Federal Staffing Mandate For Nursing Homes Means Trouble For Staffing
Hard hit by the pandemic, the nursing home industry is still struggling to recover and rebuild its workforce. Standing in its way is the Biden Administration’s proposed federal staffing mandate. If passed, this mandate will cost nursing homes billions of dollars, compromise access to care for seniors, and increase the challenges already facing operators who are already responding to industry flux by limiting admissions and closing facilities.
According to a recent report by the American Health Care Association (AHCA), despite higher wages, the nursing home sector suffered the worst job losses out of all other health care sectors in the Covid period. In order to return to pre-pandemic levels, another 130,000 workers would still need to return to the industry.
The industry is up in arms and urging support for the Protecting Rural Seniors’ Access to Care Act, which would prohibit the Centers for Medicare and Medicaid Services (CMS) from finalizing its proposed federal staffing mandate for nursing homes, and would establish an advisory panel on nursing home staffing. The staffing mandate proposed by CMS would compel nursing homes to meet unjustified staffing minimums, without offering any resources or workforce development programs to soften the impact.
The proposed rule consists of 3 central staffing proposals:
- The first calls for minimum nurse staffing standards of 0.55 hours per resident day for registered nurses and 2.45 for nurse aides.
- The second rule mandates having an RN on site 24 hours a day, 7 days a week.
- The final rule imposes additional facility assessment requirements.
According to a joint letter of protest written by the American Health Care Association and the National Center for Assisted Living, nearly 95% of nursing homes do not meet at least one or more of the three proposed requirements of the proposal. If the proposed rule is implemented, facilities would be forced to downsize or close down – displacing hundreds of thousands of nursing home residents.
The AHCA’s 2024 State of the Sector report asserted that if the staffing proposal is finalized, the sector will need to inject 100,000 more staff members into the workforce at an annual cost of $7 billion. An anticipated 280,000 residents would be displaced as facilities would be forced to downsize or close and the result would limit access to care for our most vulnerable population.
Ensuring that our nation’s sick and elderly population receives safe, reliable, and quality nursing home care is crucial. Further limiting the nursing home industry’s access to a competent workforce, without offering programs or funding to soften the blow, is untenable for both the industry and its beneficiaries.
This material has been prepared for informational purposes only, and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.
Perform an Operational Review to See How Well Your Real Estate Business Is Running
In the wide, wide world of mergers and acquisitions (M&A), most business buyers conduct thorough due diligence before closing their deals. This usually involves carefully investigating the target company’s financial, legal, and operational positions.
As a business owner, you can perform these same types of reviews of your own company to discover critical insights.
Now you can take a deep dive into your financial or legal standing if you think something is amiss. But assuming all’s well, the start of a new year is a good time to perform an operational review.
Why Perform an Operation Review?
An operational review is essentially a reality check into whether – from the standpoint of day-to-day operations – your company is running smoothly and fully capable of accomplishing its strategic objectives.
For example, a real estate business relies on recurring revenue from established clients as well as new revenues, in order to survive and grow. It needs to continuously ensure that it has the knowledge, talent and resources to acquire, buy or lease properties to develop or resell. The point is, you don’t want to fall behind the times, which can happen all too easily in today’s environment of disruptors and rapid market changes.
Before getting into specifics, gather your leadership team and ask yourselves some big-picture questions:
- Is your company falling short of its financial goals?
An operational review can spotlight both lapses and opportunities for increased profit and can offer recommendations to improve management performance.
- Are day-to-day operations working efficiently?
Implementing system controls like automated financial tracking systems and data analytic tools can help real estate companies streamline their operations and improve efficiency.
- Is your company organized optimally to safeguard its financial records and reports?
Protecting financial information is especially important in the real estate industry where most transactions involve large sums of money.
- Are your company’s assets sufficiently protected?
Implementing system controls to protect your business and its properties can prevent unauthorized access; making regular inspections will identify any issues or damage.
What to look at
When business buyers perform operational due diligence, they tend to evaluate at least 3 primary areas of a target company:
- Operations: Buyers will scrutinize a company’s structure and legal standing, contracts and agreements, sales and purchases, data privacy and security and more. Their goal is to spot performance gaps, identify cost-cutting opportunities and determine ways to improve the bottom line.
- Selling, general & administrative (SG&A): This is a financial term that summarizes a company’s sales-related and administrative expenses. An SG&A analysis is a way for business buyers — or you, the business owner — to assess whether the company’s operational expenses are too high or too low.
