Virtual Tax Forum | Cash Preservation in the Time of COVID-19: Six Tax Strategies You Need to Know Now
Date: April 21, 2020
Good afternoon, everyone. Welcome to today’s webinar titled Cash Preservation in the Time of COVID 19: Six Tax strategies You Need to Know Now. We thought about calling it Cash is King, but I think we got the point across with our current title. My name is Steve Kranz. I’m a tax partner at McDermott Will & Emery in the DC office, and I’m joined today by six of our partners in the tax group. Sandra McGill, who focuses on international tax planning and advises multinational companies on a broad range of cross border tax issues. Dave Noren, who also focuses on international tax planning and who previously served as legislative council to the Joint Committee on Taxation, readvised on proposed international tax legislation. Katie Quinn, who’s in the state and local tax group here, and focuses on planning and tax controversy. Alex Ruiz, who helps companies on the tax aspects of complex domestic and cross border transactions. Andrew Liazos who heads the firm’s executive compensation group and advises on executive compensation and benefits matters. And David Fuller, who advises on employee benefits matters and is a former manager of the IRS national office’s employment tax infringed benefits branch. Just a reminder that if you are interested in CLE and CPE, we are, you must participate by a laptop and cannot participate by phone. If you’re requesting CLE credit for New York, you must stay until the end of the presentation and we will announce the New York CLE code, which you will have to enter into your evaluation in order to receive New York CLE credit. Thank you to all those who asked questions during the registration process. We will address them during the presentations, and we’ll have a short Q&A at the end of the discussion today. If you want to ask a question while the presentation is going on, simply type it into the Q&A function at the bottom of your Zoom screen using the webinar toolbar, and we’ll do our best to answer in real time or during the Q&A portion at the end. Now going to turn the mic over to David Fuller, who will be speaking from our employee benefits and executive comp group on how to preserve and protect your workforce and your business through payroll tax credits and other opportunities. David? Thank you very much, Steve. When we were talking about six strategies, I thought that I was actually supposed to do six of my own strategies. But there, there are actually six strategies that fit nicely with the program title. So we can go to the first slide, please. So you see in front of you six strategies that exist. The first is based in statute, so it is an internal revenue code, provision code section 139. The next two, the payroll tax deferral, employee retention tax credits are new and those are in the CARES Act. And then the last two strategies are solely a matter of IRS administrative grace. And the IRS—yes, IRS can have administrative grace at times. And these three programs do show that. So going to the next slide we’ll talk about qualified disaster assistance relief. This is perhaps one of the most unique and beneficial code sections that I have ever encountered. It was enacted after the terrorist attacks of 9/11 and it is a means by which employers and non-employers can make payments, in this case to employees who have unreimbursed expenses associated with COVID 19. And you’ll see in the list below, the overview. There’s all sorts of expenses that are listed. The expenses can be personal nature, they can be qualified as a work related, otherwise non-deductible deductible, just a wide range of expenses. An employer could make payments to its employees, and those payments, from a tax perspective, they won’t be included income. There will be no W2 reporting. No 1099 reporting. No FICA, if you had income tax withholding, and the employer gets a full deduction for the payments. And what makes this even more noteworthy is that there’s no formal program documentation required. You don’t even have to have a policy statement. Although, I recommend to clients that they do have a policy statement. And there’s no expense substantiation required. So it’s really one of those classic win-win-win programs. At the end of my slide presentation, I’ve got a spreadsheet of which highlights each of these various programs, and I’ve written, I think, four articles in the last 3.5 weeks, which highlight several of these programs, including the Qualified Disaster Assistance Relief program. So you can click those, read them and come back with any questions. Next slide, please. So the CARES Act enacted two very important subtitle C provisions. The first is the payroll tax deferral provision. This is a provision which is available to all employers. So, there have been some questions as to whether if you have less than 500 or less than 100. Every employer in the country can take advantage of this, even if you’re a government employer. So it allows for the deferral of the employer social security taxes for a minimum of 12 months up to a maximum of 33 months, depending on when you’re running the wage calculation and the deferral period. So it, again, it’s a deferral of 6.2% of the social security wage base, and 50% of the taxes will be due on 12-31-2021, and remaining 50% on 12-31-2022. There was some confusion as to whether Medicare taxes could be deferred. They cannot be deferred. Special note, a noteworthy provisions in the payroll tax deferral. Again, all employers are eligible. There is one caveat with respect to employers. And those are employers who have the SBA PPP loans, they can take the deferral, however, when they receive notice of forgiveness of the loans, they cannot defer future employer social security taxes. The amounts deferred up to date can continue to be deferred, but there can be no new deferrals. And that’s been a subject of some dispute, I’ve seen half of the advisers say, no, you can’t, but the IRS came out with FAQs about week and a half ago, so it’s absolutely clear that you can defer, but only—once the notices of forgiveness come, you can’t defer after that. Also noteworthy is that the IRS announced relaxed IRS deposit penalty positions, and this is relevant because some of these provisions that we’re talking about, there are some significant penalties. And so here you’re going to see relaxed IRS interpretations of the deposit rules. Next slide, please. Perhaps the most important of the two CARES Acts provisions is the employee retention tax credits. We received a number of questions in advance, and I’m getting, constantly been getting questions through clients and other partners in the firm on this provision. There are a lot of gray areas in the statute which you can expect for being so hastily prepared and, you know, passed and enacted by Congress and the president. But overview is that it’s a 50% credit of the first $10,000 in qualified wage payments that employer pays to its employees to retain them during the COVID 19 crisis. And the retention issue really is gray because it isn’t always an issue of retaining or not retaining the employees. But the tax treatment ultimately is a $5,000 payroll tax credit per employee. And what makes it very unique is that it’s a immediately refundable credit, so that an employer can recoup it through its other payroll tax deposits. So even though it’s an employer social security tax credit, the amounts are recouped through federal income tax withholding from the employee, the employee’s FICA taxes, and all the employer Medic—Medicare and social security taxes. So you can make the payment and then literally, the next time you have a payroll tax deposit, you can recoup one half of the cost of payment. There are two fundamental requirements. There are more requirements but two fundamental requirements of the employee retention tax credit. The first is that there’s a full or partial suspension of business operations due to a governmental order associated with travel, meetings, and commerce. This raises questions because sometimes they’re essential services, and we have had clients who are subject to essential services provisions, and they’re not shut down. But we think there can be interpretations that they are subject to a partial suspension. So we’ve seen a lot of questions