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A Message to Our Valued Clients

In the interest of public health and the safety of our community, and in compliance with Governor Cuomo’s executive order, Freed Maxick has suspended onsite client work and cancelled all office visits. Meanwhile, our team is working remotely to provide the same high-quality service you have come to expect. Utilizing the best technology at our disposal, we will continue to meet all of your audit, tax, and advisory needs and help you navigate the business implications of the pandemic as it unfolds. You can reach your Freed Maxick representative directly by email or phone, or contact our main line at 716.847.2651.

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The Nonprofit’s Guide to Federal COVID-19 Stimulus Legislation

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The U.S. government has approved far-reaching legislation to provide relief to American families, businesses and nonprofit organizations. Two significant bills are the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief and Economic Security Act (CARES Act).

FFCRA created new obligations for employers and addresses food nutrition security, unemployment benefits, paid leave, free health testing and other support for individuals affected by COVID-19. The historic $2 trillion CARES Act injects cash into the economy to help individuals, states, businesses and nonprofits that are suffering as a result of the pandemic.

This blog summarizes specific provisions that may be useful to nonprofit organizations as they attempt to navigate the current landscape.

Unemployment

To stem the tide of unemployment claims, FFCRA created $1 billion in emergency grants to states for unemployment benefits. The Secretary of Labor is assisting states in setting up work-sharing programs. These programs would allow employers to reduce hours instead of laying off employees, while the employees could claim partial unemployment benefits for wage losses.

The CARES Act allots $250 billion to states to expand unemployment benefits. Self-employed and independent contractors, like Uber drivers and other gig workers, can receive unemployment during this public health emergency. The CARES Act adds a $600/week payment increase in unemployment benefits through the end of July, and for those needing it, an additional 13 weeks of benefits beyond what states typically allow. This expansion in unemployment benefits is set to expire at the end of 2020.

Cash Payments

Direct payments of up to $1,200 per adult, $2,400 for married couples and $500 for each qualifying child form the cornerstone of the CARES Act for all U.S. residents meeting certain income ceilings. Amounts begin to phase out with adjusted gross income (AGI) over $75,000 per person and for joint filers over $150,000, becoming fully phased out at AGI of $99,000 for individuals and $198,000 for joint filers. These payments apply even for those who have no income, as well as for those whose income comes entirely from non-taxable means-tested benefit programs such as Supplemental Security Income (SSI) benefits. Most Americans will not be required to take action to receive a rebate check, as the IRS will use taxpayers’ 2019 tax return contact information or their 2018 returns.

Food and Nutrition Services

With schools’ meals programs closed and food banks strained to meet increased demand, FFCRA allocates $1 billion in nutritious foods to various in-need classes served by nonprofits including low-income pregnant women, mothers with young children, senior citizens and food banks. The provisions also bolster free and reduced lunch assistance to households with children who would normally receive free or reduced-price meals at their schools. The USDA will receive $100 million for nutrition assistance grants to Puerto Rico, American Samoa and the Commonwealth of the Northern Mariana Islands. Additionally, 25 million home-delivered and pre-packaged meals will be provided to low-income seniors who depend on the Senior Nutrition program.

Paid Leave

Both bills include several provisions that address sickness, family and medical leave. CARES introduces a tax credit for certain employers that are subject to closure due to COVID-19. The credit is applicable against employment taxes for each calendar quarter equal to 50% of qualified wages for each employee per quarter. The amount of wages taken into account for all calendar quarters is limited to $10,000. The employer must take into account any credits received from FFCRA in calculating eligible wages.

An eligible employer is one that (a) was carrying on a trade or business during calendar year 2020; and (b) with respect to any calendar quarter for which (i) operation is fully or partially suspended due to orders from an appropriate government authority limiting commerce, travel or group meeting due to COVID-19 or (ii) in which there has been a significant decline in gross receipts. Beginning in the first calendar quarter after December 31, 2019, a decline in gross receipts occurs if the entity has less than 50% gross receipts in a quarter compared to the same quarter in the prior year, and ending with the calendar quarter for which gross receipts are greater than 80% of the same calendar quarter in the prior year. For nonprofit organizations, the trade or business and COVID-19-related limitations are considered to apply to all such entities.

FFCRA provides that employers with fewer than 500 employees (and all public sector employers) are required to provide paid sick leave of two weeks for full-time employees due to an isolation or quarantine order or advisory who are experiencing symptoms, or caring for a family member or a child whose school or care provider is closed due to public emergency. These employers are required to provide up to 12 weeks of job-protected leave to employees to care for a child whose school or care provider is closed. Employers would be required to pay two-thirds of the wages of these employees, not to exceed $200 per day and $10,000 in aggregate. Because the majority of the nonprofit sector comprises organizations with fewer than 500 workers, these provisions are a major benefit to their employees impacted by COVID-19.

The Labor Department is authorized to exclude certain healthcare providers and small businesses with fewer than 50 employees. In order to fund these benefits, employers may claim a 100% refundable payroll tax credit on wages associated with paid sick and medical leave as required in the bill, as well as expenditures associated with additional health benefit contributions. Any additional wages paid due to the leave requirement will not be subject to the employer portion of the payroll tax.

