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What Ohio’s Clarification of the Ohio Business Income Definition Means for Business Owners and Sellers

June 27, 2022

June 27, 2022

On June 24, 2022, Governor DeWine signed House Bill 515, providing a needed clarification of the definition of “business income” under Ohio’s income tax law. Clarification of the law became necessary after different readings of the “business income” definition led to disputes between the Ohio Department of Taxation (“Department”) and taxpayers whose income included a gain from the sale of a business. In sum, taxpayers who recently sold, or plan to sell, their business ownership interests have an opportunity to claim an income deduction and preferential tax rate.

The definition of “business income” serves two functions under Ohio law. First, along with its converse “non-business income,” it is used to determine whether a source of income is apportionable among states where the taxpayer does business (business income) or must be allocated to a taxpayer’s state of domicile (non-business income). Second, Ohio provides for a Business Income Deduction (the “BID”) equal to $250,000 of business income, and preferential 3% flat tax rate on business income exceeding $250,000.

Under prior law, the definition of business income includes income from a partial or complete liquidation of a business, including gain or loss from the sale or other disposition of goodwill. Based on prior law, the Department took the position that gains from the sale of equity interests in a business are non-business income to which the BID and preferential tax rate do not apply. As a result, when taxpayers sold ownership interests in their businesses, the Department challenged and denied taxpayers’ claims of the BID and preferential tax rate.

The new law clarifies that business income includes income from the sale of an equity or ownership interest in a business, as long as the taxpayer materially participated in the business in the year of the sale, or during any of the five preceding taxable years. A taxpayer materially participates in a business if the taxpayer participates on a regular, continuous, and substantial basis during the taxable year, or meets the participation requirements under 26 C.F.R. § 1.469-5T.

The clarification is retroactive and becomes effective September 22, 2022. Thus, taxpayers who sold their business ownership interests within the last 3 years and materially participated in their business can amend their Ohio income tax returns to claim the BID and preferential 3% tax rate.

For additional information or advice on BID matters, contact us below.


Giulia Di Cenzo and Mike Sorice are associates at Walter  Haverfield who assist closely held businesses with business succession planningmergers and acquisitions, and tax planning. Mike can be reached at or at 614-246-2262. Giulia can be reached at or at 216-658-6230.

Best Practices for Employers Dealing with Ohio’s New Municipal Income Tax Withholding Requirements

April 15, 2022

April 15, 2022

This client alert is a follow-up to our previous client alert, which can be viewed here.

In the face of more employees working remotely due to the ongoing coronavirus pandemic, Ohio enacted a new law governing municipal income tax withholding. Effective January 1, 2022, employers must withhold municipal income taxes where an employee’s work is actually performed, for each portion of a day worked in any taxing municipality where the employee performs services for the employer.

This article outlines suggested “best practices” your Ohio business may consider implementing to ensure compliance with this new legislation.

  1. Maintain Accurate Records

Employers must keep accurate records of where employees are working throughout the workday. In order to withhold the correct amount of municipal taxes, the employer must ensure that records clearly indicate in what physical location each employee worked throughout each work day.

This presents a complicated burden for employers because employees could work in multiple municipalities in a single day. In the current work culture, employees could start the workday in their home, respond to some emails in a coffee shop during lunch, and finish the day at the downtown office for a meeting. In such situations, employees could work in numerous municipalities throughout the day, and the employer is responsible for properly documenting such employee migration throughout the day.

  1. Require Employees to Identify Work Locations

Some employers have discussed implementing work rules that would shift much of the burden of compliance with this legislation on to their employees. For example, employers may require employees to document where they are working throughout the day. If employees move their physical workspace throughout the day, they would document that change, and provide that documentation to the company.

While it would lessen the burden on employers, it would likely be an unpopular workplace rule. Furthermore, it is unlikely that employers could threaten punishment if employees failed to comply.

  1. Track Time and Location of Employees through Time Cards

With the technological advancements in internal and external payroll software, many payroll and human resource companies have worked to remain compliant with evolving legislation. For example, ADP offers a premium service to companies that ensures ADP will adapt its software to help companies comply with specific tax laws, including Ohio’s new municipal withholding tax law.

Internally, using location services through an employee’s electronic device would also enable employers to track the physical location of their employees throughout the day.

  1. Pre-determined Hybrid Work Agreements

Employers might negotiate with employees how many days an employee will work from certain locations through the workday or work week. That way, employers would have a much easier starting point in calculating the municipal withholding rates. Of course, such arrangements would require updates at any point that an employee deviated from the terms of the arrangement.

  1. Withholding agreements with municipalities

Finally, employers may also alleviate their burden under this new law by making withholding agreements with the municipalities in which their employees frequently and regularly perform services. If the municipality agrees, the employer may withhold a certain predetermined percentage of an employee’s wages and remit that portion to the municipality, even if the employee works more or less than the predetermined amount of time within the municipality.