there. I know one of the questions in advance of the, today’s webinar asked that. But yes, it is gray area. You have to be very careful in how you look at this and apply it. The second criteria, and this is the criteria for employers with 101 full-time employees or more in the preceding calendar year. There are more relaxed rules for employers with less than 100 employees. But those rules, we assume, are not really applicable for most of the participants in today’s webinar. So anyway, for 101 or more full-time employees, the provision applies to wages that are paid when an employee is not performing services for the employer. And that raises the question of what are wages? And, clearly as the normal payroll wages, we think it could be interpreted applying to vacation pay, sick pay, and then also health care expenses. You have to be very careful with health care expenses because the statute says it’s the properly allocable share of health care expenses. So if you pay an employee $1 on payroll period, do you get the full allocable share of health care expenses? And that is one of the gray areas, which is open to interpretation and is one that you have to very carefully consider with counsel. Next slide, please. David, before you go on, could you, we had a question about the dates covered by the deferred payment of employer social security taxes. Do you know if the 6.2% deferral is just from March 27th through December 31st? It is. There, there have been questions as to whether it’s going to apply, extend into 2021, and there’s no indications that that will be the case. So it’s only the payroll taxes, the employer portion of the social security taxes that are paid after the date of the enactment through 12-31-2020. So next slide, please. So who are the eligible employers here? And this is one of the areas that is subject to some interpretation. It’s not as broad as the payroll tax deferral period, but excluded employers currently or government employers, so this would include some hospitals that are related to our instrumentalities of state local governments, but most federal and state agencies, I think it’s pretty clear that they’re not going to be entitled to their credits. And then employers who receive, unlike the deferral where you can receive a loan and then you lose the eligibility once it’s forgiven, here if the employer has received the loan, they’re no longer eligible to—they’re not, they’re not eligible at all to take any of the credits. And this, we think is a pretty easy determination where there’s aggregation rules that apply, so you may have a controlled group in one entity and the controlled group has received the SBA PPP loan and through aggregation, you do lose the ability to claim the employee retention tax credit. So special notes with respect to these—and there’s, there’s really many, but I put down three. There are potential penalties here. And the penalties can actually exceed 30% of the credit claimed. The two penalties are payer failure to deposit penalties, which are typically 10%, they can go up to 15%. And then there’s a penalty for claiming excess credits or refunds. Importantly, both of these penalties are abatable for reasonable cause. So that’s a very important provision to think about. Of the six programs I’m talking about today, none of the six, except for employee retention tax credits, would I recommend looking at and exploring an opinion. But an opinion would be per se reasonable cause, so because the expenses are, I’m sorry, the penalties are, fairly excessive, and because there are some gray areas and areas subject to different interpretations, it is one where you might want to consider a tax opinion to ensure you’re not going to get hit with penalties by the IRS. Next slide, please. So just to give you a real quick highlight of how these credits may be available even when you might not think they are. We have a hospital client call in about two weeks ago to talk about, it was a routine leave bank question, or so we thought. Within 15 minutes of talking to the client, we had obtained enough facts that even though it was a hospital providing essential services, we became convinced that it was subject to a partial suspension. We also became convinced, even though it was not paying furloughed employees wages, it had a leave program, which we thought qualified for the employee retention tax credits. So in the matter of an hour, we left the telephone conference call fairly confident that this client, when you looked at the various interpretations, which again, are stuck to some of the gray areas, we nonetheless were confident they were going to be entitled to an $8 million to $16 million tax credit. Obviously a very happy client, who again, was calling about a leave bank question. And, you know, it had gone through the employee retention tax credit provisions before, felt confident was not entitled. After the call, they felt confident they were entitled. Again, because of the gray areas, they did seek an opinion to ensure they’re not going to be hit with any penalties from the IRS. Next, next slide, please. So this, this next topic, as with the remaining three topics, I’m going to cover them in very, very high level. All three are subject to interpretation by the IRS solely through revenue rulings or IRS notices. SUB-pay is inherently not a tax prov—it’s not a tax-oriented benefit. In fact, the tax issues are the tail of wag the dog, but basically, it’s a methodology by which employers can convert severance into the SUB-pay to enhance state, to enhance eligibility for state unemployment benefits. So historically, severance benefits, severance payments disqualify employees from receiving state unemployment benefits. Either—and now, and back in the fifties, they clearly disqualified. Currently, they can delay or disqualify depending on the state. So the benefit of a SUB-pay plan, and I show some of the minimum requirements, there are some other requirements which are mainly drafting requirements, but through the SUB-pay plan, the non-financial aspect under the special notes is that you ensure eligibility of the employees for state unemployment benefits. And this becomes really relevant, especially under the CARES Act because there are also significant financial savings, because if you have what’s known as an offset plan, the state government, in essence, picks up your severance costs. And now, with the enhanced unemployment benefits being provided by the federal government, you can have some employers who are going to shift 80% up to 100% of their severance payments solely to the states and the feds through the unemployment benefits. And then the tail that wags the dog or the FICA tax savings. So that’s 7.65 for the employer, 7.65 for the employees. We’ve had many clients in the past. That’s why they want the SUB-pay plans, just for these benefits. But they often overlook the financial statements through an offset plan. I have an article attached to the last slide, which there’s a link to, which talks about SUB-pay plans. Next slide, please. The next program also is a program that the IRS identified through administrative pronouncements. And this is a program whereby employees who have excess in leave can donate it or contribute it, deposit it into a leave bank and employees who are low on leave or who were going to expend all their leave, through either medical emergency or major disasters such as we’re seeing with COVID 19, they can withdraw. This is a provision, I don’t know if you’ve ever heard of digest rulings, but this is a digest ruling. And basically the IRS lays out a set of facts and then gives an interpretation without any analysis of law, because there can be no analysis of law because it trumps any normal application. So this digest ruling by-passes the assignment of income doctrine, so the employee who deposits into the leave bank is not taxed on their deposits. The employee who withdraws from the leave bank is taxed at their wage rate and their payroll tax rate. So financial savings, I’ve seen in some instances because of the disparity and demographics that you can have the cost of a leave bank actually more than pay for itself. So you have highly compensated employees donating. That’s how they compensate employees withdraw. And so the employer, actually, it pays for itself. And then, if you integrate it