Category: COVID-19 Relief

On March 20, 2020 the IRS announced that small and midsized employers can begin taking advantage of two new refundable payroll tax credits, designed to reimburse employers for the cost of providing Coronavirus related paid leave to their employees. The paid leave for employees and tax credits for businesses are provided under the Families First Coronavirus Response Act (“Act”), signed into law on March 18, 2020. The Act applies to employers with less that 500 employees. Under the Act employees receive up to 80 hours of paid sick leave and expanded child-care leave. However, businesses with less than 50 employees will be eligible for an exemption.

Available Tax Credits

Sick Leave Credit

For an employee who is unable to work because of Coronavirus quarantine or illness, the employer may receive a refundable tax credit for the employee’s regular wages paid, up to $511 per day and $5,110 in total, for a total of 10 days.

For an employee that is caring for someone with Coronavirus or caring for a child whose school or child care facility is closed, the employer may claim a credit for two-thirds of the employee’s regular rate of pay, up to $200 per day and $2,000 in total for up to 10 days.

Expanded Child Care Leave Credit

In addition to the sick leave credit, for an employee who is unable to work because of a need to care for child whose school or child care facility is closed or whose child care provider is unavailable due to the Coronavirus, an eligible employer can receive a Child Care Leave Credit. This credit is equal to two-thirds of the employee’s regular pay capped at $200 per day or $10,000 in total. The aggregate amount of this credit is larger and can be provides for up to 10 weeks of pay.

Method to Obtain the Credit

Payroll Tax Retention

Under IRS notice IR-2020-57, March 20, 2020, the IRS provided that employers who pay qualifying sick leave or child care leave will be able to retain an amount of payroll taxes equal to the amount of qualifying sick and child care leave paid, rather than depositing these taxes with the IRS.

The payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees.

Payroll Tax Refund

If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able to file a request for an accelerated refund from the IRS. The IRS expects to make these payments in two weeks or less.

Application to Self-Employed Individuals

Equivalent sick leave and childcare credit amounts are available to self-employed individuals under similar circumstances. These credits will be claimed on their income tax return and will reduce estimated tax payments.

The IRS will provide additional guidance on obtaining the tax credit during the next week.

We are available to assist in evaluating other COVID-19 government  programs, such as the Economic Injury Disaster Loan Program offered by the Small Business Administration. If you have any questions regarding the application of these tax credits or the process for claiming these credits, please contact the following people at RVG & Company: Larry Rice, Joao Gomes and Paul Buchman

On March 21st, 2020 the Treasury Department and Internal Revenue Service (IRS) announced that the federal income tax return filing deadline was automatically extended from April 15th, 2020 to July 15th, 2020 (automatically, meaning no forms need to be filed for such extension to apply).

Included in this relief announcement was the extended due date for certain tax payments normally due April 15th, 2020, such as estimated tax payments (for individuals, corporations, and trusts) as well as income taxes due on this date. Therefore, these payments due on April 15th, 2020 can be paid by July 15th, 2020 without the addition of penalties and interest.

It is important to note that no relief has yet been provided for the deadline of certain entities that had a due date of March 16th, 2020 (mostly flow-through entities such as partnerships and S Corporations). However, it is anticipated that the IRS will be lenient in their penalty abatement process. The leniency is expected because the deadline occurred right as the government was beginning to wrap its arms around the COVID-19 pandemic.

Some taxpayers may need additional time to file their tax returns beyond the new deadline of July 15th, 2020. The IRS reminds us that those taxpayers needing the additional time must file the appropriate form for an extension by July 15th, 2020. As of today, it is not clear if the additional 6 months extension these forms normally allow will be from the original due date or the new due date. We encourage clients to consider October 15th, 2020 to be the extended due date when filing Forms 4868 and 7004.

Lastly, we strongly suggest our clients continue to make every effort to provide all the information necessary to prepare and complete their tax returns as soon as possible or within the agreed-upon date established during our meetings for us to receive their documents. Should you have any questions regarding the news we have been sharing with you after this novelvirus that is affecting people worldwide, please do not hesitate to contact us.

The President has signed the Coronavirus Aid and Economic Relief Act (Cares Act) that was earlier approved by the US Senate and House of Representatives. The $2 trillion act contains many significant provisions that expand the availability of loans offered by the Small Business Administration (SBA). Additionally, the act provides substantial tax savings provisions that help individuals and businesses to create needed cash-flow during this urgent time. This summary will highlight many of the key provisions of the Cares Act. Note that many of the measures in the act have requirements and limitations that must be analyzed on a case by case basis by each taxpayer. In addition, the SBA, IRS and the Department of Labor are currently drafting procedures and regulations to implement these benefits in a timely manner. It remains uncertain how provisions in the Cares Act and other measures under the Emergency Paid Sick Leave Act and Emergency Family and Medical Act (approved two weeks prior) will work together.

