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Charitable organizations are facing significant hardships due to the COVID-19 crisis. Fortunately, the newly enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) provides new tax incentives for charitable giving, encouraging individuals and businesses to support their favorite charities during this time of need. The CARES Act specifically provides a new above-the-line deduction for non-itemizers and increases the charitable deduction limitations for other donors.

If You Take the Standard Deduction

For 2020, the standard deduction is $12,400 for single individuals and $24,800 for married individuals filing jointly.  Normally you need to itemize to get the tax-benefit of your charitable contributions.  However, if you take the standard deduction in 2020, the CARES Act allows each individual up to a $300 additional above-the-line deduction for cash charitable contributions.  If you itemize, you cannot take this new deduction.

If You Itemize

Individuals and corporations who itemize can now deduct more of their charitable contributions in 2020.  For individuals, the CARES Act replaces the 60% AGI (Adjusted Gross Income) limit for cash charitable contributions made in 2020.  Under the CARES Act, you can now deduct up to 100% of your AGI. For corporations, the CARES Act increases the charitable deduction limit to 25% of taxable income, up from a previous limit of 10%. Any donations over those amounts may still be carried over for 5 years and deducted later.

To qualify for the increased limits and new deductions, the contributions must be cash contributions made in the calendar year 2020. In addition, the contributions must be made to public charities – contributions to Donor Advised Funds and Supporting Organizations do not qualify.

If you have questions about the new tax provisions under the CARES Act, please contact Tara Stark at [email protected].

This article provides a general overview of the law. It is not intended to be, and should not be construed as, legal advice for any particular fact situation.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law by President Trump on March 27, 2020, primarily to assist individuals and businesses with the financial implications of COVID-19. The CARES Act includes several provisions relating to retirement plans that plan participants should be aware of, including the waiver of required minimum distributions (“RMDs”), the extension of time to make 2019 IRA contributions, and changes to the rules for early distributions and plan loans.

RMDs Waived for 2020

Individuals age 72 and older are normally required to take minimum distributions from their retirement accounts each year.  However, the CARES Act states that individuals with defined contribution plans such as 401(k)s, 403(b)s, 457(b)s, and IRAs may skip their RMDs in 2020.  The waiver also applies to individuals who turned 70 ½ in 2019 and were required to take their RMD by April 1, 2020.  Individuals do not need to meet any COVID-19 qualifications to waive their 2020 RMD.

The CARES Act also addresses inherited retirement accounts, specifically those inherited by “non-designated beneficiaries” (namely charities, estates, and non-qualified trusts), that typically must be fully distributed within five years of the account owner’s date of death. The CARES Act provides that if one of the five years falls within 2020, the beneficiary gets an extra year, essentially turning the five-year rule into a six-year rule.

The CARES Act does not directly address those who have already taken their RMD for 2020, however, if you took your RMD within the last 60 days, you may be able to roll over that amount to an IRA to avoid a taxable distribution in 2020.

Deadline for 2019 IRA Contributions Extended

Taxpayers normally have until April 15 (the same as tax day) to make the previous year’s IRA contributions.  Now that taxpayers have until July 15, 2020 to file their 2019 income tax returns, the Treasury Department has also given taxpayers until July 15 to make 2019 contributions to IRAs. The maximum annual IRA contribution is $6,000, or $7,000 if you are age 50 or older.

Early Distributions and Loans

The CARES Act also expands access to early distributions and loans for qualifying individuals impacted by the coronavirus.

Individuals qualifying for relief include the following:

• Individuals diagnosed with SARS-CoV-2 or COVID-19 by a test approved by the CDC,
• Individuals whose spouse or dependents are similarly diagnosed, or
• Individuals who experience adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to SARS or COVID-19, being unable to work due to lack of child care, closing or reducing hours of a business owned or operated by the individual, or other factors as determined by the Secretary of the Treasury.