with the employee retention tax credit of the CARES Act, you can even have greater advantages. But typically it’s not a tax protem per se, but it is a, more of a way to shift leave between employees. But again, it has some significant tax advantages, especially under the CARES Act. Next slide, please. So the last part I’ll talk about also is a matter of IRS notices, and, you know, the prevision here you may have seen before with respect to earthquakes, hurricanes, floods. It’s a means by which employees, again with excess leave, they can donate the excess leave through the employee to designated charities who are assisting with the declared disasters. You think, well, what’s the benefit here? Well, it’s a very significant benefit because these donations are above the line, so it has very significant and, significant benefits which far exceed if the employee had paid with after tax monies. The IRS has a non-enforcement position because this does, you know, the IRS’s position trumps the assignment of income and constructive receipt doctrines. The employees, they save income taxes. the amounts aren’t put on their W2, not reported on the 1040. Since these are actually then converted into employer contributions, the employees can’t claim them on their 1040. So the employer saves FICA taxes as well, and the employer receives a full deduction. So this is a far more efficient means to donate to a charity, and the charities can actually get a greater donation through the charitable leave donation programs then if you donate with the pay you receive from your employer. Next slide. So this is my last slide, and it gives the highlight of the six the programs that I’ve talked about. Talks about who the next employers are, what the cash savings would be per $1 million in wages paid. And in that regard, look at the footnotes, it talks about the cost to adopt or implement and then talks about the tax exposure, including, I do highlight on one, the need for, you know, really strongly consider employee retention tax credits, the opinions. The other five, I don’t think they’re necessary. And then it talks about next steps, what you should do. And then in the last there are links to some of the articles I’ve written. On two of the other topics I have articles coming out with Bloomberg Law in the next week or two. And then the last, there will be an article later in spring. So, as always, feel free to link those articles, read them, come back to us with questions, come back to your McDermott law attorney contact, and we’ll be pleased to assist you in every way possible. Thank you very much. Thank you, David. We have a number of questions that have come in the system. We’ll save them for the Q&A portion and have David Fuller back to answer them. In the meantime, we’ll turn it over to Dave Noren, who, as mentioned earlier, is part of our US and international tax team, is going to talk about the CARES Act and how to leverage 2020 losses to generate tax refunds in prior years. We’ll be focused on the federal side here, later in the program we’ll talk about the state and local side as well. Dave? Thank you, Steve. So what did the CARES Act do on the business income tax side, with a view to enhancing liquidity? I’ll talk about a few of the main ones. Probably the most important in many cases will be the modifications made to the net operating loss or NOL rules. Historically, the ability to carryback NOLS to prior years has been use—has been viewed as, sort of, a counter—sort of a built in counter cyclical tool in that, you know, when in times of trouble, if a business has a loss in one year, you can then file that carryback and file refund claim for prior years and get, and, you know, get a refund check from the from the IRS. Tightening these rules, unfortunately, at least unfortunately in the present scenario, was a major revenue raiser in the 2017 legislation, which eliminated NOL carrybacks altogether and imposed an 80% taxable income limit on the abilities of NOLs to offset regular income in carry to year. Well, the CARES Act, you know, the Congress just, you know, recognized that in light of the, you know, current distress, it would be a good time to suspend these rules. And so what the CARES Act does is for NOLs arising in a tax year beginning, beginning in 18, 19, or 20, you can carry those back for five years and get the tax refunds. Notably, the ability to look at 18 and 19, obviously that was prior to this economic crisis, but if you did happen to have losses, that gets you more immediate relief in that you can, you can already sort of file that return and you’re in a position to know your loss for the year and get a quick refund. Whereas for 2020, you know, we’re obviously still in 2020 and so you won’t know the amount of your NOL until the close of the year. So, yeah, you get to clo—you get to carry the NOLs back as far as 2013. There’s sort of there a nice built in rate arbitrage here, in that you’re taking a 21% attribute and getting to offset prior year income, in many cases, that was taxed at 35%. Sandra will talk about, you know, I’m giving the good news part of the story, she’ll, she’ll give some of the nuance and some of the potential bad news. In some cases, you might not want to carryback an NOL. So there are procedures, including those set forth in rev proc. 2020-24, which came out on April 9th for waiving, or in some cases reducing the carryback period. The CARES Act also removes the taxable income limitation, so you can offset 100% not just 80% of taxable income. And there’s a coordination rule where you’re carrying back to, to a year where you had Section 965 transition tax. To cut to the chase, basically it allows you to manage the interaction of the NOL and the foreign tax credit in such a way as to, as to get, sort of, maximum value out of each attribute of the foreign tax credit and the NOL, respectively. So how do you go about this? The, you know, the most efficient way to get a refund is through filing a, so-called, tentative refund claim under section 6411. And so that’s IRS forms 1139 or 1045, in the case of an individual. What’s good about the tentative refund process is that the IRS kind of processes it quickly, albeit tentatively, and aims to get you your cash in 90 days. You also sort of defer the JCT, the Joint Committee Refund review process until after the amount has been paid. So, the tentative refund process is generally the way to go rather than filing an amended tax return, which would take longer. IRS, the IRS has closed its processing centers. And so they put this guidance out on April 13th saying that you should file these tentative fund claims by fact, which is a technology we don’t think much about, but that’s the way, that’s the way you’re going to have to do these tentative refund claims. And that, that goes regardless of whether you’ve already sent in a physical claim. And so, physical claims are just sitting there on the floor. They are not being processed. You have to do this facts process. Yet, you need to watch deadlines. So the tentative claims have a deadline of 12 months after the end of the taxable year. IRS helpfully realized that that was going to be a problem for 2018tax years, and so Notice 2020-26 provides a 6-month extension which allows taxpayers to access this quick, tentative refund process for the 2018 tax year. If you just look at what the Congress gave us, that wasn’t going to be possible. So that was, that was helpful from the IRS. Go to the next slide, please. Okay, this one, quickly, section 163(j), aims to limit, sort of, the erosion of the US tax base through claiming interest deductions that have thought to be excessive. So, as modified in 2017, basically, we say—we look at your interest expense and we cap the deduction at an amount equal to about 30% of your, of your EBITDA. The CARES Act says, okay, well, companies are going to be in in some distress, they’re going to need to borrow more. So let’s relax this for 2020. And so the percentage goes up to 50% which is helpful. And then, they also let you use the 2019 tax year’s EBITDA rather than 2020, based on the idea that most companies probably are going to have more income in EBITDA in 2019 than they’ll end up having in 2020. So both of those aspects are going to be helpful. Go to the next slide, please. Dave, before you move on—on the NOL