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What businesses can expect from a green lease
With events related to climate change continuing to rock the news cycle, many business owners are looking for ways to lessen their companies’ negative environmental impact. One move you may want to consider, quite literally, is relocating to a commercial property with a “green lease.”
Increasing demand
Green leases are sometimes also known as “aligned,” “energy-efficient” or “high-performance” leases. Whatever the label, they generally use financial incentives to promote sustainable property management and energy usage. The leases typically include provisions related to cost recovery, submeters, data sharing, and minimum efficiency standards. Done right, they can cut energy costs, conserve critical resources, and improve building operations — offering benefits to property owners and tenants alike.
Businesses that sign on to green leases may gain several competitive advantages. Many customers and investors now prioritize visible commitments to environmentally friendly business practices. More and more job candidates do, too. Sustainability is particularly important to Millennials and members of Generation Z, who together now make up the largest subset of the U.S. workforce.
In addition, the pandemic boosted interest in so-called “healthy buildings,” which are often available through green leases. Healthy buildings feature more efficient lighting as well as pathogen-fighting heating, ventilation, and air conditioning (HVAC) systems. For example, they draw in fresh air, as opposed to recirculating indoor air. Some even use ultraviolet germicidal irradiation to kill bacteria and mold, as well as reduce the number of viral particles in the air.
A research study published by Harvard University in 2021 found that working in an office with higher air quality and better ventilation can raise employees’ cognitive functioning. Indeed, subjects’ decision-making performance improved when they were exposed to higher ventilation rates and lower chemical and carbon dioxide levels.
Lease provisions
If your company decides to explore environmentally friendly commercial properties, you’ll likely encounter standardized green leases. However, you may want to negotiate or at least double-check provisions regarding:
Certification. Many commercial properties are certified green under various standards, the most well-known of which is Leadership in Energy and Environmental Design (LEED). The standards usually require periodic recertification. To ensure renewal, property owners may require commercial tenants to use sustainable design components, construction materials, and office equipment.
Improvements. Property owners don’t want to jeopardize their buildings’ certifications with noncompliant tenant improvements. To substantially improve a property, you’ll need to ensure the project satisfies the relevant lease terms. If you install energy-saving improvements that benefit both you and the property owner, the lease should provide for how costs will be shared.
Renewable energy. If applicable, the lease should address how a conversion to a renewable energy source, such as solar panels, will be handled. For example, which party will be responsible for installation and maintenance? Who will receive any revenue from selling excess output to local utilities (where allowed)?
Green leases also may contain provisions related to:
HVAC system design and components,
Water usage,
Energy management and monitoring,
Irrigation and landscaping,
Air quality,
Lighting,
Waste management and recycling, and
Maintenance, including cleaning products used.
A lease may even include transportation components, such as requiring a tenant to provide bike racks or public transportation passes for employees.
Many positives
There are many positive reasons to consider signing a green lease. However, the costs of relocating and ongoing expenses related to the lease still must make sense for your business. FMD can assist you in analyzing the decision, including projecting the financial impact.
© 2023
Beneficial Ownership Reporting Required Under the Corporate Transparency Act
The Corporate Transparency Act (CTA) became law on January 1, 2021, as part of the National Defense Authorization Act for Fiscal Year 2021 (P.L. 116-283). Effective January 1, 2024, certain U.S. and foreign entities doing business in the United States will be required to report their beneficial owners to the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN).
Comment: The CTA is generally intended to increase transparency, and thus discourage the use of shell companies, which is an important step in the fight against money laundering, terrorist finance, corruption, and other criminal behavior.
The Secretary of the Treasury has issued regulations implementing these reporting requirements effective January 1, 2024. The information reported under the CTA will not be available to the general public and may only be used for law enforcement, national security, or intelligence purposes.
Entities Subject to Beneficial Ownership Reporting
All corporations, S Corporations, limited liability companies, and partnerships or other similar entities created under the law of a State or Indian Tribe, or formed under foreign law and registered to do business in the United States (reporting companies) must disclose information regarding their beneficial owners to FinCEN.