In general, early withdrawals from retirement plans by individuals under the age of 59 ½ are subject to a 10% early withdrawal penalty.  However, for qualifying individuals, the CARES Act eliminates the 10% penalty for up to $100,000 of retirement plan distributions.  Income tax will apply to the distributions, but any income tax owed may be paid proportionally over three tax years, beginning with this year.  The individual may also “pay back” the coronavirus distribution at any time during the three-year period following the date of distribution, without regard to annual contribution limits.

Additionally, those affected by COVID-19 who wish to borrow from their qualified employer plan can now take out a larger loan.  During the 180-day period following March 27, 2020, the amount that can be taken as a loan from a qualified employer plan is increased to the lesser of $100,000 or 100% of the individual’s vested account balance.  Loans were previously capped at $50,000 or 50% of the vested account balance.  In addition, for those who have outstanding plan loans, if the repayment due date falls after March 27, 2020 and before December 31, 2020, the due date will be delayed by one year.

We expect the IRS to issue additional guidance in the coming days and weeks to address questions raised by the new CARES Acts provisions.  We will be monitoring that guidance closely and providing additional updates. If you have questions about how the CARES Act impacts your retirement accounts please contact Tara Stark at [email protected].

This article provides a general overview of the law. It is not intended to be, and should not be construed as, legal advice for any particular fact situation.

Pennsylvania workers who have their hours reduced by their employers due to the COVID-19 crisis may be able to collect Unemployment Compensation (“UC”) benefits.  Similarly, workers who lose their jobs due to the crisis and pick up part-time work elsewhere may also be eligible for UC benefits.  Whether these workers can collect UC benefits depends on how much they earn from that part time work based on something known as the Partial Benefit Credit.

Generally, Pennsylvania workers collect unemployment at what is known as the Weekly Benefit Rate (WBR).  The WBR is calculated based upon the highest quarter of a worker’s gross earnings looking back at the worker’s “base year”.  A worker’s WBR is typically about one-half (1/2) his full-time weekly earnings. 

Under the Pennsylvania UC law, you can work part-time and earn up to 30 percent of your WBR in each claim week before your part-time earnings affect your UC weekly benefit payment.  This 30 percent of your WBR is known as the Partial Benefit Credit (PBC).

In short, whether (and how much) the now-part-time worker will receive in UC benefits is determined by a formula using their PBC. Employees are required to report any pay they earn each week and that amount is then compared to their PBC. The following illustrations who how part time earnings would impact a worker’s weekly benefit:

1. If the worker’s gross earnings for a week are equal to or less than their PBC, the claimant’s full WBR is payable for the week.

Illustration: A worker’s regular full-time earnings are approximately $600 per week.  The worker’s hours are reduced.  When he applies for UC benefits, he is determined to have a WBR of $300 based upon his “base year” earnings.  His PBC is $90 (30% of $300 = $90).  Working the reduced hours, if the worker earns $90 or less the following week, he will receive the full $300 in benefits for that week. 

2. If the worker’s gross earnings for a week exceed the PBC, the gross earnings are deducted from the sum of the WBR plus the PBC to determine the amount of any partial benefits for which the worker may be eligible.

Illustration: Same scenario.  However, this time the worker earns $150 in a week working reduced hours.  His benefits are calculated as follows: $300 (WBR) + $90 (PB Credit) = $390 – $150 (reduced weekly earnings) = $240 (partial benefit amount).

3. If the claimant’s gross earnings for a week are equal to or greater than the sum of his WBR plus the PB Credit, no benefits are payable for the week even though the claimant may have worked less than his full-time hours.

Illustration: Same scenario.  However, this time the worker earns $400 in a week working reduced hours.  $400 is greater than $390 [$300 (WBR) + $90 (PB Credit)]. Therefore, the worker does not receive unemployment benefits for that week.  Note, under this scenario, the worker does not collect UC benefits even though he earned less than his regular full-time earnings, which were $600 per week before the reduction in hours.

For further information regarding part time benefits or for assistance navigating any legal issues presented by the Coronavirus (COVID-19) pandemic, please contact MacElree Harvey, Ltd.’s COVID-19 response team at [email protected].  Thank you.

