returns are now due April 15, 2020, with payment due June 15, 2020. Unrelated Business Income tax returns and Connecticut C corporation returns are now due June 15, 2020, with payments due the same date. No individual extension has been announced at this time. However, Connecticut intends on adjusting dates for filing and payment to be aligned with any announcement from the Internal Revenue Service regarding due dates for the filing and payment of federal income taxes such as the one announced today by Treasury Secretary Mnuchin.

STATES TO PROVIDE COVID-19 RELIEF FOR TAXPAYERSPublished on March 17, 2020


By Eduardo Chung and Ryan Vaughan On March 13th, the President designated COVID-19 a disaster under the Stafford Disaster Relief and Emergency Assistance Act. As a result, employers are permitted to make certain qualified reimbursements and payments to employees tax free.

Under Section 139 of the Internal Revenue Code, any “qualified disaster relief payment” will not be included into an individual’s gross income. These payments include any amount paid to reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred as a result of COVID-19, but only to the extent any expense compensated by such payment is not otherwise compensated for by insurance or otherwise. The participants are not required to account for actual expenses in order to qualify for the exclusion.

Reimbursements do not include nonessential, luxury, or decorative items or services.

Wage replacement to the recipient is never permissible, and is always treated as a taxable wage. Therefore, Section 139 cannot be utilized as a wage replacement alternative. The employer can reimburse or provide in-kind benefits reasonably believed by the employer to result from the COVID-19 that are not covered by insurance including but not limited to:

§ Medical expenses § Childcare due to school closings § Cell phone § Critical care and funeral expenses

A person for whose benefit a qualified disaster relief payment is made can't claim a deduction or credit for, or by reason of, an expenditure to the extent of the amount excluded under the above rules with respect to that expenditure.Mazars’ Insight

An employer may now reimburse employees for disaster-related expenses arising from the coronavirus pandemic on a tax-free basis, and free from Form W-2 or Form 1099 reporting. Employers may make payments to cover the increased per-employee costs of all unreimbursed health-related expenses, childcare expenses or costs associated with telecommuting. Making these payments pursuant to Section 139 on a tax-free basis to employees and on a deductible basis for the employer, along with decreased administrative burdens, can provide some welcome relief in these unprecedented times.


QUALIFIED DISASTER RELIEF PAYMENT TO EMPLOYEESPublished on March 23, 2020

For more information, see: https://portal.ct.gov/DRS/News---Press-Releases/2020/2020-Press-Releases/Effective-Immediately-DRS-Extends-Filing-Deadline-for-Certain-Annual-State-Business-Tax-Returns

FloridaThe Governor of Florida announced flexibility on making corporate income tax and sales tax payments, potentially deferring corporate income tax payments until the end of the state’s June 30 fiscal year end. Details will be forthcoming because the Florida Department of Revenue has not yet issued guidance in response to the governor’s announcement.

Mazars USA LLP is continuing our operations in a normal fashion and we have ensured that our systems are able to handle a fully remote workforce without interruption of client services. We encourage you to send us your tax documents as soon as possible (preferably in an electronic format) so that we can continue providing the exceptional service that you have come to expect from Mazars USA.


TAX L E R T

TAX

By Israel Tannenbaum On Friday, March 13, President Trump declared novel coronavirus (“COVID-19”) a national emergency, which provides a possible path for company-sponsored foundations to assist employees incurring economic hardship in connection with the coronavirus.

Many company foundations are classified as "Private Foundations.” Typically, the self-dealing rules prohibit these foundations from providing assistance to employees of the company that control the foundation, as this would be considered a private benefit to the company.

With the declaration of COVID-19 as a national emergency, an exception to the self-dealing rules will now permit employer-sponsored private foundations to provide assistance to employees or their family members who are affected by the coronavirus, subject to certain rules and requirements. This assistance is not taxable income to the recipients, nor is the employer or recipient subject to employment taxes or other forms of withholding.