carryback, is the five-year NOL carry back rule, does it apply to short tax years that have been triggered by M&A activity? I expect that it would, but that’s, that’s kind of detailed question that, you know, we have to, we’d have to crack open the various notices and rev procs. just to verify that. We can certainly get back to that question after the, after the seminar. Okay, so qualified improvement property. This is the so-called retail glitch. Basically, qualified improvement property is, you know, improvements that you make to the interior of a non-residential property. You know, such as a restaurant, such as a hotel. And it was meant to be eligible for immediate expensing under the 2017 legislation. There was a technical error in the drafting of the legislation, where not only did you not get the immediate deduction, but you actually ended up with a, with a longer recovery period. Congress finally fixed that in the CARES Act. And then a rev proc. that just came out last Friday, Rev Proc. 2020-25 sets forth procedures which are pretty flexible in terms of giving taxpayers the choice of filing amended returns, filing accounting method changes, really trying to give maximum flexibility for taxpayers to take advantage of this change. If we can go to the next slide, please. Okay. Finally, you know, just wanted to say, spend one minute on, sort of, planning tools that we’re seeing taxpayers consider, you know, beyond the CARES Act. So section 165(i) was a special provision that allows casualty losses from presidentially declared disasters, and this is one, to be claimed on the prior year’s return rather than this year’s return. So that accelerates the monetization of the tax loss. This will be, you know, you need to have basis and an identifiable, and an identifiable asset that suffered a casualty. The amount of the loss has to not be compensated by insurance or otherwise, and you don’t get to, you don’t get to claim it for the cost of preventive measures. We’re also looking at, kind of, traditional accounting method, and in some cases, taxable year changes. That kind of planning to defer income and accelerate deductions. Or, in some cases, maybe you want to do the opposite, depending on your tax posture. And then finally, planning to trigger capital losses, which will be plentiful this year and carry them back to prior years. So some, some general tools that we’re considering. Great. Thank you, David. Next, we’re going to turn to Sandra McGill, who is also part of our US and international tax team. She’s going to talk about the loss carryback rules and how they interact with the Tax Cuts and Jobs Act, focused on the federal implications. And again, we’ll save the state and local portion of that until later in the presentation. Thanks, Steve. And as Dave said, I, I get the fun, sort of, part of giving you, sort of, the bad news, while he gave the good news. But as Dave mentioned, the recent stimulus bill introduced new loss carryback rules and it increased interest expense deduction rules. Those are intended to provide tax benefits to taxpayers by allowing them to access cash by, for example, implementing a, a refund on, for taxes paid in the prior year. But for taxpayers that are US based multinationals, I guess a word of caution, I, and that is that the interaction of the—these rules with the rule that came into effect for tax years 2018 and forward as part of the TCJA, or Tax Cuts and Jobs Act, are very complex and result in consequences that are no intuitive. And so I would, as with almost everything involving TCJA and the, sort of, cross border rules, I would highly recommend that any decisions as to whether or not to use NOLs or what to—sort of what to do with your NOL planning, involve a modelling exercise. That will allow you to determine whether or not you want to use the NOLs and answer that—also determine what your, what your benefit is going to be. So just to give you an example, some of the, sort of, key consequences that we’re seeing for, for a corporation—or US corporations that have, they’re dealing with these warranties for these TCJA provisions. BEAT is a big one, BEAT is a big issue for a lot of our clients in terms of largely trying to avoid it. The impact of the NOL carry back on the BEAT is is—I guess the important point here is what happens with the NOL is that it, it can increase taxpayers BEAT liability because it reduces the taxpayers regular tax liability. And so if you look—at and I’ve done a couple of examples because I like examples, but they, I will say these are highly simplified. Just to give you sort of an example, in the middle column, there’s no NOL carryback in 2019, and the taxpayers modified taxable income, which is the $200 which is sort of their, their regular taxable income, plus their ad back for any deductions allowed under BEAT times 10%, is less than their regular tax liability. And so, as you see in the first bullet, that’s—what that means is that there’s no BEAT liability as a result of that. If the mod—the modified taxable income exceeds regular tax liability, there’s no BEAT liability. In the far-right column, where there is an NOL carryback, however, there is a BEAT liability. And the reason for that is because the regular tax liability has gone down significantly because of the NOL carryback. And so there’s a, the regular tax liability has gone down to $10 in this example. 200-150 which is $50 times 21%. And that is the—that results in the modified taxable income exceeding the regular tax liability by $10. So there’s a $10 BEAT liability. The takeaway from this is not that you shouldn’t take advantage of the NOLs because there’s still a benefit in this example to using the NOL, by using the NOL. But all facts are different, and so, one, it’s important to understand that they’re—the benefit of the NOL is less, but in a different set of facts you may end up in in sort of a worse situation, and you may not want to use the NOL all in, in a year in which you have a BEAT liability. Next slide. So another aspect of the BEAT rules that is impacted by the NOL carryback is the base erosion percentage. So the BEAT rules only apply to a corporation whose base erosion percentage exceeds 3%. And this 3% threshold is something that our clients work really hard to stay under. And that’s because they’re sort of a cliff effect that happens that if you exceed this, then you just, all of your, you’re subject to the beat rules and, and so this 3% is something that a lot of workplans work to manage. One of the issues with NOLs is that the NOLs increase the numerator of the base erosion percentage. They increase the base erosion tax benefits. But they don’t, they don’t increase the denominator. And so, again, in a very highly simplified example, in 2019 in this, in the chart you’ll see in the middle column, there’s no NOL carryback. The base erosion tax benefit, which is the numerator, is $5. The deductions are $200, that’s the denominator, and the, we’re well under the 3% threshold. In the far-right column, where the numer—the numerator is 15 because there’s a $10 NOL carryback, and the denominator is $200, you’re, again, and high—highlighted in red, the BEAT, the 3% threshold has been exceeded. So it’s something this, this is when I think that, that taxpayers really want to be careful about in making sure that they’re not, you know, that they’re that they’re not subjecting themselves to these rules unnecessarily or unknowingly. Next slide, please. So there are some solutions. I mean, there, there’s, you can elect under the BEAT rules to forgo certain deductions if they’re going to put you into a BEAT situation. This was under the proposed regs. So you can elect not to claim deduction for certain items if that deduction is going to create a BEAT liability. This can be made on a year-by-year basis. It can be made on an amended return. It’s usually made by attaching a statement with the required information to the to the form 8991. Dave mentioned earlier that there’s also there’s also the option to just elect not to apply the NOL carryback to, to 2018 or 2019 to years that these BEAT rules are effective. So that’s another option. But that’s, so there are, there are some solutions to this. Next slide. The increased interest expense limitation can also create BEAT, create or, or make BEAT rules, you know, if the BEAT consequence