Marcum 2021 Year-End Tax Guide

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Greetings, valued clients and friends.

We at Marcum hope that you and your families are well at the end of what has turned out to be yet another tumultuous year of change and unprecedented circumstance. Last year at this time we were focused on the exigencies of the coronavirus pandemic, the impacts of the CARES Act for businesses and individual taxpayers, and the implications of the Presidential and Congressional elections, the results of which were as-yet undetermined as we went to press with our annual tax guide. With the benefit of 12 months now behind us and a new Administration seated in Washington, we can say with certainty that there is still a great deal of un certainty. If that sounds trite, it is unintentional. Our economic, regulatory

JOSEPH J. PERRY National Leader, Tax & Business Services Marcum LLP

and political environments remain in great flux. A flurry of both newly enacted and proposed legislation intended to alleviate financial stress on businesses and individual taxpayers and to provide economic stimulus have opened a Pandora’s box of competing interests and philosophical divides about fairness in our taxation system, and how to apportion responsibility for righting our country’s economic ship. Inflation is at its highest level in over a decade, and the Federal Reserve has begun to scale back bond-buying in an effort to combat rapidly rising prices. Persistent supply-chain disruptions, shortages of critical materials and components, and debilitating shipping delays continue to dog global economic recovery. Unemployment rates, which have fallen nearly two percentage points since December 2020, point to tough times for hiring. This trend is exacerbated by the “Great Resignation” among workers shaken by COVID, who are now prioritizing work-life balance. As a result, the advent of a remote workforce looks like it will become a permanent if partial solution for many industries, forcing companies to rethink their employment and production models. It has become harder than ever for companies to recruit and retain talent, accelerating the imperative to leverage smart technology solutions to keep businesses moving forward. Marcum is proud to play a leading role in addressing these concerns—for our clients, our profession, and our firm. Our Tax Flashes, newsletters, c-suite surveys, Insights articles and robust calendar of panels and webinars provide a body of thought leadership that can help inform your decision-making. We encourage you to take advantage of these important updates throughout the year. In our capacity as your trusted advisor, we are dedicated to innovating actionable solutions that help address your most entrenched business challenges. For example, Marcum Labs incubates and tests real-world technology solutions utilizing artificial intelligence, machine learning, robotic process automation, and data analytics that can also be leveraged by our clients and our peers to enable true digital transformation. This is one way we are helping shape the firm of the future – yours as well as ours. These are very exciting times!

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They are also very complicated times. November’s midterm elections sent a clear signal that the American people are not happy with the pace or direction in which things are currently headed. Less than a year since the reins of power shifted from one side of the political aisle to the other, local elections brought the pendulum back to a significant degree. For better or worse, we can expect that the road to passage of the various legislative proposals now on the table will be long and rocky, with no clear horizon from today’s vantage point. The big picture reveals visceral challenges for many industries and many of our clients. How taxpayers will be impacted and what measures you employ to continue to thrive and remain nimble amid the confusion underscores the extreme importance of planning for various scenarios. Your Marcum tax advisors are here to help. We are highly sensitized to your need for service at an ever-faster pace, as tax planning becomes increasingly complex and time-sensitive. While the accounting profession and Marcum are certainly not immune to the pressures faced by all sectors of the economy, we have the advantage of offering you the resources of a full team of eminently qualified, highly trained professionals available to ensure you receive the focused attention and personal service you deserve. Providing you exceptional service is and always will be our top priority. As leader of Marcum’s national Tax Division, it is my personal goal to ensure that we exceed your expectations. If at any time you have questions or concerns, you are invited and encouraged to contact me directly – I will work with you and your Marcum service team to optimize your client service experience. That said, one of the most effective ways to ensure you receive the most thorough and insightful guidance from Marcum is to convey your unique facts and circumstances as far ahead of filing deadlines as possible. Even in the best of times, having sufficient time to fully understand your situation and devise potential solutions that match your needs is necessary and appreciated. This Marcum 2021 Year-End Tax Guide provides an overview of many of the issues affecting our clients as you consider how to approach tax strategy and planning for 2022. It is important to note that it was assembled prior to the passage, and therefore the final language, of many proposed legislative bills. Marcum will keep you apprised of any changes or new legislative developments as they occur, throughout 2022 and beyond. You are also invited to consult the Insights page of our website frequently for the latest updates. Marcum is proud and grateful to partner with you in your pursuit of growth, profitability and success. We deeply appreciate your trust in us and are dedicated to upholding that trust every day.

Wishing you a happy, healthy New Year.

