Unique Tax Situation

Our team is here to assist you whether you are feeling overwhelmed by the prospect of contemplating all of the potential tax breaks for which you may be eligible or whether you are unsure as to whether or not you have the necessary documentation to apply an application for a tax credit. We will evaluate your requirements as well as the costs connected with them in order to determine whether or not you are eligible for tax advantages.

Our knowledgeable team of specialists, which is tailored to meet your unique requirements, assists you in navigating the difficulties by bringing a complete grasp of the appropriate statutes, regulations, and administrative guidelines on a wide variety of tax advantages. Because of the process that we have built, you will have faith in the judgments you make and documentation that you can depend on in the event of an audit.

The separation of costs

The process of cost segregation can help taxpayers who have recently constructed, acquired, or remodeled a building to uncover significant prospects for tax savings. The method utilizes the skills of professionals in the fields of engineering, building, and tax to achieve the goal of maximizing tax deductions for both past and present real estate investments. We will make sure that you are using the tax law to its full potential, taking into account the changes brought about by the Tax Cuts and Jobs Act concerning the application of bonus depreciation and deductions under Section 179.

Credit for keeping on employee members

In order to provide assistance to employers that have been impacted by the COVID-19 epidemic, the CARES Act established the employee retention credit (ERC). In December of 2020, the Consolidated Appropriations Act, 2021 was signed into law, which resulted in the expansion and modification of the ERC. In addition to assisting you with calculation and assistance, the tax credit specialists we employ may check to see that you are making the most of the ERC’s benefits.

Tax credits for historic properties

Our vast knowledge in the structuring of Historic Tax Credit transactions has earned us a name in the tax credit syndication sector as a leader, which has contributed to the establishment of that reputation. We provide services such as project feasibility analysis, dynamic financial projection modeling, transaction structuring, and tax planning to guarantee that the maximum value possible is obtained from available tax advantages. We provide assistance with finding and assessing tax credit investor offers, cooperating with legal counsel and document review, cost certifications, safe harbor reasonableness views, as well as continuing audit and tax compliance.

Companies that sell domestically but internationally are subject to an interest charge (IC-DISCs)

An IC-DISC is a type of export incentive that entails the formation of a new business that is free from taxation at both the federal and, in many cases, the state level. An IC-DISC structure might be a valuable instrument for reducing your tax burden if you are a manufacturer or exporter of goods from the United States that are ultimately destined for a location outside of the United States. Our research shows that tightly held enterprises who have qualifying export sales that are greater than one million dollars stand to benefit the most from this structure; nonetheless, nearly every U.S.-based exporter stands to gain something by using an IC-DISC.

Credits for low-income dwellings under the tax code

One of the most efficient methods of financing the development of high-quality housing that is also cheap is the use of low-income housing tax credits (LIHTC). You can depend on us to provide direction and help throughout the life cycle of your project. Successfully navigating the labyrinth of ever-changing LIHTC program requirements, IRS rules, and the ever-changing needs of investors, lenders, and other stakeholders is crucial to your success. Among our most important services are analyses of projects’ feasibilities, assistance with and reviews of applications, analyses of term sheets and investment proposals, financial projections, LIHTC cost certifications, asset management and assistance with workouts, exit analyses, and ongoing audits and compliance with tax laws.

Credits for New Markets under the Internal tax Code

New Markets Tax Credits (NMTCs) are an option to take into consideration if you are looking for funding for a project that will either produce economic growth or increase the number of services that are accessible in a community with a low income. As the industry leader in tax credit syndication, we offer a full range of services, such as transaction structuring, tax planning, and the feasibility of projects, as well as dynamic financial projection models. Our goal is to ensure that tax incentives provide the greatest maximum return on investment. In addition, we are able to assist you in identifying tax credit investors, assessing eligibility, receiving NMTC allocation from community development entities, assisting you with the application process, and providing continuous audit and tax compliance services.

Opportunity zones

The Opportunity Zone initiative offers investors additional opportunities to delay the realization of capital profits and to have an effect on their communities. Our team will work with you to leverage this new tax incentive to your benefit, from the complex transaction structure and regulatory compliance to the development of funds and the assistance provided to municipalities in the promotion of their zones. We are able to assist you in formulating a plan that takes into account the tax implications of an opportunity zone fund and makes use of the incentive to drive your overall investment strategy.

Tax credits for renewable sources of energy

There has been a level of investment in alternative energy projects that has not been seen before as a direct result of recent legislation. This legislation includes the American Recovery and Reinvestment Act as well as state regulations for the generation of renewable energy. Your capacity to obtain the necessary funds by taking success of available tax credits, grants, and other associated incentives will, nevertheless, have a direct bearing on how successfully your project turns out. We will assist you in assessing the many available alternatives, gaining access to funding, and maximizing your rate of return for your project, regardless of whether it will evaluate solar, wind, or biomass energy. Sources of funding include federal and state incentive programs, attractive depreciation rights, investment tax credits and grants, production tax credits, renewable energy credits, and favorable depreciation rights.

