News

1 Jun

Major Developments in the Paycheck Protection Program Pt. 2

In addition to new regulations governing loan forgiveness, another major development with the PPP program was the passage of legislation that would significantly modify key provisions within the program.  The U.S. House of Representatives, by a vote of 417-1, passed the “Paycheck Protection Program Flexibility Act.” This legislation aimed to address numerous concerns raised by small business owners since the passage of the CARES Act.

The PPPFA reduces the amount of the loan needed to be spent on payroll from 75 percent to 60 percent. This means you will be able to spend more of the PPP loan on rent, mortgage payments, utilities, and other expenses.

Other modifications contained within the House bill includes:

  • Lengthening the amount of time business owners have to use the PPP loan funds from eight weeks to 24 weeks.
  • Extending the deadline to rehire workers to from June 30, 2020 to December 31, 2020.
  • Lengthening the amount of time recipients have to repay the loan
  • Enable business owners to defer payroll taxes for loan forgiveness

Competing Legislation Working Its Way Through the Senate

The House bill will now be sent to the U.S. Senate for consideration. Minority Leader Sen. Chuck Schumer (D-NY) endorsed the House bill. However, Sen. Marco Rubio (R-FL), Chairman of the Senate Small Business and Entrepreneurship Committee, has thrown his support behind a different bill.

 

As you can see, it is important to stay tuned for potential dramatic changes to the PPP Program.

1 Jun

ALERT – Major Developments in the Paycheck Protection Program

There were numerous developments in the management and administration of the Paycheck Protection Program. The Treasury Department issued a series of new, and controversial, regulations detailing the steps necessary to qualify for loan forgiveness. and the U.S. House of Representatives passed a sweeping bill that would make major modifications to the PPP program.  So, if you have a PPP loan, make sure to read this article from start to finish.

Let’s start with the Treasury regs governing loan forgiveness.

If you are a business owner hoping to utilize a reasonable, straight-forward PPP loan forgiveness process, you are going to be disappointed. The new regs regarding PPP loan forgiveness have been described as harsh, overly complicated, and byzantine. Here are some of the key takeaways:

1. The SBA retains authority to review any PPP loan at any time they desire

The new regs state that the SBA maintains the authority to undertake a review, at any time, of the details of any PPP loan that was disbursed to a borrower.

2. It could take months to actually get your PPP loan forgiven

Once you file the forgiveness application with your bank, it will have 60 days to review it and let you know the amount of forgiveness. The bank will then notify the SBA of the amount of forgiveness and the SBA will have 90 days to approve the bank’s decision.

The SBA can request more information from the lender or the borrower directly and then will approve the amount in whole or in part. If the SBA determines a portion or all of the loan did not meet the guidelines for eligibility or forgiveness, it can request repayment of the loan or “pursue other available remedies.” The guidelines do not explain what these other remedies might be. Borrowers do have the right to appeal decisions rejecting forgiveness to the SBA.

3. Keep your PPP loan records

It is important to note the SBA now requires borrowers to keep all files and paperwork on PPP loans for six years. The regulation states:

“As noted on the Loan Forgiveness Application Form, the borrower must retain PPP documentation in its files for six years after the date the loan is forgiven or repaid in full, and permit authorized representatives of SBA, including representatives of its Office of Inspector General, to access such files upon request from the time of application.”

While not expressly stated, presumably the SBA may have six years to audit loans and potentially take action.

4. The burden falls on the borrower to calculate the amount of eligible forgiveness

The new regs make clear that the borrower has the burden of calculating the amount from your PPP loan that is eligible for forgiveness. Once you complete your calculation, the lender has the responsibility to make a “good faith” review of your forgiveness application.

5. Have Your Calculator Handy

Many borrowers may be surprised to discover that the amount of their loan eligible for forgiveness will be directly linked to having the same number of full-time employees as you did when you calculated your loan amount. In other words, the amount you can have forgiven will be reduced if there was a reduction in full-time employees.

Here is where a calculator (or an accountant) would come in handy. Traditionally, an employee who works 32 hours per week is considered to be a full-time employee. However, under the PPP program, a full-time-equivalent employee is required to work 40 hours per week. As a result, if you have an employee who is, let’s say, working 36 hours per week, they are not full-time and your PPP loan may need to be reduced as a result.

The SBA offers business owners two ways to calculate the amount of your loan eligible for forgiveness. You can treat a 40-hour-per-week employee as equaling 1 while calculating part-time employees as 0.5.

The other option is to calculate the actual number of hours worked by 40. So, for example, if you have an employee working 30 hours per week, they would count as 0.75, according to Forbes.com. This means you will need to add up your “part-time” employees to determine by what percentage your workforce was reduced (if any) and be ready to have your loan forgiveness amount reduced by that percentage.