Entities Exempt from Reporting
Certain entities do not have to report beneficial ownership under the CTA. These are generally heavily regulated entities that already report such information to other federal agencies or companies with real business activities that are not perceived to be a high risk for money laundering. Exempt entities include, among others:
Companies that employ more than 20 people, report more than $5 million of revenue on their tax returns, and have a physical presence in the United States
Public companies
Financial institutions such as banks, bank holding companies, and credit unions
Insurance companies
Investment companies
Broker-dealers
Pooled investments
Tax-exempt organizations
Information required to be reported
Reporting companies must disclose the identity of each beneficial owner of the company and each applicant with respect to the company. The reported information must include:
Full legal name
Date of birth
Current residential or business street address
Unique identifying number from an acceptable identity document (such as a driver’s license or passport) or a unique identity number generated by FinCEN.
Beneficial owner and applicant
A beneficial owner is an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise:
exercises substantial control over the entity, including CEO, CFO, and COO, OR
owns or controls not less than 25% of the ownership interests of the entity.
The following individuals are not beneficial owners for this purpose:
an individual acting as a nominee, intermediary, custodian, or agent of another individual
an individual acting solely as an employee of the entity
an individual whose only interest in the entity is through a right of inheritance
a creditor of the entity, unless the creditor is also a beneficial owner
a minor child if the parent or guardian’s information is reported
An applicant with respect to a company is an individual who files an application to form an entity in the United States or to register a foreign entity to do business in the United States.
Effective date of reporting
The CTA reporting requirements take effect as of January 1, 2024. The initial report is due no later than January 1, 2025.
Entities formed or registered after January 1, 2024, must report beneficial ownership to FinCEN at the time of formation or registration. Existing entities must file a report within 30 days of any change to their beneficial ownership information.
Penalties
Failure to report or update beneficial ownership information or providing false information may result in civil penalties of up to $500 per day and criminal penalties of up to $10,000 and/or imprisonment of up to two years. An exemption may apply if an individual acting in good faith corrects any inaccurate information within 90 days of submitting the inaccurate report.
The unauthorized disclosure of reported information may also lead to a $500-per-day civil penalty and a criminal penalty of up to $250,000 and/or imprisonment of up to five years.
Contact the FMD team for more information.
Did your spouse’s estate make a portability election? If not, there may still be time.
Portability helps minimize federal gift and estate tax by allowing a surviving spouse to use a deceased spouse’s unused gift and estate tax exemption amount. Currently, the exemption is $12.92 million, but it’s scheduled to return to an inflation-adjusted $5 million on January 1, 2026.
Unfortunately, portability isn’t automatically available; it requires the deceased spouse’s executor to make a portability election on a timely filed estate tax return (Form 706). And many executors fail to make the election because the estate isn’t liable for estate tax and, therefore, isn’t required to file a return.
The numbers don’t lie
When there’s a surviving spouse, estates that aren’t required to file an estate tax return should consider filing one for the sole purpose of electing portability. The benefits can be significant, as the following example illustrates:
Bob and Carol are married. Bob dies in 2023, with an estate valued at $3.92 million, so his unused exemption is $9 million. His estate doesn’t owe estate tax, so it doesn’t file an estate tax return.
Carol dies in 2026, with an estate valued at $15 million. For this example, let’s say the exemption amount in 2026 is $6 million. Because the exemption has dropped to $6 million, her federal estate tax liability is $3.6 million [40% x ($15 million – $6 million)].
Had Bob’s estate elected portability, Carol could have added his $9 million unused exemption to her own for a total exemption of $15 million, reducing the estate tax liability on her estate to zero. Note that, by electing portability, Bob’s estate would have locked in the unused exemption amount in the year of his death, which wouldn’t be affected by the reduction in the exemption amount in 2026.
Take action before time expires
If your spouse died within the last several years and you anticipate that your estate will owe estate tax, consider having your spouse’s estate file an estate tax return to elect portability. Ordinarily, an estate tax return is due within nine months after death (15 months with an extension), but a return solely for purposes of making a portability election can usually be filed up to five years after death. Contact your trusted FMD advisor with any questions regarding portability.
© 2023
Cost containment: An important health care benefits objective for businesses
As the Fed continues to battle with inflation, and with fears of a recession not quite going away, companies have been keeping a close eye on the costs of their health insurance and pharmacy coverage.
If you’re facing higher costs for health care benefits this year, it probably doesn’t come as a big surprise. According to the National Survey of Employer-Sponsored Health Plans, issued by HR consultant Mercer in 2022, U.S. employers anticipated a 5.6% rise in medical plan costs in 2023. The actual percentage may turn out to be even higher, which is why cost containment should be one of the primary objectives of your benefits strategy.