If you have questions about complying with Ohio’s new municipal income tax withholding requirements—including questions about eligibility for an exemption—please contact Walter | Haverfield’s tax attorneys.

IRS and Justice Department Step Up Enforcement Actions Against Syndicated Conservation Easement Transactions

March 8, 2022

March 8, 2022

A federal grand jury has indicted seven individuals—including accountants and licensed appraisers—with federal crimes in connection with the individuals’ promotion of syndicated conservation easement transactions.

In a syndicated conservation easement transaction, promoters sell ownership interests in land to investors through partnerships, and then grant conservation easements on the land to qualified charitable or government organizations. Through a process of appraisals and reappraisals, the partnerships claim large tax deductions that the partnerships then pass through to the investors.

The tax law permits income tax deductions for charitable donations, and the donation of a conservation easement—a legal agreement under which a landowner gives a charitable organization or government the right to prevent future land development—qualifies as a charitable donation if certain requirements are met. But, according to the Internal Revenue Service, conservation easement promoters sometimes abuse the tax laws to allow investors to claim tax deductions they are not legally entitled to. And now, the Internal Revenue Service and Department of Justice are cracking down on abusive conservation easement transaction promoters.

The indictment makes clear that the Internal Revenue Service and Department of Justice place a high priority on prosecuting abusive tax shelters like syndicated conservation easement transactions. And, taxpayers and their advisors should think twice, and carefully scrutinize the investment opportunity, before investing in transactions that promise large tax deductions in exchange for a small investment.

Walter | Haverfield’s tax attorneys have experience helping taxpayers and their advisors navigate Internal Revenue Service audits of syndicated conservation easement transactions. But, the best way to avoid an audit is to stay away from abusive syndicated conservation easements that represent abusive tax shelter transactions, in the first place. There are certainly legitimate syndicated conservation easements. But, distinguishing between those legitimate syndicated conservation easements and those that lack a substantial business purpose and economic substance (i.e., abusive) is where the difficulty lies. It is important to ensure that an objective and competent tax advisor familiar with syndicated conservation easement transactions review and provides guidance on this opportunity before investing. VIEW INDICTMENT HERE.

Vince Nardone is Partner-in-Charge of Walter | Haverfield’s Columbus office. Vince can be reached at or at 614-246-2264.

Mike Sorice is an associate in the Columbus, Ohio office of Walter | Haverfield. Mike can be reached at or at 614-246-2262.

T. Ted Motheral Recognized by Crain’s as a Notable in Law

February 27, 2022

February 27, 2022

Ted MotheralT. Ted Motheral, who leads the Walter | Haverfield Business Services Group, is one of 37 Northeast Ohio attorneys honored by Crain’s Cleveland Business for his legal achievements and experience. Crain’s, the region’s leading business publication, named Motheral in its 2022 Notables in Law feature. Those recognized in the feature are senior-level attorneys who have demonstrated success in their respective field of practice and are active in the community.

Since Motheral joined Walter | Haverfield in 2016, he has grown his practice 10-fold to $3 million annually. He focuses his practice on mergers and acquisitions, private debt, equity financing, entity formation and governance, joint ventures, divestments, and reporting requirements and regulations.

Best Lawyers, a prominent worldwide attorney ranking publication, also recognized Motheral for his work in the mergers and acquisitions space in its 2022 edition.

Motheral is a board member of the local chapter of the Arthritis Foundation, and he is involved with Promise Partners, a Cleveland organization that empowers its members to build their own businesses.

Prior to joining Walter | Haverfield, Motheral, a father, husband and flag football coach, practiced at Benesch Law. He is a former financial consultant for PwC in New York City and worked in the general counsel office of KLA-Tencor Corporation in Silicon Valley, California.

T. Ted Motheral can be reached at or at 216-928-2967.

Crain’s subscribers can access the 2022 Notables in Law feature here

How Ohio’s New Municipal Income Tax Withholding Requirements Impact Work-From-Home Arrangements

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February 10, 2022

February 10, 2022 

Beginning in 2020, COVID-19 prevented millions of people from leaving their homes and forced employers to create work-from-home policies. The work-from-home policies promoted virtual work environments, as employers adapted their workflows to embrace the new normal.

At first, employers considered virtual work environments a temporary solution. But, employees and employers have found considerable value in allowing employees to work from home, even as the most pressing dangers from COVID-19 are subsiding. Now, many employers are moving to permanent hybrid work environments, offering employees the ability to split their work time between offices and their homes.