Because nonprofit organizations generally do not pay income tax, they are able to apply this credit against their payroll taxes. The law has built in a waiver of penalties in anticipation of the payroll tax credit for not making proper payroll tax deposits.

Employment Taxes

A provision in the CARES Act allows employers and self-employed individuals to defer payment of the employer share of the Social Security tax they otherwise are responsible for paying to the federal government for their employees. Employers generally are responsible for paying a 6.2% Social Security tax on employee wages. The provision requires that the deferred employment tax be paid over the following two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022. The Social Security Trust Funds will be held harmless under this provision.

Charitable Deduction Modification

The CARES Act modifies the rules for charitable deductions and increases the ceiling limitation on deductions for charitable contributions for 2020 as follows: 1) for individuals who itemize, the 50% AGI limitation is suspended for 2020; 2) for corporations, the 10% net income limit is increased to 25%; and 3) the limitation on deductions for contributions of food inventory is increased from 15% to 25%. The Act also creates an above-the-line deduction of up to $300 in cash contributions to nonprofit organizations this year. This means donors may benefit from the deduction whether they itemize or not. Such a provision may pave the way for a more permanent above-the-line deduction, a change for which the charitable sector has been lobbying in recent years.

Nonprofits and Net Operating Loss

Net operating loss (NOL) limitation rules have been eased to allow losses from 2018, 2019 and 2020 to be carried back five years. The provision also temporarily removes the taxable income limitation to allow an NOL to fully offset income. Such changes were critically important when they were enacted during the 2008 recession and they are expected to be equally as important during this crisis. It appears the NOL provisions will apply to nonprofit corporations reporting unrelated business income tax (UBIT). Nonprofits with large NOL carryforwards should capitalize on this provision by amending prior Form 990-Ts to reclaim taxes paid in those years.

Small Business Loans

The CARES Act provides relief for small businesses with up to $300 billion for loan guarantees and subsidies via the Small Business Administration (SBA). Businesses and nonprofits can apply for fee-free loans of up to $10 million to help in paying payroll, employee salaries, mortgages, rent and certain debt obligations.

Under the CARES Act, the loan period for this program begins on February 15, 2020 and ends on December 31, 2020. The program covers businesses with fewer than 500 employees (unless the covered industry’s SBA size standard allows more than 500 employees). Please note: the legislation excludes from eligibility nonprofit organizations that receive Medicaid reimbursements.

Eligible borrowers are required to make good faith certification that they have been affected by COVID-19 and will use the funds to retain workers and maintain payroll and other debt obligations. These loans are potentially forgivable if the organization spends the funds during an eight-week period after the origination date on the following items: 1) payroll costs; 2) interest payment on any mortgage incurred prior to February 15, 2020; 3) payment of rent on any lease in force prior to February 15, 2020; and 4) payment on any utility for which service began prior to February 15, 2020. Loan forgiveness will be reduced for certain employee reductions such as layoffs or wage reductions. The CARES Act authorizes $10 million for grants to minority business centers for the purpose of providing counseling, training and education on federal resources and business response to COVID-19 for small businesses.

Estimated Payments

Corporations can defer payment of estimated tax payments due after the date of enactment to October 15, 2020, with no cap. This would apply to nonprofits with estimated payments for UBIT. It is important to monitor whether a nonprofit’s state has automatic conformity to federal tax law changes to determine if the payment deferral applies at the state level as well.

Filing Deadlines

Federal filing and payment deadlines for individuals and corporations have been extended, with no apparent relief for nonprofits in sight at the time of this article. The National Association of College and University Business Officers has written a letter to the IRS Commissioner and Treasury Secretary Mnuchin urging them to grant a 90-day filing and payment extension for exempt organizations in accordance with their fiscal year filing dates and extension dates. Coupled with the complications created by the coronavirus pandemic, the nonprofit sector is still waiting for section 512(a)(6) guidance (re: UBIT silos), and final rules have yet to be promulgated on the excise taxes on compensation and net investment income. At this time, the filing deadlines for Form 990s and tax payments have not changed. Nonprofit organizations should continue to monitor the situation for potential changes to federal filing deadlines for the nonprofit sector.

Assistance and Guidance from Freed Maxick

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The Freed Maxick COVID-19 Resource Center has a wealth of information and guidance on a wide range of topics related to tax relief and benefits, regulatory relief and benefits, and business continuity in the era of COVID-19. Click on the button to explore insights, observations and updates.

If you wish additional guidance, we are available to discuss your issues and concerns. Connect with us here or call Freed Maxick at 716.847.2651.

Please keep in mind that due to the quickly-changing nature of the COVID-19 pandemic, you should always discuss changes with your Freed Maxick advisor or legal counsel.