Really get to know your workforce
To succeed at cost containment, you’ve got to establish and maintain a deep familiarity with two things: 1) your workforce, and 2) the healthcare benefits marketplace.
Starting with the first point, the optimal plan design depends on the size, demographics, and needs of your workforce. Rather than relying on vendor-provided materials, actively manage communications with employees regarding their health care benefits. Determine which offerings are truly valued and which ones aren’t.
If you haven’t already, explore the feasibility of a wellness program to promote healthier diet and lifestyle choices. Invest in employee education so your plan participants can make more cost-effective healthcare decisions. Many companies in recent years have turned to high-deductible health plans coupled with Health Savings Accounts to shift some of the cost burden to employees.
As you study your plan design, keep in mind that good data matters. Business owners can apply analytics to just about everything these days — including health care coverage. Measure the financial impacts of gaps between benefits offered and those employees actually use. Then adjust your plan design appropriately to close these costly gaps.
Consider expert assistance
Now let’s turn to the second critical thing that business owners and their leadership teams need to know about: the health care benefits marketplace. As you’re no doubt aware, it’s hardly a one-stop convenience store. Many companies engage a consultant to provide an independent return-on-investment analysis of an existing benefits package and suggest some cost-effective adjustments. Doing so will entail some expense, but an external expert’s perspective could help you save money in the long run.
Another service a consultant may be able to provide is an audit of medical claims payments and pharmacy benefits management services. Mistakes happen — and fraud is always a possibility. By re-evaluating claims and pharmacy services, you can identify whether you’re losing money to inaccuracies or even wrongdoing.
Regarding pharmacy benefits, as the old saying goes, “Everything is negotiable.” The next time your pharmacy coverage contract comes up for renewal, explore whether your existing vendor can give you a better deal and, if not, whether one of its competitors is a better fit.
It’s doable … really
Cost containment for health care benefits may seem like a Sisyphean task — that is, one both laborious and futile. But it’s not: Many businesses find ways to lower costs by streamlining benefits to eliminate wasteful spending and better-fit employees’ needs. The FMD Team can help you identify and analyze each and every cost associated with your benefits package.
© 2023
To avoid confusion after your death, have only an original, signed will
The need for a will as a key component of your estate plan may seem obvious, but you’d be surprised by the number of people — even affluent individuals — who don’t have one. In the case of the legendary “Queen of Soul” Aretha Franklin, she had more than one, which after her death led to confusion, pain and, ultimately, a court trial among her surviving family members.
Indeed, a Michigan court recently ruled that a separate, handwritten will dated 2014, found in between couch cushions superseded a different document, dated 2010, that was found around the same time.
In any case, when it comes to your last will and testament, you should only have an original, signed document. This should be the case even if a revocable trust — sometimes called a “living trust” — is part of your estate plan.
Living trust vs. a will
True, revocable trusts are designed to avoid probate and distribute your wealth quickly and efficiently according to your wishes. But even if you have a well-crafted revocable trust, a will serves several important purposes, including:
Appointing an executor or personal representative you trust to oversee your estate, rather than leaving the decision to a court,
Naming a guardian of your choosing, rather than a court-appointed guardian, for your minor children, and
Ensuring that assets not held in the trust are distributed among your heirs according to your wishes rather than a formula prescribed by state law.
The last point is important because for a revocable trust to be effective, assets must be titled in the name of the trust. It’s not unusual for people to acquire new assets and put off transferring them to their trusts or they simply forget to do so. To ensure that these assets are distributed according to your wishes rather than a formula mandated by state law, consider having a “pour-over” will. It can facilitate the transfer of assets titled in your name to your revocable trust.
Although assets that pass through a pour-over will must go through probate, that result is preferable to not having a will. Without a will, the assets would be distributed according to your state’s intestate succession laws rather than the provisions of your estate plan.
Reason for an original will
Many people mistakenly believe that a photocopy of a signed will is sufficient. In fact, most states require that a deceased’s original will be filed with the county clerk and, if probate is necessary, presented to the probate court. If your family or executor can’t find your original will, there’s a presumption in most states that you destroyed it with the intent to revoke it. That means the court will generally administer your estate as if you died without a will.
It’s possible to overcome this presumption — for example, if all interested parties agree that a signed copy reflects your wishes, they may be able to convince a court to admit it. But to avoid costly, time-consuming legal headaches, it’s best to ensure that your family members can locate your original will when they need it.
