IRS additional guidance addresses COBRA assistance under ARPA

In Notice 2021-46, the IRS recently issued additional guidance on the COBRA premium assistance provisions of the American Rescue Plan Act (ARPA).

Under the ARPA, a 100% COBRA premium subsidy and additional COBRA enrollment rights are available to certain assistance eligible individuals (AEIs) during the period beginning on April 1, 2021, and ending on September 30, 2021 (the Subsidy Period).

If your business is required to offer COBRA coverage, it’s important to mind the details of the subsidies and a related tax credit. Here are some highlights of the additional guidance:

Extended coverage periods. An AEI whose original qualifying event was a reduction of hours or involuntary termination is generally eligible for the subsidy to the extent the extended COBRA coverage falls within the Subsidy Period. The AEI must be entitled to the extended coverage because of a:

• Disability determination,

• Second qualifying event, or

• Extension under a state mini-COBRA law.

This is true even if the AEI didn’t notify the plan of the intent to elect extended COBRA coverage before the start of the Subsidy Period — for example, because of the Outbreak Period deadline extensions.

End of Subsidy Period. The subsidy ends when an AEI becomes eligible for coverage under any other disqualifying group health plan coverage or Medicare — even if the other coverage doesn’t include the same benefits provided by the previously elected COBRA coverage.

For example, though Medicare generally doesn’t provide vision or dental coverage, the subsidy for an AEI’s dental-only or vision-only COBRA coverage ends if the AEI becomes eligible for Medicare.

Comparable state continuation coverage. A state program that provides continuation coverage comparable to federal COBRA qualifies AEIs for the subsidy even if the state program covers only a subset of state residents (such as employees of a state or local government unit).

Claiming the credit. Under most circumstances, an AEI’s current or former common-law employer (depending on whether the AEI had a reduction of hours or an involuntary termination) is the entity that’s eligible to claim the tax credit for providing the subsidy. If a plan (other than a multiemployer plan) covers employees of two or more controlled group members, each common-law employer in the group is entitled to claim the credit with respect to its current or former employees.

Guidance on claiming the credit is also provided for Multiple Employer Welfare Arrangements, state employers, entities undergoing business reorganizations, plans that are subject to both federal COBRA and state mini-COBRA, and plans offered through a Small Business Health Options Program.

The ARPA’s COBRA provisions have been in effect for a while now, so your company likely already has procedures in place to provide the subsidy to AEIs and claim the corresponding tax credit. Nevertheless, this guidance offers helpful clarifications. Contact our firm for more information.

© 2021

Is your business underusing its accounting software?

Someone might have once told you that human beings use only 10% of our brains. The implication is that we have vast, untapped stores of cerebral power waiting to be discovered. In truth, this is a myth widely debunked by neurologists.

What you may be underusing, as a business owner, is your accounting software. Much like the operating systems on our smartphones and computers, today’s accounting solutions contain a multitude of functions that are easy to overlook once someone gets used to doing things a certain way.

By taking a closer look at your accounting software, or perhaps upgrading to a new solution, you may be able to improve the efficiency of your accounting function and discover ways to better manage your company’s finances.

Revisit training

The seeds of accounting software underuse are often planted during the training process, assuming there’s any training at all. Sometimes, particularly in a small business, the owner buys accounting software, hands it over to the bookkeeper or office manager, and assumes the problem will take care of itself.

Consider engaging a consultant to review your accounting software’s basic functions with staff and teach them time-saving tricks and advanced features. This is even more important to do if you’re making major upgrades or implementing a new solution.

When accounting personnel are up to speed on the software, they can more easily and readily generate useful reports and provide accurate financial information to you and your management team at any time — not just monthly or quarterly.

Commit to continuous improvement

Accounting solutions that aren’t monitored can gradually become vulnerable to inefficiency and even manipulation. Encourage employees to be on the lookout for labor-intensive steps that could be automated and steps that don’t add value or are redundant. Ask your users to also note any unusual transactions or procedures; you never know how or when you might uncover fraud.

At the same time, ensure managers responsible for your company’s financial oversight are reviewing critical documents for inefficiencies, anomalies and errors. These include monthly bank statements, financial statements and accounting schedules.

The ultimate goal should be continuous improvement to not only your accounting software use, but also your financial reporting.

Don’t wait until it’s too late

Many business owners don’t realize they have accounting issues until they lose a big customer over errant billing or suddenly run into a cash flow crisis. Pay your software the attention it deserves, and it will likely repay you many times over in useful, actionable data. We can help you assess the efficacy of your accounting software use and suggest ideas for improvement.