Sincerely, Joseph J. Perry National Leader, Tax & Business Services Marcum LLP

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Table of Contents

1 About Marcum LLP 3 2021 Year-End Review 15 Bipartisan Infrastructure and Jobs Act (BIJA) 16 2021 Year-End Tax Planning Strategies for Individuals 20 Planning Considerations for Today’s Modern Families 22 Restaurant Revitalization Fund: Act Now Before Year End 23 Self-Employment Tax Considerations for LLC Members 25 Equity-Based Compensation 29 The Effect of Tax Law Changes on Decisions Regarding Choice of Entity 31 Gift and Estate Tax Planning Opportunities 33 Prioritizing Estate Plans: Proposed Tax Law Changes 34 Nonprofits: A Glance Behind and a Look Ahead 35 How Commercial Solar Projects Work Within ESG

37 The Importance of Performing a Cybersecurity Threat Assessment 39 The Real Estate Industry’s Pandemic Rebuild 42 Year-End Tax Planning for Contractors 45 International Taxation Matters: Potential Impact and Planning Points 48 Transfer Pricing Update 53 Research and Development (R&D) Tax Credit Applicability and Benefit 56 State and Local Tax Updates 57 State Tax Nexus 58 Pass-Through Entity Tax Workarounds by States 59 State Telecommuting and Residency Considerations 61 Top Year-End Investment Tips 65 2021 and 2022 Inflation/Cost of Living Updates: Reference Tables 70 Contributors

MARCUM 2021 YEAR-END TAX GUIDE

About Marcum LLP Marcum LLP is a national accounting and advisory services firm dedicated to helping entrepreneurial, middle-market companies and high net worth individuals achieve their goals. Since 1951, clients have chosen Marcum for our insightful guidance in helping them forge pathways to success, whatever challenges they’re facing. Marcum offers a complete spectrum of tax, assurance and advisory services, as well as an extensive portfolio of industry-focused practices with specialized experience for both privately held and publicly registered companies, and nonprofit and social sector organizations. Through the Marcum Group, the Firm also provides a full complement of technology, wealth management, executive search and staffing, and strategic marketing services. Headquartered in New York City, Marcum has offices in major business markets across the U.S. and select international locations. CLIENT-DRIVEN Understanding our clients’ businesses, helping them identify their needs and meet their challenges, and uncovering opportunities that propel them towards success is Marcum’s mission. Our own success is based on our commitment to building meaningful, trusted relationships with our clients, creating positive service experiences, and delivering unexpected value wherever and whenever we can, while maintaining our professional independence and objectivity. Marcum is committed to providing the most thorough, insightful, and expeditious service, according to the highest ethical standards.

COMMITMENT TO EXCELLENCE From the way we service clients to the training and development of our professionals, Marcum is committed to excellence in every aspect of our operation. Our focus on client success compels us to look beyond the numbers to see the opportunities, challenges, and solutions in every engagement. Innovation, proactivity, teamwork, and open communication are the hallmarks of our approach. Tax preparation, accounting, and regulatory compliance services. Clients can count on advice and services specific to their needs, thanks to our professionals’ high degree of specialization. Assurance Independent audit, attestation and transaction services. Clients rely on Marcum for an independent and objective view of their financial condition and results of operations, with maximum transparency. Advisory Specialized services to get our clients to the right solutions for a broad range of needs , from valuation and litigation support to technology and risk management, and much more. CLIENT SERVICES Tax & Business

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Marcum is a member of the Marcum Group, a family of organizations providing a comprehensive range of professional services including accounting and advisory, technology solutions, wealth management, and executive and professional recruiting. These organizations include:

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2021 Year-EndReview COVID-19 relief bills enacted in December 2020 and March 2021 made a number of tax law changes that affect 2021 tax filings. More recently, there have been a number of legislative proposals that could significantly alter federal tax planning for 2021 and in the future, including the Build Back Better Act, which was issued by the House of Representatives and is consistent with the framework advanced by the Biden administration. We are waiting to see what finally develops as Congress negotiates this legislation. We have also seen an increased emphasis on IRS enforcement of tax provisions. Some of this has occurred through changes in reporting requirements established by the IRS which affected 2020 and later years. Additionally, several pieces of legislation provide increased resources for enforcement activities by the IRS, which may affect more than just the wealthy. The Treasury Department has stated that increased enforcement through additional staff and information reporting systems could raise revenue. This article will summarize the major developments as of the date of this writing, but keep in mind that things may change before the end of the year. THE AMERICAN RESCUE PLAN (ARP) ACT Earlier this year, the Biden administration passed the American Rescue Plan (ARP) Act, which made significant changes to a number of existing tax provisions. However, many of those changes are limited in scope and apply only to the 2021 tax year. Current negotiations on the Build Back Better Act involve extending some or all of this Act’s provisions for a limited number of years or, alternately, making them permanent. Recovery Rebates: ARP provides for a third round of stimulus checks (“economic impact payments”) equal to a $1,400 advance payment ($2,800 for joint filers) made to taxpayers at the beginning of 2021. An additional $1,400 (not a reduced amount) applies to each dependent of the taxpayer. The additional payments are not limited solely to a qualifying child under age 17 and include an adult dependent of any age. These payments are an advance against a credit calculated on the 2021 individual tax return. If the advance payments received are less than the calculated amount based on 2021 facts, the excess amount can be taken as a refundable credit. However, as with the 2020 stimulus payments, if the advance payments received