Please don’t hesitate to contact FMD if you have questions about your will or overall estate plan.
© 2023
The IRS warns businesses about ERTC scams
The airwaves and internet are inundated these days with advertisements claiming that businesses are missing out on the lucrative Employee Retention Tax Credit (ERTC). While some employers do indeed remain eligible if they meet certain criteria, the IRS continues to caution businesses about third-party scams related to the credit.
While there’s nothing wrong with claiming credits you’re entitled to, those who claim the ERTC improperly could find themselves in hot water with the IRS and face cash-flow problems as a result. Here’s what you need to know to reduce your risks.
ERTC in a nutshell
The ERTC is a refundable tax credit intended for businesses that 1) continued paying employees while they were shut down due to the pandemic in 2020 and 2021, or 2) suffered significant declines in gross receipts from March 13, 2020, to December 31, 2021. Eligible employers could receive credits worth up to $26,000 per retained employee. The credit may still be available on an amended tax return.
The requirements are strict, though. Specifically, you must have:
Sustained a full or partial suspension of operations due to orders from a governmental authority that limited commerce, travel or group meetings due to COVID-19 during 2020 or the first three quarters of 2021,
Experienced a significant decline in gross receipts during 2020 or in the first three quarters of 2021, or
Qualified as a recovery startup business — which can claim the credit for up to $50,000 total per quarter without showing suspended operations or reduced receipts — for the third or fourth quarters of 2021. (Qualified recovery startups are those that began operating after February 15, 2020, and have annual gross receipts of less than or equal to $1 million for the three tax years preceding the quarter for which they are claiming the ERTC.)
In addition, a business can’t claim the ERTC on wages that it reported as payroll costs when it applied for Paycheck Protection Program (PPP) loan forgiveness or it used to claim certain other tax credits. Also, a business must reduce the wage deductions claimed on its federal income tax return by the amount of credits.
Prevalence of scams
The potentially high value of the ERTC, combined with the fact that employers can file claims for it on amended returns until April 15, 2025, has led to a cottage industry of fraudulent promoters offering to help businesses claim the credit. These fraudsters wield inaccurate information and inflated promises to generate business from innocent clients. In return, they reap excessive upfront fees in the thousands of dollars or commissions as high as 25% of the refund received.
The IRS has called the amount of misleading marketing around the credit “staggering.” For example, in recent guidance, the tax agency explained that contrary to the advice given by some promoters, supply chain disruptions generally don’t qualify an employer for the credit unless the disruptions were due to a government order. It’s not enough that an employer suspended operations because of disruptions — the credit applies only if the employer had to suspend operations because a government order caused the supplier to suspend its operations.
ERTC fraud has grown so serious that the IRS has included it in its annual “Dirty Dozen” list of the worst tax scams in the country. In Utah, for example, the U.S. Department of Justice has charged two promoters, who did business as “1099 Tax Pros,” with participating in a fraudulent tax scheme by preparing and submitting more than 1,000 forms to the IRS. They claimed more than $11 million in false ERTCs and COVID-related sick and family leave wage credits for their clients.
Fraudsters have been able to monopolize on the general confusion and uncertainty around the ERTC. A recent congressional hearing found that some of the problems can be traced back to the entirely paper application process created for the credit. This has contributed to a backlog of nearly 500,000 unprocessed claims, out of more than 2.5 million claims that have been submitted.
Although it’s unclear how much progress the IRS has made on the backlog, the agency has announced that it has entered a new phase of intensified scrutiny of ERTC claims. It’s stepping up its compliance work and establishing additional procedures to deal with fraud in the program. The IRS already has increased its audit and criminal investigation work on ERTC claims, focusing on both the promoters and the businesses filing dubious claims.
If you fell into the trap and are among those businesses, you could end up on the hook for repayment of the credit, along with penalties and interest, on top of the fees you paid the promoter. That could make a substantial dent in your cash flow.
Even if you’re eligible for the credit, you could run into trouble if you failed to reduce your wage deductions accordingly or claimed it on wages that you also used to claim other credits. As the IRS has noted, promoters may leave out key details, unleashing a “domino effect of tax problems” for unsuspecting businesses.
Moreover, providing your business and tax documents to an unscrupulous promoter could put you at risk of identity theft.