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Supervisory and Enforcement Practices Regarding the Fair Credit Reporting Act and Regulation C in Light of the CARES Act

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Consumer Financial Protection Bureau Guidance on Credit Reporting

New call-to-actionThe Bureau’s statement informs lenders they must comply with the CARES Act. The Bureau’s statement also encourages lenders to continue to voluntarily provide payment relief to consumers and to report accurate information to credit bureaus relating to this relief. The continuation of reporting such accurate payment information produces substantial benefits for consumers, users of consumer reports, and the economy as a whole.

In addition, in response to staffing and resources constraints on lenders and credit bureaus due to the pandemic, the Bureau’s statement also provides flexibility for lenders and credit bureaus in the time they take to investigate disputes. The Bureau specifically states that it does not intend to cite in an examination or bring an enforcement action against firms who exceed the deadlines to investigate such disputes as long as they make good faith efforts during the pandemic to do so as quickly as possible.

The Bureau has also relaxed reporting requirements in several areas, most notably for Reg C (Home Mortgage Disclosure Act - HMDA).  While institutions should continue to collect HMDA data, the Bureau will provide information on when and how institutions will be expected to commence what would have been new quarterly HMDA data submissions.

The Bureau also will not expect the reporting of certain information related to credit card and prepaid accounts under the Truth in Lending Act, Regulation Z, and Regulation E. This includes the annual submissions concerning agreements between credit card issuers and institutions of higher education; quarterly submission of consumer credit card agreements; collection of certain credit card price and availability information; and submission of prepaid account agreements and related information.

Additionally, the following data collections are being postponed:

  • a survey of financial institutions that seeks information on the cost of compliance in connection with pending rulemaking on Section 1071 of the Dodd-Frank Act; and
  • a survey of firms providing Property Assessed Clean Energy financing to consumers for the purposes of implementing Section 307 of the Economic Growth, Regulatory Relief, and Consumer Protection Act.

For more details:

Statement on Supervisory and Enforcement Practices Regarding Quarterly Reporting Under the Home Mortgage Disclosure Act 

Statement on Supervisory and Enforcement Practices Regarding Bureau Information Collections for Credit Card and Prepaid Account Issuers

Statement on Bureau Supervisory and Enforcement Response to COVID-19 Pandemic: 

If you wish additional guidance, we are available to discuss your issues and concerns. Connect with us here or call Freed Maxick at 716.847.2651. Please keep in mind that due to the quickly changing nature of the COVID-19 pandemic, you should always discuss changes with your Freed Maxick advisor or legal counsel. 

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Counterparty Credit Risk and Current Expected Credit Losses (“CECL”)

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New call-to-actionThe federal bank regulatory agencies today announced two actions to support the U.S. economy and allow banking organizations to continue lending to households and businesses:

    • Allowing early adoption of a new methodology on how certain banking organizations are required to measure counterparty credit risk derivatives contracts; and
    • Providing an optional extension of the regulatory capital transition for the new credit loss accounting standard.

The "standardized approach for measuring counterparty credit risk" rule, also known as SA-CCR, was finalized by the agencies in November 2019, with an effective date of April 1. It reflects improvements made to the derivatives market since the 2007-2008 financial crisis, such as central clearing and margin requirements. To help improve current market liquidity and smooth disruptions, the agencies will permit banking organizations to early adopt SA-CCR for the reporting period ending March 31.

Banking organizations that are required under U.S. accounting standards to adopt CECL this year can mitigate the estimated cumulative regulatory capital effects for up to two years. This is in addition to the three-year transition period already in place. 

For more details: https://www.occ.gov/news-issuances/news-releases/2020/nr-ia-2020-42.html#.XoTKlup3o3Y.email

If you wish additional guidance, we are available to discuss your issues and concerns. Connect with us here or call Freed Maxick at 716.847.2651. Please keep in mind that due to the quickly changing nature of the COVID-19 pandemic, you should always discuss changes with your Freed Maxick advisor or legal counsel. 

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Banks, Savings Association and Credit Unions Encouraged to Offer Responsible Small Dollar Loan

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New call-to-actionFive federal financial regulatory agencies today issued a joint statement encouraging banks, savings associations and credit unions to offer responsible small-dollar loans to consumers and small businesses in response to COVID-19. The statement of the Board of Governors of the Federal Reserve System, Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, National Credit Union Administration, and Office of the Comptroller of the Currency recognizes that responsible small-dollar loans can play an important role in meeting customers' credit needs because of temporary cash-flow imbalances, unexpected expenses, or income disruptions during periods of economic stress or disaster recoveries.

Such loans can be offered through a variety of structures including open-end lines of credit, closed-end installment loans, or appropriately structured single payment loans.

The agencies state that loans should be offered in a manner that provides fair treatment of consumers, complies with applicable laws and regulations, and is consistent with safe and sound practices.

For borrowers who experience unexpected circumstances and cannot repay a loan as structured, banks, savings associations and credit unions are further encouraged to consider workout strategies designed to help borrowers to repay the principal of the loan while mitigating the need to re-borrow.