- Human resources (HR): Buyers typically review a target business’s organizational charts, staffing levels, compensation and benefits, and employee bonus or incentive plans. Their goal is to determine the reasonability and sustainability of each of these factors.
A Funny Question to Ask Yourself
Would you buy your real estate company if you didn’t already own it? It may seem like a funny question, but an operational review can tell you, objectively, just how efficiently and impressively your business is running. Roth&Co is happy to help you gather and analyze the pertinent information involved.
This material has been prepared for informational purposes only, and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.
Buffet Wisdom
And just like that, “earnings season” came and went. It’s that quarterly occasion when publicly traded companies, essentially representing America Inc., offer us a peek into their performance. Beyond simply reporting numbers, these companies often share insights on the broader economic landscape from their unique vantage point.
Within this flurry, there are what we call ‘bellwether’ companies, whose earnings reports carry significant weight in gauging the overall economic health. Want to gauge consumer spending? Keep an eye on iPhone sales and airline bookings. Curious about food prices? Look into the restaurant chains and food suppliers. You get the drift. However, amidst the hustle and bustle of earnings season, there are a few events that hold sway far beyond the immediate financial realm. Among them are the much-anticipated letters and shareholder meetings hosted by Warren Buffett.
This year, Buffett’s letter began with a heartfelt tribute to his longtime friend and business partner, Charlie Munger, who recently passed away just short of his 100th birthday. Following this poignant start, Buffett delved into insights about Berkshire Hathaway, along with nuggets of wisdom about business and investing:
“One fact of financial life should never be forgotten. Wall Street – to use the term in its figurative sense – would like its customers to make money, but what truly causes its denizens’ juices to flow is feverish activity. At such times, whatever foolishness can be marketed will be vigorously marketed – not by everyone, but always by someone.”
True success in investing lies in maintaining a steady hand through the inevitable ebbs and flows of the market. But, there’s a catch. Media outlets thrive on sensationalism. When things are tranquil, people tend to switch off, so it’s in the best media’s interest to stir up drama to recapture attention. Wall Street – as Buffet explains – yearns for action.
We can’t stress enough the importance of being aware of the biases inherent in the sources we so often rely on. Are they tied to defense contracts, hyping up tensions in Ukraine? Are they predicting market volatility while pushing investment newsletters? Or are they perhaps peddling doomsday scenarios about nuclear conflict while selling long-shelf-life emergency rations?
There will always be a cacophony of distractions. It’s those who can tune it out who will reap the benefits in the long run.
Webinar Recap | The IRS Strikes Back
Roth&Co hosted a webinar on February 28, 2024, featuring Tax Controversy Manager Ahron Golding, Esq. The webinar discussed the recent approach that the IRS has been taking towards the Employee Retention Credit (ERC), scrutinizing ERC claims for abuse and fraud. Audits and criminal investigations on promoters and businesses filing questionable claims are intensifying, with thousands of audits already in the pipeline.
What is the IRS looking for? Here is what the IRS refers to as the ‘suspicious seven:’
- Too many quarters being claimed
Some promoters have urged employers to claim the ERC for all 7 quarters that the credit was available. Since the IRS believes that it is rare for a business to legitimately qualify for all quarters, making a claim for all of them is a red flag.
- Government orders that don’t qualify
In order for a business to qualify for the ERC due to a government order that compromised their operations:
- the order must have been in effect for the periods claimed
- the order must have been directed towards the business rather than towards the customer
- the full or partial shutdown must have been by order and not simply via guidance or recommendation
- the IRS is looking for the negative financial impact on the business
Claiming that an entire segment of a business was shut down, though that segment was not significant compared to the entire business, will cause a claim to be disallowed.
- Too many employees and wrong ERC calculations
The laws are complex, and have changed throughout 2020 and 2021. Dollar limits, credit amounts, and the definition of qualified wages changed as well. Make sure your calculations are accurate.
- Supply chain issues
The IRS is not looking kindly at claims based on general supply chain disruption.
- Business claiming the ERC for too much of a tax period
If eligibility is based on full or partial suspension, then a business can only claim the ERC for wages paid during the period of actual suspension, not necessarily the whole quarter.
- Business did not pay wages or did not exist during the eligibility period
If the business did not exist or pay any wages during the period of the claim, the claim will be disallowed by the IRS and prosecuted for fraud.