At MacElree Harvey, the health and well-being of our clients and employees are of the utmost importance. We are still trying to understand the impacts of COVID-19 and the community’s efforts to flatten the curve of infection, but it appears clear that ‘social distancing’ will be the new normal for at least the next few weeks.  This will temporarily change the way we work with clients to prepare and sign estate planning documents, but it will not make drafting or changing a plan impossible.

Now more than ever, it is important to review your estate plan and confirm it still meets your present intentions. Although circumstances have changed, we are still working diligently to ensure our clients can get the critical estate planning documents they need, and we have invoked the use of phone and video conferencing to meet, review, and assist clients with executing documents.

As we invoke these temporary changes to assist clients over the next few weeks, it is important to understand the signing requirements for what we refer to as the critical estate documents. These documents include the following:

• Last Will and Testament
• Durable Power of Attorney for Finances
• Health Care Power of Attorney and Living Will

Last Will and Testament

In Delaware, a valid Will must be in writing and signed by the Testator in the presence of two credible witnesses. Delaware permits a beneficiary under the Will to sign as a Witness.  In Pennsylvania, a valid Will must be in writing and signed by the Testator at the end of the document, but witnesses are not required.

In both states, the Will may be made “self-proved” by a Self-Proving Affidavit of the Testator and two witnesses in front of a Notary Public, which simplifies the probate process.  However, if you are unable to access a Notary during this time, a valid Will can still be executed without a Self-Proving Affidavit.

Durable Power of Attorney for Finances

In Delaware, a Durable Power of Attorney must be in writing, signed by the Principal, dated, and signed in the presence of one disinterested witness and a Notary Public.  In Pennsylvania, a Durable Power of Attorney must be in writing, signed by the Principal, dated, and signed in the presence of two witnesses (who may not be the agent designated in the power of attorney) and a Notary Public.

Health Care Power of Attorney and Living Will

In both Delaware and Pennsylvania, a Health Care Power of Attorney and Living Will must be in writing, signed by the Principal, dated, and signed in the presence of two disinterested witnesses. Notarization is recommended but not required.

In addition to executing critical estate planning documents, we also encourage clients to review beneficiary designations on any life insurance policies and retirement assets.  These designations overrule the terms in a Will, so it is critical they be reviewed and updated accordingly as part of this process.

At this time, our Pennsylvania offices remain operational and we are assisting our clients virtually.  In addition, our Delaware office is open and available for in-person execution of these critical documents.  Alternatively, and to ensure everyone’s continued health and safety, we can prepare critical estate documents by phone, video conferencing, and email.  Once the documents are finalized, we can either email or mail the documents with signing instructions, and also be available by phone or video conferencing to oversee the signing to make sure the documents are signed according to law and become valid.

We will always recommend that critical estate planning documents be signed, witnessed, and notarized in our presence, but we understand that the next few weeks will present challenges, and those challenges should not preclude someone from having the opportunity to draft or change their estate plan.  We remain willing and ready to assist our clients and to provide peace of mind during this uncertain time. 

If you have questions or need assistance please contact Tara Stark  at [email protected] for any Delaware related questions or Stephen Porter at [email protected] for any Pennsylvania related questions.  Thank you.

The ongoing Coronavirus (COVID-19) pandemic has severely impacted domestic and international economies alike and threatens the continued viability of supply chains and business operations across various industries for the foreseeable future. 

As a result of the economic uncertainty and instability brought about by the current pandemic, companies of all sizes have been forced to grapple with the tangible reality that they may be unable to comply with existing contractual obligations.  Generally speaking, the failure to perform under a contract exposes the non-performing party to liability under the doctrines of contract law.  Nevertheless, exigent circumstances, such as those currently brought about by the Coronavirus (COVID-19) may present certain exceptions that may excuse or suspend a party’s obligation to perform under a contract.  Because of various disruptions to supply chains and business operations, companies have considered invoking the force majeure clauses contained in their contracts because it may not be possible for these companies to perform under their respective contracts for reasons beyond their control.   