More information: https://www.occ.gov/news-issuances/news-releases/2020/nr-ia-2020-40.html

If you wish additional guidance, we are available to discuss your issues and concerns. Connect with us here or call Freed Maxick at 716.847.2651. Please keep in mind that due to the quickly changing nature of the COVID-19 pandemic, you should always discuss changes with your Freed Maxick advisor or legal counsel. 

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CARES Act – Practical Considerations for Healthcare Providers

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Understand available revenue enhancements and funding to recoup expenses and lost revenue related to COVID-19

New call-to-actionThe Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides healthcare organizations with access to relief funds to assist with the financial burden associated with the diagnosis, testing, and caring for individuals with COVID-19. Included in these funds is access to $100 billion for the Public Health and Social Services Emergency Fund which will provide reimbursement to providers for COVID-19 related expenses and lost revenues due to the outbreak. These funds will be made available through grants or other mechanisms necessitating the accurate tracking and reporting of related expenses and lost revenues. Timeliness for submitting for these funds will be key for healthcare providers to secure dollars.

Additional relief will be provided in the form of reimbursement enhancements/cash accelerations, loan options, and tax savings to assist in offsetting the impact of the COVID-19 pandemic.

The absence of timely and clear guidance from HHS, CMS, SBA, and other agencies is already a major challenge. We strongly recommend that every provider immediately review the provisions of the CARES Act to evaluate opportunities that may be beneficial.

Assistance and Guidance from Freed Maxick

The Freed Maxick COVID-19 Resource Center has a wealth of information and guidance on a wide range of topics related to tax relief and benefits, regulatory relief and benefits, and business continuity in the era of COVID-19. Click on the button to explore insights, observations and updates.

If you wish additional guidance, we are available to discuss your issues and concerns. Connect with us here or call Freed Maxick at 716.847.2651.

Please keep in mind that due to the quickly-changing nature of the COVID-19 pandemic, you should always discuss changes with your Freed Maxick advisor or legal counsel. 

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COVID-19: Regulators and Agencies Extend Much-Needed Regulatory Relief to Businesses

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COVID-19 is presenting challenges for many companies. To address these challenges, many regulators/agencies have issued orders, releases and statements which allow, subject to certain conditions, companies to take advantage of any applicable relief. Companies need to ensure they meet all applicable criteria and are in compliance with the requirements outlined below, as in many cases, extensions are not automatic.

The following is a list of regulatory reliefs as of March 29, 2020. Please check back regularly, as regulators are making announcements frequently.

SEC

  • Conditional Regulatory Relief for Registered Transfer Agents and Certain Other Persons Affected by the Coronavirus Disease 2019 (COVID-19) – extensions through May 30, 2020. Additional Details
  • CorpFin has also issued guidance (see link below) providing the staff’s current view regarding disclosure obligations that registrant’s should consider. The guidance encourages timely reporting while recognizing that it may be difficult to assess or predict with precision the broad effects of COVID-19 on industries or individual companies. Additional Details
  • Conditional regulatory relief has been added for Regulation A and Regulation Crowdfunding issuers. The rules provide, subject to certain conditions, affected companies with an additional 45 days to file certain disclosure reports that would otherwise have been due between March 26, 2020 and May 31, 2020. Additional Details
  • Conditional Regulatory Relief and Assistance for Companies Affected by the Coronavirus Disease 2019 (COVID-19) provides publicly traded companies with an additional 45 days to file certain disclosure reports that would otherwise have been due between March 1 and July 1, 2020. Utilizing the relief requires a registrant to file an 8-K or 6-K with specified information required. Additional Details

FDIC

  • The Federal financial institution regulatory agencies and the state banking regulators issued an interagency statement encouraging financial institutions to work constructively with borrowers affected by COVID-19 and providing additional information regarding loan modifications. The agencies encourage financial institutions to work with borrowers, will not criticize institutions for doing so in a safe and sound manner, and will not direct supervised institutions to automatically categorize loan modifications as troubled debt restructurings (TDRs). Additional Details

SINGLE AUDIT REPORTING

  • Delay the completion and submission of the Single Audit reporting package, as required under Subpart F of 2 CFR § 200.501Audit Requirements, to six (6) months beyond the normal due date. No further action by awarding agencies is required to enact this extension. Additional Details

HUD

  • HUD announced a blanket 30-day extension for the filing of all REAC financial statements. That extension is automatic and does not require any action by the project. However, REAC has clarified that the extension DOES NOT EXTEND THE 60-day RESIDUAL RECEIPTS deposit requirement. Additional Details

Assistance and Guidance from Freed Maxick

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The Freed Maxick COVID-19 Resource Center has a wealth of information and guidance on a wide range of topics related to tax relief and benefits, regulatory relief and benefits, and business continuity in the era of COVID-19. Click on the button to explore insights, observations and updates.

If you wish additional guidance, we are available to discuss your issues and concerns. Connect with us here or call Freed Maxick at 716.847.2651.

Please keep in mind that due to the quickly-changing nature of the COVID-19 pandemic, you should always discuss changes with your Freed Maxick advisor or legal counsel.