SBA Loan Program

• The SBA 7(a) Loan Program has been expanded to cover employers that have up to 500 employees and in certain instances, even more, based on particular industry sectors. Typically, the threshold to obtain an SBA loan requires fewer employees and revenue.
• Loans will be made to cover costs for payroll and other expenses – such as rent, utilities, and mortgages.
• Loan forgiveness will be available, however, if an employer reduces employment or wages by 25% the loan forgiveness will be reduced. We are analyzing the details of this provision and how this will be regulated by the SBA.
• Economic Injury Disaster Loans will continue to be made available. The SBA is seeking to streamline this process by adding additional resources to meet small business needs.

Individual Tax Provisions

• Under the Cares Act the IRS will make cash payments to taxpayers. The IRS will base the payments generally on the 2018 tax returns filed –where available the IRS may use recently filed 2019 tax returns as the base.
• The Act provides for payments to individuals of up to $1,200 per person and $2,400 for a married couple – with an additional $500 for each child.
• The payment is subject to a phase-out for individuals with an adjusted gross income of $75,000 and married persons filing jointly with an AGI above $150,000.
• If a taxpayer’s 2020 AGI is ultimately less than the prior tax years – the IRS is developing a mechanism to obtain a credit on the 2020 tax return.

Retirement Fund Rules

• To generate additional access to cash for individuals the act will permit early withdrawal and distributions from retirement accounts and waive penalties. Also, these distributions can be re-contributed to the plan within three years without affecting that year’s contribution limit.

Business Tax Provisions Employee Retention Credit

• An eligible employer is allowed a credit against employment taxes for each calendar quarter equal to 50% of the qualified wages for each employee for the quarter.
• The credit can be claimed up to $10,000 per employee.
• This employment tax credit may be limited by other tax credits taken by employers under the Emergency Sick Leave and Medical Leave enacted provided in the Families First Coronavirus Response Act. Once again, the impact and process for obtaining the credits are being developed by the IRS.
• The IRS has issued guidance that the employer will take these credits and refunds on their quarterly form 941 employment tax returns.

Self-employed individuals will have similar payroll tax credits available

This discussion serves a general outline of the provisions of the Cares Act. Each of these provisions has requirements that must be evaluated on an individual taxpayer basis. Additionally, other approved COVID-19 legislation may impact the tax benefits of this Act. If you have any questions regarding the application of these tax credits or the process for claiming these credits, please contact your trusted advisor at RVG & Company.

The Small Business Administration Updates Frequently Asked Questions Concerning the Paycheck Protection Program Related to the Review of Loans Under $2 Million and Extension of Time for Amnesty Repayments

On May 13, 2020 the SBA issued FAQs 46 and 47. These revisions, and all previously issued FAQs, are made in consultation with the US Treasury Department. Lenders and borrowers may rely on the guidance issued by the SBA as an interpretation of the CARES Act.

FAQ 46: This FAQ provides a safe harbor for any borrower, together with its affiliates, that received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith. As a result, borrowers of PPP loans that are below $2 million will not need to prove to the SBA that their request for the loan was necessary based on their specific circumstances related to ongoing business operations.

However, borrowers with controlled entities that received more than $2 million of PPP loans are not covered by this safe harbor and will still be subject to an SBA good faith certification audit and will be required to demonstrate an adequate basis of need.

The SBA has determined that this safe harbor is appropriate because borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans. This safe harbor will also promote economic certainty as PPP borrowers with more limited resources endeavor to retain and rehire employees. In addition, given the large volume of PPP loans, this approach will enable SBA to conserve its finite audit resources and focus its reviews on larger loans, where the compliance effort may yield higher audit results.

In addition, if the SBA determines that a borrower lacked an adequate basis for the necessity of the PPP loan request, the SBA will seek repayment of the outstanding PPP loan balance and will inform the lender that the borrower is not eligible for loan forgiveness. If the borrower repays the loan after receiving notification from the SBA, the SBA will not pursue administrative enforcement or referrals to other agencies based on its determination concerning the necessity of the loan request. The SBA’s determination concerning the necessity of the loan request will not affect SBA’s loan guarantee to the lender.

Based upon this FAQ it appears that if a borrower repays a PPP loan that did not meet the economic necessity certification, the SBA will not pursue administrative enforcement which may include criminal penalties and imprisonment.