is worse. And there is a slightly different solution with the interest expense limitation. You can, you can choose not to have it apply at all for 2020 and 2021. So rather than foregoing the interest deduction under the BEAT rules and sort of losing the interest deduction entirely, you choose not to apply it. And that way it’s available to be carried forward, and that’s a better, that’s a better result. Next slide. And I guess one other, one other sort of thought, and there’s obviously a lot of complexity in these issues, so I’m just touching on these rules, I’m touching on a few key ones, is that the NOL deductions that are that are applied against GILTI have less value than NOL deductions that are applied against other taxable income. GILTI is taxed at a lower tax rate, and so, and, and only 50—the way that the GILTI is computed, you end up losing 50, at least, at least 50% of the NOL benefit for NOL deductions that are applied against GILTI. So instead of getting $21 of US tax savings for $100 of taxable income, the most you can hope for $100 loss that’s allocated against GILTI is $10.5. So, again, this is, this is a situation where I think modelling the benefits of the losses is important. Steve, back to you. Great. Thanks, Sandra. Next, we’re going turn to Alex Ruiz, who’s going to talk about whether there are cash refund opportunities on past M&A transactions. Alex is also part of our US and international tax team. To you, Alex. Great. Thanks Steve. Hi everyone. So, yeah, we’re going to talk about, you know, it was mentioned previously, so in many cases, you have a transaction where a sale of a corporation, you have a lot of transaction related expenses that might cause a corporation, which is otherwise profitable, to have a net operating loss for what we refer to as the stub year, the stub period in which the closing occurs. So if a corporation joins another consolidated group, it’s taxable year will end. And if, you know, say it had a $1 million of income absent the sale, but then had, you know, a few million, $3 million dollars we’ll say, of transaction expenses that were currently deductible, like auction expenses or compensation expenses, that would give rise to a net operating loss for that, for that period. Now, prior to TCJA where, where we had the ability to carryback for two years, those provisions in the agreements are attributable to, you know, that would discuss tax refunds were important, because the seller would expect that if they did have this net operating loss created by virtue of the transaction, that they would get the benefit of that and there would be a carryback. And so, you know, many agreements provided for that, it was actually an expected benefit. Post-tax reform that, that was disallowed, as, as they had mentioned. And so, so now we, for 18 and 19, those provisions, while they were still present in the agreement, many times slimmed down to what they had been previously because there wasn’t this expectation that, that there would in fact, be a refund opportunity. You know, they were—they’re still there, but now that we have this new rule under the CARES Act, they have become potentially really valuable. And so it’s important for, both on the sell side or the buy side, to look at any of these deals that have closed in 18 or 19 and confirm whether, you know, there was a refund section and how would actually play out. So, for instance, one if, if, if the buyer said, you know, we can’t carry back net offering losses anyway, we don’t need a refund section. Well, that’s actually going to inert to the benefit of the buyer now because the buyer can carry that back and they don’t have to talk to the seller if they had a net operating loss. Either, either in the year of the transaction or in 18 or 19 or one in 2020, they can carryback to any of the previous five years, even if they didn’t own the company at that time, if the agreement is otherwise silent. Now many cases will treat that as like a post-closing action that the seller needs to approve. And so, you may actually have to go to the seller even if you didn’t have a refund section, because it’s effectively an amendment to a previously filed tax return in a pre-closing tax period, the seller may actually have a consent right over that. Another instance is if you’re a seller. And, you know, you sold your business and you knew there was a net operating loss, but you effectively gave that to benefit of the buyer because, you know, they said, well, we’ve incorporated that value in the purchase price, and so there’s no mechanism to give you the refund or to give you the benefit of the carryforward. Well now there is an opportunity to get a refund, and so it may make sense to seek that out and call upon those refund sections that we had previously thought to be dormant. So we’ve definitely worked with a lot of clients addressing that, looking back. And, you know, potentially, you know, obviously the relationship you have with your purchaser, your seller, you know, could be really good. Could—you could have other issues related to indemnity claims and such. So this can be something that maybe folds into that as far as, well, we’re working with them on this indemnity claim. Perhaps we can seek, seek this refund or that could ease the conversation we’re having in some, in some other instance. So definitely something that, you know, we’re happy to look in more detail. And, you know, really will depend on not only the facts related to the transaction and, and the net operating loss, but also what the words say in the agreement. Back to you, Steve. Thank you, Alex. Now we’re going to turn to the world of state and local, and Katie Quinn from our SAL group is going to talk about the CARES Act and its impact on your state tax liability, some opportunities and threats that exist at the state level. Thanks Steve. You can turn to the next slide, Kelly. So I, just to give a quick overview, like Steve said, we’ll talk about how the CARES Act flows to the states. Some—taking advantage of some favorable state tax rules and policies. And lastly, and probably most importantly, how to avoid potential state tax increases as a result of COVID 19. Next slide, Kelly. So the state implications of the CARES Act. So here, conformity to the IRC is key. So the, when you want to determine how the CARES Act flows to the states, your very first step should be to determine whether the state is a rolling conformity state, such that it conforms to the IRC as it is currently in effect. Or a static conformity state, such that it conforms to the IRC as of a specific date. So in rolling conformity states, the CARES Act amendments will flow through to the states. In static of conformity states, the amendments will not flow through until the state updates its conformity to the post-CARES Act date. So we’ll just talk about some provisions that impact the states. The NOL provisions in 163(j). With respect to the NOL provisions, the NOLs will flow through if the state conforms to the IRC, as it is amended by the CARES Act, and if the state follows the federal NOL regimes. Many states have their NOL regimes. And in those states, obviously, the NOL provisions will not impact the computation of the state NOLs. There’s is an issue regarding GILTI that’s caused by the amendments to the NOLs, as Sandra said earlier. At the federal level, the carryback of the NOLs could reduce the deduction for GILTI in section 250. Now, when you get to the state level, that becomes very problematic. So I will pick on a state. I’ll pick on New Jersey. So essentially, what New Jersey says is we’re going to tax GILTI, but we’ll allow the section 250 deduction. Now if, and just to back up a second, New Jersey also does not allow the federal NOLs. So when you, when you compute your New Jersey income tax, if the section 250 deduction is reduced federally, that means New Jersey nowt taxes more than 50% of GILTI, which is problematic. And that’s an issue in New Jersey. T hat’s an issue in New York City, Iowa, Nebraska. Essentially any state that taxes GILTI and allows the 250 deduction. So now I’ll move to the impact 163(j) on the states. So the good news is that most states do the couple from 16—or many states, I shouldn’t say most states, many states do decouple from 163(j). That is a result of the work of the STAR Partnership Coalition. We