Credits for tax related to research and development

Research and development (R&D) tax credits provide a significant opportunity for creative businesses to reduce their overall tax liability by claiming deductions for qualified research and development expenses. Nevertheless, the attractive incentive is subject to examination by the IRS. Because you, the taxpayer, are the one who is responsible for providing proof, it is imperative that you have a comprehensive awareness of the rules surrounding which activities and costs are tax deductible. Our diversified team of R&D tax credit specialists go beyond compliance, taking into consideration a balance of value, risk, and cost in order to assist you in maximizing and maintaining your advantages. The requirements can be complex to understand.

The price of transfers

Transfer pricing is becoming an increasingly important topic of focus for revenue authorities all over the world as rules concerning it are being implemented in nearly every country. The rules that must be followed in order to appropriately determine and then defend arm’s-length intercompany pricing are complex, and many nations demand extensive documentation to be submitted. Our team of global professionals has the depth of knowledge and the expertise in international markets to assist you in formulating a tax that minimizes the possibility of loss, satisfies regulatory requirements, and improves your financial standing.

How employers in the nonprofit sector might become eligible for employee retention credits?

Payroll tax savings of large sums are available to eligible tax-exempt employers who take advantage of employee retention credits. This is the information that your organization needs to be aware of.

The Emergency Response Commission was initially enacted in March of 2020 as a result of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Subsequently, in December of the same year, the Consolidated Appropriations Act (CAA) amended and expanded the ERC. The American Rescue and Reinvestment Act was used by Congress in March of 2021 to grant an extension of the ERC for the rest of the year 2021. (ARPA). The Internal Revenue Service (IRS) just recently issued guidelines that highlights many of the nuances of the credit, in particular specific parts that are different for tax-exempt organizations in comparison to for-profit entities. The nuances will be the primary focus of this article.

As was discussed in our article titled “New employee retention credit opportunities exist for 2020 and 2021,” qualification for the ERC is based on either proving a significant decline in gross receipts between comparable quarters post-pandemic (2020 or 2021) and pre-pandemic (2019) or documenting a partial or complete suspension of operations. Both of these requirements must be met in order to be eligible. After an employer has been determined to be eligible for the credit, the manner in which it computes its credit will vary according to whether the employer is considered a large employer or a small employer according to the definition. A company is considered to be a small employer for the year 2020 if it has less than one hundred full-time equivalent workers (FTEs) in the previous year. A company is considered to be a small employer in 2021 if it has 500 full-time equivalent employees or less in 2019. According to the accompanying article, employers may be eligible for a tax credit of up to $5,000 per employee in 2020, and up to $7,000 per employee every quarter beginning in 2021.

A calculation of a nonprofit organization’s employee retention credits based on its gross income.

In order to determine whether or not an employer has seen a “substantial drop” in gross receipts, the following standards must be applied:

  • In order to qualify for the ERC in 2020, the gross receipts of any given quarter in 2020 must be lower by at least fifty percent compared to the same quarter in 2019. If they are, then the ERC is available in that quarter. The ERC is also accessible in each succeeding quarter of the year, as long as the gross revenues for that quarter are at least 80 percent of what they were in the previous 2019 quarter.
  • In order to qualify for the ERC in 2021, the gross receipts of either of the first two quarters of 2021 must be lower than 80 percent of the gross receipts of the same quarter in 2019. If they are, then the ERC will be accessible in that quarter. Employers have the option of using the total gross receipts from the previous calendar quarter for this evaluation. For instance, in order for the employer to determine whether or not the employee would be eligible for ERC benefits in the first quarter of 2021, the employer may compare the gross revenues from the fourth quarter of 2020 and the fourth quarter of 2019. In addition, employers that did not exist in 2019 but will do so in 2021 and wish to compare their gross revenues to those of the equivalent quarter in 2020 may do so.

The rules found in Form 990 are followed for calculating gross receipts for tax-exempt entities. This comprises not just financial donations and revenue from programs, but also income from investments such as dividends and interest, as well as the gross revenues from the sale of any assets. It does not take into account any profits or losses that have not yet been achieved. It does not take into account donations in the form of services or rent either. The need that quarterly reports of gross receipts be filed adds still another layer of complexity to the situation. If there are any questions regarding the calculation of gross receipts, organizations should confer with their various professional advisers.

Full or partial suspension

It’s full that many organizations that don’t fulfill the gross revenues criteria will argue that their operations were either completely halted or, more likely, just partially halted as a result of the recent government shutdown. The Internal Revenue Service (IRS) has issued Notice 2021-20, which provides some insight into a “partial suspension.” In previous advice, the IRS explained that a partial suspension occurs when COVID-19-related government orders cause more than a nominal fraction of activities to be halted. This is the definition of a partial suspension.