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With a self-directed IRA, you choose your own investments

If you’re the type who would rather order ala carte rather than a set entrée, you might prefer a “self-directed” IRA. With this option, you may be able to amp up the benefits of a traditional or Roth IRA by enabling them to hold nontraditional investments of your choosing that can potentially offer greater returns. However, self-directed IRAs present pitfalls that can lead to unfavorable tax consequences.

Estate planning benefits

IRAs are designed primarily as retirement-saving tools, but if you don’t need the funds for retirement, they can provide a tax-advantaged source of wealth for your family. For example, if you name your spouse as beneficiary, your spouse can roll the funds over into his or her own IRA after you die, enabling the funds to continue growing on a tax-deferred basis (tax-free in the case of a Roth IRA).

You control the investments

A self-directed IRA is simply an IRA that gives you complete control over investment decisions. IRAs typically offer a selection of stocks, bonds and mutual funds.

Self-directed IRAs (available at certain financial institutions) offer greater diversification and potentially higher returns by permitting you to select virtually any type of investment. The investment types include real estate, closely held stock, limited liability company interests and partnership interests, loans, precious metals, and commodities (such as lumber and oil & gas).

Self-directed IRAs offer the same estate planning benefits as other IRAs, but they allow you to transfer virtually any type of asset to your heirs in a tax-advantaged manner. Self-directed Roth IRAs are particularly powerful estate planning tools because they offer tax-free investment growth.

Beware the prohibited transaction rules

The most dangerous traps for self-directed IRAs are the prohibited transaction rules. These rules are designed to limit dealings between an IRA and “disqualified persons,” including account holders, certain members of account holders’ families, businesses controlled by account holders or their families, and certain IRA advisors or service providers.

Among other things, disqualified persons may not sell property or lend money to the IRA, buy property from the IRA, provide goods or services to the IRA, guarantee a loan to the IRA, pledge IRA assets as security for a loan, receive compensation from the IRA, or personally use IRA assets.

The penalty for engaging in a prohibited transaction is severe: the IRA is disqualified and all of its assets are deemed to have been distributed on the first day of the year in which the transaction takes place, subject to income taxes and, potentially, penalties.

This makes it virtually impossible to manage a business, real estate or other investments held in a self-directed IRA. So, unless you’re prepared to accept a purely passive role with respect to the IRA’s assets, this strategy isn’t for you.

If you’re considering a self-directed IRA and have additional questions, contact us.

© 2021

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FMD’s estate planning team will work with you and your legal and financial advisers to design plans that align with your goals and objectives. When it comes to estate planning and wealth preservation, every one of our clients receives the quality of service and personal attention that are the hallmarks of FMD.  To learn more about how we can help address your estate planning and wealth preservation needs, contact us today.

IRS Creates Identity Protection PIN Opt-In Program for Taxpayers

The IRS has created Publication 5367, IP PIN Opt-In Program for Taxpayers. If you have concerns about identity fraud, consider utilizing this program.

Following are additional details about the IP PIN:

• it is a six-digit number known only to the taxpayer and the IRS;

• the opt-in program is voluntary;

• the IP PIN should be entered onto the electronic tax return when prompted by the software product or onto a paper return next to the signature line;

• the IP PIN is valid for one calendar year; taxpayers must obtain a new IP PIN each year;

• only dependents who can verify their identities may obtain an IP PIN; and

• IP PIN users should never share their number with anyone but the IRS and their trusted tax preparation provider.

Moreover, taxpayers may obtain an IP PIN through Get an IP PIN, the IRS online tool. Taxpayers must validate their identities through Secure Access authentication to access the tool and their IP PIN. Before attempting this rigorous process, taxpayers must see Secure Access: How to Register for Certain Online Self-Help Tools. However, the tool will be offline between November and January. Further, if taxpayers are unable to validate their identity online and their income is $72,000 or less, they may file Form 15227, Application for an Identity Protection Personal Identification Number. The IRS will call the telephone number provided on Form 15227 to validate your identity. However, for security reasons, the IRS will assign an IP PIN for the next filing season. The IP PIN cannot be used for the current filing season.

Taxpayers who cannot validate their identities online, or on the phone with an IRS employee after submitting a Form 15227, or who are ineligible to file a Form 15227 may call the IRS to make an appointment at a Taxpayer Assistance Center. They will need to bring one picture identification document and another identification document to prove their identity. Once verified, the taxpayer will receive an IP PIN via U.S. Postal Service within three weeks. Lastly, the IP PIN process for confirmed victims of identity theft would remain unchanged and they would automatically receive an IP PIN each year.