Key Takeaway – Paycheck Protection Program May Become Known as the Painful and Problematic Program

The SBA’s new regulations seem to be designed to make loan forgiveness as difficult and stress-inducing as possible for business owners. You should probably hire a lawyer and accountant just to make sure your loan forgiveness calculation was accurate. It seems like the SBA does not understand that we are in the midst of a historic pandemic and business owners are having a difficult time simply staying afloat and do not have time to manage the tremendous administrative burden inherent in these new regulations.

If you have questions or need assistance, contact InSight Law. We stand ready to help.

29 May

Important Info for Any Business Owner Who Received a PPP Loan

If you are a business owner who successfully applied for, and received, a loan through the Paycheck Protection Program, it is critically important to stay on top of those loan funds to ensure you comply with the program and remain eligible for loan forgiveness. Unfortunately, compliance can be extremely challenging since it seems like the rules governing the PPP program are constantly changing.

Tip No. 1 – You Have 8 Weeks to Spend the PPP Funds

If you received a PPP loan, it is important to understand that you cannot simply set that money aside. You need to utilize those funds for qualifying purposes within 8 weeks (i.e. 56 days). The proverbial clock starts to run on the date you received the loan. That is why I strongly recommend you circle the date you received the PPP funds and ensure to exhaust them within 56 days.

Tip No. 2  – You Need to Adhere to the 75/25 Rule

The 75/25 rule for PPP funds means that you need to expend at least 75 percent of your loan on payroll costs. This includes the cost of salaries, wages, vacation benefits, parental leave benefits, health benefits, etc.  It is also important to note that payments made to independent contractors do not qualify as acceptable payroll costs.

Tip No. 3 – You Need to Retain Your Staff

In order to maintain your eligibility for PPP loan forgiveness, you are required to maintain the number of employees on your payroll. It is also important to know that a new exemption was created that allows you to include employees who were previously furloughed and rejected your offer of re-employment. To qualify for this exemption, there needs to be evidence of a written offer to rehire that was conveyed in good faith to the employee, you must have offered to rehire the employee at their same salary/wage rate and the same number of hours, and you need to document the employee’s rejection of your re-employment offer.

Tip No. 4 – You Need to Maintain Detailed Records to Improve Your Chances of Loan Forgiveness

If you have not kept good financial records in the past, that needs to change and change quickly when you received a PPP loan. Why? Because you need to supply detailed records to qualify for loan forgiveness. As a result, make sure to track all eligible expenses over the eight week period beginning when you receive the loan funds. Your lender will likely want these documents in digital format, so make sure to save financial records in PDF or other digital format.  The documents necessary to apply for PPP loan forgiveness include:

  • Payroll reports from your payroll provider
  • Payroll tax filings (i.e. IRS Form 941)
  • Income, payroll, and unemployment insurance filings from your state
  • Documents that substantiate your contributions to retirement and health insurance plans
  • Documents that substantiate your eligible interest, rent, and utility payments

Tip No. 5 – Do Not Give Up Hope If Your Loan Forgiveness Application is Initially Denied

Considering the fluidity of the PPP program and the ever-changing rules and regulations, it is important not to get discouraged if your loan forgiveness application is denied. You should follow up with your lender to see if they will allow you to submit additional documentation to reevaluate your loan forgiveness request. Worst case, your loan balance will continue to accrue interest at 1 percent over the course of a 2-year repayment period. It is also important to know that there is no prepayment penalty. You have the option to pay off the outstanding balance at any time with no additional fees.

Tip No. 6 – Be Nimble and Ready for Change

As mentioned earlier, the rules surrounding the PPP program seem to be changing by the minute and the uncertainty surrounding the implementation of the program does not appear to be going away any time soon. For example, the U.S. House of Representatives recently passed a bill called the Paycheck Protection Flexibility Act (i.e. H.R. 7010). This legislation would extend the loan forgiveness period from 8 weeks to 24 weeks. In addition, it would lower the percentage of funds needed to be used exclusively on payroll costs from 75 percent to 60 percent. The Senate is working on its own bill that would double the covered period of PPP spending from 8 weeks to 16 weeks. However, the Senate’s bill, as of 5/29/20, would not change the 75 percent payroll cost requirement, according to the Journal of Accountancy.

Have Questions? Contact InSight Law

We are staying on top of the new guidance issued by the Small Business Administration, lending institutions, and Treasury Department. If you are feeling overwhelmed and unsure of whether your PPP loan will qualify for forgiveness, we understand and are here to help. Contact our office today.  