It was indicated in Notice 2021-20 that alterations that resulted in a diminution of the employer’s capacity to offer goods or services by 10 percent or more would be considered a more than nominal percentage of operations. It is not difficult to see how a criteria of “a decrease of 10 percent or more” may be applied to organizations that are exempt from paying taxes. We have high hopes that further clarification will be provided soon. We strongly encourage organizations to properly document and evaluate their justification for claiming a partial suspension, and we warn them to do so.

The calculation of employee retention credits based on headcount in nonprofit nonprofits

The number of full-time equivalent employees is the most important criterion to consider when estimating the potential size of an organization’s ERC. As was mentioned before, there are distinct rules that apply to small employers as opposed to large employers, with the credit being significantly more beneficial for small employers. In 2019, employers determine their size based on the number of FTEs employed.

In this context, it is essential to keep in mind that these figures differ from normal FTE counts in the following ways:

  • For the calendar year 2019, the norm is 30 hours per week, which equates to 130 hours per month when calculated on a month-by-month basis. If an employee does not reach the criteria, then they are not included as an FTE and their contribution to the total number of FTEs is 0. An employee who works more than 30 hours per week is considered to have one FTE, whereas an employee who works only 15 hours per week is considered to have zero FTE, not.5 FTE.
  • The calculation is an average of the total number of FTEs for each of the 12 months. To determine your number, you first count up the employees who fulfill the FTE requirement for each month, and then you take the monthly number and average it out over the course of the year.
  • Take the first example, Summer Camp, which employs five full-time equivalent employees for nine months of the year but 1,000 for the other three months. The monthly FTEs average out to be 254. For the purpose of the credit for the year 2020, Summer Camp is regarded a large employer, however for the credit for the year 2021, Summer Camp is considered a small employer.

Here’s a second illustration of how the W-2 form works: an education organization sends out 2,000 of these, including 1,900 to tutors who each work 20 hours or fewer per week on average. Additionally, there are one hundred people working for the organization in administrative, managerial, and fundraising services for a combined total of over thirty hours every week. For the purposes of the ERC, the average number of monthly FTEs is 100. Both in 2020 and 2021, an education organization will fall under the category of a small employer.

Aggregation rules

The calculation of both gross income and full-time equivalent employees can be made more difficult in circumstances in which the business has relationships to other entities that, taken together, bring them closer to or over the threshold. The Internal Revenue Service has not published any frequently asked questions (FAQs) on the subject of how to assess aggregation for linked tax-exempt organizations.

Aggregation in the nonprofit sector appears to be required when multiple entities have an 80 percent control overlap. This can mean an 80 percent direct or indirect overlap in or control of trustees/directors among the entities in a group. Our interpretation of the ERC statute and related IRC regulations leads us to this conclusion. Aggregation may also come into play when there is a common mission, overlap in workforce, or some other close connection that enables taxpayers to aggregate for the purposes of setting up qualified plans and other permitted benefit plans. Aggregation may also come into play when there is a common mission, overlap in workforce, or some other close connection.

The PPP as well as the ERC

Any employer who took out a loan via the Paycheck Protection Program (PPP) was immediately prohibited from claiming the Employer Responsibility Credit (ERC), as stated in the original provisions of the CARES Act. This limitation was relaxed retrospectively by the CAA, allowing employers that received PPP funds in 2020 or 2021 to continue to be eligible for the ERC benefit. However, salaries that are included in an application for PPP debt forgiveness may not be eligible for inclusion in the ERC calculation. The most recent guidelines issued by the IRS makes it quite obvious that meticulously completing a PPP forgiveness application in order to limit earnings allocated to forgiveness will assist boost wages that are available to apply to the ERC.

However, salaries that are included in an application for PPP debt forgiveness may not be eligible for inclusion in the ERC calculation.

Beware double-dipping

It is imperative that nonprofit organizations that receive funding from the federal, state, or local government take extra precautions to avoid claiming the ERC on salaries that are directly allocated to a grant arrangement. In a similar vein, organizations need to be aware of the potential for comparable limits to exist in connection with foundation donations that are used to finance certain workers. It is our recommendation that organizations that are awarded this kind of financing give careful consideration to the constraints to which they may be subjected and confer with relevant specialists in order to evaluate the funds they are awarded.

Support for tax-exempt organizations

As is the case with any discussion pertaining to taxes, the manner in which these rules are applied to your situation will depend primarily on the particular facts and conditions that pertain to your charitable organization. In terms of COVID-19 relief, the rapidity with which specific legislation is being enacted further complicates the discussion at hand. Please get in touch with the engagement team at Plante Moran if you have any questions regarding the ways in which these rules impact your organization or about the ways in which any modifications to these rules might potentially impact you in the future.

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