encourage many states to decouple. In the states that do couple, the increased interest expense deduction is allowed, but only if the state conforms to the IRC as is amended by the CARES Act. If they conform to an older version of the IRC, the additional interest expense will not be allowed. And that also will really cause an administrative burden for your state tax preparers. And that’s because they’ll have to compute the limitation under the old version of the IRC and under the current version of the IRC. Next slide, Kelly. So taking advantage of some favorable tax rules and policies. So here, you’ve probably seen that many states have extended their tax payment deadlines to provide temporary liquidity to taxpayers. Most states did follow the federal extensions for income taxes. So most states extended the income tax filing and payment date to July 15th. Many states also provided an extension for sales tax. And just, I want to make one quick point on the sales tax. So sales taxes are generally trust fund the taxes. So you just have to be very careful, you know, how you spend that tax before it is paid, because if that tax ultimately isn’t paid by the deadline, there could be criminal penalties, and there also could be responsible person liabilities for your, for your officers. Penalty and interest abatements. So we’ve seen a lot of states abate penalties if you are unable to pay your taxes by the deadlines due to the COVID 19 crisis. Some states have also abated interest. The issue with interest abatement is that most—that has to be done legislatively. We wrote, at McDermott we wrote a letter to many of the states and urged them to suspend interest on assessments that have been appealed and are on hold due to court closures. And our rationale there was, you know, we don’t know how long the courts are going to be closed, and the state interest rates are now, you know, 7, 8, 9% in that climate. This is very high interest rates. It doesn’t represent the time value of money, and that interest should be abated. So I think more to come with respect to interest abatements. Finally, is now the time to secure favorable settlement of outstanding audits? So, you know, I think what we’re all learning now is that states are going to be in need of money pretty quickly. And, you know, we have clients that have audits that have been on hold or negotiated or in the middle of negotiations for years and years and years. And so now may be the time to go to the states and say, you know, you need, you need money. We want to resolve these audits. Let’s, you know, let’s work together, and hopefully we can get a favorable settlement, close out all the audits, and move forward. And, you know, Steve and I have been telling the states that this is something that they should do. It’s in the interest of efficiency. It’s in the interest of, you know, earning revenue for the state. And, you know, and I think that is the time that they should be resolving old audits. I would say Katie that, yeah, I would say unlike the federal government, which can print and borrow money, nearly unlimited dollars, the states all live within mandatory balanced budget requirements. So they’re, given the serious loss of revenue, I saw one article last week saying the states would face a $500 billion budget shortfall this year, it is likely a good time to try to resolve anything you’ve got outstanding. If you can pay money to the states and get a resolution in the near term. And that’s something that we’ve already seen happen in New York. You know, obv—this is not a policy that has been adopted in any way by the Department of Taxation and Finance, but we have seen auditors acting more reasonably when it comes to settlements because there is an interest in bringing some money in the door. So now definitely seems, seems like the time to try and get some favorable settlements if you need one. Next slide, Kelly, So finally, the COVID 19 crisis could actually create a state tax increase, and that is due to employees that are working remotely. So just to take a step back, under the US Constitution, states cannot impose tax on a business unless they have a sufficient presence in the state. So for corporate income tax purposes, if a state didn’t have employees in the state, arguably, that state could not impose income tax on that company. But now we have employees that are working remotely, either from their homes or from, you know, a remote location, or somewhere else. That could potentially create income tax nexus with—for the companies, such as the company now has to begin filing in those states. So in our letter to the states, we said that is patently unfair. Employees are not allowed to be working in the office. It doesn’t make sense for you to impose these additional tax filing requirements. So we did receive some good news. They’re have been states that, Mississippi was one, New Jersey is one. I saw in State Tax Notes that Minnesota just came out with some guidance today. And they said, we’re going to ignore where your employees are working remotely for income tax purposes such that this crisis will not create additional, additional tax filings for you. And then, lastly, with respect to withholding, now employers are required to withhold on wages paid for income earned in the state. So again, when you have employees working remotely, does that now mean that you have to withhold? You know, if you’re in New York state company, do you now have to withhold New Jersey, New Jersey income tax because your employees are working from home in New Jersey? And again, that could really be problematic because, you know, as we know, people are, are not just working in their neighboring states. People are working in many states, and that could really create a burden for companies. So there have been—Mississippi issued guidance, and there have been a couple others that are trickling in and saying, no, we’re not going to make you withhold tax in our state just because your employees are working here, because they’re forced to work remotely. And then I think the, kind of the overarching point here is that if you want favorable guidance from state tax departments, now is the time to get it. I think we were able to get such favorable guidance here because this, you know, the states, we’re all in this together. The states know what it’s like to have the employees working from home. And, you know, I think the states, three years from now when they’re auditing taxpayers, and when they, when they really need the revenue, they potentially will forget how harsh these circumstances actually were. So I think, again, if you need guidance, now is the time to ask for it from state tax departments. Back to you, Steve. Thank you, Katie. I think, one other note to mention at the state level. There are a handful of academics, professors out there who are writing and encouraging states, in a COVID environment, states should be imposing tax on GILTI. So we expect, while, while, STAR partnership Katie mentioned earlier, has worked hard to prevent states from taxing GILTI, we suspect that many states who made the policy choice not to will revisit that as their budget needs grow over the coming year. Next, we’re going to turn to Andrew Liazos who is in the employee benefits and executive compensation group here. He’s going to talk with us about managing executive pay reductions, delayed payments and restrictions under the CARES Act. Andrew? Thanks, Steve. Just before we leave the topic about people working remotely… these kind of issues can also exist for people working outside the United States as well. And some of those are really difficult issues to deal with, maybe we could talk about that in Q&A. But in the remaining time left we have here, I want to talk about the environment that’s happening with respect to executive compensation right now. We’re seeing dramatic attempts to try to change structures, and there are a lot of considerations with that. You know, think about securities law and relations, disclosure obligations, labor and employment questions. But there are important tax issues, and it’s important not to be left to the side when these issues are being worked on. And some of them are really fairly nuanced, and not necessarily easily discernible by non-tax lawyers. So, first wanted to start with this is compensation reductions. We’re