In Ohio, 649 municipalities and 199 school districts impose income taxes where an employee works. And, employers are generally required to withhold applicable municipality and school district income taxes. When employers first instituted work-from-home and hybrid work policies, it was unclear what municipality’s taxing rules applied if an employee’s home and the employee’s office are in different municipalities. Ohio’s 2021-2022 budget law, passed in 2021, made Ohio’s municipal income tax withholding requirements clearer.

Effective January 1, 2022, employers must withhold municipal income taxes where an employee’s work is actually performed, for each portion of a day worked in any taxing municipality where the employee performs services for the employer. The rule applies even when an employee works in a different municipality in the same day.

Example. An employee, John, works from home three days per week and in the office two days per week. John’s home is in Cleveland Heights, Ohio, but his office is in Cleveland, Ohio. Both Cleveland Heights and Cleveland impose municipal income taxes. Under the new law, John’s employer must withhold and pay over Cleveland Heights income taxes for the three days John works from home, and Cleveland income taxes for the two days John works from the office.

The general rule has several exceptions, including a 20-Day Occasional Entrant Exception, Independent Contractor Occasional Entrant Exception, and Small Employer Withholding Exception. Walter | Haverfield will cover the exceptions and employer best practices in an upcoming client alert.

The Ohio Society of CPAs has released a comprehensive Municipal Tax Withholding and Refund Q&A Guide, which can be downloaded here.

If you have questions about complying with Ohio’s new municipal income tax withholding requirements—including questions about eligibility for an exception—please contact Walter | Haverfield’s tax attorneys Vince Nardone and Mike Sorice. Their contact information is below.

Vince Nardone is Partner-in-Charge of Walter | Haverfield’s Columbus office. Vince can be reached at or at 614-246-2264.

Mike Sorice is an associate in the Columbus, Ohio office of Walter | Haverfield. Mike can be reached at or at 614-246-2262.

Ethan Fry is a law clerk in the Columbus, Ohio office of Walter | Haverfield. Ethan can be reached at or at 614-246-2267.

Future Trends in Manufacturing

October 19, 2021

Ted MotheralOctober 19, 2021

With M&A activity in the manufacturing sector at a historic high in the first half of 2021, it’s important to look at some of the current and future worldwide trends in this industry that are driving activity and growth and affecting the M&A market.

An aging workforce fosters M&A as a major growth tactic.  Family-owned manufacturing companies are facing challenges as succession planning is complicated by an aging workforce.  The baby-boomer generation, especially for lower middle market and middle market manufacturing companies, is finding it increasingly more difficult to succession plan for their companies when they don’t have a family member to take over. Skilled labor and the younger generation’s interest in the manufacturing industry is waning. This is causing two major trends – one is the realization that aging business owners need to contemplate an exit of their business altogether, and the other is, for those owners who do not want to exit, they are looking to acquire companies in order to get the skilled labor that they need to continue to grow their company.  Both trends have caused record M&A growth in the manufacturing industry, and we expect these trends to continue as the baby-boomer generation steps into retirement, and the world steps out of the economic uncertainty of the COVID-19 pandemic.

Shifting from B2B to B2C.  In recent years, many manufacturers have opted to transition from a traditional business-to-business (B2B) model to a business-to-consumer (B2C) model. The B2C model boasts a number of appealing benefits, including increased profits (companies can get the MSRP as opposed to the wholesale prices for their products), faster time to market, brand control, price control, and better customer data. To effectively move from B2B to B2C, more and more manufacturing companies are improving and implementing e-commerce operations in order to deliver on fulfillment and tracking, secure payments, customer service management, and sales/marketing activity while creating a full look at all customer interactions. All in all, this shift from B2B to B2C enhances the modeling of the business as a whole, which creates a better, more attractive M&A candidate.

Big Data and the Internet of Things (IoT).  A renewed interest in the Internet of Things (IoT) and an increased emphasis on predictive maintenance means big data is an even bigger trend than ever before. IoT, which entails the interconnection of unique devices within an existing internet infrastructure, has enabled manufacturers to make informed, strategic decisions using real-time data and achieve a wide variety of goals, including cost reduction, enhanced efficiency, improved safety, product innovation, and more. The ability to collect data from a multiplicity of sources, combined with increasingly powerful cloud computing capabilities, make it possible for manufacturers to slice and dice data in ways that provide them with a comprehensive understanding of their business — an absolute essential as they work to reevaluate their forecasting and planning models and develop a successful COVID-19 exit strategy. From a M&A perspective, this will create more accurate valuations if these manufacturing companies go to exit, and it will also emphasize the intellectual property nuances of any sale of these manufacturing companies.

Ted Motheral is Chair of the Walter | Haverfield Business Services Group who focuses his practice on corporate transactions, mergers and acquisitions, private debt and equity financing. He can be reached at 216-928-2967 or at

*This article also appears in Crain’s Cleveland Business.