exceed the amount of the calculated credit, the excess does not have to be returned to the government. The credit is subject to a phase-out for single filers with Adjusted Gross Income (AGI) between $75,000 and $80,000; joint filers with AGI between $150,000 and $160,000; and head of household filers with AGI between $112,500 and $120,000. Since the IRS is making these payments based on prior year information, in many situations, the amount of the advance payment (based in many cases on 2019 tax filings) will be different from the calculated amount on filing of the 2021 tax return. Child Tax Credit: A number of significant changes were made to the Child Tax Credit, concerning both the amount of the payment and how a taxpayer can receive the benefit. However, these changes currently apply solely to the 2021 tax year. Extension of these provisions are part of the Build Back Better Act. The Tax Cuts and Jobs Act (TCJA), enacted in 2017, increased the credit for a child under 17 from $1,000 to $2,000, with phase-outs for Modified Adjusted Gross Income (MAGI) starting at $400,000 for joint filers and $200,000 for other filers. The phase-out is 5% (i.e., $50) for each $1,000 (or fraction thereof) by which MAGI exceeds the threshold. For one child, the credit is completely phased out at $40,000 above the threshold amount. The credit offsets tax, and the excess may be refundable up to $1,400 (70% of the $2,000 credit), which refundable amount is termed the Additional Child Tax Credit. ARP makes three significant changes to the Child Tax Credit: i. The amount of the credit increases from $2,000 to $3,000 for each child up to age 17 (one year older than under the original credit) and to $3,600 for each child under age six. ii. The resulting credit is bifurcated into two components: i) the old credit up to $2,000; and ii) the excess amounts ($1,600 for child up to age five or $1,000 for others between ages of 6-17). The increased credit is subject to phase-out at lower MAGI levels $150,000 for joint filers, $75,000 single and $112,500 for head of household) iii. The benefit of the credit includes advance payments. The credit is distributed to the taxpayer through a monthly payment from Treasury, which started in July 2021.

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by 1% for each $2,000 the taxpayer’s AGI exceeds $400,000. For high earners, this can cause the credit to be less than 20% and be completely phased out. Employer-provided Dependent Care Assistance: For 2021, the employer-provided dependent care assistance benefits are increased from $5,000 ($2,500 for married filing separate; limited to the lower of the taxpayer’s or spouse’s earned income, if less) to $10,000 ($5,000 for a married filing separate taxpayer). An increase in the employer benefit may not be provided for under current plan documents. ARP permits a retroactive amendment to the employer benefit plan where: (i) such amendment is adopted no later than the last day of the plan year following the plan year in which the amendment is effective (i.e., by December 31, 2022, for a December 31, 2021, plan year); and (ii) the plan is operated consistently with this change as of the effective date of the amendment. Exclusion of up to $10,200 of Unemployment Compensation (UC) Benefits for 2020: ARP made up to $10,200 in UC benefits nontaxable for taxpayers with Modified Adjusted Gross Income (MAGI) of up to $149,999. However, at MAGI of $150,000 or more, 100% of the unemployment compensation benefits are taxable. The same threshold applies regardless of the filing status of the taxpayer. However, joint filers can both exclude $10,200, assuming that each filer has at least $10,200 of benefits paid to them. Voluntary Extension of Families First Coronavirus Response Act (FFCRA) Sick and Family Leave Benefit: The Consolidated Appropriations Act of 2021 (CCA) permitted an employer that was subject to the FFCRA Sick Pay and Family Leave pay rules to elect to extend these benefits through March 31, 2021, and to use the federal payroll tax credit to fund these payments. ARP allowed employers to elect this program past March 31, 2021, by: i. Extending these benefits to September 30, 2021. ii. Increasing the cap on payments to 10 weeks for family leave (from $10,000 to $12,000). iii. Making paid sick leave and family leave subject to non-discrimination rules under which the credit will not be allowed if the wages discriminate in favor of highly compensated employees or full-time employees, or on the basis of employment tenure. iv. Resetting the rules so that the number of days for which pay was provided in 2020 will not reduce the days allowed in 2021.

The credit advanced must be reconciled with the credits actually allowable on the 2021 tax return. If the advance payment exceeds the amount of credit actually allowed for the tax year, the tax for the year is increased by such excess. That means that any excess advance payment MAY have to be paid back. The law contains a safe harbor which provides that if a taxpayer mak es les s than $40,000 per year ($60,000 for a joint filer), any excess advance payment received would not need to be repaid to the government. Taxpayers can elect to opt out of the advance payment regime and/or to provide information to the IRS on its website to adjust the amount of the advance payment. Earned Income Tax Credit (EITC) : The EITC is a refundable credit for low to moderate income workers. EITC exceeding the filer’s tax liability can be received in the form of a tax refund. ARP makes several changes to the EITC solely for 2021: 1. The credit amount for taxpayers without children (“childless workers”) is almost tripled from $543 to $1,502 2. The ages of eligible taxpayers is broadened from 24 to 65 under prior law to those 19 or older. However, the credit does not apply to full-time students. 3. The maximum Adjusted Gross Income limits for which the credit applies have been increased. 4. An election to use earned income from 2019 in computing the 2021 credit is allowed. Child and Dependent Care Assistance: A number of changes were made to this credit for the 2021 tax year. The credit was previously nonrefundable and was based on up to $3,000 of certain eligible child and dependent care costs for one dependent or $6,000 for two or more dependents. The credit was 35% of the costs subject to a reduction of 1% for each $2,000 of AGI over a $15,000 threshold down to a minimum credit of 20%. i. The credit is made refundable. ii. Costs on which credit is based are significantly raised from $3,000 for one child and dependent to $8,000; and from $6,000 for two or more children to $16,000. iii. The initial credit percentage is increased from 35% to 50%. iv. The $15,000 initial threshold is increased to $125,000. v. The 20% credit minimum amount is replaced by the term “phase-out percentage,” which is 20% reduced Under ARP:

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Employee Retention Tax Credit (ERTC): CCA extended the ERTC for the first two quarters of 2021 with changes that produce a potential benefit of $7,000 per employee, per quarter. While ARP extended the CCA ERTC rules for two additional quarters through December 31, 2021, the Bipartisan Infrastructure Bill, passed in early November, terminated the Employee Retention Credit for most employers for payments made in the last quarter of 2021. Affordable Care Act Premium Tax Credits: ARP increases the ACA marketplace premium subsidies at every income level and offered those with income more than four times the federal poverty level (FPL) the ability to get a subsidy. Limitation on Deduction of Excessive Employee Compensation: Under IRS Section 162(m), a compensation deduction is limited for compensation paid by a public company to its CEO, CFO, and three highest- paid employees. The American Rescue Plan Act (ARPA) expanded the employees covered to include the eight highest-compensated officers other than the CEO and CFO for tax years beginning after December 31, 2026. Student Loan Forgiveness: This was a focus of President Biden’s during the campaign. He promised $10,000 in student loan forgiveness per borrower, but this did not make it into the American Rescue Plan. Under usual tax rules, forgiveness of debt creates taxable income, unless certain exceptions apply. Under ARP, cancellation of federal student and parent loans are tax-free for the period 2021 through 2025. This provision will have greater impact if President Biden can get Congress to approve additional student loan forgiveness. BIPARTISAN INFRASTUCTURE BILL The Bipartisan Infrastructure Bill was passed in November 2021 and it contains some tax related provisions: • Termination of Employee Retention Tax Credit (ERTC) for the fourth quarter of 2021. Employers will not be able to utilize the ERTC for the final quarter of 2021. (An exception is provided for startup recovery businesses. This is discussed in greater detail below.) • Required information reporting with respect to digital assets: Effective for returns and statements issued after December 31, 2023, a “broker” (defined as any person who provides services “effectuating transfers of digital assets on behalf of another person”) will be subject to

additional reporting requirements for digital assets. This provision created a rather public disagreement between congressional members since it is unclear who is included in this rather broad definition of a “broker.” • Modification of pension smoothing rules: This change would allow employers to defer making current pension contributions. The expectation is that this would decrease current employer deductions, increase income subject to tax, and raise revenue. The House of Representatives passed the Build Back Better bill on November 19, 2021. This version reduces the spending portions of prior iterations and makes several changes to tax provisions needed to fund these costs. The discussion below reviews the tax changes found in the latest version of this legislation but will also review some of the concepts found in prior proposed legislation. It is unclear what will end up in final legislation. PROPOSED LEGISLATION Build Back Better Plan The Build Back Better Act does not propose any change to the corporate tax rate, based primarily on the objections voiced by Senator Sinema to such an increase. This would leave the corporate tax rate. The Biden Administration had originally proposed an increase in the top corporate tax rate to 28%. While higher than the current rate, this would have been significantly lower than the 35% maximum rate prior to the enactment of the Tax Cuts and Jobs Act. The Build Back Better Act would create a new alternative minimum tax (AMT) on certain corporations. This is intended to tax large corporations that pay nothing in corporate income taxes despite reporting large profits to investors. This new AMT would apply to around 200 American corporations. Certain credits, such as investments in research and development, clean energy, and affordable housing, would offset tax under this bill. This makes some question whether the revenue expected from this provision will ever be realized. (This AMT will not apply to S corporations, regulated investment companies, or real estate investment trusts). CORPORATE INCOME TAXES Corporate Tax Rate NEW CORPORATE ALTERNATIVE MINIMUM TAX

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iii. Stock repurchases of less than $1 million within a tax year. iv. A purchase by a dealer of securities in the ordinary course of business. v. A repurchase treated as a dividend. vi. A repurchase by a regulated investment company or a real estate investment trust. The current Build Back Better Act does not propose a rate increase on individuals, trusts, or estates on either ordinary income or long-term capital gain income. Instead, for years beginning after 2021, a new 5% is proposed for individual taxpayers with MAGI in excess of $10 million ($5 million for those filing married filing separate). Further, an additional 3% would apply to those with income in excess of $25 million ($12.5 million for married separate filers). The surtax is not considered part of one’s regular tax for determining the alternative minimum tax liability or for other purposes (e.g., computation of a foreign tax credit). Net Investment Income Tax (NIIT) on “High Income” Taxpayers: The NIIT is expanded to cover net investment income derived in the ordinary course of a trade or business for taxpayers with modified adjusted taxable income greater than $400,000 for single filers, $500,000 for joint filers, and $250,000 for married separate filers. This rule will also apply to trusts and estates without regard to an income level. This tax will not be assessed on wages. This rule is intended to assure that for these “high income” individuals, income is either subject to the Medicare portion of FICA, self-employment tax, or net investment income tax. This eliminates some of the benefits of using S corporations to avoid self-employment tax on business income where the shareholder actively participates in the entity’s activity. This change is effective for tax years beginning after December 31, 2021. INDIVIDUAL TAXES High Earner Surtax For trusts and estates, the 5% surtax applies at MAGI of $200,000 and the 8% applies at MAGI of $500,000.