If a company foundation wishes to administer a program of employee hardship grants, it is imperative that the foundation keep adequate records to show that the disaster relief

payments further the foundation's charitable purposes. At a minimum, records should be maintained which show the type of assistance provided, criteria for disbursing assistance, date, place, number of persons assisted, charitable purpose intended to be accomplished by the disbursement, and the cost of the aid.

Mazars’ InsightWith the challenges that COVID-19 has created, it is imperative for companies to explore all options to help their employees navigate these unprecedented times. The use of disaster relief payments from company foundations to employees suffering economic hardship due to COVID-19 can be a powerful tool.

It should be noted that even if a company does not sponsor a foundation, the company may establish a donor advised fund (DAF) at a community foundation or other public charity to provide assistance to employees affected by the coronavirus. Although DAFs are typically prohibited from making grants to individuals, IRS guidance allows for an exception for employer-sponsored disaster relief funds.


“NATIONAL EMERGENCY” DECLARATION CREATES NEW OPTIONS FOR COMPANY FOUNDATIONS TO SUPPORT EMPLOYEESPublished on March 23, 2020

TAX FILING DEADLINE EXTENDED TO JULY 15THPublished on March 20, 2020

By Richard Bloom

Treasury Secretary Steven Mnuchin recently tweeted that “We are moving Tax Day from April 15 to July 15. All taxpayers and businesses will have this additional time to file and make payment without penalties and interest.” He indicated he was acting at President Trump’s direction.

The Internal Revenue Service previously extended the federal income tax payment deadline to July 15th for many individuals and businesses. However, this extension did not apply to the actual filing of tax returns which was sought by many practitioners and taxpayers.

We are continually monitoring this situation and will report accordingly.

Mazars USA LLP is continuing our operations in a normal fashion and we have ensured that our systems are able to handle a fully remote workforce without interruption of client services. We encourage you to send us your tax documents as soon as possible (preferably in electronic format) so that we can continue providing the exceptional service that you have come to expect from Mazars USA.


IRS ISSUES GUIDANCE REGARDING EXTENSION OF TAX FILING AND PAYMENT DEADLINESPublished on March 23, 2020

By Eduardo Chung and Nathan Pliskin

The Internal Revenue Service Issued Notice 2020-18 (The “Notice”), which supersedes the limited relief issued in Notice 2020-17 (See our Alert “IRS Issues Guidance Regarding Extension of Tax Payment Deadline”). The Notice also provides guidance on the extension of time to file tax returns that was previously announced by Treasury Secretary Steven Mnuchin (See our Alert “Tax Filing Deadline Extended to July 15th”).

§ The Notice provides an automatic postponement of the April 15, 2020 filing deadline until July 15, 2020 for any person (including individuals, trusts, estates, partnerships, and corporations) with a federal income tax return due on April 15, 2020.

§ The Notice further provides that any federal income tax payment due on April 15, 2020 is likewise postponed until July 15, 2020. Payments include income taxes due with a person’s 2019 income tax return and payments of a person’s first quarter estimated income tax liability for the 2020 tax year.

§ The Notice also removes the limitations placed by Notice 2017-17 on the total amount of tax payments that may be postponed by any taxpayer. Thus, the $1 million cap for individuals and $10 million cap for corporations are no longer applicable.

§ No interest, penalty or addition to tax for failure to file or failure to pay will be assessed on the amount of federal income tax postponed under the Notice.

§ Finally, the Notice clarifies that the extension does not apply to: (a) any other type of payment or deposit of tax other than income taxes and (b) any Federal information return.


FAMILIES FIRST CORONAVIRUS RESPONSE ACT: REFUNDABLE PAYROLL TAX CREDITSPublished on March 25, 2020

By Ryan Vaughan

On Friday, March 20, the IRS issued Information Release 2020-57 announcing that employers can begin claiming the two new refundable payroll tax credits under the Families First Coronavirus Response Act (“the Act”). The IRS also announced that it will release guidance on how eligible employers who pay qualifying sick or childcare leave under the Act will be able to request an accelerated payment from the IRS for the two new refundable payroll tax credits.