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New York State Tax Extension Update

July 15 Tax Extension

New York has extended the April 15 due date to July 15, 2020, for personal income tax and corporation tax returns originally due April 15, 2020, due to the coronavirus pandemic. The extension applies to returns for individuals, fiduciaries, and corporations. In addition, taxpayers are allowed to defer all related tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest, regardless of the amount owed.

Taxpayers do not need to file any additional forms or call to apply for this relief, this is an automatic filing and payment deadline extension and relief from penalties and interest.

Tax year 2019 returns due on April 15, 2020, and related payments of tax or installments of tax, including installments of estimated taxes for the 2020 tax year, will not be subject to any failure to file, failure to pay, late payment, or underpayment penalties, or interest if filed and paid by July 15, 2020.

Taxpayers unable to file their 2019 return by July 15, 2020, can request an automatic extension. The return will be due on October 15, 2020 (or September 30, 2020, for calendar-year fiduciary returns), however estimated payments and any 2019 tax liability will be due with the extension request.

This extension only applies income tax, no extension is provided in the notice for the payment or deposit of any other type of state tax, or for the filing of any state information return. In addition, remittance of income tax withheld by employers required to be made using Form NYS-1, Return of Tax Withheld, must be made on time.

Assistance and Guidance from Freed Maxick

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The Freed Maxick COVID-19 Resource Center has a wealth of information and guidance on a wide range of topics related to tax relief and benefits, regulatory relief and benefits, and business continuity in the era of COVID-19. Click on the button to explore insights, observations and updates.

If you wish additional guidance, we are available to discuss your issues and concerns. Connect with us here or call Freed Maxick at 716.847.2651.

Please keep in mind that due to the quickly-changing nature of the COVID-19 pandemic, you should always discuss changes with your Freed Maxick advisor or legal counsel.

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SBA Disaster Loan Program Designed to Help Small Businesses Impacted By COVID-19

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In an effort to minimize economic impacts on small businesses resulting from the COVID-19 (coronavirus) pandemic, the Small Business Administration (SBA) is providing Economic Injury Disaster Loans (EIDLs) to small businesses in designated states and territories.

Offered directly by the SBA (and not administered through lending institutions), the low-interest, federal disaster working capital loans are intended to help eligible businesses continue operations until the effects of the declared disaster have passed. Loans of up to $2 million may be used to pay fixed debts, payroll, accounts payable and other bills that could have been paid had the disaster not occurred. The loans are not intended to replace lost sales or profits or for expansion.

Eligibility will vary by state, so businesses should check applicable guidelines. The following information provides the federal guidelines.

ELIGIBILITY

EIDLs are limited to working capital for small businesses and private nonprofit organizations. They are available to small businesses directly affected by the COVID-19, or that offer services directly related to these businesses.

Applicants must have good credit history, the ability to repay and be physically located in disaster areas (economic nexus does not suffice). Note, EIDL loans are only available to businesses without access to credit elsewhere, such as existing lines of credit.

Eligible industries include, but are not limited to, hotels, recreational facilities, manufacturers, sports vendors, owners of rental property, restaurants, retailers, travel agencies and wholesalers. Conversely, casinos and other gambling businesses, agriculture enterprises, religious and charitable organizations are ineligible.

LOAN PARAMETERS

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Disaster relief loans are capped at $2 million with an interest rate of 3.75% (2.75% for nonprofits, except charitable organizations that are ineligible). Loans over $25,000 may require collateral, and loan terms are up to 30 years. Payments are deferred for four months. Should a business owner be denied, they have the opportunity to reapply within (6) months. Applicants may also request an increase to the amounts originally awarded.

HOW TO APPLY

When a declaration is made for designated areas within a state, the information about the application process for EIDL assistance is being made available to all affected communities as well as updated on SBA.gov/disaster.

SBA EIDL loans can provide vital economic support for small businesses during this difficult time of revenue loss. Freed Maxick will assist in preparing and filing your SBA loan applications. While online applications are preferred by the SBA, mailed applications can be submitted.

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Paycheck Protection Loans Provide Relief to Small Businesses Under Stimulus Package

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As part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the Paycheck Protection Program (PPP) provides $349 billion of loan funds to support small businesses and other eligible entities impacted by COVID-19 to pay workers, interest on mortgage obligations, rent, health insurance, paid sick or medical leave, utilities, and payroll related costs incurred from February 15, 2020 – June 30, 2020,(“ the covered period”.)

  • Eligible applicants can apply for a PPP loan, up to a maximum of $10 million, from participating lenders. Loan amounts are based generally on a monthly average of payroll.
  • Up to eight weeks of eligible expenses paid after the PPP closing can be forgiven from the loan principal as long as the employer maintains previous payroll counts (FTE levels) during the covered period.
  • PPP loan repayments will be deferred for not less than six months and not more than twelve months.
  • Interest rates associated with PPP loans will be at a maximum 4% per annum.
  • There will be no fees for borrowers to apply.
  • There are no collateral requirements or personal guarantees for the loan.
  • SBA credit elsewhere test does not apply to this loan.
  • All PPP loans are federally guaranteed by the SBA 100%.
  • Additional details of PPP will be provided as the SBA regulations are finalized, which the CARES Act requires to occur within 15 days of March 27, 2020.