Effective for tax years beginning after December 31, 2022, certain corporations would be subject to this new AMT, which is 15% of adjusted financial statement income (AFSI). AFSI is financial statement income with some adjustments that prevent omission or duplication of items and account for certain other corporate transactions. For this purpose, an applicable financial statement is defined as a Form 10-K, an audited financial statement, or other similar financial statement. If the AMT is more than the corporation’s regular tax, the excess amount is the alternative minimum tax and is added to the regular tax. The new 15% AMT applies to corporations with AFSI in excess of $1 billion based on any three consecutive year average ending prior to the current year. Once a corporation is subject to this rule (meaning it is an applicable corporation), it remains an applicable corporation for future years — even if average income drops below the threshold. If there is an ownership change or a consistent reduction in AFSI, the IRS may determine that it would not be appropriate to continue such treatment. It is unclear whether the Service would establish guidelines for this or if a request for a change of status would be required. Corporations under common control will be aggregated to determine if the threshold is reached. This includes AFSI of related foreign corporations. However, special rules would apply for foreign-parented corporations and related corporations included in a consolidated financial statement or the filing of a consolidated return. The legislation states that AFSI can be reduced by net operating losses created for tax years ending after December 31, 2019, but the reduction is subject to an 80% limit on AFSI before consideration of the carryover losses. EXCISE TAX ON CORPORATE STOCK REPURCHASES A 1% excise tax would be imposed on a publicly traded U.S. corporation for the value of any stock repurchased by the corporation in excess of stock issued to the public or to employees during the tax year. The excise tax is intended to prevent corporate executives from executing buybacks for their own benefit.

The law provides exemptions for:

i. A repurchase that is part of a tax-free reorganization. ii. Repurchased stock (or comparable value) that is contributed to an employee pension plan or ESOP.

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Limitation on Excess Business Losses Made Permanent: The Tax Cuts and Jobs Act’s limitation on the use of excess business losses for non-corporate taxpayers (which was suspended for 2018, 2019, and 2020) was scheduled to terminate after 2025. This provision disallows the current use of losses that exceed $524,000 for 2021 for joint filers and $262,000 for 2021 (inflation adjusted) for other filers. The unused losses become part of one’s net operating loss carryover to the following year. The Build Back Better Act proposes two changes to this rule. The limitation would be made permanent. Additionally, the unused current portion of the losses would not become part of the taxpayer’s net operating loss carryover, but would retain its character as business losses and would be carried over and added to the following year’s business losses to determine that subsequent year’s limitation. Child Tax Credit: As noted above, ARP enhanced the child tax credit solely for 2021 and created the advanced payment mechanism to provide taxpayers with the benefit of the credit during the tax year. The current Build Back Better Act makes the following proposed changes to the credit: • The credit will be extended for one additional year (2022). • The IRS will make advance payments for 2022, but the monthly payments will be for the entire year (1/12th each month). The Secretary of the Treasury is to establish a program to accomplish this. Additionally, unlike 2021, the advance payments will be made only to taxpayers with modified adjusted gross income below $150,000 for joint filers; $112,500 for head of household filers; and $75,000 for other filers. • The child tax credit for 2022 will be fully refundable. Earned Income Tax Credit: The improvements made under ARP are extended for one year to 2022. The prior House bill had proposed to making the changes permanent. RETIREMENT PLAN MODIFICATIONS The current version of the bill includes many retirement provisions which had been eliminated in previous drafts. This would include: • Limitation on IRA contributions for high-income taxpayers: Additional contributions to a Roth or traditional IRA would be banned if the total value of the

IRA and defined contribution retirement plans exceeds $10 million as of the end of the prior tax years, and the taxpayer is a high-income earner – i.e., a single taxpayer or married separate taxpayer with taxable income over $400,000, joint filers with taxable income over $450,000, or head of household filers with taxable income over $425,000 (all amounts subject to inflation adjustment after 2022). • Increase in required minimum distributions (RMD) for high income taxpayers with large retirement account balances: » An additional RMD rule is created requiring a minimum distribution when an individual who is a “high earner” has a traditional IRA, Roth IRA, and defined contribution retirement account balances that, in total, exceed $10 million at the end of a tax year. In that case, an RMD would be required in the following year. The income levels to be considered a high-income taxpayers are the same as for the limitation on IRA contributions (discussed above). » The RMD is generally is equal to 50% of the amount by which the aggregate account at end of prior year exceeds the $10 million limit. » If the combined account balances (IRA, Roth IRA, DC retirement accounts) exceed $20 million, the excess required to be distributed from the accounts is the lesser of (1) the amount needed to bring the account down to $20 million or (2) the amounts in the Roth or designated Roth account. This is a requirement to take the reductions out of the Roth accounts first. The balance of the 50% RMD can be taken from the accounts at the decision of the holder. • Rollovers: The law would prohibit a “backdoor” Roth contribution by using a conversion to a Roth to avoid the Roth contribution income limits for high-income taxpayers (with taxpayers at the same thresholds as in item #1 above) for tax years beginning after December 31, 2021. • Limitation of Conversions to Roth accounts: The law would prevent conversion of pre-tax amounts to Roth accounts for high earners. This provision would be effective after December 31, 2021. However, the limit on conversions of pre-tax amounts has an effective date after December 31, 2031.