- Promoter says there’s nothing to lose
Promoters that urged businesses to claim the ERC because they had “nothing to lose” were mistaken. Incorrectly claiming the ERC invites repayment requirements, penalties, interest, audits, and the expense of hiring someone to help resolve the error, amend returns, and represent the business in an audit.
The IRS has a comprehensive ERC eligibility checklist here.
Many businesses have neglected to take into account the issue of aggregation as it applies to the ERC credit. This can potentially effect employee count, revenue, and other crucial calculations.
Overall, the IRS is not too pleased with ERC promoters. IRS auditors have been trained to start an audit by asking who the taxpayer used to help prepare their claim. The IRS expects a taxpayer to utilize a trusted tax professional, rather than a dubious ‘ERC mill’.
What if the employer has an opinion letter to back up his claim? Generally, opinion letters are only as valuable as the backup data they provide. If a claim can be justified by hard numbers, it will help the employer if challenged.
If a business determines that it incorrectly claimed the Employee Retention Credit, it can use the ERC claim withdrawal process outlined here, so long as the business has not yet received the credit or hasn’t deposited an ERC check. Requesting a withdrawal means a business is asking the IRS not to process their entire adjusted return that included the ERC claim. If the IRS accepts the request, the claim will be treated as if it was never filed.
If a business incorrectly received the ERC before December 21, 2023, and deposited the check, they can apply for the ERC Voluntary Disclosure Program before March 22nd, 2024. This program allows participants to repay only 80% of the ERC they received as a credit on their return or as a refund. Click here for more details.
If your business received an opinion letter regarding ERC eligibility that you would like us to review, please email engage@rothcocpa.com.
This summary has been presented for educational purposes only and does not constitute a comprehensive study of the ERC tax laws or serve as a legal opinion or tax advice.
Cash or Accrual – Which is best for your business?
There are two accounting methods businesses use to figure their taxable income: cash and accrual. According to the IRS, your choice of accounting method should properly reflect the income and expenses you report for tax purposes. Very often, the cash method provides significant tax benefits for eligible businesses – but not always. It is imperative for your business to evaluate which method will work best to ensure that it achieves the most advantageous tax benefits.
Cash method – Are you eligible?
“Small businesses” are generally eligible to use either cash or accrual accounting for tax purposes, and some may also be eligible to use various hybrid approaches. The Tax Cuts and Jobs Act (TCJA) defined a “small business” by establishing a single gross receipts threshold:
A “small business” is one whose average annual gross receipts for the three-year period ending before the 2024 tax year are $30 million or less (up from $29 million for 2023).
This is a notable change from before the TCJA took effect, where the gross receipts threshold for classification as a small business varied from $1 million to $10 million depending on how a business was structured.
Difference between the methods
The main difference between the cash basis and accrual basis of accounting is the timing of when expenses and income are recorded in your financial statements. Using the cash basis, a business will record transactions when payment is exchanged. Accrual basis accounting records income as it’s earned and expenses when they are incurred. For example, if a business pays for an insurance policy in one lump sum at the beginning of the year, using the cash basis, it will record this entire transaction when it’s paid. If using the accrual basis, the business would record a portion of the cost each month over the entire year.
Tax Advantages
For most businesses, the cash method provides both significant tax advantages as well as cash flow benefits. Because cash-basis businesses recognize income when received and deduct expenses when they are paid, they have greater control over the timing of income and deductions. Income is taxed in the year received, so using the cash method helps ensure that a business has the funds needed to pay its tax bill. Additionally, this method offers the bonus benefits of simplified inventory accounting, an exemption from the uniform capitalization rules, an exemption from the business interest deduction limit, and several other tax advantages.
The accrual method may be preferable if, for example, a company’s accrued income tends to be lower than its accrued expenses. This would result in lower tax liability. Other potential advantages of the accrual method include the ability to deduct year-end bonuses paid within the first 2½ months of the following tax year and the option to defer taxes on certain advance payments.
Switching methods
Besides considering the features offered by both methods, a business would have to carefully consider other factors before contemplating a switch. If your business prepares its financial statements in accordance with U.S. Generally Accepted Accounting Principles, it’s required to use the accrual method for financial reporting purposes. It would still be allowed to use the cash method for tax purposes, but it would require maintaining two sets of books – a costly and cumbersome choice. Changing accounting methods for tax purposes also may require IRS approval through filing. Before you make any changes, measure out the pros and cons for each method with your particular business in mind and reach out to the professionals at Roth&Co for advice and guidance.
This material has been prepared for informational purposes only, and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.
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