What are eligible expenses under PPP?

  • Eligible expenses include payroll support, such as employee salaries, paid sick or medical leave, health insurance premiums, mortgage interest, rent, and utility payments.

Who is eligible and can apply for PPP?

  • Any business concern; or
  • 501(c)(3) nonprofit organizations; or
  • 501(c)(19) veteran’s organizations; or
  • Tribal business concern described in section 31(b)(2)(C) of the Small Business Act;
  • with the greater of:
  • Sole-proprietors, independent contractors, and other self-employed individuals; or
  • Businesses with more than one physical location that employs no more than 500 employees per physical location in certain industries to be eligible and is below a gross annual receipts threshold in certain industries; or
  • Businesses in the hospitality and restaurant industries, franchises that are approved on the SBA’s Franchise Directory; or
  • Small business that receives financing through the Small Business Investment Company (SBIC) program.

Do I have to be operational to apply?

  • Yes, entities must have been operational on February 15, 2020 and had payroll during 2019 or January 1 to February 29, 2020 (if not in business in 2019).

Where can I apply for PPP loan?

  • You can apply through authorized bank and non-bank lenders approved by the Small Business Administration and U.S. Department of the Treasury for the PPP program.
  • Lenders are waiting for guidance from the SBA on when to start accepting applications.
  • We will provide more information as lenders are identified.

Who approves my PPP loan?

  • The lender who is approved by SBA or U.S. Treasury for PPP will approve your loan application.

What is the time period covered under the PPP?

  • The covered loan period is from February 15, 2020 to June 30, 2020.

What is the maximum loan amount under the PPP?

  • The maximum loan amount is $10 million.
  • There is a formula to determine the loan amount that is related to payroll costs incurred by the business.

How much is the loan guarantee provided by SBA to lenders under the Program?

  • 100% loan guarantee.

Can I still apply for PPP if I can obtain credit elsewhere?

  • Credit elsewhere requirements are waived for this PPP.

What certifications will I need to provide in order to apply for PPP?

  • Borrower must certify in good faith that funds are needed based on current economic conditions, that the funds will be used to retain workers and maintain payroll, and that their request is not duplicative with other SBA funds for the same purpose.

What fees will I need to pay in order for PPP?

  • SBA waives borrower and lender fees.

Is there a collateral or personal guarantee requirement for PPP?

  • Both collateral and personal guarantees are waived.

What is the interest on PPP loans?

  • Maximum interest that can be charged- is 4%.
  • The Lender will determine the interest rate.

Is there a prepayment penalty or fee on PPP?

  • There are no prepayment fees or penalty.

Are there deferred payments allowed under PPP?

  • Loan payments will be deferred for minimum of 6 months.
  • A lender can elect to defer for additional 6 months.

Is any portion of the PPP loan forgivable?

  • Amount spent by borrower in the first 8 weeks from loan origination will be forgiven with appropriate documentation provided to the lender.
  • Amount will be reduced proportionately by the reductions in workforce as compared to the previous year’s comparable covered period or, at the election of the borrower, the first two months of 2020
  • If rehires are made during the 8-week period, then there will be no penalty in reflection of layoffs incurred from February 15, 2020 and April 26, 2020 (30 days after enactment).

What happens to my PPP loan after December 31, 2020?

  • Anything not forgiven or repaid by December 31, 2020 will convert to a maximum 10-year loan at a maximum of 4% interest rate per annum.
  • The loan will remain 100% guaranteed by SBA.

Loan Forgiveness for Paycheck Protection Program (PPP)

The Act establishes that the PPP borrower is eligible for loan forgiveness equal to the amount spent by the borrower during an 8-week period after the origination date of the PPP loan.

What can be included in the PPP loan forgiveness amount?

  • Payroll costs;
  • Mortgage interest payments on mortgage obligations incurred prior to February 15, 2020;
  • Payment of rent on covered leases entered into prior to February 15, 2020; and
  • Payment on any utility for which service began before February 15, 2020.

What is the maximum amount of PPP loan can be forgiven?

  • Amounts forgiven may not exceed the principal amount of the loan.
  • Eligible payroll costs do not include compensation above $100,000 in wages.
  • The amount forgiven will be reduced by any employees reduction in pay beyond 25 percent of their prior year compensation.

What proof do I need to submit to my lender to qualify to PPP loan forgiveness?

  • Borrowers will provide documentation to lenders of their payments during the period such as payroll tax filings, proof of lease payments, proof of mortgage interest payments, and proof of utility payments.
  • Proof of payment can be a bank statement or canceled checks.

When will my PPP loan be approved for forgiveness?

  • The borrower must make a request to the lender for forgiveness by providing documentation of payments made under the covered period.
  • The lender has 60 days to review and approve the request for forgiveness.

What happens to the portion of my PPP loan that is not forgiven?