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SALT Deduction Limitation: Additionally, though not part of previous versions, the current draft would raise the ceiling on the SALT limitation from $10,000 ($5,000 for married filing separate filers) to $80,000 ($40,000 for married separate filers, estates and trusts) for the tax years 2021 through 2030. WHAT’S NOT IN THE CURRENT BUILD BACK BETTER ACT Annual Limitation on the Qualified Business Income Deduction: The TCJA created a new Section 199A which provides for a potential 20% reduction of qualified business income. The prior House bill would establish a maximum deduction limit of $500,000 for joint filers, $400,000 for individual returns, $250,000 for married filing separate, and $10,000 for a trust or estate. This change was to apply to tax years beginning after December 31, 2021. This provision is not part of the Build Back Better Act. Deemed Sale on Asset Transfer by Death or Gift: Neither the prior House bill nor the current proposal included the proposed deemed sale on gift or death rule, which had been suggested under the president’s proposal. Estate/Gift Tax Provisions: The current Build Back Better Act draft does not include changes to estate and gift tax rules that were previously proposed by the STEP Act, by President Biden during the campaign, or by the prior House Bill. It is unclear whether the final version will exclude all of these changes, but changes in the estate and gift tax rules are clearly on the radar and will probably be addressed in the near future. Some of the prior proposals discussed during the year include: • Adjustment of the unified credit: The lifetime unified credit, currently $11.7 million for 2021, would have been reduced to $5 million per individual, indexed for inflation for years after 2021. For 2022, the exemption would have been somewhere between $6 million and $6.2 million. This amount is higher than what was suggested under the “For the 99.5% Act” and even what was suggested by the president during the campaign. However, the American Families Plan presented by the President did not include estate and gift tax revisions. • No valuation discount for the transfer of nonbusiness Assets: IRC Section 2031 was to be “clarified” so that a valuation discount would not apply when a taxpayer transfers nonbusiness assets (i.e., assets held for production of income and not used in the active conduct of a trade or business). Nonbusiness assets would not include assets used in hedging

MISCELLANEOUS PROVISIONS R&D Expenditure Amortization Rule: The Tax Cuts and Jobs Act provided for tax years beginning after December 31, 2021, the rule permitting the current deduction of research and experimental expenditures would no longer apply. For 2022 and later, these costs would be required to be amortized over a 60-month period using a half-year convention. Software development is considered part of research and development costs. For research done outside of the U.S., the amortization period is 15 years. The Build Back Better Act would defer these changes to tax years beginning after December 31, 2025. Section 1202 Exclusion Limited: For stock sales after September 13, 2021, the 75% and 100% exclusion rates on the sale of qualified small business stock will not apply to taxpayers with adjusted gross income of $400,000 or more. For a trust or estate, this rule applies regardless of the amount of AGI. In these situations, the 50% exclusion will apply. The law would include a binding contract exception so that this reduction does not apply to any sale made pursuant to a written binding contract in effect on September 12, 2021, and that is not modified in any material respect thereafter. Limitation on Credit for Clinical Testing of Orphan Drugs: For tax years beginning after December 31, 2021, the credit for clinical testing of orphan drugs is limited to first use or indication. Additionally, clinical testing expense for any drug that has received a marketing approval for any use or indication (either for a rare or non-rare disease or condition) does not qualify for the credit. Modification of Wash Sales Rules: The section expands the scope of the wash sale rules (which limit the ability to take losses on the sale or exchanges of stocks or securities if substantially identical assets are purchased within a 30- day period before or after the date of the sale) to include commodities, currencies, and digital assets for tax years beginning after December 31, 2021. Educational Provisions: The current bill would repeal the prohibition that excludes students convicted of a state or felony drug offense from claiming the American Opportunity Tax Credit. It would also exclude Federal Pell grants from gross income. In addition, qualified tuition and related expenses for computing the American Opportunity tax credit, Lifetime Learning credit, and any exclusion of qualified scholarships from income, shall not be reduced by any amount paid for the benefit of the student as a Federal Pell Grant recipient.