certainly seeing executives take… starting with the sea level, but also below that we’re seeing reductions anywhere from 20-50% of salary, depending upon the, upon the industry. We have companies that had payable in either March and April looking to find ways to pay those at a later date or pay them and other types of compensation, be it restricted stock units or perhaps performance stock units. Have companies that are doing furloughs or reductions in force and trying to think, okay, where we get the money to pay for all this? And we have maybe, potentially, large deferred compensation payments to make. Can we push those off into the future? Is there a way to do that? Similarly, for employees who are taking those very, very large compensation reductions, jeez, do I have to continue to defer 20% of my salary when I’m already being reduced 30, 50%? That’s pretty harsh. Issues with respect to, well gee, I need to get access to my … in that deferred comp plan. How can I do that without taking a tax penalty? And then, just all kinds of reworking of compensation packages. Fortunately, we don’t have, for the most part, 162(m) to worry about. You’re going to find some tax issues there as well. Some looking at repricing stock options, some outright rescissions of, of actual equity awards. And even some people really starting to think seriously about, but all this deferred compensation, you know, is it really ever going to be payable? And is there some sort of way I can secure that if I can’t get it paid immediately? Next slide. So I’m going to just in, in the brief time we have, just talk about some of the issues and some of the rules that apply here so that when you see these things at your company, you have a framework in terms of thinking about them. So, you know, the first issue that always comes up is, is constructive receipt. And, gee, can the executive give up these payments? And, you know where that really becomes pronounced is in these employment contracts where there are actual entitlements to receive these monies, and it actually takes an amendment to the employees to give up those payments. And if you have a look through this kind of issue before would suggest that you look at the couch case. Actually a bureau of tax appeals case that the IRS has actually acquiesced to over the years. And structured properly, a waiver can work so that you don’t have constructive receipt of those amounts. Now, the way these discussions are happening in a variety of contexts, and one of the difficult things is, well jeez, if I’m agreeing to not take this compensation even though I’m entitled to it, well, like what’s really going on here? Am I really, am I really going to just receive this later this year, maybe next year? You know, what, what’s sort of going on here? Because obviously, with a contract and consideration, right, to have it—that waiver be binding, and so how do you, how do you work this? And you have to be just very sensitive to these discussions because there will be many times that businesspeople are thinking, oh, we’ll just make this up later. Then there will be emails that start going around saying oh, we’ll take care of this with the next bonus, or what not. And you have to be very careful with that because, right now, if you have salary that is otherwise supposed to be payable to you, you can’t defer it to a later period without creating a deferred compensation plan and violating 409A. And for those of you who need a refresher, violating 409A is very bad. It triggers a 20% tax on those amounts, plus the income tax, whether or not you, whether or not you received the payment, and then any type of similar compensation gets aggregated together with that. So if you have an executive with half a million dollars or so in a deferred comp plan with salary in it, and you allow for one of these salary deferrals within the year that isn’t allowed, that—not only is the salary that otherwise was to be payable tax, but all those deferred amounts. So the consequences of violation are pretty high. One of the strategies that we have seen some companies want to engage in is not payout in stock, but payout in a restricted stock unit. And so the idea is we’re conserving cash and we’re paying off something at a later time so there’s not tax to the employee. Jeez, everybody wins. Well, the problem is that you have to worry about 409A. And so let’s say you had a bonus that was supposed to be paid in March. Depending on the facts and circumstances, you may be able to pay with a restricted stock unit that settled in March, by March 15th of next year. Or alternatively, you may not be able to defer it all, and you may have a 409A violation, depending upon this short-term deferral rule and how that works. So basically, in a nutshell, just to give an example of how nuanced this is, if you were to have a bonus plan that said, gee, you have to be employed on the date of payment, okay, to get the cash, which is now being subsidy with an RSU, you can defer until March 15th of the next year. But the bonus plan said, well, you only need to be employed on December 31st of last year, and your bonus plan doesn’t say really anything about the time of payment, other than you have to be employed in terms of getting the payment. If you move that payment beyond March 15th, you’ve triggered this 20% tax. So it’s really facts and circumstances. In terms of deferred compensation payments, in general, you can defer them up until the end of the taxable year. So if you’re doing a layoff and you’ve got to deferred comp that needs to be paid, you can generally defer it until the end of this calendar year. We have a number of awards that still are subject to grandfathering under 409A. If you start changing those bonus formulas or payout formulas, that’s going to be a degrandfathering risk, and something for you to be aware of. In terms of accessing your deferred compensation now, very, very challenging. The rules for withdrawals are very different than from a 401K plan. And so in many cases, you really are going to be stuck with having to honor those deferral elections and not being able to get in-service withdrawals. Variety of a, variety of other issues to think about, but, but pretty much any time you’re moving an executive’s compensation or changing the formulas under them, you are going to be running into tax issues. So with the remaining time that I have, I want to just talk about one provision of the CARES Act that some companies are really going to have to deal with and struggle with some degree. And this has to do with companies that take funding under the CARES Act. Now this—I’m not talking about the Paycheck Protection Program. That’s a whole different story. There aren’t a lot of strings attached with that. But under the CARES Act, the other funding provisions, there are a lot of strings. And one of the biggest strings is restrictions on executive compensation. And these restrictions not only last for the duration of a loan, but for one year thereafter. There’s a special rule for the airline industry, but, but generally it’s, it’s the duration of the loan plus one year. So without getting into the details of all the restrictions, basically it freezes pay. For those making more than $3 million a year, it basically reduces their pay over $3 million by 50%. So if you were making $4 million, now, you can only make basically $3.5 million because half the excess over the three million is reduced. And there were also limitations on so-called severance and other benefits. But who knows what that is. So why am I telling you all this? Well, there’s a lot of tax issues lurking in this. We’re going to have to wait and see how the statute is going to be interpreted. But just to give you a sense of the tax issues, let’s say, the that compensation is defined, I’m supposed to get paid $5 million a year. And now I’m capped at only getting $3.5 million a year. Let’s say now, that amount is supposed to be deferred. Well, deferred till when? And how does that comply with for 409A? And then if it’s forfeited, right, now let’s say the company comes out of a loan period and they want to pay some additional compensation. Well, is that compensation going to be viewed to be a substitute for what was forfeited? And so therefore, an impermissible deferral. So, basically, any time we’re having an amount over