The Act provides paid sick leave and expanded family and medical leave for COVID-19-related reasons and created a refundable paid sick leave credit and a paid childcare leave credit for eligible employers.

Eligible employers are businesses and tax-exempt organizations with fewer than 500 employees that are required to provide emergency paid sick leave and emergency paid family and medical leave under the Act. These credits can be claimed based on qualifying leave eligible employers provide between the effective date and December 31, 2020. Equivalent credits are available to self-employed individuals based on similar circumstances. See Mazars USA’s Tax Alert from March 19th for more information on the Act.( https://

mazarsusa.com/ledger/families-first-coronavirus-response-act-provides-tax-relief-to-individuals-small-businesses-and-the-self-employed/)This Information Release states that under guidance that will be issued next week, eligible employers who pay qualifying sick or childcare leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and childcare leave that they paid, rather than deposit them with the IRS.

The Information Release also says that the payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees.

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



TAX L E R T

TAX

By Richard Bloom and Ivins, Phillips & Barker, Chtd. On March 18, 2020, President Trump signed into law the Families First Coronavirus Response Act (the “Act”), which, in addition to providing emergency funding for new mandates and reimbursement of costs related to Covid-19 testing, includes measures for expanded sick leave and supplemental funding for state unemployment insurance funds, as well as a number of provisions granting tax relief and tax credits related to coronavirus sick leave for small businesses, individuals, and the self-employed.

The Act provides a refundable tax credit equal to 100% of qualified sick leave wages paid (beginning on a date chosen by Treasury during the 15-day period from the date of enactment, and ending on December 31, 2020) by an employer in each calendar quarter, allowable against the employer portion of Social Security and Medicare taxes. Qualified sick leave wages are wages required to be paid by any employer (other than health care providers and emergency responders) with fewer than 500 employees under the Emergency Paid Sick Leave Act (Division E), not exceeding 10 days in the calendar year. The amount paid to employees is capped at $511 per day if it is paid so that the employee can:

1. Self-isolate because the employee is diagnosed with coronavirus;

2. Obtain a medical diagnosis or care if such employee is experiencing the symptoms of coronavirus; or

3. Comply with a recommendation or order by a public official with jurisdiction or a health care provider on the basis that the physical presence of the employee on the job would jeopardize the health of others because of the exposure of the employee to coronavirus or exhibition of symptoms of coronavirus by the employee.

There is a lower amount available for reimbursement for employees who are on leave to care for a family member, or amounts paid as required by a separate section of the bill that expands the Family and Medical Leave Act (Division C) to cover family leave specifically for childcare.

In addition, a separate overall cap of $10,000 was provided for wages paid as family leave under the Family and Medical Leave Act expansion.

The credit is refundable (to the employer) to the extent it exceeds the employer’s total Social Security and Medicare tax liability for any calendar quarter. Wages taken into account in determining the credit are not to be taken into account in determining the credit allowed under section 45S. No credit is allowed under section 45S (employer credit for paid family and medical leave) for wages for which a credit is allowed under the Act. The credit is includible in gross income for income tax purposes. Wages required to be paid pursuant to the Act are not considered wages for Social Security purposes.

There is a parallel credit for eligible self-employed individuals, refundable and allowable against income taxes.

Treasury is given broad authority to issue regulations and guidance necessary to carry out the purposes of the law. Secretary Mnuchin has said that to protect businesses concerned about cash flow, Treasury will use its regulatory authority to advance funds to employers in a number of ways. He has said that employers will be able to use cash deposited with the IRS to pay sick leave wages, and that for businesses that would not have sufficient taxes to draw from, Treasury will use its regulatory authority to make advances to small businesses to cover such costs.

The passage of this bill follows the announcement by the IRS of an extension to the payment of income taxes due April 15, 2020 and is one of numerous actions being taken by the government to combat the business interruptions and lost income of individuals caused by COVID-19. In addition, the Senate has been working on a separate stimulus package with projections of up to $1 trillion of direct subsidies to taxpayers and businesses.