New COVID Vaccination Rules for Businesses That Hold Federal Contracts or Subcontracts

September 27, 2021

Ted MotheralSeptember 27, 2021 

New guidance from the Biden Administration states that any business, large or small, that holds a federal contract or subcontract (“covered contractor”) must ensure that all its employees are fully vaccinated against COVID-19 by December 8, 2021. This latest guidance differs from the vaccine mandate that will be forthcoming by the Occupational Safety & Health Administration (“OSHA”) for employers with 100 or more employees.

Exceptions to the new vaccination rule will only apply in limited circumstances where an employee is legally entitled to an accommodation.

In addition to the vaccine requirement, all individuals and visitors in a covered contractor workplace must comply with masking and physical distance requirements as published by the Centers for Disease Control and Prevention (“CDC”). Such requirements include fully vaccinated people wearing masks in areas of high community transmission. Furthermore, the new mandate also states that businesses must designate at least one person to ensure compliance with the new guidance and coordinate COVID workplace safety efforts.

For contracts issued or extended beyond December 8, 2021, employees must be vaccinated by the first day of performance.

The guidance also states the following:

  • An individual working on a covered contract from their home is a covered contractor employee and therefore must comply with the vaccination requirement. Individuals who work fully from home and are not performing any work related to a federal contract or subcontract are excused from the new mandate.
  • Covered contractors are not required to provide vaccinations at their workplaces.
  • A recent antibody test from a covered contractor employee to prove vaccination status will not be accepted.
  • The rules apply to outdoor contractor or subcontractor workplace locations.
  • Employees who perform duties necessary to the performance of the covered contract, but who are not directly engaged in performing specific covered contract work means they perform work in connection with a federal government contract (human resources, billing, legal review).
  • A workplace location that involves no federal contract or subcontract work is excused from the new rules.
  • The guidance does not apply to covered contractor employees who perform work outside the U.S.

Keep in mind that the vaccination process can take weeks between the first and second doses, so it’s highly encouraged that businesses make immediate plans to comply with the new mandate. Walter | Haverfield attorneys are ready and able to assist you if you have questions.

Ted Motheral is Chair of Walter | Haverfield’s Business Services group who focuses his practice on corporate transactions, mergers and acquisitions, private debt and equity financing. He can be reached at 216-928-2967 or at

President Biden Targets Private Equity by Treating Tax on Carried (Profits) Interests as Ordinary Income

July 28, 2021

Ted MotheralJuly 28, 2021

Under certain circumstances, profits from a partnership interest owned by service partners are taxed at capital gain rates versus ordinary income rates. And, according to the Department of the Treasury, activity among large private equity firms and investment funds has increased the breadth and cost of this tax preference—i.e., structuring transactions in order to tax the profits at capital gains rates versus ordinary income rates—with some of the highest-income Americans benefiting from this preferential tax treatment. Now, we can certainly argue about their reasoning. But, certain individuals within Treasury believe that although profits interests are structured as partnership interests, the income allocable to such interests are awarded based upon and received in connection with the performance of services. And therefore, a service provider’s share of the income of a partnership attributable to a carried interest should be taxed as ordinary income and subject to self-employment tax because such income is derived from the performance of services. By allowing service partners to receive capital gains treatment on labor income without limit, even with the holding period extension provided by section 1061, the current system creates an unfair and inefficient tax preference, again according to the Treasury.

Current Law

A partnership is not subject to Federal income tax. Instead, an item of income or loss of the partnership retains its character and flows through to the partners, who must include such item on their tax returns. Generally, certain partners receive partnership interests in exchange for contributions of cash and/or property, while certain partners (not necessarily other partners) receive partnership interests, typically interests in future partnership profits referred to as “profits interests” or “carried interests,” in exchange for services. Accordingly, if and to the extent a partnership recognizes long-term capital gain, the partners, including partners who provide services, will reflect their shares of such gain on their tax returns as long-term capital gain. If the partner is an individual, such gain would be taxed at the reduced rates for long-term capital gains. Gain recognized on the sale of a partnership interest, whether it was received in exchange for property, cash, or services, is generally capital gain. Section 1061 of the Internal Revenue Code (Code) generally extends the long-term holding period requirement for certain capital gains resulting from partnership property dispositions and from partnership interest sales, from one year to three years.

Under current law, income attributable to a profits interest is generally subject to self-employment tax, except to the extent the partnership generates types of income that are excluded from self-employment taxes, e.g., capital gains, certain interest, and dividends. A limited partner’s distributive share is generally excluded from self-employment tax under section 1402(a)(13) of the Code.