this limit, we’re going to run into 409A, serious 409A tax issues. Then the other thing is, let’s say you’ve got the $5 million of comp and you’re figuring out what comp to pay under the $5million—under the $3.5 million limit. Let’s say some of that compensation is payable in two years from now and some of its payable now. Well, who gets to choose? And if you choose to have pay the compensation is paid later, is that a deferral election? So a lot of 409A issues there. And then, in a lot of these contracts, they’re going to have to be changes made to them and tax lawyers want to be involved in that process. And just to really drive home how scary some of these restrictions are and how broadly this could be interpreted, one situation involved a company basically looking at an executive who was about to retire, has about $10 million in his deferred compensation program, okay, and now if they take the loan, okay, the amounts on severance are post-termination benefits, are limited to basically two times annual pay. So let’s say this person’s pay, two times it was only going be, let’s say $2.5 million, okay. Now you’re looking at maybe, potentially, this person giving up $7.5 million because this person retired five months too late and now is within this loan period. So, you can bet for companies that are going to have these restrictions, there’s going to be money that’s not going to be paid when it was intended. And there will be a lot of tax issues under 409A as a result of it. With that, I’m going to turn the presentation back to Steve, and any questions there may be. Steve, I think you’re still on mute. Alright, can you hear me now? We’re going to start with some questions that came in for David Fuller. David, do you want to tackle the ones that came in over the wire? Yeah. I also had to get off mute, so my apologies, everyone. So several questions came in. I was answering some privately, that came in privately. Some were more broadly submitted. The questions seemed to focus on the limits. So it’s a $5,000 limit for the year, so it’s not a three, of course, times five, so it’s not a $15,000 dollar, it’s a $5000 credit limit. One of the questions that was reiterated by several people focuses on the performance of services. And if you are a large employer, the payments have to be made to employees who are not currently performing services. So that led to a follow-on question as to, does that mean the employee has to be furloughed? The example that I gave, the case study involved a hospital which did not furlough its employees. As a matter of fact, it was trying to avoid furloughing its employees. And so it was restructuring its leave to do so for three purposes. One, to ensure that not everyone was taking leave at the end of the year when, hopefully, knock on wood, COVID 19 is less prevalent. So they were trying to force employees to take leave early on. And then they were also trying to take advantage of the employee retention tax credit. And so, you can use, I think, a better interpretation. This is why I get the, the tax credit is subject to a lot of variables and different interpretations, but we believe that paid time off can be used for the credit. We believe the vacation time, while the employees are still employed can be used, so there’s all sorts of permutations. One of the other questions was whether for the qualified health expenses you could use qualified health expenses as a standalone mechanism to take the credit. So in other words, there are no other payments being made to employees who are currently performing services. But perhaps they had COBRA or some other continuing health coverage. And the statue uses the terminology, the properly allocated health care expenses to qualified wages. You know, that’s kind of a rough quotation on the statute. So it’s subject to varying interpretations there. There, I’ve seen other advisers say, absolutely you can, but, but I think that’s one of the areas where, again, if you’re going to take that position, you’re going to want to get some sort of memorandum or tax opinion to ensure you’re protecting yourself against the potential IRS policies. So again, there are many very, very interpretative—interpretations. And, you know, those are some of the issues that we do see on a recurring basis. Steve? I think you’re back on mute, Steve. Yeah. Thank you, David. Dave Noren, I think we’ve got a couple questions that came in for you as well. Can you take a look at them and see if we can answer them live today? I think I, I think I typed the answers to most or all of the ones that came for me. I mean there was one on short years and NOL carrybacks. And the answer there is, yeah, short year certainly counts as a year, but there are some pretty complex interactions, and you might have to, you know, prorate losses. As Alex noted, you’ve got to consider the deal documents. There was another one on what you do under 165(i), the special casualty loss provision, if you’ve got a facility that was, you know, forced to shut down for some period of time. Any chance that 165(i) may, may be of use in that scenario? On that one, you know, I think it’s possible, but the facts would need to be developed. As I noted, you need to have an identifiable asset with basis that suffered the casualty. And there’s this, kind of, not great case law around not applying 165(i) to preventive measures. So you’d want to develop the facts around that and see if see if a position might be taken. I think that, you know, there were a few others I answered in the Q&A bubbles. Great. Thank you, Dave. Sandra, can you talk about the work at home issues with non-resident aliens working in the US? I think we got some inquiry about that as well. Sure, I’m happy to. I think what we’re seeing is issues regarding you know, individuals who are non-resident alien of the US and who have been, you know, sort of stuck here due to the stay at home orders and so forth, and are running into situations where they are either going to fall into a residency status based on the number of days that they’re here. Or, or their companies potentially creating US source income, that wasn’t—US source income that that wasn’t intended or US PE or trader business issues that hadn’t been contemplated. And, Andrew, I’ll look to you. I haven’t seen any guidance on this. I would have expected that there would be something that would come out that would, you know, days of, like, illness for example, don’t get counted for this—for some of these purposes. And, and in this situation it’s sort of similar, these are outside the individual’s ability and they aren’t able to leave. Sandra, something came across my inbox, as we’ve been speaking on this. Really? Something might have been released. I obviously haven’t had the opportunity to read it yet. But yeah, there might be that there—might be something hot off the presses. Breaking, breaking news. This seems like a hot issue for them to address, in it seems unfair to have these consequences arise because people are stuck. Absolutely. And it’s something for tax departments to watch because many cases there are agreements where the ultimate responsibility for paying the increased tax could actually fall on the company as opposed to the executive. So it’s something to actively watch. And I guess one last comment is this also exists, sort of on an outbound basis. That US companies with individuals who are working outside the US, that they had not planned to have, you know, spending time in those countries but have gotten stuck there. There may be some, some PE issues or local countries nexus issues that need to be considered. Great. Well, thank you to all of the team for presenting today. And thank you for those who are attending and participating in our webinar. If you requested CLE for the state of New York, the credit code for New York is APPLE, A P P L E. All capital letters followed by 21. The number two and the number one. APPLE21. Please be sure to enter the CLE code when completing your evaluation and a certificate will be emailed to you. I wanted to thank you for participating today. We hope you found the content useful and encourage you to reach out with any follow up questions. McDermott’s tax team stands ready to help. We hope you and yours are safe and well. Thank you again for spending some time with us this afternoon. Goodbye.