A. What is a “force majeure” and how does it impact contractual relationships?

A “force majeure” is an event that can neither be anticipated or controlled, especially an unexpected event that prevents someone from doing or completing something that he or she had agreed to do.  The term includes both acts of nature (such as floods and hurricanes) and acts of people (such as riots, strikes, and wars).  In the business context, a force majeure provision excuses or suspends a party’s performance under the agreement to the extent that the failure to perform is due to certain extreme circumstances such as Acts of God, hurricanes, earthquakes, epidemics, pandemics, and other events outside that party’s control.  Indeed, in order to invoke a force majeure event as a basis for non-performance of a contractual obligation, the alleged event must have been beyond the non-performing party’s control and not due to any fault or negligence of the non-performing party. 

B. What does a force majeure provision contain?

While force majeure provisions vary, these provisions typically contain language which excuses one or both of the parties from performing under the contract when one of the force majeure events, specified in the contract, comes to fruition.  Due to the fact that parties to a contract typically negotiate as to what constitutes a force majeure event, the list of events excusing performance will vary by contract. 

Further, in order for the party impacted by the force majeure event to be excused from performance under the contract, the force majeure provision may contain language requiring the impacted party to notify the other party of the occurrence of a contractually-specified force majeure event.  Alternatively, the force majeure provision may contain language obligating the impacted party to take reasonable steps to mitigate the effects of the force majeure event when it occurs.   

Moreover, force majeure provisions may contain language providing a remedy, such as the ability of the non-impacted party to terminate the agreement, without subjecting itself to liability for breaching the contract, if the force majeure event lasts for a certain period of time, for example.

C. What if the force majeure provision is broadly worded to include any unforeseen event?

Nevertheless, there are instances where a force majeure provision is drafted to include “open-ended” or “catch-all” language, which is designed to capture a vast array of unforeseeable events that are not specifically set forth in the contract.  For example, a provision could provide that force majeure events “include, but are not limited to, hurricanes, wars, or tornadoes.”  Here, while a “pandemic” is not specifically listed, the inclusion of the phrase “includ[ing], but not limited to,” potentially allows a “pandemic” to form the basis of excusable non-performance under the contract.    

In circumstances, such as that demonstrated above, the court will ordinarily determine whether the force majeure provision is ambiguous as a matter of law.  In the case of an “open-ended” or “catch-all” provision, ambiguity can become an unlikely asset for an impacted party.  In fact, absent a finding that a contractual provision (such a force majeure provision) is ambiguous, the court will only look to the language of the contract to determine the outcome of a contract dispute.  If a court determines that a contractual provision is ambiguous, the court will interpret that ambiguous provision in light of the extrinsic evidence offered by the parties in support of their respective interpretations.      

D. What if my contract does not contain a force majeure provision?

Absent a force majeure provision, a party impacted by an unforeseen event may consider invoking the doctrines of impossibility or impracticability of performance to excuse non-performance under a contract. 

Generally speaking, when promised performance becomes impracticable because of some extreme or unreasonable difficulty, expense, injury, or loss, the doctrine of impossibility is available to excuse non-performance.  For example, section 2-615(a) of the Uniform Commercial Code (UCC) excuses a seller for untimely delivery or non-delivery of goods where the seller’s performance has become impracticable by, among other things, the occurrence of an event that the contract assumed would not occur.  In Pennsylvania, section 2-615 of the UCC has been adopted at 13 Pa.C.S. § 2615.

E. Conclusion

As companies navigate increasingly unchartered territory in light of the Coronavirus (COVID-19) pandemic, the viability of continued business operations will depend, in large part, on a company’s ability to adapt to rapidly-changing supply chain and market conditions.  Evaluation of force majeure provisions will prove to be an invaluable part of any company’s risk mitigation strategy during the current health crisis. 

Because force majeure provisions, like countless other contractual provisions, present various complexities that require consideration of numerous business and legal factors, it is imperative that a company evaluating a force majeure provision consult with experienced corporate counsel.  In instances where a contract does not contain a force majeure provision, the need for experienced legal counsel is even greater. 