The proposal would generally tax as ordinary income a partner’s share of income on an “investment services partnership interest” (ISPI) in an investment partnership, regardless of the character of the income at the partnership level, if the partner’s taxable income (from all sources) exceeds $400,000. Accordingly, such income would not be eligible for the reduced rates that apply to long-term capital gains. In addition, the proposal would require partners in such investment partnerships to pay self-employment taxes on such income. In order to prevent income derived from labor services from avoiding taxation at ordinary income rates, this proposal assumes that the gain recognized on the sale of an ISPI would generally be taxed as ordinary income, not as capital gain, if the partner is above the income threshold. To ensure more consistent treatment with the sales of other types of businesses, the Administration remains committed to working with Congress to develop mechanisms to assure the proper amount of income re-characterization where the business has goodwill or other assets unrelated to the services of the ISPI holder.

What is an ISPI?

An ISPI is a profits interest in an investment partnership that is held by a person who provides services to the partnership. A partnership is an investment partnership if substantially all of its assets are investment-type assets (certain securities, real estate, interests in partnerships, commodities, cash or cash equivalents, or derivative contracts with respect to those assets), but only if over half of the partnership’s contributed capital is from partners in whose hands the interests constitute property not held in connection with a trade or business. To the extent (1) the partner who holds an ISPI contributes “invested capital” (which is generally money or other property) to the partnership, and (2) such partner’s invested capital is a qualified capital interest (which generally requires that (a) the partnership allocations to the invested capital be made in the same manner as allocations to other capital interests held by partners who do not hold an ISPI and (b) the allocations to these non-ISPI holders are significant), income attributable to the invested capital would not be re-characterized. Similarly, the portion of any gain recognized on the sale of an ISPI that is attributable to the invested capital would be treated as capital gain.

However, “invested capital” will not include contributed capital that is attributable to the proceeds of any loan or advance made or guaranteed by any partner or the partnership (or any person related to such persons).

Also, any person who performs services for any entity and holds a “disqualified interest” in the entity is subject to tax at rates applicable to ordinary income on any income or gain received with respect to the interest, if the person’s taxable income (from all sources) exceeds $400,000. A “disqualified interest” is defined as convertible or contingent debt, an option, or any derivative instrument with respect to the entity (but does not include a partnership interest, stock in certain taxable corporations, or stock in an S corporation). This is an anti-abuse rule designed to prevent the avoidance of the property through the use of compensatory arrangements other than partnership interests. Other anti-abuse rules may be necessary.

Effective Date

The proposal would repeal section 1061 for taxpayers with taxable income (from all sources) in excess of $400,000 and would be effective for taxable years beginning after December 31, 2021.


Ted Motheral is Chair of Walter | Haverfield’s Business Services group who focuses his practice on corporate transactions, mergers and acquisitions, private debt and equity financing. He can be reached at 216-928-2967 or at

Vince Nardone is Partner-in-Charge of Walter | Haverfield’s Columbus office. He serves as a business advisor to owners and executives of closely-held businesses, counseling them on business planning, tax planning and controversy, cash-flow analysis, succession planning, and legal issues that may arise in business operations. Vince can be reached at 614-246-2264 or

Legislative Changes to Employee Benefits Law: Federal Funding for COBRA and Flexible Spending Account Relief

May 14, 2021

Petra BradburyMay 14, 2021 

In response to the coronavirus pandemic, Congress enacted several legislative changes to employee benefits law. The Consolidated Appropriations Act of 2021 (“CAA”) creates temporary special rules for health and dependent care flexible spending accounts, and the American Rescue Plan Act (“ARPA”) provides subsidized COBRA coverage for individuals and families.

Flexible Spending Accounts

The CAA, passed at the end of 2020, allows plan sponsors to make several optional amendments to flexible spending account plans, including amendments to allow post-termination reimbursements from health flexible spending accounts, plan year carryovers, and extended grace periods.

Post-Termination Reimbursements. The CAA allows plan sponsors to amend health flexible spending account plans to permit post-termination reimbursements to employees who cease to participate in the plan during calendar year 2020 or 2021. The permitted amendment would allow former participants to spend down unused benefits or contributions through the end of the plan year during which the employee ceased to participate—including through any grace period.

Under the CAA, post-termination reimbursements for health flexible spending accounts must follow rules similar to the rules that apply to dependent care flexible spending accounts. A dependent care flexible spending account plan can include a spend-down provision if:

  • The plan provides dependent care assistance;
  • The plan does not discriminate in favor of highly compensated employees;
  • 25 percent or less of amounts paid or incurred by the employer during the year are for principal shareholders or owners of the employer;
  • Eligible employees are notified;
  • Written expense statements are provided to employees; and
  • Applicable nondiscrimination testing is satisfied.