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GENERAL TAX DEVELOPMENTS Employee Retention Tax Credits (ERTC)

transactions or as working capital of a business. This provision had an effective date as of the enactment date of the law. • Rules related to grantor trusts: Two new provisions were part of the prior House bill. A new IRC section would be added (Section 2901) that would include into the grantor’s estate the portion of the trust that the grantor is the deemed owner of for income tax purposes. While existing grantor trusts were to be grandfathered and would fall outside of these new provisions, new contributions to such trusts would cause a portion of the trust to be subject to these rules. For existing life insurance trusts, which are generally treated as grantor trusts, this raised concerns about the method of continued funding of life insurance premiums. A separate provision would treat sales to grantor trusts as if made to third parties, making these transactions taxable. A change to IRS Code Section 267 would cause losses created on such transaction to be deferred. Valuation Reduction for Certain Real Property Increase in limit of estate tax valuation reduction for certain real property used in farming and other trades or businesses: In a taxpayer-friendly move, the prior House bill made an amendment to increase the special valuation reduction from $750,000 to $11,700,000. This rule applies to decedent estates that own real property used in a farm or business and allows for the valuation of the asset to be based on its actual use as opposed to a value based on highest and best use. However, the reduction in value from its highest and best use has been set at $750,000 for a long time. Two-Year period for an S corporation to have a nontaxable reorganization to partnership: This was an extremely limited provision found in the prior House bill. It allowed certain “eligible S corporations” a two-year period (beginning on 12/31/2021) to reorganize as partnerships without triggering a tax. The eligible S corporation would have to completely liquidate and transfer substantially all of its assets and liabilities to a domestic partnership. The House summary indicated that this would apply to any corporation that was an S corporation on May 13, 1996. Limitations on like-kind exchanges: The American Families Plan contained a provision that would have limited the ability to use like-kind exchanges after 2021 for gains greater than $500,000. This proposal created many questions and was not part of the prior House bill and is not in the current bill.

2021 saw many changes with respect to the Employee Retention Tax Credit. The Consolidated Appropriations Act of 2021 extended the credit (which was scheduled to end on 12/31/2020) to June 30, 2021, with more liberal terms than applied in 2020. ARP extended the credit through the end of 2021 but the credit has been terminated under the Infrastructure bill by not allowing the credit applicable to wages paid after October 1, 2021. • It included certain governmental entities (excluded originally): » Public colleges or universities. » Organizations whose principal purpose is provision of medical or hospital care. » Certain federal instrumentalities (e.g., federal credit unions, Fannie Mae, FDIC, Federal home loan banks). • Employers that received Paycheck Protection Payment (PPP) loans were made retroactively eligible for the ERTC, but the same salaries cannot be used for both the credit and for loan forgiveness. This change caused many employers that ignored the ERTC in 2020 to reconsider whether the ERTC applied to them and whether amended Forms 941 should be filed and refunds claimed. • Significant changes were made to how eligibility is established under the significant reduction of gross receipts test for 2021. There only needs to be a 20% reduction of gross receipts for one quarter in 2021 compared to the comparable quarter in 2019. Alternately, an employer can base eligibility on the current quarter for 2021 by calculating the gross receipts reduction for the prior quarter in comparison to the comparable quarter in 2019. The IRS said that the employer does not need to consistently make this election for all quarters in 2021. • If the employer was not in business in 2019, it could compare to a 2020 comparable quarter. • The value of the credit was substantially increased for 2021 versus 2020. The 2021 credit is 70% of covered wages (including qualified health plan costs) of up to $10,000 per quarter (versus a 2020 credit of 50% of $10,000 per employee cumulatively for the year). The 2021 credit is potentially $7,000 for a covered employee per quarter.

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• The definition of a large employer (for whom the credit is limited to qualifying wages paid for hours not worked) was changed for 2021 to those with more than 500 full-time employees. For 2020, a large employer was one with more than 100 full time employees in 2019. Companies that are not a large employer can get the credit on wages paid to all employees. Employers that had ignored the credit previously due to large employer status should review this rule for 2021. The CCA 2021 also included a “catch up”rule that allowed companies that discovered they are eligible for the ETRC for the second and third quarters of 2020 to reflect the credit on their return for the fourth quarter of 2020 (instead of filing amended returns for prior quarters). However, the IRS issued guidance that severely limits the use of this “catch up” rule. The employer must: • Have included with the forgiveness application (rather than claiming the ERTC) the wages otherwise eligible for the ERTC. • Had the request for forgiveness denied. The IRS issued Notice 2021-20 and Notice 2021-49 during the year updating its guidance on ERTC. It focused on the interactions between the ERTC and PPP loan forgiveness and clarifying certain issues dealing with the operation of the credit. BUSINESS INTEREST DEDUCTION UNDER IRC SEC 163(J) The IRS issued 2021 final regulations (the 2021 Final Regulations) on IRC sec 163(j) business interest deduction limitations. The final regulations adopted many of the proposed regulations issued in July of 2020. Pursuant to Section 163(j), the deduction for business interest expense for many taxpayers is limited to the total of: business interest income, floor plan financing interest, and 30% of adjusted taxable income (ATI). For 2019 and 2020, the 30% limit was raised to 50%. For years 2018 through 2021, adjusted taxable income (ATI) is determined after adding back depreciation, amortization, or depletion. • Have received a PPP loan. • Request loan forgiveness.