FAQ 47: This FAQ provides that the amnesty date for repaying a PPP loan has been extended from May 14, 2020 to May 18, 2020. Based on the guidance issued by these FAQs it appears that a borrower that does not meet the certification criteria can repay their loan after May 18, 2020 if the SBA deems after review that the borrower did not meet the necessity criteria. However, it is not clear if the loan would be payable immediately or during the term of the loan.

The SBA has released the PPP Loan Forgiveness Application and Instructions – Form 3508. The form and detailed instructions inform borrowers on how to apply for forgiveness of their PPP loans. The form provides a format to calculate the amount of loan forgiveness and the instructions provide additional guidance to borrowers. According to the US Treasury Department Press Release on May 15, 2020, the form and instructions include measures that are intended to assist borrowers as they complete their applications and to provide lenders with guidance on their responsibilities.

The Treasury Department’s press release points out that the SBA will soon issue additional regulations and guidance to assist borrowers and lenders as they initiate the loan forgiveness process.

The form and instructions include several measures to reduce compliance burdens and simplify the process for borrowers, including:

• Options for borrowers to calculate payroll costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles. This provision helps eligible businesses seek forgiveness at the conclusion of the eight-week (56-day) “covered period” that begins on the first day of their first pay period following with disbursement of their PPP loans.
• Flexibility to include eligible payroll and non-payroll expenses paid or incurred during the eight-week period after receiving their PPP loan.
• Step-by-step instructions on how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness.
• Borrower-friendly implementation of statutory exemptions from loan forgiveness reduction based on rehiring by June 30.
• The addition of a new exemption from the loan forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that were declined.

We recommend that PPP loan borrowers should organize their documentation to support the Loan Forgiveness Application. Document payments of PPP loan amounts, to payroll costs and other qualifying expenses. In addition, loan recipients should continue to become familiar with the SBA’s interim final rules and frequently asked questions, especially concerning forgiveness, as released. As noted above, the SBA will be issuing additional guidance and regulations regarding PPP forgiveness and we expect the application process to evolve.

If you need help or assistance regarding PPP forgiveness, please contact one of our professions at RVG & Company.

The first IFR (RIN 1505-AC69) provides guidance on obtaining PPP loan forgiveness and clarifies the instructions for the Forgiveness Application (Form 3508). The most significant provisions of the IFR are that the SBA permits the use of bonuses and hazard pay and allows the use of PPP loan proceeds for costs paid or incurred during the covered period. Other items contained in the IFR are described below. The second IFR (RIN 3245-AH47) involves lender requirements if the SBA reviews a loan or Forgiveness Application and that lenders will not be entitled to loan processing fees for any PPP loan where the borrower is found to be ineligible by the SBA – the lender will be required to repay the SBA any fees previously paid. Other details of the IFR are noted below.

The SBA released two new Interim Final Rules (IFRs) on May 22, 2020. The first IFR addresses loan forgiveness requirements and the second IFR outlines SBA review procedures and lender responsibilities.

First IFR – Loan Forgiveness Requirements

1. Loan Forgiveness Process

• The borrower must complete SBA Form 3508 or a lender’s equivalent form.
• The lender has 60 days from the receipt of a completed form to issue a decision to the SBA regarding loan forgiveness.
• The SBA will remit the forgiveness amount to the lender within 90 days after the lender issues its decision – subject to SBA review.

2. Payroll Cost Eligible for Forgiveness

• A borrower may pay furloughed employees their salary, wages, commissions, or similar compensation during the Covered Period of 8-weeks – even if these employees did not perform their day to day duties.
• The SBA determined that hazard pay, and bonuses are eligible for loan forgiveness. These payments are subject to the $100,000 limitation on PPP payroll costs per employee.

3. Paid or Incurred Qualifying Expenses – Payroll and Non-Payroll Costs

• The SBA clarified that borrowers could seek forgiveness for eligible qualifying expenses paid or incurred during the Covered Period.
• Payroll costs and other qualifying expenses incurred but not paid during the Covered Period are eligible for forgiveness if paid by the next regularly scheduled payroll date or non-payroll costs are paid by the next billing date.
• The IFR reiterates that no advance payments of interest on mortgage obligations will be eligible for loan forgiveness.

4. Forgiveness Amount Reductions

• A borrower’s loan forgiveness will not be reduced if the borrower laid-off or reduced the hours of an employee and then offered to rehire the same employee for the same hours and salary, but the employee declined the offer. The borrower must have documentation and notify the state unemployment insurance office.
• Other items clarified by the SBA are reductions based on full time equivalents, and reductions based on salary.