29 May

Coronavirus Pandemic Highlights the Importance of Clear Health Care Directives

CNN published a heart wrenching article by Louis Foglia that detailed his father’s last days and tragic passing as a result of COVID-19. Foglia’s article provided an immersive experience into the intense stress, anxiety and uncertainty that accompanies having a loved one in the hospital struggling to stay alive due to the Coronavirus. Foglia’s father battled the Coronavirus for 31 days but ultimately succumbed to the deadly virus.

I strongly encourage you to take the time to read Foglia’s article from start to finish. It both encapsulates the life and memory of his father while also highlighting the immense importance of certain estate planning documents while someone is nearing the end of their life. For example, Foglia discusses the venture into his family home to try and locate a copy of his father’s Health Care Directive and Last Will and Testament.

While reading Foglia’s article, I got the sense that estate planning and end-of-life care was never a topic of discussion between Foglia and his father. Foglia describes the need to go through his father’s papers in the hopes of locating the aforementioned medical directive and will. Unfortunately, many families wind up in the same boat and are forced to expend valuable time and resources trying to locate estate planning and health care documents.

Lesson

It is important to not only create a clear medical directive and estate plan, but to ensure the individual you selected to manage your estate knows where these vital documents are located.  

Foglia’s article also captures the anxiety and guilt associated with reading his father’s estate documents and realizing that his medical care may have already gone against his wishes. For example, Foglia’s father expressly stated in his medical directive that he did not want to be supported by a ventilator or hooked up to a feeding tube for any length of time. By the time Foglia located this directive, his father had been connected to both for close to two weeks.

Lesson

Talk about your estate plan and medical directive with your loved ones, especially the individual you’ve entrusted to manage your estate. They should not be surprised or tasked with deciphering an ambiguous statement or directive. When you have the discussion beforehand, it saves your loved ones from having to endure unnecessary stress, pain, and guilt.

Another important aspect of Foglia’s story is the reference to a Do Not Resuscitate (DNR) order. Fortunately, Foglia’s father had taken the time to draft a directive that addressed this very important issue of whether or not resuscitative measures should be deployed.

Lesson

Make sure your estate plan and medical directive contain a clear statement about whether or not a DNR order should be utilize for your care.

My deepest condolences go out to Mr. Foglia. I empathize with his experience since I lost my father years ago to a debilitating illness and encountered similar issues and challenges when attempting to manage his affairs and health care decisions near the end of his life. The stress and anxiety induced by that experience is one of the reasons why I devoted myself to practicing in trust and estate law.

None of us can avoid death, but we all have the ability to take proactive steps that can help reduce unneeded stress and anxiety for our loved ones when we near the end of our journey on this Earth. That is why I implore you to take action and draft an estate plan sooner rather than later. If the Coronavirus pandemic has taught us nothing else, it is that life is precious.

19 May

Tips on How the CARES Act Offers Important Tax Incentives and Planning Opportunities

The historic $2.2 trillion CARES Act contains an array of favorable provisions for individual taxpayers, but many of those provisions are only available in 2020. Nevertheless, there are also a number of lesser-known provisions that can be utilized for effective long-term financial planning and tax benefits.

Withdrawing Funds from Your IRA Without Enduring Harsh Tax Penalties

The CARES Act allows eligible individuals to take up to $100,000 of distributions from their Individual Retirement Account (IRA) or employer-sponsored retirement plan (e.g., 401k) during 2020 and receive the following relaxed tax rules:

  • Exempt from the 10 percent early withdrawal penalty that would otherwise apply to individuals who withdraw funds from their IRA who are younger than 59 1/2.
  • Individuals have the option to include all of the income from the distribution in 2020 income, or have it split evenly over three years (2020 thru 2022).
  • You can repay the withdrawal any time during a three-year period rather than the normal 60 day rule. If the distribution is repaid, you can file an amended return to claim a refund of income tax attributable to the amount you repaid.

Treat Retirement Account Withdrawal as the Last-Ditch “Break Glass in Case of Emergency” Option

Making a withdrawal from your retirement plan should be viewed as the last resort if all other options have been completely exhausted. Why? Because withdrawing funds from your retirement account is effectively robbing yourself in the future. The withdrawal also carries significant tax implications (i.e. income tax would be owed on the amount you withdraw from your retirement account).

Taking Out a Loan from a Qualified Retirement Plan

The CARES Act expands the overall loan amount an individual can take on their employer-sponsored retirement plan. In fact, the CARES Act doubles the loan amount from $50,000 to $100,000 up to a 100% of your plan balance. Please be advised that this loan needs to be repaid in five years in order to avoid being subject to income tax.