Plan Year Carryovers. For plan years ending in 2020 and 2021, the CAA allows plan sponsors to permit participants to carryover the entire unused benefit or contribution remaining in the participant’s flexible spending account to the next plan year.  Prior law only allowed carryovers for health flexible spending accounts—limited to $550 per plan year—but the CAA permits carryovers of the entire account balance for both health and dependent care flexible spending accounts.

In addition, dependent care flexible spending accounts may permit participants who elected dependent care flexible spending account coverage for the 2020 plan year during an enrollment period that ended on or before January 31, 2020, and whose dependent child reached age 13 during the 2020 plan year, to continue to use their dependent care flexible spending account funds for the child’s expenses through the end of the 2020 plan year.  Further, if a balance remains in the participant’s dependent care flexible spending account at the end of the 2020 plan year, the participant may use that balance for the child’s expenses into 2021, until the child reaches age 14.

Extended Grace Periods. Under the grace period rule, a flexible spending account plan may permit employees to use amounts remaining from the previous year—including amounts remaining in a health flexible spending account—to pay expenses incurred for qualified benefits after the end of the plan year. For plan years 2020 and 2021, the CAA allows plan sponsors to extend the grace period from two and a half months after the end of the plan year, to 12 months after the end of the plan year.

COBRA Premium Subsidy & Tax Credit

The ARPA, passed in March 2021, provides subsidized COBRA coverage of up to six months of 100 percent coverage from April 1, 2021, through September 30, 2021, for assistance-eligible individuals. An assistance-eligible individual is a COBRA qualified beneficiary who is eligible for and elects COBRA coverage due to a qualifying event of involuntary termination of employment or reduction of hours. The subsidy is available for any period of coverage between April 1, 2021, and September 30, 2021. However, eligibility may end earlier if the qualified beneficiary’s maximum period of coverage ends before September 30, 2021, or if the qualified beneficiary becomes eligible for coverage under another group health plan.

Individuals who do not have a COBRA election in effect on April 1, 2021—but who would be eligible for the subsidy if they did—are also eligible for the subsidy. Further, individuals who discontinued COBRA coverage before April 1, 2021—but who would be eligible for the subsidy if they had not discontinued coverage—are eligible if they are within their maximum period of coverage. These individuals can make a COBRA election beginning April 1, 2021, and ending 60 days after the group plan provides the individual the required notification of the extended election period.

Notices from Assistance-Eligible Individuals to Health Plan. Assistance-eligible individuals must notify the group health plan if they cease to be eligible for the subsidy, and can face penalties of $250 (or more for intentional failures) if the individual fails to provide the required notification.

Notices to Assistance-Eligible Individuals. Group health plans must provide certain notices to assistance-eligible individuals, including:

  • Notice of assistance availability;
  • Notice of extended election period; and
  • Notice of expiration of subsidy.

The Department of Labor has issued model notices that group health plans should use to notify eligible individuals and a Summary and Request for Treatment as an Assistance Eligible Individual. Copies of the model notices and the Summary are attached to this Client Alert.

Refundable Tax Credit. Under the ARPA, the employer pays the cost of subsidized COBRA coverage and can take a refundable quarterly tax credit against Medicare payroll taxes equal to the premium amounts not paid by assistance-eligible individuals. The quarterly credit may be paid in advance.

State “Mini-COBRA”

Employers who have fewer than 20 employees may have to comply with ARPA provisions described above that apply with respect to their state’s “mini-COBRA” law for extended continuation coverage.  The ARPA (i) does not require an extension of the time in which to apply for coverage under the state’s mini-COBRA law, (ii) does not require certain notices required under the ARPA for federal COBRA to be provided if notice is not required under the state’s mini-COBRA law, and (iii) does not require subsidized coverage be provided if the loss of coverage resulted from a reduction in hours if the state mini-COBRA law does not provide for continuation coverage in that circumstance.  A copy of the Department of Labor’s model notice regarding state continuation coverage and the ARPA is attached.

Severance Agreements

Severance agreements often include provisions regarding employer payment of some or all COBRA premiums for a specified time period.  Future severance agreements that will take effect during the subsidy period should be appropriately drafted to take into account the ARPA 100% subsidy.  Existing severance agreements should be reviewed to determine if any changes are needed.


The legislative changes to flexible spending account plans are permissive—not mandatory—and have administrative and financial implications. Plan sponsors with questions about adopting the permitted amendments and administering the changes should contact Walter Haverfield attorneys.

Employers with questions about how to administer the COBRA subsidy, provide the required notice, and take the new COBRA tax credit under the ARPA should contact Walter Haverfield attorneys before May 30, 2021, when the first notices are due.


Tim Jochim is a partner in the Columbus, Ohio office of Walter |Haverfield and a national authority on business succession and employee stock ownership plans (ESOPs). Tim can be reached at or at 614-246-2152.