This alert was produced in conjunction with Ivins, Phillips & Barker, Chtd.

FAMILIES FIRST CORONAVIRUS RESPONSE ACT PROVIDES TAX RELIEF TO INDIVIDUALS, SMALL BUSINESSES, AND THE SELF-EMPLOYEDPublished on March 27, 2020


CARES ACT PROVIDES TAX RELIEF FOR INDIVIDUALS AND BUSINESSESPublished on March 27, 2020

By Richard Bloom and Ivins, Phillips & Barker, CHTD.

On March 18, 2020, President Trump signed into law the Families First Coronavirus Response Act (the “Act”), which, in addition to providing emergency funding for new mandates and reimbursement of costs related to Covid-19 testing, includes measures for expanded sick leave and supplemental funding for state unemployment insurance funds, as well as a number of provisions granting tax relief and tax credits related to coronavirus sick leave for small businesses, individuals, and the self-employed.

The Act provides a refundable tax credit equal to 100% of qualified sick leave wages paid (beginning on a date chosen by Treasury during the 15-day period from the date of enactment, and ending on December 31, 2020) by an employer in each calendar quarter, allowable against the employer portion of Social Security and Medicare taxes. Qualified sick leave wages are wages required to be paid by any employer (other than health care providers and emergency responders) with fewer than 500 employees under the Emergency Paid Sick Leave Act (Division E), not exceeding 10 days in the calendar year. The amount paid to employees is capped at $511 per day if it is paid so that the employee can:

1. Self-isolate because the employee is diagnosed with coronavirus;2. Obtain a medical diagnosis or care if such employee is experiencing

the symptoms of coronavirus; or3. Comply with a recommendation or order by a public official with

jurisdiction or a health care provider on the basis that the physical presence of the employee on the job would jeopardize the health of others because of the exposure of the employee to coronavirus or exhibition of symptoms of coronavirus by the employee.

There is a lower amount available for reimbursement for employees who are on leave to care for a family member, or amounts paid as required by a separate section of the bill that expands the Family and Medical Leave Act (Division C) to cover family leave specifically for childcare. In addition, a separate overall cap of $10,000 was provided for wages paid as family leave under the Family and Medical Leave Act expansion.

The credit is refundable (to the employer) to the extent it exceeds the employer’s total Social Security and Medicare tax liability for any calendar quarter. Wages taken into account in determining the credit are not to be taken into account in determining the credit allowed under section 45S. No credit is allowed under section 45S (employer credit for paid family and medical leave) for wages for which a credit is allowed under the Act. The credit is includible in gross income for income tax purposes.

Wages required to be paid pursuant to the Act are not considered wages for Social Security purposes.

There is a parallel credit for eligible self-employed individuals, refundable and allowable against income taxes.

Treasury is given broad authority to issue regulations and guidance necessary to carry out the purposes of the law. Secretary Mnuchin has said that to protect businesses concerned about cash flow, Treasury will use its regulatory authority to advance funds to employers in a number of ways. He has said that employers will be able to use cash deposited with the IRS to pay sick leave wages, and that for businesses that would not have sufficient taxes to draw from, Treasury will use its regulatory authority to make advances to small businesses to cover such costs.

The passage of this bill follows the announcement by the IRS of an extension to the payment of income taxes due April 15, 2020 and is one of numerous actions being taken by the government to combat the business interruptions and lost income of individuals caused by COVID-19. In addition, the Senate has been working on a separate stimulus package with projections of up to $1 trillion of direct subsidies to taxpayers and businesses.