A family bank professionalizes intrafamily lending

Because of the COVID-19 pandemic and the resulting economic turndown in some areas, you may have family members in need of financial support. If you’re interested in lending money to loved ones in need, consider establishing a “family bank.” These entities enhance the benefits of intrafamily loans, while minimizing unintended consequences.

Intrafamily loans

Lending can be an effective way to provide your family with financial assistance without triggering unwanted gift taxes. So long as a loan is structured in a manner similar to an arm’s-length loan between unrelated parties, it won’t be treated as a taxable gift. This means, among other things, documenting the loan with a promissory note, charging interest at or above the applicable federal rate, establishing a fixed repayment schedule, and ensuring that the borrower has a reasonable prospect of repaying the loan.

Even if taxes aren’t a concern, intrafamily loans offer important benefits. For example, they allow you to help your family financially without depleting your wealth or creating a sense of entitlement. Done right, these loans can encourage responsible financial behavior, promote accountability and help cultivate the younger generation’s entrepreneurial capabilities by providing financing to start a business.

Family banks

Too often, however, people lend money to family members with little planning and regard for potential unintended consequences. Rash lending decisions can lead to misunderstandings, hurt feelings, conflicts among family members and false expectations. That’s where the family bank comes into play.

A family bank is a family-owned, family-funded entity designed for the sole purpose of making intrafamily loans. Often, family banks are able to make financing available to family members who might have difficulty obtaining a loan from a bank or other traditional funding sources or to lend at more favorable terms. By “professionalizing” family lending activities, a family bank can preserve the tax-saving power of intrafamily loans while minimizing negative consequences.

Build a strong governance structure

The key to avoiding family conflicts and resentment is to build a strong family governance structure that promotes communication, group decision-making and transparency. It’s important to establish clear guidelines regarding the types of loans the family bank is authorized to make and allow all family members to participate in the decision-making process. This ensures that family members are treated fairly and avoids false expectations.

Ease financial hardships

It’s possible that someone in your extended family has faced difficult financial circumstances recently. Contact us to learn more about intrafamily loans and family banks.

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DEI programs are good for business

Many businesses are spending more time and resources on supporting the well-being of their employees. This includes recognizing and addressing issues related to diversity, equity and inclusion (DEI).

A thoughtfully designed DEI program can do more than just head off potential conflicts and disruptions among coworkers; it can help you attract good job candidates, retain your best employees and create a more engaged, productive workforce.

Strategic objectives

Essentially, DEI programs are formal efforts to help employees better understand, accept and appreciate differences among everyone on staff. Differences addressed typically include race, ethnicity, gender identification, age, religion, disabilities and sexual orientation. They may also include education, personality types, skill sets and life experiences. A program can comprise training courses, seminars, guest speakers, group discussions and social events.

Strategic objectives may vary depending on the business. Some companies wish to improve collaboration and productivity within or among teams, departments or business units. Others are looking to attract more diverse job candidates. And still others want to connect with growing multicultural markets that don’t necessarily respond to “traditional” messaging.

Think of implementing a DEI program as an investment. It should include specific goals and achievable, measurable returns.

Key components

Many DEI programs fail because of lack of consensus regarding their value or faulty design. Begin with executive buy-in. Successful programs start with the support of ownership and senior leadership. If they’re not committed to the program, it probably won’t last long (if it gets off the ground at all). Typically, a champion will need to build the case of why a DEI program is needed and explain how it will positively impact the organization.

You’ll also need to assemble the right team. Form a DEI committee to identify objectives and give the program its initial size and shape. If you happen to employ someone who has been involved in launching a DEI program in the past, learn all you can from that employee’s experience. Otherwise, encourage your team to research successful and unsuccessful programs. You might even engage a consultant who specializes in the field.

For clarity and consistency, put your DEI program in writing. The committee needs to develop clear language spelling out each goal. The objectives can then be reviewed, discussed and revised. Ensure the objectives support your strategic plan and that you can accurately measure progress toward each. Don’t launch the program until you’re confident it will improve your organization, not distract it.

How work is done

Events of the last year or so have led most businesses to reconsider the size, composition and operational approach of their workforces. In many industries, DEI awareness and training is playing an important role in this reckoning. We’d be happy to help you assess the costs and feasibility of a program for your business.

© 2021