Mike Sorice is an associate in the Columbus, Ohio office of Walter | Haverfield. He assists closely-held businesses with business succession planningmergers and acquisitions, and tax planning. Mike can be reached at or at 614-246-2262.

Russell Shaw is a partner in the Cleveland, Ohio office of Walter | Haverfield and focuses his practice on employee benefits, which include retirement plans, executive deferred compensation plans, welfare benefit plans, VEBAs, and 403(b) tax-deferred annuity plans. Russell can be reached at or at 216-928-2888.

Petra Bradbury is an associate in the Cleveland, Ohio office of Walter | Haverfield and focuses her practice on employee benefits and deferred compensation plans. Petra can be reached at or at 216-619-7841. 

President Signs American Rescue Plan Act: What You Need to Know

March 17, 2021

March 17, 2021 

On Thursday, March 11, the president signed into law the American Rescue Plan Act of 2021 (the “Act” or “ARPA”). The Act provides funding for education, COVID-19 vaccination and testing, economic injury disaster loans, restaurant grants, expanded paycheck protection program eligibility, and support for struggling live venues. The Act also provides financial assistance for individuals, such as additional direct payments, extended pandemic-related unemployment benefits, and enhancements to refundable tax credits like the Child Tax Credit and the Earned Income Tax Credit designed to help low-income Americans.

Provisions for Small Businesses

Targeted Economic Injury Disaster Loan Advance

The CARES Act, passed in March 2020, included grants of $10,000 to small businesses that were treated as advances on Economic Injury Disaster Loans (“EIDL”) and did not have to be paid back. The Act provides an additional $15 billion for the EIDL grant program to ensure that all eligible businesses can access the $10,000 grants. Businesses are eligible if they are located in low-income communities and previously received an EIDL grant for less than $10,000 or applied but received no funds due to lack of available program funding.

The Small Business Administration will disburse any funds remaining after all eligible businesses have claimed the $10,000 grants as supplemental grants to severely impacted small businesses that have (1) suffered a revenue loss of at least 50 percent; (2) are located in a low-income census tract; and (3) have 10 or fewer employees.

Restaurant Grants

The Act provides $25 billion for a new program at the Small Business Administration that offers assistance to restaurants. Five billion dollars of funding is set aside for businesses with less than $500,000 in 2019 annual revenue.

The grants are available for up to $10 million per entity, with a limitation of $5 million per physical location. Entities are limited to 20 locations. The grants are calculated by subtracting 2020 revenue from 2019 revenue. During the first 21 days, applications from restaurants owned and operated controlled by women, veterans, or socially and economically disadvantaged individuals will receive priority. The grants may be used for a wide variety of expenses, including payroll, mortgage, rent, utilities, supplies, food and beverage expenses, paid sick leave, and operational expenses.

Expanded Paycheck Protection Program Eligibility

The Act expands eligibility for initial and second-draw Paycheck Protection Program loans to additional non-profits listed in Section 501(c) of the Internal Revenue Code, except for 501(c)(4) organizations, as long as the non-profit meets restrictions on lobbying activities. Larger non-profits are eligible for Paycheck Protection Program loans based on employee headcounts per physical location of the organization, rather than a headcount of all employees throughout the entire organization.

In addition, the Act makes internet-only news and periodical publishers eligible for Paycheck Protection Program loans as long as the publisher has more than one physical location, fewer than 500 employees per physical location, and certifies that the loan will support locally-focused or emergency information.

Support for Struggling Live Venues

The Small Business Administration’s Office of Disaster Assistance administers the Shuttered Venue Operations Grant program, that provides grants to struggling live venue operators equal to the lesser of 45 percent of the venue operator’s gross earned revenue or $10 million. The Act provides an additional $1.25 billion for the program, including funding set aside for technical assistance to help entities apply for grants.

Provisions for Individuals

Unemployment Exclusion

The Act includes a partial exclusion from gross income for unemployment payments received in 2020. Under the Act, taxpayers can exclude up to $10,200 of unemployment payments they received if their adjusted gross income is below $150,000. If the taxpayer’s adjusted gross income is $150,000 or more, then the exclusion does not apply and gross income includes all unemployment payments made to the taxpayer.

Direct Payments to Individuals

In addition, the Act creates a refundable tax credit of $1,400 ($2,800 for joint filers) plus $1,400 per dependent. The credit phases out for taxpayers with adjusted gross income above $75,000 (above $150,000 for joint filers; above $112,500 for head of household filers). Advance payments of the credit will be made as rapidly as possible.