Red flags to watch for
The IRS has identified several warning signs of illegitimate promoters, including:
Unsolicited phone calls, text messages, direct mail, or ads highlighting an “easy application process” or a short eligibility checklist (the rules for eligibility and computation of credit amounts are actually quite complicated),
Statements that the promoter can determine your ERTC eligibility within minutes,
Hefty upfront fees,
Fees based on a percentage of the refund amount claimed,
Preparers who refuse to sign the amended tax return filed to claim a refund of the credit,
Aggressive claims from the promoter that you qualify before you’ve discussed your individual tax situation (the credit isn’t available to all employers), or
Refusal to provide detailed documentation of how your credit was calculated.
The IRS also warns that some ERTC “mills” are sending out fake letters from nonexistent government entities such as the “Department of Employee Retention Credit.” The letters are designed to look like official IRS or government correspondence and typically include urgent language pushing immediate action.
Protect yourself
Taking several simple steps can help you cut your risk of being victimized by scammers. First, if you think you may qualify for the credit, work with a trusted professional — one who isn’t proactively soliciting ERTC work. Those who are aggressively marketing the credit (and in some cases, only the credit) are more interested in making money themselves and are unlikely to prioritize or protect your best interests.
You also should request a detailed worksheet that explains how you’re eligible for the credit. The worksheet should “show the math” for the credit amount as well.
If you’re claiming you suspended business due to a government order, ensure that you have legitimate documentation of the order. Don’t accept a generic document about a government order from a third party. Rather, you should acquire a copy of the actual government order and review it to confirm that it applies to your business.
Proceed with caution
No taxpayer ever wants to leave money on the IRS’s table, but skepticism is warranted whenever something seems too good to be true. If you believe your business might be eligible for the ERTC, we can help you verify eligibility, compute your credit, and file your refund claim. FMD can also help you determine how to proceed if you claimed the ERTC improperly.
© 2023
5 tips for more easily obtaining cyber insurance
Every business should dedicate time and resources to cybersecurity. Hackers are out there, in many cases far across the globe, and they’re on the prowl for vulnerable companies. These criminals typically strike at random — doing damage to not only a business’s ability to operate but also its reputation.
One way to protect yourself, at least financially, is to invest in cyber insurance. This type of coverage is designed to mitigate losses from a variety of incidents — including data breaches, business interruption and network damage. If you decide to buy a policy, here are five tips to help make the application process a little easier:
1. Be detail-oriented when filling out the paperwork. Insurers usually ask an applicant to complete a questionnaire to help them understand the risks facing the company in question. Answering the questionnaire fully and accurately may call for input from your leadership team, IT department, and even third parties such as your cloud service provider. Take your time and be as thorough as possible. Missed questions or incomplete answers could result in denial of coverage or a longer-than-necessary approval time.
2. Establish (or fortify) a comprehensive cybersecurity program. Your business has a better chance of obtaining optimal coverage if you have a formal program that includes documented policies for best practices such as:
Installing software updates and patches,
Encrypting data,
Using multifactor authentication, and
Educating employees about ongoing cyber threats.
Before applying for coverage, either establish such a program if you don’t have one or strengthen the one in place. Be sure to generate clear documentation about the program and all its features that you can show insurers.
3. Create and document a disaster recovery plan. An effective cybersecurity program can’t focus only on preventing negative incidents. It must also include a disaster recovery plan specifically focused on cyber threats, so everyone knows what to do if something bad happens.
If your company has yet to create such a plan, establish and implement one before applying for cyber insurance. Put it in writing so you can share it with insurers. Review your disaster recovery plan at least annually to ensure it’s up to date.
4. Prepare to be tested. Some insurers may want to test your company’s cyber defenses with a “penetration test.” This is a simulated cyberattack on your systems designed to uncover weak points that hackers could exploit. Before applying for cyber insurance, conduct a thorough assessment of your networks and, if necessary, train or upskill your employees to follow protocols and be wary of “phishing” schemes and other threats.
5. Consider a third-party assessment. To better uncover weaknesses that could result in a denial of coverage or unreasonably high premiums, you may want to engage a third-party consultant to assess your cybersecurity program, as well as your equipment, network, and users. Doing so can be beneficial before applying for cyber insurance because some IT security firms maintain relationships with insurers and can help streamline the application process.
Like most types of coverage, cyber insurance is a risk-management measure worth exploring with your leadership team and professional advisors. Contact FMD for help determining whether buying a policy is the right move and, if so, for assistance analyzing the costs involved and developing a budget.
© 2023