  • Any loan amounts not forgiven at the end of one year is carried forward as an ongoing loan with terms of a max of 10 years, at maximum 4% interest per annum.
  • 100% loan guarantee remains intact from the SBA.

Example

A qualified small business pays $2,000,000 in eligible expenses that qualify for forgiveness (such as payroll expenses, rent payments, and utility costs) and receives a covered loan in the amount of $2,000,000.

For the period between February 15, 2019 - June 30, 2019, the Eligible Recipient employed an average of 200 full-time employees. Thereafter, for the same 2020 covered period, the Eligible Recipient employs on average 190 full-time employees, and there was no reduction in salary or wages for any full-time employee that made less than $100,000 on an annualized basis in 2019. In that case, the total amount of the covered loan eligible to be forgiven is equal to $1,900,000, calculated as follows:

  • $2,000,000, multiplied by
  • .95 (190 full-time employees/200 full-time employees).

Organizations seeking forgiveness of a covered loan are required to submit:

  • documentation verifying the number of full-time equivalent employees on payroll and pay rates for the required periods; and
  • documentation substantiating expenses made that are eligible for forgiveness (such as lease, mortgage interest, and utility payments).

We anticipate additional guidance will be issued by the SBA to assist businesses and organizations seeking loans through the new program implemented by the CARES Act.

Assistance and Guidance from Freed Maxick

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The Freed Maxick COVID-19 Resource Center has a wealth of information and guidance on a wide range of topics related to tax relief and benefits, regulatory relief and benefits, and business continuity in the era of COVID-19. Click on the button to explore insights, observations and updates.

If you wish additional guidance, we are available to discuss your issues and concerns. Connect with us here or call Freed Maxick at 716.847.2651.

Please keep in mind that due to the quickly-changing nature of the COVID-19 pandemic, you should always discuss changes with your Freed Maxick advisor or legal counsel.

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CARES Act – Massive Coronavirus Stimulus Bill Signed Into Law

CARES-act

On March 27, 2020, the President signed the Coronavirus Aid, Relief and Economic Security Act (CARES Act) into law. The CARES Act is a massive $2 trillion bill with an array of significant tax-saving provisions that impact both individuals and businesses and hopefully create needed cash flow. The CARES Act also could affect prior tax years.

INDIVIDUAL PROVISIONS

CASH PAYMENTS

The CARES Act provides for payments to individuals of up to $1,200 per person ($2,400 for a married couple) with an additional $500 for each qualifying child. The payment is subject to a phase-out for individuals with adjusted gross income over $75,000 and married persons filing jointly with AGI above $150,000. The amount of the payment is reduced by $5 for each $100 in income above the applicable threshold.

Nonresident alien individuals, individuals who are dependents of another, and estates or trusts are ineligible for the payment.

Payments will generally be based on 2018 tax return information. However, like the advanced tax premium credit under the Affordable Care Act, there is a true-up for the amount for which one is eligible on the filing of the 2020 tax return.

RETIREMENT FUND RULES

In order to generate access to cash for individuals, the bill liberalizes the retirement plan rules, for 2020, dealing with premature distribution penalties, plan loans and required minimum distributions (RMDs).

The 10% premature early withdrawal penalty is waived for distributions of up to $100,000 from qualified retirement accounts and individual retirement accounts for coronavirus-related purposes. Additionally, the federal income tax on such distributions can be paid over a three-year period. The law also provides that these distributions can be recontributed back to the plan within a three- year period without affecting that year’s contribution cap.

The bill provides more flexible rules concerning loans from certain retirement accounts for coronavirus-related relief. The maximum amount of loans (when combined with existing loans) which can be taken from the plan is the lesser of $100,000 (up from $50,000) or 100% of the participant’s accrued benefit (up from 50%). In addition, there is a delay in the starting date of loan repayments back to the plan.

The bill also temporarily waives the required minimum distribution requirement from the plan for 2020. This permits those who do not need immediate funds to avoid cashing out investments at a low value.

A coronavirus-related distribution is one made to an individual where 1) he/she, a spouse or a dependent is diagnosed with COVID-19; or 2) the individual suffers adverse financial consequence due to being quarantined, furloughed, laid off, having work hours reduced, closing or reducing a business owned or operated by that person due to COVID-19, or other factors to be determined by Treasury. The qualified plan can accept an employee certification that this condition is satisfied. A single $100,000 limit applies to distributions by plans of a controlled group of businesses.

CHARITABLE CONTRIBUTIONS

Up to $300 of cash contributions for 2020 will be allowed for contributions to charities, whether the taxpayer itemizes or not, in determining adjusted gross income.

Additionally, an individual can elect to have the 50% of AGI limit not apply in 2020 for certain qualified contributions. However this does not apply to contributions to certain non-operating private foundations or amounts to establish or maintain a donor advised fund.

The limitation for C corporations, normally subject to a 10% of taxable income limit, is raised to 25% of taxable income.

The limitation on deductions for contributions of food inventory is increased from 15% to 25%.