Please contact your Mazars USA LLP professional for additional information.This alert was produced in conjunction with Ivins, Phillips & Barker, Chtd


TAX L E R T

TAX

By Eduardo Chung and Nathan Pliskin

The Internal Revenue Service Issued Notice 2020-18 (The “Notice”) on March 20th, postponing income tax filing and payment deadlines from April 15, 2020 to July 15, 2020. See our Alert “IRS Issues Guidance Regarding Extension of Tax Filing and Payment Deadlines.” The IRS issued Filing and Payments Deadlines Questions and Answers yesterday that help explain certain aspects of Notice 2020-18. Below are some highlights:

Estate and Gift Taxes: The Notice does not affect estate and gift tax filing and payment deadlines; normal filing and payment due dates will continue to apply.

Section 965 Transition Tax Installment Payments: The Notice postpones any section 965 installment payments due on April 15, 2020 to July 15, 2020. This relief only applies with respect to an installment payment due with a taxpayer’s 2019 federal income tax return with an original due date of April 15, 2020.

Base Erosion and Anti-Abuse Tax (BEAT): The Notice postpones any estimated BEAT payments from April 15, 2020 to July 15, 2020 if the taxpayer’s federal income tax return filing deadline has likewise been postponed.

Information Returns: The due date for information returns is not extended under the Notice. The questions and answers further provided a list of returns that are extended under the Notice. Form 3520, (Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts) is not one of the returns listed. Although the due date of Form 3520 is linked to the due date of its related income tax return (such as Form 1040), it is not clear if Form 3520 has been extended under the Notice.

Filing Extensions: Taxpayers with deadlines postponed from April 15, 2020 to July 15, 2020 may still request an automatic extension of time to file their federal income tax return. The extended deadline to file will be October 15, 2020 and requests for an extension must be made by July 15, 2020. The deadline for payment cannot be extended beyond July 15, 2020.

Estimated Tax Payments: The Notice postponed the deadline for making first quarter estimated tax payments from April 15, 2020 to July 15, 2020. Question 16 highlights that the second quarter 2020 estimated tax payment is still due on June 15, 2020.

IRA Contributions: Contributions to an IRA for the 2019 tax year can now be made on or before July 15, 202010% Additional Tax on Retirement Plan Distributions: The Notice postpones, until July 15, 2020, the deadline for paying the 10% additional tax on amounts includible in gross income from IRA or workplace-based retirement plan distributions in 2019.

Employer Contributions to Qualified Retirement Plans: The Notice postpones, until July 15, 2020, the grace period under section 404(a)(6) for employers to make contributions to qualified retirement plans for the 2019 tax year.Refund Claims: Refund Claims for prior tax years are not affected by the Notice. Thus, taxpayers who wish to claim a refund for the 2016 tax year generally must still file such a claim by its original due date. If the original due date is April 15, 2020, the refund claim must still be filed by April 15, 2020.

Tax Deposits: The Notice does not postpone the due date for making any tax deposits. Therefore, the Notice will not affect the due date to deposit payroll or excise taxes, to withhold on account of Fixed, Determinable, Annual, or Periodical (FDAP) income, or to withhold on account of effectively connected income (ECI).

Report of Foreign Bank and Financial Accounts (FBAR): The April 15, 2020 deadline to file an FBAR does not appear to be affected by the Notice. However, under pre-existing guidance, a taxpayer who fails to timely file an FBAR by April 15, 2020 will automatically receive an extension to October 15, 2020.


ADDITIONAL INFORMATION ABOUT THE POSTPONED FEDERAL FILING AND PAYMENT DEADLINESPublished on March 27, 2020


TAX PRACTICE BOARD Tifphani [email protected] James [email protected]

Howard Landsberg212.375.6604 | [email protected]

Faye [email protected]

Richard Bloom (EDITOR)[email protected]

SCAN THE BARCODE BELOW TO SUBSCRIBE TO THE MAZARS USA LEDGER!

SUBSCRIBE

40 | Mazars USA LedgerMazars USA LLP is an independent member firm of Mazars Group.

IT STARTS WITH A FOUNDATION.

MeetMazars.com

march/april 2020 | 1 · products the realreal offers authenticated luxury consignment. rent the...

Documents