For further information regarding the various business continuity issues presented by the Coronavirus (COVID-19) pandemic, contact MacElree Harvey, Ltd.’s COVID-19 response team at [email protected].

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¹ See FORCE MAJEURE, Black’s Law Dictionary (11th ed. 2019).

² Id.

³ Force Majeure Clauses: Key Issues, Practical Law Practice Note 5-524-2181

⁴ See Martin v. Com., Dep’t of Envtl. Res., 120 Pa.Cmwlth. 269, 273, 548 A.2d 675, 678 (Pa. Cmwlth. 1988).

⁵ STI Oilfield Servs., Inc. v. Access Midstream Partners, 2017 WL 889541, at *12 (M.D. Pa. Mar. 6, 2017) (citing Hutchison v. Sunbeam Coal Corp., 519 A.2d 385, 390 (Pa. 1986)).

⁶ Driscoll v. Arena, 2019 PA Super 190, 213 A.3d 253, 259 (Pa. Super. 2019).

⁷ STI Oilfield Servs., Inc. v. Access Midstream Partners, 2017 WL 889541, at *12 (M.D. Pa. Mar. 6, 2017) (citing Sanford Inv. Co. v. Ahlstrom Machinery Holdings, Inc., 198 F.3d 415, 421 (3d Cir. 1999)).

⁸ Albert M. Greenfield & Co., Inc. v. Kolea, 475 Pa. 351, 355, 380 A.2d 758, 759 (Pa. 1977)

⁹ Force Majeure Clauses: Key Issues, Practical Law Practice Note 5-524-2181.

As we all know, Pennsylvania’s Governor, Tom Wolf, ordered all “non-life sustaining” businesses to be closed effective 8:00pm on Thursday, March 19, 2020.  Although the list of “life-sustaining” businesses was expanded late on Friday, March 20^th, the reality of the situation is that most businesses are required to close, there is a hard deadline for closures beginning Monday, March 23, 2020, and business owners that do not adhere to this order could be subject to fines, loss of business licenses, criminal penalties, and the ability to file for and receive disaster aid.

A common question clients are asking is whether or not insurance coverage is a viable mechanism to recover lost profits.  Business interruption insurance, also known as business income insurance, is a type of insurance that covers the loss of income that a business may suffer after a disaster.  Although some business insurance policies do include this coverage, it is usually not automatically contained in every policy and the coverage provided varies widely from policy to policy. Every business owner will have to review their individual policy to determine what may be covered.

Business income policies usually require physical damage to qualify for loss of business income. For example, if a business was to suffer a fire loss that business could also make a claim for loss of income as the property is being rebuilt.  The issue with COVID-19 is that a virus in and of itself does not typically constitute physical damage, although there is some case law supporting the notion that “harmful substances” at or on a property can constitute “property damage.”  See Gregory Packaging, Inc. v. Travelers Prop. Cas. Co. of Am., 2014 WL 6675934 (D.N.J. Nov. 25, 2014).  This may not be helpful for businesses that are closed simply for the threat of spreading a virus, and don’t necessarily have the virus present and a contamination issue.  In addition, many insurance policies often include specific exclusions for viruses and other biological agents from standard coverage. So, even if the coronavirus was to constitute physical damage, recovery could still be precluded by the policy itself.

While it may seem as though the possibility of recovery is slim; all may not be lost.  Some states are proposing legislation to assist businesses seeking coverage.  New Jersey, for instance, has proposed legislation to override the “virus” exclusion contained in many policies and we understand that Pennsylvania’s legislature may look at similar changes.

We are recommending that all business owners review their insurance policies carefully to determine if they have coverage. It will also be important to know the answer to that question if you are going to seek any state or federal grants or emergency aid because most applications for state and federal relief programs, including the SBA Emergency Loan Program, will ask if you have coverage. 

We are happy to assist businesses with reviewing and analyzing what their policies cover.  As circumstances continue to evolve regarding COVID-19, we will continue to monitor this issue and will provide updates as they are available.

Please send an email to [email protected] and we will direct your question to the appropriate attorney.

– MacElree Harvey COVID-19 Response Team