Mike Sorice is an associate in the Columbus, Ohio office of Walter | Haverfield. He assists closely-held businesses with business succession planningmergers and acquisitions, and tax planning. Mike can be reached at 614-246-2262 or

Tim Jochim is a partner in the Columbus, Ohio office of Walter | Haverfield and a national authority on business succession and employee stock ownership plans (ESOPs). Tim can be reached at or at 614-246-2152.

Changes to Paycheck Protection Program Specifically Impacting Small Businesses

March 5, 2021

March 5, 2021

Changes to the Paycheck Protection Program (the “PPP”) were announced on February 22, 2021 that specifically impact small businesses with fewer than 20 employees.  These changes were designed to prioritize loans to these specific small businesses.  According to the Small Business Association (the “SBA”), 98% of small businesses employ less than 20 employees.  But, only 45% of small businesses with less than 20 employees have received PPP loans.

One of the biggest changes announced is the implementation of a two-week exclusive application period during which only small businesses with less than 20 employees can apply for PPP loans.  This exclusive application period began on February 24, 2021, and will run through March 9, 2021.  The current PPP application period for all applicants will continue from March 10, 2021 through March 31, 2021.

While the exclusive application period began on February 24, 2021, changes to PPP eligibility were also announced without a specific effective date, with the intention that they would go into effect during the first week of March, 2021.  On March 3, 2021, the SBA released its interim final rule titled Business Loan Program Temporary Changes; Paycheck Protection Program — Revisions to Loan Amount Calculation and Eligibility.  With the release of this interim final rule, the additional PPP eligibility changes have become effective immediately on March 3, 2021.

One important change included in the interim final rule is a revision to the PPP loan calculation formula for sole proprietors, independent contractors, and self-employed individuals.  Previously, PPP loan amounts for these individuals were based upon the net profit reported on annual tax returns, which prevented unprofitable individuals from receiving a PPP loan.  Under the new calculation formula, PPP loan amounts can be based on an individual’s gross income.

Additionally, other changes remove prior restrictions on PPP loan eligibility.  The restrictions preventing a small business owner with: (i) a past non-fraud felony conviction; or (ii) a delinquent or defaulted federal student loan from obtaining a PPP loan have been eliminated. Previously, a business was ineligible for a PPP loan if at least 20% of its ownership is held by an individual who: (i) has an arrest or conviction for a felony related to financial assistance fraud within the previous five years; (ii) has any other felony within the previous year; or (iii) is currently delinquent or has defaulted within the last seven years on any federal debt, including a student loan. The updated eligibility guidelines now only prevent a business from obtaining a PPP loan if at least 20% of its ownership is held by an individual who is: (i) presently incarcerated; or (ii) for any felony, presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or (iii) has been convicted of, pleaded guilty or nolo contendere to, or commenced any form of parole or probation (including probation before judgment) for a felony involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance within the last five years.

It is important to note that while the two-week exclusive application period began on February 24, 2021, the changes noted above did not go into effect until March 3, 2021. PPP loan applications are determined based upon the rules in effect when the PPP loan application is submitted.  Thus, only PPP loan applications submitted after the release of the SBA’s interim final rule on March 3, 2021 will be able to take advantage of the changes to eligibility.

Kari Heinze is an associate in Walter | Haverfield’s Columbus office. She focuses her practice on business services within the healthcare and dental practice arena. Kari can be reached at or at 614-246-2266.  

Vince Nardone is Partner-in-Charge of Walter | Haverfield’s Columbus office. He serves as a business advisor to owners and executives of closely-held businesses, counseling them on business planning, tax planning and controversy, cash-flow analysis, succession planning, and legal issues that may arise in business operations. Vince can be reached at 614-246-2264 or

New and Temporary Changes to the PPP Loan for Small Businesses

February 26, 2021

February 26, 2021

The Biden Administration recently announced changes to the CARES Act’s paycheck protection program. The paycheck protection program offers forgivable, low-interest loans to businesses to help meet payroll obligations and keep their employees employed.

On February 22, 2021, President Biden announced a two-week window during which only small businesses with fewer than 20 employees can apply for loans. The two-week period began February 24, 2021, and will end on March 9, 2021. This window is a great opportunity for the smallest of small businesses to get the necessary funds to keep their employees on the job.

Other changes to the program include measures to increase racial equity in paycheck protection program lending. These changes are aimed at helping sole proprietors and independent contractors by setting aside at least $1 billion.

Small businesses with cash-flow needs and fewer than 20 employees should consider applying for a paycheck protection program loan during the two-week window. We encourage you to contact the attorneys at Walter | Haverfield to discuss all of your PPP loan program options.

Mike Sorice is an associate in the Columbus, Ohio office of Walter | Haverfield. He assists closely-held businesses with business succession planning, mergers and acquisitions, and tax planning. Mike can be reached at 614-246-2262 or