Second IFR – SBA Review Procedures and Lender and Borrower Responsibilities

1. The SBA reaffirms the right to review any PPP loan and Forgiveness Application at its discretion.

• This should not be confused with the SBA’s safe harbor announcement regarding the necessity of loans under $2 million.
• Borrowers must retain documents related to loan forgiveness for 6 years after the loan is forgiven or repaid.

2. Borrowers are ultimately responsible for the loan forgiveness calculation; however, the lender must perform a good faith review of the application and documentation.

3. If a lender denies loan forgiveness the borrower may appeal this to the SBA. The SBA will issue a future IFR on the appeal process.

4. If a borrower received PPP but is found to be ineligible, the lender must inform the borrower and the lender is not entitled to loan processing fees. Any fees previously paid to the lender for that loan are subject to be recovered by the SBA.

The Department of Justice has recently filed criminal charges against 6 individuals for participating in schemes to defraud the government regarding PPP loans.

The alleged acts of these individuals range from creating fake lists of employees and salaries to obtain a PPP loan to the misuse of PPP funds for personal use as opposed to paying employee wages and other qualifying expenses.

The DOJ, SBA and Treasury Department are teaming up to prosecute these cases and are using analytics and data mining to review millions of loans to identify potential instances of fraud. While the SBA encouraged lenders to relax some of the due diligence and underwriting standards normally used to write loans – the DOJ, SBA, Treasury and other law enforcement agencies are reviewing loan data obtained from the lenders to recognize fraud.

In general, the DOJ is finding that fraudulent applicants have overstated their payroll costs, overstated the number of employees and misled the SBA with respect to the use of the PPP for their business. This prosecution of these cases is a multi-agency effort that also includes the FBI, U.S. Postal inspector, the IRS Criminal Investigations Division and the FDIC.

The President signed in to law the PPP Flexibility Act of 2020 H.R. 7010 (“FA”), which provides several amendments to the current PPP under the CARES Act. These measures were earlier approved by the House of Representatives and the Senate . The amendments are as follows:

• The 75% Payroll Threshold – Currently the law requires loan recipients to spend at least 75% of the loan on payroll costs to qualify for loan forgiveness. The FA will reduce this level to 60% and allow borrowers to use additional PPP funds on nonpayroll costs such as rent, utilities and mortgage interest.
• Extension of Covered Period to Spend PPP – Instead of the 8-week period borrowers will have a 24-week period or until the end of 2020 (whichever comes first) to spend PPP funds and qualify for loan forgiveness. The spending period begins after the PPP loan is approved. This is intended to ensure that borrowers have sufficient time to appropriately spend PPP funds.
• Time Period for Loan Forgiveness – The FA extends the loan repayment period from 2 years to 5 years.
• Extension of Employee Rehire Period – The FA revises the safe harbor period for rehires from June 30, 2020 to December 31, 2020. This extension of the rehire period provides additional time to borrowers to rehire full-time equivalent employees (“FTEs”).
• Payroll Taxes – This provision of the FA allows borrowers who applied for PPP forgiveness to delay the payment of payroll taxes.
• Exemption from Loan Forgiveness Reduction – The amount of the loan to be forgiven will not be reduced by a reduction in the number of FTEs if the employer made a good faith effort to rehire employees and was unable to rehire qualified new employees to bring the FTE count back to pre-COVID 19 levels. This exception will also apply to employers that were unable to rehire employees based on government restrictions related to standards of social distancing, sanitation or safety.
• Unanswered Question Regarding Taxation of PPP – While forgiven PPP loans are not subject to tax as debt forgiveness, the IRS ruled that expenses paid with PPP loan proceeds are non-deductible and thus subject to taxation. The FA did not address this issue. While many believe the intent of Congress was that loan forgiveness would be non-taxable, the legislation did not explicitly state this. Without a legislative change, the related expenses paid with PPP loans will not be deductible.

The President signed legislation that was approved by both the House of Representatives and the Senate to extend the time to apply for a loan under the Paycheck Protection Program. Businesses will now have until August 8, 2020 to apply for loans under this SBA program. The original deadline to apply for a PPP loan was June 30, 2020.

Since approximately $130 billion still remains in the program, out of $660 billion, Congress sought to extend the application deadline to enable businesses to seek financial assistance to meet additional challenges of the COVID-19 pandemic.

Congress will reconvene after the July 4th recess and consider additional financial support for businesses. Treasury Secretary Steven Mnuchin said that the next round of small business aid will need to be targeted to specific industries that are struggling the most, such as hotels and restaurants.

Another proposal would allow businesses with fewer than 100 employees to take out a second PPP loan. Moreover, there has been discussions within the SBA to completely forgive all PPP loans that are $150,000 or less. This resolution would eliminate the administrative burden placed` on businesses and the SBA to comply with the forgiveness application process.