Required Minimum Distribution Rules Waived Temporarily

A provision in the CARES Act waived required minimum distributions for 2020. However, the waiver only applies to defined contribution plans, which include the following:

  • 401(k);
  • 401(a);
  • 403(a);
  • 403(b);
  • Governmental 457(b);
  • SEP IRA;
  • SIMPLE IRA; and
  • Traditional IRA.

However, it should be noted that the waiver does not apply to defined benefit plans.

If you already took your required minimum distribution in 2020, you may be able to return it if you do so within 60 days of the withdrawal. However, this option is only available if you have not made any other indirect rollovers in the past calendar year. In addition, this option is not available to non-spousal beneficiaries of inherited IRAs who have taken already taken their required minimum distribution in 2020.

Updates to Charitable Contribution Rules

Another lesser-known provision of the CARES Act is the suspension of the 60 percent adjusted gross income limitation on the deductibility of qualified cash contributions to publicly supported charities. This is a provision offering significant tax benefits, particularly in reducing your overall taxable income.

However, it is important to note that qualified contributions do not include contributions to donor advised funds, supporting organizations and private foundations that are subject to the 30 percent limitation.

Speak to an Experienced Estate & Financial Planning Attorney

We know this is a difficult and stressful time for everyone. The InSight Law team is here to help in any we can. If you are considering a withdrawal from your retirement plan, taking a loan from your retirement account, making a contribution to a charity, etc. take the time to schedule a call with a member of our team.

19 May

Tips on How the CARES Act Offers Important Tax Incentives and Planning Opportunities

The historic $2.2 trillion CARES Act contains an array of favorable provisions for individual taxpayers, but many of those provisions are only available in 2020. Nevertheless, there are also a number of lesser-known provisions that can be utilized for effective long-term financial planning and tax benefits.

Withdrawing Funds from Your IRA Without Enduring Harsh Tax Penalties

The CARES Act allows eligible individuals to take up to $100,000 of distributions from their Individual Retirement Account (IRA) or employer-sponsored retirement plan (e.g., 401k) during 2020 and receive the following relaxed tax rules:

  • Exempt from the 10 percent early withdrawal penalty that would otherwise apply to individuals who withdraw funds from their IRA who are younger than 59 1/2.
  • Individuals have the option to include all of the income from the distribution in 2020 income, or have it split evenly over three years (2020 thru 2022).
  • You can repay the withdrawal any time during a three-year period rather than the normal 60 day rule. If the distribution is repaid, you can file an amended return to claim a refund of income tax attributable to the amount you repaid.

Treat Retirement Account Withdrawal as the Last-Ditch “Break Glass in Case of Emergency” Option

Making a withdrawal from your retirement plan should be viewed as the last resort if all other options have been completely exhausted. Why? Because withdrawing funds from your retirement account is effectively robbing yourself in the future. The withdrawal also carries significant tax implications (i.e. income tax would be owed on the amount you withdraw from your retirement account).

Taking Out a Loan from a Qualified Retirement Plan

The CARES Act expands the overall loan amount an individual can take on their employer-sponsored retirement plan. In fact, the CARES Act doubles the loan amount from $50,000 to $100,000 up to a 100% of your plan balance. Please be advised that this loan needs to be repaid in five years in order to avoid being subject to income tax.

Required Minimum Distribution Rules Waived Temporarily

A provision in the CARES Act waived required minimum distributions for 2020. However, the waiver only applies to defined contribution plans, which include the following:

  • 401(k);
  • 401(a);
  • 403(a);
  • 403(b);
  • Governmental 457(b);
  • SEP IRA;
  • SIMPLE IRA; and
  • Traditional IRA.

However, it should be noted that the waiver does not apply to defined benefit plans.

If you already took your required minimum distribution in 2020, you may be able to return it if you do so within 60 days of the withdrawal. However, this option is only available if you have not made any other indirect rollovers in the past calendar year. In addition, this option is not available to non-spousal beneficiaries of inherited IRAs who have taken already taken their required minimum distribution in 2020.

Updates to Charitable Contribution Rules

Another lesser-known provision of the CARES Act is the suspension of the 60 percent adjusted gross income limitation on the deductibility of qualified cash contributions to publicly supported charities. This is a provision offering significant tax benefits, particularly in reducing your overall taxable income.

However, it is important to note that qualified contributions do not include contributions to donor advised funds, supporting organizations and private foundations that are subject to the 30 percent limitation.

Speak to an Experienced Estate & Financial Planning Attorney

We know this is a difficult and stressful time for everyone. The InSight Law team is here to help in any we can. If you are considering a withdrawal from your retirement plan, taking a loan from your retirement account, making a contribution to a charity, etc. take the time to schedule a call with a member of our team.