EMPLOYER PAYMENT OF STUDENT LOANS EDUCATION ASSISTANCE PROGRAM

IRC Sec 127(c) of the Code is amended to include as a nontaxable employer-provided educational assistance program any payment of principal or interest made before January 1, 2021 (whether paid to the employee or a lender).

BUSINESS PROVISIONS

EMPLOYEE RETENTION CREDIT FOR EMPLOYER SUBJECT TO CLOSURE DUE TO COVID-19

An eligible employer is allowed a credit against applicable employment taxes for each calendar quarter equal to 50% of qualified wages for each employee for such calendar quarter.

  • The amount of qualified wages for any employee taken into account by an employer for all calendar quarters is limited to $10,000.
  • The credit is limited to the employment taxes owed as reduced by other credits (including the Sick Leave and Family and Medical Leave credits under the Families First Coronavirus Response Act) for all employees of the eligible employer for such calendar quarter. If the employee retention credit exceeds this amount, the difference is an overpayment which can be refunded.

An eligible employer is one who (a) was carrying on a trade or business during calendar year 2020; (b) with respect to any calendar quarter for which (i) operations are fully or partially suspended due to orders from an appropriate government authority limiting commerce, travel, or group meeting due to COVID-19 or (ii) in which (beginning in first calendar quarter after 12/31/2019) there has been a significant decline in gross receipts (i.e., less than 50% gross receipts for same quarter in prior year and ending with calendar quarter for which gross receipts are greater than 80% same calendar quarter in prior year. Tax exempt organizations can also benefit from this credit.


EMPLOYER AND SELF-EMPLOYER INDIVIDUAL DEFERRAL OF PAYROLL TAXES

Employers and self-employed individuals can defer the payment of the employer portion of employment taxes or self-employment taxes due during the “payroll tax deferral period” to December 31, 2021, and December 31, 2022. 50% of the deferred taxes will be required to be paid on these dates. Penalties will not apply for failure to make timely deposits for withholding these amounts.

The Payroll Tax Deferral Period is defined as the period beginning on date of enactment to January 1, 2021. This does not appear to be retroactive to January 1, 2020.


NET OPERATING LOSS (NOL) RULES ARE RELAXED

Many of the rules limiting the use of net operating losses under the Tax Cuts and Jobs Act (TCJA) are suspended under the Stimulus Bill.

  • NOLs from 2018, 2019 or 2020 are eligible to be carried back for five years.
  • Additionally, the 80% limit on use of NOL carryforwards is also temporarily removed so that the NOL can fully offset income.

Those impacted by this rule should seek to carry back available losses to obtain refunds.

LIMITATION OF INDIVIDUALS’ USE OF BUSINESS LOSSES

Under the TCJA, non-corporate taxpayers’ net business losses were limited under IRC section 461(l) to $250,000 ($500,000 for a joint filer). The Stimulus Bill would permit use of net business losses without limit for the 2018 tax year through 2020. If you were limited in the use of carryover used in 2018, this can produce a refund opportunity.

CORPORATE ALTERNATE MINIMUM TAX CREDIT REFUND

Under the TCJA, a C corporation with alternative minimum tax credits was entitled to a refund of these credits over a four-year period — 2018, 2019, 2020 and 2021. Under the Stimulus Bill, the corporation can receive the refund over a two-year period 2018 and 2019. Furthermore, if there will be any delay in filing the 2019 C corporation return, an election can be made to include the entire refundable amount in 2018.

BUSINESS INTEREST LIMITATION UNDER IRC SECTION 163(J)

The TCJA includes a limitation on the use of net business interest expense to 30% of Adjusted Taxable Income. The Stimulus Bill amends this rule for 2019 and 2020 and increases the limit from 30% of Adjusted Taxable Income to 50%. Additionally, since it is likely that 2020 income will be lower than 2019 due to the current economic circumstance, an election can be made to use the 2019 Adjusted Taxable Income for the 2020 tax year.

BONUS DEPRECIATION ALLOWED ON QUALIFIED IMPROVEMENT PROPERTY (QIP)

The Tax Cuts and Jobs Act intended to permit immediate write-off of costs related to Qualified Improvement Property. Due to a drafting error, this provision was not put into that legislation and caused QIP only to be eligible for depreciation over 39 years. The Stimulus Bill fixes this drafting error and specifically permits bonus depreciation to be taken on qualified costs retroactively. This allows amendment of 2018 and 2019 filed returns and provide a source of cash, particularly for those in the hospitality industry.

EXCISE TAX EXEMPTION

The bill also provides a temporary exception from excise tax on alcohol which is used to produce hand sanitizer. We are waiting to see if the House of Representatives will make any substantive changes to these provisions. Clearly, they are all intended to provide additional cash to taxpayers.

As the COVID-19 crisis continues to unfold, we will continually monitor the situation and tax matters surrounding it and provide timely updates as information becomes available.

Do you have questions about the CARES Act, or other tax matters? Please contact Freed Maxick at 716.847.2651 or fill out our contact form.

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