VIRTUAL CURRENCY TRANSACTIONS The Service believes that transactions involving virtual currency are underreported by taxpayers. The IRS does treat virtual currency as property that can produce a gain or loss as it is traded, sold, or used. The recently enacted Bipartisan Infrastructure Bill would require information reporting with respect to such digital/ virtual assets such as cryptocurrency generally effective for statements required to be furnished after December 31, 2023. The Financial Crimes Enforcement Network (FinCen) issued a Notice stating that current regulations do not define a foreign account that holds virtual currency as a type of reportable account on the FBAR, unless it is a reportable account under the regulations. The Network intends to propose an amendment that would include virtual currency as a type of reportable account. The Form 1040 individual income tax return also includes a question involving virtual currency. U.S. SUPREME COURT PASSES ON TWO CASES Affordable Care Act: The Supreme Court addressed several cases dealing with this act, including the constitutionality of the act (California v. Texas) and the taxation of remote workers (New Hampshire v. Massachusetts). The Court and essentially avoided handing down a substantive rule in either case. In California v. Texas, the trial court had determined that the Affordable Care Act was unconstitutional since the elimination of the individual shared responsibility payment (the individual mandate) no longer supported the prior Supreme Court decision that the ACA was an exercise of Congress’ taxing power. The fifth Circuit court sent the case back to the trial court to determine why the entire law (and not just portions of it) should be invalidated. However, prior to the decision on the remand, the case was appealed to the U.S. Supreme Court. In anticipation of all parts of the law being declared invalid, many taxpayers filed protective claims with the IRS claiming refunds of net investment income tax paid in prior years. There were other developments involving virtual currency that occurred during the year.

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DEFERRAL OF EMPLOYER SHARE OF FICA 2020 The IRS issued a memo examining the consequence of failing to pay the employer’s share of employer social security taxes for 2020, which were allowed to be deferred under the CARES Act, by the applicable installment due dates (50% on 12/31/21, and 50% on 12/31/22). The Service concluded that a failure to pay invalidates the deferral of the entire amount and not merely the delinquent portion. Failure to deposit tax penalty applies to the entire deferred amount – even the portion paid on time under the CARES rule. The statute provides that the deferral of payroll taxes is valid if “all such deposits are made not later than the applicable date.” The IRS says this means that if ANY deposit deferred is not timely made, then the deferral is not permitted as to the entire amount originally deferred. A failure to deposit penalty and interest will apply to 100% of the deferred employer social security taxes and not only to the delinquent amount. If the IRS issues a notice demanding payment and the full amount demanded is not paid within 10 days, the penalty rate increases from 10% to 15%. Ex 1: E defers employer social security taxes of $50,000 in 2020 and pays only $5,000 on 12/31/2021. The failure to deposit penalty applies to the entire $50,000, not just the $20,000 of the first installment not paid. Ex 2: Same as above, except that E pays $25,000 by 12/31/2021 and the rest of the balance on 2/28/23. The 10% deposit penalty applies to the entire $50,000 (even though the original $25,000 deferred was timely paid). If you have taken the benefit of the deferral of employer social security taxes, remember that it is important to make the first installment payment by December 31, 2021. IRS ENFORCEMENT Increasing IRS enforcement became an important discussion point this past year as Congress looks for additional revenue to funds its spending goals. The IRS has decided to increase the reporting responsibilities of taxpayers in recent years. This includes partnerships providing capital account information to the IRS and partners on a tax basis for 2020 and later years. This requirement was unilaterally imposed by the Service through a change in its instructions. It has also created draft versions of new Form 1065 Schedules K-2 and K-3 to provide additional information, particularly with respect to foreign transactions. The Service sees partnerships as entities through which high earners can hide income.

The Supreme Court majority determined that since the individual mandate had been repealed, the individuals pressing the claim could suffer no injury under the law. Consequently, they lacked standing to present the case since the requested relief must be tied to the potential injury. Justice Thomas wrote a concurring opinion but suggested that standing could exist for the states involved in the suit, which were themselves employers covered under the ACA and which incurred significant administrative costs and potential penalties. This was echoed by Judge Alito in his dissent. However, the states had not argued the issue of standing on these grounds and the court could not unilaterally decide the case on this basis. At this point, there is no pending case on this matter. Remote Worker State Taxation: The Court determined not to hear the case involving New Hampshire and Massachusetts on the taxation of workers who worked remotely in other states. Massachusetts issued emergency regulations on nonresident-sourced income due to COVID 19-related office closures. Under these regulations, the income of a nonresident (including employment income) derived from a trade or business carried on in Massachusetts was to be sourced in Massachusetts. This would cause compensation received for services done by a nonresident who, prior to the COVID-19 state of emergency was an employee performing such services in Massachusetts, and who is now performing those services outside of the state due to pandemic-related circumstances, to continue to be treated as Massachusetts-sourced income from March 10, 2020, through ninety days after the date on which the Governor lifts the state of emergency. MEDICAL COSTS AND CERTAIN TAX ADVANTAGED PLANS IN THE COVID-19 ERA The IRS addressed whether certain costs constitute medical expenses. The IRS also issued an Information Letter (2020- 0027) in February 2021, that addressed whether unused amounts in a dependent care FSA under a section 125 cafeteria plan could be refunded. It concluded that a refund is not available. Announcement 2021-7, issued March 26, 2021, broadened the definition of medical care amounts to include amounts paid for PPE – i.e., masks, hand sanitizers, and sanitizing wipes, if acquired for the primary purpose of preventing the spread of COVID-19 (referred to as COVID-19 PPE). However, employers may need to amend their plans so that COVID-19 PPE is reimbursable.

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